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What is a mortgage default?
A mortgage is considered to be in default when one or mor monthly payments have been missed.
What solutions are available if I am in default on my mortgage payments?
You many qualify for a number of options:
Most common are:
Short Sale/ payoff
Forbearance Agreement
Loan Modification
Deed in Lieu
What is a Short Sale/ short payoff?
This occurs when the borrowers sell their properties for amounts that are less than the amounts owed to the lender.
What is a Forbearance Agreement?
A Forbearance Agreement is a written agreement with your mortgage lender in which you arrange to keep your home. The agreement will typically include two primary elements: The borrowers promise to remain current on the mortgage going forward and a decision on how to handle the delinquent interest and other charges.
Some agreements plan for making up the delinquent interest and other charges. It could include provisions for making additional payment to the lender or the delinquent amount could be added to the loan to be paid later.
What is a Loan Modification?
Homeowner has the ability to pay the mortgage at a lesser monthly payment amount. The amount past due may also be addressed in a manner that allows the Homeowner to pay over time or may be forgone altogether. The terms of the loan are modified to provide the Homeowner a means of paying that suits their current financial ability.
Modification can be temporary, permanent or temporary to permanent. The most common types of modification are rate reduction, term extension
or capitalization of amounts past due.
What is a Deed-in lieu of Foreclosure?
The homeowner agrees to deed the title of the property back to the Lender. A deed-in lieu of foreclosure requires that any liens against the property apart from the first mortgage be released or satisfied.
Do I qualify?
Borrowers need to demonstrate that they are experiencing a substantial financial hardship.
What is a hardship?
A hardship is an existing situation that effects the borrower's financial status and results in the in-ability to pay the mortgage debt in the short and/or long term.
What are some of the most common hardships?
Medical Bills
Family illness or injury
Inability to worked due to health related circumstances
Separation or Divorce
Adjustment in mortgage interest/ payments
Unforeseen increase in living expenses
Job relocation when the property is equity deficient.
Death of a spouse
Job Loss
Reduced Income/ layoff
Business failure
Is a Short Sale my best option?
Mortgage lenders have been increasingly willing to work with borrowers faced with a financial hard ship to accept a discounted payoff on a mortgage loan. If you are faced with a hard ship and you are unable to meet your mortgage obligation, your lender will give consideration to the short sale as opposed to taking the property through foreclosure. In most cases the lender is seeking to limit further financial loss on the loan. The short sale provides the platform for a superior outcome for both the lender and the debtor and avoid foreclosure.
Why should I complete a Short Sale and not just let my home get foreclosed upon?
Short Sales have significant advantages over foreclosures. In you sell your home short then you are recovering at about a two year span until you will be able to buy another home. People with foreclosures face about a five year window until they can purchase another home. Your credit is more negatively impacted by a foreclosure than a short sale.
My property is in rough shape and needs work, can I still do a Short Sale?
Absolutely. In fact, lenders are more motivated to do a Short Sale on a property that needs work than on a property that does not. The lender knows the risk of loss increases when they foreclose on a property that has not been maintained or one that needs considerable restoration and repairs.
If I am current on my mortgage, will my lender consider a Short Sale?
This is optional. Some lenders will accept a Short Sale file for approval on loans that are not delinquent. Other lenders will not accept the file until the loan is delinquent.
How long does a Short Sale take?
Once all required documentation is submitted a decision is typically completed within 30-45 days. Common reasons decisions may be delayed include low offers for your property which are under fair market ale and junior liens held by other banks or individuals that also need to agree to a short sale. Depending on the type of loan, an investor and/or insurer may also need to approve the sale.
Can any Real Estate Agent assist me in selling my home in a Short Sale situation?
Possibly, but you usually only have one opportunity to succeed in a short sale transaction. Therefore it is highly recommended that you work with
an agent or company experienced in short sale negotiations that can best represent your interest and is a specialist in the field.
How will a Short Sale affect my credit?
The completion of a Short Sale may affect your credit rating. The final disposition of a completed Short Sale may be reported as "Account paid in full for less that the full balance" on your credit report which is superior to the Foreclosure rating.
Do Lenders approve all Short Sales?
No. That is why it is critical to work with someone that has extensive experience at getting Short Sales approved.
From the presentation of the short sale package to the lender to working with the lenders Loss Mitigations Department, we know how to keep the file moving towards an approval.
The first step is to get pre-qualified for a Short Sale. There is no charge for this and it is easy. Just Call 401-234-1144 or Click Here
Below you will find information from the irs.gov website concerning taxes on deficiencies as a result of a Short Sale. More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS new release IR-2008-17.
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income format he discharge of debt on their principal residence. Debt reduced through mortgage restructuring as well as mortgage debt forgiven in connection with a foreclosure qualifies for the relief. This provision appliers to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home's value or the taxpayer's financial condition.
What is Cancellation of Debt?
If you borrow money from a mortgage lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because yu no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled b=debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Is Cancellation of Debt Income always taxable?
Not always. There are some exceptions. The most common situation when cancellation of debt income is not taxable involve:
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Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when he debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are mort that the fair market value of your total assets.
Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
Non-recourse loans: A non-recourse loan is a loan for which the lenders only remedy in case of default is to repossess the property being inanced or used as collateral. That is the lender cannot pursue you personally in case of default. Forgiveness of a non recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences. Exceptions are discussed in detail in Publication 4681.
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Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applier only to forgiven or cancelled debt used to buy, build, or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million, $1 million if married filing separately.
Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, see Publication 4681.
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