Former Professional Surfer and Ex-Owner of RVCA Charged with Short-Sale Fraud
Conan Hayes is a former pro surfer and co-owner of the surf-and-skate wear brand RVCA, but in October of 2010 he contacted Bank of America and claimed to be unemployed, having lost his position at work, and without recourse to repay his home loan. He applied for a short sale of his Costa Mesa, California residence and the sale was granted, resulting in a loss of $586,245.00 to the lender. What Hayes failed to disclose was that he had recently sold his clothing brand to Billabong for over $7.5 million, making his hardship-based application a possible fraud for which he is now facing charges.
Short sales are allowances that banks made available to homeowners who were underwater on their mortgages during the economic downturn a few years ago. They allowed those without the ability to pay their mortgages to sell their home with the bank settling the debt for whatever they were able to derive from the sale. As explained by the office of the Orange County District Attorney, “Short sales are a hardship based program offered by mortgage lenders to assist distressed homeowners who have suffered a financial hardship. If a property is sold pursuant to a short sale, the buyer avoids foreclosure and the lender agrees to settle the homeowner’s debt for the amount of the sale.”
Hayes submitted a not guilty plea in response to the charge of having defrauded his lender, and submitted $586,245 in lieu of bail in exchange for his freedom. He is scheduled to be arraigned for alleged grand theft and faces a maximum jail term of five years if convicted. Beyond that, Hayes may be facing additional repercussions for his actions depending upon how he reported the short sale on his federal and state tax returns. Short sales are considered cancellation of debt (COD) income, and are taxable to the debtor. Though there are certain instances in which this income may be excluded, if Hayes did report the income and paid taxes on it the statute of limitations for a refund may have expired since the return would have been filed in 2010. This would mean that if required to repay Bank of America for the amount that he allegedly defrauded them, he will not be able to apply for a refund on any of the taxes he paid on his COD income.
Those who are facing financial hardship and who are underwater or unable to pay their mortgages need professional advice regarding their options and tax liabilities. For information on your specific situation, contact our TaxBuzz professionals today.