Facing Foreclosure and the Value of the Property is Less than What You Owe?
It’s another unfortunate factor within the nation’s housing crisis and it’s happening all across the nation. Homeowners are paying on mortgages that are more than what their home is worth. If you are planning to stay in your home for many years to come, as the market stabilizes, your home’s value will begin to increase over time. But if you are like many Americans that are falling behind on their mortgage payments and facing foreclosure, this situation can be especially troublesome.
When the value of your property is less than the mortgage amount and you are facing foreclosure on your home, you may want to find a REALTOR® that is experienced with foreclosures and with homes in your area who can help explain to your lender why it makes sense to let you (the homeowner) sell the property for the best price and then forgive the remainder of the debt. Unfortunately, the amount of debt the lender cancels is treated as income when you file your tax return. Fortunately, REALTORS® and the Center for Responsible Lending are working for enactment of pending legislation so homeowners aren’t stuck with a tax bill they can’t afford to pay. Other lenders may require you to sign a promissory note for the difference between the value of the home and the amount owed. So before you sign any documents, please seek the advice of a housing counselor or lawyer.
For more advice and resources to help homeowners avoid foreclosure, visit the Northeast Atlanta Metro Association of REALTORS®’ foreclosure prevention site, www.UnnecessaryForeclosure.com.
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Sherry Davidson | Nov 14, 2009 | Reply
A law passed in December of 2007 that allows homeowners to avoid recognizing income on the debt forgiven on their principal residence. The primary mortgage, 2nd mortgage and even home equity loan amounts forgiven will not be taxed if the money was used to purchase or improve your personal residence. If you used some of the money to pay for other things, this amount will be subject to tax.
Investment property or second homes do not qualify for the benefit. You will receive a 1099 for any debt forgiveness and you will need to show the income on the correct IRS form but you can show the amount that should not be taxed.
For more information on preventing foreclosures, check out the certified distressed property expert website at http://www.cdpe.com.
Carol M. Flammer | Nov 14, 2009 | Reply
Thanks for this information Sherry. The http://www.cpde.com site has great information. It seems that this credential should be an important factor to consider when choosing a Realtor to help with foreclosure related challenges.