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Saturday, February 28, 2009

Daily Journal of Collapse

We click on news stories from Portland's Daily Journal of Commerce all the time nowadays, but we never buy a print edition. The other day we stumbled across a discarded hard copy of the paper, which we leafed through with interest, and were a bit surprised at what we found. The collection of articles was thin, but despite the overall downturn of advertising dollars for newsprint, the paper was full of page after page of "legal ads." These are not hawking goods and services, but rather informing the public of some public proceeding, typically a court case, that may affect them.

What was really stunning to someone who never looks at these things was the sheer number of legal ads telling of foreclosure proceedings on real property mortgages -- or to be more exact, the Oregon version of mortgages, known as deeds of trust. Ads like these:

These foreclosure sale notices took up a little over half of the 32-page paper. I don't know if that's just because it was a Tuesday, or whether it's like that every day of the week. Either way, it's a sad sight.

Today in the O there's a story about a new industry that's sprung up around foreclosure on people's homes: "trash-out" firms that clean up properties that defaulting borrowers have abandoned and that banks now unwillingly own. Someone's got to do that job, I guess.

One point made in the story, however, is not true. It states:

Departing owners don't realize, he says, that when they shatter marble counters and break every oak spindle on a staircase, the carnage comes back to haunt them. When a bank writes off a loss on a loan, part of the loss may count as income for the borrower. The greater the loss, the more taxes the borrower must pay on that income.
As a tax guy, I can tell you that's rarely, if ever, the case. The income, if any, that one has on walking away from a home mortgage debt is rarely affected by the value of the property when it is surrendered back to the lender.

In any event, the times are chilling indeed, are they not?

Comments (11)

Dow 36,000 will turn out to be accurate after all -- in the New Dollar ... (just move the decimal one place over)

Yep. My previous thought that 7000 was the bottom was way too optimistic. 3600 now sounds about right.

The subprime mess is the first of three types of problem loans. The other 2 are just beginning to reset and the default rates and sizes will rival subprimes. In short, we can't even see the top of the bottom yet.

"Property Preservation" is one term from the new economy. Another from down in Florida is a little more direct: "Condo Vultures."

I'm pretty sure the last Congress passed a bill to obviate the bank's right to treat "short sale" losses as income tax to the foreclosed property owner.

That may not apply where willfull destruction enhanced the losses. I don't remember the name of the law, but I'm certain that Bush signed it.

It's called the "Mortgage Forgiveness Act of 1997" (see H.R. 3648 for details), or click on the below link.


Shrub gets one right!

Daily Journal of Come Worse.

Actually, it's "The Mortgage Forgiveness Act of 2007".

Your right on the markets.
Looking at the historical data 1995 dow was at 4000, that's 14 years ago, certainly not inconceivable.

Regarding the income question, I know that if you "settle" the debt, you are 1099'nd for the difference between the settlement and the original value of the loan.

This applies to unsecured debt.

Never heard of mortgage defaults having this done.

if you "settle" the debt, you
are 1099'nd for the difference between the settlement and the original
value of the loan.

This applies to unsecured debt.

Never heard of mortgage defaults having this done.

If the mortgage debt is "nonrecourse," meaning there is no chance for the lender to get a deficiency judgment against the borrower, the taxable gain depends on the amount of the debt, not the value of the property. A famous Supreme Court case so held.

With surrender of mortgaged property in satisfaction of "recourse" debt, there's a special exception in the Code now for one's principal residence. The discharged debt in such cases is not income at all.

Publication of legal notices is one form of advertising revenue that the newspaper industry hasn't yet lost to Craigslist, eBay, etc.

Regardless of the tax consequences these idiots that destroy stuff in the house before they leave should be liable for the damage. Jail time, fines, I don't know but it's just wrong.

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