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Question: I have real estate investments in Maryland and in North Carolina. One of the NC properties is a second home (beach house) that I rent out. I own & live in a multiple family house in Maryland. I'm not able to find renters for 2 of the properties, and it's drying up my back-up funds. I've already borrowed the max I can from my retirement (Federal Gov.). I've consolidated my credit card payments through a credit management organization.
What happens if I:
1) stop paying on my credit cards that are under the credit management organization?
Response 1: The credit card companies would send your accounts to collections and would eventually file lawsuits to recover the money owed. If they prevail, they may then try to reach your assets to satisfy the judgment. However, there are certain assets that your creditors cannot reach. These assets are called exempt assets and your retirement asset is one of the assets that are exempt from levy or execution.
2) let one or both of the un-rented properties go?
Response 2: The properties would be foreclosed and the lender may come after you for the deficiency after the foreclosure, but this is highly unlikely. If there is only one mortgage on the property, the bank is most likely going to forgive the rest of the deficiency after the foreclosure and issue a 1099-C . This debt forgiveness is income that must be reported on her tax return using IRS Form 982. However, in light of the Mortgage Forgiveness Debt Relief Act of 2007 that went into effect on December 2007 the forgiven debt amount will not be treated as taxable event if the forgiven debt was for a primary home. If part of the forgiven debt doesn't qualify for exclusion from income under this provision such as forgiven debt on a second home or an investment property, it may qualify under the "insolvency" exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. A taxpayer is insolvent when his or her total liabilities exceed his or her total assets.
Kindly note that Mortgage Forgiveness Debt Relief Act of 2007 only applies to debts forgiven in 2007 through 2012.
Mortgage Forgiveness Debt Relief Act:
Forms 982 and 1099-C: