Thomas F. Miles, Attorney and Counselor at Law
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Understanding mortgage forgiveness

Purchasing a home is a significant step for residents in the San Diego area; however, it is a major purchase, and most require financial assistance to complete the transaction. While obtaining a mortgage is a very common step to take, it is also expected that borrowers are able to make timely monthly payments. The failure to do so could land a homeowner is financial ruin, causing the foreclosure process to initiate. Losing a home because of missed mortgage payments is a reality that some homeowners face. However, homeowners facing foreclosure have options to delay or even stop the foreclosure process.

Mortgage forgiveness can be a reality. This occurs when a homeowner is involved in an active foreclosure case and he or she seeks to restructure the loan. While a lender could foreclose and sell the borrowers property, many homeowners seek to maintain their home, attempting any alternative to losing their family home.

Mortgage forgiveness is a way for the lender to forgive or cancel portions of the loan. This is used as an alternative to or in conjunction with a judgment against the borrower for the remaining balance on the loan after the foreclosure sale. It should be noted that tax codes treat the forgiven amount as income and will be taxed.

Loan forgiveness can occur in three scenarios. First, when the lender modifies the loan, reducing the principal balance of the loan. The borrower keeps the house in this scenario. The second is when the property is sold and then deeded back to the lender. The final scenario is when the lender forecloses and the property sells for less than the amount the loan is for. However, if debt is cancelled or reduced in any of these scenarios, it is important to note that this could impact the homeowners tax obligations.

Mortgage forgiveness programs are an incentive for borrowers and lenders to work together during the foreclosure process. Additionally, these programs have worked to reduce the tax implications caused by these decisions and agreements; however, this process can be complex and could be confusing for those going through an overwhelming time. Thus, it is important that homeowners are aware of their options and how they could obtain assistance during the foreclosure process.

Source:, "Mortgage Forgiveness," accessed Oct. 24, 2017

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Thomas F. Miles, Attorney and Counselor at Law
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