Most people know that foreclosure will cost them their home and will destroy their credit score as we saw in the previous post. But, it is actually much WORSE and victims of foreclosure had no idea this was coming.
Here is what happens…When you go through foreclosure, your bank sells the house at auction to pay off as much of your loan as possible. At most auctions, the houses are bought at 50-70% of market value. If the amount is less than what you owe, your lender is required by the IRS to have you pay taxes on the difference.
For example, assume you owe $100K on your home and it is worth $110K. If the bank sells it at auction, they will probably get $55-75K. Assume they get $65K. That $65K is not enough to pay off the $100K you owe. Therefore, your lender will notify the IRS that they waived $35K of your debt and you will have to report that $35K as income and pay taxes on it! You could get a tax bill next year for $10-15K depending on your tax bracket.
Avoid foreclosure if at all possible. We can help you do that. Contact us ASAP for Escape from Foreclosure.