Bankruptcy May Not Be Necessary For Defaulting on a Mortgage

With rising unemployment and declining home prices, the least feasible debt to repay for most is their home mortgage.

House prices have dropped by as much as two to three hundred thousand dollars per house for the average homeowner. And many Americans have decided that keeping up with the payments is not feasible. Thus, they default on these mortgages.

As a result of mortgage defaults, the United States is having massive foreclosures all across the country. And there has been a great deal of uncertainty surrounding what happens during the process of foreclosure.

Foreclosure does not happen right away. First, the mortgage lender will send a notice of default to the homeowner. During this period, the homeowner is encouraged to fix things with the lender and/or restructure the loan. If they can not do so during the next couple of months, a trustee sale date will be set. This is when your house goes into foreclosure and is sold at a trustee sale.

A mortgage is only tied to the house. Lenders can not take your car, for example, when you do not pay your mortgage because all they are entitled to is the house. But they can issue the homeowner a 1099 for forgiveness of debt.

When you do not pay a debt on a house that you owe, that money is considered to be income as per the IRS. So when you are issued a 1099, you are then expected to pay the taxes on that income.

There are ways to be admonished of this requirement but the rules get tricky. Most importantly, you will have to prove insolvency.

Eshwarya Patel is a writer aware of the legal issues that are concerning the American people but because her background is not law, it recommended that you join a lawyer near your area such as ASG Law Firm for the right advice.