Lenders May Negotiate… But Watch Out for Uncle Sam
There's a good news/bad news story if you become a borrower in trouble with mortgage debt. The good news is that your lender might be willing to renegotiate your loan to give you a break on your payments or even forgive a portion of the debt just to keep you in the home. The bad news? The IRS is watching.
If I ever got in trouble, what should I say to my lender?
The first smart move is to call your lender before you miss a payment. Get on their radar screen the moment you fear you could become delinquent from the loss of a job, medical debts, divorce, or other problems with debt. They may not give you a big kiss when you call, but you'll get points for being proactive.
Lenders are required by law to report to the IRS any amount of debt forgiven to customers. That means that unless you file bankruptcy or are otherwise declared insolvent in court, you'll very likely owe federal tax on the amount forgiven. Also, the IRS is watching if you're a homeowner benefiting from something called a
Though Congress was discussing the problem at press time, it was clear that all short-sale proceeds would be a target for a bill from Uncle Sam as well.
