Short Sale

Are you looking for a way to minimize damage to your credit and avoid foreclosure? Typically when deciding to do a short sale, a few things that you may want to consider are the deficiency and tax consequences of selling your home at a price less than what you owe your lenders.

Most lenders will require you to use a professional real estate agent to assist you in completing a short sale.  There is zero out of pocket money for you when you use us as your short sale real estate agent Team, as the lender pays commissions out of the proceeds of the sale

• You have no intention of keeping the property
• You have hardship reasons and it does not make financial sense to keep a significantly upside down property and you want a fresh start.
• You are currently behind on your mortgage payments or expecting imminent default
• You want to avoid taxes on a short sale on your primary residence and take advantage of the Mortgage Debt Relief Forgiveness Act which expires this year- December 31, 2013.
• You need to get rid of an investment or rental property that is upside down and have been advised by your tax consultant to take advantage of tax losses to offset your short sale forgiven amount income for the year.
• You have favorable laws  to prevent lenders from coming after you for deficiency when they approve in writing and accept the short payoffs and the ultimate completion of a short sale on your primary home, rental, or investment property (1-4 units only)(Code of Civil Procedure 580-e)
• You are experiencing difficulty in making full monthly payments on your loans because of several factors such as job loss for all income earners, spouse/partner loses their job, reduced working hours/less overtime, sickness/illness in the family causing large medical bills here or abroad, job transfers or relocation that cause the homeowner to have two housing payments which are not sustainable given their income, adjustable mortgages that have caused the monthly payments to go up significantly on one or two mortgages, divorce, bankruptcy, etc and you are overwhelmed with other monthly debts and obligations and your total expenses easily exceed your monthly income.
• Along with the conditions above, you find out that given the local real estate market, the total balances you owe on the home are much larger than the market value of the home which would cause a short fall in paying off the loans.
• You have applied for a loan modification with your lenders and have been denied once or twice and are still in default for not making their monthly payments. You may have already received a notice of default for non-payment of monthly interest/principal payments for more than 90 days and   do  not foresee being able to sustain paying a high mortgage payment.
• You have been notified that foreclosure is imminent and you know you need to do something about it (rather than waiting to be evicted) and have consulted with a bankcruptcy, real estate attorney, and tax advisor and was told to explore how a short sale could work for you.
• You have explored other options such as negotiating with the bank to reduce your monthly payment or interest rate, applied for a loan modification but the terms are still not acceptable to you given your economic situation.
• After exploring all your options and talking with legal and tax advisors, you have ruled out filing for bankcruptcy and foreclosure.
• You want to minimize the impact on your credit as you have plans some day to once again own a property in the next 3 years as you get your finances back up again.
• You have consulted with a tax advisor and have been advised of the tax consequences of a short sale and understand terms such as cancellation of debt (COD) income, 1099 from a short sale, etc. and informed on current mortgage forgiveness debt relief act and debt cancellation that may apply to you if you sell your home by December 31, 2013.
• You have consulted with a real estate attorney regarding whether deficiency would apply in your situation or not.

Is Cancellation of Debt income always taxable?
Not always. There are some exceptions according to the IRS. The most common situations when cancellation of debt income is not taxable involve:

• Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
• Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
• Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.- How do you know if you are insolvent?
  According to the IRS, “you are insolvent when your total debts exceed the total fair market value of all of your assets.  Assets include everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other investments, or your pension and other retirement accounts.”
• Certain farm debts
• Non-recourse loans

INFO FROM DREAMWELLHOMES