This is a repeat of a post from a few weeks ago, but because we get so many questions on this topic, we thought it prudent to run it again for your information.

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

There are a few alternatives to a foreclosure.  Always communicate with your lender, first and foremost. Some of these options only work if you’ve missed only a payment or two. Missing more than that without communication could mean you’ll never be able to catch up, and some of these options will not work. In addition to finding a REALTOR experienced in pre-foreclosure options, ALWAYS seek legal and tax advice from a qualified professional.  As REALTORS we can not offer you legal or tax advice, and foreclosures, short sales, bankruptcy, etc. can have significant tax and legal ramifications you must know about. Wading through the various options to foreclosure can be confusing, but to help, we’re offering a list of common solutions and what they mean:

• Short Sale.  A lender may allow you to sell the home for less than what you owe on your loan before it forecloses on the property.  This helps you avoid a damaging foreclosure on your credit report, but with it can come a tax liability on the foregiveness of debt.  It can be a lengthy and cumbersome process with lenders strict guidelines, and sometimes, the lender may not approve the sale. You also can not take any money away from the sale. You must act fast to initiate a short sale and in addition to securing the services of a qualified REALTOR, you should also seek the advice of an attorney and/or tax professional.
• Reinstatement. This can occur only when you can afford to repay the lender your entire past due balance plus any late fees or penalties by an agreed upon date.
• Forebearance. This is an agreement with your lender whereas your mortgage payments are reduced or suspended for a certain length of time. At the end of your time limit, you would begin regular payments once again and bring the loan current thru a “lump sum” or additional partial payments over a certain period of months. This option may have some room for negotiation, i.e. forgiveness or reduction of the amount owed.
• Repayment Plan.  With lender approval you would add an additional sum of money to your monthly payment until you catch up on the past-due amount you owe.
• Loan Modification.  Can involve a change in your loan terms to help you keep your payments going. This can include lowering the interest rate, adding missed payments to your loan balance or extending the term of the loan in order to reduce the payment amount or to factor in your past due amount.  We’re hearing that some banks are considering this solution, and is why communication with your lender up front is so important.
• Deed in Lieu.  A Deed in Lieu of foreclosure is when you voluntarily deed your property title back to the lender (with lender approval) in exchange for a reduction or cancellation of the rest of your debt. It can be less damaging on your credit than a foreclosure, however, you will lose any equity you may have. Again, you may face a tax liability on the amount of forgiven debt. This likely is not an option if you have more than one loan on the home. 
• Bankruptcy. Some people find they need to look into filing for Chapter 13 Bankruptcy.  This may only suspend the foreclosure process temporarily, or you may still be forced to give up your home, but sometimes it can get a lender to accept a repayment plan. There are many variables here, and in some cases people who file bankruptcy, in the end have both a foreclosure and a bankruptcy on their credit report. Seek legal and tax counsel from qualified Bankruptcy specialists.

Coming soon, more information about ‘do’s and don’ts’ when facing forceclosure, deficiency judgements, predatory lending and avoiding foreclosure scams.

Your Contra Costa and Bay Area Short Sale Resource.  Call today for a confidential consultation and frank discussion of your options to avoid foreclosure.

Catherine Myers, REALTOR
Alain Pinel Realtors, Walnut Creek, CA
www.DiabloValley.net

Terry Osburn, BROKER ASSOCIATE
Alain Pinel Realtors, Walnut Creek, CA
www.TerryOsburn.com

Many homeowners in Contra Costa County are now facing some tough decisions. There are many factors involved with the reasons why a homeowner may be getting behind in their mortgage payments, but when you are, its never been more important to have the right real estate professional on your side. Even if you’ve been served a notice of default, or even a notice of trustee sale, it may not be too late. But don’t delay. Time is of the essence. There are many homes that are foreclosed upon and are now bank owned (REO), and they never went on the market. They never even tried for a short sale. Don’t let that be you. Getting sound advice about the requirements of a short sale is vital. The options to short sales are few. You can explore a ‘deed in lieu‘ of foreclosure, or there is foreclosure itself. In the days ahead we’ll be providing you information on each of the options available to homeowners facing a default in their mortgage. We’ll also provide very important information you need to know to initiate a short sale. Short sales are not short, and in fact, are quite complicated and time consuming, but they may be the best way to salvage your credit reputation (FICO score). A foreclosure can cause a very negative credit bureau reporting and almost irreparable damage to your credit score (for up to 7-10 years). A foreclosure can literally haunt you for a decade or more. So please check back soon and please feel free to contact us at anytime: info@diablovalley.net

For more information about Contra Costa County short sales, distressed properties, foreclosures and REO’s, contact the professionals at www.DiabloValley.net . Serving Central Contra Costa and beyond.