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I've seen a ton of short sales and almost without exception it has been someone who got in over their head due to lost of a job or medical issues or the collapsed housing industry. I don't see anyone gaming the system on these short sales. People selling this way aren't lighting cigars with hundred dollar bills while we close the deal. Whatever tax liability we stick them with is probably going unpaid anyway. If they had that kind of money, they wouldn't be short selling.
I see the lost income argument, but let's not paint these sellers like they are welfare queens or something. The overwhelming majority just got caught up in a situation of the industry's making or the bad economy, imo.
I've seen a ton of short sales and almost without exception it has been someone who got in over their head due to lost of a job or medical issues or the collapsed housing industry. I don't see anyone gaming the system on these short sales. People selling this way aren't lighting cigars with hundred dollar bills while we close the deal. Whatever tax liability we stick them with is probably going unpaid anyway. If they had that kind of money, they wouldn't be short selling.
I see the lost income argument, but let's not paint these sellers like they are welfare queens or something. The overwhelming majority just got caught up in a situation of the industry's making or the bad economy, imo.
The point I was getting at, is that this temporarily tax law has added to so much confusion for the consumer.
It was a hastily written law by Congress and signed by Bush 43. They didn't realize that this temporarily law would further add to the number of distress homes in the market.
Many people who either took out home equity loans (for non-home improvements) or still did cash out refinanced still list their homes as short sales and hope the government doesn't catch them on this 1099C liability. The banks for the most part don't know what happened to the money. They just know you are a random distress seller trying to negotiate a settlement. Most likely the government won't catch them on this 1099C.
If the law were written to say any first time homeowner (who hadn't owned a home for the 3 years prior to the 2007 law. So any first time homeowner who didn't own a home from 2004-2007 would qualify for this waiver of tax liability from the 1099C. That would make a lot more sense than the way the law is currently written.
Why? Because anyone who owned a home and sold it prior to 2006 made a significant profit on their home.
It's only those first time homeowners from 2005-2007 who were really caught in the housing downturn. Those other homeowners (who all made huge profits on the sale of their previous homes) shouldn't receive a tax break.
But as I said before, you hit people with the tax liability. People can always declare insolvency and not pay the tax liability. It's very simple. We never needed this law to waive the tax liability. If people had no money, why not declare BK? For the most part your cars and retirement accounts are safe from BK. The IRS will waive the taxes on the 1099c with insolvency.
But people want their cake and eat it too. They don't want their credit damaged. They want to repurchased another home as soon as they can. There's just no deterrent.
People selling this way aren't lighting cigars with hundred dollar bills while we close the deal. Whatever tax liability we stick them with is probably going unpaid anyway. If they had that kind of money, they wouldn't be short selling.
You really need to go down to S Florida (especially the Miami area). People are gaming the system down there. Florida leads the nation in fraud (every type of fraud you can think off).
The running joke down in S Florida is the reason the malls are packed everyday with people spending like crazy is because no one's paid their mortgages for at least 1-2 years. So they all have this extra cash lying around.
My cousin has gone 2 plus years with no mortgage payment and she's about to finally list her home as a short sale. I am asking her what the heck does she do with the money she's saved from not paying the mortgage. It's the usual, vacations, electronics, new furniture, new car. She's got her own lawyer who tells her to do these things because she's exempt from the tax liability.
That's why she's finally listing the home within the next couple of months. Because the lawyer knows the home will eventually need to be short sold or foreclosed on before the laws expires on Dec 31st 2012.
The point I was getting at, is that this temporarily tax law has added to so much confusion for the consumer.
It was a hastily written law by Congress and signed by Bush 43. They didn't realize that this temporarily law would further add to the number of distress homes in the market.
Many people who either took out home equity loans (for non-home improvements) or still did cash out refinanced still list their homes as short sales and hope the government doesn't catch them on this 1099C liability. The banks for the most part don't know what happened to the money. They just know you are a random distress seller trying to negotiate a settlement. Most likely the government won't catch them on this 1099C.
If the law were written to say any first time homeowner (who hadn't owned a home for the 3 years prior to the 2007 law. So any first time homeowner who didn't own a home from 2004-2007 would qualify for this waiver of tax liability from the 1099C. That would make a lot more sense than the way the law is currently written.
Why? Because anyone who owned a home and sold it prior to 2006 made a significant profit on their home.
It's only those first time homeowners from 2005-2007 who were really caught in the housing downturn. Those other homeowners (who all made huge profits on the sale of their previous homes) shouldn't receive a tax break.
But as I said before, you hit people with the tax liability. People can always declare insolvency and not pay the tax liability. It's very simple. We never needed this law to waive the tax liability. If people had no money, why not declare BK? For the most part your cars and retirement accounts are safe from BK. The IRS will waive the taxes on the 1099c with insolvency.
But people want their cake and eat it too. They don't want their credit damaged. They want to repurchased another home as soon as they can. There's just no deterrent.
The difference is a 3-year hit to your credit from a shorsale vs a 7-year hit from a bankruptcy.
You move into an apartment and sock away your cash and 3 years later buy a new home that you can afford.
sometimes the seller brings money to closing. other times the mortgage is release and allowed to sell. sometimes there is no deficiency, other times there are.
There is a clause in the Debt forgiveness act that allows for insolvency. I you can prove that then you should not have to pay taxes on that amount. However, you need to consult your tax guy about that as they should be well versed in this.
There is a clause in the Debt forgiveness act that allows for insolvency. I you can prove that then you should not have to pay taxes on that amount. However, you need to consult your tax guy about that as they should be well versed in this.
The insolvency clause in the IRS publication 908 (BK laws) has always been around. We didn't need the mortgage and forgiveness ACT.
What I said is that this temporarily act has made the housing market much worse. The intent of the law was to try to give some homeowners a break. But what it's done is flood the market with all types of homeowners would normally wouldn't qualify (those that did cash out refinanced, home equity to pay off credit cards etc).
Say a guy took out a home equity loan of 100K. He did about 50K home remodeling. The IRS isn't going to know what he did with the other 50K. It's highly unlikely we have the government resources to to audit every single 1099c exemption that's file by short sellers.
BK should be the way if they are worried about any type of tax liability, either chapter 7 or 13th. Short sellers can reload in 7 years.
Nobody says you need to buy a home with a loan. You can always rent for 7 years or if you want to buy before 7 years, pay cash.
The difference is a 3-year hit to your credit from a shorsale vs a 7-year hit from a bankruptcy.
You move into an apartment and sock away your cash and 3 years later buy a new home that you can afford.
Sorry to say Kevin but the 3 year vs 7 year depends on your credit score going into a SS, DIL or FC.
If your score his high...typically 760 and above but especially for those above 800...FICO now automatically assumes you are a strategic defaulter. So it's not 3 years but 7 years for a SS, DIL or FC.
So where's the incentive for someone like myself...divorced, make a good salary ($86k now), primary custody but i cannot afford the mortgage without going into CC debt. I won't do the latter...so I stop making payments, save my money and then move on. As an FYI, I negotiated for the house cuz I would have been paying spousal support if i hadn't...even knowing then that i would have to dump the house.
i love the MDRA. it will work wonders for me. doesn't matter what law is passed someone will try and game the system. do i really need to remind people of the scammers going for fed dollars after 9/11 or hurricane katrina. that's human nature which is why we are in this mess in the 1st place
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