Why a Short Sale? (Tax Relief!)

SB 931 Deficiency Waiver on First Mortgage

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, your lender 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 your short sale. Click here to read 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 real estate agent ask for the lender to issue a short sale approval letter with the verbiage indicating a waiver of future deficiency and no promissory note.

SB 458 Second Mortgages- Release of Liability after completing a Short Sale in California by 2012

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 fixed secondary mortgages, are now extended the protection against deficiency. 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. This means that 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 information on SB 458 and  consult a real estate attorney see how these short sale related laws may apply to your individual situation.

Short Sale Income Tax Relief from Federal Income Tax thru 2012

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. This applies to loans that were used to acquire, build, or improve upon on the home. Consult your tax advisor regarding how this tax relief may apply to your individual situation. 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, 2012. 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 cards to pay vacation expenses, or cash to fund a new business, etc. Please consult a tax advisor. Click here to read more information on the Mortgage Forgiveness Debt Relief Act of 2007.

Short Sale Income Tax Relief from California State Income Tax until 2012

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. 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 January 1, 2013 (Think until 2012). 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, you 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.

Clock is Ticking. Unless, laws are extended, you only have until December 31, 2012 to complete a Short Sale and enjoy these benefits!

A lot of the laws that favor selling your home through a short sale in California expire by December 31, 2012. This means that if you desire to short sell your home 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 on a short sale by 2012.

Please note there are exceptions to the law that you need to be made aware of. Consult with your advisors to discuss your own individual situation.

(This message is provided as a courtesy from Marcos Rios of EverBank. Contact Marcos at 510-755-4055.)

The Prissy Girl’s Guide to Adopting a Big Dog (Part 1)


There have been tons of people losing their homes to foreclosure. In the former homeowners’ quest to find a new place to live, many are unable to rent a place where dogs are accepted.

I’ve not been a dog person. Not since I was a kid and didn’t know better. We had little yippy Pekinese dogs when I was growing up and as an adult, my lifestyle and homelife did not fit with having a stinky dog around. Every time I would pet someone’s dog, I’d smell my hand afterward to see how stinky it was after touching the mutt. My only lasting experiences with dogs were when I visited a friend’s house as a teenager and the roommate’s Doberman bit my crotch and then years later when I dog-sat a couple big dogs who took the liberty of peeing on my carpet and scratching up my deck with their claws. I’d been dog-averse ever since.

My most recent bout with a pooch was a few months ago when a family member needed help and could no longer keep his pit bull-terrier in his condo. In hindsight, I should have asked my husband if it was okay first but a dog needed to be rescued, so it was a gut reaction to just take care of him. I picked up “Cisco” and that pooch jumped right up in the car as if it was his rightful place to be chauffered around. It was a challenge having him. Our work schedule at the time was such that we were not home very much at all and by the time we got home late at night, that poor guy was so starved for attention that he’d jump all over us! It took a bit of time each night to calm him down. After a few days, we decided to put him in our front courtyard and I asked my husband if he’s concerned about the dog digging up the plants. He insisted “No, that breed is not a digger.”

Surprise-surprise! He was indeed a digger!

So, the Prissy Girl’s Guide to Adopting a Big Dog. I am the Prissy Girl, in case clarity is necessary. Tomorrow I’ll post the first step in opening oneself up to having a dog…


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Debt Forgiveness Protections Expire December 31, 2012

ISLIP, NY - FEBRUARY 09:  A padlock hangs from...
ISLIP, NY - FEBRUARY 09: A padlock hangs from a door of a foreclosed home on February 9, 2012 in Islip, New York. (Image credit: Getty Images via @daylife)

For homeowners with a home that’s worth less than the balance(s) owed, what does this mean to you? This means taking the chance of the debt forgiveness law being extended past the end of the year or getting off the fence and exploring your options for a short sale now.

After a foreclosure or a short sale, the former homeowner is not taxed on forgiven debt under federal and state laws that will expire at the end of this year.  In both cases, the lender likely ends up receiving less than the full amount of the outstanding balance.  If so, the amount the borrower is no longer responsible for paying to the lender is considered “cancellation of debt” income and, thus, income to the borrower that – prior to the adoption of the federal and state protections – was subject to income tax.  Those federal and state protections are scheduled to expire at the end of 2012.

Pride comes before a fall. We know of many people who have simply walked away from their homes that fall into foreclosure, perhaps because they are too proud to ask for help. Not only do borrowers ruin their credit unnecessarily with a foreclosure rather than pursuing a short sale, foreclosures are devastating to entire neighborhoods by dragging down property values of the homes around them. Do you know of someone in your neighborhood who needs help but is too proud to ask for it?

Short sales are a common part of the real estate landscape these days. The best thing we can do is to help get the word out about what homeowners’ options are so that they can make informed decisions…

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How To Determine a List Price

We are in the midst of an interesting dilemma with pricing several properties for sale.

  1. A house that’s JUST on the cusp of being a short sale
  2. A property that is not a short sale but is stuck COMPETING with short sales
  3. A luxury home that is unique, rare and in a neighborhood where it appears that a “fire-sale” has taken place around the corner, lowering the average price per square foot

How do we deal with pricing?

For the potential short sale: Just price it right, based on what’s happening in the neighborhood with similar homes. Remember, the seller’s lender still has to approve the short sale amount before a buyer can purchase the property. There are programs available to qualified sellers that will give them money ($3000) for relocation assistance, such as HAFA.

For the property with equity competing with short sales: Just price it right, based on what’s happening in the neighborhood of similar homes. It’s important to be careful not to have a downward spiral of competing price reductions against those short sale sellers. Example: You lower your price, they lower theirs, then you lower yours again, then they lower theirs again…STOP the madness before it even starts!

Sometimes it’s better to stand firm on (the reasonable) list price and be willing to budge when an offer comes in. Short sale sellers often have nothing to lose since they have no equity anyway. Representing a seller who has equity takes a certain level of care…

For the unique luxury home: Just price it right. There’s nothing in the world like this home. In the absence of enough suitable properties to compare, we make sure a formal appraisal is conducted for this type of luxury estate to determine an objective third-party basis for a List Price. Many luxury sellers do not have to sell their homes. They can sit tight and wait for the right buyer to come along.

The one common denominator for determining a List Price for the three scenarios above:


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