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If its your primary residence, its not 'russian roulette' . Its a fact. No deficiency balance and the IRS will NOT consider it capital gains. Nationwide.
If you can show me the case law since 2009 where they do, then I would like to see it. Show the case law.
Deficiencies are state and not federal law. No deficiencies in CA but they can, though rarely do, happen in NV. And seconds are not dropped in NV and can be pursued after the foreclosure. Go to any NV district court. You will find some. The local credit unions have tended to pursue deficiency judgements though the big banks don't.
If its your primary residence, its not 'russian roulette' . Its a fact. No deficiency balance and the IRS will NOT consider it capital gains. Nationwide.
If you can show me the case law since 2009 where they do, then I would like to see it. Show the case law.
Like the other poster said, deficiency judgements are a matter of state laws and not federal.
What I think you are getting confused about are the tax ramification of cancellation of debt a lender will file with the IRS (1099C). If the lender files a 1099C. That becomes an IRS issue. With the mortgage and forgiveness act, if you receive a 1099C, you can file a form that exempts that 1099C "income" from being calculated against your personal income for that tax filing year. So if the bank files a 1099C and it shows 100K being "canceled debt". With the mortgage and forgiveness act (if you meet certain qualifications such as primary resident home cancellation of debt). The forgiveness act will not add that "income/100K forgiven debt" when you file your taxes. So you won't owe income taxes on that 100K.
Where you may be getting confused is what if the lender does not agree to a cancellation of debt (say in a foreclosure where you just "walk away" from the home without negotiation. The lender may sell off that bad debt to a collection agency. Because no cancellation of debt was negotiated, the lender/collection agency can pursue you for the deficient amount regardless if it's a primary or secondary home.
Of course state laws vary. People with non recourse loans (say most non-refinanced loans in California); lenders cannot purse defieincy judgments. But people say in Florida. Lenders can pursue deficiency judgments.
You gotta remember if it was as simple as "walking away" any affluent person would just walk away from any mortgage. They wouldn't care about credit since they could just pay cash or rent a home for a while. If there is no money consequences, almost any one would just leave their home cause they wouldn't be responsible for the 1099C taxes owe or any deficiency judgment. But like I explained above, it's not that simple.
Only in non recourse states like California can someone truly "walk away" from their primary mortgage and not face and money consequences. We've seen celebrities like Brian Austin Green (90210 fame) and NBA players like Kevin Martin (who makes 9-10 million a year) either short sale their homes or have it go into foreclosure without any tax consequences or deficiency judgments.
Ok guys. I guess where the guy just 'walks away' , the judge would be less sympathetic to their cause if its operated in bad faith.
However, if they are upfront and lay their cards on the table then I am correct.
If they , are unable to shortsale, and do a deed in lieu or even foreclosure if the lender wont offer deed in lieu , then on a primary residence there the courts wont allow banks or credit unions to sue. Since 2009 the federal government made it clear of this case. Unless there is an act of bad faith/ fraud by the borrower.
State and local governments cannot over ride federal law.
If the bank can prove fraud or bad faith or the borrower is walking around with 100k in assets somewhere then they might be able to make a case. But not withstanding these exceptions to the rule, then they wont.
IRS will not issue or consider it capital gains or gift either.
Ok guys. I guess where the guy just 'walks away' , the judge would be less sympathetic to their cause if its operated in bad faith.
However, if they are upfront and lay their cards on the table then I am correct.
If they , are unable to shortsale, and do a deed in lieu or even foreclosure if the lender wont offer deed in lieu , then on a primary residence there the courts wont allow banks or credit unions to sue. Since 2009 the federal government made it clear of this case. Unless there is an act of bad faith/ fraud by the borrower.
State and local governments cannot over ride federal law.
If the bank can prove fraud or bad faith or the borrower is walking around with 100k in assets somewhere then they might be able to make a case. But not withstanding these exceptions to the rule, then they wont.
IRS will not issue or consider it capital gains or gift either.
You are still wrong. It is a state issue. In CA a foreclosure is it on the first. In NV it may or may not be it. If a non-judicial the bank has 6 months to pursue the deficiency by a court suit. If a judicial the bank will likely pursue a deficiency judgement.
The feds have nothing to do with this. It is simply state law. The Feds only deal with the tax implications of what you do...
If you still don't believe it try to cite the federal law involved. You won't find it as it does not exist.
You are still wrong. It is a state issue. In CA a foreclosure is it on the first. In NV it may or may not be it. If a non-judicial the bank has 6 months to pursue the deficiency by a court suit. If a judicial the bank will likely pursue a deficiency judgement.
The feds have nothing to do with this. It is simply state law. The Feds only deal with the tax implications of what you do...
If you still don't believe it try to cite the federal law involved. You won't find it as it does not exist.
Actually because of the federal bailout to banks, judges will not allow them to then sue for deficiency balances owed if they take these funds. Regardless of the state law. The Federal Government enacted all kinds of mortgage relief programs. The lender would have to convince a judge why they cannot use those programs instead of enact such a hardship upon the defaulted homeowner. My co worker went through this already with a private lender who wanted to sue after she left the property. They wouldn't accept her short sales , and would not agree to the other thing mentioned. They foreclosed and she had to move out.
I did find the IRS site where the lender cannot show the deficiency balance as an income gift to the booted out borrower either. So ThomasDavie was right about that .
What the heck happened on this thread. This whole thing has become way off topic. I read this thread and it starts off being about working with the bank and ends up about whose ego is the biggest?
From what I know, there is no Federal program to actually stop deficiency balances. The states make those rules. So Thomas is wrong. The IRS does not allow lenders to write up gift 1099s for them. Thomas is right about that.
In actual practice, less than 1% of lenders chase deficiency balances as they are economically non productive and even harder to enforce. So the orginal guy who wrote its Russian Roulette is wrong. 99% chance of not having a deficiency balance is about as much of a sure bet as there is in life.
So while they insist on busting the guys chops for not being technically correct, he is correct beyond anyones actual expectation. The lenders opt for the federal tax write off on the debt and move on. I suggest we all move on as well.
What the heck happened on this thread. This whole thing has become way off topic. I read this thread and it starts off being about working with the bank and ends up about whose ego is the biggest?
From what I know, there is no Federal program to actually stop deficiency balances. The states make those rules. So Thomas is wrong. The IRS does not allow lenders to write up gift 1099s for them. Thomas is right about that.
In actual practice, less than 1% of lenders chase deficiency balances as they are economically non productive and even harder to enforce. So the orginal guy who wrote its Russian Roulette is wrong. 99% chance of not having a deficiency balance is about as much of a sure bet as there is in life.
So while they insist on busting the guys chops for not being technically correct, he is correct beyond anyones actual expectation. The lenders opt for the federal tax write off on the debt and move on. I suggest we all move on as well.
If its the case why don't the semi affluent (those making $100-200k) all walk away from their mortgages in defiencency judgment states?
It does happen. It's a huge risk you take if you play the game. If the bank files the 1099c on your primary home than the mortgage forgiveness act will waive that tax liability.
We are talking about if the bank doesn't file the 1099c and sells off your bad debt to another bank or collection agency. They can (depending on state laws) pursue and garnish your wages. Like I said this happened to my wife's old college roommate when she had a house go into foreclosure and they garnished her wages until she had to for bankruptcy.
This is real life situations about deficiency judgments. People in non recourse states have nothing to worry about if its there primary home and they didn't refinance. But people who have some assets in recourse states like Florida need to be concerned.
Now what are the chances? That's why I termed its Russian roulette. If you have no assets and no real income to pay back than the odds are in favor that they won't pursue you or if they pursue you they can't get anything.
But if you make a good living like my wife's college roommate ($100k as defense contractor in DC area along with her husbands income). You make enough where if they get a defiencency judgement you are screwed.
Look if it were that easy. Why aren't the upper middle class just walking away from their $500k homes they purchased in 2005 and rebuying similar homes for $300k in 2012? Some make enough to afford both mortgages at the same time?
Maybe this situation (about deficiency judgment) doesn't apply to the 98-99% of people like you said in real life situations where banks will just be wasting their time.
But when the mortgage forgiveness finally expires December 31 2013 (barring any last minute extension again). Homeowners who walk away have to eithe deal with banks in a defiencency judgment or the IRS with the 1099c they may get.
You do not want to deal with the IRS once this law expires.
Remember defiency judgments are done on a state level and cancellation of debt 1099C filed by lenders are done on a federal level.
Come next year homeowners are screwed if they get a 1099c from the IRS since the law expires (probably for good finally )
What the heck happened on this thread. This whole thing has become way off topic. I read this thread and it starts off being about working with the bank and ends up about whose ego is the biggest?
From what I know, there is no Federal program to actually stop deficiency balances. The states make those rules. So Thomas is wrong. The IRS does not allow lenders to write up gift 1099s for them. Thomas is right about that.
In actual practice, less than 1% of lenders chase deficiency balances as they are economically non productive and even harder to enforce. So the orginal guy who wrote its Russian Roulette is wrong. 99% chance of not having a deficiency balance is about as much of a sure bet as there is in life.
So while they insist on busting the guys chops for not being technically correct, he is correct beyond anyones actual expectation. The lenders opt for the federal tax write off on the debt and move on. I suggest we all move on as well.
This discussion is right on the OPs point. It is a bit of a shame that it was moved to a national forum when it was started in Las Vegas forum and was easily handled there as Nevada law is reasonably clear though complicated.
Your 1% number is likely correct or close to it. But it is also not the full story...it is seconds and HELOCs you need to be careful of...Many of the Banks have sold off all the seconds ahd HELOCs to third parties. Greentree for instance is BofAs receiver of seconds. And the rub is that the transaction may well not kill the other liens but simply convert them to unsecured. I know of no good statistic on how often this occurs. Under any circumstances however it is important that the seller understand where he ends up. In some states at least this can leave a seller exposed to sudden demands for a large payment years down the road.
So no the guy is not technically nor practically correct. He is wrong and putting readers of the thread at risk.
It is a weakness of CD that we approach RE as a national topic. There are parts that are but much is not. And this issue is both and cannot be dealt with without dealing with both.
So while they insist on busting the guys chops for not being technically correct, he is correct beyond anyones actual expectation. The lenders opt for the federal tax write off on the debt and move on. I suggest we all move on as well.
Thanks for the back up. lol. In all fairness I understand there is no actual law forbidding it. However, no lender will pursue it unless the borrower is foreclosing in bad faith. Odds are it wont be granted.
Modification programs, even principal reduction offers by the government to help both the bank and borrower, and shortsales and deed in lieu as options to all lenders , the judge would ask the lender why they didnt explore these options before foreclosure, and if the borrower is being upfront with the lender, most likely one of these two will be chosen. If so, no lender can act for judgement thereafter.
Its a hard sell to a judge that the lender can simply ignore all those options, foreclose and sue for deficiency balance without repeatedly trying to reach out to the borrower . Even if the borrower ignored these attempts , it would need to be shown to be willfully uncooperative to have any real effect in court. .
So even if all these conditions are met, and the bank has no other recourse, and after this still decides not to take the write off and sue for deficiency , they have to consider a whole new framework.
Debt collections. What are the costs of getting the judgement. What ability does the debtor have to repay the deficiency? Will it drive the debtor into bankruptcy, therefore reneging on all kinds of other debts in the process . Here is a good article on it.
Thanks for the back up. lol. In all fairness I understand there is no actual law forbidding it. However, no lender will pursue it unless the borrower is foreclosing in bad faith. Odds are it wont be granted.
Modification programs, even principal reduction offers by the government to help both the bank and borrower, and shortsales and deed in lieu as options to all lenders , the judge would ask the lender why they didnt explore these options before foreclosure, and if the borrower is being upfront with the lender, most likely one of these two will be chosen. If so, no lender can act for judgement thereafter.
Its a hard sell to a judge that the lender can simply ignore all those options, foreclose and sue for deficiency balance without repeatedly trying to reach out to the borrower . Even if the borrower ignored these attempts , it would need to be shown to be willfully uncooperative to have any real effect in court. .
So even if all these conditions are met, and the bank has no other recourse, and after this still decides not to take the write off and sue for deficiency , they have to consider a whole new framework.
Debt collections. What are the costs of getting the judgement. What ability does the debtor have to repay the deficiency? Will it drive the debtor into bankruptcy, therefore reneging on all kinds of other debts in the process . Here is a good article on it.
............you are virtually safe from a lender suing for deficiency balance after foreclosure..........
You are right. 99% of the time the lender writes it off and moves on.
I understand your position. 99% they won't got after you, "rare that they could pursue, "almost never will seek a judgement"
That's all dandy.
Now what happens when they do go after you? Like my wife's old college roommate? She's F'd. She had a foreclosure. Got in over her head with a fixer upper in suburban DC. She thought the problem would go away with the foreclosure. But gets nailed and they start garnishing her wages. She filed BK.
Think about that. At that point you got 2 choices. Pay up/try to settle or declare BK.
The issue depends on state laws. Creditors monitor dead beats. They aren't stupid. Say 5 years down the road and you think you are in the clear. Remember you have never negotiated a cancellation of debt. You still have that lingering potential for a judgement against you. Creditors get alerted you are trying to either secure a car loan or another mortgage. They will go after you. Than you are screwed.
Again 99% it won't happen to you. I get that. It's all risk reward going after someone. If you don't have money they really can't get anything from you. But it's better to try to negotiate a settlement before it goes into foreclosure. I've know people who earn $200-300k a year. One negotiated to pay back 60k of the 100k he was short. 10 year no interest from the bank. The bank forgives the 40k.
But if you think you are going to stiff the bank 100k and just walk and. If you dont negotiate you will have a lot hanging over your head for a long time if you live in a recourse state.
I don't want to be in the 1% that gets sued. It's not pretty. Never assume the bank will issue a 1099C. Unless its negotiated prior to cancel the debt.
Read. Because I live in Florida. Banks have up to 5 years to file a judgment (i believe there is legislation to try to shorten the law to 1 year to file) if they haven't canceled the debt. Than they have 20 years to collect. Like the article states you could be poor today but your financial situation can improve in 5 years and they will want their money back. Deficiency judgments are on the raise. Of course many of my attorney friends tell me there are various procedural defenses against a deficiency judgment. But hiring an attorney will still end up costing you another $2000-10k to defend yourself or they can negotiate a settlement for you if all else fails.
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