by CRESTICO | Apr 13, 2010 | CRESTICO
California state income tax on forgiven debt resulting from a short sale, foreclosure, or loan modification will no longer be imposed on homeowners in California. Senate Bill 401 makes California’s tax treatment of mortgage debt relief income the same as federal law. Be advised, however, that only the debt stemming from the loan secured by a "qualified principal residence," will be exempt from both federal and state income tax consequences. While the federal exemption amount is up to $2 million, the California exemption is up to $800,000 and forgiven debt up to $500,000.
Now, I know you’re thinking … what is a "Qualified principal residence." This means that only the debt incurred in connection with acquiring, constructing, or substantially improving a principal residence is the subject of this legislation. Principal residences are where you actually reside, receive mail and inhabit for all intents and purposes. This new debt forgiveness exemption will include first and second trust deeds, as well as debt incurred in connection with a refinance loan to the extent that that fund from said loan were used to payoff a previous loan that would have also qualified under Senate Bill 401’s guidelines.
These "tax breaks" are applicable to debts that are discharged from 2009 through 2012. Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment. Taxpayers who do not qualify for the exemptions (for example, those homeowners with second or third homes and/or rental property or properties) may potentially also claim an exemption, through other provisions in the law, however.
A very important thing to note is that taxpayers who are bankrupt are exempt from debt relief income tax. This means, that they have no liability. Also, taxpayers who are insolvent and have no assets may also claim exemption from debt relief income tax to the extent their current liabilities exceed current assets.
For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board’s Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service’s Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage. The full text of Senate Bill 401 is available at www.leginfo.ca.gov. Also, remember to consult with an attorney before taking any steps that may impact your tax and/or legal liability.
by CRESTICO | Mar 11, 2010 | CRESTICO
In December, I wrote to you about the Home Affordable Foreclosure Alternatives ("HAFA") program under the Home Affordable Modification Program ("HAMP"). In March 2009, President Obama introduced the Home Affordable Modification Program in connection with his Making Home Affordable ("MHA") plan. These plans and programs represented the Obama Administration’s efforts to allow borrowers who are eligible (according a specific set of standards and guidelines) to avoid foreclosure by modifying their loans to a level that is affordable and sustainable for the long-term.
Now, I write to you again to bring you some more information about this program and the potential benefits and pitfalls of this new HAFA program set to roll out in April. HAFA intends to help the homeowners that HAMP could not. Basically, if you did not qualify for assistance under HAMP, you may now use HAFA to attempt to avoid foreclosure. How? Through a short sale or Deed-In-Lieu ("DIL") of foreclosure. Seems easy enough, right? Since you can no longer pay your mortgage, the government is now incentivizing it for a buyer to come along and make an offer on your house allowing you out of your mortgage obligations while still recovering some money for the bank that owns your house. The DIL basically allows you to present a Deed to the bank in lieu of foreclosure, that means, instead of the bank foreclosing, kind of like a surrender. Now, you still lose your home, but under these circumstances, your credit will be less adversely affected and you may remain eligible to potentially purchase another home. It has been reported that of the almost 1 million borrowers who were given HAMP assistance (essentially, loan modifications) only about 67,000 (about 6.5%) were provided with a permanent solution to their problem. So that means that about 93% of the people who received loan modifications are STILL struggling with their mortgages.
HAFA is seen as a potential solution to this problem. Read the next few paragraphs and decide for yourself.
Eligibility – the eligibility requirements for HAFA are extremely similar to HAMP in that the home must be a primary owner-occupied residence with the lien originating before 2009 provided that default is reasonably foreseeable and that the owed balance is not more than $729,750 (for single family residences). Additionally, the borrower’s total monthly payment must exceeds 31% of his/her gross income.
Proponents of the program are saying that it is intended to streamline the short sale process by creating an alternative situation for homeowners that HAMP could not help (even though, technically if you were not eligible for HAMP, you probably won’t be eligible for HAFA since the requirements for eligibility are substantially similar). Also, this program is meant to streamline the process of a short sale in that it hopes to use the documentation submitted under HAMP (again running into eligibility questions) and also hopes to create an environment where short sales will be pre-approved prior to listing the property for sale.
Now, there are some benefits, as I see them, in the HAFA program. One certain benefit is that HAFA works to ensure that the homeowner is fully released from liability from their first mortgage and sometimes even their second mortgage (depending on the acceptance of initiatives). Also, HAFA will aim to standardize the short sale process, which anyone who ever tries to work with the government knows is not a small task. The Federalist nature of our government creates a lack of uniformity by its nature.
Also, HAFA will provide monetary incentives like relocation assistance for the homeowner, recoupment of loan servicer costs, and up to a $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis; up to 3% of the unpaid principal balance of each subordinate loan).
However, as a homeowner considering assistance through this program, there are things you should know. First, the property that is being listed can not be listed or sold to anyone that the borrower has a personal or business relationship with. The new owner can not sell the home for at least 90 days, the surrendering homeowner will have to list the forgiven debt as INCOME on his/her tax return, and the loan servicer will report to the credit reporting agencies that the mortgage was settled for less than full payment, which will have a negative impact on the homeowner’s credit score.
All in all, make sure you consult with your tax and Real Estate professionals when considering any major decisions with regard to your home. We are professionals and take your needs into consideration and may be able to provide you with insight and information that is not readily available to you.
by CRESTICO | Nov 5, 2009 | CRESTICO
Recent Developments Regarding Conforming Loans
Media outlets are constantly reporting on the state of the economy, the housing crisis and mortgage defaults and delinquencies. Amidst these reports is the constant use of many terms the average American (homeowner or not) may not be too familiar with or even have a complete understanding of their definitions. One of these terms is "conforming loan." Now, we all know what a loan is; generally a borrowed sum of money that is to be repaid with interest to a lender. A conforming loan however, is a specific type of loan. Loans are classified as meeting and not-meeting GSE guidelines. GSEs, Government Sponsored Entities, are financial services corporations that have been formed by congress, the most popular of which are Fannie Mae and Freddie Mac. These GSEs set guidelines for the types of Loan Programs that are available to homeowners. Conforming loans meet these guidelines and, as a result, are part of the uniform mortgage documents and national standards that have been set for loans.
On October 30, 2009 President Obama signed a congressional resolution regarding conforming loans. This resolution basically allows the loan limit of $729,750 (the limit for high-cost areas, such as Southern California) to be extended into next year. This means that there is now a longer time period available for potential buyers to seek and gain approval for government loans to purchase their homes. Government loans offer advantages such as Lower Interest Rates, government guarantees and lower down payment requirements to homebuyers which make the purchase of a home a bit easier and more widely accessible. This extension is the result of a move by the government in 2008 Housing and Economic Recovery Act which was originally intended to be temporary. Homes are becoming increasingly affordable in the Southern California area, and this is one more step in that direction.
If you are considering buying a home or simply have questions regarding the process, a knowledgeable and qualified Real Estate agent is the best resource you can have to guide you in making your decisions. Real estate agents are on the cutting edge of breaking news and in the best position to explain your options and most beneficial decisions to you.
by CRESTICO | Oct 6, 2009 | CRESTICO
President Barack Obama has introduced many ideas and programs in efforts to provide guidance and aid to the millions of struggling homeowners in this country. The sub prime mortgage crisis, fueled by the greed and often negligence of the lending industry's major players has left millions of homeowners facing the worrisome prospect of losing their homes. On February 18, 2009, President Obama introduced the nation to his housing plan.
This plan involves several programs which are designed to help over seven million families potentially facing foreclosure to avoid the grief and stress of a foreclosure by giving them options. These options will include either Refinancing or modifying their existing mortgages in hopes of ultimately making those mortgages become affordable and bearable once again. Additionally, Obama's program intends to reinforce and revitalize the federal government's commitment to Government Sponsored Entities, Fannie Mae and Freddie Mac, leaders in the secondary mortgage market.
On March 4, 2009, President Obama's administration released news and information that detailed the intricacies of the program and provided guidance on the Making Home Affordable Program.
While there are several characteristics and facets of this program, the main points for homeowners to know are listed below.
1. The Home Affordable Refinance Program. Under this program, eligible borrowers may refinance loans that Fannie Mae or Freddie Mac (the government sponsored enterprises, or GSEs) own or guarantee. The program can help homeowner-occupants who are current in making loan payments and have loan-to-value ratios (LTVs) above 80 percent but not more than 105 percent. Cash out refinancings are not permitted. The program ends in June 2010.
2. The Home Affordable Modification Program. This is a $75 billion program with lender, servicer, investor, and borrower incentives to make it work. The program is limited to homeowner-occupants who are at risk of default or already in default and who have loans at or below the maximum GSE conforming loan limit of $729,750 (or higher for 2-, 3-, and 4-unit properties). Loan modifications under the program may be made until December 31, 2012.
3. More Support for the GSEs. President Obama also announced more support for the GSEs, including doubling of potential Treasury investment from $100 billion to $200 billion for each GSE, to maintain their positive net worth. The plan also raises the cap on mortgages that the GSEs may hold in their portfolios by $50 billion to $900 billion.
Ultimately, this program intends to set this country back on the path to growth, profitability and success. Hopefully, with the government's continued support and diligence on the part of homeowners, we, as a nation, will begin to see the signs of recovery soon.
by CRESTICO | Jun 10, 2009 | CRESTICO
Making Home Affordable: Obama’s New Program To Help Homeowners
President Barack Obama has introduced many ideas and programs in efforts to provide guidance and aid to the millions of struggling homeowners in this country. The sub prime mortgage crisis, fueled by the greed and often negligence of the lending industry’s major players has left millions of homeowners facing the worrisome prospect of losing their homes.
On February 18, 2009, President Obama introduced the nation to his housing plan. This plan involves several programs which are designed to help over seven million families potentially facing foreclosure to avoid the grief and stress of a foreclosure by giving them options. These options will include either Refinancing or modifying their existing mortgages in hopes of ultimately making those mortgages become affordable and bearable once again. Additionally, Obama’s program intends to reinforce and revitalize the federal government’s commitment to Government Sponsored Entities, Fannie Mae and Freddie Mac, leaders in the secondary mortgage market.
On March 4, 2009, President Obama’s administration released news and information that detailed the intricacies of the program and provided guidance on the Making Home Affordable Program.
While there are several characteristics and facets of this program, the main points for homeowners to know are listed below.
1. The Home Affordable Refinance Program. Under this program, eligible borrowers may refinance loans that Fannie Mae or Freddie Mac (the government sponsored enterprises, or GSEs) own or guarantee. The program can help homeowner-occupants who are current in making loan payments and have loan-to-value ratios (LTVs) above 80 percent but not more than 105 percent. Cash out refinancings are not permitted. The program ends in June 2010.
2. The Home Affordable Modification Program. This is a $75 billion program with lender, servicer, investor, and borrower incentives to make it work. The program is limited to homeowner-occupants who are at risk of default or already in default and who have loans at or below the maximum GSE conforming loan limit of $729,750 (or higher for 2-, 3-, and 4-unit properties). Loan modifications under the program may be made until December 31, 2012.
3. More Support for the GSEs. President Obama also announced more support for the GSEs, including doubling of potential Treasury investment from $100 billion to $200 billion for each GSE, to maintain their positive net worth. The plan also raises the cap on mortgages that the GSEs may hold in their portfolios by $50 billion to $900 billion.
Ultimately, this program intends to set this country back on the path to growth, profitability and success. Hopefully, with the government’s continued support and diligence on the part of homeowners, we, as a nation, will begin to see the signs of recovery soon.
