Tax Question aka Dead Horse

[SDnomore]

Hey everybody-

Love this forum and have learned so much from it. I have a somewhat dead-horse question to ask regarding foreclosure and tax implications (since they are always popping up). It seems to be such a confusing topic!

Question: I purchased a “condo conversion” (since many of those are in name only) about 3 years ago. I bought it with the worst possible type of loan, an 80/20 from Wells Fargo with both loans starting as HELOC’s. I’ve obviously learned what a sham that was. To make a long story short, I moved from the area about a year after buying it (job change). I rented it for awhile, but was over-strained between the rising payments and having to service other debt on less income. I looked at re-fiancing, but my credit had dropped significantly. I tried to sell, but the market was already starting to get chilly and I was already underwater at this point. After further consideration (and the fact that it was 100% financing), I decided to walk away and now the foreclosure process is almost complete.

Now I’m curious as to the tax implications that will be coming down the pike in a few months. I’m confused as to what quantifies as a non-recourse and recourse loan. At one point I did shift the 20% loan to a 5 year fixed, interest only rate. I just checked my credit report, the 80% loan says “foreclosure process” and the 20% says “bad debt, placed for collections, written off” (both with Wells Fargo). What will I be taxed on and/or what can I expect? I would just like some general information (understanding I should contact a tax lawyer as well).

[patientlywaiting]

If you didn’t refinance, you have nothing to worry about. Those loans are non recourse so debt cancellation is non taxable.

The IRS has an FAQ on that:

http://www.irs.gov/newsroom/article/0,,id=174034,00.html

[patientlywaiting]

If you didn’t refinance, you have nothing to worry about. Those loans are non recourse so debt cancellation is non taxable.

The IRS has an FAQ on that:

http://www.irs.gov/newsroom/article/0,,id=174034,00.html

[patientlywaiting]

If you didn’t refinance, you have nothing to worry about. Those loans are non recourse so debt cancellation is non taxable.

The IRS has an FAQ on that:

http://www.irs.gov/newsroom/article/0,,id=174034,00.html

[patientlywaiting]

If you didn’t refinance, you have nothing to worry about. Those loans are non recourse so debt cancellation is non taxable.

The IRS has an FAQ on that:

http://www.irs.gov/newsroom/article/0,,id=174034,00.html

[patientlywaiting]

If you didn’t refinance, you have nothing to worry about. Those loans are non recourse so debt cancellation is non taxable.

The IRS has an FAQ on that:

http://www.irs.gov/newsroom/article/0,,id=174034,00.html

[bubba99]

Your question involves a couple of twists and turns.

The first part is the purchase was done with “80/20 from Wells Fargo with both loans starting as HELOC’s”. Both were purchase money and in California are non-recourse if never expanded by adding charges to the LOC or refinanced.

The 80% may be (probably is still) non recourse and is not taxable. The foreclosure is the remedy. In California, a company cannot take two bites of the apple. If they foreclose on a loan, that is their only remedy. Some people might say that because the first was a HELOC, it is always recourse, but that is not the case in California. There is no debt forgiveness on the first, because it is a contractual/legal remedy, not loan forgiveness.

The second (20%) because it was refinanced is no longer purchase money loan and is recourse. The collections part is because the bank can come after you for all or part of the second. Any part of the second they “forgive” is taxable as “loan forgiveness”.

The real question you should be asking is “What will I do if Wells Fargo goes all the way after the total second mortgage?” There your options are pay it, negotiate it, or file for bankruptcy. The tax on debt forgiveness is only an issue if Wells is in a good mood.

[bubba99]

Your question involves a couple of twists and turns.

The first part is the purchase was done with “80/20 from Wells Fargo with both loans starting as HELOC’s”. Both were purchase money and in California are non-recourse if never expanded by adding charges to the LOC or refinanced.

The 80% may be (probably is still) non recourse and is not taxable. The foreclosure is the remedy. In California, a company cannot take two bites of the apple. If they foreclose on a loan, that is their only remedy. Some people might say that because the first was a HELOC, it is always recourse, but that is not the case in California. There is no debt forgiveness on the first, because it is a contractual/legal remedy, not loan forgiveness.

The second (20%) because it was refinanced is no longer purchase money loan and is recourse. The collections part is because the bank can come after you for all or part of the second. Any part of the second they “forgive” is taxable as “loan forgiveness”.

The real question you should be asking is “What will I do if Wells Fargo goes all the way after the total second mortgage?” There your options are pay it, negotiate it, or file for bankruptcy. The tax on debt forgiveness is only an issue if Wells is in a good mood.

[bubba99]

Your question involves a couple of twists and turns.

The first part is the purchase was done with “80/20 from Wells Fargo with both loans starting as HELOC’s”. Both were purchase money and in California are non-recourse if never expanded by adding charges to the LOC or refinanced.

The 80% may be (probably is still) non recourse and is not taxable. The foreclosure is the remedy. In California, a company cannot take two bites of the apple. If they foreclose on a loan, that is their only remedy. Some people might say that because the first was a HELOC, it is always recourse, but that is not the case in California. There is no debt forgiveness on the first, because it is a contractual/legal remedy, not loan forgiveness.

The second (20%) because it was refinanced is no longer purchase money loan and is recourse. The collections part is because the bank can come after you for all or part of the second. Any part of the second they “forgive” is taxable as “loan forgiveness”.

The real question you should be asking is “What will I do if Wells Fargo goes all the way after the total second mortgage?” There your options are pay it, negotiate it, or file for bankruptcy. The tax on debt forgiveness is only an issue if Wells is in a good mood.

[bubba99]

Your question involves a couple of twists and turns.

The first part is the purchase was done with “80/20 from Wells Fargo with both loans starting as HELOC’s”. Both were purchase money and in California are non-recourse if never expanded by adding charges to the LOC or refinanced.

The 80% may be (probably is still) non recourse and is not taxable. The foreclosure is the remedy. In California, a company cannot take two bites of the apple. If they foreclose on a loan, that is their only remedy. Some people might say that because the first was a HELOC, it is always recourse, but that is not the case in California. There is no debt forgiveness on the first, because it is a contractual/legal remedy, not loan forgiveness.

The second (20%) because it was refinanced is no longer purchase money loan and is recourse. The collections part is because the bank can come after you for all or part of the second. Any part of the second they “forgive” is taxable as “loan forgiveness”.

The real question you should be asking is “What will I do if Wells Fargo goes all the way after the total second mortgage?” There your options are pay it, negotiate it, or file for bankruptcy. The tax on debt forgiveness is only an issue if Wells is in a good mood.

[bubba99]

Your question involves a couple of twists and turns.

The first part is the purchase was done with “80/20 from Wells Fargo with both loans starting as HELOC’s”. Both were purchase money and in California are non-recourse if never expanded by adding charges to the LOC or refinanced.

The 80% may be (probably is still) non recourse and is not taxable. The foreclosure is the remedy. In California, a company cannot take two bites of the apple. If they foreclose on a loan, that is their only remedy. Some people might say that because the first was a HELOC, it is always recourse, but that is not the case in California. There is no debt forgiveness on the first, because it is a contractual/legal remedy, not loan forgiveness.

The second (20%) because it was refinanced is no longer purchase money loan and is recourse. The collections part is because the bank can come after you for all or part of the second. Any part of the second they “forgive” is taxable as “loan forgiveness”.

The real question you should be asking is “What will I do if Wells Fargo goes all the way after the total second mortgage?” There your options are pay it, negotiate it, or file for bankruptcy. The tax on debt forgiveness is only an issue if Wells is in a good mood.

[SDnomore]

I didn’t take out any money when I locked in the rate on the 20% loan. So would that make it a refinance and subsequently a recourse loan? Also, is there a chance Wells Fargo won’t go after it? I haven’t heard from them in months. What about the Mortgage Debt Forgivenes Act? Does that apply at all? Does it still need to be approved by the Senate?

[SDnomore]

I didn’t take out any money when I locked in the rate on the 20% loan. So would that make it a refinance and subsequently a recourse loan? Also, is there a chance Wells Fargo won’t go after it? I haven’t heard from them in months. What about the Mortgage Debt Forgivenes Act? Does that apply at all? Does it still need to be approved by the Senate?

[SDnomore]

I didn’t take out any money when I locked in the rate on the 20% loan. So would that make it a refinance and subsequently a recourse loan? Also, is there a chance Wells Fargo won’t go after it? I haven’t heard from them in months. What about the Mortgage Debt Forgivenes Act? Does that apply at all? Does it still need to be approved by the Senate?

[SDnomore]

I didn’t take out any money when I locked in the rate on the 20% loan. So would that make it a refinance and subsequently a recourse loan? Also, is there a chance Wells Fargo won’t go after it? I haven’t heard from them in months. What about the Mortgage Debt Forgivenes Act? Does that apply at all? Does it still need to be approved by the Senate?

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