So You Missed the Deadline for Debt Relief Exemption?

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.

Example:  You owe $550,000 on your mortgage, but the current market value is $350,000.  Under an a Short Sale agreement with your lender, you sell your home for the $350,000 and the remaining $200,000 is forgiven. 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 5 years for distressed home owners who short sell  their homes between 2007 and 2012. This act allows a home owner a tax exclusion for the forgiven mortgage debt. However, the measure is due to expire at the end of 2012 with a very good chance it will NOT be extended before the end of this year.

We are still 2.5 months from the end of this year–the deadline to close so that you can benefit from the current Mortgage Debt Relief Act.  Getting from listing to close in that time is a challenge  but may be doable depending on your lender.

One advantage you have right now is that the inventory of available homes for sale in Sonoma County is drastically low.  Buyers are competing aggressively for homes and that is pushing the prices up.  Depending on your lender, it may be possible still to accomplish a short sale in time so that you don’t have to hope that the bill is extended next spring.

But if you missed it, and there is a chance you may at this stage…have some hope.

It is believed that the law may be retroactively extended in spring of 2013. So, if you talk to your accountant, you may find that by going ahead with your short sale and doing an extension next year, you would be able to claim the benefit after all.  There is still a chance that it won’t be renewed, but if a Short Sale is definitely in your path, then this gives you an added chance to avoid penalty.

By extending your tax return to October 15th, 2013, if the law is extended retroactively in the first half of 2013, you may then be able to exclude the forgiven amount. Remember: consult with a tax professional before deciding.

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Awesome New Site for Fannie Mae Mortgage Holders!

Fannie Mae site helps you find your way through…

Confused about what options might be available to you and if you even qualify for them?  Fannie Mae’s Know Your Options site will get you rolling in no time!

First, to be sure your mortgage is owned by Fannie Mae, start with the Loan Look Up on the very top menu line.  Once you’ve confirmed this, you have a literal plethora of assistance in sorting out what options may be open to you.

Their Option Finder makes this all easy!  You answer simple, focused questions and come out the other end with your options!  If there is something you are not sure about, you can contact them for assistance from a real person!  

Included are…

  • How to refinance with little to zero equity
  • How to modify your loan
  • Options to stay in your home
  • Options to leave your home
  • What to do if you are already in foreclosure
  • A Resource list for Mortgage Assistance & Government Programs that may apply

Another great feature are the calculators made available on the site so that you can get an estimate of your monthly payments would be on a modification or refinance.

Check it out now at www.knowyouroptoins.com!

B of A Takes Pilot Short Sale Relocation Assistance Program Nationwide

A pilot program begun in Florida is now being taken nationwide by Bank of America.  The program provides home owners with relocation assistance when they complete a Short Sale.

Amounts run from $2,500 to $30,000 depending on the situation, the value of the property, and the decision of the investor who owns the loan.

Here’s the criteria:

  • Must have pre-approval for a short sale
  • Must participate in either the government’s HAFA (Home Affordable Foreclosure Alternative) short sale program or B of A’s proprietary short sale program
  • Process must be initiated by 2012
  • Sale must be completed by September 13, 2013

Note:  Short Sales already in escrow are not eligible for this program.

Where Do You Begin?

Like a lot of difficult things in life, the first step is the hardest.

When you’ve come to the inescapable conclusion that there is just no way to keep up with your mortgage payments and that the longer you put off finding out what your options are, the worst things will be and the fewer avenues you will have open, you’re ready to do something, but what?

As a CDPE (Certified Distressed Property Expert), I know where to start and how to proceed and that is one of the biggest advantages I bring to the table on your behalf.   Everyone’s time frame is different and my approach will be different depending on how much time you have.

 CDPEs enjoy a 80% rate of success in Short Sales.

I’d like to see everyone exploring their options the day after they miss the first payment. Sadly, this hardly ever happens because we go into denial over our circumstances.  It’s a common human reaction, but don’t let it stop you from taking a step forward. Really, there should be no foreclosures hitting the market before a loan modification, and if that did not work, a Short Sale was attempted.

Unfortunately we see foreclosures hit the market every day where the home owner gave up because they just didn’t know there was any other way.

Picture a large flow chart with your house at the beginning.  On this chart there are connecting “routes” to the best outcome for you.  What route is taken depends on the amount of time you have, the number of lenders to negotiate with, and even the condition of the property.

The foremost goal is to save your home.  If that can’t be done, then to save your credit by Short Selling  your home.  So, where do you start?  By getting in touch with me by email or phone.  Let’s talk about what you are facing and what options are open to you.

Yes, I do short sales, but what I am after first is the best solution for YOU. I layout the options you may have after the facts of you particular situation are evaluated: loan modification, re-finance, non-profit services, federal programs,…  A short sale is one solution, but you may find a better one.

Foreclosures last approximately 7 years on  credit ratings.  For most families that is almost half the number of years their children live at home with them.

 

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 Would a Bank Accept a Short Sale?

Why Would a Bank Accept a Short Sale?

The easiest way to demonstrate why a bank will negotiate a short sale is to break down the costs of a foreclosure on a hypothetical property, one a short sale and the other a foreclosure.

The average cost of processing a foreclosure is between $40,000 & $50,000 for the bank before they ever bring the house to the market and pay the additional costs listed here.  That is why banks are moving increasingly towards Short Sales.

Say the property has a current value of $200K and the owner owes the bank $225K. But, the best offer to come in is for $190K.  The bank would be foolish to accept it, won’t they?  Maybe not.  Let’s go through the numbers.

Short Sale:

Market Value $200,000
Loan amount $225,000
Sale Price $190,000
Closing Costs @ 2.25%    -$4,275
Commissions @ 6%  -$11,400
Proceeds from sale $175,325
Loan Amount  $225,000
Less Proceeds -$175,325
Short Sale Lender Loss    $49,675
Loss Percentage      22.07%

Foreclosure on the Same Property:  

Market Value $200,000
Loan Amount $225,000
Sale Price $175,000
Legal Fees    -$7,000
Taxes       -$500
Insurance    -$1,000
6 Months Utilities       -$400
6 Months Maintenance       -$800
6 Months Interest Loss    -$6,650
Association Dues    -$1,200
Staffing Costs (Servicing Dept.)    -$2,000
Closing Costs @ 2.25%    -$4,275
Commissions @ 6%  -$11,400
Proceeds from sale $139,775
Loan Amount  $225,000
Less Proceeds -$139,775
Foreclosure Lender Loss   $85,225
Loss Percentage     37.87%

Lenders Paying Homeowners to Do Short Sales

Source: February 26th, 2012 in CDPE bulletin…

For awhile now, we’ve instructed agents on government incentives available to distressed homeowners who opt to do short sales. Such programs include the Home Affordable Foreclosure Alternatives (HAFA) program, which provides up to $3,000 to assist the borrower with relocation fees.

In recent news, major publications including USA TODAY and CNN Money have spotlighted the incentives provided by banks. These incentive programs, which offer anywhere from around $2,000 to upwards of $35,000, are intended to provide homeowners with the resources and motivation to pursue a short sale.

As banks look to ramp up short sales, such incentives are becoming more frequent. JPMorgan Chase began their incentive program last year, for example, and Bank of America (which plans a 60-70% increase in short sales this year) piloted a program in Florida this past December. Wells Fargo offers incentives as well, though primarily in states where the foreclosure process is particularly lengthy.

We’ve said it before, and we’ll say it again: This year looks to be the year of the short sale.

For banks, short sales can be a cheaper alternative to foreclosure. The foreclosure process is lengthy and costly, so much so that providing up to a $20,000 alternative for a short sale is still a cheaper option.

In USA TODAY’s article “Lenders Paying Borrowers to Do Short Sales”, Jim Gillespie, chief executive of Coldwell Banker, is quoted as saying “It’s a lot cheaper to shell out $10,000 or $20,000 to someone than it is to go through a long foreclosure.”

In addition to the cost of the foreclosure process itself, foreclosed properties sell for less than short sales on average. According to the National Association of REALTORS®, foreclosed properties sold for 22% less than conventional sales, while short sales sold for around 14% less.

12 Ways to Avoid Foreclosure

12 Ways to Avoid Foreclosure

  1. REINSTATEMENT: Bring the loan current
  2. FOREBEARANCE: Temporary repayment plan
  3. REFINANCE: New loan with reduction in monthly payments
  4. LOAN MODIFICATION: Modify original loan terms or reduce principal                 (Visit: www.hmpadmin.com and contact your bank.)
  5. SHORT REFI: (New) Qualify for this process by showing a hardship as well as the ability to pay the new mortgage
  6. SELL THE PROPERTY: Use equity to pay off or pay difference
  7. RENT THE PROPERTY: Must make loan current
  8. SERVICE MEMBERS CIVIL RELIEF (SCRA): Protection for military personnel in foreclosure in specific situations
  9. HAP: Department of Defense for eligible service members and federal civilians
  10. SHORT SALE: Negotiate with bank to accept a sale less than the loan amount due
  11. DEED IN LIEU OF FORECLOSURE: “Friendly Foreclosure”
  12. BANKRUPTCY: Will stall foreclosure, but not prevent it

Come In Out of the Cold

Come In Out of the Cold

Most likely you found your way to this site looking for answers for yourself, or for someone you know, about what can be done when a Homeowner is in danger of losing their home.  Financial hardship is draining and it’s easy to feel like you’ve failed.  But you haven’t, and you are not alone.

The way through is to make good decisions and for that you will need good, up-to-date, information.  With every bank reacting differently and policies literally changing daily, who has time to keep up with their own life AND make sense of all that is going on in the real estate world.

There are even cash incentives to help you relocate after the house sells.

The good news, and there is some, is that it is getting easier to Short Sale your home if you are not able to continue to keep up with the payments and falling further and further behind.  The really good news is that, compared to a foreclosure, the Short Sale process is much easier on you and on your credit rating.  You can potentially be in shape to purchase another home in as little as two years vs. seven years with a foreclosure.

So, welcome.  If you have questions about your own situation and would like a private consultation, contact me.  I am here to help.

Sheila Lawrence

e: sheilaklawrence@gmail.com

p: 707.478.7240

w: SheilaLawrence.com