Mortgage Debt Relief Act

Mortgage Debt Relief Act of 2007 ... What is it?  How does it work?  When does it expire?  What that means to me?

The Mortgage Debt Relieft Act generally allows taxpayers to exclude income from the discharge (short sale or foreclosure) of debt on their principal residence. The Act is set to expire Dec 31, 2012. What does this mean? For the purpose of this example, let’s assume the following: 

You have a $150,000 mortgage debt which you decide to discharge.  It sells or forecloses at $100,000 value.  You receive a $50,000 1099 Cancellation of debt at the year end.  Your current income tax bracket is 20%.  You will have a $10,000 tax bill at the end of the year. 

$150,000 in Mortgage Debt
$100,000 short sale price or foreclosure value
$50,000 1099 – cancellation of debt
20% Tax bracket x $50,000 cancellation of debt  = $10,000 TAX BILL

Currently, there is an exception to this tax… until Dec 31, 2012.  Unless we get an extension of the Mortgage Debt Relief Act, you will owe tax at the year-end if you short sale or foreclose.

Questions & Answers

1.      “Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debt?”

a.      No. The act only applies to money that was borrowed for purchase or substantial improvement of a homeowner’s primary residence.

2.      “Does this apply to debt incurred to refinance the home?”

a.      It could if the principal balance of the old mortgage would have qualified

3.      “Is there a limit on the amount of debt that can be forgiven?”

a.      The maximum amount of debt that can be forgiven is $2 million or $1 million if you are married but filing separately for the year.

4.      “Is there an extension?”

a.      No.  As of now there is a bill House Resolution 4290 currently in committee. 

b.      If approved, it would extend the Mortgage Debt Relief Act until the end of 2013.

c.      Although the bill has gained a number of co-sponsors, the chances of it passing are currently unclear.

5.      What this means for homeowners?

a.      If you are considering a short sale, you need to begin now.

b.      For the sale to qualify for the Mortgage Forgiveness Debt Relief Act, it has to close before the end of 2012.

c.      Although short sale timelines have improved, it is not unusual for them to take 6 months.

d.      Banks don’t necessarily have to foreclose… what if the bank forecloses next year

Call us for more information. Nidia Nuristani (408) 836-2457, Blanca Ramirez (408) 608-8713 or visit www.HBRealtyInc.com/AvoidForeclosure

Bank of America Short Sale, Chase Short Sale?

Is your mortgage with Bank of America or Chase?  Are you having difficulties keeping up with your mortgage?  As a Bank of America & Chase Preferred Agents, Homes & Beyond Realty, Inc. may be able to help you.  In the most recent trainings we have been given the tools to aid distressed homeowners and help them avoid foreclosure.  Both lenders have really streamlined their internal processes and timelines.  They are encouraging home ownership and are doing everything they can in order to keep you in your home.  Bank of America is mailing out letters and doing principal reductions.  However, if you don’t qualify for a loan modification, principal reduction or forbearance, you may qualify to do a Short Sale and be released from the financial liability.  Furthermore, both Bank of America and Chase are granting UP TO $30,000 for relocation assistance paid at the closing table of the Short Sale.  Everything is confidential.  Call us for more information.  Nidia Nuristani (408) 836-2457, Blanca Ramirez (408) 608-8713.