Well, according to the Mortgage Debt Relief Act of 2007, it allows the taxpayers to exclude income from the discharge of debt on their principal residence, that means they don't have to pay taxes on that amount. But it is advisable to check with CPA for any tax issues because we are not CPA or attorney.

Adding to the first answer, there is a tax debt more than likely. The IRS likes its cut regardless of your mortgage debt.

Check with a tax attorney or a trusted tax professional.

All the best...

Jeanie

Liz,

You got the right answer! But instead of foreclosing, wht don't you try to do a short sale, that way your credit will be saved from foreclosure and you can build up your credit faster and buy another house in 2 years if you want. Short sale is better than foreclosure. Let me know if you have any questions on short sale.

Blaison Samuel
Certified Short Sale Specialist

All purchase money financing on a primary residence in California is non-recourse debt. If it's your original loan to buy the home, you are not responsible for the loan after they foreclose.