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Archive for the ‘foreclosure’ Category

BREAKING NEWS:
On January 1, 2013, Congress extended an important law that exempts many homeowners from paying taxes on cancelled debts. As part of the “Fiscal Cliff” deal, Congress extended the Mortgage Forgiveness Debt Relief Act of 2007 until the end of 2013. This will have a positive impact on distressed homeowners.

Cancelled Debt

If you owe a debt to someone else and they cancel or forgive that debt, the cancelled amount may be taxable.

Cancelled or forgiven debts happen every day in the Real Estate world. Short sales and foreclosures result in substantial, cancelled or forgiven debts. The Bank’s loss may be considered the home owner’s gain – a taxable, forgiven debt. A short sale happens when the proceeds of a home sale are not enough to pay off the mortgage. The bank agrees to take a “short” payoff and may cancel or forgive the shortage.

For the last 5 years, most homeowners were exempt from paying taxes on that forgiven or cancelled debt. The Mortgage Forgiveness Debt Relief Act of 2007 exempted many homeowners from paying taxes on forgiven debt. But, that law was set to expire on December 31, 2012

Taxable Income

If you owe $200,000 on your home but your sale only results in $150,000 in proceeds, you will be “short” by $50,000. You would likely need to count that $50,000 as taxable income to the IRS! In this case, you might owe and additional $12,500 in tax liability. In fact, you may owe this tax even if your house is foreclosed if it results in a shortfall to the bank.

Mortgage Forgiveness Debt Relief Act of 2007

The Mortgage Forgiveness Debt Relief Act of 2007 exempts many home owners from paying taxes on the forgiven debt. On January 1, 2013, Congress extended the Mortgage Forgiveness Debt Relief Act of 2007 until the end of 2013. This has the potential to save distressed homeowners millions of dollars in “phantom” tax liability over the coming year.


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If you owe a debt to someone else and they cancel or forgive that debt, the cancelled amount may be taxable.

Cancelled or forgiven debts happen every day in the Real Estate world. Short sales and foreclosures result in substantial, cancelled or forgiven debts. The Bank’s loss may be considered the home owner’s gain – a taxable, forgiven debt. A short sale happens when the proceeds of a home sale are not enough to pay off the mortgage. The bank agrees to take a “short” payoff and may cancel or forgive the shortage.

For the last 5 years, most homeowners were exempt from paying taxes on that forgiven or cancelled debt. Unless Congress acts soon, homeowners will have to start paying income taxes on that debt.

Taxable Income

If you owe $200,000 on your home but your sale only results in $150,000 in proceeds, you will be “short” by $50,000. You would likely need to count that $50,000 as taxable income to the IRS! In this case, you might owe and additional $12,500 in tax liability. In fact, you may owe this tax even if your house is foreclosed if it results in a shortfall to the bank.

Mortgage Forgiveness Debt Relief Act of 2007

The Mortgage Forgiveness Debt Relief Act of 2007 exempts many home owners from paying taxes on the forgiven debt. This law, however, is set to expire at the end of 2012. If it does, it may have a chilling effect on short sales and loan modifications. Many experts and commentators believe Congress will extend the law. It was originally effective until 2009 and Congress extended it to 2012 as part of the Emergency Economic Stabilization Act of 2008. In August, the Senate Finance committee approved a one-year extension, with bipartisan support (this was not a full vote of Congress). Others are more skeptical. A lame-duck Congress has its plate full with the looming “Fiscal Cliff.”

If the law is not extended, many believe the Real Estate market will suffer. Indeed, over 20% of Dane County sales are distressed property sales. These distressed sellers would be faced with another, “phantom” tax just to walk away from their homes.

 

 

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Short Sale Escalation With Social Media

Challenges arise in almost every short sale. Frustrated and running out of options, Realtor Nicole Charles of Keller Williams in Madison, Wisconsin, turned to twitter:

@Ask_WellsFargo Can anyone please help me with a short sale issue? Getting the run around an am about to lose the Buyer due to delays. HELP

Wells Fargo responded! First, in tweets, they asked for more information and direct contact. After a few more tweets and correspondence, a representative promised to escalate the matter and have answers that day. She had revived a dying sale through social media!

Escalation

Creative and persistent agents understand the importance of escalation in short sale negotiations. This can be as simple as contacting a manager or supervisor. It can also include contacting the investor or mortgage insurance company directly. The goal of escalation is to reach an individual with more authority and the ability to move the transaction towards closing. Often, the biggest challenge is simply finding contact information for that escalated individual. Some agents call Fannie Mae or Freddie Mac directly, when they know they are the investor. Others manage to glean investor contact information from hints or clues in correspondence. And this creative agent discovered the newest way to get things done – social media and twitter!

Thank you Nicole Charles for this fantastic tip!

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Free Legal Help for Homeowners Facing Foreclosure in Dane County

Dane County Foreclosure Prevention Taskforce
http://www.daneforeclosurehelp.org
For more information contact:
Dan O’Callaghan (608) 283-0117or Ellen Bernards (608) 576-8658

  

What:            FREE LEGAL HELP!  For homeowners facing foreclosure. Help available in English and in Spanish Ayuda disponible en español también.

Who:              For homeowners who have received a Foreclosure Summons and Complaint

When:           11:00 am – 1:00 pm, Thursday, March 1, 2012 & Every 1st and 3rd Thursday of the month.

Where:          City-County Building, 3rd floor, 210 Martin Luther King Jr. Blvd.

THIS IS A RECURRING EVENT, 1ST AND 3RD THURSDAY OF EACH MONTH.

FREE LEGAL HELP is available for Dane County homeowners in foreclosure.  Homeowners can receive basic legal information and free assistance in writing an Answer to the lawsuit at the Foreclosure Answer Clinic.  The Clinic has assisted almost 200 homeowners to understand the legal process of foreclosure and to respond their lawsuit. Homeowners who respond in writing to the lawsuit have more control over the process and a better chance for a favorable outcome.   

Homeowners have ONE CHANCE to file an Answer to their lawsuit. Filing an Answer is one of the critical things a homeowner MUST do even if the homeowner is in communication with the lender and working on options such as a loan modification or short sale.

Time is of the essence because homeowners generally have only 20 calendar days from the date they receive the initial lawsuit papers to file a formal response called an Answer.  Failing to file an Answer to the lawsuit on time significantly reduces homeowners’ control over the process and their ability to share their story with the judge. In addition, they may not be notified of important steps in the court process of foreclosure.

The Clinic is open the 1st and 3rd Thursdays of each month from 11:00 a.m. to 1:00 p.m. on the 3rd floor of the City-County Building, 210 Martin Luther King Jr. Blvd, Madison.  No appointments are necessary.  Homeowners should bring their Summons and Complaint as well as any other relevant papers about the foreclosure.  

The Foreclosure Answer Clinic is a collaborative effort of the Dane County Foreclosure Prevention Taskforce, the Dane County Bar Association and the UW Law School, with grant funding provided by the State Bar of Wisconsin and other support provided by Dane County.

Who We Are.  The Dane County Foreclosure Prevention Taskforce is a coalition of public agencies, non-profit service providers and other community partners working together to develop sustainable alternatives to foreclosure in Dane County. For more information, please visit daneforeclosurehelp.org.

Our Mission.  To develop and implement a coordinated response to the current foreclosure problem in Dane County. 

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A new settlement among big banks may provide relief to many struggling home owners.  Nearly 20% of all home mortgages are underwater – the home is worth less than the amount owed to the bank. This has been the major cause of the foreclosure crisis nationally and a problem many have sought to remedy. A new settlement with big banks raises hope for many underwater home owners that they may be able to reduce their loan or refinance with better terms.

New Federal Settlement

Ordinarily, a bank will not lend to a homeowner if the home is worth less than the current mortgage because it requires the homeowner to borrow more money than the home is worth. Under the new settlement, tens of billions of dollars will be earmarked for homeowner relief. It is unclear how this money will be dolled out, but it is presumed that it will include:

  • Reducing the principle balance owed on a loan
  • Refinancing to a lower rate
  • Providing incentives to lenders to approve refinances, modifications, or short sales
  • Providing cash settlements to some homeowners who have already lost their home to foreclosure

As with previous federal programs (HAFA and HAMP), this program is not expected to provide broad reaching relief. It will only apply to about 10% of underwater homeowners. Nevertheless, this might be enough to stabilize the housing market and provide a much needed boost to the hardest hit segment of the market.

For a detailed summary of the settlement, see the New York Times Article.

Madison Realtors, lenders, and attorneys are invited to our seminar on Short Sales & Foreclosures:

Short Sale Seminar

February 23, 2012: 1pm – 4pm

City Center West
525 Junction Rd.
Madison, WI 53717-2152

REGISTER HERE

Licensed REALTORS, Attorneys and lenders are invited to attend this powerful seminar on short sales, foreclosures, and navigating distressed properties. This seminar has previously been approved for 3 Hours of Continuing Legal Education credits in Wisconsin.

Attorney Peter Zarov will be breaking down the foreclosure time line, the short sale process, and REALTOR’s risks and responsibilities. This class will cover:

  • Short sale time line
  • Foreclosure process and understanding timing and leverage.
  • How to avoid liability during a short sale (Your referral team, common scams, etc.)
  • The short sale packet and best practices to submit
  • The HAFA Short Sale Program and other new incentives
  • Transactional pitfalls and how to avoid them
  • Bankruptcy and how it affects sales

Agents will a acquire critical knowledge of the foreclosure process in Wisconsin, short sale procedures, and important trends in distressed property transactions.  Surviving and thriving in this market requires a familiarity and understanding of these topics. 

The Event is $15 and includes a 65 page packet of outlines, materials, and forms.  

 
 


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2011 December Home Sales Report – Wisconsin REALTORS® Association.

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The Banks’ Dilemma:

To Foreclose or Accept a Short Sale?

Over the past 4 years, short sales – house sales in which the bank holding a mortgage agrees to accept less than the full amount due – have proliferated. Short sale experts have worked hard to dispel the myth that banks never negotiate and never accept less. But now, a recent New York Times article suggests that there may be some truth to that myth.

In a recent article, the Times reported that banks are resisting short sales and putting more focus on foreclosures. In fact, there are some incentives for banks to foreclose, even when a short sale will reduce risk and financial losses. New accounting rules allow banks to delay the “write down” of their loss until the house later sells. In a short sale, by contrast, the bank must take the loss immediately. In addition, the bank with which realtors and home owners negotiate are only one interested party; they are the servicer. Short sales usually also need to have the approval of investors, underwriters, and/or private mortgage insurance companies. And, while the recent foreclosure freeze highlighted the risks associated with foreclosure, banks face many risks in short sales, including fraud. A bank’s decision to agree to a short sale may involve far more than a simple cost-benefit analysis assumed by Realtors, attorneys, and distressed homeowners.

The Times article states that banks are “historically reluctant to do short sales” and suggests that they may be more likely to foreclose, even in the face of a good offer. This has not been our experience, based on anecdotal evidence. Rather, most banks appear very open to negotiating short sales, especially when there is a bona fide buyer in the wings. A large number of short sales are closing. Homestead Title is analyzing data over the past 3 years to determine the percentage of sheriff’s sales in Dane County in relation to the percentage of foreclosure filings.

Homestead Title offers expertise and guidance throughout the short sale process. Owner and attorney Peter Zarov often teaches seminars on foreclosures, short sales, and distressed properties. We will continue to provide updates, information and resources on these topics.

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