Wednesday, April 01, 2009
More on Sebelius
Last night I argued that Kathleen Sebelius' tax errors were small beer, and well within the margin of error for 1040 filers with moderately complex returns. The round-up at TaxProf reinforces my view that these errors or adjustments are not evidence that Governor Sebelius has a defective character. I do, however, wonder about this:
In July of 2006, my husband and I sold our home for an amount less than the outstanding balance on our mortgage. We continued paying off the loan, including interest we mistakenly believed continued to be deductible mortgage interest. Another loan for home improvements was treated similarly. These errors were corrected in our amended returns.
How on earth did she manage to sell a house for less than its mortgage in July of 2006? That takes real genius or crazy leverage. Let us all hope that nobody listens to Governor Sebelius' opinions on the financial crisis.
CWCID: Glenn Reynolds.
18 Comments:
By 
, at
Wed Apr 01, 10:18:00 AM:
It makes sense to move the Sebelius discussion, I suppose. Since we are I'll repeat my comment: Sebelius needs to take a very hard fall for this tax issue, as should the trade negotiator for his tax problem, Geithner for his, and any future nominee should also fall. Rangel should go down as well.
This inane idea that we should allow some nominees to pass through because the dollar amount of their mistakes is "relatively small" is arbitrary and subjective. Bad law, and bad policy. If the complexity of the tax code is at error, change the tax code; don't give some people a pass while others are tortured by the IRS simply because they aren't the nominee for a cabinet post.
If politicians see a wway to avoid the laws they create or can negotiate forgiveness with the sovereign in return for a political favor, like aristocrats of old, our tax code will never change and corruption in government will be encouraged. Your idea that the GOP should wink at this fault of hers, TH, is a very bad idea.
By Ron Russell, at
Wed Apr 01, 12:10:00 PM:
Now we finally know the real reason why Democrates always favor higher and higher taxes---Simple, they want everyone else to pay more so they can pay less. Gosh, I have it figured out!!
By , at
Wed Apr 01, 01:20:00 PM:
Probably 95% financing with an Option Arm. It is what is known as a negative amortization loan, meaning that with every payment you make, the loan balance goes *up*, not down, since you are paying less than the interest due on each payment.
Truly one of the most toxic mortgage products out there. And only the most fiscally reckless homebuyers would even consider one.
By , at
Wed Apr 01, 01:23:00 PM:
If we're going to agree that this is a big deal (or not) based on the dollar amount, where do we set the threshold?
And why do I get the feeling that if this was a Republican administration, the threshold would be $1?
By , at
Wed Apr 01, 01:32:00 PM:
Was this perhaps a private mortgage provided by a relative (or political supporter)?
If not, if it was a conventional bank mortgage, then how did the lien (the mortgage) get cleared in order for title to be passed?
Did a bank release the lien even though the mortgage hadn't been paid? If so, why?
Very curious.
By , at
Wed Apr 01, 01:37:00 PM:
Sounds like a sale via contract for deed.
By , at
Wed Apr 01, 01:50:00 PM:
She HAD to have gotten special treatment from the bank. The bank HAD to release the mortgage for the sale to close.
The bank had to agree to carry the balance not paid via the house sale as an unsecured note, or secured by other property.
That's treatment that your average, non politician, borrower does not get.
By 
tim maguire, at
Wed Apr 01, 01:55:00 PM:
As an attorney with some real estate experience (not a lot, but enough for this comment), two big fat red flags immediately jump up.
1. Did the bank really allow her to sell the house without sending someone to the closing to pick up a check for mortgage payoff?
2. Did the buyer buy a house with somebody else's mortgage lien on it? How did they get financing of their own under such a circumstance?
No average citizen could have done what she did.
By Fritz J., at
Wed Apr 01, 01:56:00 PM:
My problem with all the tax cheats that Obama has appointed is that they keep claiming it was only mistakes, and I want to know why is it that no one calls them over the fact that they appear too stupid to hire an accounting firm? When I had a very small business I hired an accountant, and if I'm smart enough to do that, perhaps his appointees are not. Either that or they are flat out crooks.
By , at
Wed Apr 01, 02:46:00 PM:
What probably happened is that the mortgage was released from the property in order to effect the sale, all the sale proceeds went to the bank to cover the loan, but there was a loan balance left over on which Sebelius was still obligated to make payments as a personal guarantor. So the phrase in the original article "continued to make payments on the mortgage" is probably misleading.
No red flags for me here, and honestly, if I was still making loan payments in connection with my personal residence, I would have thought it was deductible.
This is more an indictment of the cumbersome tax code than of this nominee. Geithner, on the other hand...
By Mike K, at
Wed Apr 01, 02:47:00 PM:
There used to be a fairly common practice of selling a house with a "land contract" in which the seller kept the mortgage and paid it for some time and the buyer paid the seller on the land contract. The idea was to assume a mortgage with a better interest rate than was available with a new loan. Now, I think, the old policy of some loans being assumable by a new buyer is no longer the case and everyone applies for a new loan. The old practice, back in the 50s, might apply to this sale. The other possibility was the bank accepting a short sale and allowing a note for the balance. I expect that is going on now but shouldn't have been in 2006.
By , at
Wed Apr 01, 03:14:00 PM:
Commenter anon 1:23 pm touches on a key point. How would the dems and media (redundant) be reacting if Sebelius was a repub and a repub administration was nominating a parade of tax cheats/'honest tax mistakes' for Government posts? That's why repubs should hammer away on this as they would be shown no mercy if the tables were turned.
By Unknown, at
Wed Apr 01, 03:42:00 PM:
> I want to know why is it that no one calls them over the fact that they appear too stupid to hire an accounting firm?
People lie to their accountants all the time.
There's are two other ways to get upside down while selling in 2006.
(1) She got a "generous" refi and couldn't find a sucker when she wanted to sell.
(2) She wasn't making payments and the bank let the penalties "ride" until that became untenable. (Perhaps the governor figured out that being a deadbeat probably wouldn't go over too well.) At that point, she sold but still had to deal with the overhang.
By Sarah Summer, at
Wed Apr 01, 04:39:00 PM:
the democrats have again proved that they too are cheats ;-)
By , at
Wed Apr 01, 05:43:00 PM:
Who bought the house is a better question I think. Was the "loss" a "gift" to someone owed a favor? I also found it odd that she had to take a loss in 2006.
By , at
Wed Apr 01, 06:45:00 PM:
Why the heck are we sitting here dreaming up possible excuses for these feckless/reckless underachieving taxpayers. Senate Republicans should be demanding hearings to disclose what really happened. My guess: it's worse than what's been admitted so far.
By Rich Rostrom, at
Thu Apr 02, 03:02:00 AM:
Donutwarrior: Politicians rarely pay off other people with their own assets.
In general: We need more information. Surely the records of this transaction are available.
Where was the house?
How much did it sell for?
How much did comparable houses in the same area sell for at that time?
What was the assessed value?
What did Sebelius pay for it?
When did Sebelius buy it?
How much did comparable houses in the same area sell for at that time?
What improvements were made to the hous? (Or was it damaged?)
By Viking Kaj, at
Thu Apr 02, 02:23:00 PM:
Depending upon where you live the real estate market started its downturn in the summer of 2006. Our house in Omaha was for sale from May to September. We had to reduce the price by $ 100k and actually took a minor loss to get it sold. NJ at that time was still pretty overheated.
I imagine Kansas was similar to Nebraska in 2006.
