Default Dilemma

Default Dilemma
The subprime market was developed for people who don’t pay their bills.’”
“‘Now they owe more than they have,’ Robinson said. ‘They’re unable to sell because they owe more than it’s worth. (Buyers) waited too long to sell. They panic and they do a short sale.’”
“In short sales, sometimes the lender has to ‘eat’ the loss and sometimes the borrower carries it as a debt, she said.”

This story comes from Oregon but it is playing out in many parts of the country right now.

A new dilemma is realized by many who took out second mortgages on their homes. Recent laws passed by congress make second mortgages actionable, meaning the home owner can not declare bankruptcy and walk away from the debt. The bank has the right to take action to collect what it is owed.

The short sale rout:
OK, you’re patting yourself on the back for successfully negotiating the short sale of your house with the lender. You have a buyer at a lower price than what is owed the bank and the bank agrees to take less to keep the house off its books.

You are now broke but debt free right? Wrong!
The IRS is one step ahead of you. Recent changes in tax rules now make the amount the bank took as a loss on the short sale a monetary ‘gift’ to you, the home owner/seller. You are now not only broke but you owe taxes on the amount ‘gifted’.
One thing to keep in mind if you are forced to short sell your house.
Vern