Has anyone here ever gone through a Foreclosure on

**clovis** · #21 03/04/10, 08:22 AM

Is the OP still around?

grandmajo · #22 03/04/10, 10:09 AM

Quote:

Originally Posted by blooba

Have you talked to the lender on the possiblity of a short sale? it is where you sell the house and the bank settles for that amount of money. Probably won't happen if you owe alot more than the house is worth though.

My daughter-in-law did this. She owed about $60,000 on the house, the bank (Fifth Third) took it to sheriff's auction, where it sold for somewhere in the mid 40's.

When it came tax time, they sent her a form that showed the difference between what was owed and what the house brought, and she had to claim that difference on her taxes as income.

Cascade Failure · #23 03/04/10, 10:23 AM

No advice...but our prayers are with you.

blooba · #24 03/04/10, 10:29 AM

Quote:

Originally Posted by grandmajo

My daughter-in-law did this. She owed about $60,000 on the house, the bank (Fifth Third) took it to sheriff's auction, where it sold for somewhere in the mid 40's.

When it came tax time, they sent her a form that showed the difference between what was owed and what the house brought, and she had to claim that difference on her taxes as income.

Yea you do have to claim debt writeoffs ,of a certain amount, on your taxes, not sure where or how though.

WildernesFamily · #25 03/04/10, 10:49 AM

Additionally, in many states the bank can still come after you for the balance if you short sale. They used to sign a document saying that they wouldn't, but it is becoming harder to get that through them.

If they don't, then as grandmajo stated, any loss the bank takes is reported as income for *you* to the IRS. So if you're $100,000 upside down, then you will have to pay taxes on that in your next tax year.

A short sale will probably impact your credit rating *almost* as much as a foreclosure will, because in most cases the bank will not allow you to keep up with payments while you go through the process. Since it takes about 5 to 6 months to go through, you will have five 30 day lates on your file, plus two sixy days late and then a 90 days late as well.

Good luck Hopeful Lady, it's not a nice predicament to be in... praying for you.

My advice would be to find a realtor who KNOWS the ins and outs of short sales and foreclosures, and talk to them NOW. They will be able to present all options so you can decide what would be best.

oz in SC V2.0 · #26 03/04/10, 12:14 PM

I believe you do not have to claim the difference as income anymore,for at least the foreseeable future.

We are having this house foreclosed on,can't really give you many details as the lender has just started the process beyond you live rent free...

It isn't the end of the world that so many make it out to be however...and neither is bankruptcy.

People are too frightened of everything nowadays..if you are foreclosed on the lender doesn't really have much to gain from you,obviously you don't have any money...

Hopeful Lady · #27 03/04/10, 12:31 PM

Thanks again everyone for the advice and prayers. I am a strong believer that we will come through this too. Its nice to be able to come and gather info from the board.

Nevada · #28 03/04/10, 02:11 PM

Quote:

Originally Posted by WildernesFamily

If they don't, then as grandmajo stated, any loss the bank takes is reported as income for *you* to the IRS. So if you're $100,000 upside down, then you will have to pay taxes on that in your next tax year.

Yes, it will be reported as income, but she probably won't owe much (if anything) for taxes on it. She will only pay taxes on her extent of solvency, which normally isn't much after a foreclosure.

The mortgage company can submit a 1099-C Cancellation of Debt to the IRS for the uncollected debt, which allows them to write-off that amount on their taxes, but you can deduct your extent of insolvency. That's because after a foreclosure the house is no longer your asset, so it is no longer counted in your solvency calculation. You will only consider your other assets and debts in calculating your solvency. Here are some examples of how it would work if the mortgage company filed a 1099-C for $100,000 against you.

Your debt is more than your assets, so your are insolvent and you pay nothing.
Your assets are worth $2000 more than your total indebtedness, so you pay taxes on $2000.
Your assets are worth $100,000 or more than your debts, so you pay taxes on the entire $100,000.

The saving grace is that people who have their homes foreclosed on generally don't have a lot of assets anymore, so their extent of solvency is modest, and often they are even insolvent.

To deduct your extent of insolvency, you will need to file a Form 982 with your taxes. You will attach a note to Form 982 itemizing your assets & debts, and also calculating your extent of insolvency. Check the box in Part 1 line 1b, and then enter the extent of insolvency that you calculated on the attached note on line 2.

But there is a silver lining to the 1099-C. After the 1099-C is issued the debt is legally satisfied. The mortgage company can't report the debt to the IRS as your income and still come after you for the debt, since they can't have it both ways. They will write-off the debt and take a tax credit for it (they'll probably get 50 cents on the dollar for the debt). That's their choice, not yours. Therefore, it's over.

I wanted everyone to understand about this, so no one thinks he will be ruined for life at the IRS if their home is foreclosed on. Obviously that's not going to happen.

sgl42 · #29 03/04/10, 05:08 PM

re: foregiveness of debt is taxable
it was, and likely will be again, but often isn't right now. congress passed new legislation at the beginning of the housing bubble bursting to eliminate this for several years.

from the IRS website:

Quote:

http://www.irs.gov/newsroom/article/...174034,00.html

Home Foreclosure and Debt Cancellation

Update Dec. 11, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

more info at the link for those interested.

--sgl

Nevada · #30 03/04/10, 05:49 PM

Quote:

Originally Posted by sgl42

re: foregiveness of debt is taxable
it was, and likely will be again, but often isn't right now. congress passed new legislation at the beginning of the housing bubble bursting to eliminate this for several years.

I read that congress was working on that, but I didn't know it was in place. That's great.

This topic really deserves its own thread.

**clovis** · #31 03/05/10, 12:33 AM

Quote:

Originally Posted by Hopeful Lady

Thanks again everyone for the advice and prayers. I am a strong believer that we will come through this too. Its nice to be able to come and gather info from the board.

FWIW, I don't think that the bank will forclose on you if you are just a month or two behind. The bank really doesn't want another house to deal with. Of course, I could be wrong on this, but generally speaking, a month or two behind on payments...you should be okay.

Just try to get them caught up ASAP, and put this behind you.

If you could share more information about your ordeal, I think the smart folks here could give you even more help, and that help would be better directed for your personal situation.

HTH.

Clove

HOTW · #32 03/05/10, 02:29 PM

Many years ago we did a deed in lieu of foreclosure due to the fact that we inknowingly bought a money pit (from a good christian lady(her words) who assured us that the bills as presented were the absolute truth) After trying to mak epayments and keep up the house we finally approached the mortgage company who suggested we do so. The only thing we found we had to watch for was the mortgage bank then ater had it put on our credit as a foreclosure which we proved it wasn't and had it removed.

Nevada · #33 03/06/10, 01:25 PM

Quote:

Originally Posted by clovis

FWIW, I don't think that the bank will forclose on you if you are just a month or two behind. The bank really doesn't want another house to deal with. Of course, I could be wrong on this, but generally speaking, a month or two behind on payments...you should be okay.

Maybe not in a month or two, but they'll get serious about it the third month.

As far as the bank wanting another foreclosed house on their books, the dynamics have changed. Having another devalued house on the books isn't going to hurt their balance sheet the way it used to. Therefore, if they aren't generating meaningful revenue from the current mortgage holder they will foreclose and get a renter in the house to create some cash flow.

What I'm talking about is the easing of the "mark to market" rules for banks in April of last year, through FAS 157 and FAS 159. What that says is that banks don't have to value their real property assets and the current market value any longer. Instead, they can value the properties at some future value, maybe 5 years from now.

So if they loaned $250K on a home a few years ago that currently has a value of only $100K, they can say that they'll hold the house for 5 years to sell it for $250K. The declared value is now $250K, even though they really couldn't get half that much on the open market today for the house. That balances their books and makes the bank look healthy again.

Here is a plain English explanation of what I'm talking about.

So banks aren't hurt by foreclosures the way they used to be. This has changed the dynamics of the entire real estate market.

#34 03/06/10, 02:00 PM

In this particular event, Nevada is more or less right. Due to the TARP bailout, Banks never had to suffer the consequences of bad loans, and although the average news reader believed that banks were in trouble, they were, for all intents and purposes, handed money to keep up the status quo. So, although it appeared the entire mortgage industry was in deep trouble, there was never a second's concern on the banks' part. Three months, just like always, the ugly starts rolling in. The foreclosures today seem to be no different at all than the foreclosures of a few years ago.

**clovis** · #35 03/06/10, 09:50 PM

Interesting and good to know. Thanks for filling me in.

||Downhome|| · #36 03/06/10, 11:46 PM

banks are not into property management some may have enlisted property management firms but if folks cant pay a loan back what makes you think they can pay rent? its actually a liabilty, someone new moves in it could be another 6 months of no pay or longer! a lot of forclosers are sold as a portfolio to investors, here it gets sold at the courthouse. many people buying forclosures here are trying to flip them, and many times they get stuck holding the bag (greedy)

you either need to file chapter 13 if the bank wont work with you, you have to show that you can keep up with a regular payment and be able to pay it off in the proper time frame. the other option is cut your loss and go chapter seven and wipe out all your debt. if you dont do the chapter seven and they do gain the property and do a short sale , lets say you owe 100,000 they do a SS at 25,000 they can still come after you for the difference. chapter seven alliviates all of that.but there wil be assets that they will also make you liquidate to pay off the debt. you need to talk to some bankruptcy lawyers though, talk to at least three and dont tell them you talked to any others, just outline the facts dont hide anything about the situation.most bankruptcy lawyers will do a free evaluation if they think you qualify and there payment in a chapter thirteen will come out of the monthly payment,chapter seven most will want it up front though a few may agree to terms.

blooba · #37 03/07/10, 07:57 AM

Quote:

Originally Posted by Nevada

What I'm talking about is the easing of the "mark to market" rules for banks in April of last year, through FAS 157 and FAS 159. What that says is that banks don't have to value their real property assets and the current market value any longer. Instead, they can value the properties at some future value, maybe 5 years from now.

So if they loaned $250K on a home a few years ago that currently has a value of only $100K, they can say that they'll hold the house for 5 years to sell it for $250K. The declared value is now $250K, even though they really couldn't get half that much on the open market today for the house. That balances their books and makes the bank look healthy again.

lol, another way for these banks to smoke their books again. Wasn't that what got us into this mess in the first place?

frogmammy · #38 03/07/10, 08:04 AM

Op doesn't say what state they live in.

In Missouri, they can begin forclosure when you're one month late with payment.

Mon

Nevada · #39 03/07/10, 10:31 PM

Quote:

Originally Posted by frogmammy

Op doesn't say what state they live in.

In Missouri, they can begin forclosure when you're one month late with payment.

Mon

Yes. Missouri is a trust deed state, so a property in that state is subject to be in default with any breech of contract.

WildernesFamily · #40 03/07/10, 10:56 PM

Thank you to all who replied about the forgiveness of debt and corrected what I wrote. I didn't know that, it made for interesting reading.