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    ballengerb1's Avatar
    ballengerb1 Posts: 27,379, Reputation: 2280
    Home Repair & Remodeling Expert
     
    #1

    Mar 22, 2012, 12:12 PM
    Upside down mortgage
    Hoping someone with knowledge in this area can answer this. A man I know has an interest only mortgage which is now upside down. House would sell for $100K but the loan is always at $120K plus interest. He believes h can just walk away from this or get a short sale, moving away in less than 2 months. Barring filing bankruptcy what are his chances of getting out of this loan?
    JudyKayTee's Avatar
    JudyKayTee Posts: 46,503, Reputation: 4600
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    #2

    Mar 22, 2012, 12:14 PM
    Of all the people I hate to give a pat answer to, you're the first BUT I'd say he should consult with an Attorney in his area.

    I have a friend in Florida who was told by an Attorney (and I find this hard to believe) in a very similar situation to walk away. I believe he's about $35,000 underwater but still...

    I'd get some really good legal advice because this could (obviously) kill your friends credit and make his life miserable for a long time.
    ebaines's Avatar
    ebaines Posts: 12,132, Reputation: 1307
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    #3

    Mar 22, 2012, 01:56 PM
    Many people do indeed walk away from upside down mortgages, even though they are not bankrupt. It's a pure financial decision - he may be better off walking away and buying a second equivalent house for $100K. However, as JKT points out it'll ruin his credit rating for years to come. Also once the bank forecloses the $20K difference between what he owes and the fair market value will count as income to him (loan foregiveness), and hence he'll have to pay income tax on that amount. So he saves interest charges on $20K worth of mortgage, which is probably worth around $1000/year, in exchange for bad credit and an income tax bill of several thousand dollars. Maybe it makes sense, maybe it doesn't.
    AK lawyer's Avatar
    AK lawyer Posts: 12,592, Reputation: 977
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    #4

    Mar 22, 2012, 02:01 PM
    Quote Originally Posted by ebaines View Post
    ... Also once the bank forecloses the $20K difference between what he owes and the fair market value will count as income to him (loan foregiveness), and hence he'll have to pay income tax on that amount. ...
    It's taxible income even if the bank gets a deficiency judgment for $20K?

    Quote Originally Posted by ballengerb1 View Post
    ... He believes h can just walk away from this or get a short sale ...
    If the bank will agree to a short sale, it is possible to get the bank to also agree to forgive the at least some of the deficiency - which of course might again incur tax liablility.
    ballengerb1's Avatar
    ballengerb1 Posts: 27,379, Reputation: 2280
    Home Repair & Remodeling Expert
     
    #5

    Nov 25, 2012, 09:13 PM
    Hey guys, I really appreciate your answers but some glitch never notified me that anyone answered. I just found your sage advice tonight. Thanks for your thoughts

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