Posted by Art_MD on 5/3/11 9:50am
Msg #381970

terms of a modification


It's interesting how many variations of modification one see.
Here is one of them: (some minor changes to protect info)

Original loan date december 2006
Loan balance 400,000
past due interest,insurance 80,000
old interest rate 8.55
new interet rate 7.925
New loan term 38 years

If borrower keeps current on new payments of $2,700/mo , 48,000 of deferred principle will be forgiven each year for 3 years. If house is sold, a total of $144,000 will be forgiven if borrower was current up to the time of sale.

Interesting terms... but boy is the rate high!!!!! Heck of a rate in '06 !!!!

Reply by Linda_H/FL on 5/3/11 10:09am
Msg #381974

Wonder if they take a tax hit on that forgiven $144k

Maybe a portion of the 7.925% is allocated to principal paydown?

Example: New interest rate 7.925% of which 4.5% is true interest rate on new money and 3.925% is paydown? Possibly avoiding any tax impact on the forgiven funds...

Possible? Just a thought....cuz 7.925% is, to me, no bargain.

Reply by Art_MD on 5/3/11 10:16am
Msg #381977

Re: Wonder if they take a tax hit on that forgiven $144k

If part of interest was to principle paydown, then it wouldn't be 37 year note????
Have no idea if there is a tax consequence to forgiven funds

Reply by Linda_H/FL on 5/3/11 10:47am
Msg #381986

Part of interest to principal paydown for the $48k/yr

that's supposedly forgiven - not really forgiven but, technically, paid back...38 year note on the new loan

Like I said - was just a thought.

Reply by taxpro on 5/3/11 2:08pm
Msg #382018

Probably no tax consequences

due to the Mortgage Forgiveness Debt Relief Act. If it was qualified principal residence debt, the borrowers can exclude up to $2 million of cancelled debt from their income. Their basis in the home is reduced by the excluded cancelled debt, but who cares? They'll worry about that on a later date, and it probably won't cause an issue anyway.

Reply by John Tennant on 5/3/11 10:26pm
Msg #382054

Re: Probably no tax consequences

As an EA, anyone that states anything along the lines of "worry about it at a later date" scares the hell out of me. A later date could mean, back taxes, interest, penalties, tax lien, tax levy, etc" IMHO taxpro bad info.