Is One Liable If One Walks Away From Mortgage?

[Juan Benavidez]

If those people who walk away from a mortgage, won't they be liable to the IRS for the balance due?

 

[Restrain]

Maybe. I understand there's a law allowing for foregiveness of such actions, but it's also supposed to expire. However, if you get a 1099, then you may be liable.

 

[Couch Potato]

If those people who walk away from a mortgage, won't they be liable to the IRS for the balance due?

It depends on the individual situation (what is in the loan documents) and the laws in that particular state. Sometimes the answer will be yes, other times it will be no.

 

[Terrel L. Shields]

and if you ain't got money for the mortgage you ain't got money for Uncle. So what? In five years, if they don't collect, the IRS writes it off.

 

[Scott Kibler]

If those people who walk away from a mortgage, won't they be liable to the IRS for the balance due?

You would not be liable to the IRS for the balance due.

You might be chased by the lender for the deficiency balance on the note after foreclosure and sale. If the lender forgive the deficiency, they might 1099 you for it and you would be liable to the IRS for the tax on that.

 

[Joyce Potts]

That law was recently changed by Congress. The mortgager is no longer receiving a 1099 on any debt forgiveness based on a short sale. If there's a loss, that's a question for a lawyer or an accountant, IMO.

 

[Greg Bell]

You would not be liable to the IRS for the balance due.

You might be chased by the lender for the deficiency balance on the note after foreclosure and sale. If the lender forgive the deficiency, they might 1099 you for it and you would be liable to the IRS for the tax on that.

In trust deed states (Ex. California) lenders cannot sue for a deficiency judgment on purchase money loans.In a mortgage states (Ex. New York) lenders MAY sue for a deficiency judgment ,however , unless your a millionaire that will probably not happen.Any 1099 is Taxable , yikes...

 

[DTB]

You would not be liable to the IRS for the balance due.

You might be chased by the lender for the deficiency balance on the note after foreclosure and sale. If the lender forgive the deficiency, they might 1099 you for it and you would be liable to the IRS for the tax on that.

Scott,

In your experience have you ever seen a deficiency judgement collected? I have not, just curious.

 

[moh malekpour]

If those people who walk away from a mortgage, won't they be liable to the IRS for the balance due?

Lets get real. What is the liability of an uninsured and undocumented driver who hits you? What is the liability of a homeless person who stole some food from the supermarket? Legally both of them are liable as any other person but in reality, do you think anyone is going to sue them? Do you think any lawyer is going to take cases against them on a contingency basis? They don't touch them and if they do, they will ask for money upfront and then what? They force the court and the police to arrest them and then what? They have to put them in jail and spend tax money to keep them. And what happens to you or super market? Nothing. Just paid some money to lawyers to put an documented person or homeless in the jail. Is this in your advantage to do or is better to let them go? It is better to let them go. The same is true with those who walk from their obligations. If lenders or IRS can get money from them by chasing them, they would do. if not, they would let them go.

 

[Scott Kibler]

Scott,

In your experience have you ever seen a deficiency judgement collected? I have not, just curious.

Back in my finco days in the late 80's, my company sucessfully foreclosed and took possession of a house, got judgement on a deficiency and garnished wages. This place was hardcore; we'd freaking repo people's miscellaneous personal property pledged as collateral if they wouldn't reaffirm their debts in a chapter 7 proceeding.

I hated working at that place but it was a heck of an education on many aspects of the credit industry.