Source: http://inside-real-estate.com/SacCityHomes/tag/foreclosure-alternatives/
Timestamp: 2013-05-18 14:33:26
Document Index: 302215602

Matched Legal Cases: ['§ 726', '§ 580', '§ 580', '§ 580', '§ 726', '§ 10026', '§ 2970', '§ 2945', '§ 2944', '§ 10085', '§ 108']

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Mortgage Debt Relief Act is about to EXPIRE!
If you are facing foreclosure or planning to “short sell” your home, you had better move FAST. The tax consequences of waiting may be extreme! The act that has protected people from having to pay huge taxes as a result of a foreclosure or short sale is about to expire. In this article from The Seattle Times, it is reported that the likelihood of extending that act is only 50-50.
About Debt Forgiveness:
completes a loan modification that includes principal reduction or
completes a short sale of their principal residence,
the forgiven debt (the difference between the sales price and the remaining debt) is TAXABLE INCOME and the associated taxes must be paid on the following tax return. The IRS publication on that HERE. There is a lot of good information and a required read if you are looking at foreclosure in the near future.
With all the foreclosures and short sales that started in 2006, congress passed the “Mortgage Debt Relief Act of 2007″. That act allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. This act is set to expire at the end of 2012.
Simply put, that means if you stop making mortgage payments, today, your foreclosure will may not happen until early next year when the forgiven debt MAY be fully taxable.
The reason for the time frame is that mortgage companies wait at least 90 days after your last missed payment to submit a “Notice of Default” (NOD). In California, for example, after 90 more days the mortgage company may submit a “Notice of Trustee’s Sale” (NTS). That notice must schedule the sale AT LEAST 21 days from the notice date. Add them all up and we have about seven months. Typically, banks wait a bit more at each step because there are so many homes that are in that situation and they do not want to take them all too quickly. This process can easily drag on for a year or more. we all know someone who has not made mortgage payments in over a year without being served even with the initial NOD. In fact, if you have already stopped making payments and have not yet received the NOD, you are still likely to be in the same situation.
The “take away” is, if you are in default or expect to be in the near future, you may be better off if you try for a short sale now, rather than waiting for the bank to foreclose. I recommend the following:
Read both of the articles linked to this post.
Contact a tax attorney or CPA (go ahead, spend the money. You’ll be glad you did).
ACT! Take charge of the situation. Ten months is barely enough time to complete a short sale (if that is what your CPA recommends).
Remember, the IRS WILL BE PAID! — the only other thing you cannot avoid.
Tags: buying short sale, foreclosure alternatives, Foreclosures, loan modification, mortgage, mortgage debt forgiveness, short sale, Short Sales Posted in Short Sales | No Comments »
For anyone thinking of walking away from their house instead of listing it as a short sale, read this article first!
To read the article By Les Christie @CNNMoney : please click on the following link
Tags: credit, foreclosure alternatives, Foreclosures, homes in sacramento, Real Estate, sacramento, short sale, Short Sales Posted in Short Sales | No Comments »
Home Owners Receive Short Sale Cooperation
I found a helpful article on how to avoid short sale scams and to encourage home owners to short sale their homes instead of walking away with a foreclosure on their credit history.
To read the complete article by Mike Colpitts click here : Home Owners Receive Short Sale Cooperation
Tags: foreclosure alternatives, home selling, homes in sacramento, Real Estate, short sale, Short Sales Posted in Short Sales | No Comments »
Will we see REAL loan modifications? Are principal write-downs in the future?
Since the beginning of the programs that aimed to modify mortgages, the only real way to help homeowners woul dhave been to reduce the actual principal to something relative to what the homes were actually worth. In this article by Carrie Bay published in DSNEWS, we see where there is a push in congress to do exactly that.
Read the artcle here: Senate’s Housing Chairman Pushes for More Principal Writedowns
Tags: credit, foreclosure alternatives, Foreclosures, home selling, homes in sacramento, loan modification, short sale Posted in Foreclosure Alteratives | No Comments »
Short Sale Fraud to Cost Banks $375 million!
Short sale fraud is suspected when a property is bought then sold within a few weeks for a profit. Obviously, the implication here is that the property was worth significantly more than what the bank received at the time.
An article from HousingWire is HERE. This does a good job of describing the situation. If you or someone you know has been involved in a short sale, you know how frustrating all the documentation requirements can be. The article does make clear that a modest profit from rehabbing and reselling property is expected and not in any way fraudulent. However, there are cases where the property is bought in short sale and sold that very same day for a 10-35% profit.
What this demonstrates is that lenders are likely to mistrust agents’ and sellers’ motivaiton for the short sale. As always, the few bad actors make it difficult for the rest of us who are actually trying to help homeowners get a fresh start.
Tags: buying homes, buying short sale, foreclosure alternatives, homes in sacramento, Real Estate, short sale Posted in Short Sales | 9 Comments »
Credit Implications of a Short Sale or Foreclosure.
Loan Workout: Basically, a loan workout is any resolution of a problem loan between the lender and borrower that modifies the original loan agreement. Some of these options include forbearance (e.g. forgiving a portion of the debt or late charges); deferment; renegotiating interest rate, monthly payment amount, principal amount, maturity date; or the enforcement an acceleration clause in the loan. Deed in Lieu of Foreclosure: After the borrower is in default, the borrower voluntarily delivers title to the lender for consideration and the lender accepts the conveyance of the property in full satisfaction of the mortgage debt. Using this method, the lender saves the costs of foreclosure and the borrower avoids having a notice of default on his/her records. (Hamud v. Hawthorne, 52 Cal.2d 78 (1959).)
Short Sale*: A short sale is a transaction in which a lender allows the real property securing the loan to be sold for less than the remaining mortgage amount due and accepts the proceeds as full payment of the loan. A lender may accept a short sale when the borrower is in severe financial straits and market conditions make a short sale the best choice to mitigate the lender’s damages. Like a deed in lieu of foreclosure, this saves the lender the costs of foreclosure and the borrower avoids having a foreclosure on his or her credit report. Short Payoff*: With a short payoff, the lender accepts less than the remaining mortgage amount as full payment of the loan. The property need not be sold. *Note: Some lenders do not differentiate between a short sale and a short payoff.
A A deficiency judgment is a judgment obtained by the lender in court against the borrower for the difference between the unpaid balance of the secured debt and the amount produced by sale or the fair market value of the security, whichever is greater, in a judicial foreclosure. (Cal. Code Civ. Proc. § 726 (b).) A lender may obtain a deficiency judgment only with a judicial foreclosure. With a trustee’s sale foreclosure, the lender cannot go after a deficiency judgment. With a short sale, except under certain circumstances–see Question 4, the lender may demand the balance still owed on the note that the sales transaction did not cover (e.g., short sale of the property pays the lender $120,589.23 but the full amount owed on the note is $250,000). This difference may be referred to as a “deficiency balance.” It is not really a “deficiency judgment” since no court has issued such a judgment as part of a judicial foreclosure. Q 4. Under what circumstances is the lender prohibited from going after the “deficiency balance” as defined in Question 3 after a short sale? With passage of SB 931, effective Jan. 1, 2011, after the short sale of a residential property of one-to-four units, the holder of the first deed of trust (or first mortgage) cannot pursue the borrower (seller) for any deficiency under the note. If the lender consents to the short sale in writing, the lender is obligated to accept the sale proceeds as payment in full and the note is considered fully discharged. The borrower (seller) is protected even if the loan is refinanced as long as it’s secured by a first deed of trust. (Cal. Code Civ. Proc. § 580e (a).) However, this law doesn’t apply to junior deeds of trust. Thus, the borrower (seller) may still be liable for the deficiency balance on those loans. An exception to SB 931 occurs if the borrower (seller) has committed fraud with respect to the sale of the property or has committed “waste” of the real property (e.g., severely damaged the property) (Cal. Code Civ. Proc. § 580e (b)). Under these circumstances, the borrower (seller) may still be liable for the deficiency balance.
Note: SB 931 doesn’t apply if the borrower (seller) is a corporation or political subdivision of the state (Cal. Code Civ. Proc. § 580e (c)). Q 5. Can a lender obtain a deficiency judgment against a defaulting borrower following foreclosure?
When a deficiency judgment is not permitted, a lender would opt for a trustee’s sale foreclosure which is quicker and less expensive than a judicial foreclosure. When a deficiency judgment is permitted, the lender may obtain one only following a judicial foreclosure, or when the security has become valueless (such as when security for a second trust deed loan is wiped out when the first trust deed lender completes its foreclosure). Holders of a junior deed of trust (second, third, etc.) should note that if the “wiped-out” junior lien is not purchase money or seller carryback, then the junior lien holder may sue on the note and the borrower on the junior loan may be personally liable. (Roseleaf Corp. v. Chierighino, 59 Cal. 2d 35 (1963).)
Q 6. Can a lender avoid the foreclosure process and just sue the borrower on the note (i.e., treat it as an unsecured note)?
A No. A lender cannot opt to sue on a debt secured by a mortgage or trust deed instead of foreclosing. This is called the “one action rule” or “one form of action rule.” (Cal. Code Civ. Proc. § 726.) One exception to this rule is if the security for the loan has become “valueless” after the lender’s security interest was recorded (e.g., this would be the case for a “wiped out” junior lien holder who now holds an unsecured note). In this case, the lender can sue directly on the debt (note) unless the borrower’s loan falls into category (1) or (2) in Question 4.
A Some lenders have been assigning the notes to collection agencies and after the short sale, sellers have been receiving calls from collection agencies. Q 12. Does a short sale adversely affect a defaulting borrower’s credit rating?
A No, unless certain requirements are met. An advance fee is a fee charged upfront for services not yet performed. An advance fee is broadly defined to include a fee claimed, demanded, charged, received, collected or contracted from a principal for negotiating real estate loans (Cal. Bus. & Prof. Code § 10026). Among other things, no less than ten calendar days before collecting an advance fee, a real estate broker must submit to the DRE the advance fee agreement and all other materials to be used for advertising, promoting, soliciting, or negotiating the advance fee (10 Cal. Code of Reg. § 2970). Furthermore, if a Notice of Default has been recorded against a property involving one-to-four owner occupied residential units, an advance fee is prohibited for foreclosure-related consulting services under the foreclosure consultant law (Cal. Civ. Code § 2945 et seq.). Note that advance fees are prohibited for loan modifications (Cal. Civ. Code § 2944.7, Cal. Bus. & Prof. Code § 10085.6). Q 20. If a real estate broker collects an advance fee, does it have to be handled in a special way?
Q 21. Must a real estate transfer disclosure statement be given to a buyer in a short sale transaction?
Q 25. What is the process for applying for a short sale?
Q 26. What documentation will a lender typically require?
Q 27. Does C.A.R. provide any special forms for short sales?
A Yes. REALTORS® may use C.A.R. form SSIA (Short Sale Information Advisory) when they take the listing and C.A.R. form SSA (Short Sale Addendum) to be used with a purchase agreement.
Q 28. Where can I obtain additional information?
Tags: credit, deed in lieu of, foreclosure alternatives, Foreclosures, home selling, short sale, short sale specialist, Short Sales Posted in Short Sales | 16 Comments »
Tax Implications to Short Sales and Foreclosures
Q4. What is “nonrecourse” debt?
Q5. What is “recourse” debt?
Q6. How is the amount realized (taxable income) calculated for a “recourse” debt in a foreclosure?
However, if the cancelled debt amount is considered “qualified principal residence indebtedness” pursuant to the Mortgage Forgiveness Debt Relief Act of 2007(federal law) and SB 401 (the Conformity Act of 2010—California law), there will be no taxation on this forgiveness of debt (COD income). See Question 9 for a definition of “qualified principal residence indebtedness.”
$300,000 Less FMV
$250,000 Ordinary Income
$50,000 Note: If a lender chooses to foreclose through a trustee’s sale and is barred from obtaining a deficiency judgment by the one action rule under California Code of Civil Procedure Section 580d, it is likely the IRS will still consider that the underlying debt as a recourse debt and it will be subject to debt forgiveness income. (See Rev. Rul. 90-16.) However, there may be no taxation of this income under The Mortgage Forgiveness Debt Relief Act of 2007.
Q7. How is the amount realized (taxable income) calculated for a “nonrecourse” debt in a foreclosure?
OR Unpaid Debt ($300,000)
A Cancellation of Debt (COD) Income
A short sale, where the lender agrees to reduce some or all of the outstanding debt, may give rise to forgiveness of debt income (also called “cancellation of debt” or COD income). The amount of the debt that the lender agrees to write off is treated as “ordinary income” (as opposed to capital gains income which is taxed at a lower rate). Even though the lender may be taking this action to facilitate the sale by the owner who is under a notice of default and facing a foreclosure, the agreement between the owner and the lender is considered voluntary and the amount of the loan written off by the lender is treated as forgiveness of debt (cancellation of debt–COD). The taxpayer will generally receive a 1099 tax form from the lender in the amount of the cancellation of debt.
. The indebtedness is discharged after January 1, 2007 and before January 1, 2013. (The end date was increased by three years from 2010 to 2013 pursuant to H.R. 1424, the Emergency Economic Stabilization Act of 2008). **Qualified Principal Residence Indebtedness is a loan secured by the residence used to acquire, construct or substantially improve the residence. The income relief provided is capped at $1,000,000 in the case of a married person filing a separate return and $2,000,000 for all others.
Qualifying taxpayers who have already filed their 2009 California tax returns should file Form 540X, Amended Individual Income Tax Return , to subtract the amount of debt relief from income. To expedite processing, write “Mortgage Debt Relief” in red across the top of the amended tax return. Taxpayers must attach a copy of their federal return, including Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) , with their state tax return.
Sales Price (FMV) $250,000 Less Adjusted Basis $50,000 Capital Gains $200,000 Additionally, the taxpayer will have ordinary income from the lender’s write off of any debt, which in this example would be $50,000 (** See the discussion above in this question to determine whether or not this would be taxable)
(26 U.S.C. §§ 108(a), 108(b), 108(c) and IRS publication 908.) Note, however, it is likely that many taxpayers currently subject to cancellation of debt income will qualify for the insolvency exemption from taxation. Taxpayers should be advised to speak with their own tax advisors as to whether they meet the insolvency exemption.
Deed-in-Lieu Short Sale Capital Gains FMV Less Adjusted Basis Greater of FMV or Outstanding Debt Less Adjusted Basis FMV Less Adjusted Basis Ordinary Income Outstanding Debt Less FMV * No Ordinary Income Amount of Debt Forgiven*
*No Ordinary Income if property is considered a “Qualified Principal Residence Indebtedness” (See the discussion in Question 9).
. The Internal Revenue Service (IRS) (http://www.irs.gov/), which has detailed publications available for free on many tax related subjects. For more information, see IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, and IRS Web page, The Mortgage Forgiveness Debt Relief Act and Debt Cancellation. . The IRS Tele-Tax system, which is an automated voice message information system with recorded information on many commonly asked tax questions. Tele-Tax can be reached by calling (800) 829-4477.
Copyright© 2010, CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided creditis given to the C.A.R. Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved.
Tags: credit, deed in lieu of, fico, foreclosure alternatives, Foreclosures, Real Estate, short sale, short sale specialist, Short Sales Posted in Short Sales | 52 Comments »
California plans a $2-Billion plan to help keep folks in their homes.
California through CalHFA has put forth a plan that will help keep homeowners in their homes through temporary reductions in income due to job loss or other financial hardship. The plan includes writing down a portion of the principle of the loan, mortgagew assistance up to $3000/month if borrower is unemployed, and making up to $15,000 payment to re-instate mortgages.
All this means that there is still hope, even if the borrower has been avoiding the situation for some time. Remember, everyone suffers with a mortgage is foreclosed. There are no winners. Even the mortrgage servicer and underwriter would prefer borroweres in trouble would stay in theit home.
The press release from CalHFA is HERE.
The L.A. TImes article “California plans $2-billion program to help distressed homeowners” has more facts and analysis.
Tags: CalHFA, deed in lieu of, foreclosure alternatives, Foreclosures, loan modification, mortgage, Real Estate, sacramento Posted in Foreclosure Alteratives | 4 Comments »
Review of “All the Devils Are Here” on Jon Stewart
“All The Devils Are Here” is a book about what actually happened in 2008, before, and after. This interview is enlightening and actually quite scary. This shows more than anything that we still have a long way to go to get truely on our feet and stay there.
Here is the clip of the extended interview:http://www.thedailyshow.com/watch/tue-november-16-2010/exclusive—bethany-mclean—joe-nocera-extended-interview
Tags: bankruptcy, financial crisis, foreclosure alternatives Posted in Financial | 17 Comments »
Do lenders prefer short sales over foreclosures?
The sort answer is, “Yes.” Or, at least they should. I have read in several places that a short sale will yield 20-25% more to the lender than a foreclosure. I have personally been involved in short sales where the lender was completely unreasonable and others where the lender worked with us to bring success. And, among individual lenders, there have been improvements over the years. More and more, lenders are coming to the table and getting these done.
From my experience, it has been clear that short sales are good business for the lenders. In September of 2009 I had a short sale contract for $270,000 on a property and the lender insisted they would not sell for less than $335,000. I even contacted the broker they got the price opinion from – he told them it was worth no more than $285,000. We lost the deal, and the bank eventually foreclosed. Upon foreclosure, they tried to sell it at that exorbitant price for eight months and, in August of 2010 finally sold it for $250,000. Now, that is only $20,000, but we’re also talking about the cost of the foreclosure process and recovering and maintaining a vacant property for nearly a year as well as the lost opportunity of that $20,000.
A better case:
In another case, the lender was insisting on a price of $150,000 for a 4-bed, 2-bath home in Sacramento. My contract price was $139,000. They balked until I pointed out that same lender had REO’s in that neighborhood similar to this one listed for $99,000 and still not selling after 60 days on market. It didn’t take long for the lender to come around and we closed rather quickly.
Improvement coming:
The more we do this, the better it will get. As lenders hire-up competent staff and as investors are educated through the school of hard knocks, it will become more and more streamlined. By this time next year, we should see marked improvements, just as what we see today is markedly better than it was a year ago. For example, the HAFA program (see: www.Makinghomeaffordable.com ) which was launched in the middle of the year has been going through changes as more experience brings about adjustments to the better.
As it stands, Bank of America has gone on record encouraging realtors to initiate more short sales over the next two years. Other lenders are following suit.
Tags: buying short sale, foreclosure alternatives, home selling, homes in sacramento, Real Estate, short sale Posted in Short Sales | 2 Comments »