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Wendy Dowling's Blog

By Wendy Dowling | Agent in Sarasota, FL
  • You may owe federal income taxes in 2013 if you have a short sale, foreclosure

    Posted Under: Home Selling in Sarasota County, Foreclosure in Sarasota County, Credit Score in Sarasota County  |  January 11, 2012 8:08 AM  |  1,720 views  |  No comments
    You may owe federal income taxes in 2013 if you have a short sale, foreclosure

    WASHINGTON – Jan. 9, 2012 – You may owe federal income taxes in 2013 if you have a short sale, foreclosure after this year. Now is the time to make the hard decision: Are you going to walk away from your underwater home?

    Uncle Sam is still giving homeowners until Dec. 31, 2012, to go through a short sale or foreclosure without tax consequences – as long as the lender officially releases the debt.

    But on Jan. 1, 2013, the rules change: The amount a lender forgives, ether in a short sale or foreclosure, on a primary residence will be taxable on federal income taxes.

    So if a house sold $50,000 short of what is owed on the mortgage, then the selling homeowners will owe federal income taxes on that $50,000. Homeowners would owe $12,500 if they’re in the 25 percent bracket; $7,500 if in the 15 percent tax section.

    Homeowners would be on the hook even if the house sold but the bank had not formally forgiven the loan in a letter: The banks must officially sign off in writing before Dec. 31.

    “It’s a huge issue – it will be a shock to many taxpayers after 2012,” said Mark Steber, the Florida-based chief tax officer for Jackson Hewitt Tax Service.

    The law first came into affect five years ago as the housing market went bust nationwide.

    The Mortgage Debt Relief Act of 2007 “generally allows taxpayers to exclude income from the discharge of debt on their principal residence,” according to the Internal Revenue Service. “Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.”

    Up to $2 million of forgiven debt can be forgiven this year, $1 million if married and filing separately, according to the IRS.

    Homeowners declaring bankruptcy could escape paying income taxes on any cancellation of debt income if the debt is forgiven in the bankruptcy even if the debtor is solvent, said Nick Jovanovich, a board-certified tax attorney in Fort Lauderdale, Fla.

    “Bankruptcy trumps everything,” he said.

    Or homeowners might not have to pay income taxes on any cancellation of debt income to the extent that they are insolvent immediately before the cancellation – that is, their debts exceed the value of their assets, Jovanovich added.

    Steber and Jovanovich said homeowners should decide now what they are going to do – to give themselves time.

    Short sales can take a long time, said Timothy Singer of Coldwell Banker in Fort Lauderdale.

    He said he knows of one that had been pending for three years.

    But lenders “have been gearing up” and speeding up the process, Singer added.

    But even if banks quickly approve a short sale, the would-be buyer may get cold feet and the deal fall through, Singer said.

    Then the sellers have to begin again, he said.

    Copyright © 2012 the Sun Sentinel (Fort Lauderdale, Fla.), Donna Gehrke-White. Distributed by McClatchy-Tribune News Service.

  • Answers to 5 Common Questions About Default

    Posted Under: Foreclosure in Sarasota, Property Q&A in Sarasota  |  April 15, 2011 11:26 AM  |  549 views  |  No comments

    Answers to 5 Common Questions About Default

    Unfortunately, in today's slowly recovering economy, many homeowners continue to find themselves in financial trouble. As a Member of the Top 5 in Real Estate Network®, I have worked with many clients over the past few years to help resolve their financial dilemma in the best way possible. There are many options available to distressed homeowners -- unfortunately, most people are not aware of what these options are.

    To help clarify confusion and shed light on optimal homeowner options, real estate finance expert Marian Anthony, answers five questions distressed homeowners often have:

    1. Should I intentionally default on my home mortgage?
    You’ve probably heard of people "intentionally" or "strategically" defaulting on their mortgage, willing to take the hit to their credit in favor of freeing up cash flow in the short-term. Rather than defaulting, however, homeowners should talk with their real estate professional about the potential for a short sale. A short sale could lead toward the debt showing as "settled" on your credit. Walking away and allowing the bank to foreclose still allows the second lender to render a judgment -- and possibly garnish your wages. You may also have to file for bankruptcy to recover from the credit nightmare.

    2. As a borrower, what are some ways I can gain leverage with my lender?
    One way to gain leverage with a lender is to establish a "substitute mortgage" -- a security pledge that is offered to the seller's lender with a third party for a lesser amount of the current payment. Over time, this will result in a significant amount of collected funds that can be used as negotiating leverage to release the borrower from the debt, or dictate terms for a favorable loan modification.

    3. Why have loan modifications and foreclosures become the predominant answer for so many in distressed property situations?
    The reason why loan modifications and foreclosures have become the answer for so many is because many real estate professionals erroneously consider the short sale process to be too complex. It is essential to work with a real estate professional who is equipped with the right forms and contact information, and who knows how to orchestrate a short sale transaction.

    4. Why is a short sale strategy more advantageous than a foreclosure?
    The reduced payoff in a short sale can release you from the debt obligation. This often allows you to re-establish your credit faster and re-enter the market much wiser. A foreclosure can ruin a homeowner's credit and take much longer to recover from.

    5. I’ve heard borrowers in default need a 'General Public Disclosure?' Why?
    Many people are not aware of the alternatives available to them when facing foreclosure. Knowing your options, as detailed on a General Public Disclosure document, can make all the difference in establishing a deal that's in the homeowners' best interest.

    Remember that every distressed homeowner's situation is unique; therefore, it is essential to contact a real estate professional -- and often an attorney -- to determine the best possible solution for you. I am happy to assist, so please feel free to contact me, and please pass this important information on to others in need.

  • Buying a Foreclosed Home? Top Problem Areas to Look Out For

    Posted Under: Home Buying in North Port, Foreclosure in North Port  |  September 2, 2010 12:37 PM  |  578 views  |  No comments

    Buying a Foreclosed Home? Top Problem Areas to Look Out For

    Today's real estate landscape offers some great buys for savvy real estate consumers, especially when it comes to foreclosure properties. Unfortunately, even though there are already a large number of foreclosures on the market, analysts are predicting that yet another wave of distressed properties will crop up in the coming months.

    As a Member of the Top 5 in Real Estate Network®, I've consulted with many clients seeking to capitalize on a foreclosure purchase. I always advise them, however, to weigh the pros and cons. While a foreclosure could represent your best chance to get a great deal, make sure you educate yourself about the potential pitfalls of purchasing a distressed property in advance - and what correcting those pitfalls might cost. In most cases, it's not so much about what damage occurred but rather the source of the damage and how long before the problem was addressed.

    Here are the top 10 signs that may indicate trouble in a foreclosed home:

    1. Unheated house in winter months. If the home has been properly winterized, there's no need for heat. But if the home has not been properly winterized, pipes will burst and cause water damage.
    2. Missing sinks, toilets and other fixtures. Make sure they've been properly removed and not ripped from walls and floors.
    3. Peeling, bubbling and discolored paint; swelling in walls or ceilings (especially around kitchens and bathrooms), or a musty odor all indicate water damage and, potentially, the presence of moisture and mold.
    4. Fungus growth inside cabinets, behind drawers and built-ins. Fungus could mean that there has been water damage. Since water falls down, look for the source above the mold.
    5. Blocked drains or pipes will cause future problems and may have already created sewage backups.
    6. Black cobwebs, greasy gray residue on walls and/or a strong oily odor. This could point to potential soot damage or a malfunctioning furnace.
    7. An older home with extensive renovations. Check with the city for pulled permits in order to get remolding details. If asbestos is present and has been disturbed, be sure it's been remediated by a certified specialist.
    8. Excessive painting of every nook, cranny, door and floor may mean that the seller is covering up mold.
    9. Discolored subflooring. From the basement, check the subflooring above for stains and small holes, both caused by mold.
    10. Air quality. The air quality within a home tells a lot about the home's condition. Be sure to include air and surface testing in your home inspection. It's a few hundred dollars well spent.

    There are indeed many great opportunities in today's market, but proper education and preparation are essential to making the right investment. Please e-mail me for further information and be sure to forward this article to others who might be considering a foreclosure purchase.

  • Help for financially challenged homeowners

    Posted Under: Foreclosure  |  February 6, 2010 4:50 PM  |  330 views  |  No comments

    How HAFA Can Help Financially Challenged Homeowners

    This past November, the Treasury Department released guidelines for its new Home Affordable Foreclosure Alternatives Program (HAFA), designed to help homeowners who are unable to retain their home under the Home Affordable Modification Program (HAMP). Under HAFA, homeowners may be able to avoid foreclosure by completing a short sale or a deed-in-lieu of foreclosure (DIL). If you or someone you know is having trouble making mortgage payments, understanding this new government program is essential.

    As a Member of the Top 5 in Real Estate Network(R), I have consulted with many clients faced with a distressed property situation. The good news is HAFA is designed to simplify and streamline the use of short sales and deeds-in-lieu of foreclosure by improving the process. Here’s how:

    •  Help homeowners who are HAMP eligible but nevertheless unable to keep their home
    •  Use financial and hardship information already collected in connection with consideration of a loan modification
    •  Allow borrowers to receive pre-approved short sales terms before listing the property
    •  Require borrowers to be fully released from future liability for the first mortgage debt and if the subordinate lien holder receives an incentive under HAFA, that debt as well
    •  Use standard processes, documents, and timeframes/deadlines
    •  Provide financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to a $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders

    To be eligible for HAFA, homeowners must meet the basic eligibility criteria for HAMP:

    •  The home must be your principal residence
    •  The first lien must have originated before 2009
    •  Mortgage delinquent or default is reasonably foreseeable
    •  The unpaid principal balance cannot exceed $729,750 (higher limits for 2- to 4-unit dwellings).
    •  The borrower’s total monthly payment exceeds 31% of gross income

    Under HAFA, the forgiven debt due to a short sale will not be taxed if the amount of forgiven debt does not exceed the debt that was used to acquire, construct, or rehabilitate a principal residence. Check with your tax advisor. Please also know that while the debt will be forgiven, the short sale will be reported to credit agencies and have some degree of negative impact on your credit. Short sale agreements must be executed and returned no later than December 31, 2012.

    If you think that you or someone you know can benefit from the HAFA program, please e-mail me. You can also visit www.realtor.org/shortsales for links to the guidance, many additional FAQs, and more information about short sales. Please remember to pass this important information along to others. In today’s economy, we all know someone who might need help.

    * This monthly newsletter is brought to you by your Top 5 in Real Estate Network® Member Agent and is intended as educational information only.

    RISMedia's Top 5 Real Estate Network® is a network created by, for, and of "leading real estate professionals" who are dedicated to providing "leading real estate information to consumers." The RISMedia Top 5 in Real Estate Network is backed by the commitment and resources of RISMedia. Top 5 was created to fill a profound void in how high-impact consumer relevant information was presented by leading real estate industry members to increasingly sophisticated, discerning, and demanding consumers, in order to both sustain and elevate the ongoing viability and appeal of the industry's leading professionals. For more information, visit www.top5inrealestate.com

 
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