If your investment home goes into foreclosure what liability do you have?

A friend of mine got screwed into a scam to buy some homes to rent out and supposedly make some money. In the end he has been through many tenants and been unable to make the payments due to lack of renters and the declining market. A couple of them have started to go into pre-foreclosure and he is wondering what liability he will have with the banks if they go into complete foreclosure. He understands his credit is shot...which it already is, but not sure what else he will be liable for....

Depends on how the mortgage was signed. If the investment was held in his name or as in an organization type with personal liability, or if he added a personal guarantee, then he MAY be held responsible for any shortfall on the amount due after the sheriff's sale.

If he doesn't have to make up the difference from his personal finances, there will be tax consequences - the shortfall will be considered income by the IRS.

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