hot deals travel: How To Loan Modification: May Affect Your Taxes

How To Loan Modification: May Affect Your Taxes

The How to loan modification process can be frustrating and confusing for many distressed homeowners. If you are considering contacting your lender about a loan workout to avoid foreclosure, you need to get as much information upfront as possible so you will be prepared and able to present your case in the best possible light. Programs and guidelines are changing and it is getting much easier for homeowners to get the help they need. To help you understand how the process works and what you can expect, here are the Top 10 Questions and Answers:

Using another analogy, I am reminded of the response to the Hurricane Katrina disaster. Slow and inadequate is how the government responds. What we need to see is a ?financial triage department? in every lender?s office. In the immediate chaos of Katrina, nobody knew what was going on. Now, many months later, policies are still being written and rewritten. The situation is similar with mortgage crisis. Federal Chairman Ben Bernanke cut the interest rate a half a point which some thought would cause all the mortgage investors to change their loan modification policies. However, more and more lenders are filing bankruptcy, and the ones that are staying in business are laying off employees by the thousands. Many lenders are also becoming defendants in lawsuits brought by their investors. If you have found yourself facing a mortgage payment you cannot afford, and are contemplating asking your lender for a loan modification, you must know the economic reality. Lenders and their investors are only concerned with profitability. That is, they base their decisions solely on monetary return. They want to see that modifying the loan will be more profitable than foreclosing on the subject property. The lenders want to know you can make the modified monthly payment without fail. Because the majority of borrowers who are faced with unaffordable payments are victims of teaser rates becoming expired, the modified payment will be higher than the teaser rate. This means that if the borrower could barely afford the teaser payment, there is little chance of paying a higher amount, no matter how small the increase. For borrowers with the ability to slash their living expenses, do without an extra automobile or cell phone, and come up with extra money for the mortgage payment, the lender may be willing to accept less than the full increase in payment. The borrowers with the ability to pay close to what the lender requires are the ones most likely to get a loan modification.

Another thing to consider: the timing of your mortgage modification. Considering the fact that it can take months for approval, those beginning the process in the next several months may find their modification approved after the tax reprieve deadlines, which would require them to once again pay federal taxes on the modified amounts. It?s a little-known tax rule that few people know or understand which is causing real financial distress according to Senate Finance Committee Chairman Max Baucus (D-Mont.). In a statement released by his office, Baucus said that, ?Homeowners who are already in trouble on the mortgage certainly can?t afford a big hit from the tax man too.

In response to the many questions being posed by the temporary tax reprieve, the Internal Revenue Service (IRS) has published a booklet, ?Questions and Answers on Home Foreclosure and Debt Cancellation.? The following is a brief excerpt to provide a few answers to some of the most common questions you may have regarding this matter: 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 canceled amount as income on your tax return. Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve: Bankruptcy, Insolvency: If you are insolvent (your total debts outweigh your assets) when the debt is cancelled, some or all of the canceled debt may not be taxable. Non-recourse loans.

Before agreeing to nay loan modification, be sure that you completely understand that tax ramifications it may cause. Otherwise, you may find yourself getting out from underneath one kind of debt, only to discover you have incurred another. You don?t need to hire an expensive firm to do your loan modification, on the contrary doing it yourself leads to better results and thousands of dollars saved. One such kit is 60 Minute loan modification. 60 Minute Loan Modification is very simple to follow and has helped multiple people stay in their house and avoid foreclosure.

Learn more about Obama Mortgage Relief Plan Qualifications.