Foreclosure doesn't always signal the end of financial burdens. According to the IRS, canceled debt from a forgiven mortgage is considered a form of income, which must be taxed. Most people walking away from an unaffordable mortgage do not realize the tax obligation associated with it.

This is considered income because if a consumer borrows money, cannot pay and is forgiven, he or she may be in a better financial position than where he or she started. Canceled debt can be exempt from tax filings if it was originally used to buy or build a house, but debt for other purposes cannot be exempt. Occasionally taxes can be avoided, but only if a person can prove that his or her debt is greater than his or her total assets, but even then he or she might incur some taxes.

If you are considering mortgage modification to avoid foreclosure, you should be aware of everything that goes into the process. To learn more, contact Chaifetz & Coyle, P.C., the Maryland foreclosure defense lawyers, today by calling 443-546-4608.