Anna May & Greg Jones, REALTORS

ISLIP, NY – FEBRUARY 09: A padlock hangs from a door of a foreclosed home on February 9, 2012 in Islip, New York. (Image credit: Getty Images via @daylife)

For homeowners with a home that’s worth less than the balance(s) owed, what does this mean to you? This means taking the chance of the debt forgiveness law being extended past the end of the year or getting off the fence and exploring your options for a short sale now.

After a foreclosure or a short sale, the former homeowner is not taxed on forgiven debt under federal and state laws that will expire at the end of this year.  In both cases, the lender likely ends up receiving less than the full amount of the outstanding balance.  If so, the amount the borrower is no longer responsible for paying to the lender is considered “cancellation of debt” income and, thus, income to the borrower that – prior to the adoption of the federal and state protections – was subject to income tax.  Those federal and state protections are scheduled to expire at the end of 2012.

Pride comes before a fall. We know of many people who have simply walked away from their homes that fall into foreclosure, perhaps because they are too proud to ask for help. Not only do borrowers ruin their credit unnecessarily with a foreclosure rather than pursuing a short sale, foreclosures are devastating to entire neighborhoods by dragging down property values of the homes around them. Do you know of someone in your neighborhood who needs help but is too proud to ask for it?

Short sales are a common part of the real estate landscape these days. The best thing we can do is to help get the word out about what homeowners’ options are so that they can make informed decisions…

Image via Wikipedia

Today in the newspaper I read that President Obama wants to pursue relief for “responsible homeowners”. Could just be election-year rhetoric, however, who is to judge what is “responsible”?

Common sense may dictate that responsible homeowners have:

1. made their mortgage payments on time every month
2. NOT used their home as an ATM machine to buy new cars or boats or ugly jewelry or trips to Barbados
3. actually READ their loan papers when they signed for their mortgages

In two short sale scenarios with seller clients this past week, the lenders stated that the sellers “do not meet the investor’s criteria for imminent default” of their mortgage.

Wait a minute here. So, our clients have been working diligently to save their money, have NOT made frivolous purchases while being homeowners, and now when they’re honestly and truly under-employed and half of the married couple is out of work, they’re not given relief?

Must they be nearly broke to be granted a short sale right off the bat? Must being responsible invite punishment in the form of nobody offering to help them until they’re further distressed?

What is the incentive to BE responsible when so many homeowners are feeling punished for BEING responsible?

Initial turn-downs are common in short sale negotiations when the sellers are on time with their payments. It’s when the mortgage payments are NOT being paid that we often see lenders ramping up to make the short sale happen favorably for all parties. However, homeowners must consider the credit implications of being behind on mortgage payments…