Deed In Lieu of Foreclosure after Bankruptcy

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Icon Mini Profile imfree_2007





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Post Posted: Wed Apr 16, 2008 5:10 pm    Post subject: Deed In Lieu of Foreclosure after Bankruptcy
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I have filed for bankruptcy within the past year and had it discharged in Oct. We filed last June and I stopped makeing mortgage payments on my house last May. I had to give up my house in the bankruptcy due to the fact that my inlaws signed their house over to my husband 6 years ago believing at the time that the house would be his only when they passed on and to find out when we filed the their house is actually his now. This being the case I had to give up my house so that their house wouldn't be taken to pay my debt. My husband had a trucking business that with the cost of fuel could survive no longer and even though it was the business that failed a Chapter 7 ended up being what worked best for us because there was no way to keep the business and hope the prices would go down and that we would be able to make our payments so we opted to take the chapter 7 and wipe the slate clean. I don't reget the decision, I just having lost my house without being able to keep it no matter how bad I wanted to. That being the case, the mortgage company is now ready to settle with a deed in lieu of forclosure. My question is this, if this is the option that I choose where my house was included in my bankruptcy will the debt be forgiven or am I better off to avoid this and go with a regular foreclosure? I haven't lived at the property since last May and I have since moved 1600 miles away. I have absolutely no desire to move back and there is no way for me to keep my house, if I was to take the option my inlaws would loose theirs. My question is this...Will I have a huge tax burden if I do take the DIL? Please help me soon I need to make a decision rather soon.
Icon Mini Profile larry





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Post Posted: Wed Apr 16, 2008 10:56 pm    Post subject:
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Hi,

If the lender is willing to go for DIL then it is good because the lender will not come after you for the deficiency judgment.

You may need not to pay any tax because of the "Tax Break for Mortgage Debt Forgiveness"

Feel free to ask if you have any further queries.

Best of luck,
Larry
Icon Mini Profile Niicss
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Post Posted: Thu Apr 17, 2008 3:31 am    Post subject:
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Welcome imfree,

I feel that the lender accepts deed in lieu then your due debt should be forgiven. So you can go for it but you can also consult it with an real estate attorney.

Quote:
Will I have a huge tax burden if I do take the DIL?

You will need not to pay tax on the due debt because of the new tax break which is also mentioned by Larry.
imfree

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Post Posted: Thu Apr 17, 2008 5:01 am    Post subject:
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This whole thing has been dragged out for so long that I just want it to be over with, but I don't want to take what I think sounds like a good deal then and then get hosed on the taxes next year. We have been working so hard to build our credit and selves back up since the bankruptcy that I would hate to have to owe a huge amount because it looked easy at the time. I mean I have already lost the house so to me it's not that big a deal this will just make it final and that is still hard to swallow, but life does move on. I never would have thought that it would be a year later and still no closure on the house. The mortgage company knew well in advance of us having moved out before winter and they never even winterized it. The lawyer says they can't do anything to us because they had enough notice on what they needed to do.
Icon Mini Profile Niicss
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Post Posted: Thu Apr 17, 2008 5:50 am    Post subject:
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Welcome back imfree,

You should talk with the lender about this whether you will owe anything even after filing DIL. Now if forgives the due debt then you will need not pay any tax on it.
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Post Posted: Thu Apr 17, 2008 6:00 am    Post subject: RE: mortgage discharged in bk
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Hi Imfree,

I can understand how you're feeling right at the moment, especially when you go bankruptcy, lose your home and still get to stay for a year and then one morning you get to know that the lender wants a deed-in-lieu.

If you've included the house in your bankruptcy, then your mortgage should have been discharged. Then legally you need not pay the debt. However, if you choose to repay it, it will have a positive effect on your credit report. But the company is settling for a deed-in-lieu which is again likely to affect your score.

However, there won't be tax burden probably if you're not in California and if your debt satisfies the criteria as given in a discussion on tax relief on mortgage forgiveness .

You've been discharged in October; did you check your credit report in the meantime? I suggest you pull your credit and check the status of the mortgage debt just to verify whether the information regarding your bk and discharge has been reported accurately.

Good luck

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Post Posted: Thu Apr 17, 2008 10:28 am    Post subject:
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I just talked with my accountant and she said that the tax relief on mortgage forgiveness would apply to me. Then she told me all except in WI where I am now, then I told her my house is in ME and she said that I would be all set and wouldn't have anything to worry about. I hope she is right. I guess this way here they pay me to shorten the process for them so it can't be all bad. I just want it to be done with. There has never been a fight about it on our part so I just want this to be over with and the sooner I can close that chapter of my life the better off I will be. A word of advice....Don't have your name on the deed to another house unless if something happens you plan on living there. Life comes at you fast and you can't always predict the future. My in-laws signed their house over believing they were doing the right thing to protect their house when they die so that it will stay in the family. That and my father in law in on disability and he didn't want the state to take should something happen and he acquired a lot of medical bills.

As long as my husbands name is on the deed to that house I will never own another house again, or even have any desire too. I think in 5 or 10 years I might change my mind, but as long as their house is his house, I won't ever sign my name to another mortgage again. Sometimes there are bumps in the road that we must learn from and I consider this a bump that will make me stronger.

I have seen my credit report since the discharge and everything is on there and surprisingly my credit score wasn't hit to hard, my husband's dropped over 100 points while mine was only about 50. I will pull it again and have another look though, they might have missed something and it might not be accurate.
Icon Mini Profile Samantha
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Post Posted: Fri Apr 18, 2008 5:38 am    Post subject: RE:
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yes IMfree, we learn from our experiences, good or bad. One wrong step in life teaches us so many things and makes us take better decisions the next time we go for it.

I checked out the Maine laws and good news is, yes there is the tax break applicable. However, not all mortgages are forgiven and not all of them qualify for the tax break. There are certain eligibility criteria . However, your accountant must be aware of the tax laws.

Anyway, it feels good to know that your credit score has dropped down much, though 50 points are still something one would bother about. But don't worry, things will get better with time. Smile

may god bless you.

Samantha

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Post Posted: Fri Apr 18, 2008 9:42 am    Post subject:
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Thanks Samantha. The home was our primary residence 14 years up until the bankruptcy at which time we had vacate the property before we could file the bankruptcy paperwork due to the fact that on paper he owned two houses, it made no difference that we were living in our house we had to be living in the other house the day we filed to make everything legal. We were only there for a few short months before we moved to WI.

I am actually surprised at the fact that I would have had to have paid taxes on the cancelled debt, I thought that since it went through with the bankruptcy that it was forgiven debt and therefore we wouldn't have been penalized by the IRS. I remember asking the lawyer and being told that we wouldn't be liable for any of it. So I was kind of shocked to learn that if it wasn't for the new law that I would have been liable. Just makes you wonder, I mean I didn't let the house go because I wanted to, it went because it was mine or the in-laws and there was no way they wanted to loose theirs even though they never read or understood what they signed the day they "gave" their house to my husband, in the end I would have been the one to pay regardless. There is still a lot of tension on this subject and I know that I have to move on and I am trying so hard, the house is just on area where the hurt still really gets to me sometimes. I have a new life now and I need to leave that in the past and move on.
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Post Posted: Sat Apr 19, 2008 12:35 am    Post subject:
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Hi Imfree,

Welcome back.

It is good that you are thinking ahead because life does not stop.

"I am actually surprised at the fact that I would have had to have paid taxes on the cancelled debt," It is because the canceled debt was considered as your income and you had to have pay tax on it but now because of the tax relief you need not to pay tax on it.

BTW you seem a registered member of this community. So why are you posting as a guest Smile

Best of luck,
Larry
Icon Mini Profile Samantha
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Post Posted: Sat Apr 19, 2008 3:12 am    Post subject: RE:
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You're most welcome Imfree. Yes it's for the Mortgage Debt Forgiveness that you need not pay tax provided your fulfill the eligibility criteria as well. I'm a bit surprised to know that you didn't ask the attorney about why you need not pay tax. But it happens sometimes when you're deep trouble and you don't know what to ask for. Anyway, it's good that you've decided to move on with your life. Just in case you feel like sharing your experiences with the community as well, feel free to do so. We'll be happy to hear of it!

May god bless you

Samantha

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Post Posted: Tue Apr 22, 2008 11:41 am    Post subject:
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Thanks to all of you that responded to me here. It is true I was very suprised that I would have had to have paid taxes on the cancelled debt. We asked all of those questions before we filed and the lawyer never said anything about it. Maybe because there was not way that I could have kept my house even if I had wanted to. I don't know the reason, that we were never told about it. I asked more questions than 100 people ever asked before, during and even after the bankruptcy. I wanted to make sure that I had all of the ground covered and wasn't being forced into something that might not have worked out for the best in the end. I guess you can never be to careful even if you believe that you are asking all of the right questions.

It is true that for the largest part of last summer I was not thinking very clearly about a lot of things, but I was not willing to let go of anything that I didn't need to, including my house. There was absolutely no way for us to keep it, because the in-laws would have lost theirs and even though that would have been my first choice because after all they did screw me out of my house, that option wasn't one that I could take. I had to walk away and not look back and that has been the hardest part.

When we were considering the bankruptcy things were flying at us pretty fast and I was asking more questions than you could even imagine. My circumstance was different, I had a business that caused the bankruptcy.
We made the choice to give up knowing that we were in over our heads and the price of fuel wasn't going down anytime soon and we just couldn't afford to keep running no matter how hard we tried. We were going deeper and deeper into debt everyday and rather than running up a bunch of other bills that we couldn't pay, we stopped when we knew that we were in over our heads. We weren't even behind on the house payments but because of the in-laws house it didn't even matter. I lost the one thing other than my husband and my children that I wanted to keep and it didn't matter to anyone else how much I wanted to keep the house I couldn't.

I am just hoping that I can soon put this in the past and move on with my new life even though I will never forget it, it has made me stronger.

I don't expect anyone here to understand what I have gone through or to even be sympathetic, I just want you to understand that I fought a hard battle and I did ask all of the questions about the house and the taxes and I was never told that would be an issue, so I was shocked to find out that it could have been and that I could have owed the IRS thousands of dollars in the end, even though I had no choice in the matter and thought that I had covered all of the ground necessary so that once things were final, I was free.
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Post Posted: Tue Apr 22, 2008 11:48 pm    Post subject:
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Imfree,

It's true that you could have owed taxes and were not made aware of. But anyway now that you don't have to, it's good for you or else you'd have to take out thousands of dollars from your pocket even when you're in a bit of trouble with your house payments!

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