About Real Estate: VA-backed mortgage program can be used time and again
Many veterans of the armed services don#146;t realize it, but the low-down-payment mortgage plan that is operated by the Veterans Affairs can be used more than once.Q. I am a veteran of the Gulf War in 1990. I retired from the Marine Corps in 1998 and I bought my first home in #146;99 with a VA mortgage. Now I would like to sell and purchase a smaller house. Can I use the VA loan program again, or is it too late because so many years have passed since I was in the military?
A. A veteran#146;s eligibility for the low-rate, low-down-payment home-loan program operated by the Veterans Affairs never expires. Even veterans of the Korean War or World War II can still use or #147;reuse#148; the program today, as long as they were honorably discharged and meet the VA#146;s other basic requirements.
For details, contact a few local lenders and mortgage brokers. Also call the nearest regional office of the U.S. Department of Veterans Affairs (it should be listed under the #147;Federal Government#148; heading of the White Pages near the front of the phone book), or visit the agency#146;s outstanding Internet site at www.va.gov.
Oorah, Marine. Thanks for the time that you sacrificed to keep our nation free and strong.
Q. We have owned a home in our neighborhood for several years and have never been late with a payment. However, several other recent buyers in our area are now in foreclosure, and all those properties that the banks are trying to sell have sent the value of our own property down a lot, too. Can we sue anyone for the loss of value in our home?
A. Sure, you could file a lawsuit, because anyone in America can sue anyone else. But you probably wouldn#146;t win, for courts have routinely ruled that defendants in such suits aren#146;t responsible for the decline in a neighbor#146;s home value.
The larger question here is, who would you sue? Most homeowners in foreclosure don#146;t have enough money to pay their mortgage, much less compensate a local homeowner (like you) who claims their foreclosure has hurt local property values.
So, spending the time and money to file court action against a financially troubled owner likely would be fruitless.
Want to sue the bank instead? That#146;s likely a no-go lawsuit, too, because banks always have had the right to grant a loan based on a buyer#146;s income, expenses and credit rating when the home was first purchased. If the borrower#146;s financial situation later takes a turn for the worse and he or she can no longer make the monthly mortgage payments, the bank can foreclose on the home but has no legal obligation to pay nearby homeowners for any area-wide drop in values that the foreclosure may have caused.
A real estate agent or builder usually can#146;t be successfully sued, either, unless the agent or developer foolishly promised in a written contract that the home definitely would sell for more than its purchase price.
Q. We were facing foreclosure last winter, but our lender agreed to let us conduct a short sale instead. The sale closed two months ago and netted $62,000 less than our loan balance. The lender forgave the $62,000 but has now sent us an IRS Form 1099-C, #147;Cancellation of Debt,#148; for the same amount. Does this mean that we#146;ll owe taxes on the forgiven debt when we file our next tax return?
A. Probably not. Forgiven home-loan debt once was taxed by the Internal Revenue Service just as if you#146;d actually earned an identical amount, but that policy was changed by the Mortgage Forgiveness Debt Relief Act of 2007.
In a short sale, the bank essentially agrees to let the borrower sell the home at its current market value, and simultaneously agrees to forgive part or all of the debt if the net proceeds aren#146;t high enough to cover the outstanding balance of the mortgage. The bank loses money, but it#146;s often a cheaper alternative than going to court to begin the long and costly foreclosure process.
Congress passed the Debt Relief Act to help homeowners who suffered a foreclosure or got forgiveness of their debt through a short sale or loan restructuring avoid a double-whammy at tax time. Under the law, if part or all of the mortgage debt on your principal residence is forgiven in any year from 2007 to 2012, you may be able to exclude up to $2 million of the forgiven debt from your taxable income.
Most homeowners who have received debt forgiveness qualify for this valuable break, provided that certain provisions are met. For starters, the mortgage debt must have been canceled or forgiven in the calendar years #8212; as opposed to tax years #8212; of 2007 to 2012.
As you already have discovered, the lender also usually sends out an official IRS Form 1099-C that states the exact amount of debt that was forgiven. Even though it#146;s likely no taxes will be owed, the amount still must be reported on your next return by using IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness.
Talk to an accountant or similar tax professional for more details. Also get a free copy of IRS Publication No. 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments, by calling the agency at (800) 829-3676 or by downloading it from www.irs.gov.
Ÿ For the booklet #147;Straight Talk About Living Trusts,#148; send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.
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