How the Does the Mortgage Debt Relief Act Affect You?

When you escape a debt the IRS normally counts the amount of the debt you were forgiven as income, and taxes you accordingly.  In terms of a taxable event, this could be significant to you financially if you short sale your home.

Example:  Mr. & Mrs. Jones owe $550,000 on their mortgage, but the current market value for the house is $350,000.  Faced with a transfer, they have to sell their home. Their lender allows them to Short Sale their home for the current market value even though it will net less than the balance owed on the mortgage. In agreeing to sale short, the lender also agrees to forgive the debt on the outstanding balance; in this case, $200,000. Enter the IRS, who view the $200,000 as taxable income!

The Mortgage Forgiveness Debt Relief Act addresses this very scenario, and has been in effect for the last since 2007 when the market began its collapse, throwing many homeowners into financial distress by owing more on their mortgage than what their house was actually worth in the changed market. (It has recently been extended to the end of 2013.)

This act allows a home owner a tax exclusion for the forgiven mortgage debt. Without this Act, in the scenario above, the Jones would get a tax bill on the $200,000 as though it were regular, earned income. That means a bill of somewhere around 30%, or $60,000. Quite a deep hole to fall into!

The Mortgage Forgiveness Debt Relief Act is about making it possible to get out from under financial hardship so you can get back on your feet again.

Note:  While this is fantastic news, there are some qualifiers to this tax act.  Be sure to consult a qualified tax preparer before moving ahead.  Also, another thing to consider; the state of California is expected to follow suit with their own forgiveness of debt relief. However, as of this writing, they have not yet extended this tax break on the state level. Plain English: You may get off the hook at the Federal level, but the state is not there….yet.

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Effective Today Fannie & Freddie Get a Green Light to Save You Another Step

Fannie Mae Reaches Short Sale and Deed-in-Lieu Delegation Agreements with Mortgage Insurers

WASHINGTON, DC – Fannie Mae (FNMA/OTC) announced today that it has reached delegation agreements with all of its mortgage insurer counter parties so that servicers can complete short sales and deeds-in-lieu of foreclosure without seeking approval from the insurer.  These agreements will further streamline the foreclosure prevention process and allow short sales and deeds-in-lieu to be completed more efficiently.

“Short sales and deeds-in-lieu are important tools to prevent foreclosures and help struggling borrowers,” said Leslie Peeler, senior vice president, National Servicing Organization, Fannie Mae. “These delegation agreements create an even more streamlined process that will ultimately help more families avoid the costly effects of foreclosure and benefit taxpayers.  We are pleased that the mortgage insurance companies have stepped up to the plate with us to help more homeowners.”

Previously, Fannie Mae had individual delegation agreements with the majority of its top mortgage insurer counterparties.  Now, a standard delegation agreement has been reached with all nine mortgage insurers, making the approval process more consistent and efficient for servicers and borrowers.

The new delegation agreements allow servicers to approve any short sale or deed-in-lieu that meets Fannie Mae’s requirements without individual mortgage insurance approval.

These agreements are an important achievement in Fannie Mae’s efforts to stabilize neighborhoods and have been established with CMG Mortgage Insurance Company, Essent Guaranty, Inc., Genworth Mortgage Insurance Corporation, Mortgage Guaranty Insurance Corporation, PMI Mortgage Insurance Co., Radian Guaranty Inc., Republic Mortgage Insurance Company, Triad Guaranty Insurance Corporation, and United Guaranty Mortgage Insurance Company.  All delegation agreements will be effective as of November 1, 2012.

Borrowers can visit http://www.knowyouroptions.com/ for foreclosure prevention information and resources, including how to contact Fannie Mae’s twelve Mortgage Help Centers across the country.  Through the first six months of 2012, Fannie Mae completed 142,987 loan workout solutions, including 46,226 short sales and 7,509 deeds-in-lieu of foreclosure.  Earlier this year, Fannie Mae announced new short sale guidelines and new short sale timelines.

Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America’s secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those who house America.

via News Release – Fannie Mae Reaches Short Sale and Deed-in-Lieu Delegation Agreements with Mortgage Insurers | Fannie Mae.

Principal “Curtailment” for Underwater Home Owners

If you fit this description:

  • Have low to moderate income
  • Owe more than your house is worth
  • Live in your home
  • Are delinquent, or have a hardship that puts you at risk of default
  • Have a mortgage balance of less than $729,750

Read this article….

Principal relief for stressed homeowners

A limited number of underwater homeowners in California will soon be able to get principal reductions of up to $100,000 apiece on Fannie Mae and Freddie Mac loans through the federally funded Keep Your Home California program.

The federal agency that oversees Fannie and Freddie has steadfastly refused to allow permanent principal reduction on loans they own or guarantee on the grounds it would cost taxpayers money. But in mid-September, Fannie and Freddie told servicers they could immediately begin accepting money for principal reductions from programs financed by the U.S. Treasury’s Hardest Hit Fund, including Keep Your Home California.

Fannie’s and Freddie’s willingness to accept money from Hardest Hit Funds does not signal a change of heart on the part of their regulator, the Federal Housing Finance Agency. Lest anyone get the wrong idea, Freddie says it will allow funds to be used for “principal curtailment.”

Read the rest here…

via Principal relief for stressed homeowners – SFGate.

Why a Short Sale Blog?

After earning my CDPE (Certified Distressed Property Expert) designation I was fired up. The landscape in my profession had changed drastically over the preceding 4 years. People were hurting…lots of them.

Our homes are one of the things we tend to take for granted and if there’s one thing this recession has taught us, it’s just how central a role our homes play in our lives.

Not knowing if you can continue to stay in your home, and being worried about where else you could live if you lost it, is a tremendously stressful ordeal to go through.  Add children to the mix, and it is pure misery.

The CDPE training showed me just how many options people had.  The problem was that no one wanted to own up to their situation.  When your security is shaken to the core, the appearance of stability affords you a comfort you are reluctant to give up, even if it is only the appearance and not the reality.

So, I started this blog with some definite standards…

  • Put all this great information from my training out there
  • Be unbiased and present ALL the options (not just Short Sales)
  • Allow people to access it in privacy without having to sign up
  • Be current
  • Give links to helpful sites
  • Alert readers to potential pitfalls

The blog has helped me too.  After months of wading through the morass of a tortured real estate market this blog gave me an outlet to do something positive. Being able to make a difference, even if I don’t know the person I helped, was such a relief

Things are improving, gradually.  First with the Robo Signing settlement, then the refinement and improvement of some government programs, as well as changes in both federal and state laws that protect the homeowner and help to level the playing field between them and their lenders.

I am happy you found your way here, and it is my sincere hope that the information here helps you.

Don’t Throw that Letter Away! It May Have $150,000 in It!

Bank of America Offers Principal Reductions to 200,000 Homeowners

A select group of struggling mortgage borrowers are about to get an offer that sounds too good to be true. Executives at Bank of America say they will begin mailing 200,000 letters offering certain customers mortgage principal reductions.

If people get these things and toss them, they won’t be eligible,” says Ron Sturzenegger, the Bank of America executive charged with providing solutions to borrowers in need of mortgage assistance.

But the offer is real, and eligible borrowers could get as much as $150,000 knocked off the balance of their mortgages.

It is all part of the $25 billion settlement reached this year between federal and state agencies and the nation’s five largest mortgage servicers over fraudulent foreclosure document processing (so-called “robo-signing”.)

Via:  Bank of America Offers Principal Reductions to 200,000 Homeowners – CNBC.

And, watch this video:

Tax Break that Could Save You Thousands is Due to Expire!

Important Federal tax break for some homeowners set to expire this year

For the last five years, the federal government has given tax breaks to distressed homeowners who work out a deal with their lender to reduce or release mortgage debt. But unless members of Congress agree to an extension, starting next year any break you get on your mortgage debt will be considered taxable income.

In distressed mortgage situations like we’re seeing across the country, the lender’s financial loss is considered a financial benefit to the homeowner who gets out of paying their full debt. In a short sale for example, where your mortgage balance is $300,000 and your home sells for $240,000, the outstanding balance of $60,000 is considered forgiven debt and would ordinarily be ruled taxable income.

But since 2007, under the Mortgage Forgiveness Debt Relief Act, forgiven debt has been tax free. That’s set to change after the end of this year.

“As it stands, mortgage debt that’s forgiven is not going to be treated as taxable income here in 2012,” said Greg McBride of Bankrate.com. “But, it remains to be seen whether that’s going to be continued into 2013 or not.”

McBride advises anyone facing a distressed mortgage situation to get things worked out before the end of the year, in case the federal tax break is not extended so you’re not caught by surprise.

What qualifies for the income tax break? Short sales, loan modifications, deed in lieu transactions — where you turn your home over to the bank — and in many cases, foreclosure. Just keep in mind the Debt Relief Act only applies to principle residences. No rental property or second homes.

And don’t even think about getting a break on canceled credit card debt or other consumer loans.

“For somebody who is currently going through some sort of program where they’re having debt that’s forgiven, if it’s not real estate debt, there’s a real good chance you’re going to get a 1099 form at the end of the year that says you now have to pay taxes on whatever debt was forgiven, because it’s treated as income,” McBride explained.

The U.S. Treasury Department is urging mortgage services to put pressure on Congress to extend the tax break. President Obama’s proposal calls for an extension into 2015, but right now, there’s no guarantee.

via Important tax break for some homeowners set to expire 

Think you may not make it in time?  Read this post.

Why 2012 is the Best Time to Do a Short Sale

2012 may just be the perfect storm:  Sonoma County’s available inventory of homes for sale is the lowest in years. Banks and Government programs are getting more and more favorable for the Distressed Homeowner who needs to sell.  Banks have too many foreclosures on their books.   Short Sales are getting, well, shorter because of improved operating standards by the banks and programs by the government.   And the Number One Reason:  The Forgiveness of Debt Tax Relief Act expires at the end of this year.  Taking advantage of that may save you thousands in taxes you would otherwise have to pay.

Sound interesting?  Pick up the phone and call me!

Sheila Lawrence

707.829.7493

RealtyTrac: Foreclosures Set to Rise in 2012

RealtyTrac: Foreclosures Set to Rise in 2012

January 18th, 2012 in CDPE by cdpe

There’s both good news and bad news on the foreclosure front.

The good news? According to RealtyTrac’s Year-End 2011 U.S. Foreclosure Market Report™, total U.S. foreclosure activity and the foreclosure rate were both at their lowest annual level since 2007.

The bad news? Foreclosure levels were artificially lowered due to delays following the robo-signing scandal. However, those delayed foreclosures will likely reappear in 2012.  Fortunately, both the financial and government sectors are more committed than ever to finding alternatives to foreclosure, including short sales.

In fact, Bank of America expects a 60-70% increase in short sale closings this year.

“There were strong signs in the second half of 2011 that lenders are finally beginning to push through some of the delayed foreclosures in select local markets. We expect that trend to continue this year, boosting foreclosure activity for 2012 higher than it was in 2011,” said Brandon Moore, chief executive officer of RealtyTrac.

via The CDPE Blog – Real Estate Awareness