Life Under Water is a Booming Metropolis! | Family
Things have settled down it seems with regard to struggling homeowners, loan modifications that never seem to come, short sales and foreclosures. Rest assured the struggles are not over. Just because the news is not reporting to the degree they have in years past does not mean homeowners are not grappling with what to do about the plummeting values of their homes versus the higher dollar values they still owe – life underwater is a booming metropolis!
Most of the people I speak with are angry and simply tired of struggling. They are angry that not a single banking executive has been held accountable for the corruption and deceit in the collapse of the mortgage industry and they are out of options to keep the house they love. That is neither here nor there, the fact remains that these homeowners have to make a decision or at some point, the least desirable option will be imposed on them – foreclosure.
The Mortgage Debt Relief Act of 2007 is still in effect through 12/31/12. What this means is homeowners who sell for less than what is owed on their home (short sale), will not be held responsible for the deficiency (the difference between what your mortgage balance is and what the bank actually collects in the sale). In a normal market, homeowners have sold via a short sale and the following year received a 1099 from their bank showing the deficiency amount as income. Yep, it’s taxable. For some, this is $60,000, $100,000 and upwards of $250,000! The most frequently asked question I get is, “Why is that income?” It’s income because the home loan - money was granted to the homeowner – money loaned to an individual to buy a house. If you don’t pay that back in full, the amount you were short paying back by selling is “income.”
So many people I speak with just want to take a break and not think about this. Time is running out – your sale has to close before 12/31/12 – that’s just over 7 months. I don’t see the government extending the MDRA07, and frankly, we don’t want them to. It will just prolong this housing crisis. If by some slim chance it is extended, we won’t know until the last minute. Don’t take that chance, if you think by any chance you are not staying in your house, list and plan to move now. Don’t wait.
After 12/31/12, the MDRA07 will expire and it will be business as usual with the banks. If you list your house as a short sale, the difference between what you owe and what you sell for is going to be income to you as far as the Federal Government is concerned, i.e. the IRS.
For more information (read this, it really is great info), click here. You can also feel free to contact me and I will be happy to answer questions and walk through some of the details of your situation with you. Kathy Partak, Kdpartak@gmail.com