The year 2009 was ground shattering for the housing market. The foreclosures in the country continued to increase exponentially and many lenders went out of business. The government tried unsuccessfully to stabilize the crisis by giving money to the lenders (instead to help homeowners). Many taxpayers will be receiving 1099-C tax forms if they went through foreclosure or short sale. The fact that the lender is sending those 1099 forms means that they are not going to pursue a deficiency judgment. This is good news. Usually, the amount of debt cancelled is considered an income. However, there are exceptions.

The recent media blitz touting the end of the recession is an illusion caused only by government spending. Bankruptcy filings are still up over last year and climbing to record numbers since the BAPCPA in 2005. Americans continue to struggle with what to do about their debt.

Deed-in-lieu of Foreclosure — A deed in lieu of foreclosure is a deed instrument through which a homeowner conveys all interest in a property to the bank/lender in order to satisfy a loan that is in default and prevent foreclosure from taking place. It essentially amounts to giving the home back to the bank and making no further payments on it. This option immediately releases the homeowner from any outstanding loan amount that is applicable. The homeowner is also able to prevent the public embarrassment that is so often associated with administration proceedings. After a deed-in-lieu-of-foreclosure, the borrower has the option of purchasing another home in the future.

Filing Bankruptcy — The most obvious drawback of filing for bankruptcy is the devastating effect it can have on your credit rating. It can often mean that a person’s credit is ruined for as long as 7-10 years. In addition, it is not guaranteed that all the debt will be erased, it is a cause of major embarrassment, and it means that it becomes practically impossible to buy a home again for quite some time. Despite the damaging consequences related to filing for bankruptcy, it does bring an end to the harassing phone calls and potential lawsuits, and allows the person to begin the lengthy process of rebuilding their credit in peace. State laws vary, but some property such as cars up to a certain value, some furniture and clothing items, life insurance, and portions of earned wages cannot be taken by the lender after bankruptcy is filed.

It is important to remember that most financial transactions have tax consequences and we all know that ignoring the IRS with its hand out is never a good idea. Consult with your lawyer to fully understand the tax consequences and restructure debt in the way that best minimizes tax liabilities for you. If you really want to become a captain of your financial boat, check out my special report Foreclosure Aid. You will be surprised how many more foreclosure secrets will be revealed to you. You can also claim a free instant access to a bonus chapter from this special report.

Learn more about Obama Mortgage Relief Plan Qualifications.

We hear about the subprime mortgage crisis daily, but are you too embarrassed to admit you don’t understand what the fuss is all about? What exactly is this predicament the nation finds itself in? How did this debacle arise, and does it affect you? To answer these questions, let’s start at the beginning. Understanding Mortgage Lending. Traditionally, mortgages were financed by banks. This meant that a bank was limited in its lending based on the deposits they received from their customers. Recent changes to this model, however, paved the way for the current situation to arise. Banks moved to a new lending model in which the mortgages they held were sold to the bond markets. This freed banks from lending based solely on their customer deposits. The boon to this new model was that more money was available to help people buy homes. The downside, unfortunately, was that banks no longer had as much pressure to verify that the mortgages they issued were solid. Knowing that the mortgages they created would eventually be sold, banks took on riskier loans than would have been prudent in the more traditional lending era.

The Mortgage Bond Market- Until recently, the mortgage bond market was heavily dominated by government-sponsored agencies such as Freddie Mac. Since 2002, however, the private sector asserted itself in this market with a vengeance. With new mortgage vehicles such as jumbo loans, and sub-prime loans to borrowers with poor credit histories and/or weak documentation of income who were rejected by prime lenders like Freddie Mac, the private sector significantly increased its role in the mortgage bond market. The rise of private sector participation catapulted the mortgage bond market to a worth of $6 trillion, making it the largest part of the $27 trillion bond market. The mortgage bond market is now even bigger than the Treasury bond market. Foreclosures Emerge- Many homeowners were lured by brokers selling subprime mortgages who explained that the equity in homes could be turned into cash by refinancing. What brokers failed to explain in many cases was that the mortgage interest rates would double after 2 years.

Lender approval letters on a short sale will generally detail how the short sale will be reported to the Credit Bureau. It is so important to keep the short sale approval letter from your bank and to have your credit run to ensure that your short sale was accurately reported to the Bureau. Your Realtor should provide you with the banks written approval for you to review, and for your records. This document is very important. I can’t remember for sure, but I believe most banks report your short sale to the Credit Bureau within 6 months.

Not only is it important to keep the document, it is important to have your credit report ran in that 6 month period to make sure it was reported properly, and to see the impact it had on your credit. Banks appreciate your willingness to try to sell the home for them and to save them from having the expense of foreclosing. This appreciation should be reflected in your credit score deduction, when measured against the significant damage a foreclosure would cause on your credit score. If you are currently deciding how to handle your situation, contact your local trusted professionals to make sure you are making the best decision for your situation.

An insolvency calculation should be done with the assistance of a qualified CPA or other tax or legal professional. It is just too much for the average taxpayer to do on their own.

Learn more about Obama Mortgage Relief Plan Qualifications.