“The Deed-In-Lieu Of Foreclosure”

The Deed-In-Lieu Of Foreclosure is when you give up ownership of your home and deed it back to the bank. The bank will always accept this; however, it it not a good option for you. The reason it is not a good option is that the bank will typically place a foreclosure on your credit and you could end up with a 1099-C sent to the IRS for additional income if the bank sells the property for less than what you owe.

Let us explain what a 1099-C is. The bank takes back a house that has a mortgage balance of $200,000 and is worth $200,000. The bank ultimately sells the house for $150,000. Since the bank just lost $50,000, they will send you and the IRS a 1099-C. The banks do not tell you that they will send this to you or the IRS.


Remember, the banks are sneaky. This is never an option, unless you get it in writing from the bank that they will not 1099-C you on your taxes. a 1099-C is ordinary income to you that is reported to the IRS. If you were in the 30% tax bracket, you would have to pay approximately $15,000 in taxes to the IRS for losing your home. Pretty sneaky on the bank’s part, don’t you agree?

If you have any questions about this, please contact me at 210-777-0567.

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