Real Estate Articles from Inman News
Upside-down homeowners thrown lifeline
Despite aid, survey finds stress soaring in struggling households
Friday, February 29, 2008
Retail sales were up more than expected in January.
Is it a sign that the great residential real estate slowdown is almost over?
Hardly.
The housing industry continues to move along at a glacial pace, with a rising number of homes for sales, home loans in default, and a record-breaking pace of foreclosures.
The news is somewhat grim, with most of the private mortgage insurers announcing first-ever (but massive) losses, as they are required under their PMI policies to pay out millions of dollars.
Is help on the way? Let's consider what some of the more important pieces of industry news mean to Mr. and Mrs. Average Homeowner.
Hit the Pause Button for Foreclosures
The Bush administration and six major mortgage lenders announced that they would hit the pause button for anyone currently (or about to) face foreclosure.
Bank of America, Citigroup, Countrywide Financial, JP Morgan Chase, Washington Mutual and Wells Fargo have agreed to participate in the government's Hope Now Alliance.
According to Treasury Secretary Henry Paulson, the "Project Lifeline" program will stay any foreclosure action for 30 days for those who are 90 days or more late on their mortgage. The pause will allow homeowners who want to and can afford to stay in their homes the time to negotiate a loan modification or refinancing with their lender.
Lenders will be contacting those homeowners who are 90 days late or more on their mortgage.
However, if the homeowner doesn't return the lender's calls within 30 days, the foreclosure stay will be lifted, according to program details.
The real question is this: After 90 days of ignoring late notices and avoiding calls from the lender, is a homeowner on the brink of foreclosure really going to pick up the phone?
As Paulson said in prepared remarks, "Of course, there will be homeowners who still take no action, and some will simply walk away from their mortgage -- particularly those borrowers who put little or no money down and whose mortgage exceeds their home value. No program can bring every struggling borrower into the counseling and evaluation process, and we cannot help those who choose not to honor their obligations."
The Project Lifeline program is a new addition to other programs already announced by the Bush administration.
Foreclosures Rose Nearly 80 Percent in 2007
Even if everyone doesn't buy into Project Lifeline, there are plenty of people who might qualify.
According to California-based RealtyTrac, a leading online marketplace for foreclosure properties, the number of foreclosures soared nearly 80 percent in 2007.
"As expected, the number of properties entering some stage of foreclosure in 2007 was up in the vast majority of the nation's 100 largest metro areas, with 86 metro areas reporting increases from 2006," said RealtyTrac's CEO James J. Saccacio.
The worst states for foreclosure? California, Ohio, Florida and Michigan. In Stockton, Calif., the foreclosure rate soared 271 percent from 2006. In Las Vegas, foreclosures grew 169 percent over 2006. One real estate agent estimated that two-thirds of the homes currently for sale there were tainted by foreclosure.
Big Surprise! Homeowners are Stressed Out About the Housing Market
With foreclosures rising and homes taking much longer to sell, it's no wonder that a new survey from the National Foundation for Credit Counseling found that homeowners are all stressed out.
More than 4,000 consumers have taken the National Foundation for Credit Counseling's Mortgage Reality Check at its HousingHelpNow Web site. The survey asks consumers if they know what kind of mortgage they have, if it is adjusting, and if they're worried about not being able to refinance or pay their new mortgage amount if their payments are about to adjust.
Since the beginning of January, the survey found that 78 percent of respondents say they have trouble sleeping because they're worried about their current financial situation, the possibility of losing their home or car, or their ability to use credit. This is up 16 percent from November and December 2007.
Sixty-nine percent of consumers taking the poll said they don't believe refinancing will solve their current cash crisis, up 8 percent from the end of 2007.
Fifty-nine percent say they owe more on their home than it is worth, up 11 percent from the end of 2007.
Eighty-three percent of those taking the poll fell into the most at-risk group.
You can take the survey at http://www.housinghelpnow.org/MortgageRealityCheck.cfm.
(Source: By Ilyce R. Glink, Inman News )
Friday, February 29, 2008
Monday, February 25, 2008
Lenders Find Owners Who Are Late On Payments
Daily Real Estate News February 25, 2008
Lenders Find Owners Late on Payments
Mortgage lenders are going door-to-door in some parts of the country to track down borrowers who are behind on their payments and help them work out a solution.
The bottom line is the average foreclosure costs more than $50,000. It is cheaper and easier to lower the borrower’s interest rate and put them on a repayment plan or sell the home at less than is owed.
Hard to track down, no-contact borrowers, as the industry calls them, are in the majority. From September 2005 to August 2007, 53 percent of the loans backed by Freddie Mac that went into foreclosure involved borrowers who could not be reached.
Wells Fargo estimated that it had no contact with about 30 percent of delinquent home owners who went into foreclosure in 2006. Last year, it began testing envelopes in bold or unusual colors or resembling wedding invitations as a way to get these customers to open their mail.
(Source: The Washington Post, Renae Merle (02/17/08)
Lenders Find Owners Late on Payments
Mortgage lenders are going door-to-door in some parts of the country to track down borrowers who are behind on their payments and help them work out a solution.
The bottom line is the average foreclosure costs more than $50,000. It is cheaper and easier to lower the borrower’s interest rate and put them on a repayment plan or sell the home at less than is owed.
Hard to track down, no-contact borrowers, as the industry calls them, are in the majority. From September 2005 to August 2007, 53 percent of the loans backed by Freddie Mac that went into foreclosure involved borrowers who could not be reached.
Wells Fargo estimated that it had no contact with about 30 percent of delinquent home owners who went into foreclosure in 2006. Last year, it began testing envelopes in bold or unusual colors or resembling wedding invitations as a way to get these customers to open their mail.
(Source: The Washington Post, Renae Merle (02/17/08)
Thursday, February 21, 2008
Article: Economic Stimulus Addresses Morgage Crisis
Thursday, February 14, 2008
Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®
How economic stimulus package addresses mortgage crisis
President Bush Wednesday signed off on the $168 billion stimulus packaged approved by Congress last week, which, in addition to tax rebates for millions of working Americans and business owners, includes a vital, but temporary increase in the conforming loan limit. The economic stimulus package will allow the Federal Housing Administration, as well as Fannie Mae and Freddie Mac, to offer mortgages above the current conforming loan limit of $417,000 to as much as $729,750 in high-cost areas using a formula that considers an area’s median home price.
The increase would only apply to loans originated between July 1, 2007 and Dec. 31, 2008. A host of details remain to be worked out, including how the median home price is established.
MAKING SENSE OF THE STORY FOR CONSUMERS
· It could be several months before the impact is felt in the mortgage markets. Wall Street is still working out whether investors will want to bundle securitized loans above $417,000 with loans below that level, or if they will invest in them separately.
· Rates for such loans might be higher because banks fear larger loans are riskier, but they’d still likely be lower than current jumbo rates.
· Even though the proposal does not apply to loans made before July 1, borrowers with older mortgages could refinance into new loans that would be sold to Fannie and Freddie, because those loans would be considered new loans.
Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®
How economic stimulus package addresses mortgage crisis
President Bush Wednesday signed off on the $168 billion stimulus packaged approved by Congress last week, which, in addition to tax rebates for millions of working Americans and business owners, includes a vital, but temporary increase in the conforming loan limit. The economic stimulus package will allow the Federal Housing Administration, as well as Fannie Mae and Freddie Mac, to offer mortgages above the current conforming loan limit of $417,000 to as much as $729,750 in high-cost areas using a formula that considers an area’s median home price.
The increase would only apply to loans originated between July 1, 2007 and Dec. 31, 2008. A host of details remain to be worked out, including how the median home price is established.
MAKING SENSE OF THE STORY FOR CONSUMERS
· It could be several months before the impact is felt in the mortgage markets. Wall Street is still working out whether investors will want to bundle securitized loans above $417,000 with loans below that level, or if they will invest in them separately.
· Rates for such loans might be higher because banks fear larger loans are riskier, but they’d still likely be lower than current jumbo rates.
· Even though the proposal does not apply to loans made before July 1, borrowers with older mortgages could refinance into new loans that would be sold to Fannie and Freddie, because those loans would be considered new loans.
Tips: What Should I Do If I Can't Pay My Mortgage
What should you do if you can't pay your loan?
1. Call your lender immediately. The sooner you contact your lender (look for the toll-free number on your monthly statement), the more options will be available to you. Ask for the loan mitigation department.
2. Talk with a reputable credit counseling agency. You can call the Homeownership Preservation Foundation (toll-free 888-995-HOPE) or find a local HUD-approved counseling agency (toll-free 800-569-4287 on weekdays) or go to http://www.hud.gov/.
3. Know your loan modification options. Depending on how quickly you call your lender, the following loan modification options may be available to you:
If your financial circumstances have changed so much that you can no longer afford to keep your house, your mortgage company may offer you one of the following options to forestall the foreclosure process:
If you find the possibility of foreclosure to be overwhelming, and want more information, be wary of going to friends and family or even the Internet for guidance. There could be a lot of misinformation going around. You could also wind up being snared by Internet scam artists posing as credit counselors or in a foreclosure rescue scam. The best place to start your search for information on the foreclosure process is at the HUD.gov Web site.
1. Call your lender immediately. The sooner you contact your lender (look for the toll-free number on your monthly statement), the more options will be available to you. Ask for the loan mitigation department.
2. Talk with a reputable credit counseling agency. You can call the Homeownership Preservation Foundation (toll-free 888-995-HOPE) or find a local HUD-approved counseling agency (toll-free 800-569-4287 on weekdays) or go to http://www.hud.gov/.
3. Know your loan modification options. Depending on how quickly you call your lender, the following loan modification options may be available to you:
- Forbearance (an agreement to temporarily let you pay less or nothing while you get back on your feet);
- Reinstatement (pay the total amount you're behind in a lump sum by a certain date);
- Repayment plans (you'll be given a fixed amount of time to repay the amount you're behind by combining a portion of what's past due with your current payment);
- Loan modifications (a written agreement between you and the lender that permanently changes one or more of the original terms of your loan to make it more affordable, such as extending the loan term or lowering the interest rate).
If your financial circumstances have changed so much that you can no longer afford to keep your house, your mortgage company may offer you one of the following options to forestall the foreclosure process:
- Loan assumption. Even if your mortgage isn't assumable, your lender may allow someone else to take over the payments and bring the loan current. This may allow you to sell your home.
- Short sale. This option, which has been in the news lately, allows you to sell your house for less than the amount that is owed on the mortgage. Recent, but temporary, changes to the IRS tax code mean that the difference between what you owe and the amount you're selling for may no longer be taxable as income.
- Deed-in-lieu of foreclosure. You may be able to transfer title to your property to the mortgage company in exchange for the complete cancellation of your mortgage debt. In most cases, your lender will have required you to try to sell the house for 90 days before a deed-in-lieu will be considered.
If you find the possibility of foreclosure to be overwhelming, and want more information, be wary of going to friends and family or even the Internet for guidance. There could be a lot of misinformation going around. You could also wind up being snared by Internet scam artists posing as credit counselors or in a foreclosure rescue scam. The best place to start your search for information on the foreclosure process is at the HUD.gov Web site.
Tuesday, February 19, 2008
Article: Project Lifeline Provides 30 Day Breather for Loan Modifications
Real Estate Articles from Inman News
More loan servicers agree to put foreclosures on hold
Project Lifeline provides 30 day breather for loan mods
Tuesday, February 19, 2008
Loan servicers and lenders who handle about nine out of 10 subprime loans have agreed to participate in an initiative to help delinquent borrowers by putting foreclosure proceedings on hold for up to 30 days to evaluate alternatives.
The Project Lifeline initiative, targeted at borrowers who are 90 days or more behind on their payments, was announced by six major lenders on Feb. 12.
Those lenders -- Bank of America, Citigroup, Countrywide Financial Corp., Chase, Washington Mutual and Wells Fargo -- say eligible borrowers will be offered workout plans that could lead to formal loan modifications for those who can make payments on new terms for three months.
The lenders are also members of the HOPE NOW coalition organized by the Treasury Department to speed up the process of modifying subprime adjustable-rate mortgage (ARM) loans before interest rate resets. While HOPE NOW members had been focused on modifying subprime ARM loans, Project Lifeline is targeted at nearly all loans, including prime, alt-A, and second-lien mortgages.
By March 31, the Project Lifeline initiative will include every member of the HOPE NOW coalition -- an additional 19 lenders and loan servicers, the coalition said today in a press release.
Project Lifeline participants are sending letters to seriously delinquent borrowers. Those who receive the letters must call their mortgage servicer within 10 days, agree to seek financial counseling, and provide updated financial information that can be used to draw up a workout plan.
A loan that is 90 days or more delinquent is eligible for Project Lifeline unless the borrower is in active bankruptcy, if a foreclosure sale date is less than 30 days away, or if the home is an investment property or vacant.
A list of participating HOPE NOW loan servicers is available from the Financial Services Roundtable. Information about the HOPE NOW and Project Lifeline programs is available online at www.hopenow.com or by phone at (888) 995-4673.
More loan servicers agree to put foreclosures on hold
Project Lifeline provides 30 day breather for loan mods
Tuesday, February 19, 2008
Loan servicers and lenders who handle about nine out of 10 subprime loans have agreed to participate in an initiative to help delinquent borrowers by putting foreclosure proceedings on hold for up to 30 days to evaluate alternatives.
The Project Lifeline initiative, targeted at borrowers who are 90 days or more behind on their payments, was announced by six major lenders on Feb. 12.
Those lenders -- Bank of America, Citigroup, Countrywide Financial Corp., Chase, Washington Mutual and Wells Fargo -- say eligible borrowers will be offered workout plans that could lead to formal loan modifications for those who can make payments on new terms for three months.
The lenders are also members of the HOPE NOW coalition organized by the Treasury Department to speed up the process of modifying subprime adjustable-rate mortgage (ARM) loans before interest rate resets. While HOPE NOW members had been focused on modifying subprime ARM loans, Project Lifeline is targeted at nearly all loans, including prime, alt-A, and second-lien mortgages.
By March 31, the Project Lifeline initiative will include every member of the HOPE NOW coalition -- an additional 19 lenders and loan servicers, the coalition said today in a press release.
Project Lifeline participants are sending letters to seriously delinquent borrowers. Those who receive the letters must call their mortgage servicer within 10 days, agree to seek financial counseling, and provide updated financial information that can be used to draw up a workout plan.
A loan that is 90 days or more delinquent is eligible for Project Lifeline unless the borrower is in active bankruptcy, if a foreclosure sale date is less than 30 days away, or if the home is an investment property or vacant.
A list of participating HOPE NOW loan servicers is available from the Financial Services Roundtable. Information about the HOPE NOW and Project Lifeline programs is available online at www.hopenow.com or by phone at (888) 995-4673.
Wednesday, February 13, 2008
Brochure: Having Problems Paying Your Mortgage?
Are You Having Problems Paying Your Mortgage? Learn How to Avoid Foreclosure and Keep Your Home. Click on the link below, Provided by REALTOR.org
CLICK HERE FOR MORE INFO:
http://www.realtor.org/subprime_lending.nsf/docfiles/Foreclosure%20Brochure%20Text-Only%202007.pdf/$FILE/Foreclosure%20Brochure%20Text-Only%202007.pdf
CLICK HERE FOR MORE INFO:
http://www.realtor.org/subprime_lending.nsf/docfiles/Foreclosure%20Brochure%20Text-Only%202007.pdf/$FILE/Foreclosure%20Brochure%20Text-Only%202007.pdf
Tuesday, February 12, 2008
Article: Countrywide & ACORN Team to Prevent Foreclosure
Survey suggests lenders still playing catch up
Monday, February 11, 2008
By Matt Carter
Inman News
Countrywide Financial Corp. announced today it's partnering with the community group ACORN to engage in workouts with subprime borrowers -- even if they are already in default, and regardless of whether they have fixed- or adjustable-rate mortgages.
ACORN, or the Association of Community Organizations for Reform Now, held demonstrations outside of Countrywide offices last fall, complaining that its foreclosure prevention initiatives were inadequate.
The collaborative agreement announced today goes beyond Countrywide's previous efforts, which were primarily targeted at borrowers with adjustable-rate mortgages (ARMs) who were still current on their loans and faced potential payment shock with an interest-rate reset.
The agreement calls for ACORN counselors and Countrywide loan servicers to use a "streamlined approach" to help delinquent subprime borrowers with fixed- or adjustable-rate mortgages stay in their homes, through short-term repayment plans or loan modifications including capitalization of arrearages, interest-rate freezes or rollbacks, and interest-rate reductions.
Borrowers are advised to call Countrywide's Home Retention Division directly at 800-669-6650, or the ACORN Housing call center at 866-672-2676.
The agreement fills gaps in Countrywide's previously announced foreclosure prevention initiatives by providing assistance to borrowers who fell outside of their scope, said ACORN president Maude Hurd in a statement. Hurd said she hoped other mortgage servicers would adopt similar practices.
Saying Countrywide was not doing enough to prevent foreclosures, ACORN last fall organized protests at the lender's offices in major U.S. cities. At the time, Hurd said Countrywide was offering "unaffordable payment plans and short-term modifications that will do nothing but force homeowners to limp along, hoping for a quick recovery in the housing market."
The new agreement calls for Countrywide to take a "systematic approach" to helping subprime ARM borrowers who face interest-rate resets by freezing their rates for five years or helping them refinance into a prime loan.
Michael Gross, managing director of loan administration for Countrywide, said in a statement that the new initiative offers investors in securities backed by the loans "a more attractive alternative than foreclosure."
Countrywide is a founding member of the HOPE NOW coalition of lenders and loan servicers who have agreed to streamline the process of loan modifications. A survey of some of the group's members found they were able to initiate repayment plans or modify the loan terms of two out of three delinquent subprime borrowers in the second half of 2007 (see Inman News story).
But state bank regulators who have formed their own foreclosure prevention group recently released another survey that suggests loan servicers were helping a much smaller percentage of troubled borrowers.
That survey, of 13 of the top 20 subprime loan servicers, concluded that seven in 10 seriously delinquent borrowers were not on track for any loss mitigation in October. Furthermore, 73 percent of successful loss mitigation efforts closed during the month involved borrowers bringing their account current.
"This demonstrates that it is mostly the homeowners themselves that are resolving their financial difficulties," the survey, published by the State Foreclosure Prevention Working Group, concluded. "We are concerned this reliance on homeowners to solve most of these loan problems is not sustainable at its current level."
Of the 205,270 successful loss mitigations tracked by the working group's survey in October, only 4 percent involved a delinquent borrower refinancing. About 10 percent involved lenders drawing up a repayment plan, and 9.3 percent were the result of loan modifications.
The option of refinancing had "nearly evaporated" for borrowers, and while servicers were increasing their use of loan modifications and other long-term solutions, the survey found "a large gap between the number of homeowners needing loss mitigation and the number currently receiving assistance."
Although more than 150,000 delinquent loans were in the process of receiving a loan modification or another long-term accommodation to prevent foreclosure at the end of October, the survey suggested that loss mitigation efforts were being attempted on only 24 percent of seriously delinquent subprime loans.
For its part, Countrywide says it completed more than 81,000 workouts in 2007, and is working with more than 100,000 other borrowers on alternatives to foreclosure -- although that's only a fraction of borrowers who are already -- or may soon become -- delinquent. Of the 9.03 million loans Countrywide was servicing at the end of the 2007, nearly 630,000 were delinquent and about 94,000 were pending foreclosure.
Although most of the loans Countrywide made during the housing boom were not to subprime borrowers, those loans are defaulting at a much higher rate than prime loans. Last month, Countrywide said that about one in three subprime loans in its $1.5 trillion servicing portfolio were delinquent by 30 days or more, compared with less than one in 10 for the portfolio as a whole.
Countrywide lost $704 million in 2007, with a $1.2 billion third-quarter and $422 million fourth-quarter loss more than wiping out profits made in the first half of the year. After the seizure of secondary mortgage markets in August, the Calabasas, Calif.-based lender was forced to scale back its loan originations and concentrate on mortgages eligible for purchase by government-chartered loan financiers Fannie Mae and Freddie Mac.
Bank of America, which provided Countrywide with $2 billion in emergency funding in August, announced in January that it would buy the lender in an all-stock transaction valued at more than $4 billion.
Countrywide had previously announced it was nearing an agreement with ACORN in December on a foreclosure prevention initiative.
Monday, February 11, 2008
By Matt Carter
Inman News
Countrywide Financial Corp. announced today it's partnering with the community group ACORN to engage in workouts with subprime borrowers -- even if they are already in default, and regardless of whether they have fixed- or adjustable-rate mortgages.
ACORN, or the Association of Community Organizations for Reform Now, held demonstrations outside of Countrywide offices last fall, complaining that its foreclosure prevention initiatives were inadequate.
The collaborative agreement announced today goes beyond Countrywide's previous efforts, which were primarily targeted at borrowers with adjustable-rate mortgages (ARMs) who were still current on their loans and faced potential payment shock with an interest-rate reset.
The agreement calls for ACORN counselors and Countrywide loan servicers to use a "streamlined approach" to help delinquent subprime borrowers with fixed- or adjustable-rate mortgages stay in their homes, through short-term repayment plans or loan modifications including capitalization of arrearages, interest-rate freezes or rollbacks, and interest-rate reductions.
Borrowers are advised to call Countrywide's Home Retention Division directly at 800-669-6650, or the ACORN Housing call center at 866-672-2676.
The agreement fills gaps in Countrywide's previously announced foreclosure prevention initiatives by providing assistance to borrowers who fell outside of their scope, said ACORN president Maude Hurd in a statement. Hurd said she hoped other mortgage servicers would adopt similar practices.
Saying Countrywide was not doing enough to prevent foreclosures, ACORN last fall organized protests at the lender's offices in major U.S. cities. At the time, Hurd said Countrywide was offering "unaffordable payment plans and short-term modifications that will do nothing but force homeowners to limp along, hoping for a quick recovery in the housing market."
The new agreement calls for Countrywide to take a "systematic approach" to helping subprime ARM borrowers who face interest-rate resets by freezing their rates for five years or helping them refinance into a prime loan.
Michael Gross, managing director of loan administration for Countrywide, said in a statement that the new initiative offers investors in securities backed by the loans "a more attractive alternative than foreclosure."
Countrywide is a founding member of the HOPE NOW coalition of lenders and loan servicers who have agreed to streamline the process of loan modifications. A survey of some of the group's members found they were able to initiate repayment plans or modify the loan terms of two out of three delinquent subprime borrowers in the second half of 2007 (see Inman News story).
But state bank regulators who have formed their own foreclosure prevention group recently released another survey that suggests loan servicers were helping a much smaller percentage of troubled borrowers.
That survey, of 13 of the top 20 subprime loan servicers, concluded that seven in 10 seriously delinquent borrowers were not on track for any loss mitigation in October. Furthermore, 73 percent of successful loss mitigation efforts closed during the month involved borrowers bringing their account current.
"This demonstrates that it is mostly the homeowners themselves that are resolving their financial difficulties," the survey, published by the State Foreclosure Prevention Working Group, concluded. "We are concerned this reliance on homeowners to solve most of these loan problems is not sustainable at its current level."
Of the 205,270 successful loss mitigations tracked by the working group's survey in October, only 4 percent involved a delinquent borrower refinancing. About 10 percent involved lenders drawing up a repayment plan, and 9.3 percent were the result of loan modifications.
The option of refinancing had "nearly evaporated" for borrowers, and while servicers were increasing their use of loan modifications and other long-term solutions, the survey found "a large gap between the number of homeowners needing loss mitigation and the number currently receiving assistance."
Although more than 150,000 delinquent loans were in the process of receiving a loan modification or another long-term accommodation to prevent foreclosure at the end of October, the survey suggested that loss mitigation efforts were being attempted on only 24 percent of seriously delinquent subprime loans.
For its part, Countrywide says it completed more than 81,000 workouts in 2007, and is working with more than 100,000 other borrowers on alternatives to foreclosure -- although that's only a fraction of borrowers who are already -- or may soon become -- delinquent. Of the 9.03 million loans Countrywide was servicing at the end of the 2007, nearly 630,000 were delinquent and about 94,000 were pending foreclosure.
Although most of the loans Countrywide made during the housing boom were not to subprime borrowers, those loans are defaulting at a much higher rate than prime loans. Last month, Countrywide said that about one in three subprime loans in its $1.5 trillion servicing portfolio were delinquent by 30 days or more, compared with less than one in 10 for the portfolio as a whole.
Countrywide lost $704 million in 2007, with a $1.2 billion third-quarter and $422 million fourth-quarter loss more than wiping out profits made in the first half of the year. After the seizure of secondary mortgage markets in August, the Calabasas, Calif.-based lender was forced to scale back its loan originations and concentrate on mortgages eligible for purchase by government-chartered loan financiers Fannie Mae and Freddie Mac.
Bank of America, which provided Countrywide with $2 billion in emergency funding in August, announced in January that it would buy the lender in an all-stock transaction valued at more than $4 billion.
Countrywide had previously announced it was nearing an agreement with ACORN in December on a foreclosure prevention initiative.
1.888.995.HOPE
If you are having trouble paying your mortgage, please contact your lender or a credit counselor at 1.888.995.HOPE. Find out your options now – don’t waste another minute!
Some members of the HOPE NOW coalition of loan servicers reported in a recent survey that in the second half of 2007, they initiated repayment plans or modified the loan terms of two out of three delinquent subprime borrowers"
http://www.hopenow.com
Some members of the HOPE NOW coalition of loan servicers reported in a recent survey that in the second half of 2007, they initiated repayment plans or modified the loan terms of two out of three delinquent subprime borrowers"
http://www.hopenow.com
Tax Info: Breakdown of Mortgage Debt Forgiveness Law
Mortgage Debt Cancellation Relief - H.R. 3648 - Public Law 110-142 General Information and Provisions
(This is Public Law NOT IRS Code - It is your responsibility to properly interperate the law. Please see your Attorney & CPA for more advice on how this can affect the filin of your taxes.)
"Pursuant to the Mortgage Debt Forgiveness Act of 2007, signed by the president on December 12th 2007, taxpayers do not have to pay fedral income tax on debt forgiveness for a loan secured by a qualified principal residence. Thus for all debts discharged from January 1 2007 to December 31 2009, such as in short sales, as long as the debt in question is secured by a taxpayer's principal residence and the debt was incurred in acquiring, constructing or substantially improving the residence the fact that the debt was forgiven will not result in any income tax liability to the taxpayer. This tax braek also applies to a discharge of an obligation of a qualified principal residence indebtness as long as the debt does not exceed $2,000,000 (or $1,000,000 for married individuals filing a seperate tax return). In Addition, for purposes of calculating capital gains, any debt discharged but excluded from income under this new law must be subtracted from the basis of the taxpayer's principal residence (but not below zero) for purposes of calculating any capital gains tax.
Basically Meaning:
Individuals who are relieved of their obligation to pay some portion of a mortgage debt on a principal residence between January 1, 2007 and December 31, 2009 will not be required to pay income tax on any amount that is forgiven.
General Provisions of Public Law 110-142:
Additional Provisions of Public Law 110-142:
Refinanced Mortgages: The relief does apply to refinanced debt in some circumstances. The rules seek to assure that any debt eligible for the relief is directly related to the acquisition or improvement (such as rehabilitation, expansion, renovation, reconstruction) of the principal residence. Debt used for furnishings (i.e., any movable property) in the home is not eligible for the relief. When the proceeds of any refinanced debt is used for any purpose other than acquisition or improvement, those proceeds are not eligible for the relief.
Principal Residence: A principal residence is defined in the same manner as the rules that apply to the capital gains exclusion on the sale of a principal residence. An individual may not have more than one principal residence at any given time.
Second Homes: As a general matter, the relief does not apply to any debt forgiveness on any mortgage for any second home of the taxpayer. However, if a taxpayer uses a residence (other than his principal residence) solely as an income-producing rental property, already-existing relief provisions might apply, depending on the taxpayer's situation. If the second home property was acquired as a speculative investment (such as for resale rather than rental), relief provisions are unlikely to be available. In all events an individual who is in a short sale, foreclosure, workout or similar situation on a residence (including condos) other than his principal residence should consult a tax adviser to determine what, if any, relief provisions might be available.
Mortgage Insurance Premiums: The deduction for mortgage insurance premiums is extended through tax year 2010. Income limitations on the deduction will continue to apply.
Surviving Spouses/$500,000 Exclusion: In some circumstances, a surviving spouse is denied eligibility for the full $500,000 exclusion on the sale of his/her principal residence. This most frequently occurs when the residence is not held in joint ownership at the time the spouse who is not on the title dies. In that case, the deceased spouse had no ownership interest, so there is no basis step-up on that half of the property. The surviving spouse is thus eligible only for an exclusion of $250,000. (Had the home been sold during the deceased spouse's lifetime, the full $500,000 exclusion would have applied, so long as they filed a joint return.) Challenges for the surviving spouse are compounded when this circumstance occurs late in the year. The surviving spouse is often unable to sell the property within the same year that the spouse died. This legislation provides that a surviving spouse may claim the full $500,000 exclusion not only in the year of the deceased spouse's death, but also during the two years after the spouse's death.
Second Homes Converted to Principal Residence: The new law signed by the President does not include a provision limiting the application of the $250,000/$500,000 exclusion when a second home is converted to a principal residence.
Background Information
A fundamental principle of the income tax is that a taxpayer must recognize income and pay tax any time a debt of the taxpayer is forgiven or discharged. Exceptions are provided in several circumstances, including bankruptcy, insolvency (as defined by state law) and for some investment real estate. Until this new rule was enacted, however, no exception applied to any amount debt forgiven on a mortgage for a taxpayer's principal residence. Thus, until now, when some portion of a mortgage debt was forgiven, that amount has been treated as taxable income and the borrower has been taxed at ordinary income rates on the forgiven amount, even though there is no cash.
The newly-enacted relief for mortgage debt forgiveness is Congress's response to the problems generated by the subprime crisis, short sales, rising foreclosure rates and price corrections in some markets. Thus, when a lender forgives some portion of a borrower's mortgage debt in a short sale, a foreclosure, a workout with the lender or some similar circumstance, the borrower will not be required to recognize income or pay tax on the forgiven amount (in most Cases). This relief applies to debts forgiven between January 1, 2007 and December 31, 2009.
Source: Copyright NATIONAL ASSOCIATION OF REALTORS®
(This is Public Law NOT IRS Code - It is your responsibility to properly interperate the law. Please see your Attorney & CPA for more advice on how this can affect the filin of your taxes.)
"Pursuant to the Mortgage Debt Forgiveness Act of 2007, signed by the president on December 12th 2007, taxpayers do not have to pay fedral income tax on debt forgiveness for a loan secured by a qualified principal residence. Thus for all debts discharged from January 1 2007 to December 31 2009, such as in short sales, as long as the debt in question is secured by a taxpayer's principal residence and the debt was incurred in acquiring, constructing or substantially improving the residence the fact that the debt was forgiven will not result in any income tax liability to the taxpayer. This tax braek also applies to a discharge of an obligation of a qualified principal residence indebtness as long as the debt does not exceed $2,000,000 (or $1,000,000 for married individuals filing a seperate tax return). In Addition, for purposes of calculating capital gains, any debt discharged but excluded from income under this new law must be subtracted from the basis of the taxpayer's principal residence (but not below zero) for purposes of calculating any capital gains tax.
Basically Meaning:
Individuals who are relieved of their obligation to pay some portion of a mortgage debt on a principal residence between January 1, 2007 and December 31, 2009 will not be required to pay income tax on any amount that is forgiven.
General Provisions of Public Law 110-142:
- No income limitation: All borrowers receive the relief, no matter what their income.
- Dollar limitation: No more than $2 million of mortgage debt is eligible for the exclusion ($1 million of debt for a married filing separately return).
- Relief applies only to an individual's principal residence.
The forgiven mortgage debt must have been secured by that residence. - No relief is available for cash-outs, whether the cash-out takes the form of a refinanced first mortgage, a second mortgage, home equity line of credit or similar arrangement.
- Eligible debt is what is called "acquisition indebtedness." This is debt used to acquire, construct or rehabilitate a residence.
- Refinanced debt qualifies, so long as the debt does not exceed the original amount of the debt. (Same rule as Mortgage Interest Deduction)
- Home equity debt (or second mortgages) qualifies if the funds were used to improve the home. (Borrower must have adequate records, as under current law.)
- See cash-outs, above. No amount of a cash out may be treated as acquisition debt.
Additional Provisions of Public Law 110-142:
Refinanced Mortgages: The relief does apply to refinanced debt in some circumstances. The rules seek to assure that any debt eligible for the relief is directly related to the acquisition or improvement (such as rehabilitation, expansion, renovation, reconstruction) of the principal residence. Debt used for furnishings (i.e., any movable property) in the home is not eligible for the relief. When the proceeds of any refinanced debt is used for any purpose other than acquisition or improvement, those proceeds are not eligible for the relief.
Principal Residence: A principal residence is defined in the same manner as the rules that apply to the capital gains exclusion on the sale of a principal residence. An individual may not have more than one principal residence at any given time.
Second Homes: As a general matter, the relief does not apply to any debt forgiveness on any mortgage for any second home of the taxpayer. However, if a taxpayer uses a residence (other than his principal residence) solely as an income-producing rental property, already-existing relief provisions might apply, depending on the taxpayer's situation. If the second home property was acquired as a speculative investment (such as for resale rather than rental), relief provisions are unlikely to be available. In all events an individual who is in a short sale, foreclosure, workout or similar situation on a residence (including condos) other than his principal residence should consult a tax adviser to determine what, if any, relief provisions might be available.
Mortgage Insurance Premiums: The deduction for mortgage insurance premiums is extended through tax year 2010. Income limitations on the deduction will continue to apply.
Surviving Spouses/$500,000 Exclusion: In some circumstances, a surviving spouse is denied eligibility for the full $500,000 exclusion on the sale of his/her principal residence. This most frequently occurs when the residence is not held in joint ownership at the time the spouse who is not on the title dies. In that case, the deceased spouse had no ownership interest, so there is no basis step-up on that half of the property. The surviving spouse is thus eligible only for an exclusion of $250,000. (Had the home been sold during the deceased spouse's lifetime, the full $500,000 exclusion would have applied, so long as they filed a joint return.) Challenges for the surviving spouse are compounded when this circumstance occurs late in the year. The surviving spouse is often unable to sell the property within the same year that the spouse died. This legislation provides that a surviving spouse may claim the full $500,000 exclusion not only in the year of the deceased spouse's death, but also during the two years after the spouse's death.
Second Homes Converted to Principal Residence: The new law signed by the President does not include a provision limiting the application of the $250,000/$500,000 exclusion when a second home is converted to a principal residence.
Background Information
A fundamental principle of the income tax is that a taxpayer must recognize income and pay tax any time a debt of the taxpayer is forgiven or discharged. Exceptions are provided in several circumstances, including bankruptcy, insolvency (as defined by state law) and for some investment real estate. Until this new rule was enacted, however, no exception applied to any amount debt forgiven on a mortgage for a taxpayer's principal residence. Thus, until now, when some portion of a mortgage debt was forgiven, that amount has been treated as taxable income and the borrower has been taxed at ordinary income rates on the forgiven amount, even though there is no cash.
The newly-enacted relief for mortgage debt forgiveness is Congress's response to the problems generated by the subprime crisis, short sales, rising foreclosure rates and price corrections in some markets. Thus, when a lender forgives some portion of a borrower's mortgage debt in a short sale, a foreclosure, a workout with the lender or some similar circumstance, the borrower will not be required to recognize income or pay tax on the forgiven amount (in most Cases). This relief applies to debts forgiven between January 1, 2007 and December 31, 2009.
Source: Copyright NATIONAL ASSOCIATION OF REALTORS®
Monday, February 11, 2008
Tips: Facing Foreclosure? Here Are Your Options
FACING FORECLOSURE? Here are your options...
(This may be helpful to you, to your family or a friend)
We have shown homeowners how to not only stop foreclosure...
but how to save hundreds or even thousands of dollars by avoiding the mistakes that others have made.
Know your options so that you can make the right decisions!
Whether you have been facing financial difficulties for some time, or you are just in a recent slump because of job loss, injury or other set back, you must educate yourself. Facing foreclosure is an emotionally-charged event. Most owners in situations like yours have intense feelings of fear and anxiety. These confusing thoughts can lead you to emotional, instead of logical, actions and decisions. Making emotional decisions is NEVER a good idea when it comes to your home and your money.
Homeowners who focus solely on saving their home without considering their entire financial picture often end up in even deeper trouble because they fail to look at the short and long term affects of their emotionally charged decisions.
This is likely the first time you have ever faced foreclosure. Well, it’s not our first time and if you let us help you, then together we can help you make logical decisions that will not only stop your current foreclosure, but will also set you up for future financial success.
The Most Common Foreclosure Options
Following are the most common options for people facing foreclosure. Depending on your situation, all of these options may, or may not, be available to you. Everyone’s individual situation is different. Call us and we can discuss your options.
1. Reinstate The Loan
2. Forbearance
3. Loan Modification/Renegotiation
4. Mortgage Refinancing
5. Short Sale with Lender Acceptance
6. Sale of the Property To an Investor
7. Deed-in-Lieu of Foreclosure
8. Bankruptcy Filing
9. Nothing
REINSTATE THE LOAN – The most obvious option is to pay the loan current. If foreclosure proceedings have already been filed then the amount needed to get the loan current will not only include back payments, but also late charges and possibly attorney fees. This is the quickest and the most efficient way of ending a foreclosure action.
FORBEARANCE – The lender stops or postpones legal action. Usually granted when you make satisfactory arrangements to bring the overdue mortgage payments current.
LOAN MODIFICATION /RENEGOTIATION – A loan modification seeks to avoid foreclosure by negotiating with the lender to modify the terms of the loan. Loan modifications may include adjusting the interest rate, extending the loan period, or adding the delinquent portion and fees back onto the principal of the loan to be repaid over time.
MORTGAGE REFINANCING – In most cases, once foreclosure has started, you have been through several months of late payments or no payments. These late payments have a devastating effect on your credit rating. In addition, the new mortgage company will easily find out about the current foreclosure action. This most often leads to a denial of the refinance loan application.
* If you are approved you can bet it will be at a VERY high interest rate with higher than normal closing costs etc. This option is normally only for those with excellent credit histories and who have only suffered a temporary setback. If you are seriously considering this option then call us. We have connections with the companies that are most likely to be able to help you. Remember that time is of the essence so don’t waste a lot of valuable time on this option. You could lose your home while waiting on loan approval.
SHORT SALE WITH LENDER APPROVAL - A Short Sale is when your lender will accept a price for your home that is less than what you owe on it. Most people will qualify for a short sale if there has been some kind of financial hardship such as: Job Loss or Loss of Income, Divorce, Medical Issues, Death in the Family, or even an Adjustment in Interest Rate (known as “Payment Shock“). Short Sales have many time sensitive deadlines and you want to give yourself the utmost advantage at this stage by contacting us as soon as possible. In Most cases, the foreclosure timeline starts the day you miss your first payment, or make a partial payment. From this point you only have 90-120 days to take major action to sell your home and prove to your lender that you are suffering a hardship. I will help you prepare a financial package to submit to your lender proving your financial hardship. Once an offer has been submitted, the acceptance of it relies on the lenders discretion. In most cases if a reasonable offer has been submitted, then it is in the lenders best interest to approve the short sale.
Always contact yoiur Lender first and as soon as you think there might be a problem. You will need to check with your attorney and accountant to make sure that this is the right choice for you. Your Realtor cannot decide what choice you need to make.
SALE OF THE PROPERTY TO AN INVESTOR– If you have been unable to work with your lender, or find another suitable solution in a TIMELY MANNER, it is time to seriously consider selling to an investor. When time is of the essence and you want to avoid foreclosure you should consider selling your property to an investor who offers “a quick closing.” Typically, this will be for less than fair market value, but can be a benefit to you because it is a quick “as is” sale with no real estate commissions. By Law, a Realtor cannot represent an investor on a short sale purchase. “As is” means you would not have to spend any money doing repairs, or spend time putting the house in perfect condition. By selling your house “as is” to an investor, you get a quick sale - allowing you to instantly stop the foreclosure and salvage your credit.
DEED IN LIEU OF FORECLOSURE – is when you voluntary deed title to your property to the lender. You basically give the house back to the bank. The ordinary effect of the taking of a Deed in Lieu is to extinguish the lender's deed of trust and vest the lender with title subject to all other existing liens and encumbrances. In effect, the lender becomes the new owner. The lender is not required to accept the Deed in Lieu and can show his/her refusal by filing a Notice of Non Acceptance with the County Recorder.
BANKRUPTCY – Some homeowners act on their lawyer's advice and file bankruptcy thinking that all their problems are now solved. Bankruptcy does put a hold on everything, yes, but all it buys you is a little time. Sometimes the end result is the property going to auction anyway, and you now have a bankruptcy in addition to the foreclosure on your credit report. Everything depends on where you are at in the foreclosure timeline, and how willing your lender is to work with you.
NOTHING – You may find it odd that Nothing is listed as an option, however one of the most common options taken by homeowners is NOTHING. Don’t fall into the trap of thinking that everything will magically work itself out, because it will not.
You are likely confused by your options and fearful of making a bad decision, but by doing nothing you are making a decision. I would love to tell you that stopping a foreclosure is a simple process and that it requires no special skill or knowledge, but this simply is not the case.
I trust that the overview of foreclosure options will help you start down the path of informed decision making to protect yourself, your family, your home and your bank account! If you would like to discuss any of these options, call me, and I’ll gladly answer your questions.
Time Is Your Enemy!
If your house payments are more than a month or two behind, your lender has probably already started foreclosure proceedings. As time passes thousands of dollars in penalties and legal fees can be added to the balance you owe. And every single day extra interest is added!
(This may be helpful to you, to your family or a friend)
We have shown homeowners how to not only stop foreclosure...
but how to save hundreds or even thousands of dollars by avoiding the mistakes that others have made.
Know your options so that you can make the right decisions!
Whether you have been facing financial difficulties for some time, or you are just in a recent slump because of job loss, injury or other set back, you must educate yourself. Facing foreclosure is an emotionally-charged event. Most owners in situations like yours have intense feelings of fear and anxiety. These confusing thoughts can lead you to emotional, instead of logical, actions and decisions. Making emotional decisions is NEVER a good idea when it comes to your home and your money.
Homeowners who focus solely on saving their home without considering their entire financial picture often end up in even deeper trouble because they fail to look at the short and long term affects of their emotionally charged decisions.
This is likely the first time you have ever faced foreclosure. Well, it’s not our first time and if you let us help you, then together we can help you make logical decisions that will not only stop your current foreclosure, but will also set you up for future financial success.
The Most Common Foreclosure Options
Following are the most common options for people facing foreclosure. Depending on your situation, all of these options may, or may not, be available to you. Everyone’s individual situation is different. Call us and we can discuss your options.
1. Reinstate The Loan
2. Forbearance
3. Loan Modification/Renegotiation
4. Mortgage Refinancing
5. Short Sale with Lender Acceptance
6. Sale of the Property To an Investor
7. Deed-in-Lieu of Foreclosure
8. Bankruptcy Filing
9. Nothing
REINSTATE THE LOAN – The most obvious option is to pay the loan current. If foreclosure proceedings have already been filed then the amount needed to get the loan current will not only include back payments, but also late charges and possibly attorney fees. This is the quickest and the most efficient way of ending a foreclosure action.
FORBEARANCE – The lender stops or postpones legal action. Usually granted when you make satisfactory arrangements to bring the overdue mortgage payments current.
LOAN MODIFICATION /RENEGOTIATION – A loan modification seeks to avoid foreclosure by negotiating with the lender to modify the terms of the loan. Loan modifications may include adjusting the interest rate, extending the loan period, or adding the delinquent portion and fees back onto the principal of the loan to be repaid over time.
MORTGAGE REFINANCING – In most cases, once foreclosure has started, you have been through several months of late payments or no payments. These late payments have a devastating effect on your credit rating. In addition, the new mortgage company will easily find out about the current foreclosure action. This most often leads to a denial of the refinance loan application.
* If you are approved you can bet it will be at a VERY high interest rate with higher than normal closing costs etc. This option is normally only for those with excellent credit histories and who have only suffered a temporary setback. If you are seriously considering this option then call us. We have connections with the companies that are most likely to be able to help you. Remember that time is of the essence so don’t waste a lot of valuable time on this option. You could lose your home while waiting on loan approval.
SHORT SALE WITH LENDER APPROVAL - A Short Sale is when your lender will accept a price for your home that is less than what you owe on it. Most people will qualify for a short sale if there has been some kind of financial hardship such as: Job Loss or Loss of Income, Divorce, Medical Issues, Death in the Family, or even an Adjustment in Interest Rate (known as “Payment Shock“). Short Sales have many time sensitive deadlines and you want to give yourself the utmost advantage at this stage by contacting us as soon as possible. In Most cases, the foreclosure timeline starts the day you miss your first payment, or make a partial payment. From this point you only have 90-120 days to take major action to sell your home and prove to your lender that you are suffering a hardship. I will help you prepare a financial package to submit to your lender proving your financial hardship. Once an offer has been submitted, the acceptance of it relies on the lenders discretion. In most cases if a reasonable offer has been submitted, then it is in the lenders best interest to approve the short sale.
Always contact yoiur Lender first and as soon as you think there might be a problem. You will need to check with your attorney and accountant to make sure that this is the right choice for you. Your Realtor cannot decide what choice you need to make.
SALE OF THE PROPERTY TO AN INVESTOR– If you have been unable to work with your lender, or find another suitable solution in a TIMELY MANNER, it is time to seriously consider selling to an investor. When time is of the essence and you want to avoid foreclosure you should consider selling your property to an investor who offers “a quick closing.” Typically, this will be for less than fair market value, but can be a benefit to you because it is a quick “as is” sale with no real estate commissions. By Law, a Realtor cannot represent an investor on a short sale purchase. “As is” means you would not have to spend any money doing repairs, or spend time putting the house in perfect condition. By selling your house “as is” to an investor, you get a quick sale - allowing you to instantly stop the foreclosure and salvage your credit.
DEED IN LIEU OF FORECLOSURE – is when you voluntary deed title to your property to the lender. You basically give the house back to the bank. The ordinary effect of the taking of a Deed in Lieu is to extinguish the lender's deed of trust and vest the lender with title subject to all other existing liens and encumbrances. In effect, the lender becomes the new owner. The lender is not required to accept the Deed in Lieu and can show his/her refusal by filing a Notice of Non Acceptance with the County Recorder.
BANKRUPTCY – Some homeowners act on their lawyer's advice and file bankruptcy thinking that all their problems are now solved. Bankruptcy does put a hold on everything, yes, but all it buys you is a little time. Sometimes the end result is the property going to auction anyway, and you now have a bankruptcy in addition to the foreclosure on your credit report. Everything depends on where you are at in the foreclosure timeline, and how willing your lender is to work with you.
NOTHING – You may find it odd that Nothing is listed as an option, however one of the most common options taken by homeowners is NOTHING. Don’t fall into the trap of thinking that everything will magically work itself out, because it will not.
You are likely confused by your options and fearful of making a bad decision, but by doing nothing you are making a decision. I would love to tell you that stopping a foreclosure is a simple process and that it requires no special skill or knowledge, but this simply is not the case.
I trust that the overview of foreclosure options will help you start down the path of informed decision making to protect yourself, your family, your home and your bank account! If you would like to discuss any of these options, call me, and I’ll gladly answer your questions.
Time Is Your Enemy!
If your house payments are more than a month or two behind, your lender has probably already started foreclosure proceedings. As time passes thousands of dollars in penalties and legal fees can be added to the balance you owe. And every single day extra interest is added!
Saturday, February 9, 2008
Tips: How to Prevent Foreclosure
How to prevent foreclosure
Contacting lender before missing payments offers advantage
Wednesday, January 09, 2008
By Ilyce R. GlinkInman News
I received a call to my radio show just before the end of the year from a woman who had just received a letter from the bank that it was starting foreclosure proceedings.
Let's just say that it wasn't the year-end gift she was hoping for.
She told me how she had lost her job and used up all her savings to keep making her mortgage, home equity line of credit, and credit-card payments each month. After awhile, it was too much to manage, even after she got a new job.
What she wanted to know was where she could go to get help that would stop the foreclosure proceedings.
By the time you get a court date, it's a little late to unwind the clock. Instead, if you want to stop the bank from foreclosing on your house, the time to get help is before you've missed a single payment.
Most people know how to account for every dollar that comes in. It may not be your favorite task each month, but if money is tight and you're trying to make ends meet, you know when the budget is about to snap.
When you have a list of debts and bills, you should sort them from most important to least important. While all of the bills should be paid, the one that goes at the top of the list is the one that will cause your family the most damage if it isn't paid on time.
If I were organizing a list, it would read: mortgage payment; home equity loan/line of credit payment; utility bills; car payment(s); credit-card debt(s); and other bills.
Once you know that you won't have enough cash to go around, it's tempting to skip the biggest bill, which is typically your mortgage payment. But in some states, foreclosure is fast-tracked, which means you could find yourself receiving a foreclosure notice from your lender in as little as 60 days.
So let's back up: Once you know there isn't enough money to go around, and you know you'll be missing a payment, you need to call your lender. If you've already missed a payment, and your lender has called you, you need to pick up the phone and return the call. Talking to your lender is the best way to stop foreclosure.
Many borrowers have complained that when they call their mortgage company, no one picks up the phone. Or, they get transferred from department to department.
The truth is, if you don't talk to the lender, and it doesn't get recorded in your file, it doesn't matter how often you tried to call. When it comes to foreclosure, "trying" doesn't count.
If you're having trouble reaching your lender, call a HUD-certified housing counselor, who may be able to reach out to your lender on your behalf. The toll-free number is (800) 569-4287, or go online to www.HUD.gov/foreclosure/index.cfm.
Once you miss a payment, your lender will start sending you letters. If you want to avoid foreclosure, open the letters. These are supposed to contain information on how you can save your home.
In order to help you save your home, lenders can make changes to the terms of your loan agreement. The best time to do this is either just before or just after you miss your first payment.
Lenders can: (1) reinstate your loan (you'll catch up with everything you owe by a certain date; (2) offer forbearance (give you a few months off from making payments, while developing a plan to get you current on your loan down the line; (3) set up a repayment plan (where you agree to pay a little each month for the next six months or a year until you're caught up); or (4) modify your loan (this will change the terms so that the payments are more affordable).
All of the talk you're hearing about the government-sponsored solution to the mortgage crisis deals with loan modifications. The federal government is pushing investors who bought your loan to agree to modify the terms for the next few years. When a lender agrees to modify your loan, it could mean that the missed payments will be added to the loan amount, or that the interest rate will be changed from a variable rate to a fixed, or perhaps it will be lowered to a different interest rate. A final loan modification option is to adjust the amortization schedule, so that you have a longer loan term, but your payments each month are smaller.
For some borrowers, there's one other way to save your home: It's called a partial claim. A partial claim may be available only on certain loans and in limited circumstances. If you and your loan are eligible, you can set up an additional loan that will help you make up your missing payments.
This limited program is available to people who are several months behind in their home loan payments, and it allows them to become current on the loan. But the borrowers' circumstances must be such that they have overcome the reasons why they couldn't make their payments and can make the future payments on their loan. For more information, you can contact your current lender or get more information from HUD at http://www.hud.gov/offices/hsg/sfh/nsc/faqpc.cfm.
But don't delay in contacting your lender. The longer you wait, the tougher it will be to stop the lender from foreclosing on your property.
Contacting lender before missing payments offers advantage
Wednesday, January 09, 2008
By Ilyce R. GlinkInman News
I received a call to my radio show just before the end of the year from a woman who had just received a letter from the bank that it was starting foreclosure proceedings.
Let's just say that it wasn't the year-end gift she was hoping for.
She told me how she had lost her job and used up all her savings to keep making her mortgage, home equity line of credit, and credit-card payments each month. After awhile, it was too much to manage, even after she got a new job.
What she wanted to know was where she could go to get help that would stop the foreclosure proceedings.
By the time you get a court date, it's a little late to unwind the clock. Instead, if you want to stop the bank from foreclosing on your house, the time to get help is before you've missed a single payment.
Most people know how to account for every dollar that comes in. It may not be your favorite task each month, but if money is tight and you're trying to make ends meet, you know when the budget is about to snap.
When you have a list of debts and bills, you should sort them from most important to least important. While all of the bills should be paid, the one that goes at the top of the list is the one that will cause your family the most damage if it isn't paid on time.
If I were organizing a list, it would read: mortgage payment; home equity loan/line of credit payment; utility bills; car payment(s); credit-card debt(s); and other bills.
Once you know that you won't have enough cash to go around, it's tempting to skip the biggest bill, which is typically your mortgage payment. But in some states, foreclosure is fast-tracked, which means you could find yourself receiving a foreclosure notice from your lender in as little as 60 days.
So let's back up: Once you know there isn't enough money to go around, and you know you'll be missing a payment, you need to call your lender. If you've already missed a payment, and your lender has called you, you need to pick up the phone and return the call. Talking to your lender is the best way to stop foreclosure.
Many borrowers have complained that when they call their mortgage company, no one picks up the phone. Or, they get transferred from department to department.
The truth is, if you don't talk to the lender, and it doesn't get recorded in your file, it doesn't matter how often you tried to call. When it comes to foreclosure, "trying" doesn't count.
If you're having trouble reaching your lender, call a HUD-certified housing counselor, who may be able to reach out to your lender on your behalf. The toll-free number is (800) 569-4287, or go online to www.HUD.gov/foreclosure/index.cfm.
Once you miss a payment, your lender will start sending you letters. If you want to avoid foreclosure, open the letters. These are supposed to contain information on how you can save your home.
In order to help you save your home, lenders can make changes to the terms of your loan agreement. The best time to do this is either just before or just after you miss your first payment.
Lenders can: (1) reinstate your loan (you'll catch up with everything you owe by a certain date; (2) offer forbearance (give you a few months off from making payments, while developing a plan to get you current on your loan down the line; (3) set up a repayment plan (where you agree to pay a little each month for the next six months or a year until you're caught up); or (4) modify your loan (this will change the terms so that the payments are more affordable).
All of the talk you're hearing about the government-sponsored solution to the mortgage crisis deals with loan modifications. The federal government is pushing investors who bought your loan to agree to modify the terms for the next few years. When a lender agrees to modify your loan, it could mean that the missed payments will be added to the loan amount, or that the interest rate will be changed from a variable rate to a fixed, or perhaps it will be lowered to a different interest rate. A final loan modification option is to adjust the amortization schedule, so that you have a longer loan term, but your payments each month are smaller.
For some borrowers, there's one other way to save your home: It's called a partial claim. A partial claim may be available only on certain loans and in limited circumstances. If you and your loan are eligible, you can set up an additional loan that will help you make up your missing payments.
This limited program is available to people who are several months behind in their home loan payments, and it allows them to become current on the loan. But the borrowers' circumstances must be such that they have overcome the reasons why they couldn't make their payments and can make the future payments on their loan. For more information, you can contact your current lender or get more information from HUD at http://www.hud.gov/offices/hsg/sfh/nsc/faqpc.cfm.
But don't delay in contacting your lender. The longer you wait, the tougher it will be to stop the lender from foreclosing on your property.
Wednesday, February 6, 2008
Part 2: Tax Help For Homeowners
Distressed borrowers get more aid when insolvent
Part 2: Tax help for homeowners
Wednesday, February 06, 2008
By Ilyce R. GlinkInman News
(This is Part 2 of a two-part series. Read Part 1, "Do I qualify for mortgage debt relief?")
The news isn't good as we start the year: It isn't just the big financial companies that are suffering from their debt colds.
More than 2 million homeowners are in trouble with their debt payments. And a new study shows that more than half of homeowners who become delinquent on their loan payments ultimately go into foreclosure.
The new Mortgage Forgiveness Debt Relief Act of 2007, signed into law at the tail end of December, is supposed to provide some relief to those who sell their homes short -- that is, sell for less than the mortgage amount. It is valid only for 2007, 2008 and 2009, according to Eric Smith, a spokesperson for the IRS.
Prior to the new law being signed, if your lender agreed to a short sale, the IRS considered the difference between what you sold for and what you owed taxable income.
So, just as you were starting to move on with your life, having lost just about everything, the following April 15 you'd have owed the IRS income tax on what amounted to phantom income.
While the new law helps with this not-so-small point, it doesn't apply to everyone, including those homeowners who are facing foreclosure on a second home, vacation home, timeshare, fractionally owned property, or those who took out second mortgages to pay for anything other than the purchase of the property or an improvement to the property, such as a new car or college tuition, according to Bob D. Scharin, RIA senior tax analyst from Thomson Tax & Accounting.
The Mortgage Forgiveness Debt Relief Act applies only to debt used to purchase or improve a primary residence, Scharin explained.
There is another provision in the IRS code that has perhaps wider application for today's real estate marketplace: insolvency.
According to Chet Burgess, an enrolled agent who owns Brookwood Tax Service in Atlanta, "the law provides if the taxpayer is insolvent to the extent of the amount of debt, a short sale would not be taxable income."
Insolvency could help someone facing foreclosure, Burgess said, whereas the new Mortgage Forgiveness Debt Relief Act would not.
To figure out whether you're insolvent (for IRS purposes) Burgess suggests using form 433F, which is the "Collection Information Statement." (Download IRS forms for free at www.IRS.gov.) One side of the form lists all of the assets and debts. The other side lists monthly income and expenses. You can fill out the form online and then print it, or print first and work on it by hand.
At the top, you'll be asked for your bank information and lines of credit. This includes any savings accounts, IRAs, 401(k)s, Keoghs, SEP-IRAs, lines of credit, mutual funds and stock brokerage accounts. For each of these accounts, you'll list the institution, the type of account, and the balance owed or value.
Next, you'll list your real estate, including house, second home, investment property, timeshare, or other real estate. Box C asks you to list any other assets, including cars, boats, recreational vehicles, and whole life policies.
On the next page, in Box D, you'll list your credit cards and any debt you carry on them. (Although the IRS doesn't ask for it, it's a good idea to list the interest rate you're paying on these cards.)
Although you don't need it for the insolvency calculation, the rest of the page (Boxes E, F and G) ask you to put down how much you earn and how much it costs you to live (for your necessary expenses, not including high-definition cable).
Add up all of your assets and then all of your debts. If your debts exceed your assets, you are insolvent by that amount. In other words, you've calculated your net worth, and come up with a negative number.
Although retirement assets can't be tapped in bankruptcy, they count when the IRS is considering whether you're insolvent, Burgess explains.
"Even in collection cases, where you're dealing with the IRS, if a taxpayer has a large sum in his or her 401(k), which the IRS cannot reach, by law, it is still included. The IRS revenue officer will suggest that the taxpayer borrow against their 401(k) or withdraw from an IRA, to pay that debt," he explains. "But if a homeowner were in foreclosure and a bank were looking for assets, the bank would have no power to reach a 401(k) or an IRA in most states."
If you're facing foreclosure, you may want call your tax preparer or attorney for help.
Mortgage Insurance Premium deduction
There were a few other last-minute changes to the tax code. The Mortgage Insurance Premium deduction, which was set to expire at the end of 2007, was extended.
The measure allows private mortgage insurance (PMI) payments to be treated the same as interest for the purposes of itemizing on your federal income tax return.
The key thing here is "acquisition indebtedness." In other words, if you get a loan to buy your property, and you earn less than $100,000, and you itemize, you can deduct your PMI payment. But if you do a cash-out refinance and use the cash to pay off credit-card debt, you can write off only the portion of the PMI payment that represents the amount you spent to buy the house.
For the definitions of home acquisition debt and qualified home, check out IRS Publication 936, "Home Mortgage Interest Deduction."
Part 2: Tax help for homeowners
Wednesday, February 06, 2008
By Ilyce R. GlinkInman News
(This is Part 2 of a two-part series. Read Part 1, "Do I qualify for mortgage debt relief?")
The news isn't good as we start the year: It isn't just the big financial companies that are suffering from their debt colds.
More than 2 million homeowners are in trouble with their debt payments. And a new study shows that more than half of homeowners who become delinquent on their loan payments ultimately go into foreclosure.
The new Mortgage Forgiveness Debt Relief Act of 2007, signed into law at the tail end of December, is supposed to provide some relief to those who sell their homes short -- that is, sell for less than the mortgage amount. It is valid only for 2007, 2008 and 2009, according to Eric Smith, a spokesperson for the IRS.
Prior to the new law being signed, if your lender agreed to a short sale, the IRS considered the difference between what you sold for and what you owed taxable income.
So, just as you were starting to move on with your life, having lost just about everything, the following April 15 you'd have owed the IRS income tax on what amounted to phantom income.
While the new law helps with this not-so-small point, it doesn't apply to everyone, including those homeowners who are facing foreclosure on a second home, vacation home, timeshare, fractionally owned property, or those who took out second mortgages to pay for anything other than the purchase of the property or an improvement to the property, such as a new car or college tuition, according to Bob D. Scharin, RIA senior tax analyst from Thomson Tax & Accounting.
The Mortgage Forgiveness Debt Relief Act applies only to debt used to purchase or improve a primary residence, Scharin explained.
There is another provision in the IRS code that has perhaps wider application for today's real estate marketplace: insolvency.
According to Chet Burgess, an enrolled agent who owns Brookwood Tax Service in Atlanta, "the law provides if the taxpayer is insolvent to the extent of the amount of debt, a short sale would not be taxable income."
Insolvency could help someone facing foreclosure, Burgess said, whereas the new Mortgage Forgiveness Debt Relief Act would not.
To figure out whether you're insolvent (for IRS purposes) Burgess suggests using form 433F, which is the "Collection Information Statement." (Download IRS forms for free at www.IRS.gov.) One side of the form lists all of the assets and debts. The other side lists monthly income and expenses. You can fill out the form online and then print it, or print first and work on it by hand.
At the top, you'll be asked for your bank information and lines of credit. This includes any savings accounts, IRAs, 401(k)s, Keoghs, SEP-IRAs, lines of credit, mutual funds and stock brokerage accounts. For each of these accounts, you'll list the institution, the type of account, and the balance owed or value.
Next, you'll list your real estate, including house, second home, investment property, timeshare, or other real estate. Box C asks you to list any other assets, including cars, boats, recreational vehicles, and whole life policies.
On the next page, in Box D, you'll list your credit cards and any debt you carry on them. (Although the IRS doesn't ask for it, it's a good idea to list the interest rate you're paying on these cards.)
Although you don't need it for the insolvency calculation, the rest of the page (Boxes E, F and G) ask you to put down how much you earn and how much it costs you to live (for your necessary expenses, not including high-definition cable).
Add up all of your assets and then all of your debts. If your debts exceed your assets, you are insolvent by that amount. In other words, you've calculated your net worth, and come up with a negative number.
Although retirement assets can't be tapped in bankruptcy, they count when the IRS is considering whether you're insolvent, Burgess explains.
"Even in collection cases, where you're dealing with the IRS, if a taxpayer has a large sum in his or her 401(k), which the IRS cannot reach, by law, it is still included. The IRS revenue officer will suggest that the taxpayer borrow against their 401(k) or withdraw from an IRA, to pay that debt," he explains. "But if a homeowner were in foreclosure and a bank were looking for assets, the bank would have no power to reach a 401(k) or an IRA in most states."
If you're facing foreclosure, you may want call your tax preparer or attorney for help.
Mortgage Insurance Premium deduction
There were a few other last-minute changes to the tax code. The Mortgage Insurance Premium deduction, which was set to expire at the end of 2007, was extended.
The measure allows private mortgage insurance (PMI) payments to be treated the same as interest for the purposes of itemizing on your federal income tax return.
The key thing here is "acquisition indebtedness." In other words, if you get a loan to buy your property, and you earn less than $100,000, and you itemize, you can deduct your PMI payment. But if you do a cash-out refinance and use the cash to pay off credit-card debt, you can write off only the portion of the PMI payment that represents the amount you spent to buy the house.
For the definitions of home acquisition debt and qualified home, check out IRS Publication 936, "Home Mortgage Interest Deduction."
Part 1: Tax Help For Homeowners
Do I qualify for mortgage debt relief?
Part 1: Tax help for homeowners
Thursday, January 31, 2008
By Ilyce R. GlinkInman News
It's January, which means it's time to start thinking about filing your taxes. But you may need extra tax help this year, thanks to an active December on Capitol Hill.
In late December, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which provides tax help for homeowners facing foreclosure or who sell their homes in a short sale.
Previously, if the value of your home declined and your bank or lender forgave a portion of your mortgage debt, the tax code treated the amount forgiven as income that could be taxed, according to Eric L. Smith, a spokesman for the IRS.
In other words, if your lender forgave $20,000 in mortgage debt because your house was worth $20,000 less than your mortgage balance, the IRS treated this debt forgiveness the same as income that you earned from your job -- and required you to add $20,000 in phantom income to the amount of your annual income and pay tax on it at your marginal tax rate.
Instead of getting tax help at a time of great need, you were getting a kick in the pants the following April 15.
Under the new rule, taxpayers can exclude up to $2 million of mortgage debt forgiven in 2007, 2008 or 2009 on their principal residence. (The limit is $1 million for a married person filing a separate return.) According to Smith, mortgage debt reduced through restructuring, as well as mortgage debt forgiven in connection with a foreclosure, both qualify for the tax exclusion.
It's worth noting that the Mortgage Forgiveness Debt Relief Act of 2007 applies only to principal residences, not second homes or investment property, says Chet Burgess, an enrolled agent who owns Brookwood Tax Services, in Atlanta. The rules from IRS Section 121 define what a qualified principal residence is, but at a baseline, you must live there the majority of the year.
The IRS doesn't make it easy. You may need some additional tax help to be sure you're filling out the forms correctly."The taxpayer will have to do some calculations on the side, off the tax return, in order to show the IRS how much has been forgiven," Burgess explains.
When a lender forgives mortgage debt, the lender sends the taxpayer Form 1099C or 1099A. The form should state the fair market value of the home. In the case of a short sale, Burgess says, that would be the sales price. In the case of a home that's been foreclosed upon, the lender may just put the value of the loan in the field where the fair market value of the home should be listed. Or the 1099C or 1099A form might not include a fair market value at all.
That's a problem because that number is key to the off-the-return calculations you must complete and submit to the IRS."Let's say someone buys a car for $10,000 and has a loan for the full amount. And let's say on the day the car is repossessed it is worth $8,000. The lender might put $10,000 as the loan forgiveness amount, even though the car is actually worth $8,000. The amount of the loan forgiveness is just $2,000, not $10,000," Burgess notes.
That's why you need to know the fair market value of the property, and be able to document that for the IRS. In some cases, Burgess has advised clients to hire an appraiser to document the fair market value.
Here's another important point: While the Mortgage Forgiveness Debt Relief Act of 2007 will allow loan forgiveness of up to $2 million on a primary residence, it's applicable only to acquisition indebtedness, Burgess says."The amount of money it takes to buy your existing home, build a new home, or the equity you cash out to make a substantial improvement to your home counts as acquisition indebtedness. But if someone took out $100,000 in home equity to buy a Hummer or send their kids to college, that doesn't count," he adds.
For example, let's say 10 years ago you paid $100,000 for your house and got a 100 percent loan. Five years ago, the value of your home had doubled to $200,000. So you did a cash-out refinance for $150,000, and pocketed around $50,000. If you used that money to pay college tuition or buy a fancy fur coat, and then later sold your home for just $100,000, the $50,000 that your lender forgave would still be taxable. Why? It's because you didn't use the money to buy, build or renovate your home.
How would the IRS know how you spent your cash? Burgess says you're required to submit your tax calculations along with the 1099C or 1099A with your return. If you get audited, the IRS will want to see your original warranty deed or perhaps your original HUD-1 form (that lists where all of the cash goes in a transaction). If you used home-equity money to renovate or improve the property, you'll need to provide copies of cancelled checks, original receipts and invoices and other supporting documents.
For those homeowners who are facing foreclosure or a short sale this year, Burgess said the IRS had not, as of Jan. 15, come up with a way to report all of this on your federal income tax form.His best advice: Use electronic tax preparation software this year. The private tax software companies have poured tremendous resources into getting their forms updated electronically.
Once you complete the tax software, print your completed tax forms and then attach your calculations and paperwork to your return."You're supposed to be able to attach a PDF form with your statement to the e-file return, but I've heard from other tax preparers that it doesn't always work. In a case like this, I'd print the return to make sure that a human being is actually looking at each page to make sure everything is included," Burgess advises.
The IRS pre-printed forms were printed last October, and do not reflect the new tax law changes. "In fact, some of the forms have not yet been approved for filing," he says, noting that anyone subject to the alternative minimum tax (AMT) did not have the correct forms approved as of mid-January.
Next: What happens if you don't qualify for the Mortgage Forgiveness Debt Relief Act of 2007? There are some other options that may be available to you. We'll look at those and go over other new home-related tax-law changes that may affect your return this year.
Part 1: Tax help for homeowners
Thursday, January 31, 2008
By Ilyce R. GlinkInman News
It's January, which means it's time to start thinking about filing your taxes. But you may need extra tax help this year, thanks to an active December on Capitol Hill.
In late December, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which provides tax help for homeowners facing foreclosure or who sell their homes in a short sale.
Previously, if the value of your home declined and your bank or lender forgave a portion of your mortgage debt, the tax code treated the amount forgiven as income that could be taxed, according to Eric L. Smith, a spokesman for the IRS.
In other words, if your lender forgave $20,000 in mortgage debt because your house was worth $20,000 less than your mortgage balance, the IRS treated this debt forgiveness the same as income that you earned from your job -- and required you to add $20,000 in phantom income to the amount of your annual income and pay tax on it at your marginal tax rate.
Instead of getting tax help at a time of great need, you were getting a kick in the pants the following April 15.
Under the new rule, taxpayers can exclude up to $2 million of mortgage debt forgiven in 2007, 2008 or 2009 on their principal residence. (The limit is $1 million for a married person filing a separate return.) According to Smith, mortgage debt reduced through restructuring, as well as mortgage debt forgiven in connection with a foreclosure, both qualify for the tax exclusion.
It's worth noting that the Mortgage Forgiveness Debt Relief Act of 2007 applies only to principal residences, not second homes or investment property, says Chet Burgess, an enrolled agent who owns Brookwood Tax Services, in Atlanta. The rules from IRS Section 121 define what a qualified principal residence is, but at a baseline, you must live there the majority of the year.
The IRS doesn't make it easy. You may need some additional tax help to be sure you're filling out the forms correctly."The taxpayer will have to do some calculations on the side, off the tax return, in order to show the IRS how much has been forgiven," Burgess explains.
When a lender forgives mortgage debt, the lender sends the taxpayer Form 1099C or 1099A. The form should state the fair market value of the home. In the case of a short sale, Burgess says, that would be the sales price. In the case of a home that's been foreclosed upon, the lender may just put the value of the loan in the field where the fair market value of the home should be listed. Or the 1099C or 1099A form might not include a fair market value at all.
That's a problem because that number is key to the off-the-return calculations you must complete and submit to the IRS."Let's say someone buys a car for $10,000 and has a loan for the full amount. And let's say on the day the car is repossessed it is worth $8,000. The lender might put $10,000 as the loan forgiveness amount, even though the car is actually worth $8,000. The amount of the loan forgiveness is just $2,000, not $10,000," Burgess notes.
That's why you need to know the fair market value of the property, and be able to document that for the IRS. In some cases, Burgess has advised clients to hire an appraiser to document the fair market value.
Here's another important point: While the Mortgage Forgiveness Debt Relief Act of 2007 will allow loan forgiveness of up to $2 million on a primary residence, it's applicable only to acquisition indebtedness, Burgess says."The amount of money it takes to buy your existing home, build a new home, or the equity you cash out to make a substantial improvement to your home counts as acquisition indebtedness. But if someone took out $100,000 in home equity to buy a Hummer or send their kids to college, that doesn't count," he adds.
For example, let's say 10 years ago you paid $100,000 for your house and got a 100 percent loan. Five years ago, the value of your home had doubled to $200,000. So you did a cash-out refinance for $150,000, and pocketed around $50,000. If you used that money to pay college tuition or buy a fancy fur coat, and then later sold your home for just $100,000, the $50,000 that your lender forgave would still be taxable. Why? It's because you didn't use the money to buy, build or renovate your home.
How would the IRS know how you spent your cash? Burgess says you're required to submit your tax calculations along with the 1099C or 1099A with your return. If you get audited, the IRS will want to see your original warranty deed or perhaps your original HUD-1 form (that lists where all of the cash goes in a transaction). If you used home-equity money to renovate or improve the property, you'll need to provide copies of cancelled checks, original receipts and invoices and other supporting documents.
For those homeowners who are facing foreclosure or a short sale this year, Burgess said the IRS had not, as of Jan. 15, come up with a way to report all of this on your federal income tax form.His best advice: Use electronic tax preparation software this year. The private tax software companies have poured tremendous resources into getting their forms updated electronically.
Once you complete the tax software, print your completed tax forms and then attach your calculations and paperwork to your return."You're supposed to be able to attach a PDF form with your statement to the e-file return, but I've heard from other tax preparers that it doesn't always work. In a case like this, I'd print the return to make sure that a human being is actually looking at each page to make sure everything is included," Burgess advises.
The IRS pre-printed forms were printed last October, and do not reflect the new tax law changes. "In fact, some of the forms have not yet been approved for filing," he says, noting that anyone subject to the alternative minimum tax (AMT) did not have the correct forms approved as of mid-January.
Next: What happens if you don't qualify for the Mortgage Forgiveness Debt Relief Act of 2007? There are some other options that may be available to you. We'll look at those and go over other new home-related tax-law changes that may affect your return this year.
Tax Info: IRS Provides Tax Info On Foreclosure
“Did You Know?”
IRS Provides Tax Information on Home Foreclosure
The Internal Revenue Service (“IRS”) has recently provided information to taxpayers about the possible tax consequences resulting from a home foreclosure. The general rule is that when a lender forgives a portion of a loan, the amount of debt cancelled constitutes taxable income for the taxpayer.
The IRS website highlights the exceptions to this rule, so taxpayers can consider their options before their property is foreclosed by the lender. The IRS also recommends that the taxpayer may want to consult with a tax professional, as devising a structure to limit the taxes resulting from a foreclosure is a complicated process.
Some of the exceptions are:
If the taxpayer’s property is foreclosed, the taxpayer will receive a Form 1099-C from the lender. The IRS urges taxpayers to review the Form 1099-C to make sure it is accurate. If the taxpayer is unable to pay the taxes arising from a foreclosure, the IRS describes the process for making an “Offer-in-Compromise” to the IRS, which may relieve the taxpayer of a portion of the debt and/or create a payment plan for the taxes.
To read the Q & A on the IRS website, visit: http://www.irs.gov/newsroom/article/0,,id=174034,00.html
IRS Provides Tax Information on Home Foreclosure
The Internal Revenue Service (“IRS”) has recently provided information to taxpayers about the possible tax consequences resulting from a home foreclosure. The general rule is that when a lender forgives a portion of a loan, the amount of debt cancelled constitutes taxable income for the taxpayer.
The IRS website highlights the exceptions to this rule, so taxpayers can consider their options before their property is foreclosed by the lender. The IRS also recommends that the taxpayer may want to consult with a tax professional, as devising a structure to limit the taxes resulting from a foreclosure is a complicated process.
Some of the exceptions are:
- Debt is discharged in bankruptcy
- An insolvent taxpayer (defined as a taxpayer whose debts exceed his/her assets) may not have to recognize all of the discharged debt on his/her tax return
- Cancellation of qualifying farm debts
- Cancellation of a nonrecourse loan
If the taxpayer’s property is foreclosed, the taxpayer will receive a Form 1099-C from the lender. The IRS urges taxpayers to review the Form 1099-C to make sure it is accurate. If the taxpayer is unable to pay the taxes arising from a foreclosure, the IRS describes the process for making an “Offer-in-Compromise” to the IRS, which may relieve the taxpayer of a portion of the debt and/or create a payment plan for the taxes.
To read the Q & A on the IRS website, visit: http://www.irs.gov/newsroom/article/0,,id=174034,00.html
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