what can you do when a bank gave you a mortgage loan you could not afford?

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what can one do if a bank gave you a loan and new you could not afford it if any thing would happen like a divorce which in my case happened and my husband just left me holding the whole bag of
paying back the mortgage that i could not afford on an 8 dollar an hour job. I had to short sell the home and the bank didn’t get the whole amount for the loan on the house for the house was apprasied at a lower price and now i have to pay the taxes on the debt forgiveness of a little more than 20thousand dollars. Is this right? I’m having a hard time understading all of this.

  1. Reply
    Spock (rhp)
    February 13, 2011 at 7:10 am

    bank isn’t responsible for your divorce.

    you are.

    and your ex- should be paying the taxes on the short sale — it was, in part, his short sale as well.

  2. Reply
    mom to be
    February 13, 2011 at 7:15 am

    You accept responsibility for your situation and find a place to live that you CAN afford.

  3. Reply
    February 13, 2011 at 7:22 am

    Its not the bank’s responsibility to consider the “what if” possibilities of divorce or job loss. They have done nothing wrong.

    Your divorce agreement should not have allowed you to keep the house if you could not afford the payments on your own. You should have sold the house as part of the divorce and split any equity or loss equally. You have no one to blame except yourself and your divorce attorney for that mistake.

    The IRS always treats canceled debt as income. Its nothing new and there’s no way around it. If the bank canceled $ 20,000 worth of debt that was in your name, then you have to report it as income to the IRS and pay income tax accordingly. If you can’t afford to pay in full by April 15th, then you need to get in touch with the IRS to set up a payment plan or take a personal loan to pay the IRS.

    Sorry I don’t have a better answer for you, but his is normal for someone in your situation and there are no ways out.

  4. Reply
    February 13, 2011 at 8:18 am

    A lot of lenders acted irresponsibly, lending to people who couldn’t afford it, but it is ultimately the borrowers’ responsibility to know what they can afford. As to the taxable debt forgiveness, it does make sense. Essentially, you were given $ 20,000. It was money you owed that the bank will never get and you will never have to repay. Look at it this way, if you didn’t get the debt forgiveness, you would still owe the $ 20,000. At your income level, you’re probably in the 15% tax bracket, meaning you’ll only have to pay $ 3,000 in taxes on the money.

    My concern is that if you and your ex-husband took out the mortgage together, you should not have ended up holding the bag by yourself. I think you should discuss this situation with your divorce attorney or a good tax accountant. You shouldn’t have to pay the entire tax on the debt forgiveness amount by yourself.

  5. Reply
    ibu guru
    February 13, 2011 at 8:31 am

    The bank is not responsible for your divorce. Nor is it responsible for a divorce settlement you signed which allowed your husband to walk away from the mortgage.

    Did you complete all the paperwork for the application accurately, or did you get a bit “optimistic” on the income? Many people, eager to get a mortgage, were not entirely truthful on their application. Certainly you did not consider how you could repay the mortgage under various scenarios, including those that indeed proved true.

    You submitted the mortgage application, you went shopping for a house, you signed the documents. You and you alone are responsible for what you have done.

    And now that you shorted the bank and contributed to the banking crisis, you can pay taxes on the benefits you received. After all, you already got the $ 20,000, spent it on a house, and don’t have to repay it. So yes, you pay taxes on the money you got and didn’t repay. The US taxes you on worldwide income from all sources. The money you got from the bank is income and taxable.

  6. Reply
    February 13, 2011 at 8:32 am

    Have you gotten a statement from the bank that they reported the loss to the IRS? Have they sent any kind of debt collectors after you for the short sale amount?
    This might not be considered “debt forgiveness” it could be considered an “uncollected debt.” Big difference. It depends on the State you live in.
    If the bank didn’t send you a 1098 or some other tax reporting instrument for the tax year of the short sale, I wouldn’t worry much about it. If they did send some sort of statement, you could still argue that this is an uncollected debt. You might need an accountant to help you specifically, however. You can find some that will do your return really cheap. Call several with your questions and you will get a good idea of what to do.

    I found this was really useful for getting me back on my feet…


    Good Luck!

  7. Reply
    February 13, 2011 at 8:49 am

    The bank is not responsible for your divorce.

  8. Reply
    February 13, 2011 at 9:07 am

    YOU are the one that went to the bank asking for the money.

    YOU are the one that asked to borrow X dollars.

    If YOU got a loan that you can not afford…that’s YOUR fault. Not the banks.

    YOU borrowed more money than YOU could afford. The bank had to take a loss. As such, the 20K forgiveness is the same as giving you a gift of 20K. Therefore, you owe taxes on it.

    When I purchased my home, I pre-qualified for more than I knew I could afford. Therefore, I purchased a home that I knew I could afford on a 30 year fixed. A home that was much cheaper than I pre-qualified for.

    Not what you want to hear, but:

    You made this mess.
    You have to pay to fix it.

  9. Reply
    February 13, 2011 at 9:17 am

    If you can show that you were insolvent at the time of the debt forgiveness (asset < liability) then it should not count as ordinary income for tax purposes.

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