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What are the tax ramifications of foreclosure?

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Icon Mini Profile vpdawn58



Joined: 28 Jun 2007

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PostPosted: Thu Jun 28, 2007 12:14 pm    Post subject: What are the tax ramifications of foreclosure?

I have a rental property that I am unable to make payments on, it is currently vacant. The mortgage company will not negotiate a deed in lieu of foreclosure so I am forced to let it go through foreclosure. The house is not worth what is owed. Owe 63, 000. It recently appraised for 53, 000. What are the tax ramifications of the foreclosure for me and can the mortgage company file for a deficiency judgement? I live in the state of Ohio.
 
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Icon Mini Profile miller_st
miller_st


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PostPosted: Thu Jun 28, 2007 12:47 pm    Post subject:

If lender losses his money from foreclosure sale then he has to report the loss to IRS. And subsequently you may be required to report the loss suffered by lender as income on your tax return & might have to pay required taxes for it.

Miller
 
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Icon Mini Profile colin
colin
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Location: Waltham, Massachusetts


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PostPosted: Thu Jun 28, 2007 2:24 pm    Post subject:

Hi Vpdawn,

Welcome to Mortgagefit forum.

Let me explain what actually happens if foreclosure does not result in recovery of the full amount that is due on the mortgage.

If any financial institution does not go for deficiency judgment ( in Ohio deficiency judgment is allowed ) & writes off or forgives $600 or more of principal debt amount then they have to send the borrower as well IRS Form 1099-C at the end of tax year.

This form is used for reporting income & when you will file your tax return for the year in which debt was written off or settled, IRS will ensure that this amount is reported on Form 1099-C as income.

It may happen that lender does not send you the form but it will certainly send it to IRS. And if you do not list this income on the tax return then you can get a tax bill or an audit notice from IRS. This could mean more expenses for you in the long run because of IRS interest & penalties.

Colin
 
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nordek

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PostPosted: Thu Jun 28, 2007 6:34 pm    Post subject:

Quote:
The mortgage company will not negotiate a deed in lieu of foreclosure so I am forced to let it go through foreclosure.


They gave you any reason for that?
 
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Icon Mini Profile larry



Joined: 27 Jun 2007

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PostPosted: Fri Jun 29, 2007 1:09 am    Post subject:

Hi Vpdawn,

During foreclosure, if the lender does not receive the full amount which is due on your loan, he may file the deficiency judgment against you. The amount you would be paying is equal to your unpaid debt and the sale price of the property till foreclosure. If the property would have been your primary residence, then you may not have to pay the deficiency amount under the anti-deficiency laws if it prevails in your state.
 
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macbeth

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PostPosted: Fri Jun 29, 2007 2:44 am    Post subject: RE

Hi Vpdawn,

After a foreclosure, there is a time limit of 2 years in your state(Ohio) after which a lender is not permitted to file the deficiency judgment against the borrower. And during that time you are required to pay for the difference between the original loan amount and the sale price of the property.
 
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