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This Old Crack House

From log house to farmhouse. Farmhouse to townhouse. Townhouse to apartment house. Apartment house to crack house. Crack house to our house. Our house to our home.

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Thursday, April 17, 2008

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?


At 4/18/2008 9:30 AM, Blogger John said...

No, they didn't. Definately good to know.

At 4/18/2008 11:03 AM, Anonymous Anonymous said...

Not everyone who got subprime mortgages defaulted on their loans. It was a way for my family to buy their first home, and we were able to refinance to a fixed-rate loan before our interest rates went up.
We bought a wonderful bungalow that was empty for 2+ years before we moved in. Since we bought our house, we've worked hard at making improvements to increase its value and improve our neighborhood.
I just wanted to remind everyone that we're not all deadbeats.

At 4/18/2008 3:41 PM, Blogger jake said...

This all sucks IMO. The problem with all of this is there are no laws to protect anyone. There are only "rules".

We got into a loan, not a bad one really at the time because it was out first house and we were unsure about all the payments. The 2nd small loan is fixed at 8%, the 1st one is at 6% but is variable after 5 years. We still have 3 years to go.

House prices have dropped in my area and with house prices now dropping at a steady rate, I went directly to my loan company and said look, lets deal. They wouldnt refi with us and combine our loans because house prices are now lower than what we still owe. Their "comp" houses near me are homes in disrepair, now fixed up homes that go for normal prices like our should. I dont need a lower rate, I dont need to refinance everything into one loan either. Just lock in my first rate and all will be fine. They wont do it. They arent "entertaining" this idea. I was told when we bought th house to come back in two years and they would refinance with us for FREE (we dealt directly with a bank instead of a broker). It just feels like we were lied to. We have excellent credit, no debts and they still wont work with us.

Yet on the other hand, I have a brother with two kids and a wife who doesnt work. They too bought a house at the same time as us, but they got a really bad loan (they didnt pay attention to the brokers tricks) and because they now fall into some lower level than my wife and I, the banks are willing to help them and get them into a good loan, waving their $15k fee for refinancing before his first 3 years are up.

With so many people defaulting these days, you are right, you own taxes on that supposed gain, but Ive been told recently by several agents in the industry that you dont owe the loss. So, in essence I could just walk away from my house, even with it devalued now lower than what we still owe, and the banks have to suck up the loss. Some new "rule".

Its all so wishy washy. Just like taxes. Theres no direct law saying we have to pay taxes either. Just IRS code. B..S..


At 4/18/2008 4:19 PM, Blogger Al said...

Happened to us, too. Bank of America.

At 4/18/2008 9:12 PM, Anonymous Anonymous said...

The laws are made to protect corporate interests. I wonder how long these b*stards think it's gonna last.

-Patricia W.

At 4/19/2008 9:32 PM, Anonymous Anonymous said...

Voinovich sponsored a bill that past about 6 months ago that gives relief from being 1099ed on mortgage relief through 2009. Now isn't it great to get mortgage/tax relief on an over appraised home??

On home equity lines, some lines are being "called", meaning that they need to be paid off in full, due to reappraisal of home, which is worse than just having your equity line capped, which still sucks.


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