There have been many signs recently that showed this bill would come to fruition and today President Bush signed it. The bill provides property owners who have been affected by a foreclosure, short sale or deed in lieu of foreclosure where the property has debt forgiven to be released from the tax that would normally be due on the forgiven portion. We recently had a transaction that would have had tax due on it had our client not found an alternate method of handling it. The client had worked with a different agent before he met Team Reba and hired us for our services. When I originally looked at his estimated net proceeds I discovered that he would actually have to bring money to closing. A lot of money.
The reason being is that he had already pulled out a very large line of credit (LOC) against his last home (the one I was about to help him sell) to buy his next home for his family. With the costs of that taken out, some costs for a prior remodel, using the LOC to help make payments on two homes for over 6 months (ouch!). Having a wife in school and 3 small children – there was a lot at stake for this family.
His first lien mortgage company suggested that he try and negotiate with the bank that held the LOC to see if they’d forgive some of the debt. In this case, that would have amounted to roughly $35-38k. If he was taxed at a 25% tax bracket that would mean he would have still been liable for a $8750 – 9500 tax bill. Plus, there would be the major hit to his credit standing because of the debt forgiveness.
It took a while for our client to really understand the situation (he is not originally from the US) but once he got it then he worked diligently to find a solution. It’s not that he didn’t have appreciation from his former home, it was that he took all of that equity out and used it for other things without really getting much direction from his past agent or any of the financial companies (there were at least 3 loan situations where someone should have been talking to him about what could happen). Why is it that none of these “professionals” gave him any counsel on it? I don’t know for sure but I can say based on the number of agents and loan officers I’ve come in contact with that my personal opinion is that they think, “it’s not my job.” Rather than understanding the client’s big picture, they’re interested in just completing the transaction in front of them.
I’m pretty sure this is why this client ended up being very happy with us because he could see how hard we worked for him – he had a tough house to sell because of some pretty sloppy neighbors across the street that no one wanted to live near – and he and his wife could tell we really had their interests at heart. We helped educate them on the process, talked about the pluses and minuses of certain choices, we directed them to accountants and got feedback from professionals for our client and more. I even helped pick up the neighbor’s trash and had an abandoned car towed after several attempts to ask in person. You do what you have to to get the job done.
I’m just happy to see now that others that might get into this kind of situation or who go through other difficult financial issues with their home have one less item to weigh them down.
