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Congress has extended the Mortgage Debt Forgiveness Tax Relief Law for two more years.

Is your home underwater? Is it a loan owned by Fannie Mae? You may be eligible for a HARP 2.0 refinance.  Call me for details. (818-326-1915)

The Mortgage Debt Relief Act:  What Is It and How It May Benefit You

2013 marked the passing of H.R. 8 legislation in the House and Senate which includes the extension of several important housing-related federal tax provisions.  Had Congress not acted, the tax code would have reverted to its pre-2007 treatment of mortgage principal reductions or cancellations by lenders whereby principal balances written off would be treated as ordinary income to the homeowners who received them.  

Extended through December 31st, 2015, the Mortgage Debt Relief Act is something that some taxpayers can qualify for, especially if you've undergone a hardship such as mortgage restructuring, short sale or foreclosure. These situations include indebtedness on a qualified principal residence, bankruptcy, insolvency, certain farm debts, and non-recourse loans. The program helps you to exclude income from the discharge of debt so that the canceled amount is not reported as income for tax purposes.  

A few key points to consider:  

The Debt Relief Act applies to debt forgiven from 2007 through December 31st, 2015.  

·         Consult a finance or tax professional to ensure you qualify.  

  • The debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion. Proceeds of refinanced debt used for other purposes (ie. credit card debt) do not qualify for the exclusion.  

·         Up to $2 million in debt is eligible for exclusion for married couples, or $1 million if married and filing separately.  If the total liabilities exceed the total assets and the forgiven debt doesn't qualify under this particular provision, it may qualify under the insolvency exclusion.  

  • If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.  
  • Debt forgiven on second homes, rental, business or personal property, credit cards, or car loans does not qualify for the tax relief provision.  
  • If your debt is reduced or eliminated, your lender will send you a year-end statement, Form 1099-C, Cancellation of Debt, which also goes directly to the IRS.  By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.  

·         Examine Form 1099-C closely.  Pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.  Notify your lender immediately if there are any inaccuracies.   

With an ever-changing landscape, count on Mountain West Financial for solid experience and expertise.

                                  Boomerang Buyers Reentering Housing Market 

 

Many families who lost their homes to foreclosure in recent years are coming back to the game. This large group of consumers, known as "boomerang buyers," can now obtain loans and are moving quickly to reenter the housing market. On their second time around, these boomerang buyers are overcoming all emotional hurdles.  

   

Dawn Wotapka, a reporter for the Wall Street Journal, debunked the popular myth that families that go through foreclosure never buy a house again. Rather, families that have had a home foreclosed on them are often eager to reenter the market, with a better understanding about how mortgage works and what responsibilities are required of them. "Definitely, you do not fall of a cliff when you lose your home to foreclosure," Wotapka said.  

 

The Waiting Period  

Homeowners who've lost a home to foreclosure must usually wait for a while before they can apply for that loan again. For a loan from the Federal Housing Administration (FHA), homeowners have to wait 3 years before they can reapply for a mortgage. Fannie Mae and Freddie Mac require a much longer waiting period than the FHA- up to 7 years. Because the FHA has a shorter requirement, "it is the big game in town right now," says Wotapka.  

 

Eager boomerang buyers are reaching out to homebuilders. Families who know the exact date of their mortgage eligibility hire homebuilders to begin construction in anticipation of that date. Homebuilders also view the burgeoning boomerang market as a source of many potential jobs. Nearly 730,000 families who lost a home to foreclosure may soon be reentering the market.  

 

You're Eligible, but Do You Qualify?  

 

Since the housing crash, mortgage requirements have become more rigorous, requiring applicants to provide exact sources of income, levels of debt, and credit history. The best opportunity is presented to families who have a strong credit score. Fortunately, a foreclosure, bankruptcy, or short sale isn't a life sentence and can be repaired with diligence and patience. Repairing your credit score after receiving the blow from a foreclosure or short sale may take seven to ten years, but it is certainly achievable. Boomerang buyers should understand that even though they may be eligible for another loan, they will have to pass the lender's requirements, which in the past three years have steadily grown more stringent.  

 

Although banks took huge losses from the thousands of families who went through foreclosure, they are eager to get qualified individuals back into the housing market. "Housing is a big part of our economy, and this is a large number of consumers who if we can get back, we want them back in the game. But the rules this time around are very different. It's not the, 'you breathe, you get a mortgage' anymore," Wotapka said.

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The Fed flexes its ARM muscles
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Should we let the housing market crash?
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3 Things To Ask Your Lender When Locking a Loan
Foreclosuregate
Higher FICO needed
Banks sue for mortgage deficiency
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Supreme Court hands homeowners sting defeat
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