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If you’re thinking of selling your Ludlow VT home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won’t cover your total mortgage obligation and closing costs, and you don’t have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.
1. Consider loan modification first. If you are thinking of selling your Ludlow VT home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home. Your lender may agree to a modification such as:
- Refinancing your loan at a lower interest rate
- Providing a different payment plan to help you get caught up
- Providing a forbearance period if your situation is temporary
When a loan modification still isn’t enough to relieve your financial problems, a short sale could be your best option if
- Your property is worth less than the total mortgage you owe on it.
- You have a financial hardship, such as a job loss or major medical bills.
- You have contacted your lender and it is willing to entertain a short sale.
2. Hire a qualified team. The first step to a short sale is to hire a qualified real estate professional* and a real estate attorney who specialize in short sales. Interview at least three candidates for each and look for prior short-sale experience. Short sales have proliferated only in the last few years, so it may be hard to find practitioners who have closed a lot of short sales. You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won’t try to take advantage of your situation or pressure you to do something that isn’t in your best interest.
A qualified real estate professional can:
- Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
- Help you set an appropriate listing price for your home, market the home, and get it sold.
- Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).
- Ease the process of working with your lender or lenders.
- Negotiate the contract with the buyers.
- Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval. You can’t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.
3. Begin gathering documentation before any offers come in. Your lender will give you a list of documents it requires to consider a short sale. The short-sale “package” that accompanies any offer typically must include
- A hardship letter detailing your financial situation and why you need the short sale
- A copy of the purchase contract and listing agreement
- Proof of your income and assets
- Copies of your federal income tax returns for the past two years
4. Prepare buyers for a lengthy waiting period. Even if you’re well organized and have all the documents in place, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take several weeks to months. Some experts say:
- If you have only one mortgage, the review can take about two months.
- With a first and second mortgage with the same lender, the review can take about three months.
- With two or more mortgages with different lenders, it can take four months or longer.
Information courtesy of Realtor magazine with permsiion by the National Association of Realtors.
The day all Americans dread, tax day is only a few weeks away. If you are an Okemo Mountain second homeowner, you don’t want to miss out on any of the deductions that owning your second home provides. The following tax tips for Okemo Mountain csecond home buyers is courtey of H&R Block.
A second home can be a house, condominium, cooperative, mobile home, house trailer or boat that has sleeping, cooking and toilet facilities. For example, an RV can qualify as a second home. If you own more than 2 homes, you must choose which home other than your main home to treat as the second home. However, you don’t have to choose the same home each year.
Second Home Deductions
If you take out a mortgage to buy, construct or substantially improve a second home, the interest is deductible if you itemize deductions. Your deduction may be limited if the mortgage exceeds the fair market value of the home or if the mortgages on your main home and your second home exceed $1 million ($500,000 if you’re Married Filing Separately). These limits do not apply to mortgages taken out before Oct. 14, 1987 (called grandfathered debt), but grandfathered debt reduces the $1 million and $500,000 limits.
If you take out a home equity loan or line of credit on your second home, the interest is fully deductible unless the mortgage exceeds the fair market value of the home reduced by the amount of the mortgages, including grandfathered debt, as previously described, or if the mortgages of this type on your main home and second home exceed $100,000 ($50,000 if Married Filing Separately).
Real estate taxes and points you pay over the life of a mortgage to acquire a second home are deductible if you itemize deductions. Points you pay on a mortgage to acquire a second home are also deductible over the life of the loan. If you refinance or sell the home before the mortgage is paid off, you can deduct in the year of sale or refinancing any points you didn’t previously deduct.
Renting Your Second Home
If you use the home as a residence and rent it for less than 15 days during the year, you don’t have to report the rental income. It’s considered a residence if you (or a family member) use the home for personal purposes for more than the greater of 14 days or 10% of the number of days that you rent the home at fair rental value. You may not deduct any expenses attributable to the rental, but you may deduct interest and taxes if you itemize your deductions.
If you use the home as a residence and rent it for 15 days or more, you must report the rental income. You may deduct your interest and taxes as described above. But you can deduct other rental expenses (including depreciation) only up to the amount of the income reduced by the deductions for interest and taxes. Any rental expenses not deductible under this rule are carried to the following year, when they are again subject to this limit.
If you don’t use the home as a residence, the above rules don’t apply. You report your income and expenses in the same manner as for other rental property, and you can’t deduct expenses other than interest, taxes and casualty losses attributable to your personal use of the home.
Selling Your Second Home
If you sell your second home, the gain will be taxed as capital gain, long-term if you owned it for more than a year and short-term if you owned it 1 year or less. A loss on the sale can’t be deducted. If the second home was rented for profit, gain generally is taxed as capital gain and a loss can be deducted. The part of the gain attributable to depreciation is taxed at a maximum rate of 25%. If you used the home for personal purposes and rented it, you have to treat the sale as part personal, part business.
If the second home was your main home for at least 2 years during the 5-year period ending on the date of sale, you can exclude up to $250,000 of the gain (up to $500,000 if Married Filing Jointly and you both used the home as your main home for the required period). You can’t claim the exclusion if you sold another home within the 2-year period ending on the date of sale and claimed the exclusion for that sale.
If you don’t meet the 2-year ownership or use requirement, you may claim the exclusion only if you sell the home because of a change in health, place of employment, or another “unforeseen circumstance.” In this situation, the maximum exclusion will be reduced. You may not exclude any gain attributable to depreciation you claimed after May 6, 1997.
If you sell a second home and use it other than as a principal residence (nonqualified use) at any time after 2008, the gain eligible for the exclusion may be limited. For this purpose, nonqualified use does not include:
- Any nonqualified use before 2009.
- Any period during the 5-year period that is after the last period of use as a principal residence.
- A period of temporary absence of up to 2 years for reasons of health, employment and unforeseen circumstances.
- Any period (not to exceed 10 years) during which the taxpayer or spouse was serving on qualified official extended duty.
This post is not meant to give tax advice to Okemo Mountain second homeowners. Please consult your account or tax advisor with any questions you have.
The recenlty enacted “American Recovery and Reinvestment Act of 2009” provides an $8000 tax credit for first-time home buyers. But what does this mean to Okemo Mountain home buyers? Here are the highlights and important facts to know about this legislation:
- It is a tax credit to home buyers, not a loan as in last year’s program.
- It is only for first time home buyers, defined as someone who has not had an ownership interest in a principle residence in the 3 year period prior to the date of the 2009 purchase.
- The buyer must remain in the home for a minimum of 3 years.
- It is applicable to purchases between January 1, 2009 and December 1, 2009; and
- Full credit is available to those with adjusted gross income of $75,000 or less ($150,000 for married filing jointly). The credit is phased out entirely for those with adjusted gross income over $95,000 ($170,000 for married filing jointly).
If you bought a home last year under the old $7,500 tax credit rules, those rules still apply to your 2008 home purchase.
If you purchased a home after January 1, 2009, or are thinking of buying an Okemo Mountain home this year and want to learn more about the $8,000 tax credit, give me a call or visit ISellVermontRealEstate.com.
Issues you will want to consider are the definition of adjusted gross income, how to apply for the credit, what happens if your total tax liability is less than the credit, definition of ‘principle residence’, and other issues. I am happy to advise you as to how you can benefit from the tax credit.