“Strategic” Default Question

[SD Realtor]

FLU, HLS is pretty adept at some of those rules, you may wanna pm him on it.

[UCGal]

[quote=flu]

I guess my followup question would be

1)If said person just defaults, can the creditor go through the motions of forgiving this loan while at the same time opting out of wrecking the person’s credit at the same time?

2)And the rules around loan forgiveness in lieu of the current climate, I’m wondering if they are drastically different now versus before in which loan forgiveness was a taxable event.

Maybe I’m not being clear enough, but I was wondering if someone would shed some light where I’m going with this….

And the basis for this was….

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

Specifically:
“This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
“[/quote]

As I read the link – debt forgiveness could only be non-taxable under the debt relief act IF it’s part of a restructuring or is a foreclosure.

So – if the borrower stops paying, the lendor (friend/family member) would need to draw up new terms (restructure) OR foreclose on them and take ownership of the house. Nothing saying they can’t let the defaulter still live there if they foreclose.

Also, nothing saying the terms of the restructured loan can’t be pretty nice ones…

The article also mentions “commercial” lenders… so I’m not sure of a ‘Bank of Dad’ type loan would fall under the provisions of the Debt Relief Act of 2007.

[UCGal]

[quote=flu]

I guess my followup question would be

1)If said person just defaults, can the creditor go through the motions of forgiving this loan while at the same time opting out of wrecking the person’s credit at the same time?

2)And the rules around loan forgiveness in lieu of the current climate, I’m wondering if they are drastically different now versus before in which loan forgiveness was a taxable event.

Maybe I’m not being clear enough, but I was wondering if someone would shed some light where I’m going with this….

And the basis for this was….

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

Specifically:
“This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
“[/quote]

As I read the link – debt forgiveness could only be non-taxable under the debt relief act IF it’s part of a restructuring or is a foreclosure.

So – if the borrower stops paying, the lendor (friend/family member) would need to draw up new terms (restructure) OR foreclose on them and take ownership of the house. Nothing saying they can’t let the defaulter still live there if they foreclose.

Also, nothing saying the terms of the restructured loan can’t be pretty nice ones…

The article also mentions “commercial” lenders… so I’m not sure of a ‘Bank of Dad’ type loan would fall under the provisions of the Debt Relief Act of 2007.

[UCGal]

[quote=flu]

I guess my followup question would be

1)If said person just defaults, can the creditor go through the motions of forgiving this loan while at the same time opting out of wrecking the person’s credit at the same time?

2)And the rules around loan forgiveness in lieu of the current climate, I’m wondering if they are drastically different now versus before in which loan forgiveness was a taxable event.

Maybe I’m not being clear enough, but I was wondering if someone would shed some light where I’m going with this….

And the basis for this was….

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

Specifically:
“This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
“[/quote]

As I read the link – debt forgiveness could only be non-taxable under the debt relief act IF it’s part of a restructuring or is a foreclosure.

So – if the borrower stops paying, the lendor (friend/family member) would need to draw up new terms (restructure) OR foreclose on them and take ownership of the house. Nothing saying they can’t let the defaulter still live there if they foreclose.

Also, nothing saying the terms of the restructured loan can’t be pretty nice ones…

The article also mentions “commercial” lenders… so I’m not sure of a ‘Bank of Dad’ type loan would fall under the provisions of the Debt Relief Act of 2007.

[UCGal]

[quote=flu]

I guess my followup question would be

1)If said person just defaults, can the creditor go through the motions of forgiving this loan while at the same time opting out of wrecking the person’s credit at the same time?

2)And the rules around loan forgiveness in lieu of the current climate, I’m wondering if they are drastically different now versus before in which loan forgiveness was a taxable event.

Maybe I’m not being clear enough, but I was wondering if someone would shed some light where I’m going with this….

And the basis for this was….

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

Specifically:
“This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
“[/quote]

As I read the link – debt forgiveness could only be non-taxable under the debt relief act IF it’s part of a restructuring or is a foreclosure.

So – if the borrower stops paying, the lendor (friend/family member) would need to draw up new terms (restructure) OR foreclose on them and take ownership of the house. Nothing saying they can’t let the defaulter still live there if they foreclose.

Also, nothing saying the terms of the restructured loan can’t be pretty nice ones…

The article also mentions “commercial” lenders… so I’m not sure of a ‘Bank of Dad’ type loan would fall under the provisions of the Debt Relief Act of 2007.

[UCGal]

[quote=flu]

I guess my followup question would be

1)If said person just defaults, can the creditor go through the motions of forgiving this loan while at the same time opting out of wrecking the person’s credit at the same time?

2)And the rules around loan forgiveness in lieu of the current climate, I’m wondering if they are drastically different now versus before in which loan forgiveness was a taxable event.

Maybe I’m not being clear enough, but I was wondering if someone would shed some light where I’m going with this….

And the basis for this was….

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

Specifically:
“This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
“[/quote]

As I read the link – debt forgiveness could only be non-taxable under the debt relief act IF it’s part of a restructuring or is a foreclosure.

So – if the borrower stops paying, the lendor (friend/family member) would need to draw up new terms (restructure) OR foreclose on them and take ownership of the house. Nothing saying they can’t let the defaulter still live there if they foreclose.

Also, nothing saying the terms of the restructured loan can’t be pretty nice ones…

The article also mentions “commercial” lenders… so I’m not sure of a ‘Bank of Dad’ type loan would fall under the provisions of the Debt Relief Act of 2007.

[scaredyclassic]

in terms of estate planning, it does seem like it would be best to die with everything distributed pre-death and with all your credit cards way maxed out. Boomer senior citizens seem to me more likely to really follow through on this strategy than the current set of elderlies.

[scaredyclassic]

in terms of estate planning, it does seem like it would be best to die with everything distributed pre-death and with all your credit cards way maxed out. Boomer senior citizens seem to me more likely to really follow through on this strategy than the current set of elderlies.

[scaredyclassic]

in terms of estate planning, it does seem like it would be best to die with everything distributed pre-death and with all your credit cards way maxed out. Boomer senior citizens seem to me more likely to really follow through on this strategy than the current set of elderlies.

[scaredyclassic]

in terms of estate planning, it does seem like it would be best to die with everything distributed pre-death and with all your credit cards way maxed out. Boomer senior citizens seem to me more likely to really follow through on this strategy than the current set of elderlies.

[scaredyclassic]

in terms of estate planning, it does seem like it would be best to die with everything distributed pre-death and with all your credit cards way maxed out. Boomer senior citizens seem to me more likely to really follow through on this strategy than the current set of elderlies.

[briansd1]

I’ve not studied that particular tax code for specifics and dates.

But we could have something like this:

Dad (or dad’s company) could lend son the money to buy a house.

Son defaults.

Debt is forgiven but no foreclosure action is taken (nothing even need to gets recorded with the County).

Dad takes a bad debt write-off and son doesn’t pay any taxes.

Win-Win. Lose-lose for the government.

[briansd1]

I’ve not studied that particular tax code for specifics and dates.

But we could have something like this:

Dad (or dad’s company) could lend son the money to buy a house.

Son defaults.

Debt is forgiven but no foreclosure action is taken (nothing even need to gets recorded with the County).

Dad takes a bad debt write-off and son doesn’t pay any taxes.

Win-Win. Lose-lose for the government.

[briansd1]

I’ve not studied that particular tax code for specifics and dates.

But we could have something like this:

Dad (or dad’s company) could lend son the money to buy a house.

Son defaults.

Debt is forgiven but no foreclosure action is taken (nothing even need to gets recorded with the County).

Dad takes a bad debt write-off and son doesn’t pay any taxes.

Win-Win. Lose-lose for the government.

[briansd1]

I’ve not studied that particular tax code for specifics and dates.

But we could have something like this:

Dad (or dad’s company) could lend son the money to buy a house.

Son defaults.

Debt is forgiven but no foreclosure action is taken (nothing even need to gets recorded with the County).

Dad takes a bad debt write-off and son doesn’t pay any taxes.

Win-Win. Lose-lose for the government.

[Author]

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