Pick Your Brain: Cancel Debt/New Residence

[beck]

I have a client that has been living in his house for 8 years. His mortgage is 320,000, house is worth 100,000. For the last year, he has been trying to have his loan modified but to no avail. He has been making all his payments so his credit has not been affected. He is trying to keep his head above water, but slowly sinking.

He is thinking of purchasing a new residence for 100,000 while his credit is still good and then letting his upside down residence go. He is so fed up.

If he does this, is there anyway that he could be eligible for cancellation of debt for principal residence? (i.e. maybe live in home until foreclosed??)

I really appreciate all the insight you share on this board.

Thanks,
beck

[Burke]

I fail to see how he could possibly qualify for a loan to buy a new house under the circumstances with his current mortgage payment. Does he have cash? The old house would have to remain his principal residence to qualify for COD income exemption.

[beck]

I fail to see how he could possibly qualify for a loan to buy a new house under the circumstances with his current mortgage payment. Does he have cash? The old house would have to remain his principal residence to qualify for COD income exemption.

Yes. He told me that his brother in law will loan him money for down payment.

[taxmandan]

I fail to see how he could possibly qualify for a loan to buy a new house under the circumstances with his current mortgage payment. Does he have cash? The old house would have to remain his principal residence to qualify for COD income exemption.

More people than you might think are doing just that. Downsizing while they can still get a mortgage and letting the upside down old home go on foreclosure. Many affluent people are doing this, probably because they can get a second home on mortgage while still owning the old place. Probably why they are affluent, they know how to manage debt and the value of money.