1.) File for a deficeincy judgment gainst you for the amount of the loss. Some states bar deficeincy judgments; I don't know if California is one of them.
2.) Forgive the loss and report it to the IRS as taxable income.
If option 2 is excercised, you may be able to avoid income tax on the forgiven debt if it was used to buy or substantially improve your home. Here is a link to IRS info about avoiding the tax:
The truth is that you have an obligation. If you want to sell your home for less than your owe, you still owe the money. A lender may allow you to sell for less than you owe, however you will receive a 1099 for the difference, which will include closing costs.
California has special laws regarding this, so talking with a CPA is important. And if you need legal advice, talk with an attorney.
IT MAY BE REPORTED ON A 1099 FOR TAX PURPOSES.
BUT IF YOU CLAIM A LOSS
YOU SHOULD BE ABLE TO 0 OUT YOUR
GAIN TO 0
MEANING YOU OWE 0.
EDUCATE YOUR SELF
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
So write your congressman and tell em to do something and pass a bill to diminish or forgive the deficient balance. For now... the consumer is on the hook, as always...
I have clients, family members, collegues all asking the same questions...
If possible, negotiate the bank to forgive the dfference.. You dont get what you dont ask for but its highly unlikley...
We have come up with some solid solutions.. drop me an email if you need more infor..This board will provide you with a smorgasborg of assistance.