I'm considering leting me primary residence in ohio go since I'm underwater $125,000. Once forclosure takes place will I need to worry about bank getting a defiency judgement and bank going after the assets of nautilus,llc in ohio but set up in llc set up in nevada, and a inherited house which was set up as a llc 7 years ago in va. Both llc are two member.
Response: Yes. However, deficiency judgment is void two years from confirmation of the foreclosure sale. Also, the foreclosed property cannot be sold for less than 2/3 of its appraised fair market value. See Ohio Revised Codes Sections 2329.08, 2329.20, 2329.17.
More importantly, the chances are very good that the lender would not come after you for a deficiency judgment. What most often happens is that the lender would forgive the deficiency and send you a 1099-C. This is income that must be reported on your tax return using IRS Form 982. However, in light of the Mortgage Forgiveness Debt Relief Act of 2007 that went into effect on December 2007 the forgiven debt amount will not be treated as taxable event/income if the forgiven debt was for a primary home. If part of the forgiven debt doesn't qualify for exclusion from income under this provision such as forgiven debt on a second home or investment property, it may qualify under the "insolvency" exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. A taxpayer is insolvent when his or her total liabilities exceed his or her total assets.
Kindly note that Mortgage Forgiveness Debt Relief Act of 2007 only applies to debts forgiven in 2007 through 2012.
Mortgage Forgiveness Debt Relief Act
Forms 982 and 1099-C