Mortgage Law, Mortgage Modification, and Foreclosure: Tax Law Changes the Benefit You!
Good Day Readers! More Good News regarding some much needed tax relief. Recently there have been two new changes to the mortgage tax laws that could save new homeowners and those facing foreclosure thousands in taxes. The new changes affect Private Mortgage Insurance (PMI) for new borrowers and tax "penalties" for those already suffering through foreclosure.
First of all, let me explain what PMI is and when it is needed. PMI is required by most lenders when a homeowner borrows more than 80% of a home's value. In other words, if you put down less than 20% for a down payment the lender will require you to pay PMI. The reason is to protect the lender, not you. It protects the lender in the all too common event that the borrower can't pay his/her mortgage. If you were to put down 20% or more, and then couldn't pay your mortgage, the lender is generally protected from loss as they can foreclose and sell them home using the 20% of equity to protect their loss. Now, the rules of PMI haven't really changed; but now borrowers can deduct PMI payments from their taxes, reducing the after tax cost of buying a home!
The second change benefits those who have been unable to keep up with their mortgage payments and have faced losing their home to a foreclosure or short sale. It use to be that, if a lender could not sell the property to satisfy the full debt of the mortgage owed on the property the homeowner in default would be liable for taxes on the unpaid balance. This tax law change now waives any tax penalties from January 2007 until December 2009 on any primary residences that enter into foreclosure or short sale.
