It’s December 2011, and I sincerely hope it has been a good year for most people. This is a time of reflection, to re-assess whatever goals we may have set at this time last year in our personal, professional or financial lives. Following that re-assessment, it’s also a time to resolve, whether formally and with public announcement, or privately just within ourselves, to stick to our goals for 2012.
These may not be shiny, happy, pretty goals we set and satisfy every day. These may be the goals we put off. The ones we don’t want to think about. You know which ones I mean – that notice stashed in your kitchen junk drawer, sent from your doctor, that it’s time to have a physical. The great job posting forwarded from your brother-in-law and still sitting in your inbox. The expired renewal offer for your gym membership. Oh yeah. Then there’s the letter from your mortgage company that a “default event” has occurred and advising you to contact them today, because there are programs to help you avoid foreclosure.
That’s the Big One.
You’ve said you’re going to take care of it, but you don’t know where to start. And it’s embarrassing. You really don’t want to talk about it, because it’s very unpleasant. According to what you hear in the media and from the stream of information around the “water cooler” it’s happening to everyone, so it can’t be that bad, right? You’ve heard that it doesn’t really affect your credit all that much and you know people with foreclosures who’ve purchased other homes and cars and boats and whatever else they want. And the government has protection for people because of the mortgage crisis and the bad economy and all that. Right?
Well, it’s not quite that easy. There are a few points to remember about this. Firstly, always get your information from a reliable source. Your friends are not a reliable source. Even if you know someone who has survived a foreclosure, every situation is different and many folks who have gone through the process of a short sale or foreclosure have not necessarily seen all of the effects. What I mean is that a foreclosure or short sale is not “over” when it’s over. Even with relief programs in place, creditors and the tax man may be able to file claims against you for losses for up to four years afterward.
Secondly, there is a principal in law referred to as “good faith”. This means that our laws place a lot of value in someone’s good faith efforts – whether to right a wrong, prevent injury or damages, or to settle debts. The law also looks at a lack of good faith effort, and doesn’t look at it favorably. In order to qualify for relief from tax consequences, judgments to your creditors, or other financial and personal consequences of a foreclosure or short sale, you must show a good faith effort to resolve your debts, and reasons why getting to that point was beyond your control.
Thirdly, and most important to remember when you are contemplating whether to address that notice from your mortgage company or keep shoving it back in the drawer, is the fact that 2012 is an important year. If you do have a hardship you can show on paper (or several), and you are making a good faith effort to come to some resolution with your mortgage company, there may be options available to you.
“Making Home Affordable” is a federal program aimed at reducing foreclosures by providing incentives for lenders to consider loan modifications such as interest rate reductions. When this is not possible, HUD can help homeowners with offering a deed-in-leiu of foreclosure or short sale under a program called HAFA(Home Affordable Foreclosure Alternatives). When you qualify for a HAFA short sale, your debt can be completely forgiven under certain circumstances.
There has also been significant legislation, especially in California, to streamline the short sale process and eliminate some of the roadblocks that have made short sales such a nightmare in past years. For example, once a lienholder has agreed to a sale price (which determines their settlement amount), it can no longer come back later and demand additional funds.
Under the federal Mortgage Forgiveness Debt Relief Act of 2007, the IRS does not tax forgiven mortgage debt up to $2 million (for married couples filing jointly). There are several qualifications, such as the property being the taxpayer’s principal residence. The taxpayer will still receive a Form 1099 for the forgiven amount, and it will be reported to the IRS, but according to current law, it will not be taxable if all the IRS’s qualifications are met.
The reason 2012 is an important year is that the Making Home Affordable Program and the Mortgage Forgiveness Debt Relief Act of 2007 both expire in 2012.
If for any reason you think a short sale or foreclosure might be in your future, the time to act is now. The first step is to talk to your REALTOR© and get help in determining for which programs you may qualify. You should also talk to your tax advisor or attorney.
It’s never easy to navigate a foreclosure or short sale, or even a loan modification. But don’t be a victim! Get good information from knowledgeable sources and make the decisions that are best for your situation. You can start by visiting:
Then don’t forget to enlist the help of qualified professionals.
Good luck and Happy New Year to all! I hope to hear from you in 2012 for whatever are your real estate needs.
Debbie Lovrich, ph: (562)706-2235