Auction

• When your home goes into foreclosure, your lender sells the home at a courthouse auction to the highest bidder. The purpose of the auction sale is for the lender to recoup some of the money lost through the foreclosure process. If the home does not sell at the auction, the lender takes possession of the home and places it on the market for sale. Homes can sell at auctions for significant discounts, which negatively impacts the property values around the foreclosed home.
  
  

Neighborhood Impacts

• Foreclosed properties lead to a decline in property values. Your neighbors may be left with mortgages worth more than the current market value of their homes following your foreclosure. Vacant properties can also be an eyesore, as lenders do not always provide proper upkeep of the home. Vandals and squatters also target properties that are vacant for extended time periods. With a loss in property values, other homeowners cannot sell their homes and earn a profit.
  
  

Foreclosure Debt

• Foreclosure debt is does not disappear with the loss of your home. Lenders have the option to forgive the debt or sue you for the remaining balance. Not all lenders sue right away. Some wait until you regain financial stability before they file a deficiency judgment against you. This could mean years for some homeowners. If your debt is canceled, taxes are your next foe.
  
  

Cancellation of Debt

• Cancellation of Debt tax may be owed on the remaining balance of your mortgage loan. According to the IRS, your mortgage loan is not considered income because you are legally obligated to repay your loan. Once the lender decides to forgive the debt, the loan is fair game for income taxation. However, certain restrictions apply. If you can prove you were insolvent at the time the debt was canceled, you can claim exclusion from this taxation. You were insolvent if the fair market value of your assets is less than your liabilities. The extent to which you were insolvent determines how much, if anything, you owe in taxes.