Mortgage Update, Final Chapter
Well, at least the beginning of the final chapter. It was so wonderful seeing everyone during the holidays, that I forgot to update everyone on the house situation getting all resolved. (Not to mention work, teaching, and classes all piled up at the same time to get real insane for most of December.)
But we were approved for a permanent mortgage modification. (As usual, I rambled on a long time. So you can just read that bold sentence and skip the rest if you want.) All past due amounts are gone, escrow is up to date, etc. Also, they are modifying the principle to lower our monthly payments and actually get the mortgage less than the value of the house. We were just concerned with the past due amounts, but if they are modifying it, they want to make sure the mortgage isn’t “under water” since it’s a far safer loan for them.
And for the record, this was part of the settlement with the Federal government in the “we foreclosed on people without proper paperwork” lawsuit that hit the major banks for billions. So, I suppose it’s a win-win, since we get our mortgage cleared up, and Bank of America gets to pay the fine to themselves.
There is one issue however – taxes. Loan reduction is considered taxable income (even though it’s the bank changing numbers on their spreadsheet and no actual income passing through us, but it makes some abstract sense). Back in 2007, they passed the Mortgage Forgiveness Debt Relief Act that exempted mortgage modification and short sales on primary residences. It expired yesterday.
Our mortgage was officially modified as of… today. Unfortunately, there wasn’t time to get everything processed during last year. It was even faster than they said ti would be, but just couldn’t be rushed fast enough.
So, if nothing changes, our taxes in early 2014 will include a sizable amount of additional “income” we will owe taxes on. I will have to watch numbers closely, and with luck it will cancel out any return we would have had since we still earn low enough with 3 kids and other deductions that we get almost full refunds. But I gotta run the numbers, of course, and plan for the worst since right now who knows what the tax situation will look like in 12 months.
Before the whole fiscal cliff nonsense, there were several bills from both parties extending the tax exemption and most of the fighting was over who could claim credit for it. Most all the state governments have been lobbying Congress to extend it, and the Realtor lobbyists are working hard pushing for its extension (since it would allow more short sales and keep the housing market moving).
Although, I’m certainly biased, even in general I think it is a great idea and hope it gets extended. The sort of situations it helps most is when people like us were doing bad and then start recovering and getting back on our feet. Being hit with a major tax bill right when you are recovering can certainly hurt. Short of a lottery win, recovery is a slow process.
But we will see. As of right now, the current fiscal cliff deal from the Senate does not include an extension, and if the House can pass anything, I don’t see this even on their radar (and since this Congress is most unproductive Congress since at least the 1940′s, I’m not holding my breath).
Technically, we have another 12 months for them to decide to renew it since it will affect our 2013 taxes. So after this fiscal cliff whatnot (and maybe after the Debt Ceiling/Fiscal Cliff Part 2 ballyhoo that will hit in late February), it will be good to watch and write to Congress asking for the extension. But, until something is passed, I’ll definitely be running the numbers and if need be, saving up for tax time in April 2014.
But bottom line, foreclosure process is over, it will take them 2-3 months to finish all of the processing on their end to cross the i’s and dot the t’s, but it approved, I have signed paperwork, and things are stable again. *whew*