Posted by NJDave on June 19, 2006 at 12:33:22:
That depends on the type of mortgage loan (some do not allow for deficiency pursuits) local laws and local customs, and how the terms of the Proposal are received. Typically, the lender will require as a net payment a percentage of the property’s as-is, confirmed FMV. The difference is either forgiven, or addressed as an unsecured loan. If the debt is forgiven there could be income tax consequences… but if the financial hardship is evident, a skilled CPA should be able to prove borrower’s insolvency and avoid tax consequences.