In late 2007, President George Bush signed the mortgage debt relief act to protect American homeowners. This act was designed to help homeowners who are struggling to deal with the housing slump being faced in the United States.  Lots of people have been drawn into financial difficulties by the subprime mortgage practices in the late 20th Century.  Quite simply banks and other financial institutions were lending money to people beyond their means to repay the interest.  The crunch came in 2006-07 when housing prices fell and securities backed by subprime mortgages became worthless.

Falling House Values

For many months prior to the signing of the act, house selling prices in the U.S. had fallen dramatically. Many American homeowners were in a terrible situation: they owed much more on their homes then they could hope to sell them for. A large percentage of those homeowners also had adjustable rate mortgages. This meant that their are monthly mortgage payments were escalating much faster than they were able to pay for them.

Additional Tax Burden

It is bad enough having to sell your home when you don’t want to, furthemore at a loss, and then having to carry a burden of tax liability.
Before President Bush signed the new Mortgage Debt Relief Act, if a homeowner would have to pay additional taxes if they were to refinance their mortgage loan, or make a “short sale” to get out of the debt position.

Stop Foreclsure

Short Sales

A short sale is what can occur when a lender gives a homeowner permission to sell their home for less than what they owe on it. In this arrangement, the lender will usually agree to waive their loss, which is the difference between the two prices. For example, a homeowner might still owe $120,000 on their mortgage loan, but their home was now only worth $85,000. In a short sale the lender would allow them to sell the property for the low price of $85,000.  The lender would then simply write off the $35,000 difference. The lender’s pain is eased by writing that off as tax loss. But, for the homeowner, there is further pain. The IRS would normally expect the homeowner to pay tax on that $35,000 difference.

Debt Relief Act

The mortgage debt relief act allows homeowners to escape taxes on a short sale difference. They also do not have to pay taxes that are normally incurred by refinancing their homes. For the next several years homeowners do not have to pay tax on any debt forgiveness that is related to their homes.

Public Benefit

These are simple steps can be of great assistance to homeowners that find themselves in dire need. Additional steps will hopefully help stimulate the slumped housing market, and helping both homeowners and lenders.

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Foreclosure is a major threat to many struggling households today.  If you’re facing the possibility of foreclosure, you need to know how to work with your lender to create the best outcome.

Having knowledge is powerful and being able to use that knowledge you have can be even more so. If the constant barrage of daily news about the mortgage crisis, and the flood of  housing foreclosures has you worried, here are some tips that might help.

Communicate With Your Lender

Save Your Home Report

Your payments may be compromised, but..  your lender can actually be your friend. If you keep the communication lines open with your lending company, you can often avoid any problems before they start. You might be fearing foreclosure, but do you know what circumstances will cause your lender to start a foreclosure proceeding? If you don’t know this, then you’re allowing yourself to be worried and afraid for no reason.

Don’t be afraid: just pick up the phone and call your lender. Just ask them direct: what circumstances need to be in place for them to start foreclosure proceedings.

Don’t just go on what your friends and family report to you: Each lender or banking institute will have different policies. In some cases for example, foreclosure proceedings will be started until you have missed at least four payments. In other cases the process may start after just two missed payments. By asking your lender for their specific policies, you will be armed with knowledge that will help you prevent a problem in the first place.

Know Your Lender’s Policies

Keep in mind that the economy is bad for everyone right now. If you’re having financial difficulties, then it’s entirely possible that your lender is too.  Believe that they are likely to Understand; and if that’s the case, they may be very willing to work with you if you simply talk to them.

Times Are Harder Now

Foreclosure proceedings don’t happen instantly.  There may be a good window of time in which you can fix up your loan arrangements, and stop bank foreclosure.  So, ask your lender how much time there are foreclosure proceedings take. Like other things mentioned here, this will vary from one lender to another. In some cases it may take just three to six months. In other cases it could take a year or more before your house is actually auctioned, and you’re fully evicted. Yes,there is enough time to save your home.

Find Out How Long You Have To Work On Foreclosure

Don’t just assume you’re going to lose your house, just because your financial situation is poor right now.  Get to know your options. In most cases, there is always an alternative to foreclosure. Some advisors claim 98% can be avoided!

Foreclosure Isn’t Inevitable

Not all options are available to everyone at the same time, because they do depend on what your particular circumstances are. Some people may choose to give up their home for example instead of letting it go into foreclosure. Others may want to try everything possible to save their home instead. By knowing which options you have for each scenario though, you will be able to take massive action right from the start which may prevent the home from being foreclosed and auctioned off.

Conclusion

So be sure you know the facts in specifics as early as possible. Sometimes the knowledge you get before hand, can prevent any problems from the starting in the future.

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