More homeowners mailing keys to lenders instead of payments

[mawilson 2,133]

Assuming the same facts except that the debt is nonrecourse, the result would be quite different. The taxpayer would realize zero taxable ordinary income from the discharge of debt. Instead, the entire $55,000 difference between the unpaid principal of the debt and the taxpayer's adjusted basis ($100,000 less $45,000) would be treated as a taxable capital gain on the "sale or other disposition" of the property -- again, even though no cash is received by the taxpayer at the time of foreclosure.

Its still taxable, albeit differently.

This example doesn't make any sense. Nonrecourse debt is included in the basis - why would the

adjusted basis be $45,000 when the property value is $80,000 and the debt is $100,000?

[Fandango 1,439]

What is the Mortgage Forgiveness Debt Relief Act of 2007?

The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.

What does that mean?

Usually, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude certain cancelled debt on your principal residence from income.

http://www.irs.gov/individuals/article/0,,id=179414,00.html

[Amby 490]

"We paid $585,000. It was the peak of the market, but no one told us," said Shaffer, a real-estate agent from Colorado. "We would probably have to spend the next 20 years trying to get right on the mortgage. That's crazy."

What's crazier is that this supposed re agent didn't know? gimme a break!

and 0 down on an almost $600k house is ludicrous.

It's not the banks' fault...its THEIR fault...and people like this who just want to 'give up' are the ones partially creating this problem in the first place. You buy a crazy expensive house that you clearly cannot afford, take out some dodgy as hell loan, and now you want us to cry for you?

Piss off!

Couldn't have said it better myself!!!

PISS OFF! Love ya lisa!

[Dan J 277]

You quoted an explanation of disposition of property subject to a recourse debt.

We are talking about non-recourse debt.

Forgot to add this part:

Assuming the same facts except that the debt is nonrecourse, the result would be quite different. The taxpayer would realize zero taxable ordinary income from the discharge of debt. Instead, the entire $55,000 difference between the unpaid principal of the debt and the taxpayer's adjusted basis ($100,000 less $45,000) would be treated as a taxable capital gain on the "sale or other disposition" of the property -- again, even though no cash is received by the taxpayer at the time of foreclosure.

Its still taxable, albeit differently.

Not always the case anymore, I'm afraid.....

But the Mortgage Forgiveness Debt Relief Act is not permanent, and can only be used for for tax years 2007,2008 and 2009.

[Fandango 1,439]

"We paid $585,000. It was the peak of the market, but no one told us," said Shaffer, a real-estate agent from Colorado. "We would probably have to spend the next 20 years trying to get right on the mortgage. That's crazy."

What's crazier is that this supposed re agent didn't know? gimme a break!

and 0 down on an almost $600k house is ludicrous.

It's not the banks' fault...its THEIR fault...and people like this who just want to 'give up' are the ones partially creating this problem in the first place. You buy a crazy expensive house that you clearly cannot afford, take out some dodgy as hell loan, and now you want us to cry for you?

Piss off!

Couldn't have said it better myself!!!

PISS OFF! Love ya lisa!

Right back atcha!

It just focking grates on my nerves when peeps play the 'oh it's the bank's fault' bullsh!t...Hello? Are you an adult? Can you read? Did you READ what you were signing? Did the bank rep/mtg broker hold a gun to your head and force you to get that house that you can't afford?

Oh a 0 down, seller paid closing costs, interest only loan with prepayment penalties with an ARM and a balloon payment in 2 years sounds swell!

Yeah, that's the banks' fault

[Dan J 277]

Assuming the same facts except that the debt is nonrecourse, the result would be quite different. The taxpayer would realize zero taxable ordinary income from the discharge of debt. Instead, the entire $55,000 difference between the unpaid principal of the debt and the taxpayer's adjusted basis ($100,000 less $45,000) would be treated as a taxable capital gain on the "sale or other disposition" of the property -- again, even though no cash is received by the taxpayer at the time of foreclosure.

Its still taxable, albeit differently.

This example doesn't make any sense. Nonrecourse debt is included in the basis - why would the

adjusted basis be $45,000 when the property value is $80,000 and the debt is $100,000?

You really should just read the link:

The adjusted basis is the sum of the following:

• the amount of the original cost incurred by the taxpayer when the property was acquired, including the amount of any non-recourse debt assumed by the owner/taxpayer as part of the acquisition (also known as "original basis"),

• plus the costs of improvements (if any) made by the taxpayer to the property,

• less the amount of depreciation (or similar) deductions allowed (or allowable) to the taxpayer on that property.

[Fandango 1,439]

But the Mortgage Forgiveness Debt Relief Act is not permanent, and can only be used for for tax years 2007,2008 and 2009.

It's 2008 so it applies....

[mawilson 2,133]

You really should just read the link:

Dude, I know what the adjusted basis is.

I'm saying it's highly unlikely that the adjusted basis would be so low, yet you would still

owe $20,000 more than the market value of your property.

[w¡n9Nµ7 §£@¥€r 123]

This thread sure did take an amusing turn.

[Dan J 277]

You really should just read the link:

Dude, I know what the adjusted basis is.

I'm saying it's highly unlikely that the adjusted basis would be so low, yet you would still

owe $20,000 more than the market value of your property.

Its an example, insert your own numbers if you get hung up on that.

[kerewin21 2]

It just focking grates on my nerves when peeps play the 'oh it's the bank's fault' bullsh!t...Hello? Are you an adult? Can you read? Did you READ what you were signing? Did the bank rep/mtg broker hold a gun to your head and force you to get that house that you can't afford?

Oh a 0 down, seller paid closing costs, interest only loan with prepayment penalties with an ARM and a balloon payment in 2 years sounds swell!

Yeah, that's the banks' fault

Why should taxpayers bail out people who didn't read the fine print on what they were signing and were naive enough to think that they could forever pay less than they owed? It's true that some of the lending companies intentionally misled people, but in the end, if you're borrowing hundreds of thousands of dollars you need to do your research ahead of time.

What really gets me is how the bill passed earlier this month includes substantial help for the homebuilders lobby. Why should we bail them out? Real estate is a gamble as a business. I didn't hear any of them complaining when they were making ridiculous profits because the houses they were building were overvalued.

[greeneyedgirlfl 0]

It just focking grates on my nerves when peeps play the 'oh it's the bank's fault' bullsh!t...Hello? Are you an adult? Can you read? Did you READ what you were signing? Did the bank rep/mtg broker hold a gun to your head and force you to get that house that you can't afford?

Oh a 0 down, seller paid closing costs, interest only loan with prepayment penalties with an ARM and a balloon payment in 2 years sounds swell!

Yeah, that's the banks' fault

Why should taxpayers bail out people who didn't read the fine print on what they were signing and were naive enough to think that they could forever pay less than they owed? It's true that some of the lending companies intentionally misled people, but in the end, if you're borrowing hundreds of thousands of dollars you need to do your research ahead of time.

What really gets me is how the bill passed earlier this month includes substantial help for the homebuilders lobby. Why should we bail them out? Real estate is a gamble as a business. I didn't hear any of them complaining when they were making ridiculous profits because the houses they were building were overvalued.

I've been saying the same thing for a while...I've been the victim of an unscrupulous lender (and am still in litigation about it...), but I still am amazed how people are dumb (or greedy) enough to ignore what limitations they have in regards to purchasing a home.

[yogib37 3]

Admittedly I didn't read every single post in this thread so if this has been covered forgive me......

Firstly, any homeowner that believes that "mailing the keys" to the lender absolves them of financial responsibility, well then, they're in for a really rude awakening!

Banks do not absorb the loss on mortgages as most people believe but rather put these foreclosed homes up for sale, for whatever they can get, usually at auction....Great deal for the buyer at auction, but the delta, the difference between what was owed by the homeowner, and what the bank recovered, will forever be owed by the homeowner!

They will simply seek a judgement against the homeowner and this will haunt the homeowner all his, her, or their, life.

There's no such thing as "walking away and giving the bank the keys" as what you owe, you owe.

And if you think that the bank has an obligation to sell at what would be "reasonable" you'd be wrong again. For instance, if you bought the home for $500k, and you borrowed 490k, and the market crashes and will only bare say 200k for the house, then you owe the difference, 290K!

It's a myth that you "walk away", as my own brother can attest.....He couldn't even buy a car on credit for 10+ years following his naive notion that he could stick the bank with his loss.

what you are saying is 100% true and I agree with you.

one way you can walk away is if the bank agrees to a short sale. Meaning they will take what the house is sold for and then forgive the balance.

Lets take your example, since it is 4 am my brain cant think..

you buy the house for 500K and you sell it for 300K and the bank approves the sell, they will forgive you the 200k.. so you will walk away with that.

but I dont think just giving them the keys and they are off the hook..

yogi

[kaydee457 13]

It varies by state, but at the very least, you will likely end up with a tax liablity for the difference.

Explain. If the difference is negative, so is the tax liability (i.e. you claim a loss if the value of

your property is less than the adjusted basis.)

Not in New York you don't.......Real property is never 0.........This is more cost passed to you by the lender via a judgement.....

Edited April 22, 2008 by kaydee457

[mawilson 2,133]

It varies by state, but at the very least, you will likely end up with a tax liablity for the difference.

Explain. If the difference is negative, so is the tax liability (i.e. you claim a loss if the value of

your property is less than the adjusted basis.)

Not in New York you don't.......

What does being in New York have to do with your Federal Tax liability?