If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable. The Mortgage 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, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17. The following are the most commonly asked questions and answers about The Mortgage Forgiveness Debt Relief Act and debt cancellation: What is Cancellation of Debt? If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt. Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

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Dec 04, 2009 by Tim Cook
 
Having an education in regards to the foreclosure process is like having an education in any other subject. Which is why understanding ‘types’ of foreclosure notices and ‘foreclosure process’, the more you know the better. To start things off, mortgage delinquency or the “non-payment” of loan is determined by each lender. Most lenders will consider a mortgage delinquent when the borrower has become 30 days past due on a single payment. Immediately upon delinquency of a payment the lender will notify the borrower by means of: letters, payment statements, phone calls or other means of communication the borrower has provided the lender with. You should never be intimidated by your lender or “afraid” of your lender. The fact is that money is owed to them, and they would like to know when they can expect a payment. Many times, once a homeowner has missed a payment, they purposely avoid the lenders letters and phone calls, which is the LAST thing you or any borrower should ever do. And nowadays with caller ID, lenders are having a more difficult time contacting homeowners who have missed payments. If you have the intention to pay a missed payment(s) owed to your lender, but avoid your lenders methods of contact you can run the chance of your lender sending you a Notice of Default (NOD) or Notice of Trustee Sale (NOTS). You can avoid these types of notices by simply communicating with your mortgage lender. NOD, NOTS & LIS PENDEN The Notice of Default (NOD) and Notice of Trustee Sale (NOTS) are the beginning stage of a foreclosure sale process. A Lis Penden (LIS) is the legal notification to the borrower that law suit is pending for loan payment delinquency. The NOD, NOTS & LIS notices are the lenders way of telling a homeowner that they will be forced to sell the property at a foreclosure sale unless the homeowner reinstates the loan or pays it off. The start and timelines of the foreclosure process will differ in each state based on the judicial, non-judicial, strict and possession foreclosure types. The NOD, NOTS & LIS communications should not be taken lightly. They are very serious matters and should be handled accordingly. If you have yet to receive a NOD, NOTS or LIS, knowingly that you have not been paying your mortgage do not assume your lender forgot. Some lenders do get backed up with paperwork. Your lender is not going to ‘forget’ about any missed payments and will send out the NOD, NOTS or LIS as soon as they can.

The next stage/process of the foreclosure is the Mortgage Acceleration Clause (details coming soon)

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Here's a good recap of the hopefully to be exteneded NEW Homebuyer and Current Home Owner Purchaser tax credit (The President still has to sign this). The homebuyer credit has been voted by congress to be extended, beginning December 1, 2009 and expiring on April 30, 2010. The details are the following: (1) First-Time Buyers a. $8,000 tax credit ($4,000 for married couples filing separate) b. Must not have owned a property in the last three years c. Expiration of credit = April 30, 2010 d. Binding Contract Rule = Contract executed by April 30, but can close as late as July 1, 2010 e. Income Limits = $125,000 (single) and $225,000 (married couples) with $20K phase out f. Purchase Price Limit = $800,000 (2) Subsequent Purchaser a. $6,500 tax credit ($3,250 for married couples filing separate) b. Must not have owned a property in the last three years c. Expiration of credit = April 30, 2010 d. Binding Contract Rule = Contract executed by April 30, but can close as late as July 1, 2010 e. Income Limits = $125,000 (single) and $225,000 (married couples) with $20K phase out f. Purchase Price Limit = $800,000 For a detailed breakdown of the current tax credit and the new, access the following link: http://www.realtor.org/fedistrk.nsf/files/government_affairs_tax_credit_ext_chart_110409.pdf/$FILE/government_affairs_tax_credit_ext_chart_110409.pdf To stay current with updates to this topic please click on the "Subscribe" button below.

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