Need some ideas

[Cam Ellison]

Maf. King wrote:
> On Saturday 24 January 2009 18:34:10 Steve wrote:
>
>   
>> There was no pay off of the original mortgage. The first people abandoned
>> and the second buyer just brought a downpayment. Where would I transfer
>> funds from to close out the 1st mortgage?
>>
>>     
>
> Hi,
>
> The way that I see this: you have an asset - which is either a house, or a 
> mortgage loan to others (or possibly a combination!).
>
> The first (defaulted) mortgage would be cleared by reducing that loan asset to 
> 0.00, but adding that value back into the assets:property1 account. (you said 
> in your 1st post "I got the property back in my name." - gnucash should 
> reflect this asset ownership)
>
> If the subsequent purchasers didn't think that the house was worth what you 
> thought it was, and so you sold it for less than your "book value", you'll 
> need to adjust asset:property1 downwards, before recording the sale (and 
> transfer of asset to the new mortgage account)
>
> IANAA, but that is how I'd do it (until told otherwise by the professionals!). 
>
>   
I think it's important to distinguish between the house (and land -> 
let's call it the property) as an asset and the value of the mortgage as 
an asset.  If you sell the house, it is no longer on your books - or 
shouldn't be, because it doesn't belong to you (never mind what we say 
about a property "belonging to the bank").  It's replaced by a mortgage 
and a down payment, and the value of the mortgage is reduced by the 
payments.  I think you should have had an initial asset account for the 
house, then created a separate account for the mortgage, and when the 
deal closed, you should then have created a transaction that moved part 
of the value of the property to the mortgage account, and the rest to 
your bank account and expenses for realty and legal fees.  When you took 
possession of the house again, you should have done a transfer of the 
outstanding value of the mortgage to the property account and also 
transferred in an amount that would bring the property to its full 
value.  I'm not sure where that amount should come from, but you could 
use Equity (possibly Retained Earnings) as the other account.  I really 
suggest you talk to an accountant about that part, because there will be 
tax implications.  At any rate, once you sold the house the second time, 
you'd follow the same procedure, setting up a new mortgage account.  You 
can't eliminate the property account, but it must show a zero balance.  
At any rate, you should have three relevant asset accounts: one for the 
property, and one for each mortgage - and may you not have a third.

HTH

Cam



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Cam Ellison  Ph.D.  R.Psych. #01417

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