Collecting Foreclosure Debt

by nick a
(Davison, MI)

I purchased my first home in Sept. 2005,I was only making $14 dollars an hour and bought a $111,000 home. Six mo. after purchasing we got hours and pay cuts at work and couldn't afford my payments,so it got foreclosed in oct. of 2007.

They sold the home about 8 mo.later for $44,000. Now they are keeping my taxes for the difference,which is about $78,000.

Is this legal? What can I do? It's not my fault they sold it so cheap!

Comments for Collecting Foreclosure Debt

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Jun 13, 2010
tax debt problem
by: Gerri & Mary

Nick,

We are not sure we fully understand your question. Who is keeping your taxes? Is that the IRS?

If this home was your principal residence, then you likely would not have to pay taxes on the canceled debt under the Mortgage Debt Relief Act of 2007. That law generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). However, you must report it on Form 982 and this form must be attached to your tax return.

If you did not fill out this form and you believe you qualify for this relief, I would recommend you consult a tax professional who can help you clear this up.




Jun 14, 2010
re foreclosure debt
by: nick a

The people keeping my taxes are USDA rural development. I received a letter from IRS that because I owe this debt they are keeping my taxes on their behalf to pay it off.

Jun 16, 2010
clarification
by: Gerri & Mary

The people keeping my taxes are USDA rural development. I received a letter from IRS that because I owe this debt they are keeping my taxes on their behalf to pay it off.- Nick

Nick, We assume you received a government guaranteed Rural Development loan and then lost the home to foreclosure. We aren't familiar with the post-foreclosure procedures for these types of loans, however, we can tell you that with other types of government guaranteed loans (such as some student loans and SBA loans), tax refunds can often be intercepted if you default.

Our best advice is for you to arrange
a free consultation with a bankruptcy attorney to find out what you can do about this debt. We would be very interested in learning what you find out from the attorney. It may help someone else in a similar situation.

Feb 18, 2011
Bankruptcy
by: Anonymous

My husband and I are currently going through the exact same situation. We purchased a home in July of 2004 and lost it November 2007. They have been taking our taxes ever since...except for this year. We filled Chapter 7 bankruptcy and it was included in it! Now we have been able to put it all behind us and it has been a true learning experience. Any bank that will give a 19 and 20 year old married couple a 80,000 dollar loan is not very smart.

Mar 08, 2015
USDA Loan
by: Cindy

My ex husband and I also purchased a home in the year 2000 and the home went in foreclosure and sold in 2004, since then my tax refunds are garnished and it's applied towards my non irs debt, my total debt is 70k, and no information is given to me if my ex has helped to pay. Do you recommend I file bankruptcy since the mortgage forgiveness Act was in affect in 2007 and wouldn't apply. I agree no bank should ever give an 18 year old a 100k+ loan, any advise on what I can do ?


Reply from DebtCollectionAnswers.com:

We would absolutely recommend that you at least get a free initial evaluation with a bankruptcy attorney. Whether or not it will be the best option for you will depend on a number of factors, and the attorney is the best person to discuss the pros and cons with you. Hopefully you'll be able to put this behind you and move on with your life.

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