Mortgage Modification Deduction??

[hockeybum]

What is the name of your state? Colorado

In late 2006 my mortgage company began foreclousing on my property. I was able to work it out with them and modify my mortgage, the process took a couple of months and completed in early 2007. As part of the modification the mortgage company increased the principal due on my property by about $20,000. My question is can I some how deduct that $20,000 as some type of loss, and if so how do I do that?What is the name of your state?

[FlyingRon]

If the amount is interest and you've not already deducted it, you can do so. It would probably take a real tax person to look at the paperwork to determine what portion if any is eligible.

[TinkerBelleLuvr]

increased the principal due

Principal is NOT interest. That will NOT appear on your return at this time.

When you go sell the house, the difference between what you paid for the house and selling the house is either a profit/loss. The increase in basis is what will be considered then.

[FlyingRon]

Originally Posted by Ginny J

Principal is NOT interest. That will NOT appear on your return at this time.

When you go sell the house, the difference between what you paid for the house and selling the house is either a profit/loss. The increase in basis is what will be considered then.

Without knowing what the nature of this increase in principal is I can't say for sure but it's quite possible that it's just deliquent interest payments (negative amortization) and hence won't affect his basis.

[foreclosureguru]

Originally Posted by hockeybum

What is the name of your state? Colorado

In late 2006 my mortgage company began foreclousing on my property. I was able to work it out with them and modify my mortgage, the process took a couple of months and completed in early 2007. As part of the modification the mortgage company increased the principal due on my property by about $20,000. My question is can I some how deduct that $20,000 as some type of loss, and if so how do I do that?What is the name of your state?

What the mtg. co. did I believe was a REFINANCE/whole new mtg. rolling in all of the arrearages, taxes and insurance that they had to pay for you during your down time, the attys. fees they were being billed for to foreclose and the interest due of course on each of the payments you missed...thus adding 20k to you NEW mtg. correct?

1.) I am surprised this was done that long ago...you are lucky they did this. This IS what they ARE doing now by the way on all foreclosures only with a fixed rate to match the payment you began with if a teaser a.r.m. OR int. only.

2.) You are asking if you can count this as a loss now? Absolutely not. It is not a loss. It is no more a loss than had you made the paymts. kept up the taxes and insurance etc...Why don't we ALL get to count the last 20k as taxes and ins. and full paymts. as such a loss? The interest YOU DID PAY is deductible and you get a 1098 for IT at end of year.

What DOES concern me in these loan mods however is the fact that they ARE rolling in the total of paymts. past due (mostly interest right?) adding to the balance thus charging now interest upon interest.

This is new for us...but I have thought this but never have brought it up. Personally...I do not think that the portion of the 20k that IS interest (this would be MOST of it) should be ALLOWED to be charged interest on top of IT again.

Oh well...this I am certain will be brought out another day in the life of this biz./

[foreclosureguru]

Principal is NOT interest.

It IS if they rolled 20k of past due payments/interest and modified this loan increasing it's balance, however it is not a loss. It has now BECOME part of his prin. bal. this is concerning because NOW he will be charged int. on top of int. 20K of past due paymts. were rolled into a new mtg. thus x amt. of paymts. that were likely 95% interest...see what I mean?

[hockeybum]

Originally Posted by foreclosureguru

What the mtg. co. did I believe was a REFINANCE/whole new mtg. rolling in all of the arrearages, taxes and insurance that they had to pay for you during your down time, the attys. fees they were being billed for to foreclose and the interest due of course on each of the payments you missed...thus adding 20k to you NEW mtg. correct?

1.) I am surprised this was done that long ago...you are lucky they did this. This IS what they ARE doing now by the way on all foreclosures only with a fixed rate to match the payment you began with if a teaser a.r.m. OR int. only.

2.) You are asking if you can count this as a loss now? Absolutely not. It is not a loss. It is no more a loss than had you made the paymts. kept up the taxes and insurance etc...Why don't we ALL get to count the last 20k as taxes and ins. and full paymts. as such a loss? The interest YOU DID PAY is deductible and you get a 1098 for IT at end of year.

What DOES concern me in these loan mods however is the fact that they ARE rolling in the total of paymts. past due (mostly interest right?) adding to the balance thus charging now interest upon interest.

This is new for us...but I have thought this but never have brought it up. Personally...I do not think that the portion of the 20k that IS interest (this would be MOST of it) should be ALLOWED to be charged interest on top of IT again.

Oh well...this I am certain will be brought out another day in the life of this biz./

They did not give me a lower rate or take me back to my original teaser payment, they did put me in a fixed at 11.5% and my payment increased $500 a month to $2800. I have been perfect with all my payments since then and have almost 12 months of perfect payment history. Do you have any suggestions on a course of action to refi this loan and try to bring the payment down? (it is killing me!!) Everyone I have talked to has no advice for me. Thanks alot for your help.

[FlyingRon]

Originally Posted by foreclosureguru

Principal is NOT interest.

Lets put it this way.

Lets say he has an outstanding balance of $100,000.
He misses a few payments. The bank says, ok we'll give you a modification.
But we want our missing income. So here's $5000 of interest, you owned for
the months of deficiency, plus some miscellaneous fees adding up to $10,000.
We'll just add that to the principal of the modified loan.

Despite the fact that he borrowed money (by adding it to the principal) to make an interest payment, that interest is deductible

[Grandma's house]

Quote: Despite the fact that he borrowed money (by adding it to the principal) to make an interest payment, that interest is deductible

He cannot write IT off if he hasn't actually paid it can he? He rolled it BACK into the prin. balance. To be charged interest yet again. I DO see your point too. He DID add it on top of the prin. bal. (the interest) but unless they give him a 1098 as IF he actually paid it I don't see HOW he can write it off. I will run this by ldj to see what she thinks.

Anyhow...What I am trying to say is this...dunno if we are even talking about the same thing.

Prin. Bal. is 100,000 at time of default
past due paymts. of 10,000 (say 8k of this IS interest portion owed, right?)
They make the loan mod. (re-write it) 110,000 total new loan.
The issue I am having with these loan mods. is...if 8k IS interest past due that they rolled BACK into the re-write, they are going to charge him interest on this 8k again. Do you see my point? I do not know if this is legally correct to do. It must be because we are doing them.


O.P. as for your re-written loan at 11+% fixed. This was NO deal at all. However...the lender was not mandated to give you a conv. rate at the time and now that you are current they don't have to either. You need 12 mos. good mtg. history and SHOULD be able to now apply for an F.H.A. refi. your mid. score only needs to be 530 and up. It USE TO BE no score requirements until recently like as in yesterday . They do not care about the rest of your credit either. They do care about Judgement Liens but not collections. Your loan amt. must not exceed the county limits for your area. They did just increase these however to assist folks such as yourself

Give me the bal. of any all mtgs. and the county that you are in. I will get into fha and get the loan limit for you.

[tranquility]

With the imprecise terms being thrown around like "increased the principal", I'd love to see the escrow papers. This sounds like a refi with the interest being paid. (The interest portion which will be considered against equity loan limits for deductibility when being paid back.)

[Grandma's house]

The loan modifications are being done without a title co. involved at all. Thus no "escrow papers" for you to see. Sorry. We the lender are already in 1st position. No new deed, no title fees etc.....just increasing the existing loan amts and modifying the original terms. We are only sending out a new mtg. notes to be signed and notorized to the borrowers. However I do not know what your asking or what point you are trying to make. Mind clarifying? and what exactly is wrong with using a term such as "increased the principal"?

That IS exactly what we are doing in the mods., Is there a problem with this?

also...what do you mean here? quote: (The interest portion which will be considered against equity loan limits for deductibility when being paid back.)
what equity loan "limits"? The increased balances are merely to roll in the arrearages. The other alternative is to foreclose on ALL of these homes. Which is it you would prefer for these banks do? I didn't realize you may have a better idea. Please...share.

[Grandma's house]

Here is the answers to some of the questions I got from a tax guru...The monies tacked back into the prin. bal. quote: is not tax deductible now, but in that scenario it would add to the "basis" of the house, therefore it would be "deductible" in determining capital gain when the house is eventually sold.

Yes, its perfectly legal to roll the unpaid interest into the principal. end quote


(whoosh, wiping the sweat from my brow)...I was truly concerned as being the lender if doing this was o.k. "rolling the unpaid interest to the back end of the mortgage or into it" this charging interest upon interest."

O.P. PLEASE do come back and give me the balances of any mtgs. on your residence and the county you are in. I will tell you if you may qualify for an FHA loan. Do not do this with some sub prime slime lender, I just found one slithering around in another thread to weed out for you. "We WILL prevail in ridding ALL subprime lenders." Find someone doing FHA.

[tranquility]

Here is the answers to some of the questions I got from a tax guru...The monies tacked back into the prin. bal. quote: is not tax deductible now, but in that scenario it would add to the "basis" of the house, therefore it would be "deductible" in determining capital gain when the house is eventually sold.

I don't see how "basis" would be affected. This amount (the interest rolled into the loan) cannot be qualified purchase indetebness which is why I mentioned some would be equity indebtedness. It is clearly not deductible presently unless the debtor had unrestrected use of the newly loaned funds to do with as he pleases. [Helvering v. Price, (S.Ct. 1940) , Menz v. Commissioner, 80 T.C. 1174 among others.]

also...what do you mean here? quote: (The interest portion which will be considered against equity loan limits for deductibility when being paid back.)
what equity loan "limits"?

As I alluded to previously, all the posters pushing mortgages saying it may be deductible, in small print have "consult your tax advisor". I'm that guy you're supposed to see. Just because a loan is against your house does not make it deductible. The rules are long and complex, but divide into two main areas, qualified acquisition indetebness and home equity indebtedness. This interest increase would not be the former and, since it is secured by the residence, would be the latter. The current limitation for the amount of deductible home equity indebtedness is $100,000.

[hockeybum]

O.P. PLEASE do come back and give me the balances of any mtgs. on your residence and the county you are in. I will tell you if you may qualify for an FHA loan. Do not do this with some sub prime slime lender, I just found one slithering around in another thread to weed out for you. "We WILL prevail in ridding ALL subprime lenders." Find someone doing FHA.[/quote]

Thanks for your help and advice. I am in Jefferson couty in Colorado. The new balance on the modified mtg is $258,000 the payment is $2550/month p/i. Once they post my April payment that one should be the 12th month consecutive.

[Grandma's house]

F.H.A. has just increased your counties loan limit from 271k to 406k you were fine at the 258k plus c.c.'s anyway but this is great for your county. Now I want you to go to zillow.com and at the top plug in your address. (highly used public site) this will give you an estimated value to your property today.

Do you know how to turn on your P.M. (private message)? Go to the upper left corner of the yellow bar to: USER CP and scroll down to enable the P.M. feature. Send me a p.m.