Posted on: 10th Sep, 2009 10:25 pm
My family is currently thinking about letting out home go and walking away. We bought the house 2 1/2 years ago for $315,000 and we live in California. It is now worth $150,000. The banks will not work with us because we are current and have good credit. We are now 2months behind and are looking to buy a new house cash. What can the banks, IRS or anyone do in this situation? What are the ramifications that can take place? Can they come and take this new home we are buying for cash, can they tax us, etc. What can they do to us? Thank you.
If you stop paying the mortgage for your current home and walkaway from it, the lender will foreclose the property. Once the property is sold in the foreclosure auction, you would be responsible for paying off the deficient amount resulting from the sale of the property. However, in California, you will not be responsible for paying off the deficient amount if the foreclosure took place on your principle home. However, this will be reported as a income to the IRS. You won't have to pay income tax on this amount due to the Mortgage Debt Relief Act.