Fiscal cliff fears were at a fever pitch just a few weeks ago, amid a growing chorus of concerns regarding numerous tax hikes.
One aspect of all that which was seldom discussed was the expiration of the Mortgage Forgiveness Debt Relief Act. Kentucky foreclosure lawyers know that for those who are underwater right now on their homes, this is a critical piece of legislation, and expiration of debt forgiveness would have almost certainly meant bankruptcy if their home went into a foreclosure or short sale.
The most basic explanation of this act is that it got homeowners off the hook for the remainder of money they owed to the bank following a foreclosure or short sale. So let’s say, for example, you bought your home for $150,000 and now it was only worth $115,000. You were able to sell it in a short sale for $110,00. Most banks know that they weren’t likely to receive the remaining $40,000, and so often, they would simply “forgive” that amount.
But prior to the mortgage forgiveness act, you would be liable to pay income taxes on that money – as if it had actually been cash in your pocket. So while you wouldn’t have had to pay $40,000, it would very likely have bumped you up into the next income bracket. In this instance, you would have been on the hook for an additional $8,000 in taxes.
For someone whose home had sold for $100,000 less than what they owed on the mortgage, they would have been responsible for roughly $20,000 in taxes.
The tax break has been extended through the end of this year. What this means is that if you are underwater on your home and concerned about potentially falling into foreclosure or being forced to conduct a short sale, you really don’t want to wait until the end of the year, as it could end up costing you quite a bit more.
We are dedicated to ensuring the best outcome for your individual circumstances. It helps to have as much information as possible when making financial decisions. Sometimes a short sale makes the most sense. Sometimes a Chapter 7 or Chapter 13 bankruptcy filing will better serve your needs. We are committed to finding the solutions that work for you.
Most people who are in this situation probably already realize it, and may just be putting off the inevitable because they aren’t eager to deal with it. This should give you some incentive to do so.
Being underwater on your home doesn’t necessarily mean you’ll be forced to foreclose or complete a short sale, particularly given the recent foreclosure abuse settlements reached by a number of banks. Some of these agreements require banks to work with homeowners who are underwater under more generous terms. But having a legal advocate on your side to barter about those terms can be extremely helpful.
Some signs that you need to seek help right away include:
- You’ve endured an unexpected life change – lost your job, went through a divorce or suffered a serious illness. These incidents put you at increased risk of defaulting on your mortgage.
- You’re grappling with serious financial struggles. If you have maxed out on your credit cards or are having trouble paying your everyday expenses – particularly keeping up on your mortgage – you’re going to need help. The good thing about choosing our firm is that we have experience in handling both foreclosure defense and bankruptcy filings, so we have the experience you require.
- You have missed three or more mortgage payments. This is a huge red flag, and you should not delay getting help any longer. The sooner you get help, the better your chances of securing a deal.
The extension of the Mortgage Forgiveness Debt Relief Act is one bit of good news in all this. Call us today, and we can likely give you more.