Legal Blog

If you were involved in a short sale (or loan modification) that resulted in your lender forgiving some of the money that you owed on your mortgage loan, this is referred to as “cancelled debt” by the IRS.

Normally, cancelled debt is treated like ordinary income by the IRS, so you have to pay income tax on it. Imagine that someone loaned you $100,000, and then said you do not have to pay it back. That is basically the same as someone giving you $100,000. And when someone gives you money, that is considered taxable income by the IRS.

However, because of the recent housing industry crash, the IRS has actually decided to give you a break in certain situations if your lender cancelled some of your debt in a short sale.

In order for a homeowner to qualify for special treatment, and avoid paying tax on the debt forgiven in a short sale, you have to meet the following test.

1. The debt the lender cancelled must have been used by the homeowner “to buy, build or substantially improve your principal residence.”

2. The property must be your main residence. It can not be a second home or an investment condo.

3. The cancelled debt must relate to money borrowed to acquire or build your main residence. It can not be money borrowed on a home equity loan to buy a car, pay bills, etc.

4. Debt cancellation relief is capped at $1,000,000 for individuals filing separately and $2,000,000 for married taxpayers.

If you’ve had mortgage debt cancelled by your lender, they should have issued you a 1099-C. However, if you did not receive this 1099, that does not mean you are not eligible for the forgiveness rules of this law.

Contact a CPA for additional information. You can also read IRS Form 982 and Publication 4681 at www.irs.gov.

For additional information, please contact the Law Office of Paul N Bell or visit our website at www.pnblegal.com.

Who is liable for injuries when someone slips and falls on your property due to snow and ice? Traditionally (since the 1800s), the rule has been that if the accumulation is due to natural causes, then the property owner is NOT liable, but if the accumulation is man-made, then the property owner is liable.

But that rule was overturned by the MA Supreme Court recently. The new rule is that the property owner is liable under the ordinary rules of negligence regardless of whether the accumulation is the result of natural or man-made causes. The result of this ruling is that property owners will now probably be held liable more often when someone is injured on their property by slipping and falling on snow and ice.

What can you do? Make sure to shovel and plow the snow on your property promptly and effectively after a snow storm. If you see ice forming from melting snow, take care of it quickly. And, of course, check with your insurance agent to make sure your liability coverage is up to date and that you are adequately covered for this risk.

When buying a home, it is important to assemble a skilled, experienced and knowledgeable team of professionals to make sure you get the maximum value and protection throughout this important investment transaction. The core components of your team should be:

1. A Residential Real Estate Attorney with experience closing Residential Real Estate Purchase and Loan Transactions

2. A Real Estate Agent with experience in the type of home you are purchasing and the locations that you are considering; and

3. A Mortgage Lender or Broker that is experienced and reputable.

Consulting with an experienced residential real estate attorney (preferably the Law Office of Paul N Bell) as a first step in the process will help to ensure that you assemble a team that is well-suited to your specific goals and circumstances.

Your attorney can advise you on the issues to consider when choosing the members of your team, and once your team is assembled, they will make sure your interests are protected throughout the entire transaction.

An experienced residential real estate attorney will also be there to help you with any questions or issues that arise after the transaction is completed and you have moved into your new home.

The process of buying a home and getting a mortgage loan is complicated with many pitfalls along the way. It is important to choose an attorney that has experience closing residential purchase and mortgage loans to make sure that the transaction goes smoothly and your interests are protected.

The Law Office of Paul N Bell has closed hundreds of residential purchase and financing transactions, and we have the experience, skill and professionalism to make sure your home purchase and financing is a smooth, safe and pleasant experience.

One of the best ways to save money on closing costs when purchasing a home is by making sure that your attorney – the one that negotiates your purchase and sale agreement and represents you at the closing – also represents the lender in closing your loan.

By combining the Buyer and Lender representation, your attorney can leverage the efficiency of doing both tasks at the same time, which reduces the overall cost to you while maximizing the value and protection you receive.

For this strategy to work, it is essential to choose an attorney that is experienced in representing lenders and closing loans, as well as experienced in representing buyers and negotiating purchase and sale agreements. That way, the lender will agree to allow your attorney to close the loan.

It is also important to inform your lender at the outset that this is what you want, so they do not assign the loan to an attorney without your involvement. Many times, lenders will refer you to an attorney that they work with regularly. Usually these attorneys are professional and well qualified, but you may want to shop around to satisfy yourself, or you may already have an attorney that you want to use.

Many times, the Lender’s attorney will offer to represent you and negotiate your Purchase & Sale Agreement free of charge. While this may sound enticing, remember these two important considerations: (1) you get what you pay for; and (2) you want your attorney to represent you and have your interests at heart. Closing a real estate purchase transaction is very labor intensive. It is well worth the reasonable additional cost you will pay to your attorney so that he/she can take the time needed to make sure your interests are protected. When you participate in selecting your attorney, you ensure that your attorney is as interested in protecting your interest as that of the lender.

Lenders come in three basic varieties: Banks, Correspondent Lenders and Mortgage Brokers. Banks lend their own money. The advantage of a local bank is that they can pay more attention to the specific circumstances surrounding your transaction, and they may be able to make a loan when other lenders can not.  The disadvantage of shopping for a loan with a bank is that you do not get the advantage of competitive price shopping that you get with a Correspondent Lender or a Mortgage Broker.

Correspondent Lenders and Mortgage Brokers have relationships with many different lenders, and they are constantly shopping the marketplace to find you the best deal. Depending on various market circumstances, different lenders are more competitive at different times. A good Correspondent Lender or Mortgage Broker understands the market, and they know how to find you the best deal.

Correspondent Lenders close using their own money and they do their own underwriting, so they have a more control if issues arise during the underwriting process (such as credit issues or issues with the property). Once the loan is closed, they sell the loan to the lender. Since they have relationships with multiple lenders, they may be able to give you a better rate than a specific bank.

Mortgage Brokers serve more as a match-maker between you and the most competitive lender they can find from their stable of relationships. Since they do not do their own underwriting, you are a little more vulnerable to underwriting risks if issues arise. However, as long as you choose a reputable and experienced company, Mortgage Brokers serve an invaluable function in finding the best loan for you.