Cheapest Flight/Car Rental Option?

What is my best (and legal) option to lessen taxable “profit” on the foreclosure of my “rental property”?

• First, the house in question was our primary residence for over 7 years. After a job loss in 2008 we could not afford to keep up payments on our 2 mortgages (p.s. 90% of all money “earned” from refinancing and the 2nd mortgage went into home improvements – added bathroom, remodeled kitchen, etc – We still have receipts, but I don’t know if that will help). We filed bankruptcy in 2009 but still couldn’t fully afford both mortgages and with a job offer in another state with cheaper cost of living, our only option was to rent out our home and we moved to another state. (p.s. we tried to sell our home in 2008 before the job loss & it was on the market for 6 months with NO offers and in 2009 the market sucked even worse, so selling wasn’t an option). [Hindsight is 20/20 and we really should have done a short sale in 2009 while it was still our primary residence, but we were too emotionally attached after living there 7 years and all the hard work on improvements… of course now that we haven’t lived there in 10 months we are far more detached and just want to be rid of these mortgage payments but have screwed ourselves out of all the programs available to help because it’s no longer our primary residence] The home/mortgage in question is still the only property we own. We are currently renting where we live now. Also, our mortgages were included as part of our bankruptcy – not that they were discharged (obviously), but our lawyer told us that if we decided to stop paying for the mortgages that we could “walk away” and that our lender (GMAC) would not be able to “come after us” for any money. I believe that the mortgages in question are referred to as “not reaffirmed” post-bankruptcy. Now I know bankruptcy is state specific – that you must file in the state where you live and therefore you have to follow their guidelines, income allowance can vary, etc. Would this also affect our “protection” from financial recourse for walking away from our mortgages if we now live in another state and the home in question is no longer our primary residence? And not only do we not live there, it is now a rental property – can we still “walk away”? (by the way, we can definitely prolong the beginning of foreclosure until our tenant’s lease is up and don’t plan on affecting them other than telling them they can’t renew the lease. Even if they wanted to stay, they pay only $1350/month but we owe $1850/month which is why we can’t keep this up… and we can’t get find a renter who would pay that much) So I saw a previous Question/Answer that said for foreclosure on rental property you take what you owe still on your mortgage(s) and subtract Fair Market Value. For us, that’s about $159,999 minus $150,000 which means $9,999 would be considered taxable “profit”!? I don’t know about you, but times are tight and come tax time I don’t know if we can afford to pay taxes on $9999 we didn’t really earn! What if I let our tenants leave when their lease is up (they’d be gone as of Oct 1, 2010) and we make sure to keep up enough with the 1st and 2nd mortgage so that the foreclosure process wouldn’t start until November 2010… At that point the house would no longer be a rental and would be vacant – then can I avoid the taxable profit? Or no matter if it is empty and unadvertised, because we *did* have tenants at one point, it would still legally be considered a rental?? How can we get out of this with the least financial recourse?!?! Please help!

• Answer:

  Find someone who will buy the note. It's not a new process. And it's very legal. I guess you could say it's been sort of a secret although it's not secret. The process usually happens at what seems to be the speed off light compared to short sale, foreclosure, bankruptcy,etc. options. Final results generally leave clients free of the property, no liability to the foreclosing lender and none of the foreclosure associated tax situations. At best, clients may actually walk away with money in their pocket. It's not unheard of. I know a group( in Texas, but they operate nationally) that utilizes this method and has helped others with very similar situations. Again, this way could eliminate you dealing with the foreclosure process altogether, along with any of the negative credit marks, deficiency judgment and tax issues associated with foreclosure. Oh yeah,it's a free process at that. Yep, No charge. Go to http://www.stopforeclosure-tx.com/foreclosure-help/ and complete the contact information. There usually pretty quick at getting back to inquiries. Warmest Regards...