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Hi ... lets take these one at a time IRS has ALWAYS taxes everyone on ALL "increase in net wealth," (the way the foundational law is actually worded) from gambling winnings (over and above losses) to the gains on sale of an asset (capital gains tax) to bartering income (trading a $1,000 motorcycle for a $5000 car, should be reported on a 1099b) SO whenever that bank or credit card issuer or any OTHER lender has actually forgiven the debt - ceased coming after you and written it off for themselves - IRS has always seen that net increase in wealth (borrowing money , having the use of it, and never paying it back) as income it was only with the debt relief act (2007) extended through 2013 that this has been waived in certain circumstances
Make sense so far?
In terms of foreclosing this year... It makes more sense regardless (we have no indication that the debt relief act will be extended further) and filing that 982 and being abe to completely exclude the income (forgiven debt) from taxation - regardless of tax bracket is a "bird in hand," for 2013 taxes
In terms of pushing it forward, you could potentially petition the court ... but you may also want to ask the mortgage company about doing a "Deed in Lieu of Forclosure" which is also covered under the relief act ... (along with short sales)
(...getting it done in 2013, better said)
Now, regarding what the bank can take, that depends on whether the state is a re-course or non- recourse state:
In a non-recourse mortgage state, borrowers are not held personally liable for more than the home’s value at the time that the loan is repaid. The lender may recoup some of its loss through foreclosure However, the lender may not sue the borrower for additional funds. If the foreclosure sale does not generate enough money to satisfy the loan, the lender must accept the loss.
California is a non-recourse state:
Each non-recourse state has its own anti-deficiency statutes that prohibit lenders from seeking judgments. In a few cases, anti-deficiency statues do allow lenders to collect a limited amount of money from the borrower (such as the difference between the debt and the fair market value of the property).Note that in some states (such as California) non-recourse laws apply only to “purchase money” loans (i.e. original home loans that are used to purchase property). Almost all HELOCs and home equity loans are considered recourse loans and lenders for these loans may sue borrowers to recoup loss. (Except in some cases where the second mortgage lender forces the foreclosure. See: HELOC Foreclosures). There has been some speculation that mortgage refinances do not constitute “purchase money” loans. However, there have been no cases to determine this issue one way or the other.Anti-Deficiency / Non-Recourse StatesAlaskaArizonaCaliforniaConnecticutFloridaIdahoMinnesotaNorth CarolinaNorth DakotaTexasUtahWashingtonOne Action StatesIn some states, lenders are only permitted a single lawsuit to collect mortgage debt. This plays out differently depending on the state’s laws. In New York, for example, a lender must choose between the actions of foreclosing on the property or suing to collect the debt. The following states have some type of one action statute:CaliforniaIdahoMontanaNevadaNew YorkUtah
Your last few questions about what they can take are answered by the fact that CA is a non-recourse state AND a one-action state ... The answer is No
And finally, the fact that CA is a non-recourse state
says that once the house is sold (regardless of whether they get enough from the house to pay off what is owed) they cannot come after you for the remaining debt
are you still with me?
I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here) … Please let me know if you ave ANY questions at all.
again, let me know
I'll be here
... just checking back in here, as I never saw you come into the chat
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Please let me know if you have any questions..
Would IRS go back to the date of the refi in the 90s and charge penalties on the years between? How much of the original refi would they consider to be income?