Facing your options in a foreclosure can feel like confrontation. We’ve been raised to believe that banks and other lending institutions are powerful, faceless adversaries. In that sense, they are unknowable, and it’s easy to fear the unknown. Many homeowners put off contacting their lender because they’re embarrassed to do so. The Freddie Mac/Roper poll also found that homeowners avoid contacting the lender because they don’t believe the lender can help them. Some even believe alerting the lender will accelerate the process of losing their home. TAX IMPLICATIONS OF FORECLOSURE It almost seems impossible that after undergoing the misfortune of a foreclosure, you could get hit with the “double whammy” of having the Internal Revenue Service insist you pay income taxes or capital gains on the foreclosure transaction. You’ve just had your home taken away from you because you were unable to make all of your mortgage payments on time! How is that a red flag for the IRS? Here’s how it can happen. Your lender originally based your mortgage loanon the value of the property youwere buying.When your property is foreclosed, the title changes hands from you to the lender and/or trustee. A new tax assessment is performed. Property values fluctuate, so it’s possible the value of your home has declined since you obtained your mortgage loan. In fact, the
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