This is not a legal opinion that you can rely upon and I don’t represent you nor have I looked at anything in your case. Check with an experienced tax lawyer or accountant and you’ll find loopholes large enough to move an ocean liner.
The realtors are jumping up and down saying sell now or you will run into tax problems. Of course they always have a reason to tell you to do something now rather than later because that is the only way they make money. But in this case they are both right and wrong (in my opinion). As background let me say that I have my degree in Auditing and Taxation when I received my MBA, I practiced tax law for two years, and I have a large network of tax specialists, domestic and international with which I regularly consult. So this opinion expressed below is not something pulled out of the whiskey bottle.
Simply stated I don’t think the money they are talking about is a net taxable result to you whether it is considered forgiveness, reduction or correction or anything else. I think the existing law is superfluous because of the claims for damages that get settled alongside of the short-sale documents. In fact, it is my opinion that after a foreclosure sale or short sale, the taxable event runs the other way — to the bank that got the free house or free money on the basis of fraudulent representations of ownership of the loan.
Secondly and perhaps more importantly, I believe that it is in the best interest of borrowers to let the waiver of tax liability expire, despite the apparent threat of having to pay for the “income” generated by the waiver or forgiveness of debt.
The reason is simple — it completely removes the argument that the homeowner is seeking a free house. Using Deny and Discover, our new name for an old strategy — if the mortgage lien is found to be defective and it therefore can’t be used in collection or enforcement through foreclosure then the note becomes unsecured and can be discharged in bankruptcy and of course is subject to set-off arising out of claims for tortious interference , identity theft, and overpayment of the loan balance.
Why do you think that no “pool” or “trust” has EVER sought to enforce anything against any homeowner and that the curtain comes down when you demand to know details of the pool, the trust, the trustee, the trustor, the beneficiaries and where the accounts are kept?
If the tax waiver is eliminated, then everyone will know that you are seeking relief, yes, but not without having to pay taxes on income generated by the removal of a liability that once existed under common law (not under the note, which was never the evidence of a the real loan).
The tide has turned and these mortgages are going to be found as imperfect liens incapable of enforcement — for those people who fight them. The notes are trash. The legal obligation to pay for the money you received runs at common law (since there is no contract, note or mortgage) to the party that loaned the money to you. The note will therefore be disregarded because it is NOT evidence of the obligation — because it contains the name of a party who was supposed to be the lender but never loaned you the money. AND the investors, who didn’t have a clue about what was really going on, have no way of determining whose money is in which loan, which is why they are all suing the investment banker — something I have been encouraging the homeowners to do since day 1 of this blog.
The worst case scenario is that the removal of the debt gives rise to ordinary income, the tax on which would be spread out over at least 4 years, but probably much more time than that.
In numbers it works like this: if your loan was for $100,000 and now that balance doesn’t exist anymore because of any reason except you paid for it, then there could be an increase in your taxable income by $100,000, which under current rules means you can add $25,000 per year to your income for 4 years as unearned income not subject to payroll tax or social security.
If you end up owing taxes, it will be on average around 15% of the original loan. But your house will be free from any mortgage. And when you pay that tax it will be around $3750 per year or a little over $300 per month. So at the end of 4 years you will have paid your taxes, $15,000, and you still have your house free and clear. If you need more time you can get it.
In many cases even the $25,000 won’t be enough to raise them into a category where income are due (poverty areas).
So my opinion, out of the box, is to let the sunset provision set in and then push the banks to admit that they never had any rights to the loans. If you follow the money trail and don’t get lost in the document trail your chances of success are good. Thus the tax provision is the ultimate forced principal reduction. It cures what ails us and pushes the bankers back into their corners.
30 thoughts on “Don't Panic About the Tax Part of Short-Sale”
(from frauddigest dot com)
MASSIVE 2012 MORTGAGE RELEASE FRAUD BY MORTGAGE ELECTRONIC REGISTRATION SYSTEMS
16
Aug3
By Lynn E. Szymoniak, Esq., Ed., Fraud Digest,
August 12, 2012, szymoniak@mac.com
What do I say to potential buyers of my condo? “I promise you that U.S. Bank as Trustee for some unidentified trust has been paid off – but, no, I can’t even show you the canceled note and I have no idea why MERS filed a Mortgage Release instead of U.S. Bank.”
I bought a condo as my retirement home. Then I could not retire as planned, because I needed to care for my mom a little longer than expected. When I could sell, the market had crashed.
I defaulted, and was sued for foreclosure. It was a David Stern Law Offices foreclosure. While the original lender was Southtrust Mortgage, I was sued by “U.S. Bank as Trustee.” This was a Mortgage Electronic Registration Systems (MERS) mortgage, serviced by GMAC.
The Lis Pendens (foreclosure initiation) was filed April 2, 2010.
On May 13, 2010, an Assignment of Mortgage was filed in the county Official Records. Jeffrey Stephan signed this Assignment. Stephan was identified as Vice President, Mortgage Electronic Registration Systems, Inc. as Nominee for Southtrust Mortgage Corp. d/b/a Equibanc Mortgage. (Equibanc was a Wachovia division that has now been closed.)
The mortgage was assigned to U.S. Bank National Association as Trustee. Again, no specific trust was identified. The Assignment was dated April 15, 2010.
The Stern Law Offices filed an unverified complaint after the FL Supreme Court had amended the civil procedure rules to require that complaints be verified. I also thought that I was entitled to the full name of the plaintiff – that is, the identity of the trust, so we filed a Motion to Dismiss.
The MERS system does not identify the trust. When the MINS number is entered for this loan, a message appears onscreen to please contact the servicer for information on the owner of this loan.
The Stern law firm collapsed. The case was assigned to a new firm, Elizabeth Wellborn Law Offices.
At one point during the discussions with Wellborn lawyers, my lawyer was told that a Credit Suisse Trust had bought the loan and U.S. Bank was trustee for that trust. Although I had the MIN number and loan number, no search was ever successful in identifying the trust.
Eventually, we won our Motion to Dismiss and were even awarded attorneys fees for our efforts. Because of some good fortune, I had the funds to pay off this loan.
I got a pay-off figure from GMAC. I paid off the loan. I waited for the cancelled original note. No canceled note has ever arrived.
On July 15, 2012, GMAC Mortgage filed a “Release of Mortgage” in the county official records.
William Jensen, Assistant Secretary, Mortgage Electronic Registration Systems, Inc., signed this Release.
MERS claims on the release to be the holder of my mortgage (though we all know by now that MERS does not hold any mortgage documents.)
If I wanted to sell the condo (I do, by the way), anyone doing a title search would see that I was sued for foreclosure by U.S. Bank, a mortgage assignment was filed by MERS assigning the mortgage to U.S. Bank, and then there was never a Satisfaction or Release filed by U.S. Bank.
What do I say to potential buyers of my condo? “I promise you that U.S. Bank as Trustee for some unidentified trust has been paid off – but, no, I can’t even show you the canceled note and I have no idea why MERS filed a release instead of U.S. Bank.”
An examination of the county records shows there are tens of thousands of these MERS releases filed in 2012, prepared and filed AFTER MERS has already assigned the loan to a securitized trust.
MERS is operating under a Consent Order issued by the Federal Reserve, the FDIC, the Office of Thrift Supervision and the Federal Housing Finance Agency on April 13, 2011. These agencies need to stop MERS from this continued destruction of the country’s land records.
@ Java,
Only in BK court. Only place it can’t be collected. But the banks have a new trick up their sleeve: they report it to the IRS anyway (even though discharged in BK and therefore, not subject to IRS…) You know, those IRS who already gave them your taxes? And you find yourself with a big battle with the IRS.
The way i see it: fight at the onset or fight at the end. Either way, you’ll have to fight. Better attack and do it on your terms…
Wrong Javagold …. sorry. Yes it can be collected.
Now.. on the other hand. If your not in default … that Somebody is as relavent as Romney hiding his tax returns.
if the debt is unsecured, that it basically doesnt matter that the debt is owed, it cannot be collected
Sooo … Where are the cases Won on this Carie? Judge says you owe somebody? Right? Well … if you cant pay anybody, something you were paying somebody on a loan before you stopped paying …. then somebody is really irrelavent know isnt it? Your still in default!
WILBURRRRRRRRRRRRRRRRR Ross !!!!!
(from anonymous):
“…I think he works for investors. If you assume that loans were legitimately funded, security investors by investing in the REMIC trust — do not fund the loans. Security investors are NOT your lender for TILA purposes. The “bank” lends the money to borrowers, and then sells the cash flows (that are owed to them) to the REMIC security lenders. Homeowner borrowers have NO relationship with security investors. Security lenders are not in the business of giving mortgage loans. This is why the Federal Reserve, in Opinion (now Rule) to the TILA Amendment states that security investors (REMICs) are NOT the creditor. Neil simply wants to ignore this.
Now, when the word “investor” is applied, not security investors, a different analysis is appropriate. The “lender” that is stated on the (fake) mortgage loan documents is not the lender that funded the loan. These mortgage brokers/mortgage bankers that told borrowers they were funding the loan, did not fund the loans either. They immediately sold/assigned the loan rights to either banks or “investors”, who would be the party that actually “funded” the loan (again assuming that funding did occur). Those investors, separate from “security investors,” were largely the debt buying divisions of the major banks. These investors are the “mortgagee/Lender” – for the purpose of establishing FUNDING.
Of course, these “investors” had already purchased the default (false or otherwise) from the GSEs and did not have to fund the loan at subprime “refinance.” Collection rights are just “reaffirmed” by the modification to the amount owed – falsely asserted as a valid mortgage loan to the borrower. I have told Neil many, many, many, times to distinguish between “security investors” and “investors” — he has refused.
Further, “investment bankers” do not collect on insurance and credit swaps — unless they actually own tranches in the REMIC — which they likely do. Investment banking, as related to REMICs, is the security underwriter that securitized the cash flows (to the collection rights). Since the tranches to the trusts were FIRST sold to the security underwriters, and security underwriters likely retained most of those tranches for their parent corporation (who is the original debt buyer by another subsidiary), then the “investment bankers/security underwriters” did collect on insurance via credit default swaps (paid by the government bailout). Whether or not the “investors” passed on their insurance proceeds to the security investors — is irrelevant to borrowers.
The “investors” also collect on additional insurance when they purchase the (false) default loans from the GSEs (so they purchased the collection rights for free).
Thus, swaps and insurance, REMICs, and “security investors,” are simply irrelevant to borrowers. It does not matter how many times insurance is paid on the debt, the borrower still owes the debt to SOMEONE. What does matter is that the borrower has a right to KNOW THE IDENTITY of the “investor/CURRENT creditor” who claims that the debt is owed to. And, by demonstrating that the subprime refinance was never a valid mortgage, and only a modification of the already classified default debt, the “debt” is subject to discharge in bankruptcy and/or fraud by a court of law.
Neil is doing much harm by his analysis. It does not show what really happened —- and will not help foreclosure/homeowner victims. I believe by his continued wrong assertions, that he has assisted in covering up the fraud. Had he been forthright from the onset, perhaps the AGs would have recognized the real fraud and not signed the settlement.
One other point, even though the “bank” debt buyers were the original Creditor/Investor — they are likely not the Creditor/Investor today. They have, most likely, already sold collection rights to other distressed debt buyers such as hedge funds. And, homeowers have a right to know the CURRENT CREDITOR.
Who does Neil really work for??”
You are pathetic…and a liar.
Great Grandma would call it … “Dummer than a Box of Rocks”.
Stop lying then.
You Betcha! size 10 britches and size 10 shoe…. a perfect Balance! For somebody who spouts BS all day … I must know something, after all..The Big Bad Wolf has not taken my house away. As a matter of fact he wont cross the Line… if you catch my drift? No need to start a war with someone if you cant win… right? Smartest Decision Mr Banker and his Lawyers have made in years… ya know “Not Starting a War they Cant Win”. Yeah…Common Sense tells me I know what Im talking about!
I mean, SC—your lies are BIG…with regards to funding. I’m not lying about anything here—you are. I tell the truth about the fraud. I pay my taxes AND I work. You just spout bullshit all day.
…and so are your lies.
@SC
I bet your ass is a lot bigger than mine.
I bet those goodies you get out of your mailbox are funded by my tax dollers. Getting a Lil Greedy wanting a free house on the taxpayers and investers backs now to are we?
Carie… get off you ass and get a real job and quit sponging off the taxpayers. Just sayin……
The Investers lent money to the Origionators via WH funding line.
LIES.
And it’s “originators”—not “origionators”, for God’s sake…get a spell check or something.
The Investers lent money to the Origionators via WH funding line. The Investers lent money but their not Lenders? Just keep telling yourself what you need to believe Sweetie. It got ya nowhere then and its getting ya nowhere now.
Neil… I have not had an urge to slap anyone this bad in 35yrs ….. ”
Quote …”THE INVESTMENT BANKER NEEDS TO BE IDENTIFIED BY THE SERVICER ”
If I were an attorney … I would refer her right to the looney bin. Just sayin…
THE INVESTMENT BANKER NEEDS TO BE IDENTIFIED BY THE SERVICER UNDER THE LAW—BUT THEY WON’T DO IT.
We need to sue based on that.
Federal Reserve’s Rule, 74 Fed. Reg. 60143 (November 20, 2009) -Final Rule at 75 Fed Reg. 58489 (September 24, 2010), definition as to creditor under the TILA, 15 U.S.C. sec. 1641, et seq.
HOW DO WE DO THAT, NEIL?
NO SUCH THING AS “INVESTOR-LENDER”—“SHEESH” YOURSELF.
Greedy “spin”—not the truth.
Investment Banker … the party who invested in the servicing rights. Sheesh!
Carie, Who should get the property? A con artist? Definatly Not! The property needs sold with 100% of the proceeds going to the real 1st party Invester/lender. Squeeze out the Marshmellow and Stop letting It Profit from Its own Fraud.
@anyone
Neil said:
“…which is why they are all suing the investment banker — something I have been encouraging the homeowners to do since day 1 of this blog…”
When he says “investment banker”—who exactly is he talking about? Is it the investor they never give us the name of when we ask the servicer for it? The current/real creditor?
@Jeff—-it’s the “debt” tied to the property that doesn’t exist—so who should get the shelter/property? A con artist?
The requirement to submit the monthly mortgage payment to a court supervised escrow account seems to be more in line with what the court would do while a homeowner is disputing and denying. That would be what a court of equity would do.
Banks printing too, I still miss my letter :
http://www.nytimes.com/2012/09/30/business/when-banks-erase-a-debt-that-isnt-there.html?ref=business&_r=0
The Courts will have NO CHOICE but to give houses to homeowners free and clear.
The Courts do not give houses to homeowners free and clear.