NBR -Short-selling

CinemaGoddess · May 2011

(I XP'd wih 6-9)

Does anyone have experience with this?

DH and I had a long look at and discussion about our budget this morning. We came to the conclusion that we can't afford to keep our house anymore. At the time we bought it, the cost of our mortgage was about 30% of our take-home pay, so we could afford it.

Now, after DH going down to part-time at his job and the twins, it's taking up about 55% of our take-home. It's to the point where I'm having to put our groceries every week on my credit card because the cost of formula and diapers eats up most of our grocery budget.

So instead of trying to rent it out (that would take for.ev.er and I don't like the idea of being a landlord) or walk away (I'm ethically opposed to it plus we don't want to take that bad of a hit on our credit), we're looking into short-selling.

Any tips or advice would be much appreciated.

ChubbyCheekiesMom · May 2011

Hey, I am sending you a PM. I have lots of info for you.

LifesPeachy · May 2011

ChubbyCheekiesMom:
Hey, I am sending you a PM. I have lots of info for you.

Could you send me the same info? See my post above about my head spinning. Something we're thinking of doing too for our DE home. Being a landlord sucks- look what happened to our house. Its going to cost thousands of dollars to fix up and that's just after 6 months of rental use!!

To the OP- good luck, I know it's hard Sad

blueLu25 · May 2011

My mom is a realtor and has lots of good info between her and her office if you want her info.

doublem · May 2011

I don't have any advice, but I wanted to send some hugs your way! Making a decision like that can't be easy. Does it help to know that two of my friends who made the same choice (to sell their homes and become renters) are much happier to have that burden gone?

Left Hug CG Right Hug

KNemo · May 2011

I'm with Laura. I have watched too many friends make this hard decision. But now that it's over, they are so much happier. Hugs, mama.

ChubbyCheekiesMom · May 2011

LifesPeachy:
ChubbyCheekiesMom:
Hey, I am sending you a PM. I have lots of info for you.
Could you send me the same info? See my post above about my head spinning. Something we're thinking of doing too for our DE home. Being a landlord sucks- look what happened to our house. Its going to cost thousands of dollars to fix up and that's just after 6 months of rental use!!
To the OP- good luck, I know it's hard

I sent you a PM.

cwhip77 · May 2011

ChubbyCheekiesMom:
Hey, I am sending you a PM. I have lots of info for you.

Would you mind sharing if it's not too personal? We're stuck in a similar situation and I'm really interested in how people who've gone through the process found it to be. I'm PM challenged but my email is deborahsw @ gmail.com

ChubbyCheekiesMom · May 2011

cwhip77:
ChubbyCheekiesMom:
Hey, I am sending you a PM. I have lots of info for you.

Would you mind sharing if it's not too personal? We're stuck in a similar situation and I'm really interested in how people who've gone through the process found it to be. I'm PM challenged but my email is deborahsw @ gmail.com

I sent you an email!

koosh ball · May 2011

I would look into renting while looking into a short sale. I rent my condo and it has been pretty fast. The rental market in the area is also very strong so you might be surprised.

LauraLynneC · May 2011

I'm no expert but I have been through a short sale. I'm sure you already have great information...but I wanted to say my point of view out loud.

The two main points that were the most shocking for me were that I had to let the house be foreclosed on - that's still on my credit and it's been 9 years. But I had no choice (husband left with all the savings including 3 months mortgage I THOUGHT was paid)

The second point - and the more important point - whatever the "forgiven" debt amount is will be considered "income" by the IRS and you'll be taxed on that amount as if you RECEIVED it. For our roughly $10,000 forgiven amount, it was nearly $6k in taxes. (I has filed for and recorded our divorce before 12/31 that year so the tax burden fell on my ex dh who still hasn't paid it - karma's a ***)

CinemaGoddess · May 2011

Thanks everyone. We went over all our options yesterday and decided that we're going to shoot for getting a loan modification and then renting the place out if the modification goes through.

I'm praying to the flying spaghetti monster that we'll be out of The Creek and back in Greenwood by this time next year. And we'll just be that much closer to Cupcake Royale.

arikaleeanne · May 2011

Hopefully you have better luck with a loan modification then we have, we have been in the modification process for 20 monthes now (that is right over a year in a half) and have rented it out since we had to relocate for my husbands job we couldn't wait for the modification to go finalize.

Anyway it seems we are having to got the short sale route, we have had great renters and had no problems with our renters but we need to get out of underneath the house and move on with our lifes.

Chubby Cheekies mom could you send me some info also my email is

oneski75@yahoo.com

arikaleeanne · May 2011

Oops I meant to type chubby cheekies mom I guess that is what happens when you try to type will nursing

IdahoGirl · May 2011

cinema_goddess:

Thanks everyone. We went over all our options yesterday and decided that we're going to shoot for getting a loan modification and then renting the place out if the modification goes through.

I'm praying to the flying spaghetti monster that we'll be out of The Creek and back in Greenwood by this time next year. And we'll just be that much closer to Cupcake Royale.

I hope it goes through for you. There are lots of people who've had to go through foreclosure and shortsale - I just hate to see your credit screwed up like that. I know how hard you've worked at paying off debt, CG.

TwinMommy09 · May 2011

We are going through something like this now; my advice is to consult a real estate attorney - we found out our bank is on their "will not work with list" as they will not do/approve short sales... I'm happy to send you the info of who we went to, an hour consult only cost us $150 and they are legit been doing this for 25 years... best money i've spent all year we got so many answers... GL!

ChubbyCheekiesMom · May 2011

TwinMommy09:
We are going through something like this now; my advice is to consult a real estate attorney - we found out our bank is on their "will not work with list" as they will not do/approve short sales... I'm happy to send you the info of who we went to, an hour consult only cost us $150 and they are legit been doing this for 25 years... best money i've spent all year we got so many answers... GL!

I think this is the best advice. Did you use Mcferran? I used them for the consult and man what great information and they make you feel at ease.

outlandartist · May 2011

LauraLynneC:
The second point - and the more important point - whatever the "forgiven" debt amount is will be considered "income" by the IRS and you'll be taxed on that amount as if you RECEIVED it. For our roughly $10,000 forgiven amount, it was nearly $6k in taxes. (I has filed for and recorded our divorce before 12/31 that year so the tax burden fell on my ex dh who still hasn't paid it - karma's a ***)

Did your foreclosure occur in Washington state? We are looking at getting out of our mortgage and becoming renters also (not because we can't afford it, but because we want to move and our house is roughly 50% under water). DH has done tons of research and he said that WA is one of a few states where the forgiven debt is NOT considered income. Unless a law has changed in the past 9 years, I'm not sure.

LauraLynneC · May 2011

outlandartist:
LauraLynneC:

The second point - and the more important point - whatever the "forgiven" debt amount is will be considered "income" by the IRS and you'll be taxed on that amount as if you RECEIVED it. For our roughly $10,000 forgiven amount, it was nearly $6k in taxes. (I has filed for and recorded our divorce before 12/31 that year so the tax burden fell on my ex dh who still hasn't paid it - karma's a ***)

Did your foreclosure occur in Washington state? We are looking at getting out of our mortgage and becoming renters also (not because we can't afford it, but because we want to move and our house is roughly 50% under water). DH has done tons of research and he said that WA is one of a few states where the forgiven debt is NOT considered income. Unless a law has changed in the past 9 years, I'm not sure.

Yes - WA state, 2002. But in looking through IRS publications, it may have changed, I found this:

What is the Mortgage Forgiveness Debt Relief Act of 2007?
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.

What does exclusion of income mean?
Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing
separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.

How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.

ChubbyCheekiesMom · May 2011

outlandartist:
LauraLynneC:
The second point - and the more important point - whatever the "forgiven" debt amount is will be considered "income" by the IRS and you'll be taxed on that amount as if you RECEIVED it. For our roughly $10,000 forgiven amount, it was nearly $6k in taxes. (I has filed for and recorded our divorce before 12/31 that year so the tax burden fell on my ex dh who still hasn't paid it - karma's a ***)
Did your foreclosure occur in Washington state? We are looking at getting out of our mortgage and becoming renters also (not because we can't afford it, but because we want to move and our house is roughly 50% under water). DH has done tons of research and he said that WA is one of a few states where the forgiven debt is NOT considered income. Unless a law has changed in the past 9 years, I'm not sure.

It's possibly other factors come in to play, BUT I was told by my lawyer will be not being paying any back nor will we be claiming it as income.

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