Live Call-in Show Tonight

Sorry for the last minute notice… I will be on the show tonight with John at 6PM PST answering your questions.

If you want to call in, here is the number: (909) 581-9665.

You can listen live on John’s site at www.forsakencraft.com.

UPDATE: the show went pretty good… only had time for one call-in tonight. Download the MP3 of the show here (21MB).

I like this call-in format. Allows you guys to ask me stuff live. I asked John if we can do this again in week or so. Stay tuned…. and big thanks to John for having me on his show.

Filed under uncategorized, still, sweet audio, press and interviews
Facing Foreclosure on Vigilant Investor
Deed in Lieu of Foreclosure Sent
17 Comments

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1. Realist
November 3rd, 2006 at 7:50 pm

First time I heard you speak - you speak well and confidently.

Wow, was your answer to the question “Why don’t you get a job?” weak! “Well, I already kind of have a job … read my blog where I go into the details”. How many leads do you have in your pipeline? How many at each stage of the closing process? What is weighted $ forecast for next 30 / 60 / 90 days? Have you done that analysis? How does that compare to a “W-2 job”?
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2. G-man
November 3rd, 2006 at 8:08 pm

I’m a total noob’ to real estate so can someone explain why taxes are such a serious issue for Casey? It came up during the show - the host and the caller both mentioned it. I understand that bankruptcy doesn’t excuse him from his tax obligation but hypothetically say he loses all his properties and defaults on all the mortgages by the end of this year … his taxes on capital gains don’t get canceled out by his “business” losses? I know you can claim stocks sold as a loss against capital gains in other stocks… how does this work in real estate?
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3. yneone
November 3rd, 2006 at 9:14 pm

Casey, why dont you have a movie agent by now? People need to hear your story and you need to be paid for it. I’m thinking this would be great for a series on HGTV (Home Garden Television). They do not yet have a reality television “series”. There must be a market for something like this. I’m surprised that you dont have camera’s rolling already. Are people scared to have dealings with you or what? This is not making sense to me. You need to reach out to some agent with connections….preferably an Agent who specializes in Reality TV. You’re a good writer, but far better to actually “see” your progress. I personally am hoping you get through this.
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4. HN
November 4th, 2006 at 10:41 am

Who want to watch a dumb and miserable kid facing foreclosure and possible prosecution? Well, maybe some law students doing mock trial on mortgage fraud would want to see or a new bee prosecutor very enthusiastic in nailing Casey to collect his/her trophy. Yes, those people are definitely want to see ’cause they may be playing a role in it. A very unhappy ending: Casey going to jail at the end. Movie deal and reality show eh. Simply dumb thought.
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5. richh
November 4th, 2006 at 11:44 am

G Man. If you bought a property for 300k and then you have to sell it short for 200k, that 100k bank loss if now ur gain. You have to claim that on ur taxes as income and pay ~30% of it. His taxes are the worse thing.
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6. Shamu
November 4th, 2006 at 12:38 pm

G-man,
I am sure someone will take the time to post a good summary relative to Casey’s possible tax consequences. But, even a novice may notice that Casey financed homes for amounts that exceeded the sales prices and market values of the homes he purchased, and spend that money as income, paying credit cards, for seminars, etc. Most surely, the IRS will want “their” portion of that taxable income, ill-gotten or not.
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7. digerati
November 4th, 2006 at 1:23 pm

You do speak well and seem to know what you’re talking about. Do you live in a house that you own?

What would you do differently in this whole process? Is there a point that you think you started going wrong?

Successful Personal Finance
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8. 2020 hindsite
November 4th, 2006 at 1:40 pm

If you buy for $100K, finance for $120K, thats a taxable gain at the time of sale. Your lender may lose his a** , but you made 20k on the deal. Do that 7 or 8 times and your talking some dough. Add penalties and interest and your talking more dough.
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9. CPAone
November 4th, 2006 at 6:03 pm

Debt foregiveness will result in taxable income (it is treated as short term capital gain). The loss on the houses (investment property) will offset that gain, as a capital loss.

The only tax due should be on the cash received out of the deals, not used to (improve) increase the cost-basis of the house.

Good luck getting out of this mess Casey.
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10. BelowTheCrowd
November 4th, 2006 at 6:33 pm

G-Man,

Capital losses can be deducted against capital gains. The type of thing you lose or gain money on is actually irrelevant. You can offset capital gains in real estate with capital losses in stocks, for example.

However, when the bank forgives a portion of a loan, it is not considered a capital gain. It is considered INCOME. You can only apply $3000 per year of your capital losses against regular income.

So, hypothetically: Casey buys and remodels a house for a total of $300K, all of which is borrowed. He then is forced to sell it for $200K and the bank eats the difference by foregiving part of his loan. He will have a short-term capital loss of $100K, and income from debt foregiveness of $100K.

He will apply $3K of his loss against the $100K of income. He’ll end up owing tax on $97K, and have a $97K capital loss carryover, which he can use in subsequent years.

If he does this on a second house, then he doesn’t get to use any of the capital loss, because he’s already hit his personal $3K limit for the year.

-btc
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11. M. Morrison
November 4th, 2006 at 11:26 pm

Casey, two questions:

1. Do you do your own taxes?

2. Are you an American citizen?
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12. Free advice
November 4th, 2006 at 11:27 pm

Seems if you are insolvent, you get a free ride. See irs.gov for more….

Debt Cancellation

If a debt is canceled or forgiven, other than as a gift or bequest, the debtor generally must include the canceled amount in gross income for tax purposes. A debt includes any indebtedness for which the debtor is liable or which attaches to property the debtor holds.

Exceptions and Exclusions

There are several exceptions and exclusions from the inclusion of canceled debt in income. The exceptions include:

[Snip snip snip snip]

Exclusions
Do not include a canceled debt in gross income if any of the following situations apply:

[Snip snip snip snip]

The cancellation takes place when you are insolvent (see Insolvency exclusion, later), and the amount excluded is not more than the amount by which you are insolvent.

[Snip snip snip snip]

Insolvency exclusion. You are insolvent when, and to the extent, your liabilities exceed the fair market value of your assets. Determine your liabilities and the fair market value of your assets immediately before the cancellation of your debt to determine whether or not you are insolvent and the amount by which you are insolvent.

[Snip snip snip snip]

Bankruptcy and insolvency reduction limit. The reduction in basis because of canceled debt in bankruptcy or in insolvency cannot be more than the total basis of property held immediately after the debt cancellation, minus the total liabilities immediately after the cancellation. This limit does not apply if an election is made to reduce basis before reducing other attributes.
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13. G-man
November 5th, 2006 at 1:10 am

Thanks to everyone who answered my tax question.
I had realized the cash he got back at closing was definately a tax liability (but thanks for emphasizing that Shamu).

What was a mystery to me was how a bank taking a loss on a loan was somehow taxable to Casey - from what you guys say it’s taxed as INCOME! Wow! BelowTheCrowd, thanks for the walkthrough of how it works. I guess the simple equation I didn’t get is:

$0 != $0

Everyone thinks that instead, $0 = $0 is true but the amounts are NOT equal from a *taxable perspective* (the key is how the money moves around to get to $0 on each side of the equation). What I mean is, say the $0 on the left hand side represents Casey hypothetically never doing any of these RE deals. That $0 means he did not gain or lose any money and so has no tax liability was triggered (since the deals never occured!). But then say the $0 on the left hand side is a (-$300k) loan + $200k profit from selling/foreclosing the house. This equals the (-$100k) the bank is “eating”. This (-$100k), the bank is “forgiving” is essentialy giving Casey +$100k … and that makes the left hand side balance back to $0 since -300 + 200 + 100 = 0.

I realize my scenario is bogus because it ignores capital loss tax adjustments, pretends he did not get cash back at close, etc. but it helps me understand why if he started with nothing before these deals and he ends up with nothing (or even less than nothing - i.e. debt) after the properties are gone that he can still have a huge tax bill. This has been the most educational thing I’ve learned here yet.

I don’t know what to say Casey… unfortunately, from this radio interview it finally donned on me that he was in the hole from the very first deal. Just reading your old blog entries quickly made me think you were “energized” by the $30k you “made” after your first deal but now it’s apparent from the radio interview that you realize the $30k was basically extracted equity and the deal left you with $1,000/mo. negative cash flow on top of that - so you were compelled to do another deal to support it… and then another… etc.
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14. The Housing Bubble Blog » “Waiting Buyers Can Cause Prices To Drop”: California
November 5th, 2006 at 9:46 am

[…] http://iamfacingforeclosure.co...../#comments Reply to this comment Comment by imploder 2006-11-04 17:45:08 […]
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15. Merced Going Quickly
November 5th, 2006 at 1:28 pm

Casey,
You should approach HGTV or whatever channel does “Flip This” and propose “Forclose This”. You can highlight the pitfalls that people make in mortgage financing. In this market (ARMED to the teeth) this would attract thousands. You could explore the nation for a way out for people.
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16. BelowTheCrowd
November 5th, 2006 at 2:39 pm

I tried to correct my error above, which was based on my experience with non-collateralized credit. Unfortunately, Casey has decided that he’d rather keep things consistent than allow changes and deletions.

Based on my current reading of the law, in secured debt situations the debt foregiveness on the mortgage would be considered in the same manner as the gain/loss on the underlying property. So if he takes a short term loss on the property, he’ll get a short term gain on the mortgage foregiveness. I guess that actually makes sense from a taxation perspective, as it prevents people from using the real estate loss to offset OTHER gains.

As others have noted, the cash received at closing is still income, and it won’t be possible to offset that with the capital loss beyond the $3000 per year.

Sorry for my own confusion.

-btc