There was good news for homeowners who are upside down on the value of their homes. The Mortgage Forgiveness Debt Relief Act has now been extended. The law, which was passed in 2007 with a 5-year sunset provision, will now be in effect until Jan. 1, 2014. This Act was one of the most watched provisions of the fiscal cliff discussions and was expected to expire on Dec 31st, 2012.
This comes as a great news for homeowners that may want to short sell their homes, in the situation where their loan modifications do not work and are faced with the difficult decision to either short sell or let the home go to foreclosure. This Act encompasses The amount extends up to $2 million of debt forgiven on the homeowner’s principal residence. For homeowner’s to qualify, their debt must have been used to ‘buy, build, or substantially improve’ their principal residence and be secured by that residence.
The fiscal cliff deal extends it for another year, meaning homeowners who experience a debt reduction through mortgage principal forgiveness or a short sale are exempt from being taxed on the forgiven amount. There are currently many homeowners who are faced with the difficult financial dilemna as many banks do not qualify the homeowner for loan modifications. There are calculations based on the homeowners income, debt ratios, home value and if there is even a slight deviance from the percentages allowed by the banks, they either deny a loan modification or if they grant it, the monthly payment increases substantially- leaving the homeowner with no viable options.
It is time for many who are in this predicament to consult with their tax consultants to assess the potential of any hidden tax implications, based on their income scenario. It is also imperative to run the numbers and figure if it is worth to keep the home or not. If values are down by 35% and the current rate of appreciation is 5% annually, how many years would it take the homeowner t come back to what they owe on the house. Sometimes, it makes clear financial sense to short sell.
Besides, the banks are now streamlining their processes to make short sales smoother transactions. The sellers will be assigned a dedicated Case Relationship Manager- one point of contact. Our team has recently sold many short sales, with the help of our team of dedicated professionals who take over all communications, paperwork and negotiations with the banks. The sellers are put at ease and feel de-stressed because we manage everything for them. In our recent sale on 3557 Sandalford Way in San Ramon, there there were two loans with Wells Fargo and it took us 80 days from start to closing the deal !! In another Wells Fargo short sale on 2480 Millstream Lane, it took us 65 days from start to finish !! We have a proven record with short sales and understand the nuances of working them to a successful completion. Having a successful track record is important and is good news for upside down homeowners who are tired of running the cat and mouse chase game with the banks.