Strategic Default on Mortgage and Taxes

[Credit and Debt]

Any advice on How To do a Strategic Default on Mortgage?

What is the Mortgage Forgiveness Debt Relief Act of 2007?

The Mortgage Relief Act , which effects debts discharged on or after
Jan 1, 2007 and before Jan. 1, 2013, generally allows taxpayers to exclude
up to $2 million per married couple of mortgage debt forgiveness on their
principal residence (does not include second homes or income property).

IRS

[2ndTimeAround]

Originally Posted by Credit and Debt

[B]
What is the Mortgage Forgiveness Debt Relief Act of 2007?

The Mortgage Relief Act , which effects debts discharged on or after
Jan 1, 2007 and before Jan. 1, 2013, generally allows taxpayers to exclude
up to $2 million per married couple of mortgage debt forgiveness on their principal residence (does not include second homes or income property).

IRS

This applies to debt cancellation - when the loan is settled for less, as in a short sale. This Act protects the home owner against debt cancellation with what is owed on the total balance of a mortgage from what the loan was settled for. This difference can be seen as income, which can be charged by the IRS as taxable income..

Strategic Default on Mortgage and Taxes - some people that are using strategic defaults are doing so because they have become so exasperated at their lenders for not doing more to help them such as a loan modification. Anyone who has ever tried to get a loan modification would probably be the 1st to admit that lenders do not make it easy for a borrower to get one. Often times borrowers can’t get responses from banks to their questions and are repeatedly told to send in the same documents over and over again.

Mortgage Taxes - these are not part of the loan, these are for the county municipalities. If mortgage taxes do not get paid, the county can do a government foreclosure because they are in a silent 1st position to the title of the property.

Lenders will need to pay the taxes, to prevent a government action and to remain in 1st lien holders position. These happens when home owners do not pay their mortgage payments.

These taxes do not go away - in the terms of a loan modification, tax (and insurance) will be to be brought current before the modification is awarded.

[Denita]

To add a little to the above post, if you decide to sell your home via a 'short sale' the real estate tax debt is included in the short sale. In other words, in order to deliver clear title, the unpaid taxes must be paid at closing out of the proceeds. When the short sale is negotiated the attorney/title company will prepare a closing statement showing exactly how much the lender will receive after expenses (taxes, closing costs including attorney and Realtor fees). That is part of the info your lender needs to decide whether to accept the short sale offer.

IMO, if you are substantially upside down on your home and you can not make the payments due to a hardship, then by all means find an experienced Realtor with a successful short sale negotiating team in place (attorney and title company). Don't use the term "strategic default" as the lenders consider that a reason to not approve the short sale. Look up the true definition of "strategic default" - most successful short sale sellers have a true hardship that precipitated the default. Part of the process requires you to state your hardship in an accurate and detailed letter to the lender along with all of your financials. Don't do this without the whole team in place. Those agents that attempt it alone (without an attorney or title company) face an uphill battel that takes much, much longer than it does with the team in place.

[Johnny]

Well thanks for sharing all this information and I really don't know anything about it. Now I know everything of it.

[Goldbug]

Here's a video you may enjoy.


MUST SEE BUST: Mortgage Bankers Association 'Strategic Default' Exposed By Jon Stewart (Daily Show*Video) - Home - The Daily Bail

[2ndTimeAround]

Originally Posted by Goldbug

Here's a video you may enjoy.


MUST SEE BUST: Mortgage Bankers Association 'Strategic Default' Exposed By Jon Stewart (Daily Show*Video) - Home - The Daily Bail

I researched this a few months ago - brought a chuck-cal watching it..
Thanks for posting G.B.

[samson smith]

Originally Posted by Credit and Debt

Any advice on How To do a Strategic Default on Mortgage?

What is the Mortgage Forgiveness Debt Relief Act of 2007?

The Mortgage Relief Act , which effects debts discharged on or after
Jan 1, 2007 and before Jan. 1, 2013, generally allows taxpayers to exclude
up to $2 million per married couple of mortgage debt forgiveness on their
principal residence (does not include second homes or income property).

You know that, Strategic default is very big issue that must be understood thoroughly before you enter into it. If your analysis determines that it is not in your best financial interest to continue paying your mortgage, then I urge you not to let false beliefs about moral obligation put you in further financial peril.

[HoldSteady76]

My loan amount outstanding is approximately 93K (plus an interest free 2nd for 3K), my place is valued by the county at 36K and recently foreclosed units are selling for about 40K.

I have read about strategic default. I have my cease and desist letters prepared, I have installed Google Voice, I have transferred all of my debit account to another bank (so as to be independent - my bank was also my mortgage holder), and I understand my state (MN) allows for deficiency judgments, but most often this is not pursued. Since my loss is relatively small potatoes I am wagering that they will not pursue a judgement against me.

My only question before I miss my first payment is this: Will I be liable for the taxes on the difference? (assuming the bank sells it for 45K vs 95K owed am I going to owe taxes on 50K?!)

Because this is my primary residence I am thinking that I will not, but as with most things tax and legal I am confused. If anyone has gone through this and can offer advice I would be very appreciative.


"Generally, but not always, any tax owed on COD income generated from a foreclosure is forgiven because of the Mortgage Forgiveness Debt Relief Act of 2007.**"

Generally? wha? huh?

[1stStep]

As with any law, there's always a catch...in your position, I'd consider speaking to a real estate lawyer before doing anything further.

MN allows lenders to pursue deficiency balances - meaning after a foreclosure and sale, they would come after you for the rest. This is not cancellation of debt (as would happen in a short sale) and would not subject to the Mortgage Forgiveness Debt Relief Act of 2007.

[jq26]

Since you state that the unit is your primary residence, then you will not owe federal tax on the mortgage deficiency amount.

In many states, lenders are allowed to pursue deficiency judgments. In my state, they have a very limited period of time to pursue this. In some states such as Florida, they have up top five years from date of foreclosure. So far, there has been little impetus for these to be pursued by lenders. But if they think you are able to pay some or all of it, then they may pursue it. My understanding is that this is a very small minority of cases.

[victoria stiles]

Millions of American homeowners are walking away from underwater mortgages, utilizing the process of strategic default.