Did you know that debt forgiven during a short sale or debt-forgiveness program is subject to tax (since the IRS considers the amount of the forgiven debt as income)? Most people don’t – and that could result in significant financial stress come tax time.

Under normal circumstances, the amount of debt forgiven by a lender on the behalf of a homeowner is taxed under standard income tax rates by the IRS. For example, if the owner of a $250,000 home still owes $125,000, is facing foreclosure, and wants to work with the lender to forgive the remainder of the $125,000 loan amount, he or she would have that disparity taxed. For most homeowners, that amount would be significant and could result in anywhere from 15% to 35%.

Of course, thanks to the Mortgage Forgiveness Debt Relief Act of 2007, homeowners in this situation can exempt up to $2 million on a principal residence (or $1 million for someone who is married but filing separately). For most Americans who are in this situation or have been since the housing market took a steep nose-dive in 2007, that is a welcome relief.

Unfortunately, the very same law that was such a boon for so many homeowners is set to expire at the end of this year. Much like other propositions and laws at the federal level, there is no guarantee that the law will be extended, even though there would be much pressure from constituents and consumer advocacy groups to continue the legislation. After all, the wildly-popular First-Time Homebuyer Credit was not renewed even though it arguably led to a spike in home sales that was desperately needed at the time of its inception in 2009.

Homeowners who are considering entering into a short sale transaction as a way to stop foreclosure need to be mindful of the tax considerations involved in the property transfer – especially those considering principal reductions with their mortgage loans. Since loan modifications take months on average to complete – and many fall by the wayside and fail during that timespan – homeowners caught unawares could be penalized heavily at tax time with an unexpected bill.

Also consider the fact that a deed in lieu of foreclosure – another common alternative to foreclosure in addition to a short sale- may also result in a taxable income situation if the law should expire. Homeowners should consult a certified tax attorney for qualified legal advice.

The number of Miami foreclosure houses and properties under some form of foreclosure in the whole state declined by 42% in November compared with October 2010. Various areas in the state recorded significant filings decreases, with Palm Beach County being one of the local areas that recorded a significant drop at 55% between November and October 2010.

According to analysts, aside from the moratorium that put a hold on the sale of properties under foreclosure listings in Florida and in the rest of the U.S., seasonal trend also played a role in the decrease of filings. They stated that the months leading to the Christmas holiday season are often the slowest periods of every year in terms of home selling and buying activities. In addition, majority of lenders usually put foreclosures on hold to allow troubled homeowners to get a break during the holidays.

However, foreclosure lawyers remind homeowners that the break will not last long. Come January, they predict that the number of bank and federal tax lien foreclosures will rise as lenders try to recoup lost time and opportunities. They added that most lenders and mortgage servicers have already put the robo-signing controversy behind them and are now ready to foreclose on delinquent mortgages.

For now though, Florida and the rest of the U.S. are enjoying a break from the flood of distressed properties, with people who search foreclosures not likely to find a lot during the last two months of the year. In Florida, the decline was reportedly felt the most in the initial default and foreclosure sale notices areas.

Notices of bank and federal tax lien foreclosures sales declined by 46% in Florida compared with October, while initial default notices dropped by 52% during the same period. Foreclosure auctions also declined in most areas of the state, although not as huge as the declines in defaults and sales notices.

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The sale of thousands of Henderson foreclosed homes and bank owned properties all around Nevada have been put on hold by several lenders while they re-examine documents used in processing these pieces of real estate. Housing industry experts have recently assessed the overall impact of the temporary sales suspension.

According to some industry members, the moratorium on the sale of Nevada foreclosed homes does not constitute a solution. They asserted that freezing sales of distressed homes only delayed the inevitable and that majority of troubled homeowners will still end up losing their homes.

However, they did admit that a small percentage of these homeowners might find the temporary reprieve, no matter how short, to be beneficial in that they might be able to find a way to save their properties. For now though, owners of tax lien foreclosure properties and other types of distressed dwellings are the only ones who will proceed as before.

Meanwhile, housing experts have advised owners of foreclosure for sale homes not to rely on the ongoing moratorium and nationwide investigation to solve their home ownership problems for them. They emphasized the need to look for solutions and to try not to get further behind in their loan payments while the freeze is in effect.

In terms of the process of foreclosing in the state, experts have asserted that the freeze will not have much effect on Nevada and the state will not lose its ability to foreclose on properties since the area does not have a judicial process in relation to distressed properties. Foreclosure policies, on the other hand, are also not expected to change despite the allegations and the subsequent investigation.

Analysts mostly agree that tax lien foreclosure properties, government foreclosed homes and bank owned properties will continue to flood the market in the next few years despite the various controversies surrounding foreclosure processing by lenders. They also stated that there is no assurance that those who have lost their properties to foreclosures that were improperly processed will get any restitution.

Meanwhile, investors interested in homes sold at Jacksonville foreclosure auctions can expect more opportunities to buy, as the number of homes that entered foreclosure in June was still high despite dropping from the May total. There were 3,242 homes in Jacksonville that were hit with default or foreclosure notices in June, down by 10.9 percent from 3,640 in June 2009 and down by 14.4 percent from 3,789 in the previous month.

In May, investors had plenty of chances to buy from any list of foreclosed homes for sale as filings during the month nearly hit the record 3,864 total filings posted in August last year. Monthly total filings surpassed the 3,000 threshold for 5 months out of 12 in 2009.

Investors looking to buy Jacksonville tax liens for possible tax lien home foreclosures can visit duvaltaxsale.com, read the rules and register. Just like most other Florida counties, tax liens are auctioned online by county contractor Realauction. A deposit of 10 percent of the planned amount of investment in tax liens for the bidding period is required.

Florida foreclosure homes, tax liens and tax deeds are attractive to local and out-of-state investors because of the available inventory and the great prospects for profits. In June, foreclosure postings statewide climbed up by 1.7 percent over the month to 51,550 filings, putting Florida second to Nevada in rate of foreclosure.

Out of these nearly 52,000 statewide postings, almost 13,000 units were already bank owned properties, a large number for investors looking for mortgage foreclosures as well as tax lien home foreclosures in Florida.

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A lot of people are interested in San Antonio foreclosure investing mainly because of the strong economic performance of the city, but not a lot of investors and home buyers are aware that some of the residential properties they are buying came into the market, not because the homeowner failed to pay his mortgage worth thousands of dollars, but because he was behind on his homeowners association fees worth less than $200.

Some cheap houses in Texas that are being offered for sale, particularly in San Antonio, came from HOAs. A big number of city residents have complained that HOAs are foreclosing on properties whose owners were unable to pay their HOA dues for a couple of months. A growing call for change of rules has also started in the city, with homeowners asking legislators to prevent HOAs from taking such actions.

A court case has recently called the attention of the public involving a homeowner foreclosed on by his HOA. Some might expect headlines to be about tax lien foreclosures and bank foreclosures, but in San Antonio, homeowners are waging a different battle to protect their properties.

The good news is that the recent case ended with the homeowner winning and getting back on HOAs that are being blamed for contributing largely to the number of foreclosed properties for sale in the city. The homeowner was awarded more than $20,000, part of which will be used to pay his lawyer’s fees.

The development has a bigger impact on city residents, though. The victory creates optimism among homeowners and most of them believe that they are gaining ground on the alleged indiscriminate foreclosure activities of HOAs. They are also hoping that like tax lien foreclosures, HOA foreclosures will get the attention of legislators and the general public and changes will soon be implemented.

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The treasurer's office of the Mohave County auctioned off its investment interests in these communal properties in Colorado City as part of a tax lien sale for February. As of August, the troubled properties owe the city more than $148,900 in unpaid taxes. Included in the delinquent properties are houses, school and commercial buildings, undeveloped land and a park where a zoo was once located.

The city of Colorado's tax bill totaled $1.2 million in 2007. The properties at risk of tax lien foreclosures are included in the Fundamentalist Church of Jesus Christ of Latter Day Saints' communal holdings, the United Effort Plan (UEP) Trust.

Aside from Colorado properties, UEP Trust has properties on Bountiful, British Columbia and Hilsdale, Utah. But since 2005, the Utah court has been in control of the Hilsdale trust due to mismanagement accusations against the church leaders.

The land in questioned are not subdivided. Generally, tax payments are calculated by church leaders for individuals. The money will be turned over to the bishop who will then pay the county tax dues. Usually, any tax payment shortfall was covered by wealthier businesses or residents.

Historically, non-members of the congregation who resided in trust houses were issued tax notices. They send their payments to post office boxes. And any shortfall in tax payment was covered by the church.

Utah and Arizona tax collectors said that taxes were always paid on time. However, the trust is now being managed by Bruce Wisan, an accountant appointed by a court in Salt Lake City. According to Wisan, both nonmembers and congregation members who reside in trust houses failed to pay their 2007 taxes. He explained that there was a confusion on property tax payments because the congregation refused to cooperate with him and acknowledge his authority.

A representative of the congregation accused Wisan of failing to seek exemptions for property taxes that were previously given to the church. As of August, the communal properties owe about $428,721 for property taxes in 2008. Another tax lien foreclosures sale is scheduled for February 2010.

Several of the demonstrators are carrying signs that say banks get rescued while homeowners get evicted. They explained that they are not against the people who went to the auction to look for homes. They said they are protesting against banks that received billions of bailout funds from the federal government after launching lending schemes that increased their profits but put millions of homebuyers into foreclosures. While the banks get rescued, individuals whose assets became tax foreclosure properties due to the economic downturn do not receive any bailout from the government.

Larry Holmes, spokesperson of the Bail Out the People Movement, insisted that they understand the situation of people looking for cheaper homes and are not angry at them. They are not protesting against them. He said his group staged the protest rally at a REDC auction because REDC is the country’s biggest private auction company for foreclosed homes, which in all likelihood include tax foreclosure properties. He claims REDC is making money out of other people’s hardships.

Additionally, Holmes called on the federal government to declare a national moratorium on foreclosures to give time to distressed families to improve their finances. Previous owners of tax foreclosure properties or individuals troubled by tax foreclosures would have wished that Holmes included tax foreclosure properties in his intentions. Because of continued corporate downsizing and layoffs, a lot of real estate assets are also being turned into tax foreclosure properties.

Holmes specifically questioned the auctioning of homes that are still occupied by families. He questioned the idea of forcing families out of foreclosed homes into cars while giving billions to financial multinationals like AIG and Citicorp.

American International Group and Citigroup received billions of bailout money from the Troubled Assets Relief Program in 2008 under the Bush Administration. These financial companies, in addition to others in the financial industry, are again being evaluated for possible further bailout by the federal government under the Obama administration.

Finally, Holmes’ group said foreclosure proceedings are violating the U.S. Housing and Economic Recovery Act. They announced they are going to hold a major protest rally on April 3 on Wall Street.

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These defrauders know that homeowners, especially families with young children, are very vulnerable to deceitful offers of help when they are behind on their payments and are facing the real possibility of being evicted. Some defrauders might even go as far as telling you that tax foreclosure properties are included in the program.

According to Florida Attorney General Bill McCollum, complaints from distressed homeowners victimized by defrauders, account for the highest percentage of the total complaints received by his office. It is possible that fraudulent loans offered to former owners of tax foreclosure properties are among these complaints. McCollum is advising troubled homeowners to contact their mortgage lenders or servicers before considering a third party for help.

In light of the expected swarming of mortgage lenders with applicants for loan modifications, you should expect to be ignored or redirected to other departments at the first call. You should be persistent so you would not have to turn to third party modification assistance. If you really need a third party because of some reasons, then contact nonprofits and community organizations that offer free assistance. This is also true for individuals with losses involving tax foreclosure properties. There are nonprofits that offer free counseling and free legal assistance for tax foreclosure properties.

There are signs that you can recognize if a person or a company offering foreclosure prevention help is a scammer. A company giving guarantees that your mortgage loan will be saved from becoming lender foreclosure or tax foreclosure properties is out to swindle you. With the restrictions of the Obama program and the opposition of the mortgage industry to some of the features of the program, no entity can guarantee a loan modification approval.

Another one is a business that uses logos, names and taglines associated with federal and state housing programs and agencies. This is a technique that aims to lead you to think that the business is certified or affiliated with a certain law firm or government agency.

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They were each given a $100-billion lifeline from the government and they accounted for more than 75 percent of mortgage originations towards the end of last year. Their activities injected the much needed cash-flow required by the financing and lending sectors, which made their importance clear for both homebuyers and lenders.

As indicated by the Federal Housing Finance Agency, the federal entity regulating these two companies, the Obama administration has made it clear that Fannie Mae and Freddie Mac will continue on their key role of stabilizing the housing market. Each will play a vital part in the tax foreclosure properties prevention program planned by the new administration. These plans include:

• Fannie Mae and Freddie Mac to create provisions for low-cost refinancing access to borrowers having little or no remaining equities on their homes. This move is expected to help at least 5 million borrowers from losing their homes to foreclosures.
• As part of the $75 billion loan modification program, Fannie Mae and Freddie Mac will contribute over $20 billion to help subsidize interest rate reductions for struggling borrowers with tax foreclosure properties.

For these two struggling companies to accomplish their tasks, the administration will pour in at least $200 billion each in support, which is double than previous levels. On top of that, the administration has agreed that the two companies can guarantee or own mortgages up to $900 billion, which is higher than the previous $850 billion.

This added support and funding from the government comes at a very crucial time for the two companies, which are reeling from the impact of soaring defaults and tax foreclosure properties as the economy continues to plummet. Both firms are expected to report huge fourth quarter losses. With these trends, both entities may need more than $200 billion each from the government, but the administration has made it clear that the federal government will be there to back them up.

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If the owner failed to pay your taxes, taxing institutions will automatically impose a legal tax lien on the property. The owner will now have to pay the amount of tax payments past due plus penalties and interests. Failing to cure this default will leave the taxing institution with no other choice but to foreclose. The property is now considered a tax foreclosure property and will immediately be sold at a public auction for a fraction of its market price.

Many real estate investors and home buyers are on the lookout for a tax foreclosure. It offers great return potential and instant equity. If you are interested in purchasing one, you should first find an experienced real estate broker like Foreclosure Deals. A reliable real estate broker can help you make sure that the property has a clean title and the only lien or claim against it is the tax lien. If you do not have an agent and you failed to ask the right questions, you might end up with a tax foreclosure property you can not sell.

Sometimes, you will be lucky enough to find a tax foreclosure that is still waiting to be offered at an auction. When you do, you can immediately grab this opportunity and make an offer through your broker. Of course, you have to make sure that it is allowed and you are not violating any law. Your broker can advise you on how to go about purchasing tax foreclosure properties legally.

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