That is the one question we are asked every single day.  Homeowners are confused with their options (or in some cases, their lack of options), and are unsure of what to do, and where to turn.  Most homeowners don’t realize it is simply too complex a question to be able to answer with a yes or no.  On many online forums however, it is exactly what I see many real estate agents do.  When the question is asked “Should I do a short sale? Or should I foreclose?” … many agents chime in with the advice “Do a short sale, its the best thing for your credit.”  “Do a short sale, it is better than a foreclosure.”  “Do a short sale, its the right answer.” 

First, let me tell you.. if you ask that question (short sale vs foreclosure) and one of the above answers is the first thing they say – run!  Run away.  The fact is there is no one answer, no one size fits all answer that is.  It is too complex. 

If you asked me that question… I’d likely answer “it depends.”   My second part of the response would be to advise an attorney and/or CPA.  There are too many variables to be able to answer that question with yes or no.  Fact is, sometimes a foreclosure is best for some people with certain situations.  In some cases, a short sale opens you to liability you may not have had otherwise.  There are cases that there was an entire strategy that could’ve protected you, but you didn’t know about because you did not consult with an attorney.

I can guarantee you that there will be many confused and shocked people this year.  These will be the people who did a short sale during 2008 and thought they were “done.”  But when you get your 1099 , what will you do – you know you can’t ignore that right?  Or worse, what happens if you DON’T get a 1099 (especially on a second loan or equity line of credit)…. ?  Have you received your collections or lawsuit notice yet?  It may be coming.  To add insult to injury, many don’t know that the state is not doing the same tax relief as the federal government.  You may have a state tax liability.  As mentioned above, on some loans, you may owe the deficiency balance.  On some, you may have turned the entire debt (on your first and second loans) to a collectable balance.  How’s that for shocking?

So, as you can see… if anyone says a short sale is automatically the right answer for you without a) telling you it depends and gets more information about your situation and b) insisting you talk with an attorney and/or CPA immediately… you may find yourself in trouble you never expected.

Seek counsel with professionals experienced in short sales.  That is another post.  How do you know if the REALTOR you are interviewing is REALLY knowledgeable in short sales?  There are many agents doing short sales, that in my opinion, have no business doing them.  I’ll tell you in another post some warning signs, and what to ask when interviewing agents to sell your home if a short sale is determined to be your best option.  First of all, do they have references of satisfied short sale clients?  How about testimonials from fellow realtors who worked with them in a short sale transaction?

Call the Contra Costa Short Sale Specialists

Catherine Myers & Terry Osburn
Alain Pinel Realtors
http://contracostashortsales.wordpress.com

http://www.DiabloValley.net

925-683-2125

We serve clients wishing to sell their homes in Walnut Creek, Pleasant Hill, Martinez, Lafayette, Orinda, Moraga, Alamo, Danville, San Ramon, Dublin, Pleasanton, Livermore, Concord, Clayton, Bay Point, Pittsburg, Antioch, Oakley, Brentwood and Discovery Bay.   If you are out of our immediate area, it’s likely we can provide you to a reputable short sale agent in your area.  A reputable agent will be one to have resources for you – homeowner help information, attorney and CPA contact information.  Have you exhausted all efforts to save your home?  That should be priority number 1 – and we can provide you some local resources of homeowner preservation (non profit) groups who can help you explore your options with your lender: loan modifications, etc.

. . . on the decision to foreclose or short sale that is.  You must seek counsel of an experienced real estate professional, a qualified tax professional and/or an attorney before making any decisions as to whether to foreclose or attempt a short sale.  Both can have pros, cons, consequences and benefits.  Believe it or not, sometimes foreclosure is the right answer.  Often a short sale is the best solution as it enables you to negotiate up front with the lender for any future recourse.

1. Logistics - there are distinct differences as to how your occupancy of your home will be handled.  In a short sale, you will have to move when the home is sold.  In a foreclosure you may be able to stay months before the sheriff comes knocking on your door during the final steps of an eviction.  Do you know when you’ll have to move?  What is your strategy to secure housing if your credit will be destroyed?
2. Paperwork - in a foreclosure, folks just walk away.  In a short sale, there is a lot of paperwork involved.  Do you know what you need to to assemble in order to ask a lender to accept a short sale?
3. Hardship - did you know that there are many reasons people are in the situations they’re in now with their mortgages?  Does it qualify YOU for a short sale?
4. Scams - did you know that scammers are good at what they do?  Did you know that smart people are signing over the deeds to their homes without realizing it does not relieve them from the obligations they have with the bank?
5. Assets - do you own other assets besides the home you’re in trouble with? Is there a way to protect your other assets (other homes, boats, cars, etc) in either a foreclosure or a short sale?
6. Retirement – most homeowners also have money in their retirement accounts.  Can you still do a short sale with monies in retirement accounts?
7. Privacy – did you know that once a Notice of Default is filed, it is public record? Did you know the Notices of Trustee sales are public notices too?  How can you avoid it getting to that point and maintain privacy in your financial matters?
8. Taxes – did you know that just walking away (foreclosure) may not alleviate your tax liability? Did you know that only some homeowners will feel the effects of the Mortgage Debt Relief Act of 2007?  Can you qualify for Federal tax relief? What about the State?
9. Recourse – did you know that only your purchase money loan(s) is considered a “non-recourse” loan in California? Did you know a “recourse” loan means that the lender can file for a judgement against you if you do not pay your obligation?  Will you be protected against recourse and monetary judgements if you foreclose, or do a short sale?  Are your loans recourse or non-recourse?  Is there a reason to let one of your loans foreclose (i.e. your second) and not the other? (YES there is!)
10. Fraud – did you do a “N-I-N-J-A” loan (No Income, No Job, No Assets), or an all stated income loan with little/no documentation?  Did you fib? At all? Did you bolster your income or assets to get the house? Did you know that is fraud?  And that there is a window of opportunity for the bank to go after you whether you foreclose or short sale if they suspect fraud?  Are you protecting yourself?  What is YOUR best course of action?  

Oh oops, one more:

11.  Bankruptcy – sometimes, for some people, bankruptcy is a solution.  Have you talked to an attorney about the benefits and consequences of filing for Bankruptcy protection?

Realize that for all of these top ten eleven reasons above there may be ten others SPECIFIC to your situation.  NEVER is ignoring the problem the right answer.  The consequences of either a short sale or foreclosure can be significant and can haunt you for years. 

If you need the answers to these, or other questions, call the professional short sale team of Catherine Myers and Terry Osburn of Alain Pinel Realtors in Walnut Creek.  Call 925-683-2125 or 925-381-9944. Or CONTACT US by navigating to our contact page on our site here (see above).

Serving Contra Costa County, and some areas of Alameda and Solano County. 

(Walnut Creek, Danville, San Ramon, Alamo, Lafayette, Orinda, Moraga, Pleasant Hill, Martinez, Concord, Clayton, Bay Point, Pittsburg, Antioch, Oakley, Brentwood, Benicia, Vallejo, Dublin, Pleasanton, Livermore)

Never is it more important to find a real estate agent who has experience!  If you are contemplating a short sale, you must find an agent with experience in short sales.  The sad truth is that when the markets are like this, it equals opportunity for many.  And I’m not just talking about the agents who step into the game with the true mission of helping homeowners.  I’m talking about the huge increase in real estate training companies looking to train agents to make big bucks on short sales.  Now, of course, like anything, there are good and there are bad… some training and seminars are helpful, informative and do give a value added benefit to the agents out there. But there are other training classes, seminars and online webinars that likely were developed by trainers who NEVER stepped foot into a short sale transaction.  There are now short sale certifications. You can get to be some sort of short sale certified agent by going to a seminar, or watching a training class on your laptop.  Be wary.  Again, some turn out great agents with more knowledge to help their clients, others are putting out wrong information which will ultimately hurt consumers.  Here’s an example.  On a nationally distributed agent newsletter was a Top 10 of Short Sale questions.  One question asked about taxes, and whether one would owe income taxes or receive a 1099 if they do a short sale.  The answer was shocking (to me). 

“It WAS true, now it’s not. Consult your Tax Attorney or Qualified CPA.  Very recently the tax law was modified and now most people who do a short sale will have no taxes due.”

Folks it IS true.  Think about it.  Always see your tax advisor.  Now is not the time to listen to your friend or your neighbor and no agent should ever be the one to tell you that you will have no taxes due-as you might. The new legislation HR 3648, The Mortgage Debt Relief Act of 2007 will actually help very few. It will help those with purchase money loans (the loan you used to buy the house, not a refinanced loan, except under some circumstances), it will NOT help if you have a second (unless it can be deemed purchase money) or a third loan, or equity line (unless used for capital improvements) on your property – you may still get 1099′d on those.  Its complicated. It will not help if this is not your primary residence.  So how many have refinanced? How many have more than one loan?   My guess then, is the opposite of what that real estate trainer said…. I’d guess that MOST people may actually be looking at receiving a 1099 and owing taxes.

Due to the sheer numbers of companies out of business, and the way different banks show these losses on their books, you may not get a 1099, but still, it may not relieve you of tax liability. You have to see your tax advisor promptly.  Some people may be able to claim insolvency and avoid taxes, but only a qualified CPA or a tax attorney can tell you this for sure.  If you need a referral to a tax attorney in Alameda or Contra Costa to help you with your short sale or foreclosure tax questions, just ask.

So just heed my warning.  Just because an agent has some fancy title or training acronym next to their name, you must still check their experience with the short sale process. You do NOT want to be your agents first real short sale transaction.  I mean agents all have to start somewhere, but many agents will start by partnering on their first couple of transactions with an agent who does know the short sale process.   Ask to talk to current or previous clients with successful short sale outcomes.  Ask to talk to their title company.  We work daily with our title company/escrow rep – she’s priceless in our transaction process.  She starts working for us from the minute we get the listing.  There are ways you can check experience, and you may regret it if you don’t.

Contact us for short sale information, resources and to market your home if a short sale is the answer for you.  Always seek counsel from an attorney, CPA and/or tax advisor.  We can not advise you in these matters, but we can point you in the right direction.

Catherine Myers 925-683-2125

Terry Osburn 925-381-9944

Serving Contra Costa County.  Pre-foreclosure, short sale, foreclosure avoidance and referrals to those who can help with a loan modification. 

As more and more people are contemplating the possibility of foreclosure or a short sale on their homes, many feel ”safe” that they may not owe taxes following the forgiveness of the debt by their lender(s).  Be sure you do your homework, carefully. Hiring a short sale expert to help you negotiate the terms with your bank is important.  Many terms are negotiable with the lender, and you MUST know what to ask for to protect yourself.  Protect yourself from what you ask?  From recourse, deficiency judgements or tax bills.  Further, you must know what this Mortgage Debt Relief Act really means. It is NOT the cure-all and it is not even an option for all.  It does not encompass all “mortgage debt,” so be careful.  Take very careful note as to who this Act will help, and/or who it will not.   If you have refinanced your mortgage, have a second, a third or if this is an investment property – you likely do not fall under the protection of this act at all. 
As we always say, enlist the counsel of an experienced attorney and for tax implications, get expert advice from an income tax professional (CPA). 

Here is a White House press release about this Act for more information:  Fact Sheet: Mortgage Forgiveness Debt Relief Act of 2007

Below is information provided by Wendy Cutrufelli, Certified Mortgage Planner in Walnut Creek (one of the best there is in the mortgage business). 

__________

Mortgage Debt Relief Act will save some homeowners facing short-sales or foreclosures from paying federal taxes on the “forgiven” debt.   There are very specific requirements:

• The mortgage is for the homeowners principal residence.  The relief does not apply to any debt forgiveness for any vacation or investment home.
• Forgiveness is only for the “acquisition indebtedness” of the principal residence.  Acquisition Indebtedness is defined as the debt used to acquire, construct or rehabilitate the home. 
• No relief is available for cash-out mortgages whether the cash-out takes the form of a refinanced first mortgage, a second mortgage, a home equity line of credit or a similar arrangement.
  • Exception:  If the cash-out was specifically used to improve the home and the homeowner has adequate records to prove it.

Important note: This bill relieves these specific homeowner of their federal tax liability but does NOT relieve the homeowner of their state income tax liability. 

Contact Wendy for any further questions:

Wendy Cutrufelli, CMPS, CMP
Certified Mortgage Planner
Direct: 877-27Wendy
    (877-279-3639)
www.CAMortgagePlan.com
Providing mortgage strategies that safely create financial security and financial independence.

www.WendyCutrufelli.com

Call Catherine Myers or Terry Osburn to buy a foreclosure, bank owned or short sale home for sale.  Call us for property marketing assistance for properties in distress in Contra Costa. 

Fantastic news and perhaps a great start to a new year for many families facing the loss of their homes and the added stress of a possible tax liability on the amount of debt forgiven by their lenders.  If you’ve been following our blog you know that we’ve been waiting for this to pass the President’s desk for signature, and today, President Bush has signed this relief into law.

The Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) eliminates tax on debt forgiveness recognized on short sales, foreclosures and deed in lieu of foreclosure arrangements.  

The National Association of Realtors (NAR) released a statement today.  In part:

“NAR has been advocating for such a change to the IRS tax code for nearly 10 years. We have always believed that it is clearly an issue of fairness and of not kicking people when they are down. By making the forgiven debt taxable income, individuals in already unfortunate situations most likely faced IRS actions because they did not have the money to pay the additional taxes. This legislation will relieve that additional burden and may also encourage families to work with their lender to negotiate terms, knowing they will now not be subject to an IRS bill.

“Today’s bill will ensure that any debt forgiven on a mortgage secured for a principal residence will not be taxed. This is very significant legislation. This may also mean that some day in the future these families can once again achieve the dream of homeownership.”

To read the entire statement, click HERE.

You can track the progression of this debt relief proposal thru the house, senate, etc. by clicking HERE.

Summary of H.R. 3648 Mortgage Forgiveness Debt Relief Legislation:
http://waysandmeans.house.gov/media/pdf/110/Markup%20Summary4.pdf
Get expert advice in Contra Costa County from your lender, your accountant and/or an attorney to know YOUR options particular to your situation.  Then contact, Catherine Myers or Terry Osburn to discuss your short sale, foreclosure or other options for financial difficulity in home ownership.  Get information about what lenders need from you.  Get a short sale checklist.  Get information on hardship situations and hardship letters and much more. We also may have phone numbers and contact information for the loss mitigation departments for your bank or mortgage lending institution. So call us for more information.

There is an article on the IRS website you should read if you are considering a foreclosure.  This article outlines what is “cancellation of debt” income.  It describes the circumstances whereas there may be NO tax liability on your part.  It describes what is a “non recourse loan” and its ramifications on your tax liability. It also offers a worksheet on figuring your possible tax liability and/or gain in a foreclosure.  It also outlines what you may see on a 1099 form you may receive from your lender after a foreclosure. There is also a FREE service available to you thru the Taxpayer Advocate Service.  You can also call the Taxpayer Advocate office toll-free 1-877-777-4778, TTY/TDD 1-800-829-4059.  

Please note:
You need expert advice from a short sale expert, foreclosure attorney and/or accountant when contemplating either of your options when behind in your mortgage.  Each option; short sale, foreclosure, deed in lieu, etc. all have their own pros, cons and possible tax and financial implications for you and you must seek expert advice to weigh the advantages of either option for you individually.  No two cases are alike.  REALTORS are not attorneys or tax experts, though we can offer you referrals to local tax or legal specialists.

Catherine Myers

Terry Osburn

Find your local short sale expert serving Walnut Creek, Concord, Clayton, Pleasant Hill, Martinez, Lafayette, Antioch, Bay Point, Pittsburg and surrounding Contra Costa County areas.  Get a referral for a mortgage expert, tax advice and legal questions.

Contra Costa Short Sales

As you know, if you’ve been reading this blog, or simply paying attention to our local housing market. Contra Costa, Alameda and Solano counties in the Bay Area are among the many counties in California experiencing record numbers of foreclosures, short sales and property owners in distress.  One hiccup though for many homeowner’s financial future, is to have a short sale accepted, and they are now relieved of their obligation to repay the bank the balance of their loan – but did you know that whatever debt the bank ”forgave” can now be taxed by the IRS as income?  Is that crazy?  If you couldn’t afford to continue your mortgage payments, what makes the IRS think you can now pay taxes on amount that sometimes exceeds your annual income?  For most, you simply can’t. 

The Mortgage Foregiveness Debt Relief Act of 2007 (H.R. 3648) would eliminate tax on debt forgiveness.  This Act has passed the Ways and Means committee and is awaiting Senate Approval.  The hope is that it will pass the Senate and sale smoothly over the President’s desk with a seal of approval.  This will be retroactive and will help anyone who has had a purchase money debt forgiven during 2007.  Stay tuned here for news as we follow the (hopeful) passage of this very important tax relief legislation.

Press Release from Ways and Means Committee:
http://waysandmeans.house.gov/news.asp?formmode=release&id=564

Summary of H.R. 3648 Mortgage Forgiveness Debt Relief Legislation:
http://waysandmeans.house.gov/media/pdf/110/Markup%20Summary4.pdf

You can follow the progress of this Debt Relief Act here:
http://www.govtrack.us/congress/bill.xpd?bill=h110-3648

Remember, we are not attorneys or tax specialists. Seek counsel from your attorney, CPA or tax specialist to advise on your specific situation.

For more information or information about selling your home, short sales, buying foreclosures or REO’s, contact:

Catherine Myers
www.DiabloValley.net

Terry Osburn
www.TerryOsburn.com

Specializing in Contra Costa County: Walnut Creek, Concord, Clayton, Pleasant Hill, Martinez, Lafayette, Alamo, Danville, Antioch, Bay Point, Pittsburg, Brentwood, Oakley.