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Richard
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 46208
Experience:  29 years of experience as a tax, real estate, and business attorney.
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I have a client who would like to walk away from their mortgage.

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I have a client who would like to walk away from their mortgage. What types of programs are there and what are the tax consequences.
Submitted: 3 years ago.
Category: Tax
Expert:  Richard replied 3 years ago.

Good evening. New York, unfortunately, is a deficiency state...which means the lender can pursue you for the deficiency...the amount owed over the amount of the foreclosure sale. Whether or not they will depends upon their assessment of the collectability of a deficiency judgment. So, if you can convince them you have nothing for them to get, and that if they were to pursue a judgment, then it is unlikely the lender will spend the time and money necessary to get a judgment they believe is uncollectible in the end. Alternatives would be a deed in lieu of foreclosure, in which the lender would save the time and costs of foreclosure by simply accepting a deed in exchange of releasing the borrower from the debt. A third option is a short sale where the lender has to agree to accept a lesser amount to release the lien when it is not being paid in full.

 

The news on the tax side is good. Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was $2 million or less. The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions.

 

 

I hope this has given you the guidance you were seeking. I wish you the best of luck!

 

If you have a follow-up question, please remember that there might be a delay between your follow up questions and my answers because I may be helping other clients or taking a break.

 

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The information given here is not legal advice. As all states have different intricacies in their laws, the information given is general only. This communication does not establish an attorney-client relationship with you. I hope this answer has been helpful to you.

Customer: replied 3 years ago.
Which alternative would you recommend
Expert:  Richard replied 3 years ago.

Before the bank will consider any of them, the borrower will need to stop payments. The bank will simply not consider anything with a performing loan because they have no incentive to do so. I would recommend missing some payments, and then proposing a deed in lieu of foreclosure. If the lender is unwilling, I would simply let them foreclose. In the interim, he should also stop paying property taxes and HOA fees as these run with the land and are not personal obligations.

 

 

Customer: replied 3 years ago.

Would NYS garnishee both paychecks as the property is owned jointly.

Expert:  Richard replied 3 years ago.

I don't know that they will, but they can!

Customer: replied 3 years ago.

How long can the bank try to recover its money. It seems if the bank accepts one of the 2 options you mentioned that they would not have further recourse?

Expert:  Richard replied 3 years ago.
They must file the motion for a deficiency within 90 days following the date of foreclosure. If they accepted a deed in lieu or did a short sale, you would want to make sure they released the borrower from liability for the note. It is not automatic.
Customer: replied 3 years ago.

Would it be a release that they would sign

Customer: replied 3 years ago.
Would the bank want to see their tax returns and current paychecks
Expert:  Richard replied 3 years ago.

Yes, once they get a judgment, they can have the sheriff serve a summons on the debtor for a debtor examination. That forces the debtor to meet the creditor in court and answer questions under oath about their assets. After the creditor obtains that information, the creditor has the power to garnish wages, attach bank accounts, and/or have the sheriff seize other personal property to satisfy the debt.

 

I would appreciate it if you would please click the GREEN ACCEPT button so that I receive credit for my work; otherwise, though you have made a deposit, I do not receive credit.

Richard, Tax Attorney
Category: Tax
Satisfied Customers: 46208
Experience: 29 years of experience as a tax, real estate, and business attorney.
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