Monthly Archives: January 2014

Mortgage Forgiveness Debt Relief Act expired, what is the IRS “insolvency clause” and how could this help you?

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The Mortgage Forgiveness Debt Relief Act expired December 31, 2013. The Act prevented homeowners who go through a short sale or foreclosure from being taxed on the amount of their mortgage debt that has been forgiven. the debt that is forgiven is normally considered taxable income. The good news is there is still a way to avoid paying income tax on forgiven debt.

Many Homeowners are not aware that they may still qualify for tax relief via the IRS “insolvency clause”. The clause states that a seller is exempt from paying tax on any forgiven debt to the extent that they are insolvent.

What does it mean to be insolvent?
Insolvent is when the borrower’s debts and liabilities exceed their assets by more than the amount of debt forgiven. In this case the borrower would not have to pay taxes on the forgiven debt.

How to calculate insolvency:

Add up all of your debts/liabilities in one column and all of your assets in another.the IRS wants you to include the mortgage debt as a liability, and the fair market value of your house as an asset. Let’s say you have $500,000 in assets and $600,000 in debts/liabilities. You are insolvent by $100,000.

ASSETS LIABILITIES INSOLVENCY

$500,000 – $600,0000 = [ $100,000 ]

Since your insolvency amount of $100,000 equals the forgiven debt amount of $100,000, it will be considered even and you will not have to pay taxes on that forgiven debt.

Likewise, if let’s say you were only insolvent by $80,000. In that case, you would still have to pay income tax on the remaining $20,000 of forgiven debt.

If you have any questions of this law please contact or feel free to comment below.

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New Mortgage Protections for Homeowners/Se introducen nuevos reglamentos para protejer los dueños de casa

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Effective January 10, 2014, some new CFPB rules will
provide homeowners with new rights and greater protection
from harmful practices. These rules should eliminate
or sharply reduce the runarounds and painful surprises
that hurt so many homeowners during and after the
financial crisis. Borrowers who fall behind now have
more options to take control:

 Mortgage servicers will now have to call or contact
most borrowers by the time they are 36 days late on
their mortgage.
 Under the new CFPB rules, servicers, with limited
exceptions, cannot initiate a foreclosure until a
borrower is more than 120 days delinquent. This
should give borrowers time to submit an application
for a loan modification or other alternative to
foreclosure.
 Mortgage servicers can no longer start a foreclosure
while they are also working with a homeowner who
has submitted a complete application for help. The
new CFPB rules limit the harm to consumers of “dual
tracking.”
 Mortgage servicers now have to make sure the
people who take calls from borrowers are able
to answer questions and have access to critical
documents.
 Servicers will have to give homeowners who ask
timely, accurate information about their foreclosure
status when asked.

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Desde el 10 de enero del 2014, hay nuevas reglas que le darán a los dueños de casa nuevos derechos y mas protección contra los bancos. Estas reglas fueron implementadas para ayudar a eliminar o reducir las duras sorpresas que lastimaron a tantos dueños de casa durante y después de la crisis financiera. Los dueños de casa que se atrasen ahora tienen mas opciones para tomar control de su hipoteca.

 Los bancos hipotecarios ahora tendrán que llamar a los dueños de casa cuando estén atrasados mas de 36 días en sus pagos.
 Bajo las nuevas leyes los bancos,( con pocas excepciones), no podrán iniciar una acción de foreclosure hasta que el dueño de casa este atrasado mas de 120 días en sus pagos. Esto le debe dar a los dueños de casa suficiente tiempo para diligenciar y enviar una aplicación para una modificación de su préstamo actual u otra alternativa para evitar un foreclosure.
 Los bancos no podrán empezar un foreclosure mientras que estén trabajando con el dueño de casa y el haya enviado una aplicación completa para pedir ayuda con su préstamo.
 Los bancos ahora se tienen que asegurar que las personas que contesten las llamadas de los prestatarios puedan responder sus preguntas y tengan que tener acceso a documentos críticos.
 Los bancos tendrán que darle a los dueños de casa, información exacta sobre el estado de su foreclosure cuando ellos lo pidan.