Does the bank assume the loss? I understand that non-payment of the lot loan will result in foreclosure of the land. I am wondering if the bank can go after our estate after my husband & I pass away if the value of the foreclosed lot is less than the value of balance of the loan. Does the bank assume the loss? The lot, which is in a gated community ,is empty – no house built on it. The only collateral to the loan is the lot. The contract does not contain any provision that the bank can go after the other assets of the loan signers ( my husband and myself).
Could be quite a lot of $ as its the outstanding unpaid loan plus fees plus interest. It is fully taxable income and you will be expected to pay taxes on the amount.
IRS has publications & worksheet (form 982) on dealing with 1099-C. Most of the time with foreclosures the owner has costs over time on the actual house that can be used to offset the income. Your probably not going to have this as it's an unimproved lot. Dealing with all this is imo not a DIY, your going to need a CPA to do your taxe$ and then pay the IRS whatever $$ in taxes. Could be quite a lot of $$ owed as this is a lot in a gated community so I'd imagine was not cheap.
BTW any valid creditor who is owed more than $ 600.00 can issue a 1099-C. Many companies and financial institutions do them each year routinely.
Your going to be dealing with owing IRS way way way before your family is ever dealing with your "estate". You might want to think about selling it and getting the loan cancelled in full or partially from the sale rather than just walking on it.
Any debt you leave behind will be paid by the assets of your estate...that includes bank accounts. The difference between the loan and the auction of the lot after foreclosure will be a debt of the estate.