Kicking Them When They Are Down

Did you know that you need to pay tax on a foreclosed mortgage? Neither did I.

Two years ago, William Stout lost his home in Allentown, Pa., to foreclosure when he could no longer make the payments on his $106,000 mortgage. Wells Fargo offered the two-bedroom house for sale on the courthouse steps. No bidders came forward. So Wells Fargo bought it for $1, county records show.

Despite the setback, Mr. Stout was relieved that his debt was wiped clean and he could make a new start. He married and moved in with his wife, Denise.

But on July 9, they received a bill from the Internal Revenue Service for $34,603 in back taxes. The letter explained that the debt canceled by Wells Fargo upon foreclosure was subject to income taxes, as well as penalties and late fees. The couple had a month to challenge the charges.

This revelation stunned me. This is the last indignity to people who are being forced from their homes. The one thing to remember is that all of these homeowners will not qualify for a new mortgage for many years, a tax judgement will only make that situation worse.

I posted this story to highlight the plight of the middle class. Most of the people caught up in this subprime debacle are low and middle class who were trying to achieve the American dream. This dream has turned into a nightmare that threatens to involve us all.