Los Angeles Living

What is a short sale?

If you are having a hard time paying your mortgage and owe more than the property is worth, then you may consider short selling your Los Angeles home.  What this means is that you would list the house at market price and work with prospective buyers until your come to an agreement.  Your listing agent would then approach the lender and work with them on an acceptance of the buyer’s offer.

This is a long and involved process during which you would have to prove hardship, and there is no guarantee the lender will agree to the sale, even though the alternative could be foreclosure.

Will there be a deficiency judgement on my Los Angeles short sale?

As of January 1, 2011 Civil Code section 580e was introduced which states that on residential one to four-unit buildings the first trust holder cannot get a deficiency judgement against the borrower, even if there was no specific waiving of their right to do so, which was previously required.  However it would be a good idea to have the first trust deed holder specifically waive the right to pursue deficiency judgement.

However a second trust deed holder can pursue a judgement if they don’t specifically waive it, even if they have approved the short sale.  If the property is sold, the second trust deed holder would have to sue the seller to obtain the deficiency judgement in order to place liens on any of the seller’s properties or garnish the seller’s wages.

Will the forgiven amount be taxed?

When short selling your Los Angeles home,  the IRS or Franchise Tax Board could consider the amount forgiven by the lender as income for the seller, and this would be taxed at ordinary income rate, which would be a severe blow to the seller.  But luckily, this is unlikely to happen due to the insolvency provision of tax laws, and Federal and California laws that were passed offering tax relief for cancellation of debt income in short sales.

The federal Mortgage Debt Relief Act of 2007 offers such provisions as:  if the home is the seller’s principal residence and a mortgage was taken out on the property to acquire, build, or improve it, then the forgiven debt will not be taxed.  Refinancing of the property will also not be taxed.  However, if cash was taken out over and above the original mortgage and was used for anything other than improvements to the property, then that amount will not be tax exempt.  So don’t go out and buy a car.  There is a cap on the cancellation of debt income:  $2M, or $1M if you are married and filing separately. California exemption is $500,000 or $250,000 respectively.

Be aware that these laws are due to expire at the end of 2012

What if I am not eligible for tax relief?

If you are short selling your Los Angeles home  and find that you are not eligible or only partly eligible for tax relief, you may be able to get relief by being insolvent under the tax laws.  If your liabilities are greater than your assets at the time of the Los Angeles short sale the tax laws would designate you as “insolvent”.  Depending on those liabilities the seller’s tax indebtedness could be greatly reduced or eliminated.

The benefit of the insolvency provision of the tax code is that the above restrictions – primary residence, residential income, money taken out and applied to the home only – do not apply.  To see if you qualify for the insolvency provision you should consult a tax professional.

Will I get a 1099 for the cancelled debt?

A short seller will most certainly receive a 1099 for the cancelled debt.  Even though it may not be taxed it does have to be reported.

If you are thinking of short selling your Los Angeles home,  you must use a listing agent familiar with the ins and outs of negotiating one of these difficult transactions.  While I am not a short sale agent, I have worked with experts in the field and will be happy to refer you to one.

Buying or Selling Los Angeles Real Estate

Buying or selling a Los Angeles home can be a daunting process in a city this size, especially if you're new to L.A. Town. You'll need a resident expert to show you around and help you narrow down the areas where you might like to live. I will help you find the perfect home in the right area to fit your lifestyle, budget and needs! When I list and sell Los Angeles homes for my clients I strive to make the experience a pleasant one. My mission is to provide outstanding service while utilizing the best practices and systems available. If you are an absentee owner, you'll need someone to handle all the details that you can't handle remotely. That's where I come in - I'm there when you can't be. I also specialize in lease property in Los Angeles. Westside Los Angeles Real Estate, including, but not limited to:

• Westwood Real Estate - Westwood single family homes, Westwood condominiums, Wilshire Corridor condominiums, Century City condominiums
• Brentwood Real Estate - Brentwood single family homes, Brentwood condominiums
• Santa Monica Real Estate - Santa Monica single family homes, Santa Monica condominiums
• Beverly Hills Real Estate - Beverly Hills single family homes, Beverly Hills condominiums
• Culver City Real Estate - Culver City homes
• Silver Lake Real Estate - Silver Lake single homes
• Echo Park Real Estate - Echo Park homes

For more information on how I can best serve your Los Angeles real estate needs, please fill out the online contact form or give me a call at 310-473-6919.

If you are thinking of walking away from your Los Angeles home, or doing a short sale on that home don’t automatically assume that you will not have taxes to pay on the forgiven portion of your debt.

There are laws in place that protect the distressed Los Angeles homeowner from having to pay taxes on the forgiven portion, but you need to make sure that you meet the requirements for this tax relief.

What are the requirements for tax relief on mortgage debts forgiveness?

• The Los Angeles home in question must be your primary residence.  It cannot be a second home, an income property or seasonal home you occupy less than six months of the year.  You will need to prove that it is your primary residence.
• The home could have been your principal residence all along, but you rented it out after you made your last payment and before foreclosure, thereby making it a rental property.
• The unpaid portion of the mortgage debt that the lender is canceling cannot have been used for anything other than on the house itself: construction or improvement costs.  You cannot have taken a world cruise with the money you took out, or even helped pay your kids’ tuition.
• Mortgage tax relief is capped at $2 million for a married couple filing jointly and $1 million if filing separately.

Let’s say you financed a  Los Angeles house for $800,000.  During the bubble it was worth$1 million and you refinanced your Los Angeles home for $850,000.  Since the loan was down to $74,000 at the time of refinancing, you took out $110,000 and did go on that world cruise, or bought the car you always wanted.  Then came the crash and the house dropped to around $750,000 in value.  You managed to get the lender to agree to forgive $115,000 in debt with a short sale for $735,000.

You will get tax relief on only $5,000.  The $110,000 that you spent on the cruise or car doesn’t qualify for “principal residence debt” in any way, shape, or form.

Read more about the Mortgage Debt Relief Act and Debt Cancellation

Also visit the irs.gov website and download Form 982 and IRS Publication No. 4681 for an explanation (this may not be available yet).

Make sure to consult with you accountant before making any rash decisions.

Buying or Selling Los Angeles Real Estate

Buying or selling a Los Angeles home can be a daunting process in a city this size, especially if you’re new to L.A. Town. You’ll need a resident expert to show you around and help you narrow down the areas where you might like to live. I will help you find the perfect home in the right area to fit your lifestyle, budget and needs!

When I list and sell Los Angeles homes for my clients I strive to make the experience a pleasant one. My mission is to provide outstanding service while utilizing the best practices and systems available.

If you are an absentee owner, you’ll need someone to handle all the details that you can’t handle remotely. That’s where I come in – I’m there when you can’t be. I also specialize in lease property in Los Angeles.

Westside Los Angeles Real Estate, including, but not limited to:

• Westwood Real Estate – Westwood single family homes, Westwood condominiums, Wilshire Corridor condominiums, Century City condominiums
• Brentwood Real Estate – Brentwood single family homes, Brentwood condominiums
• Santa Monica Real Estate – Santa Monica single family homes, Santa Monica condominiums
• Beverly Hills Real Estate - Beverly Hills single family homes, Beverly Hills condominiums
• Culver City Real Estate – Culver City single family homes, Culver City condominiums
• Palms/Mar Vista Real Estate - Palms/Mar Vista single family homes, Palms/Mar Vista condominiums
  
• Silver Lake Real Estate - Silver Lake single family homes, Silver Lake condominiums
  
• Echo Park Real Estate – Echo Park single family homes, Echo Park condominiums

For more information on how I can best serve your Los Angeles real estate needs, please fill out the online contact form or give me a call at 310-473-6919.

Jane Peters knows L.A. Real Estate. Let me do the Work for You!