​After a home in foreclosure is sold at a foreclosure auction, the foreclosing lender is required to file a 1099-A which reports the foreclosure auction to the IRS. The auction is deemed a sale for IRS purposes, and the homeowner/borrower is required to report the sale on his or her tax returns for the year in which the auction/sale occurred. If, however, there was a cancellation of debt, the lender would then be required to file a 1099-C (the 1099-C was discussed in detail in my July 24, 2014 blog post).

Because most foreclosures involve non-recourse loans (where the borrower is personally liable for the repayment of the loan) the sale price is deemed the fair market value (FMV) of the property at the time of the auction sale. The homeowner/borrower will then need to determine the adjusted basis in the property and subtract that sum from the FMV which will then determine if there is a loss or a gain. If there is a gain then it may result in a tax bill unless the homeowner/borrower can claim the $250,000 Lifetime Capital Gains Exclusion ($500,000 for married couples). If there is a loss, the homeowner cannot use such loss to offset any income if the property was a personal residence. There are many rules that apply here and it is best to consult with an experienced CPA. Additional information is available through the IRS's link:   www.irs.gov/taxtopics/tc432

It is often enough when a homeowner is served with a supplemental summons and amended complaint which can occur anytime after the initial summons and complaint were served on the homeowner.  Typically, the foreclosing attorney will seek to file a supplemental summons and amended complaint when there is a need to change or add to the allegations in the the complaint-for example, another defendant is being added or an additional cause of action seeking to correct the mortgage recording information or amend the legal description. The serving of the supplemental summons and amended complaint will permit the homeowner to file an answer which can be important if the homeowner previously defaulted in responding to the initial summons and complaint. 

There is a statutory rule (CPLR Section 306[b]) that requires that a defendant be served within 120 days of the filing of the summons and complaint. Thus, CPLR 306(b) must be complied with if the foreclosing attorney is seeking to add another Defendant in the action; however, if the foreclosing attorney can show good cause for amending the complaint to include an additional defendant, the court upon motion may grant permission to serve such party after 120 days.  It is vital for a homeowner to consult immediately with an experienced foreclosing attorney before unwittingly defaulting in answering a foreclosure complaint or an amended complaint which will result in the homeowner waiving important defenses that may prevent the bank from foreclosing.