Tuesday, August 21, 2007

In Bush World, when you lose your house to foreclosure, your world of pain has just started.

You'd think the I.R.S. would have better things to do than torture people who have already lost everything, but you'd be wrong -- or living in some world other than Bush World. Say you've been unable to keep up with your house payments because you lost your job, had a major illness, or just watched helplessly as your adjustable rate mortgage payments soared through the roof. You lose your house to foreclosure. The bank takes the house, gives you a dollar to clear the title, and forgives the balance of the loan. The bank then sells the house at auction and recoups as much of their collateral as they can. You get on with your life, or so you think. According to the New York Times, it's not that simple.
Two years ago, William Stout lost his home in Allentown, Pa., to foreclosure when he could no longer make the payments on his $106,000 mortgage. Wells Fargo offered the two-bedroom house for sale on the courthouse steps. No bidders came forward. So Wells Fargo bought it for $1, county records show.

Despite the setback, Mr. Stout was relieved that his debt was wiped clean and he could make a new start. He married and moved in with his wife, Denise.

But on July 9, they received a bill from the Internal Revenue Service for $34,603 in back taxes. The letter explained that the debt canceled by Wells Fargo upon foreclosure was subject to income taxes, as well as penalties and late fees. The couple had a month to challenge the charges.
It's a perfect Catch-22: You lose everything, but at least your debt is forgiven, but because the debt is forgiven, it's income, and now you have a new debt to Uncle Sam, one with penalties and interest added, because of the time that elapsed since you "earned" that income. And then you have just a month to appeal, or you lose your rights to question the decision. That 1-month appeal period is the icing on the cake. Most low income people don't have attorneys waiting in the wings to give them good advice in a case like this, which can often be won on appeal (after spending a lot on legal bills, of course). Many just go into panic mode and freeze instead, doing nothing until it's too late.

It all makes perfect sense in Bush World, though. What else is the I.R.S. to do? The rich are off limits. Middle class people fight back. So why not go after the poor and disadvantaged? I.R.S has to collect taxes somewhere.


moonrat said...

Oh my god.

In this as in all things, my only "real" experience is via a book--in this case, Alexander Dubus III's THE HOUSE OF SAND AND FOG. One of the main characters has exactly this problem--a combination of "freezing" and finding an attorney with time to meet with you inside one month causes major, major grief. I'd recommend the book, anyway.

Not that it's any less unsettling to learn that the plot isn't pure fiction.

Danielle Love said...

Imagine living it at this very moment, with less than two weeks to get out and no place to go. I'm a disabled person receiving social security disability income. I have an 8 year old daughter. Wells Fargo decided this is not real income. So I leave but where? I've contacted every housing office I know of and everyone is giving a complacent "no room." We went through a life changing accident, a resulting divorce, my organ transplant, and loss of employment. For 7 years I paid an average of 245,000 income tax dollars to the IRS for programs that included helping the homeless. That is a lot of money! Every penny I saved was given to Wells Fargo for my ARM. Where are we suppose to go?

I watched the movie The House of Sand and Fog with Ben Kingsley, I've felt some of these same frustrations. A sad ending for sure.