Legal Question in Real Estate Law in California

It sounds as though you are going to be receiving (or have just received) a Form 1099-C showing 30,000 in taxable "income" based on forgiveness of indebtedness due to your lender foreclosing via a route where it had no recourse. To the IRS, income is income, whether you get it in the form of a bankable paycheck or whether it is imputed to you as the result of some business transaction where you get no cash. This happens often in the context of taxation of undistributed profits of sub-S corporations to the shareholders, even though they got no cash from the corporation. It is also happening to former owners of foreclosed income property. The bright side, if there is one, is that even with the $30K taxable income, your 2009 tax liability is likely to be pretty small, if not zero, after all your deductions. If I were you, my first step would be to use TurboTax or the like to do some preliminary tax calculations as a dry run to see how much impact the 1099-C income is actually going to have on your tax liability. If it is substantial, you might want to consult a tax advisor to make sure you have availed yourself of all legally-available deductions.

Is someone going after you for the money? Contact me directly.

You will not be hit by the IRS. Congress passed a temporary relief bill that exempts this phantom income for loans written off or forgiven through 2012. The state of California, however, is still treating this as taxable income. There is a bill headed for the Governor's desk that would conform California tax law to the IRC, but there are rumblings he will veto it.