Tax Woes Add Insult To The Injury Of Foreclosures
A disproportionate tax bill is a blow from an unexpected quarter for one who has failed to meet mortgage dues. Yet the bill accuses the person of having made an extra earning! This is unbelievable but true in Michigan and other parts of the country.
Those who negotiate with the bank for some unusual refinancing scheme are usually at the receiving end when they sell their houses for an amount, which is less than the outstanding dues. It is a three-pronged attack. First the victims lose their home and hearth. Secondly the amount they get is less than what they owe.
Last but not least comes the tax bill from unsympathetic authorities. Many are ignorant about tax rules because so far real estate valuation has been rising. But the curve is now falling. If the bank forgives $20,000 on a $100,000 loan then the former is calculated to be an income with tax tags attached to it. Matters are spinning out of control in Michigan where recession is on an all time high binge.
A Michigan Democrat is up in arms against this and trying to change this rule before the year comes to an end. Unfortunately it will only be a temporary reprieve and will apply only to the original house of the borrower. Many had availed of easy loans to move into up swinging localities with better facilities.
On 31st August President Bush gave his support to it as a part of the package helping house owners. The banks too approve of the scheme, as they do not benefit from foreclosures. The chief economist Richard DeKaser of National City Corporation in Cleveland is of the opinion that if changes are made and there was a tax freeze, borrowers will have more leverage for negotiation.
The only way to escape the dragnet is to file for bankruptcy. If the debt is repaid under the cloud of bankruptcy then tax is not levied. A second way out is to fill out a complicated tax form (982) and claim to be insolvent – their debts were bigger than assets. The average person is ignorant about such fine escape routes. Only a seasoned tax consultant could steer the victim out of the maze. It will not pull down ‘For Sale’ notices overnight but will certainly act as a cushion for future falls.
