It is within their rights to seek a deficiency judgment against you when you’ve used a deed in lieu of foreclosure to handle your distressed mortgage and avoid the credit damage that comes with foreclosure. Unfortunately, there are two common outcomes from the deed in lieu of foreclosure process.
First, the dreaded deficiency judgment, which can amount to a huge sum of money and for many people, the best solution is to clear it in bankruptcy. Obviously, this option negates a lot of the good that you did to your credit with the deed in lieu agreement.
The second danger with deed in lieu, believe it or not, is that the lender forgives the deficiency and doesn’t come after you.
The problem when this happens is that a forgiven deficiency that is greater than $600 has to be reported to the IRS.
You’ll receive a 1099 for the amount of the deficiency, which will be counted as income for that tax year.
Pouring a “paper” lump sum – which you can’t spend – onto your annual earnings can wreak havoc with your eligibility for all kinds of services in New York and federally.
For instance, if you purchased a health care policy on New York’s exchange and opted in to subsidies, a windfall from a forgiven deficiency could leave you with a giant tax bill to claw back your premium support credit.
There’s a lot to consider when you’re getting out from under a mortgage you can’t afford.
The attorneys at Zelenitz, Shapiro & D’Agostino can help you.
Call us at 718-599-1111 for a free consultation with a Queens mortgage defense attorney today.