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Barack Obama was elected for his second term as president of the United States and now it’s time for action especially in the distressed housing sector which has affected millions of Americans around the nation. Both houses of congress unanimously agree that the mortgage forgiveness debt relief act is a good policy and support an extension. However, there is no concrete evidence of an extension yet which will be detrimental to all distressed homeowners. How and when will this policy be extended?

What happens if there is no extension Jan. 1, 2013?

If you are involved in a loan modification, short sale, or a foreclosure, you will be liable for taxes on the forgiven amount because it is deemed as income. This is not a small tax liability. An example would be, if you owe $150,000 on your home and it sells in a foreclosure auction for $100,000, the amount remaining of $50,000 would be taxable income. If you are in the 25% tax bracket, you will have to pay the IRS $12,500 in taxes on the foreclosure.

Expecting struggling homeowners to be burdened with this tax liability after losing their biggest asset, would leave the homeowner in a dire financial crisis. Obama’s FY2013 budget proposal does include the extension of this act to 2015 but we are coming close to the expiration of this policy (Dec 31, 2012). Homeowners are now panicking and the National Association of Realtors as well as numerous realtors around the globe are participating in a call to action to extend this forgiveness act asap.

I believe the extension of this act will be extended. However, when and how are the questions that are up in the air. More than 50,000 homeowners go through foreclosure monthly. What should a struggling homeowner do when they are in pre-foreclosure and not sure of when this act will be extended?

Solutions: Short sales are still the best answer

Now that Obama has been elected, we are assured via his FY2013 budget that the forgiveness act will be extended. If you however lose your home to foreclosure after the expiration and before the extension, it could mean tens of thousands of dollars owed to the IRS post foreclosure, loan mod, or short sale.

If you are in at risk of foreclosure, I strongly suggest you begin trying to qualify for a short sale and get your short sale started right away. This way, you will be able postpone your foreclosure date and initiate your short sale which will take typically 3-6 months to close.

This would be your smartest financial move for your situation because you are avoiding a huge tax liability, avoiding a foreclosure which would be detrimental to your situation, and walking away from your home without being vulnerable of pursuit by your lender post foreclosure for the remaining balance.

Hope this helps

Peter

A ray of good news shined through the ominous clouds of the fiscal cliff this past week stating that the Mortgage Forgiveness Debt Relief Act has officially been extended. Through this act, homeowners who are involved in a short sale, foreclosure, or mortgage restructuring are able evade a significant tax bill.

However, the storm is not anywhere near from over. The recent fiscal cliff deal was a small step of progress but the federal deficit still needs to be resolved which calls for more budget battles ahead. Could we be seeing our last Mortgage Forgiveness Tax Relief Act extension in 2013?

Only hours before the end of year 2012, congress was able to strike a deal to avert the fiscal cliff. Fortunately, this included the extension of the debt relief act which is now set to the new expiration date: December 31, 2013. It is official and the proof can be found in the IRS Website or in the American Taxpayer Relief Act of 2012 Bill.

Homeowners are very fortunate to get one extra year of opportunity to short sell their homes. Congress realizes that without this extension, numerous homeowners would be devastated with critical financial conditions. Although, the extension of the various tax cuts alleviated our impending tax increases momentarily, our government is also in a bad financial position in that it has a debt ceiling issue to deal with and the $1.3 billion dollars in taxes that they lost through the extension of the act may be a provision that our government may not be able to continue in our future budgets.

We may get a better forecast in a couple of months as a debt ceiling battle in Congress may occur and more budgets will be established.

What are your thoughts on this? Do you believe we will get an extension beyond Jan 1, 2014?

Tomorrow is the election day of our presidential candidates and homeowners all across the nation are waiting in anticipation for their respective candidate to rescue us from our current economic crisis. The crash of the housing market due to the Subprime Mortgage Crisis was one of the most prominent factors leading to the economic downfall we are facing today.

Whoever becomes president for the next four year term will need to focus much of his efforts in stabilizing the housing market as catalyzing the housing recovery will be in lockstep with our economic recovery. How does Governor Romney and President Obama plan on helping struggling homeowners? Let’s pick their brains a bit on this sensitive subject.

President Barack Obama

What He Did

First, what did Obama do during his 1^st term tenure? Obama’s housing recovery efforts were executed via the Making Home Affordable Program (MHA). The MHA has various programs available and is well known for their HARP – refinancing program, HAFA – Short sale & Deed-in-lieu program, and HAMP – A Loan Modification program. Although results did not meet our expectations, several updates to these programs were implemented throughout the years and these programs did help millions of borrowers at risk of foreclosure.

One well known action he enforced was the $25 billion dollar settlement with 5 of the nation’s largest banks for the robo-signing foreclosure abuses, helping millions of borrowers by reducing their mortgage payments.

Obama’s Plans

Obama’s plan for the housing recovery consists of multiple plans of action including Broad Based Refinancing which helps borrowers who are current on their payments refinance their homes. The plan aims to streamline their refinance program by way of different requirements such as no longer having to submit a new appraisal or tax return when applying for the refinance program. For borrowers in pre-foreclosure, he aims to press mortgage lenders to increase the forbearance period from 4 months (under FHA) and 3 months (under HAMP) to 12 months for homeowners who lost their jobs.

He also plans on expanding the HAMP eligibility, tripling incentives to encourage the reduction of principle for underwater borrowers, and encouraging the GSE’s (Government sponsored enterprises) regulator, the Federal Housing Finance Agency (FHFA), by promising incentives to Freddie and Fannie if servicers forgive principle in addition to the HAMP modification.

According to Obama’s 2013 FY Budget plan, he also plans on putting $5 Billion to the Department of Housing and Urban Development (HUD). HUD’s goals are to keep struggling borrowers in their homes, create jobs in hard hit communities and revitalize areas ravaged by foreclosure.

Governor Mitt Romney

Romney’s Plan

Here are the 5 points directly from Mitt Romney’s website:

• Responsibly sell the 200,000 vacant foreclosed homes owned by the government
• Facilitate foreclosure alternatives for those who cannot afford to pay their mortgage
• Replace complex rules with smart regulation to hold banks accountable, restore a functioning marketplace and restart lending to creditworthy borrowers
• Protect taxpayers from additional risk in the future by reforming Fannie Mae and Freddie Mac

Although both made promises to reform Fannie Mae and Freddie Mac, here is an excerpt from the white paper, Securing the American Dream and the Future of Housing Policy discussing GSE’s reformation.

“End “Too-Big-To-Fail” And Reform Fannie Mae And Freddie Mac. The Romney-Ryan plan will completely end “too-big-to-fail” by reforming the GSEs. The four years since taxpayers took over Fannie Mae and Freddie Mac, spending $140 billion in the process, is too long to wait for reform. Rather than just talk about reform, a Romney-Ryan Administration will protect taxpayers from additional risk in the future by reforming Fannie Mae and Freddie Mac and provide a long-term, sustainable solution for the future of housing finance reform in our country.”

One notable option for struggling homeowners from Romney is the Shared Appreciation Modification in which the lender agrees to write down the principal of a mortgage and then get a percentage of the price increase when the home is sold. This way, both parties win. No foreclosure, the borrower gets reduced mortgage payments, and the lender benefits from the appreciation of the home.

What Very Important Factor That Has Been Omitted In Both Plans?

The extension of the Mortgage Forgiveness Debt Relief Act of 2007. This act relieves homeowners from receiving a huge tax liability due to the forgiven debt (considered income) when doing a refi, short sale, modification, or even foreclosure. This extension was mentioned in the FY 2013 Budget plan by Obama but we are awfully close to the end of the year and any mention of this is sparse.

What are your thoughts on this topic? Which candidate do you think will actually help struggling homeowners get out of their slump? Please comment on our website: www.seattleshortsaleblog.com All comments are welcome!

Peter