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Income Taxes and Foreclosure?

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. The FMV for the house is 381K. I had 2 mortgages on the house totaling 400K. My question is this, which difference will I have to claim as income when I file my 2007 taxes? The diff between 400K and 366K (Auction Price) or 400K and 381K (FMV Price)? Also, what are the chances that the bank will sue me for the 400K?

Public Comments

1. What income? The house sold for LESS than what was owed so there is no income. As to the bank sueing for 400K, no. However, they will likely get a deficiency judgement for the 34K difference between the 366K the house sold for and the 400K you owed (plus fee, costs etc) sorry, brain cramp on the income angle - teach me to write before my 2nd cup of coffee!
2. You'll have to pay taxes on the deficient amount, which in your case would be the $400k-$366k. This is the amount that the bank wrote off and in turn will be counted as income to you. You should receive a 1099 for the difference.