short sale
Mortgage Forgiveness in Massachusetts
Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act is a significant relief of taxable income in the event that you conducted a short sale from 2007 to 2010. In the past, if you sold a home for less then you owed the bank and the bank agreed to forgive the difference, you would have to declare the difference as income, and would be subject to paying taxes as the difference was income. This does not make a lot of sense to those who had to sell for a loss, for if they had the income, they likely would not have sold by way of short sale. However, the Mortgage Forgiveness Debt Relief Act eliminates that requirement.
The rub on this tax relief is that the relief is only relative to your Federal taxes. However, not so much with your state taxes. Each state has its own set of tax regulations. For example, in Massachusetts, their is no such relief, and you still have to declare the loss as taxable income at 5.3%. If you find yourself in this situation, there are still options including, making an offer in compromise with the Department of Revenue, putting your taxes into a chapter 13 bankruptcy, or simply paying it out at a normal interest rate. The bottom line is if you sold your home for less then you owed, you should speak to a tax professional this year
Short Sales
If your home is in jeopardy of foreclosure and a loan modification is not an option to save the home, a short sale may be the next option. A short sale is simply the sale of a home for less than the value of the mortgage owed on the property. It is no secret that most home values have declined below their original purchase value. Short Sales are a good option if the homeowner simply does not want to save their home and needs to get out from underneath the debt of the mortgage. The best part of a Short Sale for the homeowner is that if the home sells for less then the value owed to the bank, the homeowner is released from liability coupled with a release of tax liability pursuant to the 2007 mortgage forgiveness relief act.
More specifically, a short sale, also called a distress sale has significant benefit for the lender because the lender avoids the expenses and hassle of seizing a delinquent customer’s property. In addition, lenders realize that they could lose money if the borrower’s home is auctioned in a foreclosure proceeding.
To decide whether or not to accept a short sale, lenders look at various factors. Those factors are:
- Whether the seller truly has a hardship limiting his or her ability to pay the mortgage.
- Whether it would be cheaper to simply repossess and sell.
- How many other properties the lender has in default.
- Whether there are cosigners on the mortgage who can be held responsible for the balance covered on the mortgage.
Even when borrowers engage in a legitimate short sale, there is no guarantee of success. It’s difficult to have an agreement where the interests of all parties are satisfied. One has to take into account the interests of the lender, homeowner, agent, buyer and investor who held the mortgage. Also, if the husband and wife were divorcing, then both would have to agree to have a short sale. With regard to managing a short sale, it’s important that sellers review loan documents with an attorney to make an informed decision. Also, is recommended to that you hire a law firm specializing in loss mitigation to help get you through the process.
