Home Foreclosures. 

They are here with us, and will be in the news for the next few years.

First – lets put the last few years in perspective.  Over 2 Million people have lost their homes to foreclosure since 2008.

The lenders know that some of those foreclosures were completed with less than stellar paperwork.  That’s why the largest servicers agreed to a $25 Billion payout in the settlement last week.   I use the term “payout” loosely.

If you lost your home to foreclosure in the last few years, and can prove any type of mistake in the foreclosure process, there is $1.5 Billion that will go into a trust fund to pay others like you.  There are estimates that up to 750,000 people will receive a check for $1,500 to $2,000.

“Sorry you no longer have a home of your own, here is a check for $2,000.”

That makes some people upset.   The LA Times had a pretty good article last week about the settlement here.

You can also find the link athttp://articles.latimes.com/2012/feb/11/business/la-fi-hiltzik-20120212

Second, lets talk about the current situation.

There are estimates that over 4 Million people are still at some risk of immediate foreclosure, and closer to 11 million more are underwater on their mortgages.

When I talk with banks and attorneys across the DC area, most agree that we are 2 or 3 years, and some are saying as much as 5 years, from real resolution to this mortgage situation.

I tend to agree.  In the servicing settlement last week alone, the banks have up to three years to implement the entire plan.

Some people are upset with the pace that these banks are proceeding.  Some homeowners are choosing to fight for their individual situations.  Most people outside of government agencies are upset with what appears to be lopsided settlements with the largest lenders, banks and servicers.

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Register early for the Feb. 27th WREIA meeting online, and skip the registration line!

Ahh, those pesky 1099 forms we all have to file with our taxes.

Small business owners are always on the lookout for deductions.  I was combing through my files from last year, and came across something I thought you should keep in mind during 2012.

Most of us real estate investors have found ourselves working with short sales, or foreclosures over the last few years.  You and your clients should be aware of a BIG advantage written into the IRS code.

“The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence.”

Until a few years ago, many investors had never seen a form 1099-C.  Lenders are required to report any cancelled debts to the IRS using this form, 1099-C, Cancellation of Debt.

Here is a simplified example –

• Homeowner pays 100k for a new home.
• Recession hits, and homeowner sells their home for 80k through a short sale.
• The following January, the lender sends homeowner 1099-C for 20k.

Before 2007, the homeowner would be required to pay income taxes on $20,000.

Today, if the situation qualifies, (your accountant can help you understand the full guidelines), you can exclude the full amount from your income.

This provision applies to debt forgiven in calendar years 2007 through 2012.

The Mortgage Debt Relief Act expires this year.

If you want to read about more details, you will find full details at the IRS link here.

PDA and smartphone users will find the details at http://www.irs.gov/individuals/article/0,,id=179414,00.html

There is motivation to get these short sales completed this year.  I realize it is only February, but it’s not too early to be paying attention to these items.

Short sales and the issue of foreclosure can still be a tricky area for real estate entrepreneurs.  We will be spending an entire evening discussing these topics at our Feb. 27th WREIA meeting.

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Register early for the Feb. 27th WREIA meeting online, and skip the registration line!

You will also find the registration link at http://feb2012-wreia-wreiacom.eventbrite.com