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Phillips Esq.
Phillips Esq., Attorney-at-Law
Category: Bankruptcy Law
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Experience:  B.A.; M.B.A.; J.D.
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Im considering leting me primary residence in ohio go since

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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.
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  Phillips Esq. replied 3 years ago.

 

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

http://www.irs.gov/individuals/article/0,,id=179414,00.html

 

Forms 982 and 1099-C

http://www.irs.gov/newsroom/article/0,,id=205004,00.html

 

Customer: replied 3 years ago.
Are you saying the assets in the two llc(one in nevada and other one in va) are not protected?
Expert:  Phillips Esq. replied 3 years ago.

 

Are you saying the assets in the two llc(one in nevada and other one in va) are not protected?

 

Response: That's not what I am saying. I am saying that the lender may pursue deficiency judgment against you, as an individual. If the assets are in LLC, the lender would not be able to reach those assets unless the LLC veil can be pierced as the LLC is a separate legal entity. LLC veil can be pierced for a variety of reasons. One of the reasons is conducting the LLC as if the LLC were a sole proprietorship through commingling of assets of the LLC with personal assets.

 

Phillips Esq., Attorney-at-Law
Category: Bankruptcy Law
Satisfied Customers: 12935
Experience: B.A.; M.B.A.; J.D.
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