URGENT: Homeowners Tax Exemption Extended Through 2013

in , , , , , , , , , , , , , , , , , , , , , , /by

The 2007 Mortgage Debt Relief Act, which was scheduled to expire at midnight on December 31, 2012, has been extended for one year as a result of the “fiscal cliff” deal struck between Congress and the president.

The Senate included the extension as a part of the bill that passed at 2:00 a.m. on Tuesday morning.  After House Republicans failed to pass a separate bill modifying the Senate plan, that plan was presented for a full house vote late last night and passed 257-167.  President Obama has stated he will sign the bill.

EXTENDS TAX FORGIVENESS FOR MANY HOMEOWNERS WHO COMPLETE A SHORT SALE, FORECLOSURE, “DEED IN LIEU”  OR LOAN MODIFICATION IN 2013.

This is very important news for homeowners whose short sales and “deeds in lieu of foreclosure” had not been concluded by December 31st, and who were facing a substantial income tax bill if the exemption had expired and not been renewed.  It also will benefit many homeowners whose properties are foreclosed in 2013, as well as individuals who obtain a “principle reduction” loan modification on their home mortgages.

EXEMPTION DOES NOT COVER ALL FORGIVEN MORTGAGE DEBT

As I have previously explained, the tax exemption does not apply to all forgiven mortgage debt.  Specifically, the debt must have been on a primary home, and the debt must have been used to either buy the property, to pay off purchase debt, or to repair/renovate the home.  It does not apply to debt on second homes or income property, or on “cash out” refi debt.

STATUS OF CALIFORNIA’S SEPARATE TAX EXEMPTION NOT YET CLEAR

Keep in mind that the separate California tax exemption for mortgage debt relief also was scheduled to expire on December 31, 2012.  Whether that state exemption will be extended as a result of the federal extension is not yet known.  I will report further once that information becomes available.

I recommend you immediately contact your local representative if you feel the California tax exemption should also be extended.

CONSULT WITH A QUALIFIED ATTORNEY OR TAX ADVISER NOW TO DETERMINE IF YOU QUALIFY

For “underwater” homeowners that have been “sitting on the fence”, now is a good time to speak with a qualified real estate attorney or tax adviser to determine whether and to what extent you qualify for the extended tax exemption.  Keep in mind that it can take many months for a short sale, loan modification, “deed in lieu” or foreclosure to be completed.  For that reason, it’s important to get the process started as soon as possible.  That way you can implement your best strategy without having to worry about losing the tax exemption at the end of 2013.

 

Lenders Pushing Back on HARP 2.0

in , , , , , , /by

The blogosphere is chock-full of articles announcing the most recent and substantial changes to the federal government’s HARP 2.0 refinance program.  The most significant and widely touted change to the program is its elimination of loan to value ratios that previously had limited many homeowner’s access to the program.  As now designed HARP 2.0  purports to allow for unlimited loan-to-value (LTV) on most program refinances.  Great news, right?  Well, not so fast.

As author and mortgage expert Dan Green writes this week, “[A]s many underwater homeowners are finding out the hard way, just because HARP allows it, that doesn’t mean banks will do [it].”  Statistical data compiled by Green establishes that many major lenders are restricting HARP 2.0 refis to owners with loan to value ratios in the 105% to 125% range.  Unfortunately, this leaves an enormous portion of the underwater sector out in the cold.

Over the last several years I have consulted with hundreds and hundreds of distressed property owners in Northern California, and particularly in Alameda and Contra Costa counties.  Many distressed homeowners in these regions have LTV ratios of 200% and more.  Green’s statistics show that less than 5% of HARP 2.0 mortgage refinance applicants fall within this range.  Which means that, even for those folks who otherwise meet the program’s eligibility criteria, they’re not being helped.

Moving forward, it will be critical to determine which lenders are in fact honoring the unlimited LTV criteria.  I will do my best to keep you apprised of the identity of these lenders.  In this regard, it is critical to recall that HARP 2.0 does not require homeowners to refinance through their existing lender.  Any bank representative that advises you to the contrary simply is incorrect.

Please let me know if you think you or your client may benefit from HARP 2.0, and I’ll do my best to help you select a qualified mortgage professional in your area to help with the application process.  Meanwhile, for a complete description of the current program guidelines, including a clear and comprehensive set of FAQ’s, I refer you to Dan Green’s excellent website: http://themortgagereports.com/259/harp-making-home-affordable-guidelines.