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Old 05-04-2011, 01:38 PM
 
Location: Albuquerque
5,548 posts, read 16,118,786 times
Reputation: 2756

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This is clipped from this post in this thread:
Quote:
Originally Posted by aneftp
I almost guarantee you after Dec 31 2012 short sales will no longer be in vogue when the temp 2007 Mortgage and Forgivness act expires.

Essentially this law exempts homeowners from the tax liability owed to te IRS for the shorted amounted on a primary home.

I just cannot wait for this law to expire. It's made the housing market even worst by forcing more distress homes onto the market. It sounded like a good idea at the time but Many people are trying take as advantage of this law further causing home prices to go lower.
How do people think this will change the market?

It's a heck of a point, but I'm guessing that for some, if they lost their job, etc. they have nothing to look
forward to in their lives. Even if they get another job, then they can be sued for the earlier deficiency.
That's great, you both had a $50k job, now you are working $15k jobs to make some ends meet. Even
after you get another $50k job, you still live like you had the $15k job. But hey! The bank is made whole.

There is a guy at work who couldn't stomach defaulting on his note, so is selling his house and agreeing to take
a separate note to pay off some $30k. That's what I would do if I were to get rid of my underwater house.

As aneftp and other have mentioned, most USA-uns are not savers. They couldn't pay off a $50k cash note to save their lives.

What's going to happen when this law expires? One thing, I guess would be < short-sales and > foreclosures.
It sounds like there's going to be more to it than that.

Last edited by mortimer; 05-04-2011 at 01:57 PM..
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Old 05-04-2011, 06:46 PM
 
3,600 posts, read 6,799,011 times
Reputation: 1461
The more I think about it, it may become very complicated.

Like you mentioned above, there will be "sob stories" from people who are in dire distress and it's like kicking people while they are down.

But you know what, life has a reset button. If they can't afford the home, declare BK and move on. That's if they are truly in distress.

Look the IRS has made it clear that they will not pursue people for tax judgments for short sale deficiency who are "insolvent..aka broke" Just show the IRS your bank records and work paystubs. It's very simple to get the IRS off your back.

But for the strategic defaulters, the end game is over Dec 31st 2012. The IRS will still issue you the tax bill. Just prove to the IRS you are insolvent. Kinda of hard to prove to the IRS when you make six figures and defaulted on your home because you didn't want to pay up and could afford to.

I get the principal of this temporary forgiveness act. But like all laws, people have learned to game the system. And in doing so, the market is being flooded with more distressed properties (short sales) than need be.
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Old 05-04-2011, 07:25 PM
 
2,059 posts, read 5,763,347 times
Reputation: 1685
I sold my home overseas at a loss and I'm still paying off the note 4 years later. Simply walking away from your mistake is not an option there, you are held responsible no matter what, to the point where they'll withhold from your welfare if necessary. I don't think it's fair that people get to just walk away, and I don't think it is helping people make better decisions when it comes to home buying now, they're seeing everyone do it and assume they will be able to if they take a gamble that doesn't pay off.

It's like making divorce easier, people are less likely to rush into marriage if it's going to be almost impossible to get out of it later.
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Old 05-05-2011, 09:14 AM
 
Location: Albuquerque
5,548 posts, read 16,118,786 times
Reputation: 2756
Quote:
Originally Posted by aneftp
But for the strategic defaulters, the end game is over
Dec 31st 2012. The IRS will still issue you the tax bill.
As you said, it's complicated.

The tax bill will simply be a cost of doing the strategic default.
It's cheaper to pay the tax on the forgiven amount than to pay
the entire forgiven amount ( ie. tax on $100k might be $45k if
one is already in a high tax bracket ). The tax will be at the
taxpayer's highest marginal rate, not their average rate.

Of course, if the bank sells your loan and the collector comes
calling, you can say to the IRS that the amount was NOT
foregiven. -- What about then?

Later, when the collector settles with you for 20 cents on the
dollar, is that considered a foregiven amount? It's not really
the same - even if it works out that way for the defaulter.

I also wonder if it is possible to repeal the law early(?)
HAMP and HARP are miserable failures and should also expire early.
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Old 05-05-2011, 09:32 AM
 
1,073 posts, read 2,694,207 times
Reputation: 948
Quote:
Originally Posted by mortimer View Post
There is a guy at work who couldn't stomach defaulting on his note, so is selling his house and agreeing to take
a separate note to pay off some $30k. That's what I would do if I were to get rid of my underwater house.
What happens when the bank won't negotiate a payoff? What does a person do when they have another, better job in another state, are underwater on their mortgage (but still able to eek by every month and make their payments, even if it means dipping into savings periodically), and the bank won't approve a short sale, or negotiate a payoff? I know of at least two couples in this situation.
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