[anjaru@sbcglobal.net]

After purchasing my house last year the market took a dump. My intention was to live there for a while, but now my home is worth less than 50% of the purchase price, I think it better to walk away and lose the $20K that I used as a down payment. The home is in California - I just need to know if the bank is going to try to take my assets like my car and bank accounts, and my retirement account.

[Michael B]

Walking away would be a mistake. You will need some place to rent and you will need to pay the landlord. Your lender will go after you for the difference and sell your home for what you owe. Stay there for a while until the market changes and prices go back to the way they were. Perhaps not a complete turn around and prices where they were , but the market will come back somewhat.

[Nick R]

You're not going to just going to be waived of the difference in the home's current value vs. what you paid. The bank will get you for the difference. Plus, it will inevitably go back up, and you said you wanted to live there for a while anyways, so just suck it up.

[admin]

here is a blurb from the IRS site,

The Internal Revenue Service unveiled a special new section on IRS.gov for people who have lost their homes due to foreclosure. The IRS also reassured homeowners that, although mortgage workouts and foreclosures can have tax consequences, special relief provisions can often reduce or eliminate the tax bite for financially strapped borrowers who lose their homes.

The IRS urges struggling homeowners to consider their options carefully before giving up their homes through foreclosure.


Under the tax law, if the debt wiped out through foreclosure exceeds the value of the property, the difference is normally taxable income. But a special rule allows insolvent borrowers to offset that income to the extent their liabilities exceed their assets.

this is for owner occupied properties not investment

Feb. 4, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence.

here is better news:
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

If the bank does pursue a deficiency judgment, the homeowners may have to file bankruptcy at a later date to remove the judgment. Another option is to short sale the judgment amount at a later date.