Capital Gains and Losses

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A bank that has a commercial mortgage on my property

reported a 136k write off...
A bank that has a commercial mortgage on my property reported a 136k write off on our mortgage because the mortgage had matured and not paid off, I had difficulty getting the mortgage refinance so the bank said it was technically in default but I continued to pay the bank interest only and there was no foreclosure or any legal action, they simply waited for the refinance to be done and there was/is no loss or short fall. They are being paid in full. I was recently denied credit because of this 136K write off by the bank. Was the bank allowed to do this under the circumstances? they did not lose any money at all? Here is the answer I received from the bank "Regarding the write-off: the bank took a $136,000 write-off in 2013 because of the default status of the loan, it does not impact the legal amount that is owed on loan. Their accounting action has significantly deprived me my ability to obtain credit. Did they break any laws or accounting rules? What recourse do I have?
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Answered in 1 hour by:
10/13/2017
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Capital Gains and Losses
Satisfied Customers: 2,637
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
Verified

Hello,

Some states are recourse loan states which essentially means that if the bank cancels your loan they can still attempt to collect payment from you.

Recourse loans allow lenders to seize the asset used as collateral for the loan in addition to going after the borrower — the lender has the legal right, or recourse, to demand repayment.

Whether you have a recourse or non-recourse loan depends largely on state law. If you’re unsure of your loan type, research your state to determine its laws regarding these loans and how impending foreclosures or asset seizures affect you. Non-recourse states include Alaska, Arizona, Washington, Utah, Idaho, Minnesota, California, North Carolina, Connecticut, North Dakota, Texas and Oregon.

In other states, you may have either type of loan. If you have a recourse loan, the state allows your lender to pursue a deficiency judgement to recoup its money. Most states restrict a lender’s ability to pursue a deficiency judgement beyond the fair market value of the asset.

You should look up the country tax records to see if the property was resold and if so at what price. You really have to look at how your loan paperwork was written because the agreement and wording is very specific to your obligations.

You can dispute how the loan is being recorded by the credit rating agencies. If I was in your position, I would contact the credit rating agencies, review how the loan is being reported and if you don't feel like the loan is being properly then dispute that information with the credit agencies. The credit rating agencies have an obligation perform due diligence and investigate your claims.

Please let me know if you have any further questions.

Thank you!

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Customer reply replied 9 months ago
Thanks, ***** ***** did not articulate the question enough but I was asking if the bank had a right to take a write off causing me credit issues without any real monetary loss. The IRS would look at this write off as an actaull loss but thats not what hapened.

Just because the bank may or may not have written the loan cost off doesn't mean the bank didn't have any losses. To really know if the bank didn't have any losses you have to see what the property was sold for after the canceled the debt or if the property was even resold.

Then you have to add in transaction cost to the bank and you can count on a high attorney bill that the bank was billed so you would have to deduct that from the sale price.

Maybe the total loss was way less then $136K, but if the bank discharged the debt then that is what will be reported.

The best option is to dispute the issue with the credit agencies.

In my opinion, if you want to build a case against the bank, then you first have to find out if the bank was able to resell the property and if so for how much.

I have seen instances where the banks buy back the loan at auction for pennies on the dollar and then a month later sell the property for a profit.

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Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Capital Gains and Losses
Satisfied Customers: 2,637
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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