TreyMarkel

When I left for college my parents gave me a handful of money to pay off my tuition and for general expenses.   Instead of paying off my college tuition and paying the bills, I decided to buy a house.  I told myself, if the market grows in four years while I am in college, I can potentially sell the house for more then I paid.  Thats the name of the game right?  Once an entrepreneur, always an entrepreneur!!  And then we were blessed with this wonderful recession.  The house that I thought was going to set me up for the beginning stages of my professional life can now only be seen if you have a snorkel.  The house is $100k under water and is in the biggest foreclosure city in the US, per capita.

At the time, the “interest only” mortgage payments on the house were about $1,200 dollars/month.  Thats exactly how much the house was worth on the rental market.  I started hearing about some of these residential home loan modifications.  Being the A.D.D person that I am, I had to know more about it.  I called my bank and asked all kinds of questions and really did my research on what it meant to get a home loan modification.  As I got deeper and deeper into the research I found out that I was a perfect candidate.  The qualifications were that you needed to have a house under water, you were personally struggling to pay the mortgage (and I was ) and that you had a loan that allows for you to pay less then interest only.  My scenario fell perfectly into this program.  I filled out the paper work and sent it in.  After about 3 months of phone calls back and fourth, emails back and fourth, resending the same form in over and over again, they finally approved me for my home loan modification.  When I got that phone call and they told me wha they did, I about fell over.

Old Residential Home Loan

House is worth $100,000
6.7% adjustable
$220,000 owed on the house
Option to pay less then interest

New Modified Home Loan

House is worth $100,000
3% interest only for 2 years, 3.5% for two years, 4% for two years, etc
$170,000 owed on the house
No option to pay less then interest

The bank cut my interest rate in half, and also took $50,000 dollars of the balance of the house.  I said ‘Where do I sign?”  This seemed like the best deal in the world.  And for about nine months, it was.  My “interest only” mortgage payment is now $700 dollars.  I can make money on the house.  I can fix some things up.  I’m saving some money.  It was awesome.  And then one beautiful spring afternoon,  Uncle Sam showed up on my door step.  Nowhere that I can remember, did I read or see anything about taxable income and having a home loan modification.  It didn’t even cross my mind.  So this last tax season, I owed the government $14,000 in taxable income from receiving a $50,000 dollar break in my home mortgage.

How is someone that is in financial trouble, which is the reason they are requesting the home loan modification in the first place, suppose to afford a huge hit like that come tax time?  You need a bail out program for the bail out program.  This was a great experience for me and just wanted to express to you my readers, that if the deal is too good to be true, it probably is.  Make sure you clearly understand what is happening with your assets.  I am seeing this quite a bit in the retirement sector.  Entrepreneurs trying to take money out of their 401k so they can start or grow their business with no fees attached.  It doesn’t exist and you just need to be careful.

Have any of you been through an experience like this?  What were your learning curves and how did you figure it out?