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Do I Really Have to Pay a Fee to Hand Back My Timeshare Using a Deed in Lieu of Foreclosure?

Written by Steve Rhode

Question:

Dear Steve,

While working great job I purchased timeshare in Florida near Disney. Lost job no longer able to pay. They just sent me a settlement on the foreclosure but said it will be a $950 processing fee I would like to complete the deed in Lieu but how can they charge so much to process it? and is that legal? I want to get out of this debt obviously because I am no longer working can I send deed in lieu of foreclosure WITHOUT the $950?

Can I do deed in lieu without the $950 fee? Or how can I avoid foreclosure in this scenario?

Tiffany

Answer:

Dear Tiffany,

If the company that is asking for the $950 is the lender that is a different issue than if a third-party is asking for a payment.

So many people would love the ability to hand back the timeshare. The ongoing monthly payments and/or special assessments can be budget busters.

Even just having an opportunity to have a lender agree to a Deed in Lieu of Foreclosure is huge. They don’t have to take the timeshare back and it looks like they’ve assigned a value to do so.

Now, keep in mind, as Nolo says, “getting a lender to accept a deed in lieu of foreclosure is sometimes challenging. Many lenders want cash, not real estate—especially if they own hundreds of other foreclosed properties. On the other hand, the lender might think it better to accept a deed in lieu rather than incur foreclosure expenses.”

Here is the big point you need to be aware of, “Generally, homeowners using short sales or deeds in lieu are required to pay tax on the amount of the forgiven debt—but not if they qualify for the Qualified Principal Residence Indebtedness (QPRI) exclusion. The QPRI exclusion was first introduced in the Mortgage Forgiveness Debt Relief Act of 2007, and I.R.C. § 108(a)(1)(E) was added to the Internal Revenue Code. The exclusion originally applied to mortgage debt on a principal residence that was forgiven in the years 2007 to 2010. Several extensions expanded that period, and the Bipartisan Budget Act extended the exclusion through 2017. (It also applied the exclusion to debt discharged in 2018 if the borrower entered into a written agreement in 2017.) The exclusion expired at the end of 2017.

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Then, the federal Further Consolidated Appropriations Act, 2020, signed by the president on December 20, 2019, extended the exclusion through the year 2020. So, the QPRI exclusion applies to debt discharged before January 1, 2021, and it applies retroactively to debts that were forgiven in 2018 and 2019. The exclusion also applies to debts forgiven as the result of a written agreement entered into before January 1, 2021, even if the actual cancellation happens later. (To learn more about the QPRI exclusion and how to qualify for it, read Canceled Mortgage Debt: What Happens at Tax Time?).”

Sincerly,
Steve

You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.





About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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