Category

Making Home Affordable

Nov 28
0

Mortgage debt relief act, and beyond…

By | Making Home Affordable, Sellers, Short Sale, Sonoma County info | No Comments

You might not remember, in 2007 the Mortgage Debt Relief Act was passed, helping homeowners who sold their home for less than what they owed.

expired

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. The amount of forgiven debt in a short sale would have been subject to taxes as ordinary income, the Mortgage Debt Relief changed this. Initially it ended December 2012 but was extended for an other year till December 2013.  But what about next year? Some good news to report:

Recent announcement from C.A.R. :

C.A.R. has been working with California Sen. Barbara Boxer to protect distressed homeowners from debt relief income tax associated with a short sale in California.  As part of this effort, Sen. Boxer requested the Internal Revenue Service (IRS) to provide guidance on whether mortgage debt forgiveness in a lender-approved short sale would be taxable income under federal law, given California’s recent non-recourse laws for short sales, which were hard fought victories by C.A.R.

The IRS has clarified in a letter that California’s troubled homeowners who sell their homes in a short sale are not subject to federal income tax liability on “phantom income” they never received.  The IRS recognizes that the debt written off in a short sale does not constitute recourse debt under California law, and thus does not create so-called “cancellation of debt” income to the underwater home seller for federal income tax purposes.  This clarification rescues tens of thousands of distressed home sellers from personal liability upon expiration of the Mortgage Forgiveness Debt Relief Act of 2007 on Dec. 31, 2013.

C.A.R. is seeking a similar ruling from the California Franchise Tax Board (FTB), which has been awaiting the IRS action; C.A.R. anticipates the FTB will act promptly.  Short sales may raise other tax issues and, as always, REALTORS® should advise their clients to speak with their tax professional regarding the tax consequences of a short sale. C.A.R.’s Legal Department has prepared a Realegal to further explain the IRS’s clarification.
– end announcement
Although the state tax is not as high as federal tax, we are eagerly waiting for the response of the Franchise Tax Board.
Coming from the Netherlands where it’s normal to pay appr. 60% income tax it was a relief to find out that taxes are much lower here, yet paying taxes on mortgage debt that is forgiven is difficult since the one reason that you do a short sale is to avoid foreclosure, not a time of financial prosperity.
As mentioned many times, a short sale is a gracious alternative to foreclosure on so many levels, please consult a good realtor should you face a foreclosure or have a need to sell while still owing more than your house is worth.
Sunset Sonoma Coast
Besides this, enjoy the beauty of nature that surrounds us, take a hike and let the sunset take your breath away…
Mirjam
P.S. Thank you Mathew Schweifler for helping with the research for this blog posting 😉

May 22
0

Loan Modification: are you sure?

By | Foreclosure, Making Home Affordable, Mortgage, Short Sale, Sonoma County info | No Comments

I had a meeting with a homeowner who accepted a perfect loan modification last week. Some thoughts to share:

A Loan Modification is what a lot of homeowners in distress are wishing for. However they can be quite stressful and very difficult to obtain. Percentage wise, only a few are working out. The Pro Publica website has some interesting numbers.

The most successful loan modifications are the ones where the loan has adjusted to a high interest rate and the only thing that makes the payment affordable again is a rate adjustment. These are quite often successful. However, according to CoreLogic in the last quarter of 2011 about 22% of all residential properties with a mortgage are ‘Upside down’ or owe more on their house than it would currently sell for.

What I see more and more happening is that a bank will recast the borrowers loan amount down to the current market value of the house and the deferred amount will be due when the borrower sells the house… That is a great option yes???? Or maybe not????

If you are planning to stay in your house and have no intention of moving, this is a good solution. It will take a very long time to regain some equity in your property but then again, you have to live somewhere…

But what in case you need to sell? Maybe next year? And the house is still not worth what you owe on it? Then you should still a short sale… This is a good option, however, keep in mind that any forgiveness of debt is a taxable event. So if the bank agrees with the short sale, you still owe taxes on the amount forgiven. Right now, under the Mortgage Debt Relief act a lot of home owners do not have to pay taxes on the forgiven amount. For now the Mortgage Debt Relief act ends December 2012. This means that as of right now, if you end up selling your house next year, you’ll end up paying taxes on the amount forgiven: Say the bank takes a $100,000 loss, that is considered regular income…

Something else to keep in mind: for a bank to accept a short sale, you need to have a hard ship. The fact that your house is to small/large due to a change in family situation is NOT a hardship. Side note: the average home owner in USA moves about every 6-8 years.

Bottomline, I see more and more that a loan modification is not the best solution for many home owners. It totally depends on your situation. Weigh your options carefully before accepting the loan modification.

Mirjam

Feb 12
0

$ 8,000 Tax Credit, did you take advantage of it?

By | Foreclosure, Making Home Affordable, Sellers, Short Sale, Visit WineCountry, Wine Tasting | No Comments

Who doesn’t want to take advantage of Tax Credits? Remember the Federal Tax Credit programs offering $7,500 and later $8,000 to first time home buyers? A lot of Home Buyers did take advantage of it.

There are some hick-ups with the IRS as to claiming/repaying – see article LA Times -.  What if you  bought the house and ended up buying a house that was not the perfect fit?

Depending on what tax credit you used, it might be worth exploring what the consequences are for you, either selling and buying something else or turning the house into a rental.

The first one in 2008 -$7,500-, for those who purchased homes in 2008, was more like an interest free loan. It had to be paid back in 15 years. See link.

The second one in 2009/May 2010, didn’t have to be paid back but you had to live in the house for 36 months. For both programs, in case you either sell, loose the home to foreclosure, do a short sale, convert the home into a rental, i.e. it stops being your primary residence, you have to pay the credit back. There are some exceptions/rules. See link.

Sidenote: there were different programs for the purchase of new homes during that time. See link.

Depending on your situation, the option of repaying might not be that bad. It’s probably wise to talk to your CPA and discuss numbers with him, however, you might be pleasantly surprised. You may have losses or other situations that offset the ‘gain’ of the credit, if not, maybe paying tax on $8,000 is not the worst option. Remember there are  tax benefits of buying a home. In Sonoma County, home prices have come down a bit more, in general, we lost about 10% last year. Thinking about this, that will offset the fact that you have to pay back the credit.

And last but not least: Living in Sonoma County is great, the next Barrel Tasting weekends are the first 2 weekends in March, it’s the 34th one 😉

Mirjam

 

Apr 10
0

60% of all Foreclosed Homeowners….

By | Foreclosure, Making Home Affordable, Short Sale, Sonoma County info | No Comments

On March 29th, Alex Charfen from the CDPE Institute did a webinar with Rick Sharga from RealtyTrac – the leading online market place for foreclosed properties.

Besides the fact that foreclosure activity has increased on a year-over-year basis for 52 consecutive months from January 2006 through April 2010 and 2010 set a new record with 2.9 million home receiving foreclosure notices there was a number that was more disturbing to yours truly…

February 2011 Foreclosure Rate Heat Map:

mappic_000546.png

About 60% of all home owners who were foreclosed on never contacted the bank as to foreclosure alternatives. You might react, well a lot of people never got through to the bank when they called. After thinking about this, I am not so sure about that. Every time you call the loan servicer, the person you talk to asks your loan number, your SS number etc to make sure you are the home owner or person who is either authorized on the loan and they put the call into their system… This means that the 60% should be fairly accurate, give or take some.

About 2.5 years ago this percentage was 62%… So with all the government programs, the advertising etc we only gained 2%… That is disturbing… But then again, everyone responds different to financial distress and a lot of distressed home owners do NOT open the mail sent by the banks to inform them about the help available.

This means that friends and family members need to help… If you have a feeling your friend or family member is in trouble financially, have the courage and share them info about help available and tell them to open the mail from the bank.

As a CDPE trained agent, I am offering help to all the people who are referred to me ad I know of many other great Realtors doing the same.

“It is trouble that “never comes” that causes the loss of sleep.” -Chas. Austin Bates

Mirjam

Jan 23
0

Loan Fraud and Short Sale Fraud

By | Disclosures, Making Home Affordable, Short Sale, Sonoma County info | No Comments

An article in the SF Chronicle caught my attention this morning : 10 indicted in Calif. alleged real-estate scheme.

When money was cheap and pretty much everyone could get  mortgage, the so called ‘golden years’ (they were not golden by the way) some interesting schemes were going around. There were also rumors that special FBI units would go after all those who committed loan fraud in the 2004-2007 market place. Well the article above is proof that they are after the ones who did so…

Rachel Dollar has a great blog as to Mortgage Fraud: www.mortgagefraudblog.com.

Well right now we have new schemes going around, never a dull moment in real estate… I hear wild stories about short sales, interesting ones and even if half is true well it’s still illegal/fraudulent. One of them is short sale ‘flipping’ -> it is like the scheme mentioned in the article above but then with short sales. An other popular one is selling the home to a family member and not disclosing this to the bank. And at this point, in the ‘short sale flurry’ some short sales might be approved based on incorrect information -fraud-…

I discussed this with my broker and her prediction is that in a few years, when short sales are done, the banks will go back in the files and do an audit… Ask your attorney about the statue of limitations on fraud…

Please when you consider a short sale, be upfront with your real estate agent and the bank about your situation, should a real estate agent promise you a quick turn around or some other to good to be true story, be very leery and interview an other Realtor, preferably one that has the CDPE designation.

And READ the short pay approval letter: a Short Sale has to be an arm’s length transaction, you CANNOT financially benefit from the sale -except for cash for keys etc approved by the bank-, your Realtor CANNOT be a family member and there are a few more. If there is a special situation, disclose this to the bank, have their approval : for instance when you rent the house back from the person who bought the house.

And last but not least: selling the house on paper for $450,000 and on the couch selling the couch for $50,000… probably not a good idea either.

Still you can plan short sale carefully and there are many more benefits short sales offer, that is for a later post.

Have a great day, Sonoma County is beautiful this time of the year: the mustard  is starting to bloom!!!

Mirjam