Thursday, April 4, 2013

Financial Mess

Reading Proust has taught me to notice my mind, notice my memory.  See time as a two-directional flow, like a youtube video that you can replay over and go back and examine some small moment in detail.  But Proust's crux was the difference between voluntary memory and involuntary memory.  Voluntary memory is the accessible memory, the stories you've made of your life and categorized neatly in volumes to be pulled down at will.  Each time you pull out a story from this collection of events you polish it, clean it, view it again from a different angle, like those Italian glass paperweights with the colored glass fractals within, where if you really take a moment to look at it, you see a new quality to the sculpture within, the untouchable swirls of glass within, forever encased in a clear tomb.  To attempt to extract the glass flower within the paperweight would be impossible without destroying it.  So too our memories are forever encased within a bubble.  Our memories are discreet, we recall a certain time.

Involuntary memory is the memory that springs forth, or vomits forth, from an outside stimulus.  Springs forth might be the scent of sweetgrass that instantly transports you to place in your childhood where you felt the warm sun on your brown tender skin and you smelled the end-of-summer grassy smell, at a specific place on the globe.  Vomits forth would be a situation perhaps somewhat similar to mine right now.

When I suddenly realized that foreclosure on our house should have been done four years ago, but I had neither the knowledge nor personal resources to know that back then, a feeling of nausea and constant unease settled upon me.  When I realized that we should have foreclosed four years ago, I suddenly reversed the tapes in my head, and ran over all the clues that were there all along.  And repeatedly I saw myself in the kitchen with my husband, the fluorescent lights unapologetic with their flat light blanketing everything in the same hue and their hum that habit has allowed us to ignore, the window over the sink shows nothing of the outside, just black for we had these conversations at night, it seems.  Sometimes it was on a weekend afternoon, after we had coalesced after having worked at trimming trees, and the children had reached a point of quietness or playing outside.  The reason we were in the kitchen is because that is where these conversations tended to come up.  As I was reaching into the fridge to get a bottle of beer.  "I think we should foreclose on the house," he would say.  "No!  I don't even want to talk about it!"  I would say.  Or I would say, "That's a bad idea.  The lender says we should hold onto it."  "But we're not making any money on it!"  "The loan doesn't adjust until 2017!  We'll be able to refinance it then!  Everyone says to hold onto it!"  "But that doesn't make sense!  We don't need that house!"  "If we don't get our down payment back how will we pay into *this* house?"  (The house we share with my parents.  We are going to buy it from them some day.)  "We'll never get our down payment back!  I want you to talk to someone about foreclosing."  "No, it's a bad idea.  We just hold onto it as long as we can.  That's the right thing to do."

I had even talked to my accountant, who is also my uncle, and he said, "No, you can't foreclose on it because you'll have huge tax ramifications, since it's a rental."  Erik asked him about it again and he said the same thing.  "See?"  I thought.  "The right thing to do is hold onto it."

Now it all came crashing down.  I realized that we've been renting it out over the last four years with nothing to show for it, only a slow drain on our bank account and lots of uncomfortable moments dealing with strangers' lives.  Also, all that time we were renting it out I thought we were getting a big tax return because of the house depreciating!  Nope!  It was because of the Earned Income Tax Credit and Child Tax Credit.  Why didn't my uncle tell me that??  I thought we had to hold onto the house for the tax refund, but that was just my own stupidity!  The house never gave us a tax refund!  Why did I believe that?!

I found out that if we had foreclosed on the house when we first moved out of it, we would have qualified for the Mortgage Forgiveness Debt Relief Act and wouldn't have had to pay taxes on the amount of debt relieved.  We could have foreclosed up to three years after we moved out and not had to pay taxes on that relieved debt.  That was during the time that my uncle the accountant was telling us that it would not be possible to foreclose without suffering the tax liability.  He said that because we were renting it out we would not qualify for the MFDRA, but he was wrong because it was still considered our primary residence until last year!  This is so painful to discover.  Partially I'm mad that my uncle didn't tell me we could have avoided the tax liability and partially I'm mad at myself for ever thinking it would be sound to hold onto that house!  Again the perfect storm.  My husband's haste to buy a house got us into the mess.  Then my bullish stubbornness and Scottish prudence held onto the mess for too long!  Here's another financial reaming, just take it!

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