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.
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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.