Lenders make compromise to avoid foreclosure

DEAR BOB: I am four months late on my mortgage paymentsbecause of a job loss. Now I am in the process of foreclosure. What are myoptions? I am back working again but do not have all the money yet to catch upon my monthly payments. Any advice? –Jawanna P.

DEAR JAWANNA: Please don’t bury your head in the sand, asmany borrowers who are in mortgage default do. Instead, contact your mortgagelender immediately by phone.

Purchase Bob Bruss reports online.

Explain your situation very politely. Ask for a forbearanceand a loan workout plan. That is presuming you can now afford to pay at leastthe regular monthly mortgage payment.

Ask that your unpaid mortgage payments, probably totalingseveral thousand dollars, be added to your mortgage principal. The result willextend your mortgage by several months but then your mortgage can be reinstatedin good standing with the lender.

Lenders do not want to foreclose. They lose money onvirtually every foreclosure. But lenders will insist their borrowers make themonthly payments on time.

If you are unable to resume the regular monthly payments,then ask the mortgage lender for time to sell your home to pay off the mortgagebalance.

But do everything you can to avoid a foreclosure sale. Worseyet, filing bankruptcy will merely delay losing your home by foreclosure if youare unable to pay the monthly payments.

FAST FLIPPING RESULTS IN HIGH TAX RATE

DEAR BOB: I read an article on a Web site that says if youflip a property without holding title for 12 months or longer you will be taxedat 50 percent of profit. But holding longer, the tax is only 15 percent. Trueor false? –Puba H.

DEAR PUBA: Neither is fully correct. If you hold title to afix-up “flipper property” or any asset less than 12 months, your saleprofit will be taxed as ordinary income, just like your job salary, dividendsand interest. The exact federal tax rate varies widely, depending on yourincome tax bracket, from a low of 10 percent up to a maximum of 35 percent,plus state tax.

However, if you hold a “flipper property” or anyasset over 12 months, then your maximum federal long-term capital gain tax rateis 15 percent of your profit (plus applicable state tax). If you are in a lowtax bracket, your long-term capital gain tax will be even lower than 15percent. For full details, please consult your tax adviser.

DON’T RUSH TO SELL HOME AFTER SPOUSE’S DEATH

DEAR BOB: Do I need to sell my house before the one-yearanniversary of my husband’s death in order to preserve that $500,000 home-saletax exemption? My capital gain will be in excess of $250,000. –Gloria R.

DEAR GLORIA: Please don’t rush to sell your home. Theanniversary date of your spouse’s death is irrelevant for tax purposes.

To qualify for the $500,000 principal-residence-sale taxexemption of Internal Revenue Code 121, presuming both spouses met the24-out-of-last-60-months occupancy test, the principal residence must be soldwithin the same tax year as the spouse’s death.

The reason you don’t need to rush to sell your home is,presuming you inherited your late husband’s share of the residence, you willreceive a new “stepped-up basis” as of the date of his death.

If the principal residence is in a common law state, youwill receive a 50 percent stepped-up basis to market value as of the date ofdeath. However, if the house is in a community property state, as the survivingspouse you will get a new 100 percent stepped-up basis so you will have littleor no capital gain tax if you sell the home within a few years after yourspouse’s death. For full details, please consult your tax adviser.

SHOULD HOME SELLER “START CLEAN” WITH NEW LISTING?

DEAR BOB: We had our house on the market for sale almostfour months with no offers. All the houses in our price range have not sold inour upper-middle-class neighborhood. It shows well, according to the localRealtors. We are thinking of taking our house off the market for a short periodand then re-listing it to “start clean.” How long should we keep itoff the market? Should we use the same Realtor (she has been great, but won’tgive us a straight answer on this.) –Jan L.

DEAR JAN: It used to be possible to “start clean”so your home would look to buyers and their agents like a new listing. However,most MLS (multiple listing service) computers can now report how many days ahouse has been on the market for sale within the last 12 months, both in itscurrent and previous listings.

If you are satisfied with your Realtor’s services, thenre-list with her, but never for longer than 90 days at a time. However, if shewouldn’t give you a straight answer, I suggest you interview at least threeother successful local realty agents to ask them why, in their opinions, yourhome didn’t sell.

The obvious problem is your home might be overpriced. Butsome sellers are shocked to discover their listing agent is the obstacle.Perhaps she is uncooperative or disliked by many local agents. Maybe she makesyour home difficult for other agents to show to their prospective buyers.

By interviewing other agents, you will get their CMA(comparative market analysis) forms to show your home’s current market valuebased on recent sales prices of comparable nearby homes, and the asking pricesof similar neighborhood residences (your competition).

$25,000 IS MAXIMUM ANNUAL INVESTMENT PROPERTY LOSS

DEAR BOB: I am considering investing in rental property. Iseach property considered an entity, eligible for the $25,000 annual tax lossdeduction from ordinary income? Or is the loss limited to $25,000 for all of aninvestor’s properties? –Martin S.

DEAR MARTIN: Unless you or your spouse qualifies forunlimited annual investment property deductions as a “real estateprofessional” spending at least 750 hours per year on your real estateactivities, you are limited to a $25,000 total annual loss deduction from allyour investment properties against your ordinary taxable income.

However, unused losses (mostly from the noncash depreciationdeduction for wear, tear and obsolescence) are “suspended” for use infuture tax years, or when you sell a property you can use suspended losses tocut your taxable capital gain. For full details, please consult your taxadviser.

TWO $250,000 HOME-SALE EXEMPTIONS FOR SPOUSES LIVING APART

DEAR BOB: My husband and I have been profitably flippinghouses for several years. We are planning on separating soon. I plan to live inmy next fixer-upper house while making repairs. If we should both own andoccupy separate principal residences for a minimum of 24 months within the next60 months, and one or both of us decides to sell within that time frame, willwe each qualify for up to $250,000 tax-free profits even if our divorce has notbeen finalized by then? –Sherry F.

DEAR SHERRY: If your husband lives in one principalresidence for the required 24 of the last 60 months before its sale, and youlive in another principal residence for the same required time, presuming thatindividual’s name is on the title to the home they are living in and selling,then each can qualify for up to $250,000 principal-residence-sale tax-freeprofits, thanks to Internal Revenue Code 121.

When your plans become definite, run them by your taxadviser to be certain each of you can qualify for $250,000 tax-freeprincipal-residence-sale profits on two different houses.

BOUNDARY CHANGE IS NOT A DO-IT-YOURSELF PROJECT

DEAR BOB: I own an unusually shaped lot that juts in frontof my neighbor’s house. I am willing to execute an equal land swap with him.What is the process to document this arrangement? Will this affect our titleinsurance? –Denis McG.

DEAR DENIS: This is not a do-it-yourself project. Pleaseconsult an experienced real estate attorney to guide the land swap through thebureaucratic maze, such as recording new parcel maps and insuring the newboundaries for each parcel.

NO MORTGAGE INTEREST DEDUCTION IF YOUR NAME IS NOT ON THETITLE

DEAR BOB: I have paid all the property taxes on mymother-in-law’s house for the last six years. She died in 2005. Can I deducther 2006 property taxes I paid on my 2006 income tax returns? My husband andhis sister are the sole heirs. The house is up for sale. I am not sure ifprobate is completed yet. –Ellen H.

DEAR ELLEN: If your name is not on the title to theproperty, you have no legal obligation to pay the property taxes. Therefore,you are not entitled to any tax deduction for being a good daughter-in-law andvolunteering to pay the property taxes.

It sounds like the title is still in the estate so even yourhusband, as an heir, wouldn’t yet be entitled to the property tax deduction.For full details, please consult your tax adviser.

The new Robert Bruss special report, “2007 Realty TaxTips: Eight Chapters of Tax Savings for Homeowners and Realty Investors,”is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010,or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2007 Inman News

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