Many clients want to know what happens in a Lorain County or a Cuyahoga County foreclosure after the sheriff sale. Is the case over? The simple answer to that is, “No.” At a minimum after the sheriff sale the plaintiff, normally the lawyer for the bank will file a confirmation of sale. The confirmation of sale is the formal transfer of title to the real estate from you to the purchaser at the sale.
What is most important to know is if the foreclosure sheriff sale price was enough to pay off:
- The balance due on the mortgages
- Other liens
- Court costs
- Sheriff fees
- Real estate taxes
In most cases the foreclosure sheriff sale price is not enough to cover these items. It is very common in today’s market where most of us are under water in our homes. What the plaintiff and possibly other claimants will then have is a deficiency judgment foreclosure. That means the amount of the judgment is more than the amount realized at the sheriff sale. It’s not enough that they took your house away. Now you still owe for the left over balance. Sound unfair? It is unless you are a bank.
What can happen? In some cases nothing. The bank is satisfied to get the property back. However, if you had an equity line of credit or some other type of second or third mortgage they will want their money too. There is a real possibility that even after losing your house to foreclosure you can face:
- Bank Attachment
- Judicial lien placed against other real estate you might own
- Foreclosure against other real estate to satisfy the judicial lien
- Forgiveness of the debt
Of these choices you might be surprised to learn the worst is number five, forgiveness of the debt. How on earth can that be bad? The first thing they taught when I took Tax in law school is that forgiveness of debt is an income event. It always has been. If a bank forgives your deficiency judgment foreclosure, and they write it off, they will send you a 1099 for the amount forgiven. You then have to pay tax on this money even though you haven’t received a nickel. Imagine, you lost your house and now you have to pay income tax on the amount of the mortgage not supported by the dropping real estate value. They get you coming and going.
Even after the home foreclose and sheriff sale your ordeal is not over. You can file bankruptcy to discharge a deficiency judgment foreclosure. There is no debt to forgive if it is discharged in a chapter 7 bankruptcy. If you wait for the 1099 to arrive, you’ve waited too long.