There are many different ways your client can end up in a short sale situation. No short sale is the same and sometimes it is hard to identify if your client is in a short sale or not. Here are some key things to look for that can help determine if a listing is a short sale or not:
On December 18, 2015 president Obama signed the Mortgage Forgiveness Tax Relief Act of 2015. This bill extended the benefits of a 2007 bill which allowed homeowners who had gone through any kind of mortgage forgiveness to exclude that debt from their income tax filings. In plain English if your mortgage company forgave any amount of your debt, you do not have to pay income taxes on the amount.
Why is this important? For every homeowner falling behind on their mortgage looking for a loss mitigation option this is a big deal. Let’s say you just went through a short sale and and your lender is offering to forgive $50,000 of your debt. Amazing, right? Now what if you were expected to pay income taxes on that $50,000? What would be your incentive to go through the grueling short sale process if you would have to pay taxes on that amount anyways?
This is great news for sellers who are having to do a short sale in 2016. A lot of our potential clients hesitate in doing a short sale because they don’t know that they can walk away free and clear from their debt and not have to worry about re paying the lender or paying taxes on the difference.
This bill means that short sales and loan modifications will continue to be attractive options for homeowners facing foreclosure. Many of our clients ask about the tax implication after a short sale. The bill has continued to be extended since 2007 and with 2015’s bill it will be extended for another two years.
Email us if you have any questions: TheShortSaleExperts@yahoo.com
Why would someone want to do a loan modification? Maybe they need to reduce their monthly payment, or reduce their monthly interest rate? This can all be done through a loan modification. Does that sound to good to be true? Sometimes it is.
Loan modification programs were created to help people keep their homes after they became financially distressed and unable to make their mortgage payments. They were never meant to be a means for people who could afford their mortgage to reduce their monthly payments. For that reason, qualifying for a true mortgage modification program can be difficult.
So how does this work?
You’re behind on your mortgage and the lender sends you a letter explaining your options. You can choose to do a loan modification, short sale, or deed in lieu when you have defaulted on your mortgage. Remember that you are not making your mortgage payments during these programs which pushes you towards foreclosure. The most important thing to know is that the lender does not “pre-qualify” you to see if you qualify for a loan modification, they just give you the option to pick what you would like to do to see if you qualify. It is very important you pre-qualify yourself so you don’t end up with a foreclosure date and now you are facing foreclosure. For example, if you are not working and cannot provide income, you will not qualify for a loan modification. Evaluating your current financial situation is very important in deciding which route to go.
How do you qualify for a loan modification?
I get asked this question all the time, “why would my bank want to do a short sale when they can just foreclose?” The answer is simple when you think about it. Foreclosure is expensive. At the end of the day allowing us to do a short sale is less expensive than hiring a team of attorneys to foreclose on you. The foreclosure can be dragged out for months. Can you imagine paying for attorneys month after month? It sounds expensive, right? Well the lender does not want to pay for it either. You also have to take into account that when they do sell the house on the auction block, they will only get market value for the house. It’s a myth that properties sell extremely cheap on the auction block. Most houses sell for market value with a small few selling at a discount. This is the point in the conversation where I see the light bulbs go off.
The next question is “but how do you get paid?” This is obviously an important question; nobody wants to work for free. Whenever I am talking to a potential client about short selling their house I like to disclose why every party in the transaction is willing to participate in an especially frustrating process.
So let’s break it down: