Why the Biggest 1099 Tax Hurricane, Tsunami, Tidal Wave, Earthquake, Flood, Eruption, Fire, and Natural Disaster is going to hit in the year 2014 to those that did Loan Mods!
Why the Biggest 1099 Tax Hurricane, Tsunami, Tidal Wave, Earthquake, Flood, Eruption, Fire, and Natural Disaster is going to hit in the year 2014 to those that did Loan Mods!
The Year Is 2014, and an Alarming amount of homeowners have been hit with the largest 1099 Tidal Wave they’ve ever seen. The amount is so large they don’t know how to EVER pay such a big amount back to the IRS. They know that IRS taxes just don’t go away, they add penalties and late fees and keep increasing.
The question is how did such a devastating event hurt so many people at once, and how could we have prevented this tragic event from happening?
Back in 2010 many early WARNINGS were given by top newspapers such as MSNBC and the Wall Street Journal.
http://www.msnbc.msn.com/id/34126239/ns/business-real_estate/
http://online.wsj.com/article/SB125903489722661849.html
They all WARNED of how 1 in ever 4 Americans had houses underwater,
with growing foreclosures, they all WARNED what was inevitable.
If only Americans had listened and prepared for the worst. Today a few Americans who didn’t do loan mods were sheltered and survived.
So how did so many Homeowners with Loan Mods get caught in this disaster?
The Date was Dec. 20th, 2007
(see News Release IR-2008-17)
IRS enacted on that exact day what has now became known as:
The Mortgage Forgiveness Debt Relief Act of 2007
http://www.irs.gov/individuals/article/0,,id=179414,00.html
The act was originally released for a couple of years, IRS was kind enough to extend it through 2012.
The mistake most homeowners made is they were focused on their jobs, living arrangements, bills and other things, homeowners hadn’t realized at that moment was the “biggest tax gift” of all with a deadline of 2012.
Reports said that Houses had fallen by 25% form 2006 to late 2009.
So understand this, that was the banks collateral, a house worth 25% less, why would a bank want this liability back, they didn’t want the problem, so banks packaged loan modifications terms so that homeowners
would continue to pay for the problem.
What had happened is that homeowners elected to do what they thought was the best idea at the time, which was to do a loan modification, and keep the house. What most homeowners didn’t realize or consider is the early warnings from MSNBC, the Wall Street Journal and the news that 1 in 4 houses were underwater, and new bank owned foreclosures were selling every day further driving down prices. In the background house prices continued to go down, and these homeowners kept living in their home.
Today in 2014, you may ask why did the homeowners stay in thier home. It’s a great question, at the time, it seemed like an easier solution. On these loan modification the banks offered them fixed interest rates to stop their adjustable rate mortgages from adjusting higher. Some got ok interest rates. Many homeowners got to put their 3 late payments to the back of the loan and get a quick fix. What appeared to be a quick fix at the time, was ony a quick fix, in that they didn’t have to think about it, for just a little while.
A couple of years later, Everything started to unravel when these same homeowners finally realized that they couldn’t afford the payments in the depressed economy, they needed to move to a smaller home. They now were ready to sell their house for what was owed, but remember 1 in 4 Americans owed too much on their home, and even if years later that % went down, it’s likely these loan mod homeowners were the ones still holding on to the old high pricing. The homeowners found that they couldn’t sell. They now were ready to give the house back to the bank or do a short sale, but the worst part was yet to come.
You see those homeowners back in 2010-2011 figured they would not worry about the 1099 from the IRS, or the lender because of all of the bailouts and that mortgage forgiveness act they once heard about. That act was set to end in 2012, and now these homeowners found themselves in foreclosure in 2012, in a drawn out foreclosure that either left them with a lost house to the bank in foreclosure or a short sale, BUT after 2012, the deadline had passed. Homeowners now found themselves with the potential of paying the big difference from what the house sold for and what they owed.
For example, $250,000 mortgage balance owing, which sold for $180,000, sellers now found themselves with a pain of a 1099 for $70,000 all so they could, a few years earlier, get a fixed interest rate for a couple of more years. What sellers had failed to realize is that their natural, and non forced, timeline for moving would come up way before the prices of houses came up. Remember back from 2006 to late 2009, most said Minnesota houses went down 25% in value. Why didn’t the sellers realize that their houses wouldn’t appreciate 25% or even 30% to cover listing agent commissions within only the next few years, which would be necessary by the time they’d eventually move. This amount of appreciation could easily take 7-10 years to accomplish, which is about the time it will take for their credit to recover from that foreclosure or bankruptcy they now find on their credit report.
Disclaimer:
None of the above is meant as tax or legal advice, furthermore
we are not tax accountants, CPA’S or attorney’s please seek professional advice. Everyone’s situation is different and what may be right for one may not be for another. Their are also possibilities that the IRS could extend the
Mortgage forgiveness act beyond 2012.
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