My wife's home was foreclosed in April 2007. This was the home she purchased in 2001 before we met. Everything was going just fine for her, good credit, on-time payments. When she and I married in 2006 she put her house up for sale as she was moving from the Detroit area and we now live in my house about 100 miles away. It could not have been worse timing, as the housing market went completely cold. Our real estate broker(s) couldn't even get lookers, as there already many houses for sale (and lots of foreclosures) on her street and neighborhood. After a failed Pre-Foreclosure Sale (hers was an FHA loan) and over a year of being up for sale, we gave up, stopped making payments, and let it go to foreclosure.

The lender bid the amount of the outstanding loan at the foreclosure sale, so I'm assuming this will mean there cannot be a deficiency even though it was sold later for a lesser amount. And, there would be no debt to forgive. Are these reasonable assumptions? If so, would there be any kind of year-end notice or tax form from someone (the lender? HUD?) that would let us know that there is zero deficiency or debt forgiveness? I know they have two years to pursue deficiency so I don't want to assume that if we hear nothing that it means we never will. To make matters more confusing, the lender sold all of its existing mortgages later in the year, so they would not have been servicing this mortgage now even if it hadn't been foreclosed upon.

FYI - The house that she bought in 2001 for 72,000 ended up being sold in Nov 2007 for 22,500... a common drop other houses in that area.

Did the lender bid that much or was that the minimum bid? And since it wasn't met it reverted to the lender?

If the lender is forgiving the difference, then she may very well get 1099 for the forgiven balance. If they don't fogive the balance they may come after her to collect on it.

According to the city's property information website, the lender bought the house on the date of the auction for the amount that we had been notified as the outstanding loan balance (about 73,000). About a week later it shows that the lender transferred the property to HUD for $1.00. And then it sold in Nov for 22,500.