As the real estate values have plummeted, a lot of Americans are in upside down real estate and some simply can’t hang on any longer. You might be in the same spot – looking at foreclosure, considering a short sale or exploring a loan modification. I’ve had clients successfully renegotiate their loans, actually for some pretty amazing amounts (as much as $200,000 in debt reduction and 3% with a 40 year amortization).
If you’re looking at any of these options, get as many facts as possible first. Please go to HomeMortgageLoanModifications](homemortgageloanmodifications.com/free-mortgage-loan-modification-consultation.php) to get more information before you act.
One of the things to consider in any of these is what happens to the excess debt. For example, if you have a loan on your property of $400,000 and it’s only worth $250,000 now and the company either allows a short sale or a principal reduction to that amount, there is $150,000 still to figure out what to do with. In some cases, the company isn’t allowed to come after you for the debt. (That’s called getting a deficiency judgment.) In many cases, though, people thing they’re exempted and they’re not. In fact, under most state law the lender has up to 4 years to file against you.
If instead, they forgive the debt (which is most likely what you are hoping for), you have a taxable event. If it was your principal residence and the debt is only acquisition indebtedness you will get a pass. Otherwise, it’s taxable.
If you’ve had a foreclosure, deed in lieu of foreclosure, short sale or loan modification, don’t forget possible tax implications. There is a way around it – a Form 982 filing with your tax return – but you must file it with your return!