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Mortgage default in Idaho-tax consequences,please?

I just don't understand this whole process. So, we have defaulted (after trying in vain to get a payment arrangement,etc), the company would not send us deed in lieu of foreclosure papers.This all started with husband losing his job, and wife's hours getting cut. Now, I am told the mortgage company can write off the difference between what we owe, and the fair market value, but that we ALSO have to pay the difference as income on our taxes...would it not seem that one OR the other should be done, but not both? We now live in Texas, and currently owe the IRS and state of Idaho for taxes (income and state). Can this mortgage company also try to sue us or garnish our wages over this?? We lost everything we had, and now live week to week. Please no insulting answers.

Public Comments

1. Chill out. Read IRS publication 4681. If your loan is NON-recourse (generally the original mortgage), you won't have cancelled debt income. If your loan is recourse, you could get a 1099-C (or pursue you for the difference), but unless you refinanced and used the money to pay off credit card debt, you will be able to exclude it using form 982.