foreclosure ramifications?

seven.eleven
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It seems many people who could actually afford to pay their mortgage are simply deciding to let go of their upside-down home. If you walk away but still generate income, do the banks try to collect? to what extent? I thought by signing the promissary note you were obligated to pay no matter which way the market turned?

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November 12 2009 - Fontana

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dwgrilley
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Depends on a lot on the state you live in. And the Mortgage Forgiveness Debt Relief Act and Debt Cancellation was signed into law not make it easier for IRS to collect, but to allow cancellation of debt on a mortgage with no tax consequences. This may vary at the state level, but let me say again... if you mortgage is forgiven that law makes it so you have no federal tax consequences through 2012. The people who use scare tactics of bad credit and tax consequences to try to get people to keep paying their mortgage at any cost are nothing but fear mongers.

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November 13 2009

Lydia Player, "LydiaPlayer"
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Check out the Mortgage Forgiveness Debt Relief Act and Debt Cancellation section of the IRS web page. It can be found here: http://www.irs.gov/individuals/article/0,,id=179414,00.html

The lender may issue the mortgagee a 1099 tax form for the shorted difference between what is owed on the property (balance plus penalties and legal fees) and what they sell it for in a foreclosure auction. This gives the IRS the amount of debt forgiveness and what they will owe taxes for. The IRS is pretty good at collecting tax debt.

But often the lender will try to collect the loss (plus penalties and legal fees) from the defaulting party. And the negative impact on one's credit history is devastating.