Short-sale, DIL, or foreclosure, and BK.....

[loser104]

Currently trying to get rid of my townhome here in michigan. Gonna try and short-sale it first, then DIL, then if nothing else, foreclose. If I do short-sale it, I believe that the balance of my first mortgage will be forgiven and that I will NOT have to pay taxes on that portion.

But, what do I do with my 2nd mortgage held by the same servicer, Green Tree, which was used to pay off cc's and personal loans several years ago? I don't believe that they will forgive this amount, and I desperately do NOT want to pay the taxman come next year on $30,000+. Do I go ahead and sign their promissory note saying I will repay them the full amount, then declare chapter 7 afterwards? Or should I let it go to a collection agency first, then declare? Does it even matter???

I thought about settling with the lender or collection agency for 5-10% on the second, but then I will have to pay taxes on the forgiven amount next year. That would bring my $$$ total to get me free and clear from my home to about $11,000. Whereas if I declare BK, I believe the only entity I owe is my attorney, let's say $2000 max. Know that my credit will be trashed, but that does not concern me, that $9000 that I save would go a very long ways for me, as I'm unemployed right now.

[secondtimer]

Can't you include second lien debt forgiveness on form Irs form 982 ??? (mortgage debt relief act)

[loser104]

Don't think I can include that second mortgage on the IRS form 982. As I understand it, and please somebody correct me if I am wrong, but the money from my 2nd did not go to improve or add on to my townhome, I used it to pay off other unsecured debt (cc's, personal loans, etc.).

There are very narrow perameters in which to qualify for that debt relief act.

[loser104]

Oh yeah, and on top of the $9000 I would save myself by declaring bk, I have $10,000 in cc debt that would be discharged also. So a chapter 7 would really help me out, but do I just tell Green Tree that I will gladly sign a promissory note for the $30,000 I owe on my second if I get a short sale offer, and 2 days after the closing declare BK???

[badhouse]

If you are going to file Chapter 7 anyway just forget about the short sale. Surrender your home in bankruptcy and live rent free until the foreclosure sale happens.

I wouldn't bother with deed in lieu or short sale unless you really need to move in a hurry and need the property out of your name to avoid taxes and HOA fee's.

[loser104]

The only problem is that I will have to deal with a short sale, DIL, and foreclosure first. My severance package $$$ doesn't run out till the end of this month, and then I will be on unemployment, so I will have to wait until my 6-month income average falls to the appropriate levels.

In the meantime, I need to know how to deal with my second mortgage IF I do get a short/sale or DIL.

[Mensa1]

Don't think I can include that second mortgage on the IRS form 982. As I understand it, and please somebody correct me if I am wrong, but the money from my 2nd did not go to improve or add on to my townhome, I used it to pay off other unsecured debt (cc's, personal loans, etc.).

There are very narrow perameters in which to qualify for that debt relief act.

You CAN definitely include the 2nd mtg on IRS Form 982. You can include any debt that is forgiven on Form 982, including CC's or business debt, and qualifying debt under the mtg relief act, etc. I would suggest that you read through the form and instructions that accompany the form. Spending the 30 minutes to comprehend the info would serve you well.

IRS Form 982

Mortgage Debt Relief Act

[loser104]

Mensa1, thanks for posting those 2 links. I read thru both of them and I am very encouraged. I still don't know that my home equity loan that I took out to pay off cc debt and other personal loans would be exempt from having to treat it as taxable income come tax season.

But reading further, I do believe that I could easily claim INSOLVENCY at the time that the debt is forgiven, which in turn, would qualify that 2nd mortgage/home equity loan as exempt from being taxable income.........

Am I reading this right??? When the time comes, I will definitely consult a tax attorney to make sure I get some very sound advice. But until then, am I on the right track, or did I misinterpret something???

[Mensa1]

Mensa1, thanks for posting those 2 links. I read thru both of them and I am very encouraged. I still don't know that my home equity loan that I took out to pay off cc debt and other personal loans would be exempt from having to treat it as taxable income come tax season.

But reading further, I do believe that I could easily claim INSOLVENCY at the time that the debt is forgiven, which in turn, would qualify that 2nd mortgage/home equity loan as exempt from being taxable income.........

Am I reading this right??? When the time comes, I will definitely consult a tax attorney to make sure I get some very sound advice. But until then, am I on the right track, or did I misinterpret something???

I think you got the gist. ANY debt forgiveness, regardless of a 1099 a or c issued by the creditor, no matter the source or type of debt, (CC, HELOC, Business, Personal, Payday loan, etc), becomes non-taxable debt forgiveness when the taxpayer is INSOLVENT or Title 11 Bk. That is the whole point, if you are unable to pay due to those circumstances then debt forgiveness is NOT taxable.

Way, way too much is made of the debt foregiveness by creditors and others, to the point of misrepresentation by creditors in an attempt to intimidate debtors into paying because of the tax boogeyman, aka IRS. Threats like "we will file a 1099 if you don't pay". These bandits should all be strung up, IMO.

Glad you got it now loser, you should really consider changing your screen name to winner104.

[loser104]

Thanks for the info and the encouraging words, I am learning alot from this forum, it is GREAT!