The Internal revenue service states that there's no debt forgiveness on non-recourse debt/loans. In Arizona, non-recourse debts are mortgages which were used to purchase and/or improve homes, also known as, â€purchase money loans.†An illustration of non-recourse debt/loan is a first mortgage which purchased 100% of a home. An alternative type of a non-recourse debt/loan is both a primary and a second mortgage in which the first mortgage went towards a percentage of the home purchase, and the second mortgage went towards another portion of the home purchase. Here, because the second mortgage went towards purchasing the home, it is a non-recourse debt/loan. An example of what a non-recourse debt is not, is a second mortgage where the homeowner had taken out cash and used it for something different (e.g. buying a car, boat, etc.). Almost all of these loans are known as â€home equity lines of credit†or â€HELOCsâ€. The Mortgage Debt Relief Act of 2007 provides for no tax on short sale difference or foreclosure deficiency of non-recourse loans, if the home is a prime residence. So, for example, if the homeowner had a simple 80/20 mortgage where both went 100% towards purchasing the home, the homeowner is not going to be taxed after short sale or foreclosure. If, however, the homeowner had a â€HELOCâ€, or some other non-recourse loan which was forgiven, they will be sent form 1099 and taxed for the forgiveness. Debt forgiveness on â€HELOCs†and other non-recourse debts are rare after foreclosure and short sale. Almost always, after a short sale/foreclosure, the homeowner must arrange with their lender to pay the HELOC (unless of course in the foreclosure sale, the HELOC is satisfied or paid off entirely). If the homeowner does not make arrangements, they face collection and/or civil action. After foreclosures or short sales which involve â€HELOCs†many homeowners think about options available to them under the bankruptcy code. Filing for bankruptcy protection after foreclosure/short sale can relieve a homeowner’s obligations to pay a HELOC. Many homeowners who â€see the writing on the wall†are thinking about their options even before foreclosure/short sale, when they discover they will be unable to pay the HELOC afterwards. Filing for bankruptcy protection even before foreclosure or short sale can also work retroactively in protecting homeowners from their requirements under a HELOC. It is vital to seek the assistance of a knowledgeable bankruptcy attorney to find out your rights and obligations.
Please Rate this Article 5 out of 54 out of 53 out of 52 out of 51 out of 5
Not yet Rated
