[oregonheaven]

To prove that the crisis is not just in Florida, California, Arizona, and Nevada, I am posting my Oregon story. Situation as follows:

I am an ultra-responsible taxpayer/citizen with high 700's credit who has decided to walk away from his mortgage. Bought house in late 2007 (right when the peak hit here in Oregon) for $390k. Over the last year, both houses on each side of me have been in foreclosure (builders who went BK). One sold last month (bigger than mine, and nicer) for $330k. The other one goes to auction in early 2009 and will likely fetch $300k. Two others on the street have sold in foreclosure (similar size, lot, finishes) for $300k in the last three months. I owe $385k on a house that is now worth about $320k at best, and declining by the day. Several empty new homes all around me, so situation will get worse. Put $0 into the mortgage with Wells. No other mortgage on the property. All closing costs were paid by seller. Did not put a nickel into the house of my own money, not like I had any to begin with. Had good intentions with the home, but took a 50% paycut when I had to change jobs six months after buying it when the economy went south, meaning it now eats the majority of my paycheck leaving my family hardly anything to eat!

Have hired an attorney and CPA. I highly recommend this for anyone going through this, or thinking about it. The legal and tax consequences of this decision are very significant, and it is worth the one or two thousand dollars you will spend to retain counsel and expert accounting advice. I have no interest in modification with Wells because I can't afford the house anymore, and I can't sell it for years at this point. I just would like a DIL so my credit is not impacted as much. Anyone successful with Wells in this regard? I just missed my first payment. They are supposedly getting back to me in a few weeks to talk. I bet they call sooner when they get the letter from my attorney, or maybe not? Anyone comment here? Also, I am NOT an attorney or tax person by any means, but here are some things I have learned for others to consider that are going through this:

1) Get a competent attorney and CPA! Especially get a CPA who is familiar with the new laws surrounding the Mortgage Forgiveness Debt Relief Act of 2007. You may even need a tax attorney depending on your situation. Expensive, yes, but absolutely worth it. About the same price per hour as a therapist, but can actually help you do something about your problems!

2) Ask your attorney about the deficiency laws in your state. One thing I have discovered is that deficiency generally has two meanings, a bank meaning and a tax meaning. From a bank perspective, they want to collect a deficiency if they can do so under the laws of your state after the completion of foreclosure. Make sure you understand those laws and have an attorney tell them to you. Note, the Internet is not an attorney, and neither am I! Second, don't confuse deficiency for bank judgment purposes with tax (IRS) purposes. The IRS has been unbelievably silent on the difference between recourse and non-recourse loans. According to a couple of IRS field advisory opinions (not binding) in the early and mid 90's in both Alaska and California, an anti-deficiency statute does not create a de facto non-recourse loan for tax purposes.

3) Understand the tax laws! If a loan is non-recourse, the transaction (foreclosure) of your home is treated as a sale under usual capital gains rules that we are all accustomed to. But, most lawyers will tell you virtually no mortgage is non-recourse from a tax perspective no matter where you live or what the anti-deficiency laws say. That is because under most mortgages, a bank has an election to either foreclose on the mortgage or deed of trust, or sue the debtor under the rights of the promissory note, and forgo the secured property. Now, in practicality, a bank will almost always take the property and foreclose versus suing under the note (which I'm told they can do in most states even with an anti-deficiency statute). However, since the bank has this "election", the IRS can see the loan as recourse, even if the bank doesn't pursue the secured property. As I discovered, recourse loan accounting is not nearly as friendly because that is where you get mailed a nice 1099C from the bank for the amount of debt that you have had "forgiven" by them, which you generally must report on your 1040 as income. However, many people can now deduct that COD (cancellation of debt) income from the 1099C on Form 982 under the provisions of the Mortgage Forgiveness Debt Relief Act of 2007 if you meet several criteria, such as it's your primary residence, the loan was used entirely to build or acquire your home, etc. Like I said, I am in NO way the expert here, but I wanted to make you aware of all the different issues you need to ask your tax professional before going down this path. Thank goodness for the new legislation. Because of so many people underwater right now, there would have been an even bigger crisis without it in terms of more bankruptcies, etc.

3) If you go down this path, my personal recommendation is to not wait out the bank in your home for 6+ months. I know it's tempting, but use the time you have good credit to get a good rental with a solid landlord. Be very careful with landlords. Many are insolvent right now and borrowing from Peter to pay Paul. Check the history of the property you are renting with the local county appraiser to see when it was purchased. Chances are, if it was purchased prior to 2000, there is still equity in the property and unless the owner re-fi'd the heck out of it (like many current borrowers), you are probably safer than not. And finally, I personally would stay away from renting new homes. Builders are on the ropes, and when they go BK, you end up getting an unpleasant knock on the door as many of my renting neighbors have discovered.

So, back to the original question, anyone ever get a DIL with Wells? Thanks all! Peace for the new year.