Upcoming Foreclosures

does a lender incure tax implications when taking back a property by deed in lieu of foreclosure?

Public Comments

1. Each transfer of property is treated as a sale and stands on it's own facts. It's entirely possible to have a taxable transaction on both sides of the foreclosure. The amount of the loan outstanding is the sale price. If the homeowner's basis is less than that, the homeowner may have a taxable gain; this is especially true with a foreclosure of a cash-out refi. And if the lender then sells the property for more than they paid for it, they may also have a taxable gain. Additionally if the value of the home is less than the outstanding balance of the loan and the lender forgives the remaining debt, the amount forgiven may be treated as taxable income to the former homeowner. There are exceptions to that rule, however, for a principal residence foreclosed upon in 2007 or later or if the homeowner was insolvent at the time of the forgiveness of the debt.