In a FHA foreclosure....?

Question

If my house is foreclosed on will I be responsible for any difference if the sale doesn't pay off my loan in full? Or does the mortgage insurance I pay with my payment handle that?

Answer 1

In an FHA Mortgage, you paid a Mortgage Insurance Premium one time when you closed which was about 1.5% of the loan amount you borrowed. Plus you paid a monthly mortgage insurance of about 0.5%. All of these are insurances just in case you default, which you are. So you should be fine. However, if I were you and you don't want to foreclose, i would find a mortgage bank that does loan modifications and have them talk to your current bank into letting you short pay, or pay less than your current amount owed, so that they lose less money than if you foreclosed. The result of this is that your bank is happy because their losing less money, and your happy cause your gonna get a smaller payment and keep your house. But that is only if thats what you want. Hope this helps.

Answer 2

The question boils down to whether or not the lender can legally force you to pay the difference.  This will depend on whether or not the loan is recourse (they can) or non-recourse (they can't).  

If it's a recourse loan, they can sue you for the difference.  If you still don't pay, they can write the money off, but will send you a 1099-C showing the cancelled debt INCOME. (When you don't pay it back, it's income.)  Whether or not you have to pay income tax depends on other factors.