Foreclosures
Bill could help short sale sellers in 2013
WASHINGTON – April 2, 2012 – Under U.S. law, a homeowner with an underwater mortgage who goes through a short sale has part of his or her debt forgiven by a bank. The amount forgiven is legally considered income, as if the lender gave the owner a monetary gift by saying, “You no longer have to pay this.”
As a gift, that money is income and taxable by the IRS when the homeowner fills out his yearly income taxes. However, a temporary law effective through Dec. 31, 2012, nixes that amount as homeowner income, making the debt forgiveness tax-free. A short sale in 2012, then, allows a homeowner to walk away free of debt.
As it stands now, that rule expires next year, and underwater homeowners who go through a short sale could be taxed on the amount forgiven.
However, a bipartisan bill introduced late last week by U.S. Senators Debbie Stabenow (D-MI) and Dean Heller (R-NV) – the Mortgage Relief Act – would extend that rule past Dec. 31 if approved by both the House and Senate and signed by President Obama. Senators Robert Menendez (D-NJ), Sherrod Brown (D-OH) and Jeff Merkley (D-OR) cosponsored the legislation.
“It is bad enough that so many families are faced with mortgages that now exceed the value of their home,” says Stabenow. “But to add insult to injury, without this bill, the IRS would once again require these families to pay hundreds or thousands of dollars in additional income tax when they sell or refinance their home. That’s just wrong.”
Stabenow championed the original Mortgage Relief Act of 2007 designed to fix the problem that now expires at the end of 2012. Stabenow and Heller’s new bill will extend this tax protection for underwater homeowners through 2015.
Approximately, 20 to 25 percent of American homeowners are currently underwater on their mortgages.
© 2012 Florida Realtors®
HAFA Short Sale Update -from CDPE.com
Major news in the short sale and housing industry! On Friday, March 9, the Obama Administration announced updates to the Home Affordable Foreclosure Alternative (HAFA) program. Created in 2009, HAFA is a government-sponsored initiative assisting all Home Affordable Modification Program (HAMP) eligible homeowners in avoiding foreclosure through short sales and deed-in-lieus.
The HAFA updates will go into effect on June 1, 2012, and will allow more distressed homeowners to seek assistance. Most importantly, the deadline for submitting for HAFA eligibility will be extended a full year, from December 31, 2012, to December 31, 2013.
Other major changes from March’s updates to the HAFA program include:
- The removal of occupancy requirements. Previously, HAFA required homeowners to have lived in the property within the last 12 months.
- $3,000 relocation incentives will be limited to properties occupied by an owner or tenant at the time of the short sale.
- Mortgage payments will be allowed to exceed 31% of the homeowner’s gross monthly income. This update will allow a homeowner to stay current on her mortgage and still qualify, minimizing the overall impact to her credit.
- Secondary lienholders may receive up to a maximum of $8,500, up from $6,000 previously.
- And one of the most dramatic changes: The Credit Bureau Reporting will be Account Status Code 13 (paid or closed account/zero balance) or 65 (account paid in full/a foreclosure was started), as applicable.
With these updates, a homeowner can be current on their mortgage, qualify for HAFA, continue to make their payments, and execute a short sale with minimum impact on their credit!
You may owe federal income taxes in 2013 if you have a short sale, foreclosure
IMPORTANT ARTICLE!!!
WASHINGTON – Jan. 9, 2012 – You may owe federal income taxes in 2013 if you have a short sale, foreclosure after this year. Now is the time to make the hard decision: Are you going to walk away from your underwater home?
Uncle Sam is still giving homeowners until Dec. 31, 2012, to go through a short sale or foreclosure without tax consequences – as long as the lender officially releases the debt.
But on Jan. 1, 2013, the rules change: The amount a lender forgives, ether in a short sale or foreclosure, on a primary residence will be taxable on federal income taxes.
So if a house sold $50,000 short of what is owed on the mortgage, then the selling homeowners will owe federal income taxes on that $50,000. Homeowners would owe $12,500 if they’re in the 25 percent bracket; $7,500 if in the 15 percent tax section.
Homeowners would be on the hook even if the house sold but the bank had not formally forgiven the loan in a letter: The banks must officially sign off in writing before Dec. 31.
“It’s a huge issue – it will be a shock to many taxpayers after 2012,” said Mark Steber, the Florida-based chief tax officer for Jackson Hewitt Tax Service.
The law first came into affect five years ago as the housing market went bust nationwide.
The Mortgage Debt Relief Act of 2007 “generally allows taxpayers to exclude income from the discharge of debt on their principal residence,” according to the Internal Revenue Service. “Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.”
Up to $2 million of forgiven debt can be forgiven this year, $1 million if married and filing separately, according to the IRS.
Homeowners declaring bankruptcy could escape paying income taxes on any cancellation of debt income if the debt is forgiven in the bankruptcy even if the debtor is solvent, said Nick Jovanovich, a board-certified tax attorney in Fort Lauderdale, Fla.
“Bankruptcy trumps everything,” he said.
Or homeowners might not have to pay income taxes on any cancellation of debt income to the extent that they are insolvent immediately before the cancellation – that is, their debts exceed the value of their assets, Jovanovich added.
Steber and Jovanovich said homeowners should decide now what they are going to do – to give themselves time.
Short sales can take a long time, said Timothy Singer of Coldwell Banker in Fort Lauderdale.
He said he knows of one that had been pending for three years.
But lenders “have been gearing up” and speeding up the process, Singer added.
But even if banks quickly approve a short sale, the would-be buyer may get cold feet and the deal fall through, Singer said.
Then the sellers have to begin again, he said.
Copyright © 2012 the Sun Sentinel (Fort Lauderdale, Fla.), Donna Gehrke-White. Distributed by McClatchy-Tribune News Service.
Fannie Mae & Freddie Mac Announce an “Eviction Moratorium” for the Holidays
The holiday season should be a magical time of year. However, for a growing number of families, the usual holiday celebrations are trumped by financial troubles, foreclosure and the looming threat of eviction.
Fannie Mae and Freddie Mac offered some relief to such families by announcing an “Eviction Moratorium” through January 2, 2012. During this time, families living in foreclosed homes will not be forced to leave, though legal proceedings may continue as scheduled.
Undoubtedly, Fannie and Freddie’s efforts will prove comforting to homeowners who find themselves in this situation. However, the relief is short lived.
Remember, the “eviction moratorium” is only a short reprieve, so we urge you to continue reaching out to homeowners during the holiday season. Simply knowing that options exist can provide them with peace of mind. And during the holidays, a little peace of mind is an invaluable gift.
By CDPE.com
How long is the wait to buy after foreclosure?
NEW YORK – June 28, 2011 –
A sluggish housing market has caused millions of homeowners to lose their home to foreclosure, short sale, or deed in lieu of foreclosure. But once these former homeowners get a better handle on their credit, how long do they have to sit on the sidelines until they can secure future financing to buy a home again?
As an article in The New York Times notes, “there are plenty of asterisks and conditions” when it comes to how long a borrower must wait after a “significant derogatory event,” like a foreclosure or short sale.
In general, however, The New York Times reports that the longest wait to buy again will come if there is a foreclosure in the former homeowner’s past.
Fannie Mae and Freddie Mac have a three-year waiting period following a foreclosure, and a two-year wait following a short sale, deed in lieu, or discharge or dismissal of bankruptcy. However, if borrowers can justify that the circumstance for the foreclosure or bankruptcy occurred because of an illness or job loss — or other “extenuating circumstance” — that may help reduce their wait. But with no such extenuating circumstances, these former homeowners may have to wait longer, even up to seven years following a foreclosure or four years after bankruptcy, the article notes.
For loans insured by the Federal Housing Administration, borrowers with perfect credit afterwards also will, in general, have to wait three years after a foreclosure and two years after a bankruptcy is discharged, The New York Times notes.
Following a short sale, borrowers will have to wait three years to secure another FHA loan — however, there are plenty of exceptions. Borrowers will have to wait three years if they were in default at the time of the short sale and had no extenuating circumstances. However, if the borrowers were on time with all their payments a year prior to the short sale, they may have no wait at all and might even qualify for an FHA loan immediately.
“The key is to avoid the foreclosure,” Andrew Wilson, a spokesman for Fannie Mae, told The New York Times. “That is what will help you be eligible for the shorter period.”
Source: “The Post-Foreclosure Wait,” The New York Times, (June 23, 2011)
© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688
New Online: Free HAMP Calculator
The Treasury Department is offering a free online calculator that helps borrowers estimate whether or not they qualify for the Home Affordable Modification Program ( HAMP).
The calculator is available at checkmynpv.com.
In the two years since its launch, HAMP has helped more than 270,000 borrowers receive permanent loan modification, thus lowering their monthly mortgage payments. That number falls far short, however, of the millions of homeowners at risk of foreclosure — which is bad for homeowners and bad for the housing market. The current glut of foreclosures — stalled by paperwork delays — poised to hit the market is already far more than can absorbed by first-time homebuyers, according to the research firm Campbell Surveys.
That is why HAMP is so important. Every homeowner who modifies a loan and stays in a distressed property adds one less property to an already flooded market.
Fed averts final call on foreclosure rule
WASHINGTON – Feb. 3, 2011 – The Federal Reserve said it would no longer push ahead on a controversial proposal that would impact home foreclosures. Instead, the central bank will leave the decision to the new Consumer Financial Protection Bureau, which debuts in July and will oversee the truth-in-lending law.
The Fed had proposed a rule that would have made a major change in the amount of time a borrower has to cancel a mortgage that violates disclosure requirements under the truth-in-lending law. Currently, borrowers have up to three years to take a lender to court to cancel a loan – known as “rescission.” Borrowers must then show that required disclosures about the loans terms were not made.
If a loan is canceled, borrowers must pay off the principal but can deduct from the loan’s total amount what would have been paid in interest and other fees.
Consumer advocates have argued that the Fed’s proposed rule would require borrowers to pay off the loan before it is canceled, and homeowners then would lose leverage to renegotiate loans with banks.
The Fed has said the rule change is needed to add clarity to a confusing system.
Source: “Fed leaves truth-in-lending rule to consumer agency,” Reuters News (Feb. 1, 2011)
© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688
Foreclosure rate took a dive at end of year
WASHINGTON – Jan. 13, 2011 – The pace of foreclosures in the U.S. has dropped since revelations that thousands of foreclosure documents may have been improperly prepared.
In December, U.S. foreclosure filings were off 26 percent from December 2009, RealtyTrac reported today. In November, filings were down 14 percent year over year. The December drop was the biggest in at least five years. December’s foreclosure filings are the lowest monthly total since June 2008, RealtyTrac says.
Lenders and mortgage servicers imposed delays on foreclosure processes in October after reports in September that some servicers did not follow legal procedures in tens of thousands of foreclosures. Mortgage servicers say they’re resuming stalled foreclosures, but RealtyTrac estimates that up to 250,000 may have been delayed by the controversy. Those foreclosures will likely be restarted and added to the numbers in early 2011, says James Saccacio, RealtyTrac CEO.
The Department of Justice and the state attorneys general are investigating. “Lenders have been spanked. They’re spending money to make sure every ‘i’ is dotted and every ‘t’ is crossed,” says Christopher Thornberg, of Beacon Economics. The pace of foreclosures “will pick back up,” he says.
Whether it’ll go back to the torrid pace of the past is unclear. Some states have recently added speed bumps. New York now requires lawyers for firms bringing foreclosures to sign an affirmation that they reviewed court documents – and asked servicers to verify their accuracy. Since that requirement started in October, foreclosure filings have “dropped like a rock,” says Paul Lewis, chief of staff to New York State Deputy Chief Administrative Judge Ann Pfau. They’re running about 150 a month, down from 900, Lewis says. He speculates lawyers need time to get information from banks.
In addition to taking longer to make sure paperwork is correct, companies may be slowing foreclosures so that they don’t glut the market with homes for sale, which would depress prices, says Patrick Butler, head of asset disposition for Foreclosure.com. They may also be delaying foreclosures to avoid the cost of maintaining properties while others remain unsold, Butler says.
In December, bank repossessions nationwide totaled 69,847, down 24 percent from December 2009 but up 4 percent from November.
For the year, almost 2.9 million U.S. properties received foreclosure filings, a record high and up 2 percent from 2009. Nationwide, 1 in 45 homes received at least one foreclosure filing during the year.
© Copyright 2011 USA TODAY, a division of Gannett Co. Inc., Julie Schmit
Bank of America gets low marks in reports
[ARTICLE FROM USA TODAY]
WASHINGTON – Jan. 3, 2011 – Bank of America routinely takes longer than its peers to answer phone calls from borrowers with distressed home loans and loses the highest percentage of calls, too, six months of Treasury Department reports show.
BofA’s answering time has averaged 40 seconds or more each month since May, when Treasury began collecting call-center data from the eight largest servicers in its mortgage modification program. BofA, the largest U.S. bank and the largest mortgage servicer, had the slowest answering speed in four of the six months.
OneWest topped BofA in July and October, the latest month in Treasury’s reports.
BofA lost the highest percentage of calls in five of the six months, including October when its abandoned call rate was more than 3 percent, the reports show.
Mortgage servicers have drawn criticism recently after revelations that their employees or contractors may have created thousands of potentially faulty foreclosure documents.
BofA suffered another blow Dec. 17 when the Arizona and Nevada attorneys general filed separate lawsuits accusing it of misleading borrowers seeking loan modifications. The Arizona complaint characterized BofA as ranking “last in virtually every homeowner experience metric” tracked in Treasury’s reports.
The reports also show that BofA has one of the lowest rates among 17 large servicers in the government’s Home Affordable Modification Program (HAMP) for converting trial loan modifications to permanent ones.
BofA says that helping customers stay in their homes is a “top priority,” that it’s done 746,000 loan modifications since January 2008 and that it’s working to improve its conversion rate. Since HAMP’s start last year, BofA says, the bank leads the industry with 93,500 permanent modifications started.
BofA says its automated answering system is better designed to identify callers’ needs and transfer them to the right people than competitors’ systems.
That may take extra time but is “ultimately more efficient and a better overall experience for the customer,” bank spokesman Rick Simon said in an e-mail statement. He says the average response time is less than 40 seconds this month, down from 42 in October.
BofA will soon have 30,000 employees working on distressed home loans – more than triple the number two years ago, he adds.
Treasury doesn’t regulate servicers’ call-center performance. Overall, Treasury has “done very little” to hold servicers accountable to modify home loans even though they get government funds to do so, says Ira Rheingold of the National Association of Consumer Advocates.
OneWest declined to comment.
© Copyright 2010 USA TODAY, a division of Gannett Co. Inc.