I had a talk today with a friend who abandoned a rental property last year after he lost a renter and was unable to find a replacement.
Here is what I learned from the conversation:
- he just got a 1099-A from the bank. This is good, right? After all, the loan amount that he walked away from is not counted as income for tax purposes
- unfortunately, this is also bad because the bank, since they are not forgiving the loan, may take my friend to court... a judge could levy his wages, unless he files for bankruptcy....
Last year, when his renter bailed on him, we figured the bank would forgive the loan because they would want to get that bad debt off their books. Now, we realize that the bank that held the loan would rather postpone writing off that debt as long as possible. They'd rather keep the loan on their books as a collectible.
The bank has potentially left my friend with two tough choices (if they take him to court) -- get his wages levied or file for bankruptcy.
For many folks who are professionals, bankruptcy is not a good option -- particularly if you're applying for a job that does credit checks (like working for a bank).
I remember a professor say years ago, "If you want to be a CPA, never file for bankruptcy."
Anyway... banks certainly don't seem motivated to give customers like my friend a helping hand or mutually-beneficial solution.Instead, with the government providing TARP coverage, they feel free to turn the screws on folks who abandoned investment properties.
They don't care if my friend 's credit rating crashes. Heck, we know banks make more money off subprime borrowers -- so the more borrowers paying higher interest rates, the better for their profit margin.
Add the fact that the low interest rates from the Fed are discouraging banks from lending to individuals and businesses with good credit... mix in Obama's tough talk against banks... and you end up with an industry that wants to preserve their business, no matter the cost to their small-time customers.
We live in a world run by cold, calculating businesses and governments. We can be virtually crushed in an instant.
Many folks, like my friend, flooded into the housing market cooking pot when times were good. Now that the lid has been placed on top and the heat has been turned up, folks like my friend are scrambling to get out of that cooking pot... only to get tossed back in by "chef" bank.
If you are like my friend, and are considering abandoning an investment property, please reconsider! Abandonment is a lousy option. You will be left with difficult choices.
You may say, "I don't care. The bank can have it," but you might change your mind in the future -- particularly if you get a summons to appear in court!
Folks -- contracts still mean something. They are legal documents. If you violate the terms of a contract, that can be used in a court of law. This will only increase your suffering.
If you still have a job that pays the bills with money left over, try to find a renter. Even if you're losing money month-to-month, that's a far better option than abandoning the property and getting nailed in court a year or two down the road.
Don't believe the "walk-away" myth. I've met many people the past couple of years who bought into it, like my friend, and I'm sure they are all suffering... now that the ramifications of their decisions are brought to bare.
As co-founder of the DailySkew family of websites, Tony Vahl has explored many different subjects and writing forms -- from article writing to political commentary, fiction short stories to satire and parodies.
One subject Tony Vahl is passionate about is the economy. He has been discussing the housing bubble since 2005, as evidenced by this October 16, 2005 article: http://dailyskew.com/bestofskew/30_dominoes_falling.htm
Be sure to follow Tony Vahl's blog, http://dailyskew.com/blog.html, for nuggets of information and news topics!
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