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In the eyes of the Internal Revenue Service (IRS), housing debt that is forgiven or written off is the same as income. If the law expires, forgiven mortgage debt will be taxable. The same applies to foreclosures and to loan modifications in which principal is reduced. Once the lender writes off the debt, it will report the amount to the IRS.
If the same property had been burdened by recourse debt, and, as above, that property were foreclosed upon in full satisfaction of the debt, you would get a different result. The gain or loss would be determined with reference to the fair market value of the property, and the difference between the fair market value and the debt would be COD.
A reverse mortgage is a mortgage loan, usually secured by a residential property, that enables the borrower to access the unencumbered value of the property. The loans are typically promoted to older homeowners and typically do not require monthly mortgage payments. Borrowers are still responsible for property taxes or homeowner's insurance.
Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan. [1][2] Formally, a mortgage lender (mortgagee), or other lienholder, obtains a termination of a mortgage borrower ...
Public finance. Recourse debt is a debt that is backed by collateral from the borrower. [1] Also known as a recourse loan, this type of debt allows the lender to collect from the debtor and the debtor's assets in the case of default as opposed to foreclosing on a particular property or asset as with a home loan or auto loan. [2] Nonpayment of ...
Types of first-time homebuyer programs. Low-down payment conventional loans: Conventional loan programs that require just 3 percent down. Down payment assistance (DPA) programs: Loans, grants and ...
A mortgage is a legal instrument of the common law which is used to create a security interest in real property held by a lender as a security for a debt, usually a mortgage loan. Hypothec is the corresponding term in civil law jurisdictions, albeit with a wider sense, as it also covers non-possessory lien. A mortgage in itself is not a debt ...
Key takeaways If you’re a homeowner aged 62 or older, a reverse mortgage can help you obtain tax-free income, allowing you to stay in your home, pay bills, supplement your income and more.