What happens is that people who finally get through a foreclosure or short sale transaction are relieved and think they're done. They're actually not.
Did you know that if you short sell or foreclose on a house, you could also wind up with huge taxes that you have to pay? It's what you do during and on the date of the foreclosure or short sale that will determine how large of a tax bill shows up in your mailbox, or if you won't get taxed at all.
You see, whether you foreclose or short sell, there is money that was owed but not paid back. I know this is hard to get your head around at first, but the IRS sees this unpaid money as earned income that they then tax you on.
For example, if you sell short by $100,000 and your tax bracket is 27Â½%, then you'll get a tax bill for $27,500. Are you going to be able to write this check to the IRS? You can't just walk away from this one.
Having been there myself, I know how scary and confusing this all can be. As if losing your house isn't enough, now you could have a tax bill that may be so big you can't pay it either. This is a point when many consider bankruptcy, which can bring even more complications and loss.
So what do you do?
You get expert advice on how to qualify and file for something called the Mortgage Forgiveness Debt Relief Act.
The key to avoiding or reducing your tax responsibility after a short sale or foreclosure is to know what debt can legally be forgiven under this Act ... and then make sure you get your exemption from paying the tax by completing and filing the correct forms at the right time.
The Mortgage Forgiveness Debt Relief Act only covers a person who occupies the property as their primary residence for up to $2 million in "forgiven" debt (the amount you didn't pay back on your mortgage).
If you don't live in the house that was short sold or foreclosed, such as if it was an investment property, you do not qualify for the Mortgage Forgiveness Debt Relief Act; however, there still are ways you can reduce or avoid paying this tax that are completely legal.
WARNING: Whether you are the primary resident of the house or the investor, if you skip this important step, the IRS will see your cancelled debt as income and send you a big fat tax bill. That I can promise you.
When the IRS letter and tax bill comes in the mail, most people are completely confused because they thought their foreclosure crisis was over.
However, this is YOUR responsibility. The IRS will not research your case to see that your situation was forgiven under the Mortgage Forgiveness Debt Relief Act unless you report it correctly.
You'll also need to understand the many circumstances that could make your debt unforgivable or not qualify under the Mortgage Forgiveness Debt Relief Act.
There are several special cases, exemptions, and/or complications when reporting and filing with the IRS to avoid taxes associated with a short sale or foreclosure.
The key is to have the right expert information, guidance, calculations, and forms.
Find this and much more at http://www.surviveyourforeclosure.com. This resource includes all the tax information and forms you'll need when facing a foreclosure or short sale situation, and exactly when and how to file.
Hope this helps
Realty World Ballard Company
(775) 688-4656 Office
(775) 843-2645 Cell
Owner financing works much like regular financing. The owner, instead of a lender, holds the deed. There are many ways to structure the agreement. You will need to consult a real estate attorney for contractual information. Some owners will structure a rent to own or lease purchase whereas some others will prefer a contract for deed. There are some homes available in the MLS with owner financing available. Best of luck to you.
I believe that you have to be evaluate if you can repurchase a home again using Seller's financing. Seller's financing is no different than Bank Financing. The Home Owner holds a mortgage on your home secured by a note. My questions for you would be: Is the foreclosure the only stain in your credit record or did you defaulted on credit card or other bills? If the foreclosure is the only derogatory that shows in your credit record then, the next question is to answer honestly how much of a mortgage payment can you afford? Do you have a downpayment saved? Do you have steady income flowing from your jobs? Are your jobs secure?
If the answer to the last three questions is a yes, then you have to look for a home with a payment, including property taxes and insurance that you can afford. Hopefully, 33% of your gross income.
I would be very honest with a Seller and disclose to him (her) that you had a foreclosure, but now, you can safely afford to pay the mortgage for his home. Go on and show him (her) proof that you can afford the payments. Hopefully, you have a downpayment saved and you show a clean credit report with only the foreclosure showing. If you do not have a downpayment saved, I believe it would be very hard for you to convince a Seller that you can safely afford to purchase his(her) home with no downpayment.
P.S. You will need the help of a Real Estate Professional. Good luck.
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Chapter 7 Bankruptcy
When a Chapter 7 bankruptcy was caused by circumstances beyond the borrower's control (such as the death of the principal wage earner or serious long-term uninsured illness, etc.), the borrower may be eligible for FHA financing after a minimum of 12 months.
Chapter 13 Bankruptcy
A borrower paying off debts under Chapter 13 of the Bankruptcy Act may also qualify if one year of the payout period has elapsed and performance has been satisfactory. The borrower must receive court approval to enter into the mortgage transaction.
An applicant who has gone through foreclosure proceedings or given deed in lieu of foreclosure on a previously owned property may be considered for loan approval if the foreclosure occurred three years preceding the application date and was a result of extenuating circumstances that were beyond his control (i.e. a serious long term illness, death of the principal wage earner, or loss of employment due to factory shutdown, etc.), and if he has since re-established good credit and demonstrated the ability to manage financial obligations.
There is more information about FHA compensating factors in "Home Buyers Confront the Credit Gremlin."