Bankruptcy – Should I File If I am Letting the House Go?
If you have a first and a second mortgage, you may need to consider bankruptcy even if you are willing to let the house get foreclosed. For more information on second mortgage issues, please see click here.
If you have only one mortgage and you don’t have any other debt issues, you probably don’t need to file bankruptcy in Georgia. Under Georgia law, a mortgage company is required to file a “confirmation of foreclosure” against you within 30 days of the foreclosure date. Mortgage companies almost never conduct a confirmation of foreclosure in Georgia. It is extremely rare for any mortgage company to pursue a deficiency on a first mortgage. (update as of 3/7/16- I’m starting to see foreclosure attorneys getting much more aggressive about pursuing confirmation of foreclosure. I just had a client get hit with one last month).
It might be a good idea to wait at least 30 days after the foreclosure to see if they take action against you. If they do, meet with a bankruptcy attorney.
Section 44-14-161 of the Georgia Code states in part, “(a) When any real estate is sold on foreclosure, without legal process, and under powers contained in security deeds, mortgages, or other lien contracts and at the sale the real estate does not bring the amount of the debt secured by the deed, mortgage, or contract, no action may be taken to obtain a deficiency judgment unless the person instituting the foreclosure proceedings shall, within 30 days after the sale, report the sale to the judge of the superior court of the county in which the land is located for confirmation and approval and shall obtain an order of confirmation and approval thereon.
(b) The court shall require evidence to show the true market value of the property sold under the powers and shall not confirm the sale unless it is satisfied that the property so sold brought its true market value on such foreclosure sale.
(c) The court shall direct that a notice of the hearing shall be given to the debtor at least five days prior thereto; and at the hearing the court shall also pass upon the legality of the notice, advertisement, and regularity of the sale. The court may order a resale of the property for good cause shown.”
However, you may incur some tax liability if the mortgage company chooses to report the loss to the IRS. You can be taxed on the forgiveness of debt unless you file for bankruptcy. Bankruptcy is never a taxable event.
It is also important to note that anyone who guarantees a mortgage will be held liable for the mortgage deficiency even if no confirmation of foreclosure has been obtained.