Short sale/mortgage forgiveness relief act questions

[Jilian]

Hi, DH and I had our home built in 2005 and because of DS2's surprise heart defect and surgery that followed we can no longer afford our home. He needs lifetime follow up and that will be pricey. We are very sad because we love our home but at this point we need to cut our losses and get out in the most amicable way possible. We have decided to do a short sale and have an offer that is with the bank, they should make their decision sometime this week. It looks like they will approve it. The home is selling for almost $60,000 less than we owe, but it is selling for current "fair market value".

My question: how does the recent "HR 3648 Mortgage forgiveness debt relief act of 2007" affect us? Does this mean we will not have to pay taxes on the $60,000 difference if we do the short sale? Usually the bank would give you a 1099 for the deficientcy and it would have to be added to your taxes at the end of the year on a form 1099 as taxable income We cannot afford to pay taxes on $60k, but want to do anything we can to avoid foreclosure. We are in FL if that helps.

Any experience? We can absolutely prove financial hardship because of the little guy's surgery/ICU stay. We have a call into a RE lawyer too but have not heard back yet :

[ustasmom]

Did you post over on Creditboards. They have experts over there. Plus, someone will most likely be familiar with FL law.

[Jilian]

No, I've never heard of creditboards. I'll check it out. Thanks!

[velochic]

My understanding is that if your lender forgives the $60K, then yes, this bill, as it is written right now, would alleviate the burden of paying taxes on that money as income in a short sale.

It's a federal bill, so it wouldn't matter where you live. It may end up getting tweaked before approval, but I think something like this will be passed.

[Jilian]

Can the lender choose not to forgive and still give us a 1099 for $60,000 in additional income or does this new bill not allow them to do that? I called the mortgage co yesterday and spoke with a rep @ their call center who told me they do use 1099's and I will have to pay taxes on the difference. I'm not sure if she was just not familiar with this new bill or if somehow they are exempt and can still charge us.

[velochic]

I'm not sure the details of it. It helps some and not others. Did you refinance since you bought the home?

[annethcz]

Originally Posted by Jilian

Can the lender choose not to forgive and still give us a 1099 for $60,000 in additional income or does this new bill not allow them to do that? I called the mortgage co yesterday and spoke with a rep @ their call center who told me they do use 1099's and I will have to pay taxes on the difference. I'm not sure if she was just not familiar with this new bill or if somehow they are exempt and can still charge us.

I would imagine that the rep was giving you current information. AFAIK the bill has not yet been passed. The bank, for legal and procedural reasons, can't give you info based on laws that may or may not come into being. The bank wouldn't change their policies until the law is actually changed.

[velochic]

Originally Posted by annethcz

I would imagine that the rep was giving you current information. AFAIK the bill has not yet been passed. The bank, for legal and procedural reasons, can't give you info based on laws that may or may not come into being. The bank wouldn't change their policies until the law is actually changed.

Bush signed the Bill on Dec. 20th. I wasn't sure it had been passed, either.

[Jilian]

Yep, it is signed. I called the mortgage co again and this time was told that the debt was written off and I was not responsible for it in any way. I never know who to believe because every time I call I get a different story.

[normajean]

Originally Posted by Jilian

Yep, it is signed. I called the mortgage co again and this time was told that the debt was written off and I was not responsible for it in any way. I never know who to believe because every time I call I get a different story.

I'd talk to a tax adviser just to be sure...

[annethcz]

Originally Posted by Jilian

Yep, it is signed. I called the mortgage co again and this time was told that the debt was written off and I was not responsible for it in any way. I never know who to believe because every time I call I get a different story.

I'm sorry, I hadn't read the the bill was passed. What a frustrating situation. Of course, documenting conversations is always good practice. But what the bank tells you won't help you if it's not correct according to the IRS. I spent a couple of minutes on the IRS, entering a combination of different search terms- mortgage forgiveness, short sale, mortgage short sale, etc. and didn't come up with anything helpful. It coule be that the IRS website hasn't yet been updated, since the new law is less than a month old.

I did find this http://www.irs.gov/publications/p17/...blink100033019
which seems to indicate that mortgage forgiveness would be considered taxable income, since it's not included the linked excluded debt.

But I'm guessing that the IRS hasn't updated their info yet, because the a summary of the law at the official library of congress site says:

H.R.3648
Title: To amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income, and for other purposes.

http://thomas.loc.gov/cgi-bin/bdquery/z?d110:h.r.03648:

It looks like you're off the hook.

[Maggi315]

subbing because we are looking at selling and will also have to do a short sale...

[Jilian]

I spoke with a real estate attorney who said "his interpretation" was that any debt forgiven by the mortgage company is not taxable. But he suggested I should contact a CPA. A CPA has advised me to contact and attorney for interpretations of the law : It seems like noone wants to commit to an answer.

[Selesai]

You should contact a TAX attorney rather than a real estate attorney.

[mykidsrock]

Good luck with your sale!!! We're supposed to find out this week also if our bank will accept our offer, our's is for about 30K less than we owe. This process takes so long though.

[mykidsrock]

I just wanted to check in on you Jilian- have you heard back from the bank yet?

Yesterday our realtor said our "buyers" are getting nervous, so now we're afraid they may find something else and backout. This process takes sooooooo long!!! We got the offer on Dec 26th and no one knows what is going on yet. *SIGH* They need to be out of their house soon and want to be in here by the 6th or 7th of Feb. If this goes through, that leaves us barely any time. But I still hope it goes through, lol!

Best of luck to you!!!

[Jilian]

We received our offer on Dec 18 or so, the entire package of requested documents were overnighted to the mortgage co (GMAC) and they received it on Dec 20. You need to call almost every day for updates! I was continuously told they were "working on it" then on Jan 4 I called and they were "missing things". These things were missing sice Dec 28, even though I had called several times since then and was never told. We re-sent everything with our names and account # on every page in bold. Finally it went to an analyst, then a broker came out to do a BPO, an appraiser came, and another person came to take pics outside. Yesterday we got a counter-offer from the bank for about $30k more than their initial offer. Apparently the bank counter-offered for the amount that the appraisal came back as. The appraisal is outdated and used comparable properties from October so we are fighting it. The battle continues...

All short sales take at lease 2 weeks, most take 30-45 days to even get an answer. There are so many requests for them these days, and the mortgage companies cannot keep up.

[Bellejar]

Originally Posted by Jilian

Hi, DH and I had our home built in 2005 and because of DS2's surprise heart defect and surgery that followed we can no longer afford our home. He needs lifetime follow up and that will be pricey. We are very sad because we love our home but at this point we need to cut our losses and get out in the most amicable way possible. We have decided to do a short sale and have an offer that is with the bank, they should make their decision sometime this week. It looks like they will approve it. The home is selling for almost $60,000 less than we owe, but it is selling for current "fair market value".

My question: how does the recent "HR 3648 Mortgage forgiveness debt relief act of 2007" affect us? Does this mean we will not have to pay taxes on the $60,000 difference if we do the short sale? Usually the bank would give you a 1099 for the deficientcy and it would have to be added to your taxes at the end of the year on a form 1099 as taxable income We cannot afford to pay taxes on $60k, but want to do anything we can to avoid foreclosure. We are in FL if that helps.

Any experience? We can absolutely prove financial hardship because of the little guy's surgery/ICU stay. We have a call into a RE lawyer too but have not heard back yet :

Have you talked to a bankruptcy attorney? There may be a way to bankrupt the medical bills debt and keep your home. That would be my first thought also apply to the hospital for charity care or forgiveness of any outstanding medical bills.

[Jilian]

The medical bills aren't the only issue for us. If they were we could probably keep the house.

[Maggi315]

About the appraisal being outdated...are you having a new one done? Do you expect it to be higher? We had one done last june, but we were told that if we had anew one done now, it would most likely be lower due to all the houses that are selling at lower prices? We're afraid it will go down, not up.

We are thinking of listing our house, when you did, did you let the real estate agent and the potential buyers know you were thinking of doing a short sale? Since it takes longer after they put a bid in, I wonder if buyers would shy away from that?

thanks...just wondering how this all works...