A New Twist to the Housing Crisis
This is all hear say so it won't stand up to rigorous questioning in court but I heard it from someone who knows someone that I also know who says their home equity line of credit has been cancelled by their bank because home values in their area have decreased and the bank doesn't want to risk losing any money.
The bank isn't calling in the note. They are stopping any additional spending. The person's payments are current and on time so their own actions haven't caused this to occur. Just a heads up in case it happens to anyone reading this. I wouldn't want you to write a check from your home equity line only to have the bank stop payment.
This kind of sucks really. The banks are willing to make sub prime loans to the wrong types of people and then make the right people pay for the banks error by preventing them from making additional improvements to their homes. This whole thing has been ridiculous really. Let's face it, would you buy a sub prime car? How about a sub prime steak? A sub prime insurance policy even? How about a sub prime boat?
For anyone who isn't aware of this little tidbit, if you lose your home and the bank takes a short sale at the sheriff auction, well they 1099 the loss back on you and you owe the IRS taxes like it is income. So you don't just lose your house but it costs you money to lose it too.
What does this mean? Let's say you buy a house that is really worth $70,000 with "No Money Down" for $100,000 and don't make payments on it for 6 months. The bank calls in the loan and evicts you from the property. The house sells at auction for $50,000 a year later because while you were gone the furnace, water heater and plumbing got ripped off by a meth head scrapper and a couple of windows were bust out so they could throw the stuff out of the house. The bank took a $50,000 loss which they write off their taxes by sending you a Form 1099 which puts their loss in your pocket. So you owe the IRS taxes on $50,000 like it was a lottery prize. Can you say "I'm phucked?" They didn't teach you this in home economics class, did they?