Foreclosure of Shortsale?

[uncrunner]

Hello,

My wife and I are seperating and we have a house that is at least $20,000 underwater. We don't want to do a BK because she was deeded family land a year ago that would be taken by the creditors. She wants to move out and leave me with a house that is underwater. Not gonna happen. We have thought about shortsale but have heard that 9 out of 10 don't close and I can't afford the mtg. payment on my own if I agree to let her out of the mtg. via a seperation agreement so I am looking at Foreclosure.

Questions:

Is foreclosure similiar to a short sale in that I could be liable for the loss via a 1099 and get taxed on the difference?

I can prove insolvency and I heard that I could be forgiven under short sale but is that also true with foreclosure?

My loan is with Bank of America and I heard from another post that they are tightening their belts on forgiveness. Is this true for a foreclosure as well?


Thanks for anyone's advice. Happy Easter

[HHM]

First, if your wife is on the mortgage, short of refinancing the house, their is NO WAY to remove her name. She is obligated to the bank on the mortgage. Any separation agreement you do does not alter the mortgage agreement.

Both foreclosure and short sale have the same consequences with regard to the deficiency. And your wife will have to deal with it too. Note, unless you are in a non-recourse state (very few), the bank does not have to forgive the debt, they can come after you and your wife to collect it. If you receive a 1099, then yes, you will not likely have to pay tax on it either because you are insolvent or possible the 2007 Mortgage Debt Forgiveness act (see IRS Form 982).

Don't know about BofA's internal policy.

[uncrunner]

THanks HHM. I live in North Carolina. Where could I find out if NC is a non recourse state? ALso you said that they can come after us for the difference if we are not. Does that mean they can garnish wages, take 401-k, or other assets for the FULL amount of the loss or just tax us on a 1099C? I am insolvent and have heard from a short sale specialist that BOA will usually forgive the loss but what about under a foreclosure? Thanks.

[HHM]

THanks HHM. I live in North Carolina. Where could I find out if NC is a non recourse state? ALso you said that they can come after us for the difference if we are not. Does that mean they can garnish wages, take 401-k, or other assets for the FULL amount of the loss or just tax us on a 1099C? I am insolvent and have heard from a short sale specialist that BOA will usually forgive the loss but what about under a foreclosure? Thanks.

If the bank can collect the deficiency, they can sue you and get a judgement, then use that judgment to garnish wages, etc.

I don't know BofA's internal policy, but as I said, it is up to the bank. In both Foreclosure and Short Sale the bank can choose to collect or forgive. If they forgive, you will get a 1099-C.