The Florida Asset Protection Blog

Lender Pursues First Mortgage Deficiency Judgment

Jonathan Alper — 2009-11-08T09:47:26-05:00

One of this week’s new clients was a man living in New York City who had over $20 million of mortgage debt, including a $3 million first mortgage owed to Fifth Third bank secured by a Florida property. Fifth Third foreclosed on the Florida mortgage, and immediately after the foreclosure sale, the lender filed a motion for a deficiency judgment. The client said he did not defend the deficiency motion (he should have defended), and court entered a $1 million personal judgment. This is one of the few cases I know of where a first mortgage lender pursued a deficiency judgment. There is nothing unusual about this client’s situation other than, perhaps, the large amount of the mortgage debt. Time will tell is this lawsuit indicates a more aggressive policy by mortgage lenders in Florida.

Deeds In Lieu Of Foreclosure : Make Sure Lender Is Offering The Real Thing

Jonathan Alper — 2009-11-03T20:54:09-05:00

Each week I talk to several people about negotiating a deed in lieu of foreclosure with their mortgage lenders. Like so many people around the county, these clients are experiencing problems paying mortgages on their upside down real estate. I typically tell people that as long as they are current on their mortgage they are wasting time trying to convince a mortgage lender to accept a deed in lieu. Banks will not consider a deed in lieu, short sale, modification or any other work out proposal until the borrower is in default, and usually not until loan payments are at least three months past due. My clients report that it is impossible to negotiate a deed in lieu until the property is in foreclosure; one reason is that until a foreclosure lawsuit is started and both sides are represented by attorneys it is difficult for you or your attorney to reach a bank representative who has authority to negotiate a deed in lieu or modification.

So I was surprised today when a client reported that his mortgage lender readily accepted a deed in lieu on one of his upside down rental homes after he was only two months behind in mortgage payments. Was it true, and were lenders finally beginning to accept owner’s offers to voluntarily deed back properties in lieu of foreclosure? Not exactly.

A deed in lieu of foreclosure is supposed to be a final settlement between owner and mortgage lender. The lender accepts a deed to the property in consideration for releasing the borrower of any further liability under the loan or mortgage. When my clients tell me they want to offer a deed in lieu they intend for the deed to the lender will end their liability under the mortgage loan. When I looked at this client’s "deed in lieu" I found that the lender did not include a release of liability, and in fact the document referred to the borrower’s continued liability for a deficiency. This client had negotiated a deed in lieu of foreclosure by not a deed in lieu of deficiency liability. Also, by surrendering title to the property without the bank having to foreclose, the client gave up all the defenses available in a foreclosure action which he could use as leverage to negotiate a complete release.

If your mortgage lenders offers you a deed in lieu make sure it’s the real deal. You give them the property back and they release you from any further liability. Anything less may be a trap.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

Garnishment Of Homestead Reverse Mortgage Payments

Jonathan Alper — 2009-10-30T20:43:24-04:00

During this past week I met with a new client who had recently been subject to a money judgment from a credit card company. The client, retired, had a reverse mortgage on his homestead which money he used to pay his basic living expense. As most know, a reverse mortgage involves a bank providing a guaranteed monthly payment for the owner's life in exchange for the house title upon the owner's death. The retired client was concerned that his creditor could garnish his monthly reverse mortgage payments. I don't think a court would permit garnishment of reverse mortgage payments if the mortgaged property were currently the debtor's homestead. Protecting money received and deposited in the debtor's bank account is more difficult.

Lets start with the general rule that although your homestead is creditor exempt once you convert the homestead equity to cash by mortgage or sale the money is no longer protected by the constitutional homestead protection- the one exception is the continued exemption of sale proceeds intended to purchase a replacement homestead. Application of this general principal would lead to the conclusion that proceeds payable or paid from a reverse mortgage are not protected. I think a court would not permit the garnishment for two reasons. In my opinion there is a strong public policy protecting the money people rely upon for retirement, and in most cases, reverse mortgages are used to fund retirement of seniors who have managed to pay off their mortgage. A brief legal research session revealed no Florida cases on this issue.

This client will have more problems protecting the reverse mortgage proceeds after they are deposited in a bank account. Florida courts have protected pension or 401k funds after deposited in financial accounts. There are too many cases holding that homestead proceeds lose asset protection in a bank account unless clearly intended to buy another homestead. This client will have to deposit his reverse mortgage checks in a protected financial account.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

Deferred Compensation Is Not Protected As Pension Or Wages To Head Of Household

Jonathan Alper — 2009-10-25T10:46:55-04:00

Retirement plans are protected from creditors in Florida, except when the "retirement plan" is not a retirement plan. Consider, for example, a client who told me about his "Senior Executive Retirement Plan (SERP)." Initially, I told him his plan is protected from creditors as a retirement or pension plan. Upon further review, it turned out that this employer benefit plan is not protected by Florida law.

Florida Statute 222.21 protects tax deferred retirement and pension plans including most IRAs. The statute refers to specific IRS Code sections, and the debtor’s benefit plan must fit under one of the listed Code sections. After our initial meeting, this client sent me written information about his SERP. It turned out that the Senior Executive Retirement Plan was actually a deferred compensation plan. The employer withheld parts of the client’s salary until after retirement. The company’s plan did not fall under any of the IRS deferred taxation retirement plans listed in the applicable Florida Statute 222.21. The client suggested that his deferred compensation might be protected under Florida Statute 222.11 which protects from garnishment wages of a head of household. His current compensation consist of wages, and therefore, he argued that the same compensation paid after his retirement is also a form of protected wages.

Florida courts have not protected money paid or payable to a debtor as deferred compensation. A Florida bankruptcy court rejected attempts to protect a debtor’s deferred compensation either as wages under F.S. 222.11 or as a form of a pension under F.S. 222.21. (221 B.R. 537). This example illustrates the importance of examining statements and underlying documents of your financial plans to make sure they are protected under Florida law.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Garnishment of Alimony

Jonathan Alper — 2009-10-18T21:29:16-04:00

A judgment creditor threatens the debtor to garnish her alimony payments she receives from her ex-husband on a monthly basis. The debtor depends on the alimony to pay her mortgage an other household expenses. The debtor asks if the alimony is exempt from garnishment under the Florida statutes.

There is no statutory exemption of alimony or child support receipts. However, Florida courts have not allowed judgment creditors to garnish the debtor’s alimony payments. Garnishment is permitted only where the garnishee (alimony payer) and the debtor have a debtor-creditor relationship. A Florida court many years ago held that alimony was not a "debt" in the traditional sense, and that alimony therefor could not be subject to garnishment. The court also held that public policy prohibited the garnishment of alimony from one ex-spouse to the other. No court has disagreed. The same court also found that alimony is not a form of wages which could be exempt under Florida’s protection of head-of-household earnings.

Mortgage Modification: An Explanation Of Why Lenders Prefer Foreclosure Of Delinquent Mortgages

Jonathan Alper — 2009-10-13T21:08:23-04:00

A good percentage of my clients over the past three years have been trying to save homes from foreclosure by modifying their mortgages. Successful modifications are becoming more common, but still, the vast majority of people who call me state that their mortgage lender is not willing to modify their loan in a way that would permit the borrowers to maintain the mortgage until the housing market recovers. Clients wonder, and they asked me, why their mortgage company would rather force them into foreclosure than modify the mortgage so that the loan can be paid. Why, clients asked, would the bank want their vacant property rather than whatever amounts of money the clients can afford to pay.

I just read an interesting article by Mr. Richard Kessler, CEO of a web based company called www.cancelthemortgage-now.com, about the mortgage lending industry's loan modification policies. Mr. Kessler suggests several reasons why mortgage service companies have difficulty entering into flexible mortgage modifications and why they have rational reasons to foreclose delinquent mortgages. His article tries to explain the difficulty you may experience trying to modify your own home mortgage. Rather than try to paraphrase the article, I offer selected portions for your own reading:

Mr. Kessler states as follows:

"The cost of a foreclosure, it turns out, is pretty staggering and one wonders why lenders and the investors they represent aren't jumping at a solution, any solution, that would allow them to avoid going to foreclosure whenever possible... The fact is the banks prefer to take large losses in foreclosure rather than offer various types of smaller discounts to enable the debtor to convert a loan in default into a performing loan. Part of the problem is the moral cost dilemma. If defaulting loans are getting a better deal than those loans which continue to perform, it is but a question of time until more and more loans go into default. If bad behavior is rewarded instead of punished, more and more people will behave badly...."

"What everyone overlooks is the institutionalized constraints to mortgage modification which have resulted from the securitization of mortgages. More than 80% of all mortgages have been converted into securities. This practice has divided those who control the mortgage from those who suffer from the incidence of loss. The certificate holders bear the losses. The trusts and servicing companies control the mortgage. ..For the banks which control but do not own the mortgages in default, foreclosure is far, far more profitable. It is highly profitable to collect the fees associated with foreclosure rather than to forego the profits in favor of an alternate dispute resolution. This is a major constraint to mortgage modification of securitized mortgages."

"In addition, there are many constraints to mortgage imposed upon securitized mortgages. These restrictions either prohibit or restrict the changes which can be made to mortgages in default. Some of these restrictions are contained in the master pooling and servicing agreement which form the investment vehicle."

posted by Jonathan Alper, asset protection and bankrupty lawyer, Orlando, Florida

Nevada Law Helps Asset Protection Planning With Some Partnerships And LLCs

Jonathan Alper — 2009-10-11T22:26:58-04:00

The 2009 Nevada legislature passed an interesting estate planning statute designed to increase the effectiveness of family limited partnership (FLP) and family limited liability companies (FLLC) for estate tax planning. The bill, SB 350, went into effect on October 1, 2009. An article about the new law appeared this week in Lawyersusaonline.com. Lawyers USA Online. I was intervied by the author, Correy Stephenson, in order to discuss the bill's effect on asset protection planning.

The bill provides for new business entities called Nevada Restricted Limited Partnerships and Nevada Restricted Limited Liability Companies. The "restriction" aspect means that the LP or LLC is restricted from making distributions to its partners (members) for a period of up to ten years. The restrction against distributions effectively locks money inside these entities. In theory, the applicable restrctions warrant greater valuation discounts from fair market value of assets held in these new entities. For families with taxable estates a greater valuation discount means lower estate tax bills. Estate tax planning is the primary benefit of the Restricted LP and LLC.

I think that restrictions against distributions conmplated by the new Nevada law may also have an asset protection beneift. The judgment creditor's remedies against the debtor's interests in either a partnership or LLC is limited to a charging lien against distributions, if any, when made. If a judgment debtor was not receiving cash distributions from a partnership or LLC controlled by himself or a family member the creditor's charging lien would yield no recovery. However, the judgment creditor could pursue a court order requiing distributions be made by the general partner or manager. In my opinion, the judgment debtor would have a better defense against compelled distributions where the partnership or LLC owned by the debtor was a Nevada Restricted LP or LLC, all other things being equal. As the law is so new it will take a long time before its terms are tested in an asset protection court case.

posted

Second Mortgage Sabotage Of First Mortgage Modification Plan

Jonathan Alper — 2009-10-08T20:48:21-04:00

I would like to ask you, the blog readers, to help a reporter who is investigating practices in the mortgage modification programs. A national business publication is investigating overly aggressive second mortgage lenders. The reporter, Mr. Robert Berner (312-451-7149), is looking at situations where a second mortgage lender sues a homeowner after the homeowner has already entered into a modification agreement with the first mortgage. The second mortgage gets a judgment against the homeowner and then garnishes the owner's bank accounts or salary which causes the homeowner to default under the first mortgage modification agreement. These second mortgage lenders are sabotaging the modification programs set up and encouraged by the government to help homeowners. In some cases where the same bank holds the first and second mortgage the bank modifies the first mortgage and then sells the second mortgage to a third party investor which then agressively collects the second or even sues the homeowner for delinquent second mortgage payments. These mortgage lenders appear cooperative in modifying their first mortgages but then undermine the same modification by collecting or selling the second mortgage.

A related mortgage issue I have heard about from my own clients occurs when a homeowner has checking accounts at the same bank that holds his home mortgage. Some clients have reported that when they missed a mortgage payment the bank invaded their checking account and pulled the mortgage payment out of their checking account without notice. I have previously posted my general advice which is to move your accounts out of the bank that holds your home mortgage if you miss a mortgage payment.

Please get involved. If you have had a mortgage modification plan ruined by a second mortgage holder who sued you during the modification process, or if you have had your mortgage lender grab mortgage payments from your checking account at the same back before a foreclosure or other lawsuit was even filed, call Mr. Berner (312-451-7149) and discuss your experiences.

Homestead Protection Not Lost Just Because Judgment Shows Up On Title Search

Jonathan Alper — 2009-10-07T09:09:04-04:00

From time to time people call me and state that a title search discovered a judgment lien on their homestead. They ask how a judgment can encumber their homestead property if homestead is exempt from creditors.

A title search does not answer the question of whether there are enforceable judgment liens on your homestead. The search will tell only what filing appear on the public record. Any civil judgment against you will appear when you do a title search of any property in your name. Whether a recorded judgment acts as a lien on your homestead is a separate legal issue that takes into account the Constitutional homestead exemption.

If a judgment is issued by a court and recorded prior to the time you occupy a home as your permanent and primary residence (homestead) then the judgment will attach to the property. Moving in to the house after the judgement will not protect the home from the judgment. However, if you occupy a house at the time a judgment is recorded the judgment stays on the public record but does not legally impair your title or your equity in the house.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

Update: Overpaying Taxes To Protect Money From Judgment Creditors

Jonathan Alper — 2009-09-30T09:31:33-04:00

I have recently posted blog articles about a client who is trying to protect money from a judgment creditor by overpaying estimated taxes to the IRS, and when a refund is due from the next tax return, asking the IRS to hold his refund to pay future taxes. I had mentioned that an experienced collection attorney I consulted had no idea how he could attack a debtor’s excess tax deposits with the IRS. Another collection attorney in Florida emailed his suggestion that the creditor could seek proceedings supplementary with a Florida court and ask the judge to use the broad equitable powers granted courts by the relevant statute to command the IRS to turn over the debtor’s tax deposits to the court. A bankruptcy professor did not know the answer and suggested speaking with a tax attorney, which I did.

This week I presented to issue to Mr. Robert Kramer who is a very experienced and well known tax attorney in Broward County, Florida, where he heads his own firm, Kramer, Green, Zuckerman et. al. Robert Kramer has been a tax attorney for several decades and has also provided asset protection planning for many physician clients. Robert said that a general judgment creditor cannot garnish the IRS to collect a civil judgment in the absences of specific statutory authority; such authority exists, for example, for collection of state child support awards. Also, Robert stated that a state court judge cannot enforce an order against the IRS for turnover of taxpayer money to collect a civil judgment because the state court judge lacks federal jurisdiction, and there are no federal statutes giving such power to state courts to collect general civil judgments. In other words, the Florida judgment creditor may have no remedy to get money the debtor transfers to the IRS to avoid his creditors.

No doubt, the excessive payment to IRS to avoid paying judgment creditors is a fraudulent transfer or fraudulent conversion. A creditor’s lawsuit to recover a fraudulent transfer would name the debtor and the IRS as defendants. The judgment creditor would have to sue the IRS (probably in federal court), and even if he could prove the debtor’s intent to evade collection, the civil judgment creditor may be without a remedy to get the money. Sometimes the simple asset protection plans that do not work legally are very effective practically.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

Banks Have Incentives To Settle With Judgment Debtors Quickly For Low Amounts of Cash

Jonathan Alper — 2009-09-20T18:43:54-04:00

Everyone knows that it is very hard to negotiate with a bank to modify a bank loan. Banks are difficult creditors to deal with. Yet, after a bank which has already sued and has a judgment against you is a relatively easy creditor. Banks tend to accept very low settlements of judgment debts whether the debt is related to a mortgage, a credit card, or a commercial loan. I never understood why banks tend to settle for "pennies on the dollar", although I assumed they had good reasons to resolve their claims quickly and cheaply. This past week I discussed bank settlement policies with a new client from Chicago who had worked there for the FDIC for many years. He was quite familiar with the internal workings and thinking of commercial banks.

The client explained why banks are anxious to settle judgment debts. I’ll try to paraphrase his explanation in layman’s language. If a bank has a personal judgment against you the bank reports the judgment as an asset. Accounting rules require that the bank mark down the judgment to its present value. Given the difficulty in collecting judgments in Florida against people with financial problems the bank will discount the judgment to a low percentage of face value. Next, the bank has to evaluate both the cost of pursuing collection, including attorneys fees, and also the administrative costs of carrying the judgment. I was not aware that bank’s incur significant administrative expenses of carrying bad debts such as accounting, auditing, and valuation of the debts. Typically, banks find that given the uncertainty of collection, the time and expense of collection, and administrative carrying costs, it is better for them to accept almost any amount of cash offer to settle the judgment debt. Additionally, bank regulations require banks to have capital reserves to offset "bad debts" so that uncollected judgments requiring setting aside capital which otherwise could be used to make new loans.

My retelling of my client’s explanation may not be totally accurate, but I think I understood the general point. Bank accounting and financial regulations render uncollected debts low value assets which are expensive to maintain on bank accounting books. If a bank has a judgment against you start your negotiations with a very low cash offer.

Client Overpays Estimated Taxes Used To Shield Money From Potential Creditors In IRS Account

Jonathan Alper — 2009-09-20T17:35:43-04:00

Often new clients describe asset protection tools they implemented before they first meet me. Their asset protection solutions are usually based on a book they read, a seminar they attended, or even things they read on my own website. Usually, the client’s asset protection strategies will not work because they lack knowledge or experience with important issues, but sometimes I meet people whose own asset protection plan includes creative and possibly effective strategies. As an example, last week a new client described to me how he has already protected approximately $75,000 of cash by overpaying his estimated tax payments. His IRS account showed a positive and refundable balance of $75,000. The client assumed his creditors could neither discovery nor recover his money held by the IRS. At first, I told the client his plan would not work because his credit with the IRS was a non-exempt asset and would have to be disclosed. But upon further investigation, his ploy may be effective.

First, the IRS credit would have to be revealed to a judgment creditor who could examine the client about all assets in a deposition under oath. In a bankruptcy proceeding, I have no doubt that the bankruptcy trustee would demand the client ask the IRS for the money and upon receipt turn over the money to the trustee. A bankruptcy court would enforce the trustee’s turnover request with its contempt power. Outside of a bankruptcy proceeding it may be difficult for a creditor to recover the money.

A judgment creditor outside of bankruptcy needs to use available tools of collection to get a debtor’s non-exempt assets. The creditor can’t simply demand payment; he must recover the judgment using appropriate legal and equitable remedies. An overpayment to the IRS is a non-exempt asset. The question is how does a creditor get the money from the IRS; what is the appropriate collection tool?

I posed this question to a prominent and very experienced collection attorney in Orlando, Fl. He wrote back that he did not know whether there is a tool by which a creditor could attack a debtor’s IRS deposits. His response, paraphrased is, he did notknow whether a creditor can garnish the IRS for money owed by the IRS. He could not can’t find anything that permits it, and therefore, he thought it possible that a judgment creditor cannot reach it. The collection attorney said he searched Westlaw and Google and could not find an appropriate remedy to reach the deposit. He told me that even if there is a way to get the money the remedy would be very difficult for the creditor.

This is not the first time a client has asked me about the protection of IRS overpayments outside of bankruptcy. If a reader knows the appropriate creditor remedy to levy upon the IRS money please send me an email. Even though an IRS overpayment is not exempt, and may be deemed a fraudulent transfer to hinder or delay creditors, it still may be an asset protection device if creditors do not have a cost-effective tool to recover the funds.

Using Money In "Homestead Account" To Purchase Annuity: Is This Fraudulent Conversion

Jonathan Alper — 2009-09-15T09:39:59-04:00

Money received from the sale of a homestead is exempt from creditors so long as you are holding the money to buy a replacement homestead and as long as the sales proceeds are segregated. If you decide to downsize your homestead and use only part of the money to buy a house, can you use the rest of the sales proceeds to buy a protected annuity? The general rule is that using exempt assets (homestead proceeds) to buy another type of exempt asset (annuity) is not a fraudulent conversion. Because the homestead sales proceeds are exempt when you intend originally to reinvest all into a new house it may seem that you can safely use any portion of a homestead account to buy any other exempt asset. Or, do homestead proceeds lose their protection when invested in anything other than a new homestead.

A client had sold a house for $500,000 and had segregated the money in a separate bank account. The client was being sued and was concerned about protecting the funds from the creditor. After searching for an equal replacement house, the client decided to buy something less expensive because he could not afford the taxes and utilities of an equal size house. The client wanted to buy a $250,000 homestead and use the remaining $250,000 to purchase an annuity hoping that both assets would be protected from the anticipated expected civil judgment.

I think the purchase of the annuity would be reversible as a fraudulent conversion under the facts above. Homestead accounts, i.e., money held for replacing a sold homestead property, are exempt based on judicial decisions. There is no statute or constitutional provision referring to a "homestead account." The exemption afforded homestead accounts is contingent and dependent upon the owners intent. The money is exempt when and only so long as the owner intends to reinvest the money in a new homestead. If the money is not reinvested in a new homestead within a "reasonable time" courts will find that the debtor no longer intends to buy a replacement homestead and that the funds are no longer protected from creditors.

When this debtor makes the decision to purchase an annuity with some homestead funds he no long intends to reinvest the same funds in a new homestead and the exemption of funds intended for the annuity is lost. Money used to purchase an annuity would lose its homestead exemption and become non-exempt property when the debtor begins shopping for the annuity. Thereafter, the actual purchase of the annuity would constitute the conversion of non-exempt money into the exempt annuity and would be subject to reversal as a fraudulent conversion if done with the intent to protect the money from the anticipated judgment creditor.

Good Article About Credit Rating Myths

Jonathan Alper — 2009-09-11T08:13:23-04:00

Many people, if not most people, facing a foreclosure or bankruptcy are very concerned about the impact on their credit rating. Clients frequently ask me how will the foreclosure, short sale, or bankruptcy affect my credit and how can they rebuild credit. Credit rating is not a legal issue; I don’t know any legal procedures relevant to credit restoration. From time to time when one of my own clients is in the mortgage underwriting business or car lending business I pass on to my clients or blog readers what these people tell me about credit rating.

This past week the Wall Street Journal published a clearly written article about credit scores. The article summarized the important factors affecting credit score and gave practical suggestions about increasing credit rating. Those concerned about the impact on credit rating of their current financial difficulties should read this article. Credit Scores: Shattering Some Common Myths

Forclosure Tax Effect: Imputed Income From Debt Forgiveness May Be Offset By Investment Losses

Jonathan Alper — 2009-08-26T17:22:26-04:00

Many people facing foreclosure are concerned about income tax liability from the lender’s forgiveness of mortgage debt. If the mortgage lender does not pursue a deficiency judgment and writes-off the loan after foreclosure the lender could send the owner a IRS Form 1099 for imputed income for the amount of debt forgiven. In the case of a first mortgage, the debt forgiveness would be the difference between property value and mortgage loan balance; a second mortgage write-off creates an imputed income issue for the entire amount of the loan. There is no imputed income from debt forgiveness on your primary residence. Most imputed income issues are related to foreclosure or short-sales of investment property or second homes.

In response to a question from a Miami attorney I spoke with a local CPA concerning income tax treatment of debt forgiveness of investment real estate. The CPA is Lonnie Young usataxhelp.com. Mr. Young explained that imputed income after foreclosure and debt forgiveness often is offset by tax losses on the real estate investment. . Consider the example of a person who buys a house for $200,000 with a $180,000 mortgage. The house is lost to foreclosure when the value is $100,000. The lender sends the owner a 1099 for imputed income of $80,000 (mortgage balance less fair value). The foreclosure is a forced "sale" after which the owner has realized a tax loss of $100,000 ($200,000 purchase price less $100,000 value at foreclosure sale). The loss offsets imputed income so the taxpayer pays no additional tax.

The ultimate tax effect of imputed income depends on the owner’s use and tax treatment of the subject real estate. The CPA said that in the case of investment property, including vacant land or houses, the loss is a capital loss which is limited to $3,000 per year . If the house qualifies as Section 1231 business property (including rental property) the tax loss is characterized as a business operating loss which the taxpayer can write off fully in the year of sale. Based on what Mr. Young said, if your home facing foreclosure is rented for income then your tax loss would offset any imputed income from debt forgiveness. People facing foreclosure or short-sale of houses other than their primary residence may benefit if they have rented the home a current market rent even if the rent does not cover the mortgage payment.

The IRS may challenge the characterization of a 1231 business property where the property has been rented for less than 1 year prior to the foreclosure sale. Mr. Young said the IRS almost never challenges the one year write off where the home has been rented for more than two years.

You must discuss your individual situation with your own CPA or tax attorney. My discussion of this topic is based on a non-written opinion of one accountant. I am not a tax attorney and have not independently researched this important tax issue.