Peculiar situation with home

[lexigirl]

Firs time writting here. What little sanity I have left is due to the knowledge I have acquired reading this forum. God bless you all for sharing. I live is California, hopefully will be filling chapter 7 in a couple of months. However I have a question, and have had 2 polar opposite answers from 2 different attorneys. My husband & I decided to buy a home in 2001 but at the time the house we owned was upside down and it made no sense to sell it at a loss since we had a friend who wanted to rent it. Due to that fact the bank did not approve our mortgage application since it was too high a debt to income ratio situation. We asked my mother to apply for the mortgage on our behalf and she got approved with no problems. We have lived in this house for 8 yrs., have never been on the title (my mother is the only legal owner), but have always claimed the tax exemption for the mortgage interest and for a second mortgage that again my mom took on our behalf about 5yrs ago (coincidentaly we used that money to pay cc debt). Now we are confronted with the prospect of filling ch7 and have no idea on how to procceed. One atty said this house is a "rental" the other atty said it is ours if we explain this mess to the trustee. If we put rental on the schedules, how can we justify having taken the tax exemptions all this years? On the same token we are not on the title. If we don't add the money we pay to the
2nd mortgage we may have too much disposable income & be forced to file ch 13, which we can't afford...Anybody, please need your help.

[fltoo]

Is the house held in trust for you or did you have an accountant tell you it is okay due to your equitable interest in the house?

How have you been able to deduct loan interest and taxes if the title and loan are not in your name? Whose name is on the 1098?

You might have a larger problem if you did this without an okay from an accountant who had figured out how you can do this.
Didn't the lawyers that you saw question it?

[lexigirl]

The house is not in a trust, it just is in my mom's name. My accountant did say to go ahead & claim the tax exemptions, same guy doing my taxes for 10-12yrs & now that I mentioned the possibility of bk he said he doesn't recall advising it due to high volume of clients. The 1098 are in my mom's name, we just filled like that and always enclosed the copies of the documents (1098) with the tax forms. The only silver lining involving the bk is that the house is currently upside down, we owe about 25k more than the house is worth. (2 mortgages)
Like I said one bk atty said this is not your house is a rental, we cannot include the 2nd mortgage pmts on your budget. 2nd bk atty said this is your house, all the payments to the 1st & 2nd mortgage have come out of your checking acct, there is no equity to claim & if you are honest with the trustee he won't object.
I feel like I shouldn't even bother filling bk, I may end up with a bigger problem in my hands and the atty said not so because we did not do anything illegal, we will tell the truth to begin with and only one party has claimed the tax exemptions. Thanks for your reply I hope this clarifies your questions.

[fltoo]

So the tax guy now is saying that he doesn't remember telling you it was okay to claim the deduction? AND, this guy is doing your taxes for years and seeing that the 1098 is not in your name and filing it for you anyway?? Something not right here.

Firstly, you are not going to jail for doing something illegal. But, you definitely have a problem. If they ever catch you, unless you can prove you have some kind of equitable interest, you are going to have to pay back all the money that you were allowed due to the home interest deduction. I cannot believe the IRS has not caught this all these years. Is your name same as mom's?

As I see it, you have a few options. You can file for BK and just say you are renting. To NOT bring attention to the IRS problem, I would have mom foreclose on the house and let it go the wayside along with the problem since it is upside down.

Or, depending on your income and debts, settle with the creditors, keep renting from mom and do not claim the deduction anymore. Only problem here is if mom starts to claim the interest deduction, the IRS might notice.