The Mortgage Forgiveness Debt Relief Act expires tomorrow
The Mortgage Forgiveness Debt Relief Act was enacted at the end of 2007 for a period of 5 years and basically what it did was allow owners who foreclosed on a home or had a short sale to not receive a 1099 stating the amount of the forgiven debt as income which would then be taxed as such by the IRS. Starting tomorrow any forgiven debt will be taxed as income. Why is this relevant? Because it will be an incentive for people to not walk from loans simply because they are underwater as they will have to pay taxes if they do.
Also it causes those who trash a home when they leave to at least pay taxes on the lower amount that the home sells for because of the damage they caused. Basically it is an incentive for people to act mature. Bankruptcy doesn't forgive taxes owed. You can't get out of this one.
Great News, IMO. As an example, my neighbor, a successful real estate agent, maxed out seconds on his home, used the money to purchase another home he liked better, then walked away from the first home, which is now in foreclosure, all before 1/02/2013.
Savvy, working the system, and IMO, but not the laws, criminal.
My younger brother, who has always been the most irresponsible in the family and least respected, took advantage of the real estate bubble and the loose government debt laws. When prices were rising he was buying all kinds of off road vehicles to support his outdoor hobbies and to give him a false sense of status. He would drive by my house to show off his latest high end 4 wheel drive SUV or shiny large CC motor bike and I would just look on in amazement knowing that he did not make enough money to buy this stuff. If it had been me I would have been driving a Corolla.
Back in 1999 he bought a home in Riverside for $110k and kept borrowing on it until he owed $250k. He then walked away from the home last year. He also claimed bankruptcy and wiped out all his credit card debt which was sizable yet he claims that he has a $40k stash. This is the second time he has wiped out his credit card debt in this way. He seems to know all the tricks to get credit collectors off his back by forcing the people who want to collect from him to jump through paperwork hoops until they give up.
He is an electrician and now helps to install solar farms in the dessert. Since these are remote locations they have to pay people a living allowance to get them to locate there as most have a home and family elsewhere. Him and his wife located to the small town close by where rent is cheap and he gets enough for food and rent so all of his union wage of $90k a year can pretty much be used as disposable income.
I'm sure that in another 7 years he will start the entire cycle over again. After all, he is good at it and the laws are set up so that it is easy to do. This is not that uncommon as many people live this way. And I'm sure he doesn't plan for all this ahead of time. What he does is live a life style he cannot afford because the laws allow him to and then when he gets himself into a situation he uses his craftiness to figure a way out. It's not like it was premeditated. He is just too irresponsible to admit to himself that he is on a path that is leading to where it is. Basically he rationalizes what he is doing until the #$%$ hits the fan and then he looks for anyway possible to get out free and clear. I don't blame him. I blame the people that created the laws that allows irresponsible people to never get to a day of reckoning that would teach them that there is no free lunch. But there is a free lunch so this lesson is never learned. So they keep doing it over and over because they are never forced to learn not to.
My brother owes me over $10k and the last time I loaned him money I told him that I was not kidding myself into thinking that I was going to get paid back because I knew I wasn't. I told him that what I am doing is giving him the last handout that he will ever get from me and that he could be dying on his death bed for lack of money to save his life and that he could forget coming to me for it because I was through with is irresponsible behavior. I told him that if he paid back everything he owed me that I would reconsider. He never paid me a dime and after that he never asked again.
To show you how out of it he is he votes Republican when it's the Democrats that have created the laws that allow him to work the system. I often ask him why he votes Republican when he needs the Democrats to enable him to live the way he does. He states the typical ideological lines but I say to him that he doesn't live the life, that he is a Democrat, why not just vote what he is. He's just pretending to be a Republican.