Foreclosure question

[samson420]

This is in AZ. . . .

My question is: Will a financial institution try to come after the difference between what theys old the house for and what the original loan ammount was for?

The house is done and foreclosed. . . . .

[BassBoy]

It is possible the lender can seek the difference. The foreclosure relief act that Bush signed may exempt you though. If the loan was included in BK, then no, the lender has no recourse.

[samson420]

There was no BK filed. . . . The house was just foreclosed.

[HakunaMatata]

A note regarding Deficiency Suits: A lender may not bring a deficiency suit against a person who lost a property that is 2.5 acres or less at a foreclosure, provided the property was a single one-family or a single two-family dwelling. This is so even if the high bid at foreclosure was less that the balance due on the loan. However, in foreclosures against other types of property, a deficiency suit is allowed, but is limited to the difference between the balance owed and the fair market value of the property, and then only if the suit is brought within ninety (90) days of the power of sale foreclosure.

http://www.foreclosurelaw.org/Arizona_Foreclosure_Law.htm

[samson420]

Good info. . . . So the answer is no. Right?

Seems that way to me at least. . . . . .

[Justpoor]

But would he receive a 1099 from his bank and have to include it as income on his 1040? That could be painful and would not be able to wipe out the federal tax debt on a BK.

[Dannmcg357]

Ahh but alas the Obama Administration has seen fit to 'forgive' 1099 on federal taxes from a home lost to forecloser.

[samson420]

How much can this cost on the tax return?

[ToughTimes]

If you aren't eligible for one of the reasons to exclude the cancelled debt amount, the cost is income tax on the amount of the cancelled debt. (That would vary according to how much total taxable income you have.)

However, as Dannmcg points out, there is currently an exclusion available on the amount of the cancelled mortgage debt if the property was your primary residence prior to the foreclosure.

There is also an exclusion available if you are insolvent at the time the debt is cancelled. (This is harder to prove.)

Consult your tax professional.