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Will Congress Help Homeowners at Tax Time?
As the end of 2015 draws near, homeowners who managed to escape the financial hit of a foreclosure and sell their home in what is known as a short sale, now have something else to worry about. Now these homeowners have to worry about Uncle Sam.
When a homeowner sells their home for less than the current balance of their mortgage, this is known as a short sale. Let’s use a hypothetical example to explain the situation.
• Harry purchased a home in 2007, at the peak of the market, for $550,000 and he took out a mortgage for $450,000.
• In January 2015, Harry lost his job and could no longer make the mortgage payments. As of January 2015, his mortgage balance was $425,000 but the value of his home was $375,000. If he sold his home in June 2015, he would end up owing $50,000 to the bank. With proper legal representation, Harry might be able to have the bank forgive this $50,000 debt.
Let’s say Harry found a buyer and sold his home in June 2015. Just when Harry thought he was in the clear and his financial woes were over, he learned that Congress has not yet extended the Mortgage Forgiveness Debt Relief Act, which provides that homeowners are not be taxed for mortgage debt that was forgiven by banks after a short sale. For the past few years, the IRS did not make Harry pay tax on the $50,000 in mortgage debt that was forgiven. However, as of October 2015, Congress has not extended the Act for this year. As it stands right now, individuals like Harry who sold their home in a short sale in 2015 will be taxed on that $50,000 as income. This is intended as a hypothetical example. For information regarding the tax implications in your particular situation, we recommend that you consult with a certified accountant.
It is important to be represented by competent legal counsel when dealing with the sale of your home, especially if you are behind on your mortgage. The attorneys and staff at the Lauterbach Law Firm are happy to help you with your legal needs.
Increased Inheritance: Budget Legislation Provides Estate Tax Relief to New Yorkers
In a January 6, 2014 press release, Governor Andrew Cuomo promised estate tax reforms and other tax relief measures for New Yorkers in light of the projected budget surplus in the 2016-2017 fiscal year. In order to follow through on this promise, the 2014-2015 budget legislation raises the estate tax exclusion to $2,062,500 effective on April 1, 2014. Generally speaking, after April 1, 2014 and until April 1, 2015, estate taxes must not be paid unless a decedent’s gross estate is greater than $2,062,500. Annual increases of the estate tax exemption will continue until 2019. After 2019, the estate tax will increase based on inflation.
Prior to the budget legislation, estate taxes would be owed if a decedent’s gross estate was in excess of $1,000,000. The exclusion amount had remained at $1,000,000 for years.
As a result of this budget legislation, it is estimated that 90% of New York estates will not be subject to an estate tax. This will result in an increased inheritance to beneficiaries of those estates that would have been taxed under prior law but will not have to pay the estate tax under current legislation.
The Law Office of R. Spencer Lauterbach is a full service general practice law firm and we are happy to assist you with your estate planning and estate administration needs.
Will Homeowners Forgive Congress?
Despite the fact that many homeowners in 2014 are barely making ends meet, Congress decided not to extend the Mortgage Forgiveness Debt Relief Act (the “Act”), which was passed in 2007, to help struggling homeowners. The Act held that homeowners would not be taxed for mortgage debt that was forgiven by lenders whether as a result of a loan modification or in connection with a foreclosure.
For example, prior to 2007 (and now the current law in 2014), if a homeowner owed $300,000 on their mortgage but the property was sold for only $250,000 in a foreclosure sale, then the IRS would treat that $50,000 of loan forgiveness as taxable income. The Mortgage Forgiveness Debt Relief Act (in effect from December 20, 2007 until December 31, 2013) said that the IRS would not treat that $50,000 in loan forgiveness as income to the homeowner if the loan was on their principal residence.
The ramifications of this decision not to extend the Act for struggling homeowners will have negative consequences. Common sense would suggest that this decision will not help the real estate market, which is already slowly recovering in many parts of the country. If homeowners facing foreclosure are hit with a tax bill, they will have even less money to spend to fuel the economy. Congress should consider extending the Act for at least another year.
A Review of Mortgage Servicer Ocwen Finds Indication of Non-Compliance with Servicing Reforms
The New York State Department of Financial Service announced that its review of Ocwen’s mortgage servicing practices found indications of non-compliance with servicing reforms.
The Department issued a release that “in some instances, the company failed to demonstrate that it had it sent out required 90-day notices before commencing foreclosure proceedings, or even that it had standing to bring foreclosure actions.” The examination also found that Ocwen sometimes failed to provide a single point of contact for borrowers, pursued foreclosure actions on borrowers seeking modifications, failed to conduct an independent review of loan modification denials, and failed to ensure that loan information was accurate and up to date. Ironically Ocwen was the first mortgage servicer to agree to the Department’s new mortgage servicing reforms in 2011. The examination resulted after the Department received complaints about Ocwen. The Department is now requesting that Ocwen hire an independent monitor to review its operations and identify and report on corrective action.
The Law Firm of R. Spencer Lauterbach is here to protect homeowners facing the risk of losing their homes. Mr. Lauterbach’s firm provides a thorough review for its clients’ foreclosure and home modification cases, and has successfully defended homeowners against unfair and illegal practices by mortgage servicers. Mr. Lauterbach is a member of the New York Bar, practicing in Rockland and Orange Counties as well as all three boroughs in New York City. Call our office at (845) 639-1699 for legal assistance.