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Foreclosure & Filing Tax Return???

I have a question regarding my 2007 income taxes and a foreclosed property. A house I owned went into foreclosure which I then received the notice of sale about it being sold at public auction. According to the county's website, it was sold as a 'government sale' in 2007. The original purchase price of the house was 335K, then was refinanced at 400K. The property was sold at the auction for 366K. Does this mean I will have to claim the difference between the 400K and the sale of 366K, as income when I file my income taxes??? The FMV for the house is 381K. What exactly happens when I file my tax returns??? The bank transferred the second loan into collections and I received a letter stating I owe them 94K. So they are coming after me for the 94K, which 80K was the original total of the second loan, plus all the fees incurred.

Public Comments

1. They will send you a tax paper you have to file with your taxes,yes you have to claim it.
2. yeep it has to be claimed it is called phantom income my advice is find a cpa to help you with your taxes
3. No, you don't have to claim that as income. The forced sale of the property at county auction indicates that you received no income from the sale. You owed $400k and the house was purchased for $335k. You probably didn't see a single dime of proceeds from the loss, because it is a loss. If you and the lender had worked out a short sale before the foreclosure, and the bank had accepted $335k when they were owed $400k, then you would have income to show. The difference between what you owe and what the bank accepts is counted as "forgiven debt" and is taxable income. But this is only if there is an agreement between you and the lender to proceed with a short sale. In the case of a foreclosure, where the house is ordered to be sold to satisfy the mortgage debt, the bank probably had a judgment against you for the full $400k or more. Just because the house sold for a loss at the sheriff sale doesn't mean they forgave any of that debt. Thus, with no forgiven debt, there is no taxable income. There is just a loss on the forced sale of the property. You aren't responsible for paying the difference. And, unless the bank tries to sue you for a deficiency judgment (quite rare), you are simply done with the property. Take the loss, start repairing your credit, and move on with your life. It's a good opportunity to do so now. Good luck. ForeclosureFish