My house was foreclosed on and the lender reported the dept forgivness to the IRS, Am I reposbsible for paying the taxs on the difference of the laon

If your house is been foreclosed upon and sold at auction, and there is deficiency between the amount of the mortgage and the foreclosure auction sale price, this amount is called a deficiency. The bank may go after you to obtain this deficiency, but in most cases they just reported to the IRS as a forgiving debt. The IRS in turn records this forgiven debt as income for the calendar year in which the amount of the forgiven debt was realized. So basically if you had a $200,000 mortgage and your home sold at auction for $100,000, then you would have a $100,000 deficiency or forgiving debt, the IRS can then turn around and send you a 1099 with $100,000 of income for that calendar year. The best way to have kept this from happening would have been to file a chapter 7 bankruptcy and discharge the debt prior to foreclosure, that way you wouldn't be legally obligated to pay the debt and therefore not legally obligated for the deficiency. I have responded to your inquiry according to the laws of Massachusetts, where my firm is located. Laws can vary significantly from state to state and cases tend to be rather fact-specific, so you are best served by consulting with a knowledgeable attorney in weighing your options. Email messages/Online Correspondence are akin to conversations and do not reflect the level of analysis applied to formal legal opinions. Email/Online responses do not form an attorney-client relationship.    Joseph F. Botelho, Esq. BOTELHO LAW GROUP Attorneys At Law http://fallriverbankruptcyattorney.com/ 901 Eastern Ave.  Unit 2 Fall River, MA 02723  Office:  888-269-0688 FAX:    877-475-8147