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Monday, January 05, 2009

Short Sale, Long Consequences

Short Sale, Long Consequences: A story about divorce, foreclosure and the IRSIt is August 2008 and I have been divorced for two years now. What a two years it has been. Left with nearly $15,000 in credit card debt by my reckless and deceitful ex-husband, and just out of graduate school working part-time jobs to get by, it seemed like I would never catch up. Oh, and there is the deadly “foreclosure proceedings begun” on my credit report, which I’m told will be there for the next seven years. Nonetheless, it is August 2008; I am divorced, happy, and free, with a new love in my life, and more than two thirds of the debt paid off. I am able to go off the debt management program that has helped me reach this goal. I plan, and take, my first vacation in more than five years.

What do I come home to? A notice and bill from the IRS that they are increasing my 2006 reported income by more than $5,000, meaning I owe them about $800, because my ex and I sold our foreclosed house in a short sale more than two years ago.

Just when I think life is getting better, something surfaces, something bites my (thankfully, tanned) backside.

Of course, my first reaction is that this is an injustice. For one, the mortgage company (since gone bankrupt itself) never told me that I would be liable for claiming the waived debt as income, and never furnished me with a 1099 form. (In a recent phone call, their rep claimed they sent it to my ex, logical as he was the primary borrower.) For another, there is the sting of personal injustice: my ex had let the home fall into foreclosure behind my back. I still don’t know what happened to all the money that was supposedly going towards mortgage payments, thousands and thousands of dollars. (Of course, I do have my suspicions, most of which involve my ex’s internet affairs, substance abuse, and sending money to his con-artist brother in Europe for weird and always unsuccessful business ventures.)

The irony is, it was me who decided to file taxes separately for 2006, although we were technically still married for half of it, because I didn’t want to be associated with him any longer, even in the eyes of the IRS. If we’d filed jointly, he’d now be liable for half the short sale income. In fact, I might even be eligible for an IRS protection called “Innocent Spouse,” that waives the liability of a spouse when debt or income has been concealed. (He never shared the 1099.) As it is, however, two tax professionals and the IRS help desk in Providence, RI have convinced me that I am liable for the amount and will be held responsible, especially since my ex doesn’t seem to have filed income taxes at all for that year. As both of the accountants told me, “The IRS goes after the person with the deeper pockets.” It seems unimaginable but that person is me!

Ademola, another member of the www.DebtHelp.tv blog, wrote an entry about this recently. Bush and Co. have issued a special moratorium that currently prohibits taxing short sale amounts. It’s a good idea; with so many people facing foreclosure and crisis, this waiver is a welcome relief, I’m sure. After all, in my case the short sale amount, and subsequent tax, wasn’t thousands and thousands of dollars. In today’s market, however, large short sale amounts are a distinct possibility for those trying to sell their homes, especially if there’s a need to sell quickly. Read more about the moratorium here.

My story, though, is still a teaching story, I think. When you’re in financial and personal crisis, as I was when I negotiated the short sale, it’s easy to jump at the first relief without considering the long-term consequences. Don’t get me wrong, the short sale was probably still my best option, but I would have handled the taxes differently. I wish I had slowed down and asked myself questions, not yes/no questions, but open questions like: What do I need to know about a short sale?

That’s the thing about crisis: It seems like the time to act fast. Maybe, that’s really the time to slow down and do research. To ask an expert. To ask yourself: how will this affect me two years from now, when I come home from vacation, tanned, happy, and newly in love? How will this affect me when I’m almost-financially-secure again? How might this affect me in eight years or eighteen? In the moment when it’s hardest to think about long-term, we sometimes most need to.

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12 Comments:

Blogger Amy said...

This is horrible, but it is great to read about much you've overcome.

Friday, January 09, 2009 11:44:00 AM  
Anonymous Divorce and Foreclosure said...

> The IRS goes after the person
> with the deeper pockets...

That's an unjust policy. It doesn't make sense to me. They should go after the person who broke the rules, which, in your case, would be your ex-husband. Going after the person with deepest pockets is wrong and unAmerican.

Sunday, January 11, 2009 6:50:00 PM  
Anonymous Anonymous said...

I wonder if you have resources in small claims court, or does the filing separately negate that right entirely?

Monday, January 12, 2009 3:41:00 PM  
Blogger Olivia Sage said...

Love your point about "deepest pockets" being unAmerican - it's true that a messy divorce can make you believe there's no justice in the world... or even in our great country!

Also, not sure about small claims court... I suppose it might be worth looking into.

Monday, January 12, 2009 5:42:00 PM  
Anonymous Tony said...

"Reckless and deceitful husband?" It's always the man's fault isn't it?

Saturday, January 17, 2009 6:33:00 PM  
Anonymous Divorce and Foreclosure said...

> It's always the man's
> fault isn't it?

Is that really a fair comment?

Saturday, January 17, 2009 7:13:00 PM  
Anonymous Lamont Williams said...

good point

Sunday, January 18, 2009 12:15:00 AM  
Blogger BEZY said...

Heres a question.
Im thinking about investing, i need money for my future my retirement my children, what do i do?
is private investing a good idea right now? is it something i should be thinking about?

Monday, February 09, 2009 6:21:00 PM  
Blogger Amanda A. said...

"Reckless and deceitful husband?" It's always the man's fault isn't it?--

No, not always. "reckless and deceitful" has no gender. But, in this particular case, the man IS in the wrong for not sharing the information with his wife. It's a sin of omission, I guess.

Saturday, February 14, 2009 10:40:00 AM  
Anonymous Debt Help said...

> It's a sin of omission, I guess...

That's right: a lie of omission is still a lie.

Saturday, February 14, 2009 3:41:00 PM  
Blogger Olivia Sage said...

Of all the information in this story I never guessed that gender would become the point that people responded to! The Battle of the Sexes prevails, I guess...

Obviously, it is NOT always the man's fault, and the issue at hand is not about gender. I know there are a lot of women out there who have lied to honest, hard-working men about money, the same way that my ex-husband lied to me. In fact, I admit that I am ultimately responsible for letting my ex deceive me for so long - I should have been more on top of my personal finances, not just trusting that he would handle things. Having said that, he was reckless and deceitful, and he did lie - A LOT. Not because he was a man, just because he was a dishonest person.

Sunday, February 15, 2009 4:17:00 PM  
Anonymous www.kallershortsales.com said...

Yes I think you could have gone through question and answer portion with your agents, try to know if you are doing the right thing and better understanding of the proceedings and how you can be held taxable after the sale of your property. Short sale is not just short sale at all, from the pre sale there are procedures, from the mid sale there is also and so the post sale. Luckily you have yourself escaped from the taxes etc etc…

Thursday, March 12, 2009 10:31:00 PM  

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