October 05, 2007

If the NAR-controlled US Congress has their way, soon you'll be able to walk away from your house even easier. Oh, the unindended consequences!!!


Now this is the type of failed flipper and housing gambler bailout that I may actually be in favor of. Before if you were a failed flipper (OK, let's just say Casey Serin for example) and you did short sales or foreclosures on your debt-trap, you got 1099'd by the bank and had to report the shortfall or debt forgiveness to the IRS as income.

- Listen to a realtor and buy a hilariously overpriced apartment for $1 million
- Short sell it for $600,000
- $400,000 got reported as income, and you had to pony up 28% in taxes (at least)

And now?

$0 baby! No taxes! NAR-Party! Just like the NAR-written no tax on home sale proceeds legislation that caused the bubble! Great news for the housing market!

Well, not exactly. Why? Because now millions of upside-down housing gamblers will have even more reason to short sale or just walk away. You think America has a foreclosure and home price crash problem today? Oh, just wait. If this sucker passes, and I think it will, it'll be GAME ON! Inventory will explode, lawns around America will go brown, prices will come down even faster, and can you say RTC2?

Here's the corrupt monkeys at the NAR, you know, the people who care so so so much about the commission-payers (I mean poor folks) who are losing their homes:

Realtors(R) Applaud House Passage of Mortgage Cancellation Tax Relief

The National Association of Realtors(R) praised the U.S. House of Representatives for today's passage of the Mortgage Cancellation Tax Relief Act, H.R. 3648, by a vote of 386 to 27. Since the early 1990s, NAR has advocated for repeal of the current law, which forces individuals to pay an income tax when they have had a loan forgiven or have had to foreclose because of their inability to pay their mortgage.

"Congress made a good decision today that will affect many Americans who find themselves in a truly bad situation," said NAR President Pat V. Combs

"Realtors(R) are about building communities, not just selling homes. We must work together to prevent the dream of homeownership from becoming a nightmare," said Combs. "This is just one step that will help families get on with their lives and begin rebuilding their economic security."

29 comments:

CA van man said...

"We must work together to prevent the dream of homeownership from becoming a nightmare"

TOO F**KING LATE! I'm living out of a van down by the river because of THEM!

Anonymous said...

You can be certain that word will quickly get out on how to game the system.

Spend down any savings, load up on credit cards, whatever. Then the house will be given back and the person will get away scot free.

I wonder if you can take out a giant heloc, "lose" lose job shortly thereafter, and blow the cash on toys?

B

Anonymous said...

Sorry Keith I actually agree with this initiative out of fairness in the tax code, and think they should take it one step further and let folks who sell at a loss tax a capital loss on their taxes. Many have always advocated that it was improper for the feds to charge you capital gains taxes when you sell a home that is your primary residence but not let you claim a capital loss on your taxes when you sell your residence at a loss. Doesn't work this way if your a failed day trader. I guess I'd like to see what happens tax wise when a failed day trader can't make a margin call, sells at a loss (gets a tax write off) and can't cover the margin loan and that gets written off by the brokerage and the day trader incurs a tax liability. But at least there is some sort of offset. If they gave the home seller a tax write off for the loss to soften/offset the blow of a tax liability incurred from the loan forgiveness then we'd have some tax fairness, but we don't so Congress is doing this instead. As many will be selling at a loss in the near future and a subset of that group will be getting some debt forgiveness this means the tax revenues will only not expand due to this subset of sellers and reduce tax revenues because it will not cover all sellers in terms of letting them write down their tax liabilities due to the loss. Does it cover 2nd+ liens on properties that were ATM HELOCed?

So if you're right about this accelerating the bubble then I guess thats been the problem all along in the equities markets which seem to chronically suffer from bubbles and we need to amend that portion of the tax code to remove the potential to claim a capital loss.

Anonymous said...

Huh? You're kidding me right? Practically no one has paid a cap gain on their "primary" residence since 1997? Where you been?

Additionally day traders were able to write off their losses (to the tune of a whopping 3k per year) on a carry forward basis and carry forward... and carry...

That number hasn't been adjusted since the 70's (so I think that's totally fair?) WTF?

The post is meandering, contradictory and frankly painful to read. Please tell me you don't do your own taxes.

DinOR

cobra2411 said...

BullSh!^ knee jerk political response... But I like it as long as it doesn't get back to us tax payers and therefor make it a taxpayer bailout of failed flippers...

Anyway there already exists an IRS rule that gets you out of this and it's better then what they propose. It's called Technical Insolvency. If they are Insolvent before AND after the debt forgiveness then it's not taxable.

So for John and Sally homeowner who where scammed by the realtor and mortgage broker they can get help. For the Flipper that made millions and now has a big stinking turd he wants to walk away from, he's screwed.

All in all, this law and the fact that 2008 is going to SUCK as far as RE is concerned should mean that the flood gates open and prices fall like lead weighted rocks...

cobra2411 said...

Anon 11:28
"I wonder if you can take out a giant heloc, "lose" lose job shortly thereafter, and blow the cash on toys?"

I've seen banks pursue fraud charges in cases like this even when it was just homeowner stupidity. I.e. They didn't plan or try and loose their job and the spending was depression related, not an attempt to defraud the bank.

If it's less then 18 months from origination and default on a cash out loan they really nit pick it.

cobra2411 said...

Oh, and about the cap gains exemption on housing, if you sell one house and move up within a year you never had to pay it anyway. This is for people that pocket money from the sale of their primary residence.

Anonymous said...

Will they do this for 401k's? Take out a loan against your retirement fund. Decide to stop paying the loan back. All is forgiven.

Anonymous said...

I'm not a CPA but I deal with tax issues "where the rubber meets the road". The requirement to have to re-invest into a primary residence of equal or greater value was done away with in 1997.

I hate to say this, but I think we ALL saw this coming. Trust me, it was hardly just "daytraders" that got burned in the tech wreck. Plenty of long term and conservative investors sustained losses they won't LIVE long enough to write off.

But that's the stock market. This is REAL ESTATE! So... we jump through hoops to make sure you always win (even when you're losing) and turn the tax code on it's ear (and on a dime) so we don't pollute the pool of potential buyers going forward by issuing random "Get out of tax hell FREE" cards! Whadda' country!

DinOR

Anonymous said...

This bill, if Bush approves, will only apply to principle residences, so the spec house flippers who never occupied the home, will not be protected by it.

Read along further in the bill, and you will see who pays for this bail out. The owner of second homes, who move into the homes for 2 years than sell for the 250/500 exclusion. That all changes come 2008. This bill is being referred to as a "Luxury Tax on Retirement Homes".

I love the accountability. Awesome!

Stuck in So Pa said...

Just in time for the holidays. With all that 1099 tax money that the FB's WON'T OWE UNCLE, they can afford to buy more presents, and they can afford nicer rentals. If this gets signed, watch the "just walk away" numbers skyrocket! Since the American economy is based on consumer spending, should be a great Christmas, retail/credit card wise!

Anonymous said...

Honestly I gotta say any time taxes get lowered or eliminated I'm happy. Sure some FBs got a gift for being stupid, but oh well.

Anonymous said...

The debt forgiveness tax is unfair if you did not receive proceeds from the financing. I believe that tax relief is appropriate for purchase money debt only. Refi or HELOC funds should be taxable if the owner received net proceeds from the refi and I do not believe that these funds will be exempted from taxation. If you bought a home for 500,000 and walked away from the debt where is the cash benefit to borrower that should be taxable?

stuckinthecity said...

Look I don't care how they do it. Let's just get these prices down SO I CAN AFFORD A GODDAMN HOUSE!!!!

stuckinthecity said...

Anonymous said...
This bill, if Bush approves, will only apply to principle residences, so the spec house flippers who never occupied the home, will not be protected by it.
---

I'm sure they will be able to lie...

Anonymous said...

"Realtors(R) are about building communities, not just selling homes. We must work together to prevent the dream of homeownership from becoming a nightmare," said Combs. "This is just one step that will help families get on with their lives and begin rebuilding their economic security."
==============

How about teaching some ethics to your members?

Anonymous said...

Read along further in the bill, and you will see who pays for this bail out. The owner of second homes, who move into the homes for 2 years than sell for the 250/500 exclusion. That all changes come 2008. This bill is being referred to as a "Luxury Tax on Retirement Homes".

I love the accountability. Awesome!


failed flippers and people that took on more that they could afford should pay for there greed

the rates on my CDs are down, the homes I've paid off where part of my retirement plan, which I planned to do the 2 year in 5 year exception

Lets screw the savers

Frank@NeverColdCall.com said...

This is their scum strategy to get more looters and freeloaders to vote for them in '08 and try to capture the White House.

Instead of promoting solid policy they're appealing to the bottom feeders of America and now that bottom feeders are probably the majority, it'll probably work.

westwest888 said...

Of course you remember from high school physics that a wad of paper falls as fast as a ton of bricks. 9.8 meters per second per second, on Earth. I specify Earth because sometimes I feel like we all don't live on the same planet.

cobra2411 said...

"and prices fall like lead weighted rocks..."

Anonymous said...

The tax bail out was only if they had their original loan/or did rate term refi's. If they ever pulled cash out then they are on the hook.

Anonymous said...

westwest888 said...

"Of course you remember from high school physics that a wad of paper falls as fast as a ton of bricks. 9.8 meters per second per second, on Earth. I specify Earth because sometimes I feel like we all don't live on the same planet."

Those of us that took university physics know that air resistance usually prevents this. http://preview.tinyurl.com/2ff2s3

Anonymous said...

FBs already get to use the secion 121 exclusion ($500,000 for joint return) for foreclosures. Maybe congress should understand the tax law before they start voting for something that will have no impact.

Any members on the House Ways and Means Committee here?

Anonymous said...

I say pass it, let the FB's out of the loans, let housing prices finally fall, once and for all and get it over with. I am getting tired of the slow burn of the housing market. Just dump the whole thing, reset, then start again. It will make things much easier in the long run. Anytime there is a drag like this holding over for a long time, it just drags everything else with it. I think this may the governments way of saying enough. Just drop and die, and lets move on.

HauspocalypseNow said...

Think about what this means.

You borrow money (heloc or cash back at close - same thing really) and this is actually tax free income NOT DEBT because debt normally has to be paid back with interest OR if charged off you pay tax on it.

You will see a HUGE MASSIVE scam of all and every type of loan somehow being secured by your house which then goes to foreclosure and you walk scot free.

tax free money for everyone! line forms here.

it would ruin your credit, but you could buy a new ssn. you could pay to have your credit cleaned. you could marry someone with clean credit, then repeat.

there is a very very good reason for this law to be on the books. its not from an earlier era which doesnt apply!

that being said I dream about the forthcoming foreclosure tsunami! BRING IT ON!

bickerer said...

Washington (AP):
Consumers have boosted their borrowing at the fastest pace in three months, turning increasingly to their credit cards to replace home equity loans as a source of ready cash.

This is going to end badly. However like someone reminded me recently, they've been giving us this song and dance about the dangers of too much debt spending since the late 80's. Them chickens be takin their time comin home to roost.

Anonymous said...

As in FYI, Ron Paul voted No on this bill, and that is why I love the guy. He sees through all the BS.

whitetower said...

No way this gets through the Senate in its current form -- at least not before the '08 elections.

Anonymous said...

I cannot believe that the head of the NAR had the gall to stand up in front of Congress and claim that he was concerned about the "American dream becoming a nightmare" after they've spent the past 10 years puffing RE in every nook and cranny of this country to absolute nosebleed levels, stressing Americans to the maximum just to put a roof over their heads. THERE's your nightmare right there.

And to say they're concerned about " building community" really takes the cake. They've been at the helm of TEARING COMMUNITIES APART for ten years now with their giddy excitement of turning honest 100K homes into 500K nightmares.

Question: Was there ANYBODY in Congress who called him out on this bullsh*t when he made those statements? Anybody seen a tape of this?

Anonymous said...

I think this levels the playing field. Now the damn lenders are as screwed as the borrowers are that they screwed. I work in the title business and can't believe the interest-only and prepayment riders, etc. that are attached to many loans out there. Yea, the borrowers were stupid but the lenders were criminal. In times when home prices are going to go down anyway, I think it is great that the low-income borrower can stick it back to the lender.