filing taxes on a note that I foreclosed on AND got the property back a low FMV.

[Curt Smith]

I did search BP on this topic. Apologies if I missed a thread! I am almost an expert in RE taxes and self file. Just currious re any unforeseen issues with foreclosing the note AND getting the property back with FMV (fair market value) below my credit bid (the price I gave the auctionier as the min price I'd take).

FWIW's

- FANNIE and my note allows me to protect my note by spending funds on legal etc to cover Notice Of Default,  Legal services,  Foreclosure service.  So I spend $$ on legal etc through the life of this note.

- FANNIE and foreclosure statue in my state (GA) allows me to "recover" my expenses through servicing, protecting, managing this note.  I added my hours x $NN hourly rate to manage this performing --> gone non-performing --> foreclosed.  For a fee of $YYY added to my balance due plus $Legal fees paid to others.

- Interest income is just that

- Expenses in the tax year are prescribed as above. Any feed back?

- The Balance was say $50k,  total expenses $25k, credit bid at auction = $75k.    In fact my total costs is the credit bid since I paid out of pocket legal costs and my hours.

- Post auction;   paid for a BPO (broker price opinion) and the value is far lower then my total costs (the credit bid),

== Tax filing Questions start here.

- How do I treat the loss in value between the new lower FMV vs my costs (the credit bid)??

== Converting to an investment property by me rehabing?   If I sell as a flip?   if I keep as a rental?  Cost basis?

- Is my costs basis my $creditbid total costs? Since this is to my advantage (the higher number vs FMV) when converting to an investment property.

Tnx to all,  curt 

[Chris Seveney]

Quote from @Curt Smith:

@Bill B.  The FC attorneys are the source of FANNIE guidelines for legal fees AND lender fees being "recoverable".  A lender is different then a buy and hold investor re the regs that apply.   Hiring an attorney to file FC is equivelant to putting in an alarm system to protect your flip, its an expense.  The lender is allowed to charge fees to manage a delinquent loan.  But I agree this info is 2nd hand via the  attorney and not 1st hand from reading statute. 

@Jay Hinrichs you are an uber expert in this area. Whats my cost basis in this FC gotten back the house? Can I pick the cost that is favorible. The FMV is not in my favor since its low. My true costs seems to me to be both a reasonable basis and financially the actual costs; balance+expenses.

Just pondering taxes;  the installment sale receives interest and return of principal.  the notes basis is what I paid to buy it.   I'm guessing for the purpose of ending the instalment sale there's a sale as of the auction of the "balance" as the sale price.

Converting to a rental is a Sched E with the basis being the credit bid;  $bal + $expenses + $rehab till "inservice date".  blabla re expenses vs increase of basis there after.

tnx, curt

 speak to your attorney as we have gone through 700+ loans and have spoken to many note investors and I do not know of one or any attorney who would say you can charge your own time for managing an asset. As a reminder, you as the lender when managing an asset are the servicer and fall under servicing laws typically. Thus you cannot charge for servicing, or an increased  rate of a servicers fees from performing to non performing such as additional calls or late notice letters. 

Fees that are typically eligible are attorney fees for foreclosure (Depending on state), court filing costs, and costs to secure a property. 

Also if this was Georgia, I would definitely tread lightly especially if you are not licensed as you can be fined 5 or 6 figures for owning loans without a license and throw into it trying to collect potentially uncollectible fees