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property was not used in any trade or business of petitioner.
The mortgage on the Dime Circle property, which secured a
recourse obligation against petitioner, was foreclosed by the
lender on August 1, 1989, at which time petitioners were
insolvent. The lender bid in the Dime Circle property at the
foreclosure sale for $571,179. The record is silent as to how
the bid-in price was determined. Apparently, the only bid was
that of the lender.
At the time of the foreclosure sale, the outstanding
principal balance of the debt was $585,943. The lender did not
attempt to collect the difference between the outstanding balance
of the debt and the bid-in amount. On August 1, 1989,
petitioners' adjusted basis in the Dime Circle property was
$495,544 (cost basis of $682,682 minus accumulated depreciation
of $187,138). After the transaction, petitioners were still
insolvent.
At the time of the sale, real estate prices had dropped
dramatically throughout Texas, causing many foreclosures and bank
failures throughout the State. The Dime Circle property was not
resold until about 2 and a half years later for approximately
$382,000.
The fair market value of the Dime Circle property at the
time of the foreclosure sale was $375,000.
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