|
If you want a Loan Modification, than call me. I will coach, you to do the work. It will be free for you. You will save thousands of dollars.
It is truly amazing to me that somebody would pay $1,500.00, $3,000.00 or $10,000.00 to just send the paperwork to the bank. It is not that tough. It is just tough in your (homeowner's) eyes. It is really and truly could be easy if you know what you are doing. First of all you have to strategies what is the best financial decision for you (and for your family, if any). Sometimes, making quick and wrong decision, might wreck havoc on your retirement plans or life plans down the road. But, after you made the decision, then follow the right step by step process.
But please remember - I CAN'T HELP IF YOU DON'T CALL and in many cases the time is of the essence.
FREE SERVICE and FREE INFO
What are your options and rights?
Should you try to catch up with your payments?
Can you sell your home and avoid Foreclosure even with NO equity?
How Can I Keep My Home if I am 3 months or more behind?
Do you need an attorney, specialized in Real Estate?
Do you need a CPA?
Do you need a Broker?
Is your NOD filed and how close is your Trustee Sale Date?
Get a professional opinion. It is your home. It is your right.
Contacts: Tel. 818-239-1210 Direct. E-Mail: Ludwigpk@yahoo.com
"To be smart or wise? A smart person makes a mistake, learns from it, and never makes that mistake again. A wise person looks a smart person, learns from his mistakes and never makes them in the first place."
L.P.
|
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
|
|
|
If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.
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.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.
The following are the most commonly asked questions and answers about The Mortgage Forgiveness Debt Relief Act and debt cancellation:
What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.
Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
-
Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
-
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
-
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
-
Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
-
Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.
These exceptions are discussed in detail in Publication 4681.
What is the Mortgage Forgiveness Debt Relief Act of 2007?
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.
What does exclusion of income mean?
Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing
separately.
Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.
How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.
Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681.
If the forgiven debt is excluded from income, do I have to report it on my tax return?
Yes. The amount of debt forgiven must be reported on Form 982and this form must be attached to your tax return.
Do I have to complete the entire Form 982?
No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.
Where can I get this form?
If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676 . If you call to order, please allow 7-10 days for delivery.
How do I know or find out how much debt was forgiven?
Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.
Can I exclude debt forgiven on my second home, credit card or car loans?
Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details.
If part of the forgiven debt doesn't qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?
Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples.
I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.
If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt?
Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster area. See Form 982 for details.
If the remaining balance owed on my mortgage loan that I was personally liable for was canceled after my foreclosure, may I still exclude the canceled debt from income under the qualified principal residence exclusion, even though I no longer own my residence?
Yes, as long as the canceled debt was qualified principal residence indebtedness. See Example 2 on page 13 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.
Will I receive notification of cancellation of debt from my lender?
Yes. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more. The amount cancelled will be in box 2 of the form.
What if I disagree with the amount in box 2?
Contact your lender to work out any discrepancies and have the lender issue a corrected Form 1099-C.
How do I report the forgiveness of debt that is excluded from gross income?
(1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line 2. Any remaining canceled debt must be included as income on your tax return.
(2) File Form 982 with your tax return.
My student loan was cancelled; will this result in taxable income?
In some cases, yes. Your student loan cancellation will not result in taxable income if you agreed to a loan provision requiring you to work in a certain profession for a specified period of time, and you fulfilled this obligation.
Are there other conditions I should know about to exclude the cancellation of student debt?
Yes, your student loan must have been made by:
(a) the federal government, or a state or local government or subdivision;
(b) a tax-exempt public benefit corporation which has control of a state, county or municipal hospital where the employees are considered public employees; or
(c) a school which has a program to encourage students to work in underserved occupations or areas, and has an agreement with one of the above to fund the program, under the direction of a governmental unit or a charitable or educational organization.
Can I exclude cancellation of credit card debt?
In some cases, yes. Nonbusiness credit card debt cancellation can be excluded from income if the cancellation occurred in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See the examples in Publication 4681.
How do I know if I was insolvent?
You are insolvent when your total debts exceed the total fair market value of all of your assets. Assets include everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other investments, or your pension and other retirement accounts.
How should I report the information and items needed to prove insolvency?
Use Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to exclude canceled debt from income to the extent you were insolvent immediately before the cancellation. You were insolvent to the extent that your liabilities exceeded the fair market value of your assets immediately before the cancellation.
To claim this exclusion, you must attach Form 982 to your federal income tax return. Check box 1b on Form 982, and, on line 2, include the smaller of the amount of the debt canceled or the amount by which you were insolvent immediately prior to the cancellation. You must also reduce your tax attributes in Part II of Form 982.
My car was repossessed and I received a 1099-C; can I exclude this amount on my tax return?
Only if the cancellation happened in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See Publication 4681 for examples.
Are there any publications I can read for more information?
Yes.
(1) Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) is new and addresses in a single document the tax consequences of cancellation of debt issues.
(2) See the IRS news release IR-2008-17 with additional questions and answers on IRS.gov.
|
|
|
This info seems to be reliable but not guaranteed. Please talk to your accountant or visit IRS.org for more information.
** CONSUMER ALERT **
WARNING REGARDING RESIDENTIAL “SHORT” SALES
CA Department of Real Estate
If you find yourself in a situation where your financial circumstances either challenge your
ability to make your home mortgage payments or you are no longer able to make the
mortgage payments at all, you will be presented with a series of difficult options that will
have an impact on your personal and financial life for years to come.
One of the more familiar options is foreclosure. In a foreclosure, the bank/lender (owner of
your loan) decides to sell your house as a means to get back the money they loaned you.
However, in this current real estate market, some banks/lenders are not exercising their
foreclosure rights and instead have opted for either “loan modifications” or “short-sale”
deals. Since it appears that successful loan modifications have not been very prevalent,
this alert is written to discuss another option that is currently available to the banks/lenders:
short sale transactions.
Short Sale Transactions:
What is a short sale? To put it simply, a short sale transaction is a sale of a property in
which the outstanding debt (in the form of mortgages – such as purchase loans, refinance
loans, home-equity loans, or one of the various other types of loans secured by your
property) was more than the price for which the property was sold.
Example: 1st and 2nd mortgages totaled $470,000.00 and the property was sold for $325,000.00. The sale price
was $145,000.00 “short” of the amount that the seller had originally borrowed – thus the
term “short sale.” Since the banks/lenders were essentially paid back less than what you
borrowed, you could be deemed to have received a debt “forgiveness” of $145,000.00. A
sale of this type requires bank/lender approval.
While there are many reasons why a bank/lender would choose this manner of sale, the
important question is: What should you (as the seller of the property) know about this type
of sale? If you participate in this type of sale, please be aware that:
1. In some instances, you may be sued by the lender/bank for the money that was
“forgiven”.
2. The amount you did not pay back, which is a form of “debt forgiveness”, may be
taxed by tax agencies for the “forgiven” amount. In the example above, you may be
taxed on $145,000.00. For Mortgage Forgiveness Debt Relief Act and Debt
Cancellation tax information visit:
http://www.irs.gov/individuals/article/0,,id=179414,00.html2
3. If there are other lenders or lien holders (such as a 2nd or 3rd loan), the holders of the
second or subordinate liens, may file a deficiency judgment in civil court against you
to get their money back, even though the first lien holder allowed debt forgiveness.
These are just three major consequences of choosing to sell through a short sale.
Therefore, it is very important that you seek:
1. A licensed and qualified real estate agent to represent you in these types of
transactions. To determine if the person is licensed by the California State
Department of Real Estate and/or to check on a license status, please visit our
website at www.dre.ca.gov.
2. The advice of an accountant. To obtain the status of a Certified Public Accountant or
a Public Accountant, please visit the California Department of Consumer Affairs -
California Board of Accountancy at www.dca.ca.gov.
3. The advice of a lawyer. To obtain the status of an attorney, please visit the State
Bar of California at www.calbar.gov.
In addition, contact a free United States Department of Housing and Urban Development
(HUD)-approved housing counselor at www.hud.gov or contact your lender directly.
In April of 2010, the federal government will offer financial incentives to push short sales
through a program called Home Affordable Foreclosure Alternatives. The program is
designed to spur home sales and one of its components will be providing government
payments to homeowners (for moving and/or relocation expenses). For more information,
please visit www.makinghomeaffordable.gov.
Be aware that in response to this new program there may be an increase in the number of
companies soliciting homeowners in distressed situations and offering to conduct the short
sale negotiations with your bank/lender in exchange for charges and fees. Their interest
may not so much be to help you as it may be to try to be the vehicle through which they
could “flip” the short sale for a profit.
Flipping of Short Sale Properties: Either an unscrupulous agent or a short sale negotiator
will misrepresent the true market value of the property to the bank/lender and/or fail to
forward all offers to the bank reflecting the true market value. They try to buy it themselves
through the use of “straw buyers”, many of whom are limited liability companies, which are
their alter egos. They will use false broker price opinions or appraisals to support a
depressed valuation. Once the unscrupulous agent or a short sale negotiator has
convinced the bank of the false value, they have their straw buyer purchase the property
and immediately attempt to sell it at the true market value, re-visiting buyers who had made
legitimate offers. Had the property been sold for the most amount of money that the market
will bear, the potential tax consequence to the seller is diminished. Conversely, by
accepting an artificially deflated offer, the seller’s potential tax liability is increased.
The key elements for you as a homeowner to look out for are 3 :
1. Short sale negotiators must be licensed real estate brokers (or a licensed real estate
salesperson where that person is working under the supervision of his or her broker).
2. Real estate licensees wishing to collect an advance fee in connection with
performing short sales must first submit an advance fee contract to the DRE for
review and then receive from the DRE the issuance of a no-objection letter relative
to that contract. All advance fees collected thereafter under the terms of that contract
must be placed in a trust account and handled as client trust funds.
3. Any and all payments must be fully disclosed and made part of the escrow
documents. If there are any fees to be paid “outside” of escrow, this may be the red
flag that the payment is illegal.
4. If your agent explains that the buyer is a fictitious person or entity or your buyer is
purchasing the property under a power-of-attorney or is a limited liability company
(LLC), this may be a red flag that fraud is involved in your transaction.
5. If you are told that an unlicensed processor, negotiator or facilitator is handling your
short sale, this is a red flag that unlicensed activity is taking place. Only real estate
licensees, California lawyers acting as lawyers and investors acting on their own
behalf can engage in short sale negotiations.
If your house is already listed with a real estate broker and the broker recommends the
services of a “short sale negotiator” or its variations, “debt negotiator”, “debt resolution
experts”, “loss mitigation practitioners”, “foreclosure rescue negotiators”, “short sale
processors”, “short sale coordinators”, “short sale expeditors” or some other type of
unlicensed short sale or debt specialist, ask him or her to provide you with a printout of that
person/company’s real estate licenses.
If you are considering engaging in a short sale transaction, you should fully educate yourself
about the mechanics of the process and the related legal and ethical issues and work only
with legitimate professionals. In addition, become aware of other options that made be
available to you by visiting the Homeownership Prevention Foundation at
www.995hope.org.
Finally, if you become aware of information about fraudulent short sale activity, please
contact the DRE’s Enforcement section in Sacramento or at the office closest to you, or via
the Internet at http://www.dre.ca.gov/cons_complaint.html. In addition, report suspected
scams to the California Attorney General’s Office at www.ag.ca.gov, the U.S. Department of
Housing and Urban Development at www.hud.gov, and the Federal Bureau of Investigation at
www.fbi.gov.
For additional information on Short Sales, please review the Department of Real Estate’s
web page on Consumer Alerts: Short Sales – An Overview and Warning to Real Estate
Licensees Re: Fraud, and Legal and Ethical Minefields, which may be accessed by visiting
www.dre.ca.gov/pdf_docs/article_shortsales03_2010.pdf.
|