patrick.net

I wonder - does this explain extend and pretend, at least in part?

If the bank writes off your foreclosure on thier 2012 'tax return' you are forgiven.

If the bank writes off your foreclosure on thier 2013 or after tax return YOU MIGHT PAY ALL TAXES ON THE UNDERWATER AMOUNT! (or declare BK? Or prove insovlency?)

How the hell can anyone own or invest in real estate in this crazy house with all the changing laws/mortgages/prices/market crashing? I give up!

I bet congress is going to extend it beyond 2012.

I wish this would happen, **** the people who pulled money out of their mansion and then walked away. Since it's getting close to election time though, it's more likely it will be extended, but it definitely shouldn't.

Now I know how all my neighbors got new cars, remodeled kitchens, all the latest toys and just seemed to have way more money then me. I was just too cheap to do anything to increase my mortgage principal. I though I was being smart with my finances. Now i know better. Follow the heard. Spend more then I make any way I can. Don't worry about paying it off big brother will make laws to help me and my fellow breeders. Free housing, SUV's, plasma TV's and millionaire lifestyles for all. Is this a great country or what?

Norbecker says

Free housing, SUV’s, plasma TV’s and millionaire lifestyles for all. Is this a great country or what?

For how long will it be that way? Forever? I doubt it.

bubblesitter says

For how long will it be that way? Forever? I doubt it.

Not much longer. Then everyone will complain that this country has gone to shit; that people whose work could easily be cut or outsourced lived lives that people in other countries could only dream about. Housing bubble? More like the entire economy is a bubble.

We live in a global economy now more than ever. At some point our standard of living is going to have to match what we produce, which other than food, isn't much.

StoutFiles says

our standard of living is going to have to match what we produce, which other than food, isn’t much.

Very true. All of us will have a mansion worth a million $ but it will have no value against any currency of the world - Zimbabwe style. :)

bubblesitter says

I bet congress is going to extend it beyond 2012.

unlikely, lately they've been fighting day and night to keep people in debt.

EMan says

unlikely, lately they’ve been fighting day and night to keep people in debt.

LOL.

I have brought up this topic since I have been looking at lots of foreclosures lately and there are two types:the bubble buyers (who may have gotten a HELOC also and defaulted).

Then there are the pre bubble buyers, many of whom pulled out MILLIONS from one Mansion. Crappy starter home/condo was only able to pull out hundreds of thousands in CA in free HELOC money.

One I looked at they paid 1.8 in 06 with like 5% down payment - and pulled out 750k in 07 then default. That 750k never has to be paid back, is not taxed, and no creditors will hound them, no bankruptcy is needed, they dont have to hide assets or anything. ITS CRAZY, all the rules are thrown out!

Multiply this by millions of properties and we have a whole generation of 'bank robbers' who got off clean and can now use that money to pay cash for a house (if they still have it).

Anyway here is the silver lining : its a great time to buy used mercedes/bmw. yuck.

PockyClipsNow says

One I looked at they paid 1.8 in 06 with like 5% down payment - and pulled out 750k in 07 then default. That 750k never has to be paid back, is not taxed, and no creditors will hound them, no bankruptcy is needed, they dont have to hide assets or anything. ITS CRAZY, all the rules are thrown out!

750K tax free. Just like winning the lottery! Now I really feel like a financial jackass. Why didn't I do that. Why didn't I stop paying my mortgage, have a wad of cash and live for free for years.

Why would anyone continue to pay their mortgage when their friends and neighbors hit the jackpot and get away with it. This is the ultimate white collar crime.

Its actually BETTER than a lotto win- tax wise.

You pay the highest state+federal tax rates on a lotto hit. So you only get 55% or so of the 1m dollar lotto win.

If you won 1m in the lottery you would keep only about 550k.

You would have to win about 1.5 million in the lotto to take home 750k.

If I'm reading the IRS website correctly, canceled debt from a NON-RECOURSE loan is NOT taxable, regardless of whether this law is extended

"Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
...

Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences."

PockyClipsNow says

One I looked at they paid 1.8 in 06 with like 5% down payment - and pulled out 750k in 07 then default. That 750k never has to be paid back, is not taxed, and no creditors will hound them, no bankruptcy is needed, they dont have to hide assets or anything. ITS CRAZY, all the rules are thrown out!

Are you sure this is true? If what you are talking about is them taking out a HELOC, that is usually a recourse loan, and they do owe it back and creditors can come after them.

As everyone knows, I've been flogging this meme for awhile. The Mayans got something right; the great reset will happen at the end of 2012. And the best thing about the PCN plan, no commission paid to used home salesperson -- priceless.

shrekgrinch says

WTF?

why do you always say WTF

Perhaps I'm reading this wrong but doesn't this mean you can only be forgiven for purchase/improvement money and ATM machine money not apply?

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing
separately.

Also, there is no guarantee that the bank will forgive the debt - especially if you live in a state that allows garnishments and other "fun" things. In some states, judgments can be renewed pretty much forever whereas other states the lender only has 10 years to collect or they are SOL.

EMan says

bubblesitter says

I bet congress is going to extend it beyond 2012.

unlikely, lately they’ve been fighting day and night to keep people in debt.

You're right. The responsible thing for our legislators to do is make it even easier for people to walk away. The last financial melt down sure was a blast. Maybe we can have a $10T TARP this time!

ch_tah says

Are you sure this is true? If what you are talking about is them taking out a HELOC, that is usually a recourse loan, and they do owe it back and creditors can come after them.

This rarely ever happens. They're using most of their resources just to process these deadbeats. Finding out which mattress they stuffed the cash into would be nigh-impossible.

PockyClipsNow says

Yes we still have debtors prison, Wesley Snipes owed the IRS $ and he is in jail.

That's not debtor's prison. Wesley Snipes willfully and criminally didn't pay his taxes. That's not the same as failing to repay a debt.

bubblesitter says

I bet congress is going to extend it beyond 2012.

Unfortunately, I agree with bubblesitter. Congress is exactly this stupid.

ch_tah says

Are you sure this is true? If what you are talking about is them taking out a HELOC, that is usually a recourse loan, and they do owe it back and creditors can come after them.

In addition, it wouldn't qualify for this exemption. If this was not purchase money, not a refi of purchase money, or was not plowed back into the house, then it doesn't qualify for this exemption. Read what EightBall said.

But note that it's rare that the banksters go after people for deficiency judgments in this climate.

OK so this only applies to a Home Equity Loan IF that loan was used to improve the property AND there is a 2m cap. (I wonder if the total forgiveness cap is 4m for a married couple filing jointly?)

Lets remember the HELOC money that was used to buy a mercedes/plastic surgery ALSO is not supposed to be a tax write off unless spent to upgrade the home....haha... I'm pretty sure everyone writes off that HELOC intrest and doesnt deduct the value of the mercedes from the write off total. Am I wrong?

Anyone here a tax accountant?

This link trys to explain more than the irs site:
http://taxes.about.com/od/income/ss/mortgage_cancel_3.htm

Wow, lots of lost people are clueless here.

First, non-recourse or recourse loans DO NOT change how the IRS taxes an individual for "forgiven debt" or "capital losses". The IRS is Federal whereas recourse and non-recourse laws are State.

After a foreclosure or short sale the lender will issue a tax form that indicates the total amount forgiven debt.

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

It might make sense for people to walk today to insure foreclosure by December 31st, 2012. Relying on a renewal is gambling.

kronicade says

Wow, lots of lost people are clueless here.

First, non-recourse or recourse loans DO NOT change how the IRS taxes an individual for “forgiven debt” or “capital losses”. The IRS is Federal whereas recourse and non-recourse laws are State.

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

Did you even read your own link?

Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

State laws can certainly affect federal tax consequences. For example, it matters whether you're in a community property state or a separate property state. The IRS has Publication 555 regarding this issue:

http://www.irs.gov/pub/irs-pdf/p555.pdf

Yeah, I wrote that first part all wrong. What I meant to say is that the State determines recourse vs. non-recourse loans.

The IRS only taxes (or doesn't tax) based on what the State determines.

People (above) were writing like the IRS is changing whether or not a loan can be recourse non-recourse.

I'm sure some people will try to sue thier banks to FORCE them to foreclose by 12/31/12.

This seems like a poor way to run things.

PockyClipsNow says

I’m sure some people will try to sue thier banks to FORCE them to foreclose by 12/31/12.
This seems like a poor way to run things.

LOL.