This past week brought a bit of relief to a portion of the millions of American homeowners whose home mortgages are “underwater” when the White House announced revisions to the Housing Affordable Refinance Program (HARP). The changes to HARP, which began in 2009, affect only homeowners with mortgages in good standing that are backed by Fannie Mae or Freddie Mac, so the overall impact on the recovery to the housing market will be slight.
Refinancing under the revised HARP program is one of several options for dealing with a mortgage that is underwater. A typical scenario of homeowners who might be eligible for mortgage refinancing under the revised HARP are people who still have steady jobs, good credit scores, and have not fallen behind in their mortgage payments up until this point. Because their house may have lost up to 50% of its market value since it was purchased, they were previously ineligible for refinancing, so this updated option may provided timely financial relief and help them keep their home.
This week on our radio program, we discussed how the revised HARP might fit as a financial option in estate planning, especially for a particular group of homeowners who are dealing with the impact of troubled real estate: beneficiaries, usually surviving children, who have inherited houses, condominiums, or other real estate that have underwater mortgages. Grown children who are helping their aging parents create or update an existing estate plan, which include trouble properties, may find themselves with a similar need to find a safe way out of this type of financial dark alley.
Heirs of underwater property need to consider many financial issues, such as the original purchase price of the property, the rights of the lenders involved, the terms of the original mortgage, and whether or not a second mortgage exists for the property.
Depending on the combination of circumstances associated with the troubled property, several options may exist for the homeowner, including:
- Loan Modification: The Home Affordable Modification Program SM (HAMP SM) is an official program of the U.S. Departments of the Treasury & Housing and Urban Development
- Short Sale
Other considerations for homeowners who manage to divest themselves from a property with an underwater mortgage, or who refinance the original mortgage, are the potential capital gains tax liability associated with the sale or the cancellation of debt, as well as possible tax exemptions that may apply to a particular transaction.
Like with most other legal matters that include financial and/or tax considerations, it is important that you fully understand all of the related issues, the options available for each issue, and the ramifications of each of those options and how they relate to and impact each other.
The Law Offices of Connie Yi, P.C. is uniquely qualified to help you with the related issues of troubled property and your estate plan, because Connie Yi is a San Francisco Bay area estate planning and tax law attorney, as well as a highly-experienced Certified Public Accountant and a licensed real estate broker. With her deep understanding of the current housing market, Connie can help you determine and implement the best legal and financial strategy for effectively dealing with underwater property in your family’s estate plan.
To schedule a free consultation about estate planning as it relates to underwater mortgages and troubled property, please contact us. For your convenience, we have four conveniently located offices in the Bay area: San Francisco, San Mateo, San Jose, and Pleasanton.
Next week on our radio show, we will discuss special needs trusts, so please inform parents who have a child with special needs about this important upcoming show on Saturday, November 5, at noon, on AM 1220 KDOW.