foreclosure

[y26]

Good evening everyone,

I'm curious about something and i'm unable to get a real straight answer. My brother owned two homes, primary and rental. He was telling me he recently foreclosed on his multi unit. I told him that the banks can go after you for the difference. He said no, its just a loss and on my credit report.I tried looking up the law itself for Massachusetts but it is tricky to understand. So my questions are:

1) In massachusetts are lender allowed to go after other assets?
2) Would the difference in the amount he owed then what it sold be claimed under taxes as income?

[maat55]

Can't answer 1, but the government put an exemption on taxing mortgage debt forgiveness. I'm not sure if it is still in effect today.

Update: Here are circumstances where debt forgiveness is still taxable.

You may be taxed on forgiven mortgage debt from foreclosure - Apr. 15, 2011

[SnoopyCool]

Did he do a bankruptcy? I had a friend in a similar situation that went through bankruptcy specifically so that the other assets could not be touched.

[y26]

No he did not file for bankruptcy, he just stop making payment onhis investment property.

maat55 thanks for the link. Still looking for clarity on 1 if anybody has any.

Thanks

[Petunia 100]

Maat, the Mortgage Debt Forgiveness Act of 2007 does not apply to rental property.

Y26, a quick Google search "Massachusetts recourse state" turned up several links stating that Mass is a recourse state. That means yes, the lender can come after the debtor.

[HousingCounselor]

@y26 Petunia's right. The best chance your brother has may be to file bankruptcy. Mortgage delinquency forgiveness only applies to primary residences. Also you need to consider tax ramifications if the lender decides not to pursue him for the deficiency balance.

For example if he owes $250k on the property and the bank forecloses on it and sells it for $150,000 three years later, if they choose to forgive the $100k short fall, the IRS can collect ordinary income tax on the $100k that was forgiven. In other words he will be taxed on that as if he made $100k in income tax free.

[alphadore]

It's been 4 years since this question is asked. I am sure the issue is resolved already.

[bjl584]

It's been 4 years since this question is asked. I am sure the issue is resolved already.

It was asked yesterday.

[y26]

Thank you for the feedback.I have a better understanding of things now. I appreciate the time everyone gave to answer my question. Now need to cross my fingers that hurricane Irene misses us.

[LMA]

Good evening everyone,



1) In massachusetts are lender allowed to go after other assets?
2) Would the difference in the amount he owed then what it sold be claimed under taxes as income?

1) As far as I know yes they are allowed to sue for deficiency. But they would have to sue. SO technically if they want to pursue it they could. I guess it would come down to how much money he owed them, equity, how steep of a loss it is for the bank or not, etc. I doubt the particular state has any prohibition on doing that.

2) It could be, however that is more typical on short sales, where the bank actually agrees to sell the house for less than it's owed and therefore the IRS sees the difference as forgiven debt and will try to tax it.