Skip to main content

Will I qualify under Mortgage Debt Forgiveness Act if homeowner association gets title to my property through a foreclosure?

Miami, FL |

I can no longer afford a to pay mortgage and maintenance fees for an underwater property. I have stopped making mortgage payments for about a year but the bank has yet to foreclose. However, I have continued to pay maintenance fees but a recent increase will no longer be able affordable for me to pay. Would like to move on from this property and take the loss. Assuming the homeowner's association will forclose on the property after I stop paying the monthly fees. Will I be safe from having a tax bill from the IRS if the homeowner's association gets title to my property. The bank appears to be stalling taking possession of the property. With the recent extension of the Debt Forgiveness Act, I need to move on from this nightmare.

Attorney Answers 4

  1. Best answer

    I agree with Attorney Salcinas - you can maintain control over your financial situation by being proactive and initiating a short sale. In a short sale, so long as your association dues are less than 1 year past due, your lender should pay them in a short sale. It sounds like the property is your primary residence - in a short sale, the lender may foregive the deficiency balance if you can demonstrate a financial hardship and you may be excused from paying federal income tax on the debt you are excused from repaying.

    Very often, I see underwater homeowners such as yourself deciding to simply walk away from their underwater property. With some help from a qualified attorney and a qualified realtor, you may be able to short sale your property, end your financial obligation to repay any past due association dues and any deficiency balance - and under certain circumstances, you may be eligible to receive a short sale incentive pament (typically at least $3,000).

    The worst thing you can do is NOTHING. I urge you to seek assistance from an experienced real estate attorney.

    This information is being provided for informational purposes only and is not to be taken as legal advice or to establish an attorney-client relationship. For more information on the experience of our attorneys and the services of our Firm, please visit our website at

  2. No. The actions of the HOA will not implicate the Mortgage Debt Forgiveness Act. However, if you were to obtain a bankruptcy discharge where the mortgage debt is discharged, that would eliminate your tax exposure and would potentially also discharge whatever excess you may owe to the HOA or to credit cards or medical bills. If you are a good Chapter 7 candidate, this is a route that gives you control over the timing of how you handle disposing of your debts and frees you frm the control of the mortgage company. Do yourself a favor and consult a bankruptcy attorney.

    Please note that the above is not intended as legal advice, it is for educational purposes only. No attorney-client relationship is created or is intended to be created hereby. You should contact a local attorney to discuss and to obtain legal advice.

  3. You need to short sale immediately and have the bank pay they association. Call me to discuss

  4. I agree with all answers because you need to be ready to either file bankruptcy or present a short sale, and perhaps both, but with proper timing. To that I add - many attorneys who do bankruptcy know both angles, and also intervene in a state foreclosure action should one be commenced by the association or the mortgage lender, in order to slow the process down and keep options open. In any event, it is also likely in your best interest to take all efforts to get the association paid. Whatever the dues are, they must be less than what you would expect to pay for rent somewhere. Once you stop paying a HOA or COA, they drive race car through the foreclosure process compared with the tortoise pace of many mortgage lenders.

    The law is complicated and although the facts expressed may seem to be all that is relevant, there may be many other important facts to consider. Also, the law is constantly undergoing change, so what may be correct today, may not be accurate tomorrow. Only a full consultation with an attorney experienced or knowledgeable in the specific legal subject matter is likely to result in the optimal course of action. My practice has entailed more than a 30 year span of many real estate, personal property, and bankruptcy issues. Find out more about me at:

Real estate topics

Top tips from attorneys

What others are asking

Can't find what you're looking for?

Post a free question on our public forum.

Ask a Question

- or -

Search for lawyers by reviews and ratings.

Find a Lawyer

Browse all legal topics