Bankruptcy Law Questions? Ask a Bankruptcy Lawyer Now.
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
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.
DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.
The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).