Dec 06 2008
No Such Thing As Walking Away
While the popular thought these days is to walk away from a bad mortgage and an ever-decreasing property value, you cannot look past the consequences of such an action. Aside from the obvious damage to your credit, there are tax implications and the danger of a deficiency judgment being sought against you.
When a property is foreclosed, the house is auctioned by the county and usually goes back to the bank as the highest bidder at the auction. At that point, the bank will either write the property off as a loss and deduct it from their own tax return, or they will sell the property to another buyer and right off the difference in what they are able to sell it for and the amount they originally lent to you.
When the bank rights off this difference in money, the IRS gives them a break on their taxes but inquires as to where that money went. When the IRS sees that you were given a loan of $300,000 and gave back a house that sold for only $200,000, they want to know what happened to that $100,000 difference. Even though you don’t actually have that $100,000 in your bank account, for the purpose of filing your tax returns, you are considered to have a capital gain of $100,000 and the IRS requires that you pay 15 percent of any capital gains on a 1099 tax return.
The other worry is that the bank might seek that $100,000 themselves. The bank could institute another action against you personally asking the court to force you to pay back the loss that the bank recognized when the property sold for less than the amount they originally lent to you. When a deficiency judgment is entered against you, the bank can come after all of your personal assets and even garnish you wages until the full amount is paid back.
Deficiency judgments and capital gains worries are only a couple of reasons why you need to fight tooth and nail to prevent a foreclosure judgment from being entered against you. There are simple ways to avoid deficiency judgments, tax worries, and foreclosures as a whole. Learn these ways at www.ForeclosureDefenseSecrets.com.
