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RE: sell up, rent back - 10/17/2008 10:00:29 PM

NuevaVida

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quote:

ORIGINAL: Termyn8or

Interesting points, I hadn't really considered this.

So now if the bank let's you out from under and just writes part of it off as a bad debt, YOU have to pay income tax on it ?

The ONLY way this makes any sense at all is if the borrower gets to save their otherwise (if so) good credit rating. Even with that, the asset did not go to you, how can you be taxed ?

And then the bank gets a tax deduction for writing off a bad loan ? (or a part thereof).

I would also think it likely that their tax savings would be more than you have to pay.

Wow, in my best day I could not think up a better scam than that. There are some people who have gotten very rich and we all have to pay now. There will be no prosecution, there will be no jail. With the tool known as the fed, this was a cakewalk.

I stand in awe of the scammers. And that is exactly what they are. Never done a day's work in their life and sit on top of the world. You don't get results like that without an ingenius scam.

Follow the money.

T

It's called "Forgiveness of Debt." Since it was money you owed but did not pay, and money you became unobligated to pay, they count is as money you would have paid but got to keep in your pocket, therefore - income.

There are some loopholes around this but you have to qualify for them. I did not qualify. Coincidentally, I just met with my accountant today, who confirmed this.

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RE: sell up, rent back - 10/17/2008 10:13:33 PM

NuevaVida

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quote:

ORIGINAL: PlayfulOne

NuevaVida,

The oops comment was not meant as anything personal towards you. I apologize if you took it that way. I meant that as a general statement that it is not that easy to just walk out of the mortgage. If it were that easy a lot of people would just sell their home and tell the mortgage holder, "sorry".

You do understand whether it is a vehicle, home, whatever, if it is foreclosed on the lien holder can still come after you for the difference. If you owe $250,000, they foreclose on you and then sell the property for $150,000 they can still in most cases come after you for the difference. The auto companies have never been shy about doing that.

K

This was never my understanding while I was in the foreclosure process. It was my understanding, however, that I would be taxed on the difference, as income.

And there is nothing easy about walking away from a mortgage. Aside from screwing up your credit in ways you never imagined, aside from the tax implications, aside from reading in forums how "everyone" who foreclosed must be a loser who deserves it, there is a HUGE sense of personal loss that goes along with losing not just your house, but the home you created.

Years and years ago a friend of mine's car was repossessed, because of the financial fall out after her divorce. The bank harassed the hell out of her for the money, regardless of her insistence that she could not pay. After awhile she filed for bankruptcy and the loan was written off as "bad debt."

The reason interest rates - be they on an auto loan or a home loan - vary depending on your credit rating is due to the risk the bank takes regarding potential loss. Of course they will try to recoup their money on a defaulted loan. But quite often they can't, which is why borrowers with poor credit ratings pay very high interest rates.

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RE: sell up, rent back - 10/19/2008 9:03:52 AM

PlayfulOne

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quote:

ORIGINAL: NuevaVida

quote:

ORIGINAL: PlayfulOne

NuevaVida,

The oops comment was not meant as anything personal towards you. I apologize if you took it that way. I meant that as a general statement that it is not that easy to just walk out of the mortgage. If it were that easy a lot of people would just sell their home and tell the mortgage holder, "sorry".

You do understand whether it is a vehicle, home, whatever, if it is foreclosed on the lien holder can still come after you for the difference. If you owe $250,000, they foreclose on you and then sell the property for $150,000 they can still in most cases come after you for the difference. The auto companies have never been shy about doing that.

K

This was never my understanding while I was in the foreclosure process. It was my understanding, however, that I would be taxed on the difference, as income.

And there is nothing easy about walking away from a mortgage. Aside from screwing up your credit in ways you never imagined, aside from the tax implications, aside from reading in forums how "everyone" who foreclosed must be a loser who deserves it, there is a HUGE sense of personal loss that goes along with losing not just your house, but the home you created.

Years and years ago a friend of mine's car was repossessed, because of the financial fall out after her divorce. The bank harassed the hell out of her for the money, regardless of her insistence that she could not pay. After awhile she filed for bankruptcy and the loan was written off as "bad debt."

The reason interest rates - be they on an auto loan or a home loan - vary depending on your credit rating is due to the risk the bank takes regarding potential loss. Of course they will try to recoup their money on a defaulted loan. But quite often they can't, which is why borrowers with poor credit ratings pay very high interest rates.

You made the argument yourself. You friend had to file bankruptcy. It is at the discretion of the bank whether they forgive the debt or come after you for it. In your case over $20,000 there was no point in not forgiving you and doing the sale. The market here dropped hard and fast and I know several people who are $100,000 or more upside down on their mortgage. The banks are not being so forgiving. I know two right now where the bank approved the short sell and they now have to deal with the bank trying to collect a little over $100,000 from both of them.

BTW, it is one or the other. You will get a 1099 for $20,000 to file on your taxes. They can't do that AND file on you to collect the $20,000. They can only do one. Which one happens is usually up to bank policy and what you can negotiate with them.

K

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RE: sell up, rent back - 10/19/2008 10:09:47 AM

NuevaVida

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Thanks for the reply, PlayfulOne. It is very possible that the banks became less forgiving in the last 6 months (when I lost my house), and that the loss of funds was minimal in my situation, compared to what the banks were losing elsewhere.

And I know it's one or the other. It has been my past understanding that you can't draw blood from a stone, and if a person can not pay, then he/she can not pay, and the bank writes it as "bad debt." I would imagine there's only so much "bad debt" a creditor can write off, though, until they suffer substantial enough loss to break themselves, as well.

This was the case with the credit card my ex racked up, btw. Citibank was on my ass for a long time since my social was also on the card. Ex husband refused to pay it, forcing the burden onto me. When neither of us paid, the debt was logged as "bad debt" and shows accordingly on my credit report.

Gotta love financial ruin due to divorce, lol. There's only one way to go from here, though, and that's up.

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RE: sell up, rent back - 10/19/2008 6:12:39 PM

eroticloki

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hi susie..
if you have a mortgage you do have to foot the initial bill for 39 weeks, but you have the right to defer mortgage payements.. just ask your mortgage lender.. It's the law.. they can't take your house.. but they do add it to your loan which get bigger.. then after 39 weeks you get the same no. of weeks with rent err interest paid.. as people who rent..
Nobody get all their rent paid unless they live in pretty crapy places.. it varies the amount that will be covered.
The press do warp things.

It does seem unfair that if you own property you get less help.. but then if you own property you are in a better situation than people with nothing to their name..

Of course in downturn times with negative equity etc.. sometimes it would be better to have nothing to your name..
I had neg. equity for 8 yrs.. got out of it by selling flat for less than 50% and buying a house on the cheap instead in 97 only 40k :-) Luckily I'd worked as contractor in Aberdeen living in cold one bed rented flat saving 15k to pay off initial loan and as deposit for new house..
Life has its ups and downs..

At the moment its mostly up.. just hoping I'm not made redunant in these credit crunch days..
even a 20k loan will be hard to pay on benefit..

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RE: sell up, rent back - 10/19/2008 6:17:51 PM

juliaoceania

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I think some people would be happy to get out from under their homes without owing anymore to be honest... as it is they lose them anyways, better to have the debt paid then not

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RE: sell up, rent back - 10/19/2008 9:21:25 PM

susie

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Thanks eroticloki but at the moment the mortgage companies do not have to defer payments. The most my lender will do is to allow me to be 3 months in arrears. Once I step over the 3 months they will start legal action. They are aware of my circumstances and that I will get back to work as soon as physically possible but their rules are 3 months arrears or nothing.

The stress it is putting on me at a time when I really need to concentrate on recovering from major brain surgery and then radiotherapy is really upsetting. The company even had the nerve to send out a "debt counseller" and charge me for the visit even though they had been told that I was having surgery.

I understand that this is a difficult time for everyone but it is an added problem I could do without right now.

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RE: sell up, rent back - 10/20/2008 12:36:29 AM

NuevaVida

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I'm sorry to hear of your troubles, Susie. Foreclosure began on my house in the midst of a handful of other traumas going on, as well. For what it's worth, things do get better. I truly wish you the best.

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RE: sell up, rent back - 10/20/2008 4:53:42 AM

susie

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quote:

ORIGINAL: NuevaVida

I'm sorry to hear of your troubles, Susie. Foreclosure began on my house in the midst of a handful of other traumas going on, as well. For what it's worth, things do get better. I truly wish you the best.

Thanks. I am determined to get through it. I have great support from Master and the rest of my family.

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