What you need to understand is that if the bank is willing to forgive your loan to the extent that the sales price is less than the amount of the mortgage, then that difference is normally taxable income under federal tax law, as debt forgiveness. However, the Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. You need to see a tax lawyer and provide all relevant facts relating to your foreclosure.
You are not personally liable for property taxes. The county will have a priority lien over the lender on the property and will get paid prior to any disbursement of the remaining proceeds to the lender.
Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this information cannot be used to eliminate penalties with the IRS or any other governmental agency.