Repurcussions - Please Help Me Understand

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IrvineCitizen_IHB

New member
I have been reading this forum and blog for quite some time and am trying to understand what, if any, repurcussions all of these dishonest people must face.



You buy a 750K house, take out a 200K HELOC, go with zero down and a 5/1 Interest-Only ARM and make payments of $2K a month for a few years. You purchase a new Suburban, a nice Range Rover and put 40K into your new stainless steel appliances and plasma screens.



The market crashes, your 5/1 is over and your payment is now $5700 a month so you don't pay it. After three months of non-payment you get a notice from your mortgage company. You are now in foreclosure. You make no HOA payments. No mortgage payments. No HELOC payments. You owe $14K in property taxes from last year and 7K from this year. You don't pay them either. You still drive around in your nice cars and enjoy your appliances and live in your house. At least until you are FORCED out, which could be many months.



What are the repurcussions? Obviously you have a NOD on your record. A foreclosure has got to be as bad as declaring bankruptcy on your credit report. You probably <em></em>shouldn't<em></em> be allowed to purchase anything for what, seven years? What about that HELOC money? It's April 15th. What do you owe taxes on?



In other words, are these people just skating away? Blemish on their financial record and they lived like kings for 5 years? Put the next house in the wife's name and walk away from it all?



Many of you on here are really astute about this stuff. PLEASE tell me they owe 90K to the IRS for the HELOC. Or taxes on the property taxes. Or SOMETHING.
 
[quote author="IrvineCitizen" date=1237327755]I have been reading this forum and blog for quite some time and am trying to understand what, if any, repurcussions all of these dishonest people must face.



You buy a 750K house, take out a 200K HELOC, go with zero down and a 5/1 Interest-Only ARM and make payments of $2K a month for a few years. You purchase a new Suburban, a nice Range Rover and put 40K into your new stainless steel appliances and plasma screens.



The market crashes, your 5/1 is over and your payment is now $5700 a month so you don't pay it. After three months of non-payment you get a notice from your mortgage company. You are now in foreclosure. You make no HOA payments. No mortgage payments. No HELOC payments. You owe $14K in property taxes from last year and 7K from this year. You don't pay them either. You still drive around in your nice cars and enjoy your appliances and live in your house. At least until you are FORCED out, which could be many months.



What are the repurcussions? Obviously you have a NOD on your record. A foreclosure has got to be as bad as declaring bankruptcy on your credit report. You probably <em></em>shouldn't<em></em> be allowed to purchase anything for what, seven years? What about that HELOC money? It's April 15th. What do you owe taxes on?



In other words, are these people just skating away? Blemish on their financial record and they lived like kings for 5 years? Put the next house in the wife's name and walk away from it all?



Many of you on here are really astute about this stuff. PLEASE tell me they owe 90K to the IRS for the HELOC. Or taxes on the property taxes. Or SOMETHING.</blockquote>


Tax liability for your scenario is dependent upon the year the loan was made and the year the debt was forgiven. Previously, cap gains tax was owed on the forgiven debt, but Bush and the previous Congress changed that.
 
I'm in the same boat as you, and after all the things unearthed in this blog about what was going in Irvine, I tell my wife: don't allow to impress yourself with all the sudden wealth that some of your "girlfriends" displayed in the last 5 years, all those big remodels: new kitchen, new bathrooms, outdoor kitchens, edgy furniture, new family mini vans, big parties and celebrations, and especially those that looked at you over the shoulder, don't believe for a second that they really put their own money on that!, just wait to see them go down in flames and lose everything, I can tell you it's a matter of time, the clock is ticking for them, you will get a schandenfreude overdose!
 
Just to ratchet up the "disbelief quotient" - heard yesterday that some people we know (living in Irvine) haven't made a mortgage payment in 8 months- and they still have not been contacted by the bank!
 
In these days I found an easy and public way to know how things are really going with certain ?suddenly wealthy? acquaintances, I check their property taxes status, to demonstrate to my wife what I'm talking about because she sometimes doesn't believe what's really going on.



<a href="http://www.ttc.ocgov.com/tcweb/search_page.asp">http://www.ttc.ocgov.com/tcweb/search_page.asp</a>



And yup, what a coincidence, the "suddenly wealthy" are late with their taxes...how come?! (sarcasm off)



They have until 4/10 to pay, including late fees, and if you add that one of them has an Option Arm and has been underwater for a year...
 
To answer your question, in 2002 a coworker lost his job (previous recession) got behind his mortgage, and 1st received a NOD, then a NOT, luckily he managed to keep the property after getting a personal loan from a relative, but the NOD, NOT stuck to their credit report and since that point on he was rejected when he tried to open a credit account: Sears, etc., luckily for him the subprime industry was born, and he was received with open arms, he became a serial cash-out re-financer, so there was not a big impact for him, but in the future he'll need to re-finance again and he's underwater so don't know what he is going to do, he needs to bring his own cash to the re-finance table, and I don't think he has.
 
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