Q: I have a mortgage balance of approx. $170,000, but the estimated market value of my home is $67,000 to $75,000. The mortgage was modified back in 2008, with a balloon payment of approx. $108,000 due in 2037. So the property is totally upside down, and this modification shows as an adverse account on my credit, even though all monthly payments are made. We are senior citizens and want to move to Florida, so I was thinking about renting it out to section 8, but was advised by an attorney that we should short sale it instead. If I am delinquent and go for the short sale, how will we be able to rent a place in Florida; don’t they do credit checks as well? Was this bad advice? How do we know that it will sell? Because even if it sold for the $75,000, the taxes and insurance for this area are outrageous.
Finding a buyer would be sort of a miracle. I also know that the short sale would show adversely on my credit, and we would not get any financial compensation from it. So what’s the difference between walking away and short selling? Bell.
A: Dear Bell: You have to remember that when you obtained your modification loan, you signed two legal documents: a deed of trust (called a mortgage in some states) and a promissory note (IOU the amount of the loan). If you walk away, your lender can pursue you in a court – even in Florida – and sue you on the note you signed. So I do not recommend anyone to “walk away”from their mortgage obligations.
You seem concerned about your credit rating, but from what you have told me, you already have a low score and negative report.
First, I would talk with a couple of real estate agents in your area about a short sale. Although you will get absolutely no cash from that kind of sale, the real estate broker will get a commission and thus will have an incentive to try to sell. Ask their professional opinion as to whether they will be able to find a buyer. Also, make sure that the broker has experience with short sales. If you get good “vibes” from one of the brokers, then I would enter into a listing agreement with that person. You should have your attorney review any and all legal documents you will have to sign.
Another option: ask the bank if they will take the property and cancel your loan. This is known as a “deed in lieu”. The bank may not want to own the property since it will have to pay the insurance and taxes and may actually have to cut the grass and keep the property in good condition. However, its worth the effort.
Finally, you might want to stick with your first idea, namely rent the property. But that will require you to be a landlord and if you will be out of the area, I don’t consider that a good option.
Q: I applied in mid April for a mortgage loan for a handicapped accessible, ADA compliant home in Florida. The bank issued a “Conditional Approval” almost immediately giving what turns out to be false hope of quick approval. Since then the delays and information requests have been continuous, relentless and duplicative. A closing was originally planned for July 1.
Typical requests since then were again made on June 26. Despite having given them my tax forms immediately in April, which included 1099’s of retirement funds withdrawals, I was informed last Friday they needed the statements that actually accompanied those 2014 withdrawals. They’ve had information about my retirement accounts since April but waited until four working days before the expected closing to ask request this information.
Needless to say, the disabled seller in Florida who wants to buy a home near his children cannot close on a home there with this delay. My disabled son who cannot stand any more Chicago winters is distraught at this delay.
My question - is this typical of the mortgage business now, or, is the bank just too big, one of those large banks that really doesn’t care. I went to them because the representative is the wife of an acquaintance. She’s upset too.
You should know my wife and I have credit ratings over 800, sufficient liquid assets, equity in three properties, one of which the bank knows I’ll be selling; income of $80,000. No debts except two mortgages, one of which is with that same bank.
Shouldn’t the 1099s satisfy whatever proof the bank needs? Don’t understand - unless the bank is simply incompetent and just asking for this information as a stalling technique. Can’t imagine they’d do that. Phillip.
A: Phillip. I have made it a practice not to identify the banks my readers have complained– or even complimented. But for this column, I can say that the bank in question is a very large bank
It will not be a consolation but you are not alone. Too many readers – and even some of my clients – have encountered the same problems. You submit all of the requested documents, and then they ask you to send them again. And then when they finally acknowledge receipt, they want supporting documents.
I seriously doubt the bank is purposely stalling. From my experience, there are three reasons for the delay: (1) bureaucracy, (2) fear of government investigation. The banks want to make absolutely sure that they have papered absolutely everything so they will not be challenged (or penalized) by some government regulator, and (3) concerns about being sued in a class action.
My suggestion: talk to a supervisor/manager in the branch bank where you made your loan. Explain the situation and make it clear that if the loan is not approved (or denied) within the next three days, you will take your business elsewhere. That threat often works.
Q: Our home was seriously damaged when the nearby river overflowed. Can we deduct our losses on next year’s income tax return? Jen.
A: Dear Jen. If you follow the rules set by the IRS, the answer is yes. Some of the requirements are as follows.
First, if you have insurance coverage, you must file a claim for reimbursement. Keep in mind that most insurance policies require that you file your claim promptly after the damage, and often this means no later than 30 days later. If you get insurance money, this will reduce your loss to be reported to the IRS.
There is a complicated formula for determining your loss. Go to IRS publication #547, entitled “ Casualties, Disasters and Thefts”, free on www.irs.gov/publications. You can also call the IRS Disaster hotline at 866-562-5227 for special assistance. You will also need to get IRS form 4684 (casualties and thefts) to report your loss and you claim the deductible amount on Schedule A, entitled “itemized deductions”
A suggestion. Talk with an accountant to assist you. You don’t want to make mistakes. Its quite complicated.
Q: I have lived in my previous residence for 27 years and rented it out since 2005 when I could not sell it in time before I moved to my new residence.
The present tenant is interested in buying the place and I know I will lose the capital gains tax exemption since it is now an investment property. It is my understanding that to get back the tax exemption, I will need to use it as my primary residence for at least 2 years.
Is there any other option? Ruben.
A: Ruben. You are correct that the up-to-$500,000 exclusion of gain (or $250,000 for single tax filers) can be used every two years, but there are some significant limitations on the amount that can be excluded depending on the facts. For example, Section 121 (b) (4) of the Tax Code allows the taxpayer to claim the exclusion of gain only for the period when the property was used as your principal residence. Thus, since January 1, 2009, (when this law took effect) that portion of the time you did not use it as your main home, cannot be taken as an excludable gain. I cannot provide specific tax or legal advise, so you really should consult a tax attorney or CPA about your situation.
However, I can suggest two approaches where you may be able to defer – not avoid – paying the capital gains tax. First, do an installment sale; in other words, sell it to your tenant and take back financing. The tenant should put down at least 10 percent of the price, and you will have what is known as an installment sale. You pay tax only as the income comes in.
A second approach: do a Starker (section 1031 exchange). You will have to buy another investment property but if you do it right and follow the rules, you will defer having to pay any tax when the tenant buys your house. Again, talk with a financial advisor about this approach to see if it makes sense.