These past few years have been stressful times for many, if you or someone you know are struggling with home loan payments, we might be able to help you. And I know we can at least give you helpful information to begin making serious decisions. There are many reason people no longer wish to own their home.
Please read below for a brief description of what a short sale is.
SHORT SALE or PRE-FORECLOSURE SALE: The Short Sale (PFS) allows the homeowner in default to sell his/her home and use the net sale proceeds to satisfy the mortgage debt even though these proceeds are less than the amount owed.
If other foreclosure alternatives, such as Loan Forbearance plans or Loan Restructuring, are unlikely to succeed because of the homeowner's financial situation and/or no desire by the homeowner to retain ownership of the property, then the Short sale may be the most suitable course of action.
It is important to note a Short sale must be approved by your lender.
The advantage of a Short sale over a foreclosure is that you avoid having a foreclosure on your credit file for est. 7 years. Estimate for a short sale is 3 years. Also if a Short Sale is negotiated properly with your lender you can avoid a possible deficiency judgment. A deficiency arises when the house is sold for less than the amount of the loan.
Two items must be reviewed with a knowledgeable Realtor and your Tax Advisor: Ramifications of Deficiency Judgments and possible Income Taxes!
Deficiency Judgment: See California Code of Civil Procedure Section 580. The Code states if the Deed of Trust is a purchase money loan secured by a house that is the borrower's principal residence, the answer is generally, “No.” However for refinance loans or home equity lines of credit a lender could go after the borrower. New CA Law
SB 931 will become law Jan 1st, 2011. SB 931 will attempt to disallow lenders from pursuing deficiency judgments (after short sale or foreclosure) on purchase money or refinance loans (as long as no cash was received by owner).
Income Taxes & Mortgage Debt Relief: See Article - President Bush Signs H.R. 3648, The Mortgage Forgiveness Debt Relief Act of 2007 Whether you decide on a Short sale or lose the home to foreclosure you may liable for income taxes on the difference.
For instance, if the foreclosed homeowner has a $500,000 loan and the lender sells the house for $450,000, the homeowner will have to pay taxes on the $50,000 difference. The $250,000 tax exemption for singles and $500,000 for joint filers does not apply to debt relief income, in this case the $50,000.
The tax owed on the debt relief is based on the homeowner's ordinary income tax rate, not the lower capital gain rates. The exclusion, however, may still be available to reduce any capital gains in the difference between the sales price and the homeowner's basis.
This is a lot to understand, many times talking through it face to face is best.
Please call me at 415-793-3040 to set up a personal appointment. I urge you not to wait. Sincerely, Kathleen
