If your home was foreclosed on by the mortgage lender, and the lender decides that the debt is unrecoverable, they may choose to cancel the debt.
When you no longer have to pay back money that you’ve borrowed (your mortgage, in this case), the IRS considers you to have received a cash windfall, so the mortgage lender is required to provide you with a form 1099 for the canceled amount.
Don’t panic. There are exemptions that may apply to you, such as filing for bankruptcy or even simply declaring to the IRS that you were insolvent at the time the debt was canceled.
To learn more about protecting yourself after a foreclosure, call Zelenitz, Shapiro & D’Agostino at 718-599-1111 for a free consultation.