Jan 16th, the point of no return...

[AZChick]

Sorry I'm new to this forum and have tons of questions....I figured I'd post this here. My situation.....House worth 140K owe 260K. Lived in house a total of 3 years, rented house out for 11 months. Did a refi but only for purchase price, I took no money out. I have spoken to attny, she states I'm most likely good for debit relief act, all I need to do is file form 982. Yet i'm still very nervous about it.....I don't want a huge tax bill...

[cactus77727]

Hi AZChick. The attorney I consulted told me basically the same thing. I was dumbfounded when he first told me there would be no tax consequences for me. I didn't believe it either. But, these are crazy times.

Are you able to claim the home as a primary residence since you rented it out, but are back in it?

[AZChick]

I was told come tax time it's not going to matter whether I was there 2 years or not but rather if I've claimed the home as my principal residence in the past on my taxes, which I have. To be safe I'd better make sure I have 24 months of being here total in the past 3 years which I will have. It's very confusing...

[AZChick]

After stressing for about 2 months now I decided to call the IRS this morning and find out what the deal was with COD and capital gain/loss. As for as capital gain/loss I should be fine, definite loss. COD and getting a 1099C is still unclear to me. If AZ is a nondef/nonrecouse state, I should not be getting a 1099 at all, hence no COD. But it seems people are getting 1099's in AZ right? Then I move to the MFDRA, which I should be fine for. What I don't understand is this, if AZ is a nonrecourse state, granted you meet those guidelines, why should I get a 1099C at all. If the lenders only recourse is to take the house back then that should settle it, all I would have to work out is the gain/loss. According to IRS man, the 1099 will note if I was personally liable or not, if not it's a gain/loss issue, if I am liable, then it's a gain/loss issue as well as a COD(cancellation of debit issue). Anyone know, anyone expecting or gotten a 1099C before? Any help is appreciated. Isnt' it horrible that I'm spending my holiday trying to get out of this mess....

[AZChick]

30 minutes later... I've called two different local tax people, both have different answers, but both agree I would qualify for MFDRA of 2007. No one really understands this nonrecourse/anti def state issue. Since I refi'd the loan is no longer nonrecouse, but becaue I am AZ and took no money out it will be treated as nonrecouse but I will have COD? What the heck.....I don't know.....seems like walking my have to be a plan for use...we've tried selling, renting, nothings seems to work....and a short sale only seems to benefit the realtor and not me...nor do I want to try to become insolvent....I don't know what to do...

[turksteelman]

AZChick,
I'm in the same boat as you are. My property forecloses Jan 20th. All we can do is wait until next year and then worry about the tax implications but I am going one further and letting my tax accountant set me up for the exposure next year. Maybe there is something they can do now that will lessen the blow at the end of 2009. I did do a refi and took money out but it should still be considered nonrecourse according to the legal advice I have aquired. Worst case, you have to show insolvency at the end of next year. From what I read on the forums here, they look at your financial status the day before your foreclosure so don't pay off those credit cards or loans. I am going the minimum payment route for the next month or so. Good luck in your search for more info. Yours is a very important post that will affect many of us in AZ.

[oregonheaven]

AZ - calling the IRS, that is funny. Oh, the stories I could tell. The IRS has purposefully (my opinion) never defined non-recourse vs. recourse. But let me give you the history here as I understand it. The IRS issued a field advisory opinion (which is not binding or even citable in a tax court I believe) in 1995 that declared the presence of anti-deficiency laws do not make purchase money mortgages de facto non recourse. The logic (as screwed up as it may be and as I understand it) was that a lender could forgo the property and sue you on the note instead. We all know they would never do that because most people in foreclosure don't have anything to take, and its not worth their time. But since they technically have this "election", then the anti-deficiency law does not apply until they have made this "election." Hence, the loan is not de facto non-recourse. However, there is a school of thought that says if they actually execute a foreclosure proceeding against you, it is an acknowledgement of non-recourse at that time, and they should not send you a 1099C. In fact, Freddie Mac even instructs lenders to only make a recourse determination on the 1099C based on facts of state law. However, as I just explained, the IRS apparently didn't care too much for that standard in 1995 in California. Also, I know less about the 1991 field advisory opinion in Alaska, but I hear it said the same thing in regard to purchase money mortgages not being de facto non recourse. However, please note I am not an attorney or a CPA.

That said, it just doesn't matter too much anymore if it was your principal residence for any length of time and the loan was only for the acquisition or building of that residence and the underwater nature of the loan is due to market conditions or your diminished ability to pay (and its less than 2 mm). Recourse, non-recourse, doesn't matter. The only thing different now is having to file a 982 if you get a 1099C with box 5 checked that you were personally liable for the loan. And please remember that the IRS has stated that they go by what the lender files, and do not get in the business of challenging the lenders claim. If you have a disagreement with the lender, you must resolve it with the lender and get a corrected 1099C.

I hear a lot on insolvency these days. I don't think people realize how solvent they are from an IRS perspective. First, all your assets (including retirement assets) must be valued. This also includes clothes, jewelry, cars, etc. Also, I think there is a limitation on considering the negative position of your home as a current liability? Read up on this stuff. Like I've said before, this is not new to the IRS, and the "insolvency unit" has plenty of experience here. Better to use MFDRA instead, and remember, you can only declare one or the other.

[AZChick]

Where does insolvency come into this? I figured either I use MFDRA or I'll have to make payment arrangements with the IRS. I'm not to interested in going the insolvency route. I too believe that the IRS will not be very leniant about it and will really really require people to prove that they are insolvent. We do have retirement accounts, though they have been ruined by the economy... It would be lovely not to get a 1099C at all, I guess we'll see.

I tried to explain this to the IRS man but he didn't get it, he just said my loan was nonrecouse and I wouldn't get a 1099C, I guess it's all up to my lender, depsite the fact that I live in AZ. If they can't come after me or choose to not come after me, then it seems no 1099C right? I wonder which one it will turn out to be???

I'm hoping others who were forclosed on this year will share into with this.... thanks for your insight oregonheaven.

[KT in CA]

For those of us who don't qualify for the MFDRA (like us who refinanced) we will have to depend on insolvency for some relief. On the IRS website for MFDRA they state if you can't find relief under MFDRA you may be able to under insolvency. If you don't own your car, have $40k in cc debt, and have no retirement assets, it seems it would be pretty easy to show insolvency by showing credit card statements, loan statements, bank statements, any other debt statements and retirement account statements if there are any. I have checked several places and have not been able to find out how the IRS requires you to "prove" insolvency. It just seems to me the IRS is expecting people to file insolvency since they state it's another way to obtain relief. They have to expect people to file for it if they list it as another way to get some relief. I guess we'll find out how hard of a line they are taking when the people who foreclosed in 2008 start doing their taxes.

[AZChick]

Oh, thanks for clearing that up for me, I refi'd also but took no money out, I'm assuming those that refi'd and took money out then would not qualify for MFDRA and could use the insolvency route. So many terms and conditions it's amazing, thank God we have a site such as this to help one another and educate ourselves. I can't belief how quickly I've learned all of these terms, I wouldn't have thought in a million years I'd be where I am now, but here I am.....seems I'm not alone and that is comforting....

[AZChick]

I'm researching this to see if it would be a good resource for my parents. Does the lender have to agree to do this? Are the tax issues the same as a regular foreclosure? Also can they come after you for the remainder? While in default do banks make this an option to borrowers? Are any lenders allowing this? Any info would be helpful....

[cactus77727]

Give us the details on your parents home and their situation.

As for deficiency in AZ...You've probably seen this already?

A note regarding Deficiency Suits: A lender may not bring a deficiency suit against a person who lost a property that is 2.5 acres or less at a foreclosure, provided the property was a single one-family or a single two-family dwelling. This is so even if the high bid at foreclosure was less that the balance due on the loan. However, in foreclosures against other types of property, a deficiency suit is allowed, but is limited to the difference between the balance owed and the fair market value of the property, and then only if the suit is brought within ninety (90) days of the power of sale foreclosure.

For me and some others in Arizona, deed in lieu, short sales, etc, only make work for yourself, are highly unlikely, and don't really have any advantage over foreclosure walk away. So why bother. Give us some more details so we can see if your folks have more options.

[cactus77727]

You can also read what my attorney had said about Arizona in my first post last year. another one bites the dust - 80/20 Litton/Specialized

Once I ran the numbers my decision was obivous, athough it took a while for me to allow it to sink in. Every situation is different though.

[AZChick]

AZ home,

owe 185

worth 120

one loan, never refi'd

They don't want to ruin their credit but need to scale down due to retirement and dad's had a few strokes......any ideas?

[cactus77727]

First let me say, I'm just another Arizona walker. I'm not a expert at this.

Sorry about your dad. I know all too well the challenges of dealing with sick parents.

They are obviously underwater significantly on the home. The values will not be coming back within the next five to ten years. In my opinion the mortgage they are paying is virtually worse than renting.

Assuming they have retirement income, would there be loan mod numbers they'd agree to, and would it be best for them long term? And what is the probablility of getting that mod?

Or, as I've told my retired mom (post economic collapse): look mom your plan A is no longer viable. We need to revise your plan. So maybe come up with some good plans B, C, and D for them. Is it possible your folks could find another place to live, where they could be more comfortable, have less yard work, closer to health care, etc, and have more money at end of the month?

BTY: Have your folks lived in their home a very long time? Are they emotionally attached to it in other words. I've had to deal with that with my mom.

Come up with a few senarios , and then get qualified legal and accounting advice. The costs of professional advice can be minimized if you do your homework and bring all the information to them, and ask the right questions.

[AZChick]

This Friday....we'll be offically late, I'm scared of harrassing phone calls. I think I will right away send a letter stating I only wish to be contacted in writing on this issue. I'm just plain scared of the unknown, what will happen, how will this all end......I never thought in a million years I'd be facing these types of issues.....sigh.....

[KT in CA]

I am with you AZChick. We are officially late on the 17th. We will answer the phone once probably to tell them we can't pay any longer, tell them they can't call us at work, ask them not to call us at home anymore, and then send the letter off to ask to only be contacted in writing.

I'm the same as you. I'm not necessarily worried about how it will end, because I know that, but I really don't want to deal with the phone calls. We never thought we'd be in this situation either. I TOTALLY know how you feel. You are not alone, girlfriend...you are not alone.

[Lisa in MN]

Nope AZChick, you are not alone. Once you make the decision to stop paying, it gets easier, believe me. We havent paid since March of 08- and finally got a great loan mod from WAMU.
Chin up, breathe in and out ( maybe have a glass of Shiraz or Merlot

Lisa

[AZChick]

Thanks guys, this site has been so helpful. I keep educated and updated, and reading everyone's stories makes it easier, I know that I'm not alone....I'm trying to get my parents to make some sort of decision meanwhile dealing with my own issues.....chin up though!

[cactus77727]

As for the phone calls, I think it varies greatly. For me, even with two different servicers on my loans, the calls have not been overwhelming to this point. Over three months late now. I guess it depends on your plan. I've been telling them all along "I have no money. I'll catch up when I can." They will ask if you have savings, retirement, a rich relatives... anything? Just tell them. "Nope, sorry, I don't have any money. OK Bye."

[AZChick]

Okay, here I go tmrw is the 16th! Payment is due......wish me luck!

[IGiveUP]

Originally Posted by AZChick

Okay, here I go tmrw is the 16th! Payment is due......wish me luck!

AZChick,

Me too. This is our first completely missed payment. So we should start getting the phone calls this weekend or Monday. I'm full of dread too. But I think there are lots of us who chose January as our "beginning" of sorts.

And I do wish you good luck and strength to deal with it.

[KT in CA]

Me too!! Ours is late on the 17th.

Here goes nothin'!

KT

[pjd123]

Good luck AZChick! We are officially in forclosure this month - last full payment was Sept. It scary, but when you don't have any choice, you just do it.

Hang in there.

pjd123

[cactus77727]

Okay, here I go tmrw is the 16th! Payment is due......wish me luck! ---- I'm full of dread too.

AZChick, IGiveUP

Congratulations!!! Don't worry too much. Easy to say right? I know, I was where you are now, four or five months ago. I wish I could say something to save you the bother and worry, myself and countless others have gone through.

Let me put it this way, the biggest battles you will face will be within your own mind. It's a mind game. Kind of like The Matrix movie. Once you "get it", you realize it's all relative. It is all in how you think about it. For me, my biggest battle right now, is the anger I feel towards the whole system. Others think this makes them a failure. Some feel guilty. Some fear the unknown.

So I remind myself: Don't let this change who you are. You are not your house. You are not your job. You are not your car. And you certainly are not a fico credit score. But the system wants you to think that IS what you are. Then, the matrix has you.