BiggerPockets

is it legal for a lender to sue the owner for defiency in a foreclosure?

A deficiency judgment is a judgment lien against a debtor, defendant or borrower whose foreclosure sale did not produce sufficient funds to pay the mortgage in full.

To take it a step further in the states that allow Deficiency judgments they also issue form 1099-C to the IRS. The bank/lender does this when they can reasonably assume they will not collect on the deficiency judgment.

What is a 1099-C from a creditor?

It is the notice given to the debtor and the IRS that the debt has been canceled. The amount of the debt is now considered taxable income under IRS regulations and must be included on the debtor's tax return.

So if this is not addressed you will be held responsible for and Taxed as if the canceled debt was income.

A debtor who has a deficiency judgment should see an attorney for possible remedies, including bankruptcy[6], an exemption from creditors,[7] an appeal, or a motion.

The bank/lender can sign off and give you a release on the deficiency judgment as well as the 1099-C. They often do this with a homeowner when they sign over their rights to the property "Deed in Lieu of Foreclosure" also know as "keys for cash" however, this can only be done prior to the auctioning of the property.