Have Legal Questions? Ask a Lawyer Now.
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
Forms 982 and 1099-C
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).