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Short Sales bypass Foreclosures in volume – benefits for both lenders and borrowers

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As the article below indicates the volume of short sales has continued to rise and has now surpassed foreclosures.  This is happening because the lenders net more money in  successful short sales than foreclosures.  So obviously we know why the lenders want to push short sales.

 

However, there are financial benefits to the homeowners as well when they do short sales, compared to foreclosures.  If you are having difficulty paying your mortgage on your primary residence, there are a few ways by which financial compensation is available to induce homeowners to choose short sales.

 

The HAFA program provides three direct incentives.

* $8,500 will be made available to pay off any second mortgage holders (this was only $6,000 until March 9, 2012).

* $3,000 is made available to the homeowner directly as relocation assistance

* If lenders agree to permit a short sale, they must release the borrower from all     personal liability.

Then there is the tax incentive.  If the short sale is completed by calendar year 2012, then the IRS will “allow taxpayers to exclude income from the discharge of debt on their principal residence.”   Simply put, your taxes on the forgiven portion of the mortgage will be waived by December 31, 2012 according to the Mortgage Debt Relief Forgiveness Act.  In California, the Franchise Tax Board will follow the IRS’s lead.  Depending on the amount of the loan, and how much negative equity is involved, this could be a huge amount of money.

I have been crowing for months that the time now is the perfect occasion to do short sales.  The benefits to both the lenders and borrowers are clearly obvious and all involved parties certainly seem to have taken advantage in order for short sales to jump ahead of foreclosures in volume.  Homeowners are now planning their futures rather than simply permitting the lenders to make decisions for them.  I have always told my clients to take control of their own financial destiny by making the appropriate decisions; after all, no one will take care of your own interests like yourself.
Short Sales Bypass Foreclosures, Hinting at Hope for Housing Market

In 2013 short sales or foreclosures means paying income taxes

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With the start of the New Year, inevitably people start thinking about paying taxes and the IRS.

 

Here is something to ponder if you are one of the millions of American Homeowners who is behind in their mortgage payments.  Starting in 2013, whether a homeowner gets foreclosed on or completes a short sale, they will be required to pay both Federal and State Income Taxes.  Yes, even after they lose their home, they will be left with a tax bill for the value of the debt which was forgiven or charged off.   And as calculated in the article below, this could mean possibly tens of thousands of dollars for the homeowner.

 

According to the Mortgage Debt Relief Act of 2007, up until December 31, 2012, the IRS and Franchise Tax Board (for California Homeowners) will “generally allow taxpayers to exclude income from the discharge of debt on their principal residence.”  The Franchise Tax Board has agreed to mirror the IRS on this matter.   And given the status of the Federal Debt Ceiling and current political climate, I would bet against the law being extended.

 

 

http://www.sacbee.com/2012/01/09/4172841/you-may-owe-federal-income-taxes.html
You May Owe Federal Income Taxes in 2013 if You Have a Short Sale, Foreclosure
Besides the expiration of the Income Tax exemption, there is another financial incentive which will expire at the end of calendar year 2012.    The HAFA (Home Affordable Foreclosure Alternative) Program, which may assist qualified Homeowners receive moving expenses and additional funds to pay off a second mortgage will expire on the same date.

 

Given that the foreclosure and short sale procedures are prone to extended time to completion, homeowners in distress contemplating short sales must do some serious thinking this year.

California approves tax break for people who complete short sales

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Finally and just in time for tax season!  California legislature has approved a measure that will waive the tax on mortgage  debt forgiven by lenders  during a successful short sale and/or foreclosure.   This act will now put California in sync with the Federal measure which also forgives the tax on mortgage debt that is forgiven.    People in need are getting some relief.