Mortgage Debt Forgiveness
Mortgage debt forgiveness and its tax consequences are explained in the IRS publication at the bottom of this page . It explains key elements of the Mortgage Forgiveness Debt Relief Act of 2007 which expired December 31, 2013. Congress has yet to renew it for 2014.
If you are imminently in danger of loosing your primary residence because you can’t make the mortgage payments, it would be to your advantage to act now before this opportunity is lost. Consider your options and consequences of each action you can take.
Foreclosure & Debt Relief
If you stopped making payments and have done nothing to resolve the problem your lender will eventually foreclose. In some cases this can be as little as 6 months and in others as much as 2 years. The consequences of letting the bank take your home by foreclosure can have a very severe effect on your credit and employment. The Act may benefit you but only if the foreclosure is completed in time. See the Short Sale vs Foreclosure chart.
Short Sale & Debt Relief
If you sell your home by the ‘short sale’ method you stay in control and here’s how. After an offer is approved by your lender, you still have the option to accept or reject their conditions. The one we are most concerned about is whether they will approve a $0 balance on your mortgage, or declare a deficiency judgement against you. If your lender approves a $0 balance that’s great but they will still issue a 1099-C. Mortgage debt forgiveness has now become taxable income according to the IRS. Fortunately, the Mortgage Forgiveness Debt Relief Act of 2007 eliminates the tax bill This is the best outcome of a short sale. A Realtor who is a good facilitator will greatly increase your chances of success.
If the lender will not agree to a $0 deficiency you and your agent will have to weigh your choices. For some it may be best to accept the deal offered, and for others it may be better to reject it and renegotiate with the lender. In almost 0% of the cases would it be better to let the bank foreclose. By the way – Banks would rather settle through a short sale because it saves them $50,000 and more. So they are motivated to work with a homeowner and agent who are trying to also avoid foreclosure. When there are delays or offer rejections it’s not that the bank does not want to work with you, they do, but sometimes the investors who own the mortgage are unwilling to accept offers in the hope of getting a better one.
For more articles on this subject go to either Short Sales or Foreclosure Alternatives in our Sellers section.
Mortgage Debt Forgiveness & The Reason You’ll Need Help
One thing you must have is a Realtor who is experienced in short sales because banks will not allow the homeowner to sell his or her home by the short sale process. The process requires timely submittal of documents, good communication skills with the bank’s asset management department, and a mastery of putting all the pieces of the puzzle together to make this work Angela Kniep is that Realtor. Read her resume.
Angela Kniep CDPE (Certified Distressed Property Expert) works every day to bring lenders, homeowners, and buyers to agreement. Call her today @ 239-877-2325 for any questions on these issues.
The following publication is from the IRS
Ten Facts for Mortgage Debt Forgiveness |
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