In the last few years, more and more homeowners have found it difficult to stay current on their mortgage. Individuals and families have many financial obligations, and in a sluggish economy, the amount set aside for monthly mortgage payments may get smaller. If a homeowner is unable to pay their mortgage for an extended period of time, their lending company or bank may take back, or foreclose, on the property. Foreclosures can easily be perceived as homeowner vs. bank. On the surface, it seems as if the bank wants to take the home at the first chance they get. However, they aren’t in the business of owning property; they want to reclaim their loan amount and may be willing to work with the homeowner to keep them living in the property. The bank may authorize a loan modification, a repayment plan, or other alternatives. Homeowners considering how to avoid foreclosure may want to consider a short sale.
When a property in danger of foreclosure is sold for an amount less than the balance left on the loan, it is called a short sale. A lender may decide to allow a short sale if they are willing to accept slight or moderate losses on their investment. Once the sale goes through, the homeowner may be required to pay the difference between the sales price and the amount left on the loan. This is called a deficiency. They will not, however, have to make monthly mortgage payments on a home they are not able to afford.
It is important to note the IRS will not grant payment plan approval unless all past due tax returns are filed. The IRS assesses a failure-to-file penalty of 5-percent each month the return is delinquent, with a maximum penalty of 25-percent. Taxpayers who have filed returns but not paid back taxes incur a monthly failure-to-pay penalty of 1/2-percent until taxes are fully paid. Unpaid tax penalties are calculated from the original filing date. Taxpayers carrying IRS debt of $10,000 or more might qualify for a partial payment installment agreement. This plan usually requires assistance from a tax attorney. All past due returns must be filed before the IRS will enter into an installment plan. Taxpayers are required to submit monthly payments until the agreement is fulfilled and the remaining tax debt is forgiven.
Drawbacks to Foreclosure- Although a short sale could protect your credit rating from being destroyed by foreclosure, it can also have a negative impact. The short sale contract is completely voluntary and developed based on negotiations between the homeowner and the bank. Therefore, your bank may or may not agree to report your defaulted mortgage or deficiency judgement. If it is reported, the short sale could stay on your credit report for many years. However, there are many things that go into a credit rating, so some people may be able to obtain another mortgage and buy another property in as little as a year following the short sale. Because the amount of a deficiency judgement varies based on the value of the home and the final sale price, it may or may not be a burden on the former homeowner. The amount could be $2,000 or $20,000: it all depends. Most (if not all) people who deal with foreclosure do not have thousands of dollars to spare. In this situation, the individual may be forced to declare bankruptcy.
Taxes are always an important consideration when it comes to property. Homeowners who are unable to pay their monthly mortgage payments may also be unable to afford their property taxes. The Mortgage Debt Relief Act gives individuals a break on the taxes they may owe on a forgiven mortgage. However, it is important to know whether or not your situation qualifies for tax relief. Do this by talking to a professional, such as an accountant or an attorney. A short sale can be a good alternative to foreclosure, but it is only one of many options available to homeowners struggling to make their mortgage payments each month.
Learn more about Obama Mortgage Relief Plan Qualifications.
