Search This Blog

Loading...

Tuesday, March 13, 2007

Subprime Homeowners Poised to Fail


When house prices fall, foreclosure rates rise. Many mortgage lenders go into a frenzy at the smell of homeowner's blood and make the crash worse by pushing subprime loans.

A survey released yesterday by the Mortgage Bankers Association shows a record high number of homeowners facing a serious threat of foreclosure during the fourth quarter of 2006.

 The future is predictable. People don't like losing their homes. Before they let the foreclosure signs go up, they will do whatever they can to keep their homes. For most homeowners on the brink that means they will stop paying their taxes to the IRS and the California Franchise Tax Board.

 Because failing to pay income taxes is a scary and distasteful thing for most of us to contemplate, many of those folks will try to bury their heads as deep in the sand as possible. They will even stop filing tax returns. They will stop filing and stop paying taxes in the hope that they will somehow be able to save their homes from foreclosure and ... somehow ... come out of the whole mess in one piece.

Not likely

After several years of no tax returns the IRS and the Franchise Tax Board (FTB) will begin sending letters. If the letters don't get the desired response, the IRS and FTB will tighten the screws a little and start sending certified letters. If that still doesn't get a response, they will attach wages.

When the FTB attaches wages or salaries it is called a garnishment. When the IRS does the same thing it is called a levy. Either way, they will start taking 25% of that homeowner's wages, like it or not. Believe it or not, that is still not enough to rouse some taxpayers out of their deep-denial slumber, but for most of us it is a clear and loud wake-up call. Something in their plan to save the house went terribly, horribly wrong.

Statistics show that most folks who try to save their homes by not paying taxes end up losing their homes anyway. All they do is stall off the inevitable and fall deeper into a dark hole.

After three or four years of not filing returns or paying taxes the homeowner has likely already lost the home despite those best laid plans and is now facing a huge tax bill. Things have gone from bad to worse to desperate. That's when these folks are likely to pick up the phone and call a tax attorney to file an Officer in Compromise. Through an Offer in Compromise their net tax liability may be able to be reduced. The Offer in Compromise becomes their escape hatch.

But this scenario depends upon the Offer in Compromise process remaining untouched over the next three or four years. If trends show an alarming increase in Offers filed by people who stopped paying their taxes to generate more available money in order to avoid foreclosure, the Congress may well take steps to tighten the Offer in Compromise process and by so doing, slam the escape hatch shut.

Poor Strategy

The bottom line is this: To stop paying taxes on the thought that the additional money being made available might help one save one's home from foreclosure is poor strategy. It is a decision that will likely be made very soon by hundreds of thousands of people who have less than sterling credit and are stuck with a subprime loan. These folks have been on rocky ground from the beginning and the decision to stop paying taxes will be the decision that seals their fate.
on Tuesday, March 13, 2007

0 comments:

Post a Comment

Subscribe to: Post Comments (Atom)