The Dodd Frank Wall Street Reform and Consumer Protection Act
The intention of this legislation is to reign in predatory lending and safe guard our housing market from a collapse like we experienced in 2007. What it does is tighten up mortgage guidelines. This means verification of assets, having a strong credit score, and not making loans to people who can not realistically pay them back. The legislation went into affect on January 10, 2014, but lenders have been putting the guidelines into place for some time.
What this means to you is that you really do need to qualify for a mortgage. It also means that paperwork will be more extensive and processing your loan will take time.
I think it also means that it is more important than ever to get pre-approved BEFORE you make an offer on a house. Line up your financing in advance and you will have less stress while in escrow.
The Mortgage Debt Forgiveness Relief Act has Expired
In 2007, Congress passed this act to give tax relief to distressed home owners. Basically, the IRS considered any forgiveness of debt to be income upon which you were taxed. So if you sold your house with a shortsale (selling it for less than what you owed), did a deed in lieu of foreclosure, or restructured you debt, you could be required to pay taxes on any debt not repaid. The Mortgage Debt and Forgiveness Relief Act waived this taxation. This was a huge boon to helping distressed home owners. The act expired n 2012 but was extended for a year and now expired at the end of 2013.
Congress has not extended it. It is not looking promising that they will either.
This means that if you are facing the option of doing a shortsale, a loan modification, or a deed in lieu, you need to talk to a good tax accountant first. Do not get involved in any of these scenarios without good tax counsel. I also want to recommend good legal counsel.
Speaking of legal counsel, I was inspired to write this post after reading Kate Brooke’s newsletter. Kate is a local attorney with extensive real estate experience. To contact her, click here.
I hope you find this information useful.