Legal Question in Real Estate Law in Illinois

It sounds as though your lender is going to both release the mortgage and forgive the deficiency. Since you have the advice of your attorney on whether the lender could pursue you for any deficiency, we can't comment - it would be like a second opinion, but you might consider getting your attorney's advice in writing. However, what you did not address are any tax implications. By law the lender must issue a 1099C which should indicate the amount of the debt forgiven. Normally, if a lender forgives any portion of a debt, the portion forgiven is considered income! However, an Obama initiative, the The Mortgage Forgiveness Debt Relief Act, should make the amount forgiven NON-taxable as long as this was your principal residence and the amount forgiven is less than $2 million. So you should be in pretty good shape, but since you are only providing a portion of the total communication you should really take it to a tax person with information about the amount of the debt being forgiven, to plan for 2011 taxes payable next April.