April 24, 2014

Short Sale Laws that Favor Home Sellers in California in 2014

Short Sale Information and Favorable Laws for California Homeowners in 2014

Here are the Short Sale related laws you should know about as a homeowner in 2014. Please seek the advice of a real estate attorney and a tax professional on how these laws apply to your specific situation. The good news in 2014 is that the California Franchise Tax Board has clarified that California families who successfully complete a short sale on their primary home may not be subject to California state income tax liability on debt forgiveness “phantom income” they never received in a short sale on their primary residence (1-4 units) as long as they meet several conditions such as with a non-recourse, purchase money loan. A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Please read the IRS letter to Senator Boxer clarifying whether a California homeowner would have taxable cancellation of indebtedness income on a lender approved short sale that qualifies under section 580e of the California Code of Civil Procedure (CCP).

Please send us a message below for a free consultation on whether a short sale on your primary residence or investment property is the right option for you. We have a team of local real estate professionals experienced in short sales who are available to help and  guide you through the short sale process.

Please be sure to consult your tax advisor and legal professional on how these laws affect your specific situation. If you have converted your primary residence to a rental property and short sale the property, plase be sure to work with your CPA to see whether you have a taxable event or not after a short sale. Also be sure to read below on “Is cancellation of debt always taxable?”. If the Mortgage Debt Relief Forgiveness Act is not extended in 2014 and you do not qualify to exclude the cancellation of debt (COD) income resulting from a short sale, you may want to ask your CPA or tax advisor regarding exceptions on paying taxes on COD income based on your insolvency status. You may be able to avoid in paying taxes after selling your home in a short sale if the sum of all your debts and liabilities exeed your assets.

You may also visit the IRS website here for more information on the Mortgage Debt Relief Forgiveness Act and Debt Cancellation. Learn how to short sale a house in California here. Read more information on frequently asked questions on short sales here.

Did you know that Keep Your Home California offers homeowners up to $5,000 in transition assistance if you are participating in a short sale or deed in lieu? Please send us a message below to learn about your options.

First Mortgage: SB 931 Deficiency Waiver on Short Sales

Second Mortgages: SB 458 Release of Liability on Short Sales in California

Short Sale Related LawsAfter a short sale, can the lender come after your personal assets such as bank accounts?SB 931- Did you know that when the first mortgage holder of your loan accepts full payment and satisfaction of all your outstanding first loan from the successful completion of  the sale of your home in California, your lender is  is prevented from pursuing a deficiency against you even after a short sale.This is great news! What this means to you as a homeowner in California is that this releases you from further liability (deficiency) when the bank accepts and approves the completed short sale.Click here to read more information on SB 931 and see how this may apply to your individual situation.At any rate, whenever you are negotiating a short sale, it would still be beneficial to have your short sale real estate agent specialist ask for the lender to issue a short sale approval letter with the verbiage indicating a waiver of future deficiency and no promissory note. Also read more about the favorable law Code of Civil Procedure 580-e here. Effective as of July 15, 2011, California homeowners who sell their homes through a short sale and who have subordinate loans such as home equity line of credit (HELOC) or second mortgages, are now extended the protection against deficiency in a short sale. This means that if your second lender agrees to the short sale, your lender must accept the proceeds from the short sale as a payment in full of the outstanding balance of the loans. So if you are a homeowner in California who sells your home in a short sale that the bank has approved, you will be released from liability (deficiency) not only on your first mortgage (SB 931) but also on your second mortgage under SB 458 in the event that the bank accepts and approves the short sale event. Receiving short sale approval is not enough, you would have to complete the short sale. Click here to read more information on SB 458. Please consult a real estate attorney to see how these short sale related laws may apply to your individual situationDid you know that some homeowners may only need to do a short sale on their second mortgage if there is enough proceeds from the sale of the home to payoff the first mortgage? Please send us a message below for more information.

What is a Short Sale

How to Short Sale : Watch Video

California: Short Sale Income Tax Relief from California State Income Tax 2009-2012

Federal Tax: Short Sale Income Tax Relief

In California, homeowners who sell their home through a short sale may qualify for the California Mortgage Forgiveness Debt Relief under SB 401, which was enacted on April 12, 2010. (Please also read the 2014 update above with the FTB clarifying when a short sale forgiveness of debt is not considered taxable income.)This mortgage forgiveness debt relief act allows taxpayers who have had all or part of their loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from California gross income. This tax relief for those who short sell their homes in California apply to discharges of qualified residence indebtedness on or after January 1, 2009 and before December 31, 2013.Read more about this from the California Franchise Tax Board website under SB 401.The California Tax Relief limits the amount of qualified principal indebtedness up to $800,000 for those who file as married, joint, head of household and up to $400,000 for those who file as married/RDP filing separately. See State of California Franchise Tax Board for more details. In order to claim tax relief, your would need to file Form 540 or Form 540X for a previously filed tax return.Consult your tax advisor regarding how this tax relief may apply to your individual situation.2013 Update on State of California Short Sale Mortgage Debt Relief Forgiveness:  SB 30 Taxation: Cancellation of Indebtedness: Mortgage Debt Forgiveness in California.This bill would extend the operation of the exclusion of the discharge of qualified principal residence indebtedness to debt that is discharged on or after January 1, 2013, andbefore January 1, 2014.

The federal Mortgage Forgiveness Debt Relief Act only provides for the exclusion of COD income relating to qualified principal residence. If you have COD income as the result of a foreclosure on other property, such as a second (vacation) home, rental, or other business property, you may still be able to exclude COD income under other provisions. 
Consult your tax advisor regarding how this short sale tax relief may apply to your individual situation.

Short Sale Information Links

Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, short sale, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. The Mortgage Forgiveness Debt Relief Act of 2007  applies to original or refinanced loans that were used to acquire, build, or improve upon on your primary home.

If the loans forgiven were loans that you used to purchase the home (purchase money loan) or loans used to build or improve the home, most likely you would not have to pay taxes if you complete a short sale before December 31, 2013.  Note that a portion or all of the forgiven amount would be considered taxable income if the forgiven amount, or if portions of the loans forgiven were used for other purposes- i.e. cash out refinance used to payoff i.e. car loans, credit card debt, etc.

Click here to read more information on the Mortgage Forgiveness Debt Relief Act of 2007

Was the Mortgage Debt Relief Forgiveness Act extended in 2014?

As of this writing, the Mortgage Debt Relief Forgiveness Act extension in 2014 has not happened. However, please be sure to read the first pararaph of this article to see if despite the Mortgage Debt Relief Forgiveness Act not being extended in 2014, many homeowners may not have to pay taxes on a short sale assuming they qualify. Also, note that not all cancellation of debt income resulting from a short sale are not always taxable. Read below for more information. Please consult a CPA to see how this may or may not apply with your individual tax situation.

Is Cancellation of Debt income always taxable?
Not always. There are some exceptions according to the IRS. The most common situations when cancellation of debt income is not taxable involve:

  • Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners which expired in 2013.
  • Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
  • Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. How do you know if you are insolvent? According to the IRS, “you are insolvent when your total debts exceed the total fair market value of all of your assets.  Assets include everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other investments, or your pension and other retirement accounts.”
  • Certain farm debts
  • Non-recourse loans

 

Most California homeowners can now avoid foreclosure or bankruptcy and complete a short sale instead in 2014. Even with the Mortgage Debt Relief Forgiveness Act’s expiration, there may not be a taxable event as a result of short sale with a loss, due to the IRS recognizing that the debt written off in a short sale does not constitute recourse debt under California law, and thus does not create so-called “cancellation of debt” income to the underwater California home seller for federal income tax purposes. This means that you may be able to short sale your primary home in California in 2014 and not incur both state and federal income tax for completing a short sale on non-recourse, purchase money loans.

Short Sales and Foreclosure Resource Agent in San Diego

Did you know that our short sale agent specialist has earned the nationally recognized Short Sales and Foreclosure Resource certification. The National Association of REALTORS® offers the SFR® certification to REALTORS® who want to help both buyers and sellers navigate these complicated transactions, as demand for agents with short sales expertise grows. Please contact us at 760-798-9024 for a confidential and free consultation or by filling out the contact information request below for more information to find out if short sale is the right option for you in 2014.

Learn about the HAFA Short Sale of Primary Residence and Investment or Rental Property Here and Receive $3,000 in Relocation Assistance

Is short sale the right option for me?

Considering a short sale and need more information? Please take a minute to fill out the request form below. All information you provide will be kept strictly confidential. No obligation. No spam. If your property is located outside of the areas we serve, go ahead and fill out the form below. We have a team of short sale Realtors® available to help you anywhere in the United States. We understand that you need answers to your questions and we are here to help you and will be available to you for a free consultation. You may also call us at 760-798-9024.

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If you need a more precise valuation estimate of your home, we will arrange to tour the property with you. Tell us when is a convenient time to see your home at 760-798-9024.

Read more information on frequently asked questions on short sales here.

Short Sale Process Explained

Why Short Sale in 2014?

What to expect in a short sale process

Watch the Video Below on How a Short Sale Works


Are you looking for a way to minimize damage to your credit and avoid foreclosure?

Typically when deciding to do a short sale, a few things that you may want to consider are the deficiency and tax consequences of selling your home at a price less than what you owe your lenders.

The goods news is that in 2014, if you decide to do a short sale, there are a few favorable laws that you should know about that are currently in effect. But, the clock is ticking especially if you are already behind on your payments or expect difficulty making payments. So the time to act is now if you wish to complete the short sale process on your home.

Most short sale lenders will require you to use a professional real estate agent to assist you in completing a short sale.  There is zero out of pocket money for you when you use us as your short sale real estate agent Team, as the lender pays commissions out of the proceeds of the sale. Be sure to ask us about possibly qualifying for up to $3,000 in relocation assistanceas part of your San Diego short sale.

Short sales take time. We have all heard the horror stories about short sales taking months on end to close. But, that has not been our experience. We’ve found that when documents are managed properly, and consistent communication with the lenders is performed, that short sales can be completed in a very reasonable time frame.

Always seek out the guidance of an experienced professional real estate team when considering a short sale.

We have the experience to clearly explain your options to guide you in the right direction, and get your home sold so that you can get a fresh start.  Read the Testimonials from our clients describing their experience with us.

If you would like to have a similar experience with your Short Sale Listing Agent Team, just insert contact us by filling out the simple form below and we will contact you for a complimentary and no-obligation consultation. Whether a short sale is or not the right option for you, we’ll be the first to let you.

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  • Here are a few things to consider in deciding whether a short sale is the right option for you in 2014.You have no intention of keeping the property
  • You have hardship reasons and you want a fresh start.
  • You are currently behind on your mortgage payments or expect imminent default.
  • You need to get rid of an investment or rental property that is upside down and have been advised by your tax consultant to take advantage of tax losses to offset your short sale forgiven amount income for the year.
  • There are favorable short sale related laws  that prevent lenders from coming after you for deficiency when they approve in writing and accept the short payoffs and the ultimate completion of a short sale on your primary home, rental, or investment property (1-4 units only)(Code of Civil Procedure 580-e)
  • You are experiencing difficulty in making full monthly payments on your loans because of several factors such as job loss for all income earners, spouse/partner loses their job, reduced working hours/less overtime, sickness/illness in the family causing large medical bills here or abroad, job transfers or relocation that cause the homeowner to have two housing payments which are not sustainable given their income, adjustable mortgages that have caused the monthly payments to go up significantly on one or two mortgages, divorce, bankruptcy, etc.
  • The total balances you owe on your first and second mortgages combined, or possibly just the second mortgage or HELOC are much larger than the market value of the home which would cause a short payoff.
  • You have applied for a loan modification with your lenders and have been denied once or twice and are still in default for not making their monthly payments or the loan modification is not working out for you.
  • You may have already received a notice of default (NOD) for non-payment of monthly interest/principal payments for more than 90 days and   do  not foresee being able to cure the delinquent payments.
  • You know you need to do something about it (rather than wait to be evicted) and have consulted with a bankcruptcy, real estate attorney, and tax advisor and was told to explore how a short sale could work for you.
  • You have explored other options such as negotiating with the bank to reduce your monthly payment or interest rate, applied for a loan modification but the terms are still not acceptable to you.
  • After exploring all your options and talking with legal and tax advisors, you have ruled out filing for bankcruptcy and foreclosure.
  • You want to minimize the impact on your credit as you have plans some day to once again own a property in the next 3 years.
  • You have consulted with a tax advisor and have been informed that you do not have to pay taxes on a short sale in 2014.
  • You have consulted with a real estate attorney who informed you that the short sale of your home is subject to anti-deficiency laws.

A lot of the tax laws that favor selling your home through a short sale in California. So if you have decided to short sell your home in 2014 and qualify to avoid deficiency and not pay taxes on mortgage forgiven debt associated with a short sale, now would be the time in order to close escrow in time and avoid foreclosure especially if you expect to be delinquent in your payments or now behind on your mortgage payments.

December 4, 2013 Update: Great News! The FTB speaks up on California Short Sales State Income Taxes

On December 4, 2013 the California Franchise Tax Board issued a statement it “will not tax the homeowners when they short sell their homes” by conforming to IRS regulation that income from a short sale (due to debt forgiveness) on non-recourse loans is not taxable income. The FTB’s announcement that it will conform to the IRS ensures continued protection for taxpayers without the need for legislation. With the IRS clarification, it would seem that even past the expiration of the Mortgage Debt Relief Forgiveness Act in 2013 that the short sale is not considered taxable in the first place for most California homeowners with non-recourse loans. Therefore if you close on a short sale in 2014, the extension of the Mortgage Debt Relief Forgiveness Act would only be beneficial but not necessary for many homeowners who short sale in 2014. Please consult your tax advisor on how this affects your individual situation.

Testimonials from clients we worked with on Recent short sales:

After sitting down with one real estate agent who introduced the idea of a short sale, web searches on short sales and selling condos in Vista were done which lead to agents Jean and Ken Tritle.  Initially the thought was to get a second opinion to further solidify the decision to move forward with a short sale with the first agent.  After meeting with Jean and Ken and experiencing their professionalism, initiative, wealth of knowledge, and pure passion they have for real estate, it was known that both short sale was the way to go and that Jean and Ken were the best agents to help with that process. As the process went on, they provided knowledge about what the process entailed, explained terminology in an understandable fashion, were very respectful and responsive to questions/comments/concerns and made the short sale process as comfortable for us as possible.  While the personal interaction with Jean and Ken was first class, their attention to details, promptness in responses with financial institutions, HUD, buyers was excellent. If you are someone that wants to get something done in the real estate market, either buying or selling, go with Jean & Ken Tritle.  – Lorenzo, V., North County San Diego, September 2012

Jean and Ken did an amazing job selling our home, and were highly recommended by our friends.  The entire process took nearly three months to complete, but their diligence, professionalism and support never faltered.  In comparison to other real estate teams I have worked with, Jean and Ken truly raise the standards within the industry. – Michael S., San Elijo Hills, San Marcos, CA, April 2012

Realtor agent Jean Noriega-tritle is very deserving in all aspects of this review. A proven realty professional in her field. My property was sold in the least amount of time. Avel L., American Canyon, CA., January 2011

Last year, I was looking online on information about short selling my home. Ken and Jean Tritle’s advertising were linked with what I was reading. I gave them a call, left a message and within a few hours they returned my phone call. They answered all my questions I had about short selling and the process it takes.

I felt comfortable about having them sell my home. After a few days, they sent me an email on surrounding homes that were sold. As soon as I gave the go ahead and filled out the paper work, Ken and Jean scheduled an appointment quickly for photos to be taken of my home, a walk through for them to describe the home when they put it up on the listing. They scheduled an open house for one day and received many families that were interested to buy the home. After 1 week, they told me they received over 12 offers. I was really impressed. Throughout the whole process, they kept in contact to keep me up to date what was going on. Because it was a short sale, my lenders took a long time to approve the sale. They kept at it and trying to push it through so we can close. As long as you do your part in getting all the paperwork that is required, they will keep things moving. I like doing business with them because they took care of all my needs in a timely manner, answered all my questions I had, listened to my concerns and got the job done. I highly recommend using them for all your housing needs. They won’t let you down!! Maida, San Diego, February 2014

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Related Short Sale Articles

 

http://www.irs.gov/pub/irs-wd/13-0036.pdf

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