Mortgage Debt Relief Act Extended through 2014 for CA Homeowners

Washington D.C. – U.S. Senator Barbara Boxer (D-CA) yesterday released a letter she received from the Internal Revenue Service (IRS) clarifying that California families who have lost their homes in a short sale will not be subjected to a tax penalty for debt forgiven after the federal law prohibiting such penalties expires at the end of this year.

“California homeowners have struggled through years of economic hardships during the Great Recession,”Senator Boxer said. “I am relieved that these families will not face a burdensome tax penalty just as they are trying to rebuild their lives with a short sale.”

California law protects homeowners from lenders attempting to collect additional assets in the case of a short sale. But until Senator Boxer’s inquiry, the IRS had not clarified that homeowners would not face taxes on the forgiven portion of their debt through a short sale. Senator Boxer first wrote the IRS on August 28th of this year with concerns about what the expiration of the Mortgage Forgiveness Debt Relief Act would mean for Californians.

“Because the federal Mortgage Forgiveness Debt Relief Act of 2007 exempted any forgiven mortgage debt from being counted as income, homeowners in California and elsewhere who engage in a short sale currently do not have to worry about being hit with a large tax bill on this forgiven debt,” Senator Boxer wrote.

Without a clarification from the federal government that California law protects families from receiving a tax bill in the event of a short sale, once the Mortgage Forgiveness Debt Relief Act expires at the end of this year, Senator Boxer warned that: “…distressed borrowers may face the unfortunate incentive to go to foreclosure rather than seek a short sale in order to avoid a large tax bill.”

The IRS replied with excellent news for California homeowners, clarifying that these families will not face burdensome tax penalties as a result of making a short sale. The California Association of Realtors has projected that even under the recovering housing market there may be as many as 55,000 short sales in California in 2014, with an average debt forgiven of $60,000 per short sale – an amount that could have been taxable without this clarification.

 It appears to be extended through to January 1, 2014. It looks like it IS part of the fiscal cliff bill that was passed through the Senate and House today/tonight and is ready for the President’s signature. You can read the PDF version of the “package” and see the following language: please visit the franchise tax board site for additional information at www.ftb.ca.gov

If you are thinking about short selling your home I can assist you and there is additional information for you the home owner and other resources for you.

Did you know that 

1. There are funds available for you to catch up your mortgage

2. That you may also qualify for $100,000.00 principal reduction

3. That there are government programs available to suspend your mortgage for up to 21 months.

And there are many other programs you the home owner may qualify for.

Give me a call

 Myrthie Hazel 760-475-7240

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14281 7th Street
Victorville, Cal 92395
760-475-7240

Happy Holidays!!

Short Sales FAQ's

SHORT SALE - FAQ

Some people think that Short Sales or dying out, but there are still quite a few people requesting information the the whole Short sale process. 

This blog is just simply to inform.  I get a lot of questions asked about the short sale process. 

When thinking about a Short Sale as a alternative it is good to find a knowledgeable Realtor to sit down with to discuss your options, you will need the Realtor to communicate on your behalf with your lender. 

What is a short sale? A short sale is an alternative  when a home owner is in default on their loan and a lender agree to accept less for the home than which is owed, or you may say that the home is upside down

How long does it take to do a short sale? That is a good question, at one time it was taking from 9 months to a year to complete a short - But with time being of the essence when one has defaulted on their mortgage payments ( usually missed between 4-5 payments in a row) The process of a short sale varies from lender to lender. There are many variables involved to be able to give a definite time frame.  Experience with a wide range of lenders show an average of 2-4 months.  However, some may take even longer.

Can the mortgagor stay in the house?  Yes, however the seller need to be prepared to move out at close of escrow, which happens when the (SS) is approved and home is sold.

Will the seller get MONEY from the sale to relocate or move out? Through the HAFA (Home affordable incentive program) & other programs a seller may  obtain some moving expense money.  It all depends on the type of financing you have. The extra cash can come in handy and Realtor should request it with your initial package.

What is a "qualifying" hardship? Some examples of bank recognized hardship reasons are; reduction in income, job transfer, illness, divorce, unemployment, payment adjustment etc.  A detailed hardship explanation letter will be required from the seller (homeowner).  The home being worth less than the homeowner owes is not a qualifying hardship, but it helps.

What is the short sale success rate? Market research suggests a success rate of 50 - 60%, but this varies from company to company.

What if the seller has more than one mortgage? It can be a more difficult process, but in many cases it can be accomplished.  The experienced negotiator / Realtor needs to negotiate with all lenders simultaneously.  Usually what is agreed on from the sale is 10% or up to 8,000 for seconds, 3,000 for thirds, etc. in some cases the third and all that follow do not receive anything.  But this varies also from lender to lender and everything is negotiable.

Will the banks pursue the sellers for the deficiency balance of their loan?  This depends on the type of loan Laws and Bills such as SB 931 may protect sellers from banks pursuing them after a short sale. Home Based Realty will review the approval for the best possible terms for the homeowner.  You should check out my blog to learn more about the 2013 forgiveness act. www.myrthiehazelrealtor.blogspot.com
  www.facebook.com/myrthiehazel 

Are there tax consequences to a short sale? Possibly Seller may fall under the protection of the Mortgage Debt Relief Act that has been extended through 2013.  The seller should consult with an attorney or tax person, as to whether or not a short sale will result in any taxes owed.

What documents are needed to process a short sale?  A complete and up to date set of documentation must be submitted to the lender. When you sit down with your Realtor to start the short sale process your Home Based Realty  professional Realtor will give you a checklist of all crucial documentation needed.
                                                                     

                                                                               

Myrthie Hazel, Realtor
www.facebook.com/myrthiehazel
call 760-475-7240