Katona and her mother Sue may now move back to a council house in Warrington where she spent her childhood. "I don't have an income, so how am I going to live? They'll repossess the house and I'll have to sign on the dole," the News of the World quoted her as saying.
Also, a source added: "She was totally hysterical when the letter arrived. She hasn't paid the mortgage because she's been squandering what money she has left. Kerry seemed to think she was immune from losing her home. She really didn't think that she, Kerry Katona, would have her house taken from her.
"But now the reality has hit hard - there is no going back, Kerry has lost her home for good. It is too late to negotiate with the mortgage lender, they have given her too many chances. She has just a few weeks to find somewhere to live but she knows it is probably going to be back in a council house in Warrington where she grew up."
Katona was declared bankrupt last year for failing to deliver the final 92,000 pounds of a 467,000 pound tax bill.
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