Written on April 13, 2010 by Merre Ward
With the State and Federal tax filing deadline just 3 days away, Californians who short sold their home or were forgiven mortgage debt through a loan modification in 2009 and were issued a 1099-C (cancellation of debt) are relieved to hear Gov. Schwarzenegger signed SB401 (see Sec. 93 for more information) and will now be exempt from paying state tax on the difference between the home sales price and the mortgage balance. One of the conditions of the tax forgiveness is the property must be a “Qualified Primary Residence” and the maximum indebtness is capped at $800,000 and the maximum foregiven debt caps at $500,000.00.
SB401 will not only help California taxpayers who do not qualify under insolvency rules or who have filed bankruptcy, but the bill will give the green light to those homeowners who otherwise would have tax consequenses after short selling their home with the newly implemented Federal Home Affordable Foreclosure Alternatives Program (HAFA). Without the state tax relief, those persons who decide to short sell their homes from 2010 through 2012 would have possibly been stuck with a huge state tax bill. The new state law conforms to the ”The Mortgage Forgiveness Debt Relief Act and Debt Cancellation” IRS ruling.
When a bank agrees to take less money than what is owed on a home (short sale) the difference between the mortgage balance and the sales price of the home is considered taxable income and reported to the state and IRS with a 1099-C. This new law would make this reported income non taxable for homeowners who have short sold their primary residence.
The state tax exemption would also apply to those homeowners who lost their principal residence to foreclosure. In this case, the bank would issue a 1099-A (Abandonment of Property)
For more information or help with a short sale, contact Merre Ward, Broker of the www.whatshafa.com Team!
Posted in Ca Tax Law, Federal Tax Rules, Foreclosure, HAFA | Comment Now!
Written on April 3, 2010 by Merre Ward
HAFA is the newest government housing stabilization program that allows struggling homeowners to short sell their home. The HAFA program mandates the banks abide by the following rules in regards to a short sale transaction.
1. A bank/servicer must consider a borrower/seller for a short sale within 30 days after the borrower:
- Does not qualify for a trial modification plan
- Does not successfully complete modification trial plan
- Misses 2 modification mortgage payments
- Requests a short sale approval or a deed in lieu of foreclose
2. If borrower and property qualify, the servicer/bank sends out the short sale agreement:
- Borrower/seller has 4 months to sell their home and may be extended for 1 year
- Once an offer is received the service/bank has 10 days to approve or not and must allow 45 days to close the transaction
3. The benefits to a HAFA approved homeowner/seller are:
- Avoids the uncertainty of foreclosure
- The seller is NOT required or allowed to contribute any monitory sums to the sale, including a personal promissory note or deficiency judgment, if the first and/or second lien holders accept the government paid incentives
- The terms are “pre-approved” – therefore giving the homeowner a sense of relief that there is time to find a new place to live
- The seller is given $3,000 to get back on their feet
- Foreclosure may NOT be completed if the seller/borrower is performing under the “Short Sale Agreement”
- Mortgage insurers must approve and waive their right to collect additional sums from the seller/borrower
- If you have a 2nd mortgage, the first mortgage holder is given greater compensation from the government if they give the 2nd lien holder $6,000 or 6% cap per 2nd lien.
We understand this is a lot of information to digest, yet that is where the “whatsHAFA.com” Team can help you!! On top of the new HAFA rules, Fannie Mae and Freddie Mac will be adopting a variation of HAFA rules for mortgages they own or guarantee. Most homeowners have no idea if Fannie Mae or Freddie Mac owns their loan, but this is just another area where we can help put the pieces of the puzzle together for you!
Our goal is to help you and your family make the BEST CHOICE on which way to turn while you are experiencing financial difficulties. If you want to keep your home we make sure you have explored the loan modification option. If you are just plain tired of the ups and downs and want tomove on, we can help determine what your options are.
Call the “whatsHAFA.com” Team to start the process or get your questions answered. We are always here to help! 925-382-9243 or email anytime at mward@whatshafa.com.
Posted in Foreclosure, Foreclosure alternatives, HAFA, HAFA Government Program, HAMP, Loan Modification, Short Sale, Short sale and 2nd lien holders, What's HAFA | Comment Now!
Written on April 1, 2010 by Merre Ward
With the dedication and hard work of Jeff Lischer, Managing Director for Regulatory Policy for the National Association of Realtors (NAR) and other key players including NAR work groups, lender groups, Treasury and FHFA in creating President Obama’s Home Affordable Foreclosure Alternatives Program (HAFA), we were just given some more great news for homeowners who chose and qualify for the short sale or deed in lieu HAFA program. The ante has been upped from $1,500 to $3,000 for a seller relocation incentive payment! That is great news and allows a seller a substantial amount of capital to get into a rental home!
The second bit of good news is junior lien holders (second mortgage holders) can now receive up to $6,000.00 (6% cap per lien) from the first mortgage holder to satisfy the second lien. Second lien holders have continually been the thorn in the side for sellers in a short sale process. The government paid incentive to the 1st lien holder has been increased to $2,000 to pay the 2nd lien holder a larger sum. Another change in short sale transaction is payment to satisfy a junior lien holder can NOT be paid by a real estate agent or the seller.
Now don’t be surprised when real estate agents come up with alternatives to get around this new rule. I witnessed work arounds in the 1980’s and the 21st century is no different, except for one big concern! We live in a computer age and believe me, there is no escaping our big brother aka the government! After the financial crisis and the ramped use of blatant fraud in writing and funding loans, this is just one area you do not want to push the envelope. Sellers have to be coached up front that there is no guarantee that a 2nd lien holder will cooperate with the short sale and that the inevitable of foreclosure might be their only option. Of course, everyone can break the law, but the consequence of fraud seems like a bigger price to pay than for bad credit. Remember, credit can be repaired – a fraud conviction will never go away!
Now, with this new rule, the only party left standing with the ability to contribute to the transaction to get the 2nd lien holder paid off and get the short sale transaction closed is the buyer! But wait a minute. If the buyer is getting new financing, will the new funding lender allow the buyer to contribute to paying off an existing lien holder? I suggest you ask.
Now, I am no dummy – prior to HAFA, buyers would get cashiers checks and the HUD (final closing statement) would reflect the seller came in with the money. But let me reiterate what the new HAFA guidelines states “payments from the seller are no longer allowed.” I am sure many junior lien holders will still work the system with getting payment outside of escrow, but contributor beware – if that junior lien holder is audited and your short sale transaction happens to be “the file in audit” the paper trail will be reveled and who knows what the consequences will be. And most important this kind of shenanigans is a RESPA violation.
I am confident another loop hole will be found. My brain can not find the loop hole, but they will show up as they always do. I will say that as I get older I have witnessed first hand so many of the loops being closed off in the entire real estate and mortgage industry and it is about time!
In closing, I truly hope the junior lien holders get a grip on the good fortune of getting something rather than getting nothing. With the HAFA program we can get through this raging wildfire and get these sellers out of their financial mess, help them to repair their credit and get to a place where they can be homeowners again.
Be sure to check out our services and up to date information on short sales, the HAFA and HAMP programs at www.whatshafa.com.
Posted in Foreclosure, Foreclosure alternatives, HAFA, HAFA Government Program, HAMP, Loan Modification, Short Sale, Short sale and 2nd lien holders, Short Sale Rules and Guidelines, Uncategorized, What's HAFA | Comment Now!
