A short-term IRS program that ignores lender-forgiven mortgage debt ends Dec. 31; if you need to short sale your home, you should consider listing now!

You may owe federal income taxes in 2013 if you have a short sale, foreclosure after this year. Now is the time to make the hard decision: Are you going to walk away from your underwater home?

Uncle Sam is still giving homeowners until Dec. 31, 2012, to go through a short sale or foreclosure without tax consequences – as long as the lender officially releases the debt.

But on Jan. 1, 2013, the rules change: The amount a lender forgives, ether in a short sale or foreclosure, on a primary residence will be taxable on federal income taxes.

If a bank writes off debt in a short sale, it’s a “taxable event,” and the lender tells the Internal Revenue Service about the deal by submitting a “Form 1099-C, Cancellation of Debt” at the end of the year. Home sellers must acknowledge the amount when they fill out their federal taxes.

So if a house sold $50,000 short of what is owed on the mortgage, then the selling homeowners will owe federal income taxes on that $50,000. Homeowners would owe $12,500 if they’re in the 25 percent bracket; $7,500 if in the 15 percent tax section.

Homeowners would be on the hook even if the house sold but the bank had not formally forgiven the loan in a letter: The banks must officially sign off in writing before Dec. 31.

“It’s a huge issue – it will be a shock to many taxpayers after 2012,” said Mark Steber, the Florida-based chief tax officer for Jackson Hewitt Tax Service.

The law first came into affect five years ago as the housing market went bust nationwide.

The Mortgage Debt Relief Act of 2007 “generally allows taxpayers to exclude income from the discharge of debt on their principal residence,” according to the Internal Revenue Service. “Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.”

Up to $2 million of forgiven debt can be forgiven this year, $1 million if married and filing separately, according to the IRS.

Homeowners declaring bankruptcy could escape paying income taxes on any cancellation of debt income if the debt is forgiven in the bankruptcy even if the debtor is solvent, said Nick Jovanovich, a board-certified tax attorney in Fort Lauderdale, Fla.

“Bankruptcy trumps everything,” he said.

Or homeowners might not have to pay income taxes on any cancellation of debt income to the extent that they are insolvent immediately before the cancellation – that is, their debts exceed the value of their assets, Jovanovich added.

Steber and Jovanovich said homeowners should decide now what they are going to do – to give themselves time.

Are you considerung a short sale? Contact us today for a consultation:

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The federal government’s previous foreclosure-prevention efforts, such as the Home Affordable Modification Program (HAMP), lowered the interest rates on mortgages of homeowners at risk of foreclosure because they had lost income. But the new Home Affordable Refinance Program (HARP) is seen as a possible game changer even for homeowners who are underwater but who have stayed employed and continue making their payments. Homeowners who have missed mortgage payments in the past six months need not apply. Not all details have been disclosed yet, but this is one of the first refinance programs that doesn’t require an appraisal to determine the value of the house.

Here is an excerpt of an interesting article from the Bradenton Herald on this topic:

The big banks are back in the foreclosure business.

 After a year of fewer foreclosures, as bankers reeled from revelations that they were falsifying documents in foreclosure cases, the latest monthly numbers suggest banks are starting to repossess houses again.

In October, foreclosure actions rose 44 percent from the month before in Charlotte County, 20 percent in Sarasota County, 37 percent for Florida and 7 percent for the country as a whole, according to data from RealtyTrac, an Irvine, Calif., market research firm.

Only Manatee County bucked the state and national trend. Its foreclosure actions fell 25 percent from September.

The overall rise in foreclosures was welcomed by real estate agents who have been frustrated by what they view as artificial supply shortages in the face of strong investor demand. But if foreclosure filings keep increasing in the coming months — as expected — it could drive home prices down again and may make it even more difficult for non-distressed owners to sell.

What could make the situation worse before it gets better, experts say, is an increasing number of underwater homeowners don’t see the point of struggling any longer.

“People are worn out and the stigma tied to foreclosure is gone,” Shari Olefson, an attorney with Fowler White and author of “Foreclosure Nation: Mortgaging the American Dream.” “At cocktails they are no longer embarrassed if they have stopped paying, they are embarrassed if they are still paying. And they are being empowered by the Occupy Wall Street movement.”

For the time being, real estate agents are glad fresh supplies of foreclosures are coming on the market.

Court records show that the 10 largest lenders in Sarasota and Manatee counties filed 591 early-stage, or lis pendens, actions in October — a 32 percent increase from the 447 filed in September.

Bank of America — the owner of Countrywide — led the way with 170 early-stage filings, compared with 118 the month before.

At the same time, short sales — in which banks permit owners to sell properties for less than they owe on their mortgages — also are on the upswing.

Across the country, 230,678 foreclosure actions were filed in October, a 7 percent increase from the previous month, but still down nearly 31 percent from October 2011.

Nevada, California, Arizona and Florida posted the top state foreclosure rates.

One in every 180 Nevada housing units had a foreclosure filing during October — more than three times the national average.

California came in second with one out of every 243 housing units. Arizona was third with one out every 259 and Florida was fourth with one out of every 268.

Read the full story

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The limited time offer has received little promotion from the Charlotte, N.C.-based bank, which sent emails to select Florida Realtors earlier this week outlining basic details of the plan. Only homeowners whose short sales are submitted for approval to Bank of America before Nov. 30 will qualify. The homes must have no offers on them already and the closing must occur before Aug. 31, 2012.

A short sale is when a bank agrees to accept a lower sales price on a home than what the borrower owes on the loan. Realtors said the Bank of America plan, which has a minimum payout amount of $5,000, is a genuine incentive to struggling homeowners who may otherwise fall into Florida’s foreclosure abyss. The current timeline to foreclosure in Florida is an average of 676 days – nearly two years – according to real estate analysis company RealtyTrac. The national average foreclosure timeline is 318 days.

“I think this is a positive sign that the bank is being creative to try and help homeowners and get things moving,” said Paul Baltrun, who works with real estate and mortgages at the Law Office of Paul A. Krasker in West Palm Beach. “With real estate attorneys handling these cases, you’re talking two, three, four years before there’s going to be a resolution in a foreclosure.”

Guy Cecala, chief executive officer and publisher of Inside Mortgage Finance, called the short sale payout a “bribe.” “You can call it a relocation fee, but it’s basically a bribe to make sure the borrower leaves the house in good condition and in an orderly fashion,” Cecala said. “It makes good business sense considering you may have to put $20,000 into a foreclosed home to fix it up.” Homeowners, especially ones who feel cheated by the bank, have been known to steal appliances and other fixtures, or damage the home.

A spokesman for Bank of America said the program is being tested in Florida, and if successful, could be expanded to other states.

Wells Fargo and J.P. Morgan Chase have similar short sale programs, sometimes called “cash for keys.” Wells Fargo spokesman Jason Menke said his company offers up to $20,000 on eligible short sales that are left in “broom swept” condition. Although the program is not advertised, deals are mostly made on homes in states with lengthy foreclosure timelines, he said. And caveats exist. The Wells Fargo short sale incentive is only good on first lien loans that it owns, which is about 20 percent of its total portfolio.

Bank of America’s plan excludes Ginnie Mae, Federal Housing Administration and VA loans. Similar to the federal Home Affordable Foreclosure Alternatives program, or HAFA, which offers $3,000 in relocation assistance, the Bank of America program may also waive a homeowner’s deficiency judgment at closing. A deficiency judgment in a short sale is basically the difference between what the house sells for and what is still owed on the loan.

HAFA, which began in April 2010, has seen limited success with just 15,531 short sales completed nationwide through August.

If you need to short sale your home, please call us today @ 941.866.1666 for a free consultation.

Most federal laws regarding short sale relief etc., only apply to primary residences and do not apply to investment properties.

No debt forgiveness

Therefore a partial or full debt forgiveness as generally anticipated in a residential short sale procedure should not be expected in a investment short sale. In some rare situations we see it happen, but it would be unethical expectation if I’d tell you to expect it. In other words, this may not be the target when proceeding with the investment short sale. There are ways at the end to accomplish a reduction of the burden at the end (see final paragraph of this article), but upfront, a debt relief should not be expected. We are not taking any short sale case where this is expected in an investment scenario. It would be our and your waste of time, and that is not the way we are working.

Foreclosures in Florida

Let me explain the situation:
Basically when you bought your investment properties you signed two important papers, a note and a mortgage. Here in Florida if you put it in a nutshell, the note sticks to the body of the borrower, the mortgage to the property. So the bank now has two collaterals (i.e. the borrowers “body” and his property). The banks are aware that property ownership might become costly over time, so they usually allow to have that mortgage paper released if the borrower can provide somebody taking over a place near what the banks consider market value (and in an arm’s length transaction) = short sale the property. At this point they get at least some money back and the debt is growing slower.

But remember? The bank still has that borrower’s body on the hook because he signed the other paper, the note.

The reason for that is simple: As most laws providing any mortgage relief do not apply to investment properties, they (i.e. the banks) do not have an incentive to leave the person off the hook. This is the case, as long as the bank expects the borrower to be able to contribute something to cover the loss, now or at a later point. By signing the note when the property was purchased, the person signed a personal guaranty for dollar amount X. Most borrowers didn’t read the contracts and weren’t clearly aware of that fact. Escpecially when the market was good. But let me tell you, there is no clause in this contract or in Florida law limiting or attaching a note’s value to the property value. So a borrower is always personally responsible for the amount of the note less any money a sale of the property brings in. The current value of the property does not matter. Of course, there is a clause in the contract, that attorney fees and interest come on top, so we should avoid that as much as possible.

So you might ask, “what does a borrower get out of the short sale of investment properties?”

Let me ask this QUESTION first: “Does the borrower have enough equity to pay his obligations (satisfy all loans when selling all properties and pay the difference to the bank eventually from other sources)?”

1.) If this is answered no, consult with a bankruptcy attorney. You’d probably better of filing for bankruptcy not a short sale!
2.) If this is answered yes, proceed reading, a short sale could help you getting back on track.

The alternative to a short sale would be a foreclosure. You should be aware, that here in Florida, lenders are now getting “deficiency judgments” against borrowers after a foreclosure in most cases. That means, even once your property is taken by the bank and sold at court auction, you are still personally responsible for the loss (= dollar amount on the note minus any proceeds from the sale, however costs like attorney, court fees and interest) of the bank. And because REO / Bank Owned properties are usually in distress and only sellable with great discount, the loss is bigger than if you took action yourself in advance and had the property sold long before a foreclosure is granted.

Analyse situation first, maximize income

In addition if you are having several rental properties, I strongly recommend talking to us, as experienced property manager with short sale experience to max. out the income you get out of the properties. Maybe some properties are just not rented at their best way. If this could improve your income, some properties might be profitable covering expenses for the other properties.

Now back to the short sale of investment properties.

Short sale of investment properties is not a “real” short sale. The difference is, especially in a declining market, that the first step is to get the loss limited by selling the property. In order to get the property sold, the mortgage needs to be released without paying off the loan, therefore the term “short sale”. However the sale is not really short, as the borrower is still on the hook with the note.

As the note is still active and the debt is not forgiven, this needs to be addressed at a later point, eventually by working with the bank and settling the debt. Banks like cash and sometimes settle for a fraction in negotiations.

In some cases, banks need to clean their balance sheets from bad performing loans in order to comply with capital rules of the SEC. These are the cases when debt might be forgiven in an investment short sale, but this is nothing which can be controlled from the outside, so just don’t expect it.

Please contact us for a free evaluation!

Axel Weiss, Broker
Weiss International Realty
(941) 866 1666

If you owe more than your home’s value,  you have basically three choices.

1. Keep on paying your mortgage.
2. Try and get the bank to modify your loan through HAMP
3. Move. If you stop paying your mortgage eventually you will move. Either as a foreclosure (involuntary) or a short sale.

Now our 5 thoughts:

1.) Questions: Can you afford your current lifestyle? – Is 1/3 or more, of your income going to home mortgage expenses?
Then you might be struggling to afford your home. Reseting arm mortgages, layoffs, pay cuts, and unforeseen expenses could all cause your expenses to exceed your income.  If you are paying more than 1/3 to housing expenses you might qualify for the new loan modification program through The Home Affordable modification Program or HAMP.  This applies to primary homes, and there are other restrictions.  Create a list of required minimum payments on credit cards, mortgage payments, car loans, utilities child care, etc.

Once you have an idea of where the money goes, see if more than 31% goes to your mortgage, and you probably should consider applying for a loan modification.  This is really a great thing if you have an adjustable rate mortgage, or a pick-a-pay or negative amortization mortgage.

2.) Questions: How deep ‘under-water’ are you, and are you willing to ride it out until home prices increase?
What percentage are you negative?
How soon will there be a recovery for your neighborhood?
Do you have a need to move in the near future?

Since H.A.M.P has passed in April 2010 I have seen an increasing willingness and success in lenders doing loan modifications for the homeowner.  In one case a customer was able to get a loan modification that lowered their payment from 1,950 to 1,250. 1% interest for five years and fixed rate thereafter. And the payments that were missed were added to the end of the loan.  It’s great when the lenders are cooperative on aggressive loan modification vs foreclosure. It sure didn’t hurt to show the banks that there was an offer for 30,000 below the payoff. For these owners they were only 20% upside down, they could easily manage the new lower payment, and they had the desire to stay put.  If you can comfortably afford your home what does it really matter what it is worth? The value only matters when you want to sell.
I would be happy to provide you with a comparative market analysis for your property to get a gauge on your homes value and the market forecast of what it will be worth in the future. I suggest including a comparative market valuation of your property and including it with a loan modification or short sale request.

3.) Questions: How important is your credit score to you?
You will have to decide if you can live with the negative credit impact of a short sale.  I think in almost every case a short sale is a much better alternative to a foreclosures, and the secondary lenders agree. Guidelines have come out from FHA and Fannie Mae that allow people that have done a short sale to potentially qualify for a new home loan in two years.
With the potential for 1 in 4 people having either a foreclosure or bankruptcy the banks will be forced to loosen up their guidelines.

4.) Questions: Understand potential tax consequence for foreclosure or short sale?
I strongly suggest that all my customers seek out appropriate legal and tax advice to discuss potential tax and estate issues of a foreclosure or strategic default. In my experience assisting customers in short sales here in Bradenton I have found that on primary homes there are some major tax exemptions for the 1099-c income. The lenders can write off the loss in return the IRS looks as that amount as income since you have in essence reduced your debt and kept the Asset. For anyone considering short selling an investment or second home I think it should be required to retain legal advice. I have great attorneys and an accountant to recommend. Their fees are reasonable and in cases of financial hardship the fees can be reduced or eliminated. I suggest that you consider evaluating your housing situation for today and in the future, and get an update on the value of your home.

There is no charge for my services in short sales or consultation for loan modification.  I believe in building business through goodwill.  Many of the homeowners that I have been able to help have recommended me to their friends and family in the same situation. If you would like a more accurate Comparative Market Evaluation, or a consultation please contact us to arrange an appointment.  It’s good to know you have options and whether it is to stay put, attempt a loan modification, or do a short sale I have the experience to help you through the process.

5.) Questions: Are you ready to take the first step to reset your finances for a new life?
Everything “new” begins with some kind of uncertain change. However, with the right people on your side and the goals clearly set you are entitled to get back on the right track. We are professionals to help you out of the current financial situation. To maximize your chances of a successful short sale, you need 3 things: A knowledgable Realtor, self-confidence and patience.

Weiss International Realty
The INTERNATIONAL Florida Real Estate Company
Axel Weiss, Realtor, Broker
(941) 866 1666
Bradenton / Sarasota, Florida

Ph.: (941) 866 1666
Fx.: (941) 256 3177

Email: Contact Axel and Bea

www.BradentonBroker.com
www.BradentonBroker.de
www.sarasotafinesthomes.com

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Depending on the individual situation, short sales brought substantial relief in the past, but on the contrary meant that the homeowners had to leave their home until the closing date.

Homeownership in the US is - more than in other countries – considered a basic right for many. So being forced to  leave their home makes people deperate and look for other ways to solve the situation.

Will the bailout help me as a homeowner keep my home?

You have to analyze the situation first and find the reasons how you could come into this situation. Current law already allows judges to adjust the principal of mortgages. In the past judges were tight to only adjust the rate. So theoretically a judge can lower the principal which leads to lower payments and would even allow a sale at a lower sale price without the short sale scenario. But will that really help?

The question should be: What were the reasons which led to the individual situation?

The bailout will not help those who cannot affort their home!

As a general rule you can not survive when you spend more than 50% of your income on housing. Generally speaking a mortgage costs about $600 – $800 a months per $100,000 owed. So if you go by this rule, somebody making $2000 a months should not live in a $300,000 house.

The only reason somebody making $2000 could live in a $500,000 home in the past was because as prices of homes and its appraisal values increased dramatically people could refinance at a higher level. Most of time some of this money, if not most, was used to cover closing costs and monthly payments afterwards. So basically the “regular” income was not even used to cover mortgage expenses.

The evil of the “leverage effect”

With home prices increasing at double digits after 2004, people were suggested by banks and brokers to purchase homes which were obiously oversized for them. They told you: “the home prices will go up, don’t you want to participate?” So people were suggested to buy a 5 bedroom house instead of a 3 bedroom. Brokers sold it as a win-win for everybody: Their commission was higher and the homeowner could use the leverage effect by lending more money for an appreciating asset. However what nobody told was that the homeowner alone had to bear the risk as he was responsible for the loan with his full assets.

This worked for some time and made some pretty rich. But like any pyramid scheme, once this started failing most homeowners were left behind.

And there are further effects:

Oversized home = You pay more in taxes, more in maintenace and more in energy.

While a 5 bedrooms is suitable when you have 3 kids at home, it looks pretty oversized for a retired couple on a fixed $2000 income living in a $600,000 house.

Where is the help?
Congress already put a similar HUD program Hope for Homeowners into law. This program can bring relief to homeowners which satisfy all of these criterias:

- Long term affordability
- No investor bailout
- Equity sharing
- Voluntary lender participation

If you qualify, the old loan(s) would be wiped out and you can refinance at a special H4H backed loan at 90% of current appraisal value.

Consequentely these scenarios would never qualify at all:

- Investment, including most second homes
- Payment to income values over approx. 40%, i.e. if you had to spent more than 40% of your income on mortgages

In addition to that, the plan includes that all positive appreciation of the home (over the 100% appraisal value) in future would be shared with FHA at 50%.

Although there are not yet all specific rules about the new bailout out, it looks like the rules will mostly match those of Hope for homeowners program. They only difference will be that the program is offered to all borrowers instead of a voluntary participation.

If you are living in an oversized home and your income is not nor will be sufficient to cover the payments of even a reduced mortgage you will not benefit in any way from this program. Moreover as prices for energy and taxes will not drop significantly you are just spending your future.

Short Sales will be the main beneficiaries of the bailout.

As banks are forced to help instead of granting something voluntarily, the position of homeowners will improve. A successful short sale will bring people much faster back on track.

If you are in trouble, there is no reason not to start taking care of yourself now. Engage an honorable advisor to bring you back on track.

Axel Weiss, MBA, Broker
Weiss & Weiss International Realty
PO 14222
Bradenton, FL 34205
www.bradentonbroker.com

For purposes of calculating capital gains, any debts discharged excluded from income under the new law must be subtracted from the basis of the taxpayer’s principal residence (but not below zero). However, taxpayers may generally exclude from capital gains income up to $250,000 (or $500,000 for married couples filing jointly) for properties owned and used as their principal residence for at least two of the last five years.

If your loan amount is higher than the actual property value, and you start getting late on your mortgage payments, you need professional help.

Losing your home can be very emotional and most people don´t want to face up the reality until foreclosure sets in.

But don´t run into a foreclosure – there are other options available.

Welcome to the world of Short Sales!

A short sale occurs when the net proceeds from the sale of a home are not enough to cover the sellers´ mortgage obligations and closing costs.

As an expert we will guide you through the entire process. We will help to expedite your transaction and protect your interests. Banks are working with us to save you as a homeowner from foreclosure. It is in all parties best interest to find a workable solution for everybody involved. As knowledgable professionals we can help you sell your home in what looks like an impossible situation!

Even if a short sale may be complex and time consuming – in most cases it is worth the hassle.

Look at the differences between a short sale, foreclosure and bankruptcy:

The time frame to repair your credit (which is be damaged by late payments on your mortgage) after a short sale only is about 12 months, while your credit after a foreclosure will suffer for many years.

Pick up the phone and give us a call @ 941.866.1666 – we will help you to find a solution!