Accounting News and Notes

Straight Talk: When there is not enough in your paycheck for your mortgage – what should you do?

Sell, Loan Modification, Short Sale or Foreclosure.

If you are dealing with financial distress and the inability to keep your mortgage payments up to date my advice is to quickly educate yourself on your options and decide the best course of action for your family. Don’t wait! If you do nothing, the choice is taken out of your hands. You can end up with a foreclosure from your lending institution that negativity impacts your credit and the ability to buy another house for a minimum of 2 years.

Your options are:

1) Sell the house outright for at least what you owe your current lender and you come out whole. The marked benefit is having no negative impact on your credit history. Unfortunately, if you purchased within the last 2-3 years with minimal to nothing down; or if you put minimal down and obtained an interest only loan you could find it difficult for your home to appraise and complete a sale in the current declining value environment. If that is the case, you have the following three options: Loan modification, short sale or foreclosure.

2) Apply for a loan modification from your existing lender. While this process can be tedious you can have favorable results, stay in your home and have time to get back on your feet. Unfortunately each lender has their own process and follows their own timeline so you need to play by their rules, complete all paperwork in a timely manner and give them the documentation they request so they can render a decision. Then follow up, follow up follow up!

3) Short sale: simply stated you can sell your home and request that the lender of your current mortgage accept less than the total amount due. This is done as soon as a contract/offer is submitted to you. If you have both a first and second mortgage; you must obtain approval from both lenders and this process is even more challenging. The lender does not have to accept a short sale which means – no sale! They will weigh the options of your equity position and estimated marketing time and costs to see if the short sale benefits their bottom line versus taking the house back through foreclosure proceedings and selling it themselves. Short sales usually take much longer than typical resale closings, i.e. 2-4 months but the benefit is you will not have a foreclosure on your credit standing for 7 years and you can move on without any baggage to your next housing opportunity.

4) Foreclosures: When the lender holding you loan takes action to foreclose upon your property, you are given legal notification and after due process, you can and likely will be evicted from your home. In the state of Georgia, foreclosure can occur as early as 30 days after your first delinquency. While this is not typical, it is legally possible. It is beneficial for the lender to find a way to keep the homeowners in the property, not incur legal and real estate expense of upkeep and marketing. However, after a certain time frame, usually 2-5 months, action will be taken.

ACT NOW. Your best defense is to investigate which of these opportunities to pursue before the decision is taken out of your hands. When you know you will have a shortfall in making your mortgage payment start the process immediately, not 2-3 months into a delinquency. Lenders usually do not accept partial payments; therefore making less than the required mortgage payment is still considered a delinquency. Knowledge is powerful. Make the most of your alternatives despite the difficult choices. Having a plan keeps you and your family on track for adjusting to the decisions that must be made in these troubling financial times.

Your CPA and Mortgage Planner can help negotiate through these tough times by arming you with key information. As a 30 year veteran of the mortgage industry, my goal is to assist my clients through all the cycles of their life by managing their best mortgage solutions. I am available to assist with any questions or strategies to help you and your families navigate the current market conditions.

To learn more contact Ms. Sandra Hill of Georgia Residential Licensee #12149 at Trellis Financial Services, Inc. via phone at (770) 814-0552 or by the Internet at sandyhill@trellisfinancial.com

Duluth CPA on Utilizing Like-Kind Exchanges as an Investment Vehicle

Tax law has long allowed taxpayers to utilize Like-Kind Exchanges allow investors to buy and sell certain types of investment assets without paying capital gains taxes at the time of the sale. The  amount of the tax, which would normally be due, is instead rolled over into the newly purchased property. IRS tax code/taw law contains specific rules for like-kind exchanges, which must be followed in order to defer taxation. Rules for like-kind exchanges generally speaking apply to investment assets, such as real estate, but do not apply to items such as personal property, primary residences, second homes, and inventory.

Taxpayers who desire to pursue a like-kind exchange, should seek out and obtain a professional who handles these types of transactions on a full-time basis. Failure in any aspect of the nuances of the law as detailed will make the exchange null and void, leaving all or part of the gain taxable. There are many specific guidelines of which I have recapped a few below:

Requirements of a Like Kind Exchange

• Taxpayers cannot touch any of the cash proceeds or to the extent that you do they will become taxable.
• Taxpayers need to have held the property you are selling as an investment (i.e., the selling item cannot be an item that you have in inventory). If you cannot document that this item was owned by you personally, as an investment, then the like kind rules would not apply.
• Taxpayers to the extent you do not re-invest the full sales price you will have a pro-rata gain (i.e., if you sell an item for $500 that had a tax basis of $400 (therefore a $100 gain) and you bought an item for $150 then you would have to recognize a gain as follows: (350 of sales price not invested divided by $500 total sales price times 100 total gain equals $70 of gain has to be recognized).
• For a like kind exchange between two related parties then both parties to the transaction have to hold the property have to hold the assets for two years or the like kind exchange is voided and the gain recognized in the year transaction voided (i.e., transferred early).

Learn how we can enlighten you in this strategic piece of tax law helping to understand how you can legally defer taxes to another day. Though eventually you will have to pay the deferred tax liability, like-kind exchanges are a unique option in tax law to legally defer taxes to when the asset you are “exchanging for” are ultimately disposed.

To help find other helpful articles to help you manage your business operationally, strategically and financially visit our articles at http://www.hiscpa.com/articles.html

Award Winning CPA John Dillard is an Christian Speaker/Author and Certified Public Accountant in Duluth, GA. To See how he takes Christ along with him to work visit http://www.hiscpa.com/ and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and a Voice of One: Nehemiah’s Prayer visit http://www.john-dillard.com/ or call John Dillard CPA today at 770.814.9304 (All Rights Reserved) Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!    

We advise clients on: IRS representation, Offer in Compromise, Tax Problems, Incorporation in Georgia, Corporate and Personal Income Tax Returns, Part-time CFO, Virtual Controller, Business Planning, Offer in Compromise, Back Taxes, Bookkeeping.

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