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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: John Vosilla who wrote (88882)	9/12/2007 1:51:15 PM
From: GraceZ	Read Replies (1) \| Respond to of 306849

Zero down purchases at the top in 2005 with huge losses for the lender wouldn't qualify. Not true for investors, only owner occupied unless they were careful to take out a commercial non-recourse loan. I'll have to put Elroy on ignore after I post this because he is convinced there is no such thing as non-recourse loans for RE, but whether or not debt cancellation is taxable depends on the state mortgage laws and the financial condition of the debtor and whether or not the RE was owner occupied. In some states all purchase loans for primary residences are essentially considered non-recourse, the lender cannot take action against you for a deficiency. In some states like my own, you have personal responsibility to make whole any deficiency, in other words the lender has recourse. If they then forgive a portion of the loan that triggers a taxable event unless you are BK or can prove insolvency. This is true for all, purchase loans as well as refi and HELOCs. What is funny, in light on how vehemently Elroy fought me on this one (and he's STILL talking about it) CA is one of those states where all primary residence purchase loans are considered non-recourse. So much for his knowledge of his own state banking laws. Of course if they pass tax forgiveness for debt cancellation on purchase loans for owner/occupied RE on the Federal level then all this is moot. This lawyer pretty much sums it all up: wwlaw.com TAX CONSEQUENCES Most people are shocked that they can lose their property and still owe taxes on the profit. We often hear people say that they prefer to be foreclosed since they will not owe any tax, but if they sell (and have no net sales proceeds) they will owe substantial tax. WRONG! The tax results of a foreclosure, deed in lieu of foreclosure, or short sale depend on the nature of the loan: whether it is recourse or non-recourse. Recourse means that the borrower has personal liability for the loan, in addition to the risk of losing his real property. Tax Consequences: NON-RECOURSE LOANS Non-recourse loans include typical California purchase loans used to buy an owner occupied residence of up to 4 units. State Law protects borrowers from personal liability on a purchase mortgage for a home which they occupy at purchase. (If the borrower later converts the home to rental, he is still protected.) The State has put the risk on the lender; the most a lender can do is take back the house. This law applies to properties of up to 4 units, and applies only to loans used to purchase the property.