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.

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!

5 Things To Do Immediately After Getting a Notice of Default

In California, once the notice of default has been recorded, you have approximately 120 days to save your home before it is auctioned.  Once you get the notice in the mail don’t waste any time!

Here are 5 things to do immediately….

1. Call your lender and ask them what solutions they have.  Banks are moving away from foreclosures and new programs are coming along all the time. The best way to be sure you have the latest information is to call the lender. If you want to keep your home, begin the process under as many avenues as are available, including non-profit programs.
2. Find out who owns your mortgage.  Even if your loan is with BofA, it could be owned by Fannie Mae or Freddie Mac (Question #9 in FAQ),   If it is, you may qualify for a government program and be able to refinance without an appraisal (HARP2), to modify your loan (HAMP), or to do short sale and get a cash incentive to help with relocation expenses. (HAFA).
3. Get professional advice from your tax preparer and an attorney about your financial options and the effect a short sale would have on your finances.
4. Operate on the 120 day timeline.  This is the typical timeline from Notice of Default to foreclosure and then auction.  In that 120 day period is your opportunity to a) get a loan modification consent from the bank, b) short sale your property, or c) find a way to bring your mortgage current.
5. Contact a certified short sale Realtor, such as myself, if you want or need to sell your home. Get that ball rolling as soon as possible.

Until the Home Owner’s Bill of Rights takes effect on January 1, 2013, the banks are under no legal obligation to stop the foreclosure process, even if they have told you they would work with you on a loan modification.

 

One last thing:  That Notice of Default you got; it is public record. So, put your guard up regarding people who may try to contact you.  Some of them may be legitimate, but some may be working a scam. 

 

Foreclosure Timeline

In California the Notice of Default is usually recorded after the Homeowner misses 3 payments. From that point it takes about 120 days to the point where the house is offered for sale at public auction.

Prior to auction, if the house is still occupied, there will be an eviction overseen by the County sheriff. During the eviction the locks will be drilled out and replaced by new ones and in a day or two people will show up to clean out any possessions left behind.

Start reviewing your options as soon as possible. Lender and government loan modification programs are your first stop. But, be aware, even though you may be in the process of getting your loan modified in many cases, it will not stop the foreclosure process from moving ahead.  You’re still up against that 120 day time line.

So, it’s important that you fight on more than one front.  Get a handle on all of your options by consulting three professionals; a CDPE (Certified Distressed Property Expert), like myself, your tax-preparer, and an attorney to discuss what is best for you in the long run.

If you don’t know where to turn for tax advice, or legal advice about bankruptcy, deed in lieu, etc., go to my Resources page where you’ll find the name and contact info for reputable Sonoma County professionals.

Don’t let the stress immobilize you!  There are options other than waiting for the Sheriff to knock on your door.  There is a dignified way to work through this.  I can help you, so don’t hesitate to call me.

Foreclosure should be avoided if at all possible.  Not only is it stressful to you and your family, it also may represent the longest road back to stability.

Foreclosures stay on your credit report for 7 years normally–that’s almost half the time a child spends growing up at home.  You owe it to yourself to get this information.

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.

Scam Artist Pick-up Lines

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