sashak

Walking Away: The Next Mortgage Crisis

I don't think we should lecture any one on what to do with their property, market will never function on moral obligations only. This is capitalism and money should work. However, our lawmakers have outdone themselves with the most idiotic piece of legislation, that is a part of that stimulus package. I am talking about the paragraph that relieves a person of an income tax liability on forgiven debt if their house is foreclosed upon. So at this time it is really a no brainer whether one should or should not walk away from the property, if your house is worth 500K and you owe 600K, just walk away, there is no down side, other than damage to one's credit rating that is already ruined anyway. Well perhaps, some homeowners who are in a marginal position, would put forth more effort to save their house from foreclosure, if they new that they may be faced with a huge tax bill should they walk away from the property. And that would not even require a lecture about ethics on honoring one's obligations under the terms of the contract etc.
But it's too late now. This reminds me of proposals to eliminate gas tax, when there is shortage of fuel and it gets to be too expensive, I think that's the time to increase fuel tax. My point is that taxes should not encourage people to do bad things, and we have a clear case of misplaced intentions. If IRS wants to relieve taxpayers in true hardship, they can do so on case by case basis.