Tax Relief for Loan Mods, Short Sales & Foreclosures – Only Through 2012

Mortgage Tax Forgiveness

The Mortgage Forgiveness Debt Relief Act of 2007 relieves homeowners from being taxed on the deficiency when they obtain a Loan Modification, Short Sale and even in a Foreclosure. This Tax Act is only good through 2012, which means if you have forgiven mortgage debt after 2012, expect a tax bill. Homeowners who are foreclosed, sell short or modify their loans will be taxed as income for the deficient balance.

Tara-Nicholle Nelson, Broker in San Francisco, CA says, “While the long-term housing outlook is beginning to look up, 2011 is projected to be the peak year for foreclosures during this market cycle. Distressed homeowners who are on the brink of a short sale, loan modification or foreclosure should be aware that normally, any mortgage balance that is wiped out by one of these outcomes is taxed as what the IRS calls Cancellation of Debt Income, or CODI.”

“Under the Mortgage Debt Forgiveness Relief Act of 2007, the IRS is currently not charging income taxes on CODI incurred through a loan mod, short sale or foreclosure on most primary residences through 2012. But right now, banks are taking many months, or even years, to work out mortgages in all of these ways; the average foreclosure in New York state right now occurs only after 22 months of missed mortgage payments. If you foresee any of these outcomes in your future, don’t put things off. Do what you can to get to closure on your distressed home and loan, ASAP, while you won’t have income taxes to add as the insult on top of your significant housing injury.”

Mortgage Tax Forgiveness

The big question: Will home loan rates go back down? BofA says, Probably Not

Bank of America says:
“Although rates are still near historic lows, they have been headed up… and indications are that those very low home loan rates may be behind us. In fact, there are only a few things that would bring back the lows we saw in early November:
*If the tax cut package doesn’t get passed, it would be bad news for the economy and stock market – but it would help interest rates.
*If the Fed’s recent round of quantitative easing doesn’t meet its mission of creating inflation, boosting stock prices, lowering unemployment and creating consumer demand – bond prices could make some gains as the threat of deflation reemerges.
*If the financial problems in Europe worsen significantly – which would drive investors into the safe haven of the U.S. bond market – it could help bond prices, but probably only modestly.

Realistically, the chances of these events happening are unlikely. In the end, rates may see some brief and fleeting improvements, but many experts believe they will likely continue to creep up over time.”

JD POWER: PRUDENTIAL REAL ESTATE RATES HIGHEST

According to the J.D. Power and Associates 2010 Home Buyer/Seller Satisfaction Study^SM, Prudential Real Estate rates highest in satisfaction among home sellers.

What is HAFA?

HAFA (Home Affordable Foreclosure Alternative) is a program designed to assist sellers who are unable to modify their mortgage under the HAMP (Home Affordable Modification Program) to complete a short sales in order to reduce the damage to their credit an assist with moving expenses.

The Home Affordable Foreclosure Alternatives Program

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Trying to reduce the rising number of foreclosures in the U.S., the Treasury Department introduced a new federal program that makes it easier to process a short sale for people unable to keep their homes.

 

Home Affordable Foreclosure Alternatives (HAFA) streamlines the process for doing a short sale or deed-in-lieu of foreclosure for distressed homeowners who do not qualify for a federal home loan modification through the Home Affordable Modification Program (HAMP) or have missed consecutive payments after a modification.

The HAFA program started April 5, 2010, and ends December 31, 2012. Federal rules require servicers participating in HAMP to implement HAFA. The new program also requires borrowers to be released fully from future liabilities related to their first mortgage, including cash contributions, promissory notes and deficiency judgments.

Participation in HAFA cannot save homeowners from losing their property, but it can eliminate the effects of a foreclosure on their credit. Financial incentives for program participation include a $1,000 servicing bonus for lenders and a $1,500 relocation bonus for displaced homeowners. Lenders of other subordinate liens (e.g., HELOCs) may be allowed to keep a limited portion of the proceeds (up to $3,000 each) of a short sale, with the first-lien lender’s approval.

HAFA is designed for homeowners who have applied to HAMP for assistance but have had no success with their loan modification program. To participate in HAFA, homeowners must still meet HAMP’s eligibility criteria: home is principal residence; first-lien mortgage is in delinquency or default is reasonably foreseeable; loan closed before January 1, 2009; unpaid balance is under $729,750; and the mortgage payment is over 31% of gross income.

For more information on HAFA, go to the following link:
hmpadmin.com/portal/programs/foreclosure_alternatives.html