Principal Reduction - What Is It?
Principal reduction is a negotiated settlement with a bank that reduces the total amount of debt due on your home. It can take many forms, including:
- First mortgage forgiveness
- Second mortgage forgiveness
- A split first and second mortgage
- Graduating reduction in the debt amount of the mortgage through payment over time
- Reduction with shared equity terms on sale.
Always seek the help of qualified legal assistance like the attorneys at the Law Offices of Neil Crane. Always make sure you have the proper release language and documents for recording on the Land Records. Call us for a free consultation and speak to one of our highly qualified mortgage negotiation attorneys. We can be reached at 203-230-2233 or toll free at 1-888-249-3027 today.
Principal Reduction Of Mortgages — Avoiding The Pitfalls
BE CAREFUL OF RECAPTURE PROVISIONS where principal that appears to be forgiven is just forgiven on a temporary basis. This means that amounts that are reduced now can be recaptured by the bank at a later date or upon sale or transfer of the property.
BE CAREFUL OF THE TAX EFFECT OF PRINCIPAL REDUCTION. Since mortgage debt forgiveness may result in the issuance of a 1099C, which is a taxable amount received by you in the form of debt forgiveness and treated by the IRS as income to you. These income tax amounts can be very catastrophic but can be avoided with the assistance of expert bankruptcy counsel and specialized IRS accounting provisions.
Principal Reduction Is Rare But Available
The key to obtaining principal reduction, also called principal forgiveness, is the expertise of specialized foreclosure or bankruptcy attorney. Our experienced foreclosure prevention attorneys know how to properly negotiate the type of principal reduction that avoids some of the tax and recapture pitfalls often inserted into mortgage reduction agreements. Be careful of bad agreements where you can end up paying your mortgage for years without any real benefit. Seek specialized professional assistance to be sure the bank will not be the only one benefitting from your years of hard work and repayment.
Principal reduction is often reported but rarely seen. Insisting on principal reduction in the wrong circumstances can cause loss of your home. Demanding principal reduction as a condition to your mortgage modification can result in the full denial of your application. With proper legal advice, principal reduction is available in Chapter 13 Bankruptcy. Chapter 13 can reduce mortgage balances and remove second mortgages.
To learn more about Principal Reduction, Principal Recapture and Cancellation of Debt Taxes, call us for a free consultation. You will speak directly with an attorney who can promptly analyze your situation. Call us today at 203-230-2233 or toll free at 1-888-249-3027.