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Patriot605
Sep 1, 2008, 11:41 AM
Dear Expert,
I'm presently waiting for funding to mortgage a new primary residence (call it Home C). My current residence (call it Home B), is upside down and the rental property (call it Home A), is about even. I plan to rent out my current residence (Home B), however the pay option arm minimum payment is about $2700 and market rent will sustain about $2200-2400, of course negative amortization continues. There is about 12-18 months of buffer before recasting. Here are 2 questions:

1.) If I deed over/allow foreclosure of the property (Home B) now, which I have lived in as a primary residence for 3 yrs, do I qualify for Mortgage Debt Relief allowing me to exclude this canceled debt?

2.) Do I still qualify for the exclusion if I do rent out the property (Home B) as planned until recasting 12-18 months, and probably can't afford it (provided market at that time is status quo).

Additional info:
This residence (Home B) is secured with only a purchase mortgage originally $480K, but presently at $520K. Purchase price was $606K, appraised at purchase $595K, with total $126K down payment. Today's appraisal at best $450K. Down was provided by rental property (Home A) equity, (primary residence for 9 yrs) at the time mortgage balance was $134K, with appraisal of $480K, refinanced in 2005 for $280K, balance $305K now due to negative amortization, with $126K going to down payment of current residence (Home B), and $20K for rental/primary residence emergency buffer account. Rental property (Home A) income allows me to make complete interest payment for 2yrs until 5yr recast, but making minimum payment on (Home A) allows me to spread difference to cover minimum payent for Home B, although both homes will continue negative amortization with about 12-18 months before recasting.

V/r
Patriot605

JudyKayTee
Sep 1, 2008, 11:43 AM
Something else very similar has been posted before. Is this your situation or homework?

At any rate - you need a financial adviser.

Patriot605
Sep 1, 2008, 12:04 PM
Dear JudyKayTee,
Thanks for responding, I will be seeking financial and legal advice, but am doing some homework. The other postings don't address my situation. After securing my new home and decide to "walk away" from the last home, do I qualify for excluding the canx debt as it was my primary residence?