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Phillips Esq.
Phillips Esq., Attorney-at-Law
Category: Legal
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Experience:  B.A.; M.B.A.; J.D.
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In Nov 2007 I took a somewhat transfer to the statewide office

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In Nov 2007 I took a somewhat transfer to the statewide office of our organization. I own a home in NC. When I moved from Supply to Raleigh I put the house up for sale. Three plus years later I am now out of money and unable to sell the house, even though I am renting now the bank tells me that this is stilled considered a second home. I just cannot continue to pay on this house, my debt to income is flipped and quality of life has degraded. I am now three payments behind and the bank is in an accelerated process to foreclosure. If foreclose happens and if they pursue a deficiency judgment, what will happen to us next and what is meant by "The borrowers retain the right to redemption"?

Lenders may pursue a deficiency judgment and borrowers retain the right to redemption.
Submitted: 6 years ago.
Category: Legal
Expert:  Phillips Esq. replied 6 years ago.

In Nov 2007 I took a somewhat transfer to the statewide office of our organization. I own a home in NC. When I moved from Supply to Raleigh I put the house up for sale. Three plus years later I am now out of money and unable to sell the house, even though I am renting now the bank tells me that this is stilled considered a second home. I just cannot continue to pay on this house, my debt to income is flipped and quality of life has degraded. I am now three payments behind and the bank is in an accelerated process to foreclosure. If foreclose happens and if they pursue a deficiency judgment, what will happen to us next

Response 1: You can show fair market value of the property as a defense in any deficiency lawsuit brought by the lender. See N.C. General Statutes Section 45-21.36. Also, in North Carolina, there is no deficiency judgment on foreclosure by power of sale of purchase money mortgage. This means that if you obtained this mortgage for the actual purchase of the house, the lender cannot come after you for the deficiency after a foreclosure sale. See N.C. General Statutes Section 45-21.38.

and what is meant by "The borrowers retain the right to redemption"?

Response 2: This means that you have a right to get your property back if you pay the whole amount due (the full amount of the loan), plus any expenses of the foreclosure sale within ten (10) days of the foreclosure. See N.C. General Statutes Section 45-21.20 and 45-21.27.

What is ment by turn in the keys or just walk away.

Response 3: Calling the back to take the house back--letting the house go into foreclosure.


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

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