Abandoned Rental property

[Tax Bird]

I have a client who walked away from some rental properties in 2007. While the client had the properties available for rent (and they had been successfully rented out in prior years), he was unable to rent any of them in 2007 and eventually walked away.

So far, none of the mortgage companies have forclosed on the properties.

I'm thinking:

In 2007, he's ok to deduct his 2007 expenses paid on the properties on his schedule E even though he was unable to rent them. After that there's nothing to do until the properties are formally foreclosed upon.

Am I missing anything? SOmehow it seems too simple.

Any input is greatly appreciated.

[kcjenkins]

Why the heck would he not try to sell them, rather than just abandon them? Or negotiate with the lenders? Right now, the lenders are much more willing to negotiate than ever before. At worst, a quit-claim in lieu of foreclosure would still be better on his credit record.

[jainen]

>>a quit-claim in lieu of foreclosure would still be better<<

Quit-claim to whom? No transfer can relieve the borrower unless the lender agrees. And although lenders are struggling to stabilize their assets, a mortgage on rental property is likely to be recourse. If the owner has other assets or income, the lender might well decide to wait it out.

He can probably deduct normal maintenance expenses for as long as he had a realistic expectation of rent. I would inquire about particular events like the town factory closing or major property damage that wasn't worth repairing, but otherwise take his word for it. If it was unoccupied more than several months, I would caution the client to assemble whatever documentation is still available to support his expectations.

[Tax Bird]

Why the heck would he not try to sell them, rather than just abandon them? Or negotiate with the lenders? Right now, the lenders are much more willing to negotiate than ever before. At worst, a quit-claim in lieu of foreclosure would still be better on his credit record.

Inner-city Detroit properties. You can't *give* them away.

[Tax Bird]

>>a quit-claim in lieu of foreclosure would still be better<<

Quit-claim to whom? No transfer can relieve the borrower unless the lender agrees. And although lenders are struggling to stabilize their assets, a mortgage on rental property is likely to be recourse. If the owner has other assets or income, the lender might well decide to wait it out.

He can probably deduct normal maintenance expenses for as long as he had a realistic expectation of rent. I would inquire about particular events like the town factory closing or major property damage that wasn't worth repairing, but otherwise take his word for it. If it was unoccupied more than several months, I would caution the client to assemble whatever documentation is still available to support his expectations.

I was thinking along these lines as well.

Thank you!

[kcjenkins]

>>a quit-claim in lieu of foreclosure would still be better<<

Quit-claim to whom? No transfer can relieve the borrower unless the lender agrees.

Well, of course, that is true. I guess I over-simplified my post. The Quit-Claim is not something you just do on your own, in this situation. But, it is one of the things that you might offer while negotiating with the lender, which is what I was referring to. The point being that IF the lender is going to have to eat this one, because the borrower does not have the ability to pay, or significant other assets, then they will often agree to accept the quitclaim as a way of reducing the BANK'S legal costs for foreclosing, which can be significant, and also reduce the time that the asset can not be turned. It is not always possible, but it is still worth offering.