Bad debt?

[Possi]

My new client was scheduled to buy a new home and had put 12500 down.

When the house was built, he could not qualify for the loan because they wanted more than the house was worth.

He should have gotten the money back, but the seller was ready to tie him up in court for months over it, so he let it go and ate the 12500.

Is this considered bad debt? LT Sch D loss?

thanks!
~possi

[ChEAr$]

Personal

My new client was scheduled to buy a new home and had put 12500 down.

When the house was built, he could not qualify for the loan because they wanted more than the house was worth.

He should have gotten the money back, but the seller was ready to tie him up in court for months over it, so he let it go and ate the 12500.

Is this considered bad debt? LT Sch D loss?

thanks!
~possi

only, therefore no deductible loss.

[Possi]

Thanks, Harlan.

The only reason I considered it at all was because, according to the contract, if he did not qualify for the loan, he was to get that money back and the builder refused to honor the contract. He has all the paperwork, so I entertained the loss concept.

Thanks for straightening me out!

~possi aka donna

[Burke]

Tell him to go to small claims court. In Virginia, there is a state fund that covers individual's claims for builders gone bust, don't know if this would qualify or not, but he should not just "forget it." It's too much money.

[Possi]

well...

The builder got an attorney who is notorious for delaying and collecting big fees. This guy is a doc in the military and will be shipping out to Iraq in April and can't afford to be tied up in litigation.
But thanks...

[Gretel]

A hearing in the small claims court is a relative simple process, fast and doesn't cost much.

[erchess]

I realize that

Small Claims Court is simple quick and inexpensive. But cannot the loser take the case into regular court if desired?

[Burke]

Yes, but he might have to hire an attorney to represent him. If the contract specifically says he gets his money back, he should not lose. Tell him to call Legal Aid, and there may be special consideration given to military personnel. The builder's lawyer will not be collecting any fees from your client, and there are prohibitions on things the attorney can ask a court to do concerning military persons who are deployed to a combat zone. The branch of service he is in should have knowledgable persons in this field who could advise him. Media coverage might also be an option that would change the builder's mind. I cannot believe the builder is trying to do this unless there is more to the story than we know here.