One month left to close for first time homebuyers

Remember that closings must occur before July 1, 2010 to receive up to $8,000 in tax credit, so the clock is ticking.

I was at a wedding this weekend and a friend (who used a different attorney for the closing) was asking me about the credit because he has not received a commitment from the bank to date and he was getting very worried that he would miss the deadline. The fact is that he has time. Usually closings happen within a week of receiving a commitment and usually the commitment is the last step in being clear to close. Therefore, he should only start panicking during the week of June 21, 2010 if he has not yet received his commitment.

A great source for information about the first time homebuyer tax credit can be found by clicking here.

There you will learn about the necessary tax filing to receive the credit, inclusive of the need to file a paper return and attach Form 5405 and new homebuyers must attach a copy of a properly executed settlement statement used to complete such purchase. If the home is newly constructed, where a settlement statement is not available, the purchaser must attach a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate. Purchasers of mobile homes who are unable to get a settlement statement must attach a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.

Good luck and go get that credit.

A foreclosure way of life, it might work for you

I just finished 2 foreclosure defense consults and picked up a newspaper only to read exactly what I had just advised. You can stay in your home. No, the sheriff is not showing up tomorrow. You have time. My point is that if they banks start to learn how expensive foreclosure is by way of court / attorneys costs, the time value of their money that we are locking up, the depreciation in the value of the home, and the transactional costs of eventually selling a home they didn't want in the first place, maybe, just maybe they will learn that a modification is in their best interest.

To read a reassuring New York Times article on the topic, click here.

Tax liability for cancelled debt

I got a lot of questions last night at our Foreclosure and the Economy continuing education class about this topic, so I figure its one on everyone's mind.

Under the The Mortgage Debt Relief Act of 2007 a taxpayer can generally exclude from gross income monies that are forgiven under a short sale or deed in lieu situation. This is a great situation because the bank's agreement to not go after deficiencies should not result in the government making the borrower pay a huge tax. The purpose is to help someone without money, not to harm them. Yet, there are exceptions for qualified principal residence indebtedness, which is not related to the home's purchase or improvements (i.e. cashing our to pay other bills). Moreover, there are other means for a taxpayer to avoid paying income tax on other cancelled debt whether it be from credit cards or business properties. For 2 great articles on the topic, I direct your attention to this link, which is a great summary of the topic and this link, which is Publication 4681 from the IRS as the last word on the topic (from the government's perspective).

Remember, an insolvent debtor can always avoid paying income tax on cancelled debt.