Mother & Daughter Blog: December 2007

Below is a list of power-packed posts filled with informational facts about being in Default, finding yourself in the pre-foreclosure process and having to do a Short Sale and some helpful tips on how to avoid Foreclosure. By reading this information you will know the timelines, procedures, advantages and disadvantages of each stage.  You will find options that will help this rocky road a little easier to control.

This will help homeowners/sellers that are in trouble and it will also help ready, willing and able buyers whether it be families looking for a new home or investors looking for investment deals.

Stats and information  

1. by Definition.... - Definition of foreclosure terms
2. When being #1 is bad!  Ranking of California cities and counties for the month of November 2007
3. The rankings are in from the top 20 - This was an eye opener on the rankings of cities in foreclosure with California having more in the top for the month of
4. Will aspirins make it go away?.... probably not!  Points encouraging you to face the situation
5. City, County, State.... what are they doing?  Information on San Joaquin County & Stockton resources
6. Meltdown or FREEZE ?  Coverage on the market situation
7. Foreclosure assistance sites - Excellent Foreclosure resource links

Sample Letters to Send to Lender

1. Sample letter: To lender requesting help to avoid foreclosure - Sample letter to send to the lender requesting help to avoid foreclosure, and a suggested budget to catch up
2. Short Sale - Sample hardship letter  -  Sample letter to send to lender explaining how and when your hardship started.
3. Short Sale: Dear Mr. Lender...... Very truly yours,  Sample of letter to lender requesting short sale information and procedures / requirements.
4. Short Sale Worksheet example and suggestions- Sample of a worksheet for a counter offer to lender

Information on the Default process:

1. Initial steps of Short Sale - Default Period
2. Short Sales - Great information on short sale refers to http://www.motheranddaughterrealty.com/
3. Short sale approval is not AUTOMATIC! - Your lender may play hard nose
4. T I M E equals 90  - An explanation of the from Default to Sale Timeline
5. What are the options?  - List of options while in default/pre-foreclosure
6. Master the art of foreclosures  - Great tips on foreclosure
7. Disclose with foreclosure sale, just as regular sales - Disclosure reminder
8. Default to Short Sale - Steps from default to short sale
9. Know your buyer's intentions before accepting the offer...... Some California Laws that must be obeyed when seller is in default and an Investor wants to purchase property
10. Foreclosure "Last Minute" tips: Did you know? - Last option before foreclosure.
11. To Cure a Default - More information on how to get out of foreclosure.

Short Sale Information

1. Short Sale: "The To Do List"  - A good list to follow to get a short sale done
2. Its a Short Sale...Take the steps!  - Step by step from listing before the offer
3. It's a Short Sale... You have an Offer! ....Take the next steps. - Step by step once you get the offer
4. Short Sale - List the Process - Informing the sellers/buyers of the process
5. Short Sale - Important Information for a successful sale - What to put in the MLS listing to protect you!
6. Hardship or not? that is the question.... - About qualifying for a hardship
7. A little more time.....  - A cliff hanger story of what can happen during the foreclosure process
8. BPO Walk thru -- then what??  - A little information on how BPOs work for short sale
9. Disclose with foreclosure sale, just as regular sales   - Tips on regulations for disclosure procedures in a short sale

Other things that can happen:

1. Short Sales - other Liens can cause a problem - Here's a tip. - This may  not seem important until you are in escrow and find out that there are other liens on the property that is in short sale and time is running out.

Other Options:

1. The Simple Way Out?????? is not a good "deed" - Explanation of Deed-in-Lieu of Foreclosure
2. Home Equity Sales  - An introduction to home equity sales - see more on realtor.org
3. Effect Bankruptcy Chpt 13 has on Short Sale?  - Chapter 13 Bankruptcy information during foreclosure

Laws, Relief Plans in Site? Good stuff *** Help is on the way!

1. Good News! Tax Break for Mortgage Debt Forgiveness! A Change that will help!   It passed! Yeah. President Bush signed on Dec 20, 2007.
2. What does California have to say about Foreclosure Consultants and RE Agents  - A few tips on what a real estate agent can and cannot do as far as consulting sellers in foreclosure.
3. Invest without Agent - It's the California Law!  - Investment tips vs. what an agent cannot do to help
4. It Passed .... Now what? More FHA Loans? Bill HR 1852
5. Tax Relief from Short Sale - Will it pass? HR 1876  - News on tax relief bill
6. Anybody got a bandaid? - Regarding the new plans that President Bush introduced to help the foreclosure problems
7. Here come the judge! .....BK judges might get to help the foreclosure problem ! Judges maybe able to make decisions to lease the mortgage payment plans
8. Owners have rights, Tenants have rights too-- all God's children got rights! Explains some of the rights tenants have if you are renting out your home and run into foreclosure problems
9. Short Sale: Relief..... is it just a plan away?
10. Invest without Agent - Its the California Law!  Explain that real estate agents cannot represent an investor in the purchase of a property that is in recorded default.

For free market evaluation of your home visit http://www.motheranddaughterrealty.com/

Keep it clean... This is about the The first time homebuyer!

Can you remember back to when and what things you did that will always be great memories to you because they were .....the FIRST TIMER?  The same excitement can be found with being the  First Time Home Buyer ... (well... almost the same)!

Please click on the links and you will find additional information to help you in your search for your new home. If you live in the San Joaquin, Stanislaus, Alameda, Contra Costa Counties (includes major cities: Stockton, Modesto, Tracy, Manteca, Lathrop, Livermore, Dublin, Pleasanton, Fremont, Newark, Hayward, Union City, Oakland)or any of the surrounding areas, please feel free to give me a call and I will make your Home Search a success.

Check out my Mother and Daughter Blog for other tips for Sellers and Buyers. I work with my daughter as the Mother and Daughter Real Estate Team and we also focus in Short Sales and the Pre-Foreclosure process.  Our consultations are free.  Our aggressive marketing plan includes progressive on-line listing advertising.  If you are thinking of selling or buying a home in Northern California: Central Valley (San Joaquin/Stanislaus Counties), East Bay (Alameda, Contra Costa Counties) and would like a free Home Seller's or Home Buyer's Handbook, please call us at Perfect Financial Solutions 866-750-8282 or direct 510-284-7721 or email at brooksrm2042@aol.com

Here is possibly a pro-active way to help prevent getting into foreclosure and also will help the HUGH ongoing Foreclosure problems in California's ~ San Joaquin, Stanislaus, Alameda Counties and the surrounding areas.  Having the #1 Foreclosure rate coming right out of Stockton and with Modesto following with the #2 spot, contact your lender before you get into foreclosure. 

It is the beginning of the year coming up and there is going to be a large number of ARM-adjusting and it will not be a pretty site.  Take the steps to help yourself.  What can you lose by asking?

If you find yourself in a situation where your ARM is adjusting to a higher payment that you know your budget cannot survive and you want to take action now to avoid getting yourself into default which can lead to foreclosure, try contacting your lender now! Or as in this sample letter, you have contacted the lender and they would not work out something that you can afford. 

I've prepared a sample letter that you can send to your lender.  In this example, the seller contacted the lender via phone and tried to work out a plan, they came up with a plan that will not work but they are not giving up and will try to come up with a plan that will work and hopefully will get the approval from the lender.

Modify the letter if you have not contacted the lender but you know that you will be in trouble when your payments adjust to an amount you cannot afford.

Call me if you need help in re-wording the letter to fit your situation.

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SAMPLE OF LETTER TO LENDER TO HELP AVOID FORECLOSURE

TO:       Mr. Lender, name, address FROM:  YOU RE:       Loan #

Dear Lender:

Due to the scheduled ARM adjustment in 2008, I am finding myself heading for trouble with my mortgage and I am writing to ask for your assistance.  I am asking for assistance before I get into default and pre-foreclosure problems.

When I purchase my home I was gainfully employed and have made my payments that I signed the loan for.  At the time I agreed to the loan, I believe the loan officer and was convinced that this was a good plan for me based on the promise that I would be able to refinance after the two years and that would lower my payments even more.  He reassured me that I would never have to pay the higher payments of the adjustment because I would be able to refinance.

Well, its now time for my ARM to adjust and it will be going up $1,000.  That $1,000 is way more than what I am paying now and I cannot afford that increase.  I have tried to take the necessary steps to avoid getting in a situation where it will lead me to late payments and then default and pre-foreclosure to foreclosure by contacting my lender. 

1. I have also tried to refinance and found out that I did qualify to refinance but also found out through an appraisal that my property is not worth what I owe on the property.  So that put me in a situation of what can I do? 
2. I contacted the lender and asked about a modification program and was quoted a even higher payment than the what the adjustment is going up to! So that was no help either. 
3. I was also advised to go my second lender and ask for assistance and see if they would take a short payoff so that I could go ahead and finance and they sent me a short sale package -- which is what I am trying to avoid and that is of losing my home.  So I am still needing some solid assistance so that I do not either lose my home or have to short sale it.

Up until now I have kept my mortgage payments current but I know that I cannot afford to pay the additional $1000 a month and will eventually fall behind and I want to keep my home. I need your help in order to keep my home from foreclosure.  I would like to be considered for one of your owner assist programs so that I can avoid foreclosure and can keep my home. I will need a program that I can afford. 

Here is what I can do until the market recovers from this situation and my home's equity increase so that I can with my good credit qualify to refinance the existing loans that I have. I have prepared a budget, which I've enclosed for your review. Right now I can do the following payment arrangements:  Beginning with Jan 2008, I would like to make the same payment of ___________ and _________ towards the adjust (instead of the $1,000) for the _________________ months/years.   And once this market crash is better and the housing values climb, I'd be able to refinance and get a better payment.  This is how I can save my home. 

**** send this to the 1st.  and send another one to the 2nd leaving out the history of the 1st or revising it so that it is just FYI to the second. 

My telephone number is ___________ and the best time of the day to reach me is between ______________ daily. If there is any additional information that I might provide, please let me know immediately. Thank you in advance for your consideration and assistance in helping me save my home from default and possible foreclosure.

Important information to let the lender know:

1. You want to avoid foreclosure
2. You have a hardship which is the ARM adjustment Jan 2008 and they know that is has caused thousands of borrowers a hardship.
3. You are asking for assistance
4. You have worked out a budget / payment plan
5. You have set a time depending on the market restoration
6. Your availability
7. Be truthful in your letter

For free market evaluation of your home visit http://www.motheranddaughterrealty.com/

Check out my Mother and Daughter Blog for other tips for Sellers and Buyers. I work with my daughter as the Mother and Daughter Real Estate Team and we also focus in Short Sales and the Pre-Foreclosure process.  Our consultations are free.  Our aggressive marketing plan includes progressive on-line listing advertising.  If you are thinking of selling or buying a home in Northern California: Central Valley (San Joaquin/Stanislaus Counties), East Bay (Alameda, Contra Costa Counties) and would like a free Home Seller's or Home Buyer's Handbook, please call us at Perfect Financial Solutions 866-750-8282 or direct 510-284-7721 or email at brooksrm2042@aol.com

Buyers do not out negotiate yourself! Don't get greedy. Don't pay more for a home because of a "small" incentive that you can get yourself later.  Go for the bucks that you can save. 

When you are out there looking at homes in the San Joaquin, Stanislaus, Alameda, Contra Costa counties and the surrounding areas, and you finally find the right home, this is the time to slow down and really think about your offer.  Pay special attention to counter offers that the seller offers and what you counter back.  In other words, be careful to not out negotiate yourself.

Tip: If the seller offer the incentive or deal or object to you.... it is probably invaluable to them.  However, if it is something you want, it suddenly becomes valuable to the seller.  So pay close attention to body language if you are present with the seller and / or language in the seller's counter if you negotiating on paper.  If it is going to hold up the sale.... best thing is to let it go.

Tip 2: Do not fall asleep while negotiating, this is one of the most important parts of the purchase.  Be alert and get what you want in the house and "get the biggest bang for your buck".  Staying awake will help assure that you walk away from the closing table with no only the home that you wanted but with a few extras (granite countertops, wood floors, paid less to none on the closing cost and got the house for way lower than the list price)!  It will set off the party!

Ask yourself:  What would benefit you more? 

What if the seller tells you they will throw in a flat screen TVor entertainment center, wine cooler (probably because they do not want to take it off the wall) and they are planning to upgrade when they get into their new home.  What would benefit you more? This TV or say .....credit on your closing costs?

What are some of good incentives that would help you in the short and long run? 

Reduced sales price which will save you on interest and payments - long run.

Closing costs - short term at closing and long run in overall savings

HOA - Homeowners Associates fees - say pay it for 6 months or a year! Short and long term value

A few months of mortgage payments paid for you - WOW! This would be great short and long term savings.  Gives you time to save money that you have to pay out -- puts you ahead of the game!

Lower the sales price !!!! This will be short term to lower the fees and cost of closing and a long term because you will end up payment less on your taxes and insurance and interest.  This is the best of the incentives.

This is true with your financing as well, NO option-ARM, no teasers, insist on a fixed mortgage payment and keep your interest rates low.  Do smart financing, know what you are getting into.

 You do the math before you buy!

For free market evaluation of your home visit http://www.motheranddaughterrealty.com/

Check out my Mother and Daughter Blog for other tips for Sellers and Buyers. I work with my daughter as the Mother and Daughter Real Estate Team and we also focus in Short Sales and the Pre-Foreclosure process.  Our consultations are free.  Our aggressive marketing plan includes progressive online listing advertising.  If you are thinking of selling or buying a home in Northern California: Central Valley (San Joaquin/Stanislaus Counties), East Bay (Alameda, Contra Costa Counties) and would like a free Home Seller's or Home Buyer's Handbook, please call us at Perfect Financial Solutions 866-750-8282 or direct 510-284-7721 or email at brooksrm2042@aol.com

California Foreclosure stats

Usually holding first place is an honor... however being #1 in Foreclosures is not an honor that we here in Stockton, California are proud of.  Up until the mortgage meltdown, Stockton was hardly heard of.  Now I have people calling me from other states and they mention and remind me that Stockton is #1 in number of foreclosures over all other cities.

California total foreclosure filings hit 39,992 with the household per filing is 325.  California foreclosure filings have been at #1 for 10 straight months.  20% of the 201,950 foreclosure filings reported nationwide for the month of November 2007.  Nationwide household per filing is 617.

                 Top Cities Foreclosure Filings in California

• #6 city = Vallejo-Fairfield; #9 city = Riverside - San Bernadino.
• Not California cities: #4 (Las Vegas, NV); #5 (Detroit, MI); #7 (Greeley, CO); #8 (Cape Coral - Fort Meyers, FL)

                      Northern California Counties Foreclosure Stats

Foreclosure filings by state (highest first):  California, Florida, Ohio, Texas, Michigan, Georgia, Illinois, Nevada, Colorado, New York for the month of November 2007.

Homes prices are affected by the foreclosure problems.  Home prices have not been this low since 1991. This problem is why there are so many short sale listings and requests for short sale approval and people losing their homes.

For free market evaluation of your home visit www.motheranddaughterrealty.com Check out my Mother and Daughter Blog for other tips for Sellers and Buyers. I work with my daughter as the Mother and Daughter Real Estate Team and we also focus in Short Sales and the Pre-Foreclosure process. Our consultations are free. Our aggressive marketing plan includes progressive online listing advertising. If you are thinking of selling or buying a home in Northern California: Central Valley (San Joaquin/Stanislaus Counties), East Bay (Alameda, Contra Costa Counties) and would like a free Home Seller's or Home Buyer’s Handbook, please call us at Perfect Financial Solutions 866-750-8282 or direct 510-284-7721 or email at brooksrm2042@aol.com >

HAPPY and SAFE HOLIDAY SEASON to you and your family & Friends!

This information provided by:  ROSEMARY BROOKS  ~  the Mother and Daughter Realty Team @  Perfect Financial Solutions 866-750-8282.

Buyers in the San Joaquin / Stanislaus, Alameda Counties and the surrounding areas ~~ Don't get side tracked in your home search venture. Keep your home search within the lines of control and stay on the highway to your dream home.  Once you get sidetracked it can turn something as important as buying a house into a long un-ending nightmare!  Listed below are some tips to help you stay on track ~~ by setting yourself up to stay on track.

Make a list.... Get prepared for this venture.

1. List the price range you are qualified for.  It is smart to have a from and to range, but most important is to get pre-Approved so that you know what your range is. Knowing the type of property that you qualify to buy is useful at this point too.
2. List what you MUST HAVE in your new home.  This list is what you cannot do live without in your home.
3. List what you DO NOT WANT in your new home.  This list can be things that you really do not want and those that you can live without.
4. List what houses are listed for in the San Joaquin / Stanislaus / Alameda Counties and the surrounding areas.  This information can be easily provided to you by a real estate agent. 
5. List what what house are selling for in the San Joaquin / Stanislaus / Alameda counties areas.  This information can be easily provided to you by a real estate agent. 
6. List the areas of concern such as:  Crime, floor area, schools, depreciation in value, parks, neighborhood watch, homeowner association or not, 1 or 2 story home, etc.
7. Get a list of Homes for Sale.  Decide if you want to purchase a Pre-Foreclosed home (Short Sale), Foreclosed REO property or if you prefer to just purchase regular sale homes.  Each type of purchase has different process requirements, so it is important to decide which you want to deal with, which you qualify for and let your agent handle informing you of the process and negotiating for you. The list and information for these homes can be easily provided to you by a real estate agent. 
8. List the questions that you need answers from the seller on:

• Why are you selling?
• What's wrong with the house and what's good?
• Are there any repairs that need to be done to the house and if yes, which ones will the seller do?
• Are there any incentives (financial assistance) that the seller is willing to supply?

Our Mother and Daughter Real Estate Team @ Perfect Financial Solutions have a Buyer's Checklist that we follow in helping our buyers find their dream home.  We not only use our resources to provide a list of homes that fit the criterial that our buyers provide to us, we ask questions and go view the homes and give our buyers feed back on what we find out about each home and we let the buyers have the time to make wise and long lasting decisions on the home that they want to purchase.  We offer our services to you if you are Buyers in the San Joaquin / Stanislaus, Alameda Counties and the surrounding areas. Some of the major cities within these counties are: Stockton, Manteca, Lodi, Lathrop, Ripon, Salida, Modesto, Ceres, Tracy, Livermore, Dublin, Pleasanton, Hayward, Fremont, Newark, Castro Valley and Union City.

HAPPY and SAFE HOLIDAY SEASON to you and your family & Friends!

Sellers in the San Joaquin, Stanislaus, Alameda, Contra Costa Counties here is what it means to give us your listings: These counties cover the following major cities: Stockton, Manteca, Modesto, Patterson, Newman, Tracy, Fremont, Newark, Castro Valley, Oakland, Hayward and Union City and others.

Our services cover these and other areas of Northern California and we use agressive marketing to get your home awareness out to first time home buyers, investors, second home purchasers and those looking for their dream home.  We list not just short sales, but regular sales.  We offer free consulting / help with contacting your lender if you are getting in trouble with or are in trouble with your mortgage.  We offer you open houses and we keep you updated. This is what we do.

Here is a list of 10 of our Live online advertising sites: (don't want to give all our secrets away but will share 10) This is in addition to: Metrolist, Central Valley Tempo, and BayEast MLS.

Before you set the sales price of your house,  here are some steps that you need to do:

>> Understand that Market conditions will play a role in setting the sales price of your house. 

>> Get an agent to run a Comparative Market Analysis (CMA) that will show the listing price of similar houses in the area as well as the SOLD prices. Factor in how quickly houses are selling in your area, interest rates, the strength of the school system, the criminal rates, and finally whether it is a buyer's or seller's market. 

>> Get an agent to Analysis information about houses currently on the market

>> Get an agent to share information on houses that were on the market but never SOLD

>> Set your expectations for selling the house, this must be calculated into the selling price

>> Get your agent's opinion of a sales price that will balance your expections and match the local market value

Here are some expectations that you should consider :

The market is pretty confusing right now.  This is no time to not give careful consideration to what is going on in the market.  There are so many foreclosures, short sales, auctions from foreclosures, and so many REO (Bank Owned Real Estate) that the market is not showing a clear picture of what the value of your may be.  By using an agent you will access to more reliable information from the MLS and other sources that can prove to be of great value to you and it could save your thousands of dollars. This especially holds true to areas such as the San Joaquin County, Stockton, CA because of the high rate of Notice of Defaults recorded daily and most of which turns into foreclosure and REO bank owed real estate.

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For free market evaluation of your home visit http://www.motheranddaughterrealty.com/.  Check out my Mother and Daughter Blog for other tips for Sellers and Buyers. I work with my daughter as the Mother and Daughter Real Estate Team and we also focus in Short Sales and the Pre-Foreclosure process.  Our consultations are free.  Our aggressive marketing plan includes progressive online listing advertising.  If you are thinking of selling or buying a home in Northern California: Central Valley (San Joaquin/Stanislaus Counties), East Bay (Alameda, Contra Costa Counties) and would like a free Home Seller's or Home Buyer's Handbook, please call us at Perfect Financial Solutions 866-750-8282 or direct 510-284-7721 or email at brooksrm2042@aol.com

Do your research, Know the facts, Be prepared and Just do it!

By now I am sure most know that almost everyone know about the number of Foreclosures in San Joaquin County ~ and that Stockton is one of the highest in the foreclosure rate in the country.   Although you may not be 1 out of the 31 homeowners in Stockton that are in foreclosure ~ you are still affected by this massive foreclosure problem, in some way or another:

If you are still saying it does not affect me, then I challenge you to test and see if you are affected:

1)      Take a drive around Stockton and you will see all the House for Sale signs and some will say either read Foreclosure, Auction, Trustee Sales, Short Sale, Bank Owned and if that don't show how you are affected let me break it down for you: (see definitions at bottom of post)

2)      Read the newspaper: Headline, sub-headlines or fine print is all about Foreclosures being out of control, Auction and Trustee Sales Date, Short Sale listings and Bank Owned number are rising.  Is this proof enough that you are being affected?  No? Well lets keep going. Check out some of these sources ......

3)      Look closer to home....(your neighborhood).  Talk a walk in your neighborhood and just mentally count the number of vacant homes that you see.  Look at the lawns and homes that are not in good "home pride" condition.  Look at the tone of emptiness in the neighborhood.  All signs of the times - Foreclosures, Auctions, Short Sales, Trustee Sales, Bank Owned homes.

4)      You can ask almost anyone about the market and they will be able to tell you that the market is way done, homes are selling for thousands less than what the owners paid for them, and don't even mention what an owner is looking for a final sale price of their home at this time.

Sellers get prepared.  Don't stick you head in the sand - not a good time to do that.  But don't run away from the problem either.  Know your situation and know what you need to do to get your home ready to sell.  Here are some tips and resources on how to get ready to sell your home and get the best final sales price:

1.  Price it right.  Don't use the gambler's approach to get it done.  Do your resource on what is your home worth.  (it is good to remember the drives you have taken and see other homes and neighborhoods, the walks and the news).  

2.  Get yourself a good real estate agent, ask for CMA and let them do their presentation on how they will market your home and what they know about the market.  Stay in the loop during the listing. Know the market.   Read the updates that your agent will send to you.  Make sure you make the agent's job as easy as possible by allowing them freedom to show your home.

3.  Clean up your home, I mean really clean it up and keep it neat.  If there are some improvements and repairs that you can do, do them! You want to make sure your home can stand the test of being appealing to the buyers.  And always Disclose, Disclose the truth about your home to your buyers.

4.  Exercise patience.  This is a buyer's market.

                                                                  Here are some Seller's Tips

For free market evaluation of your home visit http://www.motheranddaughterrealty.com/

This information is provide to you by the Mother and Daughter Real Estate Team.  We also focus in Short Sales and the Pre-Foreclosure process.  Our consultations are free.  Our aggressive marketing plan includes progressive online listing advertising.  If you are thinking of selling or buying a home in Northern California: Central Valley (San Joaquin/Stanislaus Counties), East Bay (Alameda, Contra Costa Counties) and would like a free Home Seller's or Home Buyer's Handbook, please call us at Perfect Financial Solutions 866-750-8282 or direct 510-284-7721 or email at brooksrm2042@aol.com

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GOOD NEWS!

Today is a day of some really good news that will help the people that find themselves faced with foreclosure and cannot find a solution to save their home by using one the plans that have been created for those that meet a certain criteria and they were not able to do a workout with the lender(s).

If the homeowners find that there are no workout plans that fit them and they have to seek a short sale approval and if they are lucky enough to get an approval for the short sale, they now do not have to worry about the difference between what the actually owe the lender and what they were able to sell the home for. This is called debt forgiveness.  With this law, they are truly forgiven. 

This law will ease the after shock of losing your home and then finding yourself owing the IRS that difference ~~~ the debt will be fully forgiven ~~ if that homeowner is in hardship.  

                                                    TAX BREAK FOR MORTGAGE DEBT FORGIVENESS
President Bush signed into law today a new measure giving tax breaks to homeowners who have mortgage debt forgiven. Under preexisting law, the debt forgiven by a lender, such as for short sales and refinances, was generally taxable to the borrower as debt discharge income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.

This tax break applies to debts discharged from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred in acquiring, constructing, or substantially improving the residence (up to $2 million for refinances).

For purposes of calculating capital gains, any debts discharged excluded from income under the new law must be subtracted from the basis of the taxpayer's principal residence (but not below zero). However, taxpayers may generally exclude from capital gains income up to $250,000 (or $500,000 for married couples filing jointly) for properties owned and used as their principal residence for at least two of the last five years.