One of the things that really gets under my skin is the number of “Scams” with signs, TV ads and radio announcements telling people that they can get out of their home, renegotiate their debt, or some other scam, as if it were as easy as stopping off for a hair cut. What the home owners don’t understand is yes they are very often getting a hair cut by these companies and they are going to get clipped in the future far worse for their actions!
You may want to consider keeping your property here in Las Vegas even if you owe 50% more than it is worth. Why? Because what may be coming after you dump your property may be more painful than if you had kept it. Nevada protects you in many instances on your initial 1st mortgage purchase money and limits your liability to the value of the property. Thus in those instances you may not have a problem later after you dispose of the property other than ruining your credit.
If you refinanced or had a second mortgage this whole game may just have changed. For instance a “Home Equity Loan” although attached to your home is a personal guarantee loan and if defaulted on in any way the lender has the right to seek collection against your assets. This may also be true concerning refinance 1st or other 2nd mortgages. To answer these questions you should dig out your original loan papers review them and seek the advise of your attorney and also the advise of a “Certified Public Accountant” who has malpractice insurance.
A common response by “Scams” is that the lenders will write off their loss and send you a Federal 1099 form and you can avoid the tax because of the temporary moratorium on the loss offered by the Federal Government through “The mortgage debt relief act.” Yes, in some cases you do not have to pay taxes on your loss for the debt forgiveness on your primary home when it is sold at a loss to the lender and he issues you a 1099c.
The thing that really gets me is that people think that because the lender issues a 1099c and writes off the loan on their books the borrower no longer owes the money to the lender. In many cases this simply is NOT TRUE! Then collection business in the United States is about to become much bigger and much more lucrative than it ever has.
Many large mortgage companies will be selling off these written off loans to collection agencies and sometimes these will be spin off companies of the banks. So you won’t see any of the big banks coming after you in 3 to 7 years from now but you will see the collection companies. They will be looking at your assets, income and other available ways to collect against you. They will accelerate any interest rates, late payment fee’s, collection fee’s and any other allowable charges to the maximum allowed under the contract. They will attach your income, attach or force the sale of your assets and make your life miserable. If they can somehow get you to send them even a dollar they then have another 7 years to collect against you. Yes you now are a slave to your debt and although you thought everything would be rosier when you walked away from your home 7 years ago you now realize its either pay the debt including interest and late fee’s or take out bankruptcy which means another 7 years of bad credit and problems qualifying for everything from a loan to higher insurance rates to getting a better job. Yes, you may one day look back and wonder why you just didn’t keep paying for that home as in the last 7 years it is now worth more than what you owed and now you don’t have the home, you just have the debt.
If you had kept the home you would still have it, your credit would be good and probably the value will have recovered. What you would not have is, unpaid debt, no compounded interest, no late fee’s, no collection fee’s and you wouldn’t have a collection agency after you trying to garnishee your wages and forcing you to sell your assets.
Remember that banks originally gave you the loan to make money on you. They are not a charity in which you are just forgiven miraculouslyof thousands of dollars which they promise never to return and ask you for. If they can legally collect from you they will. A bank writing off your loan does not mean that they can’t come back and collect against you latter and then pay taxes on what they collect! Short Sale and foreclosure are not nor will never be a way to freely escape your written, legal and moral obligation to repay a debt. Even if the IRS gives you a free ride this does not mean that your Mortgage Company will release you.
Let’s assume that you bought your home in Las Vegas in 2005 and paid $300,000 for it. Let us also assume its value is now 50% of what it was in 2005.
If you keep your home or investment property and think long term things may change in your favor quicker than you anticipate. Most economist believe that because of the ballooning of our national debt that inflation will ensue. This means that holding dollars will be a way of loosing money (the purchasing power of cash). This will result in everyone buying commodities and this includes houses in order to shelter the value of their money. If inflation is just 5% per year for the next ten years you will see the following:
Beginning home value $150,000
Year 1 @ 5% inflation $157,500
Year 2 @ 5% inflation $165,375
Year 3 @ 5% inflation $173,644
Year 4 @ 5% inflation $182,326
Year 5 @ 5% inflation $191,442
Year 6 @ 5% inflation $201,014
Year 7 @ 5% inflation $211,065
Year 8 @ 5% inflation $221,618
Year 9 @ 5% inflation $232,699
Year 10@ 5% inflation $244,334
In 1990 the inflation rate was 5.4% and most economist believe that we in the U.S. will see inflation rates higher than we have ever seen them until we control our deficit. So think of the above numbers as conservative. Also realize that as demand for inflation proof investments rise so to will the value of the assets. The above figures show no appreciation due to demand. If there is appreciation which has averaged about 3% per year in Las Vegas then the price of a Las Vegas home will exceed the 2005 value in 10 Years. The figures below reflect 5% inflation plus 3% appreciation after 2010:
Prop. value as of 2009 $150,000
2010 @ 5% inflation $157,500
2011 @ 3+5% growth $170,100
2012 @ 3+5% growth $183,708
2013 @ 3+5% growth $198,405
2014 @ 3+5% growth $214,277
2015 @ 3+5% growth $231,419
2016 @ 3+5% growth $249,932
2017 @ 3+5% growth $269,927
2018 @ 3+5% growth $291,521
2019 @ 3+5% growth $314,843
You now have a piece of real estate that is worth more than you paid for it and probably has a lower balance owed. You have used the interest as a tax write off for 10 years. You have either had a place to live or have had rental income and depreciation write off for the last 10 years.
What you do NOT have is $150,000 collectible balance by a collection company along with compounded interest late fee’s and collection costs which may now exceed the original balance of what you borrowed.
One final point for you to think about. Would you loan someone $300,000 and when you got back $150,000 simply take it as a tax deduction and forget about it when you know they may have money you can get in the future?
Don’t get sucked in to the recent scams about Short Sales and Foreclosure. Consult your licensed C.P.A. and attorney and take your loan documents with you when you do. Pay for their advise and follow it. Don’t listen to anyone no matter how self assured they are or how much of an expert they seem to be. The decisions you make now could affect your financial well being for up to the next 15 years.
Don’t guess, don’t hope, KNOW!
A Las Vegas real estate Buyer Kenson Kuba asked, “Are we near the bottom in home prices in Las Vegas?”
