Thursday, June 03, 2010

'Splain This, Lucy!"

How many of you have ever watched the old Lucille Ball show on tv reruns or whatever and if so, you know how Ricky (played by her husband in real life, Desi Arnez) would often -or more than likely usually -be upset with something or other Lucy had done and in his Cuban accent, would ask her to 'Splain" this or that -meaning for her to explain her actions.

Well, I have a question tonight that I'd like to see if anyone can possibly give me a real answer to this -an answer that makes sense, that is.

We see so much these days on the news about so many people who for whatever reason got into financial difficulties and as a result, have lost or are in the process of losing their homes. And this is not about what caused people's finances to "go south" but rather a consequence that occurs if you lose your home.

Did you know that if you lose your home, if the bank forecloses on you and you have to leave the abode behind, that the government, in its infinite wisdom -namely the IRS -comes in then and somehow or other, they make some calculations and not only do you end up homeless, but also, you end up owing the IRS on the money that they say you "saved" -or which is deemed as income then, by the foreclosure?

I suppose this isn't an accurate description of what takes place in these circumstances, but this is my interpretation of the whole process anyway.

The only way I can explain this is by an example -taken from circumstances I witnessed with my daughter and son-in-law.

The SIL was married before and he and that wife had bought a home together. When they split, with the divorce and such, neither wanted the house -for whatever reason, that I'm not sure, but they defaulted on the mortgage. And of course, you know, when you do that, the finance company is gonna come after you sooner or later, which they did and at that time, the SIL and his ex-wife signed the place back over to whatever financial institution had covered their mortgage initially.

Now, my ex-husband and I did pretty much the same thing too -back in the 80s with the house we had built and which we still owed on too -we signed it back to the finance company and they took over the property, sold it -for less than what we had owed on the place then too -but it left my ex-husband free and clear then to purchase another home in another state with his second wife and I didn't want the house because my Mom had died and I had her home -which really is MY HOME, ya know - and the kids and I had moved into her house, my grandparents home, MY HOME!

And for us, that was the end of the whole problem then.

However, somehow or other, the amount of money still owed on the SIL and his ex's house was divided between the two of them, and some other mathematical transactions applied to this figure and they both ended up then that the finance company said they both still owed money -around $6,000 each or so I think it was.

Well, the SIL had no means at all to get a loan to repay that figure but somehow then, the full amount of the money that had been owed initially was turned over to the IRS and he then -along with my daughter (because they had been filing joint tax returns, ya know) ended up with a bill from the IRS for over $6,000!

Why? Well, because somehow the IRS considers this money they owned as being income!

Now, I ask you -or anyone who knows and understand and can explain this financial jibberish and the legalese, how when you lose a property completely, have no equity in it at all, can this then be calculated as being "income?"

If you have a car and miss the payments and it is repossessed, are you then, if the bank then has the vehicle and sells it to someone else, have to continue paying for a vehicle you don't have and is that money that you aren't paying on that loan then considered to be income too?

Just wondering, ya know.

But where does stuff like this end anyway?

I'm thinking now of all these people who are filing bankruptcy or being foreclosed on and losing their homes, if they are then later going to get a nice not-so-friendly letter then down the road from the IRS telling them not only did you lose your lovely home but now, you owe us money on the deal that you already lost your shirt on!

Somehow the whole process just smells like something rotten in Denmark, as that old saying goes.

I really do wish someone would explain the logic of how a loss factor like that can become income.

Can you "Splain" that to me?


Maggie May said...

It is all a bit beyond me but some how some where someone is making an awful lot of money out of other people's sad split ups.
It is terrible to have to hand over a property because you can't pay off a small amount on a mortgage. This is where common sense should come in. But it doesn't.
Maggie X

Nuts in May

Suldog said...

Jeni, I could no more 'splain' the IRS than I could 'splain' a plaid jacket to a blind man, but I'll hazard a guess as to why the law is that way. The thinking is probably that many people could say they were forced into selling because of a bad economy, then under-report the sale price of a home and thus owe less tax on the sale. No doubt a few have done so. Shame that honest people who are suffering are made to suffer more, though. But, that's the government for you. If they can find a way to screw 100 honest people while catching 1 dishonest one, they'll probably do it.

Sniffles and Smiles said...

ABSOLUTELY ABSURD!!!!!!!!! Jeni, our government is out of control...And that's all I have to say 'bout that! Ridiculous!!! It would be humorous if it weren't SOOOOO TRAGIC!!!! Something needs to be done. Soon. Great post! Great questions! Bravo! ~Janine XO

Linda said...

If you have a car repossessed - as I have - then the car is sold at auction by the bank to the highest bidder. If the amount they get for the car doesn't add up to the amount that you still owe on the loan they call that a deficiency balance and they then expect you to pay that to them even if you don't have the car anymore. Generally speaking, the amount that you end up still owing is what you would have paid in interest on the loan on the vehicle - which you no longer have I might add - but which the finance company thinks they are entitled to.

The whole thing totally stinks as if one had the money to pay the deficiency balance, then one would have had the money to pay the loan and not have the vehicle repossessed in the first place. At least, if one were in my shoes that is!