Are You Eligible for the Mortgage Forgiveness Act?

As a typical Toms River NJ short sale seller, you have your home listed for sale.  You are now hoping that a buyer comes along and makes an offer.  You know that if you get an offer you have to submit it to your bank for their approval and you have been forewarned that that process takes time (maybe even months).  So you are waiting.  Well stop waiting and start acting!  


The Mortgage Forgiveness Debt Relief Act and Debt Cancellation was signed into law on December 20, 2007 and is due to expire on December 31, 2012.  Operating on the assumption that this law may not be extended, that means you have until December 31, 2012 to sell and close on your home. When you sell your home as a short sale, the IRS considers the forgiven debt (the difference between what you owe and what you sold for) as income to you and is taxable. The Debt Relief Act allows for that taxable income to be excluded IF:


1.  The home you sold was a qualified principal residence (investment, vacation and commercial properties do not qualify)


2.  The maximum indebtedness forgiven can not exceed $2 million (or $1 million if filing separately)


My short sale sellers understand that it is imperative we get a buyer for their home now.  This means reevaluating the list price, cooperating with showings, and keeping the home clean and tidy.  Once you get a decent offer (and not any offer**!), the seller must be willing to cooperate and provide the financial documents required by their lender. All of this will go a long way to facilitating the approval process.


Is it possible the Mortgage Forgiveness Act will be extended?  Maybe, but as of today it has not.It is my opinion that you as a short sale seller still have some control over what happens to you.  If you truly want to take advantage of a short sale (instead of waiting for foreclosure) then act today.  This way you can also guarantee yourself that you can take advantage of the debt forgiveness program.


 To read more about a possible extension, please visit my knowledgeable friends at KCM (Keeping Current Matters).




**Remember when considering an offer, the lender will be approving the sale based on the market value of the home (not what is owed on the mortgage).  So if you have a $225,000 market value and the offer you receive is $100,000 you can bet the bank will either deny the offer or come back and negotiate with the seller.  Don't be afraid to negotiate the offer yourself before you submit it to the lender.

Is the Short Sale Option an Option?

My first post addressed the first type of upside down seller.  So what is the second type of upside down seller? The seller who is experiencing financial and personal hardships. The seller who can no longer pay the mortgage because they have lost their job and have no more savings in the bank. This seller may even be in default and foreclosure proceedings started. This is the seller who has to sell or face losing the home to foreclosure.

 Some possible solutions could be that the homeowner gives the lender a "deed in lieu of foreclosure". If this is an option with the lender, you save the bank the expense of filing a foreclosure complaint against you and maybe saving some credit points.  Another option is to let the home go through foreclosure. Why not, it's not like you are getting any equity (money) out of it. In New Jersey, if your lender goes through with the foreclosure process (or if you give a deed in lieu of foreclosure) the lender can obtain a "deficiency judgment" against you for the difference in the fair market value of the property and the amount of monies received (with the amount received being less than what is owed).  A deficiency judgment can show up for 20 years on a credit search.  If you ever want to own a home in the future, this type of judgment will prevent you from qualifying for a mortgage. It would have to be paid and removed as a judgment against you as a condition to be approved for a mortgage.

I believe the best possible solution is to sell the home through the "short sale" process. Does the seller walk away with money? No. Does your credit take a hit? Yes (about 200 points). So what are the advantages of a "short sale"? The advantages include not having a foreclosure on your credit report (much more than a 200 point hit) and having the control (and maybe dignity) of leaving the home on the your own terms and not having the local sheriff escorting you and your family to the curb. The biggest advantage though is possibly walking away without owing the bank the difference between the short sale price and the mortgage balance not covered by the sale. That is a HUGE advantage. A short sale could give you the opportunity to not have a deficiency judgment recorded against you.  This is not guaranteed, because it will depend on the lender and your circumstances, but in this current environment, it is not impossible to obtain.

Going over what I just wrote, it struck me that referring to "possible solutions" sounds too nice. It's not like the homeowner is deciding whether to paint or wallpaper. All of these "possible solutions" are terrifying and unfortunate. It is not a position someone desires to achieve. At a time when homeowners are considering these different possibilities, it is usually a time filled with much worry and fear. Families and marriages are being torn apart!

If you are a homeowner in this situation, please do not go it alone! It is imperative that you seek legal and tax advice.  It is also important that you  work with a  professional, trained Realtor who can guide you in the ''short sale" process. The seller has a lot of responsibility in getting a "short sale" approved and it is alot of work, but working with a knowledgable Realtor who can offer you assistance and guidance is paramount.

Being Upside Down the Jersey Shore Does Not Mean You Have To Sell...

Homeowners are bombarded on a near daily basis with conflicting information as to the mortgage/housing crisis on a national level, but what really matters is what is happening in our neighborhoods and towns here at the Jersey Shore. I am consistently asked by friends, neighbor, a client, etc., "How is the market?". The answer (which they knew already) is that the market is down. Down, referring to prices and number of units sold, not the amount of properties available. Competition amongst sellers is fierce and will only get fiercer as the inventory of unsold homes continues to grow.

So what does "upside down" mean? It means that the mortgage(s) on a home is greater than the home's current market value. The upside down homeowner is the most confused (and abundant) of all the sellers in the market. With terms like "strategic default" and "short sales" being thrown around, what is an upside down seller to do?

I am going to address the first case scenario of an upside down owner; which is the owner that is making their mortage payment and is not behind or in default. The good news(?) is that just because you are upside down, it does not mean you have to sell your home. You should also kow that it is not a reason your bank will accept to permit a short sale to occur either. What is a short sale? A short sale is when your mortgage holder will accept, less than what is owed to permit the sale of your home to another party. However, it does not mean the mortgage company will forgive the difference between the sales price and the mortgage either. You could still be held accountable and responsible for the difference!

What is amazing to me is the number of homeowers putting their house up for sale for no other reason than this very scenario. Although owning a home is considered the average person's biggest investment, it is also just that; you home, your castle, your refuge. The reality is that you will still need to live somewhere, you will still be either paying a mortgage or paying rent (gasp!). If you are in the position where you are making your payments and do not have to move due to a job change or life circumstances, then don't put your home up for sale. The bottom line is that unless you are ready and able to chip in the difference, trying to sell your home at the Jersey Shore now will not be a benefit to you.