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You are here: Home » 2013 » January

Mortg Forgive Update

So a lot of people took a big collective sigh of relief when we heard that the US Congress agreed to extend the Mortgage Forgiveness Debt Relief Act for another year. Just to clarify, this Act means that forgiven debt on your mortgage is generally not taxable, but only to the extent that the loan was used to buy, build or improve the property. So if you took cash out, you could still face a tax liability. There are other exemptions, notably bankruptcy or if you are insolvent (your debts exceed your assets). But there is more to the story, unfortunately….

Don’t you pay both federal AND state income taxes? That’s right. California has their OWN rules in regards to taxing mortgage forgiveness. For a while several years ago, the federal government was not taxing most mortgage forgiveness, but California (and some other states) were. After a sufficient hue and cry, California agreed to match the federal rules on this topic. But their rules also expired on 12/31/2012 just like the federal program.

I checked in with the Franchise Tax Board in Sacramento and asked if they had extended theirs to match the federal rules again. The answer was a disappointing, “No.” That means that some people may be in a situation where you don’t pay federal income taxes on your forgiven mortgage debt, but you may owe California income tax. I then asked if there are any bills pending to match up the rules to the federal rules again, and they didn’t think so. I would imagine someone will submit a bill shortly. The question is whether California will extend theirs again. If they do, it’s also likely that they will back-date it to 1/1/2013. And as a reminder, if you will owe tax on the forgiven debt, letting it go to foreclosure will probably NOT solve your tax problem! PLEASE CHECK WITH A TAX EXPERT FOR SPECIFICS TO YOUR SITUATION.

If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

How Late Is “Too Late”?

When is it too late to start a short sale? I get this call from people who know they have a short sale in their future, but they want to stay in the house as long as possible before the foreclosure. It’s not always just to live rent-free. Sometimes it’s to keep kids in school, or they haven’t located a rental yet, or whatever.

Over the past few years, lenders were VERY slow to foreclose. Sometimes it would take them 2-3 years before they pulled the trigger on the foreclosure, and even then they would postpone the foreclosure time and time again very easily. But I’m seeing signs that that will NOT be the case going forward. Most of the foreclosure moratoriums have been lifted, there have been a number of national foreclosure settlements, and I’m seeing some lenders start to move to foreclose MUCH quicker nowadays. The wild card is the new Homeowner’s Bill of Rights in California that may slow down foreclosures again, depending on how it’s implemented.

Once the lender does foreclose, it’s impossible to do a short sale then, because you no longer own it. The week before the sale is also quite difficult to start a short sale and have it be successful (although I’ve done it a few times). The month before the foreclosure sale is difficult, but certainly doable. What a lot of my clients do is wait for the Notice of Default to be filed, and then hurry up and do the short sale application at that point, and that usually leaves enough time to get the short sale approved, or at least far enough to where they’ll hold off on the foreclosure. However, I need to warn you that I had several clients in 2012 where we started the process soon after the Notice of Default, and the lender still foreclosed. So even though we had a good, market-value offer on the table, they said it was too late and they foreclosed. So if you really want to avoid the foreclosure, you can’t count on getting automatic foreclosure extensions anymore

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Revised Mortg Settlement

So last year I told you about the big national mortgage settlement that was for $25 billion but only covered 5 banks. There was a smaller one back in 2011 that covered more banks and that one has recently been revamped and expanded. It only covered loans made on your principal residence if it was in some stage of foreclosure in 2009 or 2010. The lenders participating in this one are Bank of America, Citigroup, Wells Fargo, JPMorgan Chase, MetLife Bank, PNC, Sovereign, Sun Trust, U.S. Bank and Aurora. Other lenders may join in later. You don’t need to do anything to find out if you qualify, your lender will contact you.

Most people who qualify won’t actually have to prove that they were harmed, which is one of the big changes to the settlement. They found it was taking too long and taking up too much money to review every loan and try to establish who was harmed and by how much. If you qualify for one of the larger amounts of up to $125,000, the lender may need to verify some things with you, but few people will qualify for that much money. Most people who qualify will get far, far less.

They are continuing discussions with HSBC, Ally (formerly GMAC), EverBank and IndyMac, part of OneWest Bank. If they sign on to this revised settlement, then their clients may start to see some money sooner. But until then, those loans will continue to be reviewed to see any money is due their clients.

The point is to CHECK YOUR MAIL! You may get a notice that you qualify, and it may even have a check in it. So don’t just toss your mail from your lender/old lender.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Mortg Forgive Act Update

So we’ve been holding our breath the last few months to see if our politicians would let us fall us the Fiscal Cliff on Jan. 1. Well, they did! But it was only for a short time. They hammered out some compromises to get a deal put together before the stock markets opened, which was the true deadline. It kicks a lot of cans down the road, but at least the emergency is over (for now).

The good news is that the Mortgage Forgiveness Debt Relief Act has been extended for another year. So this is good news for those that would have paid taxes on their loan mod with principal reduction, or a short sale or a foreclosure but can now meet the requirements covered by this Act. However, this Act does NOT make all forgiven debt tax-free. So this is not a blanket that covers ALL short sales and foreclosures. The biggest gotcha is that if you took cash out of your property, you may still owe on the forgiven debt, unless you are insolvent or file bankruptcy. In basic terms, if you didn’t take cash out of your property, and/or you are insolvent, you probably won’t pay forgiven debt tax.

When I talk to clients about a loan mod vs. short sale vs. foreclosure, this is the one topic that tends to come up the most. But what most people don’t understand is that if you are going to owe on the forgiven debt tax after a short sale, then foregoing the short sale and letting it go to foreclosure instead does not solve your tax problem! You’ll still owe it after the foreclosure because that still represents forgiven debt! The only way to get around it is to keep the payments current and keep the property until the loan is paid off (unless you file bankruptcy).

PLEASE CHECK WITH LEGAL/TAX EXPERTS ABOUT YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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