MacDill AFB Moves

At first blush, the rule seemed so unfair that it must have been a cruel hoax. First, you lose your house in a foreclosure—perhaps you fell behind in the payments after you lost your job, you got sick, or your husband or wife died. Then the law ordered the IRS to pile on the emotional and financial grief by charging you extra income tax.

Outlandish, perhaps. But, until foreclosures became the symbol of the national financial crisis in late 2007, that was the law. First, a look at the basic rule, then a review of the temporary fix that will benefit hundreds of thousands of taxpayers who find themselves in dire financial straits.

Under general tax law, if the bank forecloses and sells your home for less than the amount left on your mortgage—and forgives the excess debt—the amount forgiven is treated as taxable income to you. That’s right; as far as the income tax is concerned, money you don’t have to pay back is treated the same way as money paid to you: Taxable in your top bracket. The IRS even has a special form for reporting this “windfall”: the 1099-C. The C stands for cancellation of debt and the law says cancelled debt is taxable as income. (There are exceptions, which we’ll get into later.)

As a wave of foreclosures began sweeping across the nation in 2007—fueled by the risky loans, rising rates, and a slowing housing market—this arcane rule began to get more and more attention. So did other efforts by strapped homeowners—such as “short sales” or loan restructuring—that can also trigger 1099-Cs reporting taxable income. If a lender agrees to freeze an adjustable interest rate for a period of time rather than allow it to rise as called for in the mortgage, for example, the change can result in forgiven debt that would be taxable under the regular rules.

Congress steps in with relief

To protect homeowners from this double whammy, Congress has declared that when a taxpayer’s principal residence is involved, forgiven debt will not be treated as income. For now, this break applies only for 2007, 2008, and 2009. After that, the old rule is scheduled to come back into play. This is a big deal for affected taxpayers. There are limits, of course, and it is important to know what’s covered and what’s not.

This relief applies only to principal residences, that is, the home you live in. If a lender forgives debt after a foreclosure, short sale or loan restructuring for a vacation home or investment property, for example, the old rule still applies: The amount of debt canceled is considered taxable income to you (unless you qualify for one of the exceptions discussed later). Congress didn’t want to offer a helping hand to speculators who helped fuel the housing boom by buying properties in hopes of “flipping” them quickly for hefty profits.
No more than $2 million of forgiven debt can be excluded from income.
To be eligible for the break, the loan must be secured by your principal residence and the money must have been used to buy, build, or substantially improve the property. If part of the forgiven debt was a home equity loan used for other purposes, for example, that part would be considered taxable income.
The tax basis of the home is reduced by the amount of canceled debt excluded from income. The basis is the amount you compare to the selling price of the home to determine if you have a profit or loss. (And, for tax purposes, a foreclosure is treated the same as a sale.) If a loan restructuring results in cancellation of $25,000 of debt, for example, your basis would be reduced by $25,000… potentially increasing by up to $25,000 the amount of profit you realize when you later sell. (The basis reduction will usually have no tax impact, though, because most home sale profit is tax-free.)
1099-C Confusion

While the new law offers important relief for strapped homeowners, it won’t prevent lenders who forgive debt from sending out 1099-C forms to taxpayers, with copies to the IRS. It will be up to you to know whether or not the discharged debt reported on the form is taxable or tax free.
The 1099-C must show the amount of debt forgiven and the fair market value of property given up through foreclosure. The IRS urges borrowers to check the form carefully and notify the lender immediately if any of the information shown on their form is incorrect. Pay particular attention to the amount of debt forgiven (Box 2) and the value listed for your home (Box 7).

How short sales work

Sometimes, rather than pursuing the costly and time-consuming process of foreclosure, a lender will allow a delinquent borrower to sell the house for less than the mortgage amount and turn the proceeds over to the bank as payment in full. Say you lost your job and can’t keep up payments on your home, you still owe $300,000 on your mortgage but the house value has dropped to $275,000. If the bank agrees to a short sale, you’d sell the place, pay the commission and other selling costs—let’s assume $15,000—and turn the remaining $260,000 over to the bank. The $40,000 gap between the payment and the amount due would show up on a 1099-C form. That’s right, even the $15,000 of selling expenses gets tossed in with the amount of forgiven debt.
Thanks to the new law, when the short sale in 2007, 2008 or 2009 involves a principal residence, the canceled debt is not considered taxable income.
Banks don’t always agree to a short sale—among other things, they look at the gap between the balance on the loan and the expected proceeds of the sale and the homeowner’s other assets. Basically, they weigh the cost of a short sale against the cost of foreclosing and selling the property themselves.

Dodging the tax bullet

Even if you’re not covered by the new tax-relief rule—say the house you lost was a vacation home rather than a principal residence—there’s a very important exception to the debt-relief-equals-taxable-income rule. Although lenders must send 1099-C forms reporting taxable income whenever canceled debt is $600 or more, the tax bill itself is forgiven if you are in bankruptcy or are insolvent.
Insolvency means your debts (including that mortgage) exceed the value of all your assets. You use IRS Form 982 to claim the exclusion.

CFO Sink to hold foreclosure summit

TALLAHASSEE, Fla. – April 9, 2009 – Florida Chief Financial Officer Alex Sink said Wednesday that she planned to convene a meeting of lawyers working pro bono on foreclosure cases and the 12 largest Florida lending firms. The meeting will be held in Tampa April 20.

Announcing the foreclosure summit Wednesday with attorneys from the Florida Attorneys Saving Homes program, Sink said the meeting would help remind Floridians about free legal assistance and allow lawyers to pick the brains of lenders about loan repayment problems that don’t require eviction. According to Sink, the pro bono lawyers have already received 25,000 calls about foreclosures, but their efforts have been hamstrung by varied processes from lenders, a problem the CFO said could be easier to solve by bringing the largest firms together.

“The purpose of our meeting is to find out how we can be more efficient and effective so our volunteer attorneys don’t get frustrated and say ‘I don’t have time for this,’” Sink said.

Representatives from Bank of America, Citibank, Countrywide, IndyMac Bank, JP Morgan, Litton Loan Servicing, Wells Fargo, Saxon Mortgage Services, Suntrust, Wachovia and Washington Mutual will be invited to attend the summit, Sink’s office said.

In 2007, CFO Sink asked the Florida Bar to provide assistance to struggling homeowners in the state, leading to the creation of the Florida Attorneys Saving Homes program. The program pairs pro bono attorneys with Florida homeowners who are behind on their mortgage payments. Over 1,000 lawyers across the state have volunteered their time in response to CFO Sink’s call to launch this program.

In addition to the Florida Attorneys Saving Homes Program, CFO Sink also launched the Florida Housing Help Initiative to assist homeowners facing foreclosure. The initiative partners with community organizations and elected officials to hold foreclosure workshops around the state.

For more information on CFO Sink’s Florida Housing Help Initiative or the Florida Attorneys Saving Homes program, visit www.MyFloridaCFO.com. Details, including venue information and time of the April 20 roundtable, will be announced soon.

MANATEE COUNTY, Fla. – April 3, 2009 – Area real-estate professionals are hoping Fannie Mae continues a limited pilot program aimed at facilitating short sales, especially as local foreclosure filings continue to hit record highs.

Since its January launch, the program has prevented at least a handful of homes in 11 Florida counties – including Manatee and Sarasota – from falling into foreclosure by making it easier to sell them for less than their outstanding mortgages.

The project initially was scheduled to last three months, but officials with a regional listing service said Wednesday they’re hoping to persuade Fannie Mae to extend it.

“We’re very excited about the project, and we’d like to see it continue,” said John Weeden, marketing manager for the Mid-Florida Regional Multiple Listing Service, which is collaborating on the pilot program and is scheduled to update Fannie Mae on its progress next week.

About 300 Florida homes are in the program, which streamlines the short sale process by getting all necessary approvals and property research done beforehand. A short sale is one in which the lender – Fannie Mae for homes in the pilot program – agrees to accept less than what is owed on the home to avoid the costs of foreclosure.

Weeden said he did not know how many short sales have closed through the program, which applies only to homes with Fannie Mae mortgages.

Quicksilver Real Estate Group Inc., a Tampa firm with an office in Bradenton, has closed three and has two others pending, broker/owner Linn Wyllie said. Those sales have come together in a matter of weeks as opposed to the several months or longer that a typical short sale can take, he said.

“It’s huge for the industry,” Wyllie said of the pilot program’s time savings.

Fannie Mae, officially known as the Federal National Mortgage Association, also launched a similar program in the Phoenix area.

The program didn’t prevent lenders from maintaining their record pace of foreclosure filings in Manatee, however. Lenders filed 608 foreclosure suits in Manatee County Circuit Court in March, the highest monthly total ever, court records show.

There have been 1,653 foreclosure actions filed through the first three months of 2008, up 33 percent from the 1,241 filed during the same period a year earlier. At that pace, last year’s record of 5,592 foreclosure filings will be broken in September.

For the third straight month, more primary homes than seasonal, vacation and rental homes fell into foreclosure: 54 percent were homesteaded, while 46 percent were not. That’s largely the result of mounting job losses and indicates foreclosures likely will remain high as the county’s unemployment rate worsens, experts said.

Copyright © 2009 The Bradenton Herald, Fla., Duane Marsteller. Distributed by McClatchy-Tribune Information Services.

There are many good deals I’m seeing in the South Tampa market today that are foreclosures and short sales.  The short sales are a bit trickier to land, but I’ve experienced some recent success getting the lender to accept a low offer.  I just had one approved that was listed at $165K and we offered $135K.  The buyer thought I was crazy sending him that one because he was only approved at $135K.  I told him that you never know what they will take until you submit an offer.  To his delight, they accepted the $135K and he ended up getting the opportunity to own a much nicer home than he thought he would get.  It even had a very nice pool.  Foreclosures, REO’s (Real Estate Owned), and Bank Owned properties which are all the same thing, are a little easier to pick up.  Typically, we are seeing a 48 hour turn around on a response from the bank to an offer.  Unfortunately, you are up against cash buyers most of the time on the really good ones, but many will accept conventional financing and FHA.  Most are in an unacceptable condition for FHA, but not the FHA rehab loan which is becoming more and more popular.  I would be happy to go over any of the above information more in depth with you if you have interest in looking at your options.

WASHINGTON (AP) – Feb. 12, 2009 – The number of Americans on the verge of losing their homes fell in January but was still up from the same month a year ago. The numbers would have been higher if not for efforts to stall the foreclosure process.

Nationwide, more than 274,000 homes received at least one foreclosure-related notice last month. That was down 10 percent from December, but still 18 percent higher than a year ago, according to RealtyTrac Inc., a foreclosure listing service based in Irvine, Calif. Ohio’s foreclosure rate put it in the top 10 states.

Contributing to the monthly drop was a decision by government-controlled mortgage finance companies Fannie Mae and Freddie Mac to suspend foreclosure sales during the winter holidays. Plus, Florida Gov. Charlie Crist brokered a deal in which lenders in that state agreed to a 45-day halt to new foreclosure petitions.

But those efforts may not have much of an impact in the long run.

“If you don’t do anything to get to the core problem, all you’re doing is extending the housing downturn,” said Rick Sharga, RealtyTrac’s vice president for marketing. “It’s only a good idea if there’s a corresponding program that dramatically restructures hundreds of thousands of loans.”

Meanwhile, a federal regulator on Wednesday urged more than 800 thrift institutions to suspend all foreclosures while President Barack Obama’s top economic officials develop plans to keep borrowers in their homes.

The Obama administration plans to spend $50 billion to combat foreclosures of owner-occupied, middle-class homes but is divulging few details. An announcement of the administration’s housing plans is expected in the coming weeks.

Testifying before House lawmakers on Wednesday, Treasury Secretary Timothy Geithner said the government would provide incentives to “try to induce economically sensible restructuring of mortgages,” but offered no specifics.

More than 2 million American homeowners faced foreclosure proceedings last year, and that number could soar as high as 10 million in the coming years, according to a report last month by Credit Suisse, depending on the severity of the recession.

The RealtyTrac report said nearly 67,000 properties were repossessed by lenders in January as the worst recession in decades, falling home values and stricter lending standards continue to sap the U.S. real estate market. That was up from more than 45,000 repossessed properties in January 2008, but down from 79,000 in December.

Geithner and Shaun Donovan, the new secretary of the Department of Housing and Urban Development, met with officials from housing and other nonprofit groups, top bank executives and industry lobbyists Wednesday to hear proposals for how the new programs to fight foreclosures should be structured.

After the meeting, John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group in Washington, said he was optimistic the new administration would agree to use government dollars to buy up mortgages and remove them from complex mortgage-linked securities and restructuring them at more affordable levels.

He said support from government and industry officials for that idea was a “giant step forward” compared with opposition to such an approach by the Bush administration.

The Obama administration is also expected to back a push in Congress – opposed by the mortgage industry – to let bankruptcy judges alter the terms of primary home loans. Earlier this week, Obama said it “makes no sense” that judges are not allowed to do so. The mortgage industry argues that this prohibition allows lenders to charge lower rates.

In the RealtyTrac report, Nevada, California, Arizona and Florida had the nation’s top foreclosure rates. In Nevada, one in every 76 homes received a foreclosure, while the number was one every 173 in California. At No. 5, Oregon, formerly a bastion of housing stability, made its first appearance close to the top of the list of foreclosure hot spots.

Rounding out the top 10 were Illinois, Michigan, Georgia, Idaho and Ohio. Ohio had one foreclosure notice for every 452 homes, but January filings were down slightly from December and down 12 percent from a year earlier. Among metro areas, Merced, Calif., was first, with one in every 59 housing units receiving a foreclosure filing. It was followed by Las Vegas and the Cape Coral-Fort Myers area in Florida.