Even With a Foreclosure, You Have Options

By Robert J. Bruss
Saturday, February 10, 2007

Q: DEAR BOB: I am four months late on my mortgage payments because of a job loss. Now I am in the process of foreclosure. What are my options? I am working again but do not have all the money yet to catch up on my monthly payments. Any advice? -- Jawanna P.

A: DEAR JAWANNA: Please don't bury your head in the sand, as many borrowers who are in mortgage default do. Instead, contact your mortgage lender immediately by phone.

Explain your situation very politely. Ask for a forbearance agreement and a loan workout plan. The forbearance agreement could allow you to make reduced payments for a specified period; the loan workout plan lays out how you will eventually pay all that you owe. This presumes that you can now afford to pay at least the regular monthly mortgage payment.

Ask that your unpaid mortgage payments, probably totaling several thousand dollars, be added to your mortgage principal. That would extend your mortgage by several months, but then your mortgage can be reinstated in good standing with the lender.

Lenders do not want to foreclose. They lose money on almost every foreclosure. But lenders will insist that their borrowers make the monthly payments on time.

If you are unable to resume the regular monthly payments, then ask the mortgage lender for time to sell your home to pay off the mortgage balance.

Do everything you can to avoid a foreclosure sale. Worse yet, filing for bankruptcy would merely delay losing your home by foreclosure if you are unable to make the monthly payments.

DEAR BOB: I read an article on a Web site that says if you flip a property without holding title for 12 months, you will be taxed at 50 percent of profit. But if you hold longer, the tax is only 15 percent. True or false?

-- Puba H.

DEAR PUBA: Neither is fully correct. If you hold title to a fix-up "flipper" property or any asset for less than 12 months, your sale profit will be taxed as ordinary income, just like your job salary, dividends and interest. The exact federal tax rate varies widely, depending on your income tax bracket, from a low of 10 percent to a maximum of 35 percent, plus state tax.

However, if you hold a flipper property or any asset longer than 12 months, then your maximum federal long-term capital gain tax rate is 15 percent of your profit (plus applicable state tax). If you are in a low tax bracket, your long-term capital gain tax will be even lower than 15 percent.

DEAR BOB: Do I need to sell my house before the one-year anniversary of my husband's death to preserve that $500,000 home-sale tax exemption? My capital gain will be in excess of $250,000. -- Gloria R.

CONTINUED     1                 >

© 2007 The Washington Post Company