I have been reading several blog posts and news articles to this effect over the last few days. After the disasters of HAMP and other empty promises made by BofA and other banks, I can only say that I will be overjoyed to believe it when I see it. Let’s go BofA, show us whachya got.
I’ve been hearing short sale stories on the ground from many realtors. The successes and failures run the gamut from three week closings to nightmares such as this one. I always feel that we should try our best for a loan modification or a short sale because approvals do come in. However, be prepared to face lenders who just don’t get it or are too brazen to care. This is a first hand account from an Arizona realtor trying to help a client with a short sale. Somewhat funny but true as an arrow.
New revised rules under HAMP decree that beginning June 1, servicers are prohibited from foreclosing on a borrower until the borrower has been fully evaluated and their loan modification eligibility determined under HAMP. Servicers will be required to send borrowers a foreclosure process explanation letter detailing the eligibility consideration process and advising borrowers to pay attention to foreclosure notices.
If this pans out, it will help some homeowners. What I would hate to see is a repeat of every other HAMP guideline; the banks utter failure to observe them. Stay tuned.
After seeing the dismal failure of HAMP, this real estate attorney is skeptical. I hope I’m wrong. At least this plan offers the cash incentive ($3,000) to the homeowner instead of to the lender. Wait a minute, is that going to help matters? What is the lender’s incentive in this plan? Too soon to know, I just hope HAFA gives us better results than HAMP did. Here is a good article outlining the program’s basics.
Tenants are usually the last to find out when the property they occupy gets foreclosed upon. A landlord has no legal obligation to inform their tenant of an impending foreclosure. However, I can speak to the rights of a California tenant caught in such a situation, and the news is quite good.
1. You are entitled to 90 days written notice from any new owner before they can file an action to evict you. If you receive anything less (3 days, 30 days, 60 days) you have been given improper notice. Contact an attorney. If you must leave, you just got 3 months’ notice to do so.
2. If you have a written lease which entitles you to a remaining term, the new owner steps into the shoes of your former landlord. Present your written lease to the new owner, be it the bank or a buyer. You have the right to stay for the remaining term of your lease. However, make sure to pay rent to the new landlord, not the former one.
3. Until the property is foreclosed upon, you must continue to pay rent to your landlord. This is where many tenants falter. Oftentimes, a tenant stops paying their landlord when they realize that the property is in foreclosure. By doing so, the tenant is handing the landlord a slam dunk case for eviction. As long as your landlord is still the owner, he or she is entitled to collect rent. Foreclosure in California requires the recording of several documents; ultimately showing the foreclosure sale date. Keep tabs on the foreclosure. If the landlord loses the property, you should receive notice from the new owner shortly. At this point, you should begin to make arrangements to pay rent to the new owner. If your former landlord demands rent after this point, do not pay it!
One of the most overlooked areas of mortgage debt assistance is the tax consequence. General rule is that forgiveness of debt is considered taxable income. However, there are a few exceptions that have been carved out for mortgages which are important to note:
Straight from the IRS website:
Straight from the IRS website:
1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
Of special note is that the exclusion also applies to refinances!
Until last month, California did not have any such equivalent exclusion. Now it does. Last month Sacramento passed (and the gov. signed into law) the California equivalent exclusion.
A homeowner will still receive a 1099 from their lender, however the income will be excluded if you qualify.
This article should not be construed as tax advice. Each person’s case is different. Contact a tax professional.
I wrote a brief article on what Bankruptcy can (and can not) do to help. Below is the link. If you are already several months behind, in default, and foreclosure is looming, the last thing left to save is your credit. Save your home, get a fresh start, and move on with your life. Many people have told me that their poor credit just languished until they filed for bankruptcy and started to rebuild it anew.
Banks continue to drag their feet, pretending to offer loan mods but doing everything to avoid permanently changing a loan. More from the front lines….
It seems that banks were perfectly happy to offer trial loan modifications in order to cash “Obama Plan” checks, but are very reluctant to make those trial mods permanent. Couple that with a few trial payment checks from the homeowner and it makes a nice few bucks on an otherwise hopeless loan. All this takes place while the U.S Homeowner is left hanging to dry.
Yet one more judge has had enough of the bank’s brazen attitude. Representatives of Indymac acted so offensively during the Suffolk County Judge’s mandatory settlement procedure that the homeowner was handed a free and clear home. Some tough love for Indymace/One West bank.