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Bank of America Extends Modification Offers

More Than 200,000 Bank Customers May Qualify for Principal Reduction Under Government Agreement With Large Mortgage Servicers
CALABASAS, Calif., May 08, 2012 (BUSINESS WIRE) –Bank of America Home Loans has begun reaching out to customers who may be eligible for forgiveness of a portion of the principal balance on their mortgage under terms of a recent settlement among five major banks, 49 state attorneys general and the federal government.

The first letters in a targeted outreach to more than 200,000 potential candidates for this assistance are arriving in homes this week; most of the letters will be mailed by the third quarter of this year. The bank estimates average monthly savings of 30 percent on mortgage payments of customers who qualify for this program.

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“Building on home retention and payment assistance programs already in place, we are meeting our obligation to deliver this additional relief to our customers following the completion of the recent global mortgage settlement,” said Ron Sturzenegger, Legacy Asset Servicing executive. “To the extent principal reduction and other modification tools help us turn mortgages headed for possible foreclosure into long-term performing loans, it will be positive for homeowners, mortgage investors and communities.”

Bank of America actually began making principal reduction offers under the program guidelines in March, initially concentrating on homeowners who were already in the modification review process. So far under this early initiative, about 5,000 trial modification offers have been mailed, providing a potential total of more than $700 million in forgiven principal. Homeowners are required to make at least three timely payments before the modification can become permanent.

The wave of mailings beginning this week will reach a broader base of customers who may be eligible for this principal reduction program. The letters provide each homeowner with a description of the program and an invitation to provide financial information to begin the review process.

To be eligible for this program, a homeowner must meet certain criteria, including:

 

  • Owes more on the mortgage than the property is worth today.
  • Was at least 60 days behind on payments on January 31, 2012.
  • Has a contractual monthly payment for principal, interest, property taxes, hazard insurance and any applicable homeowner association fees totaling more than 25 percent of gross household income.
  • Has a loan that is owned and serviced by Bank of America, or serviced for another investor that has given the bank delegated authority to do such modifications.

 

Fannie Mae, Freddie Mac and FHA/VA are not participating in the principal reduction program, but other modification programs which may provide comparable reductions in monthly payments are available on those loans.

A key goal of mortgage modifications is to provide an affordable monthly payment, based on borrower’s ability to pay. Most modification plans begin with a reduction of the interest rate, then an extension of the number of years to pay off the mortgage, then if necessary, interest-free forbearance of principal to be paid back at the end of the loan. Bank of America has offered principal forgiveness, but in more limited, targeted situations to eligible borrowers with certain types of mortgages.

Under the terms of the government settlement, the bank will strive to provide an affordable payment to qualified under-water homeowners by first reducing the principal balance to as low as 100 percent of the current property value, then lowering the interest rate and forbearing additional principal, as necessary, to reach the target payment. The settlement terms require a final calculation to determine that the cost incurred by the mortgage investor to modify the loan does not exceed the expected loss to the investor if it goes to foreclosure instead, commonly known as positive net present value.

For further information on the settlement programs, Bank of America Home Loans customers may call 1.877.488.7814.

Bank of America

Bank of America is one of the world’s largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 57 million consumer and small business relationships with approximately 5,700 retail banking offices and approximately 17,250 ATMs and award-winning online banking with 30 million active users. Bank of America is among the world’s leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 4 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in more than 40 countries. Bank of America Corporation stock (NYSE:BAC) is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange.

SOURCE: Bank of America

Website Resources for Foreclosure Help

Here are some legitimate resources to help you fight the foreclosure crisis.

You’ve been warned about foreclosure scams. But sometimes it’s really hard to tell if something is a scam or not. Some less-than-reliable outfits have even taken to including “hud” or “gov” in their URLs to fool you into thinking they are legitimate foreclosure counselors. It pays to be wary. Below are some websites from government and non-profit agencies that can help you with foreclosure. Some are seeking volunteers and donations to help stop the foreclosure crisis.

HOPENOW.COM
Research your options with this web form (http://www.hopenow.com/homeowner-options.php)
Find your mortgage lender (http://www.hopenow.com/mortgage-directory.php)
Find a foreclosure counselor in your area (http://www.hopenow.com/hopenow-counseling.php)
Focused on helping homeowners in crisis, this alliance helps you determine your options

FTC.GOV
Find a foreclosure counselor (http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm)
Raise your own credit score (http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre03.shtm)
Fix mistakes on your credit report (http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm)
The Federal Trade Commission has expert advice

FINDAFORECLOSURECOUNSELOR.ORG
Find a legitimate foreclosure counselor near you (http://www.findaforeclosurecounselor.org/network/nfmc%5Flookup/)
This non-profit organization was created by Congress to provide financial support, technical assistance, and training for community-based revitalization efforts

MAKINGHOMEAFFORDABLE.GOV
Making Home Affordable (http://www.makinghomeaffordable.gov/)
Making Home Affordable: short sale documents (https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html)
Making Home Affordable: deed in lieu documents (https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html)
The official government site for loan modifications and foreclosure alternatives

PORTAL.HUD.GOV
Find resources to avoid foreclosure in your state (http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure/local)
Consult state and local resources

MYFICO.COM
Improve You Credit Score
(http://www.myfico.com/CreditEducation/ImproveYourScore.aspx) Credit Q&A (http://www.myfico.com/crediteducation/questions/)
Credit Basics ( http://www.myfico.com/crediteducation/articles/)

Understand credit and your credit scores

ANNUALCREDITREPORT.COM
See your credit report (https://www.annualcreditreport.com/cra/index.jsp)
Get all the details on late payments and other information, but not your actual credit score

RESPONSIBLELENDING.ORG
The Center for Responsible Lending (http://www.responsiblelending.org/)
A non-profit organization that works to stop predatory lending practices

CREDITEDUCATION.ORG
Volunteer to be a credit counselor (http://www.crediteducation.org/Become-a-Volunteer.aspx)
Non-profit agency that works to provide financial literacy

LIVEUNITED.ORG
United Way (http://www.liveunited.org/income/)
Donate or volunteer to decrease the number of families that are financially unstable

NCRC.ORG
Donate to the National Community Reinvestment Coalition (http://www.ncrc.org/index.php)
Send a donation to help NCRC “ensure that people in traditionally underserved communities are treated fairly and justly when applying for credit, opening a bank account, getting a mortgage, a loan, or other financial product or service.”

IRS.GOV
The Mortgage Forgiveness Debt Relief Act (http://www.irs.gov/individuals/article/0,,id=179414,00.html)
Get the details about when you might owe taxes on any debt that is canceled through a short sale or deed in lieu of foreclosure

OCC.GOV
Download a PDF on identifying a loan modification scam (http://www.occ.gov/ftp/advisory/2009-1.pdf)
The Office of the Comptroller of the Currency provides detail about scams, including “10 Warning Signs of a Loan Modification Scam.”

Visit houselogic.com for more articles like this. Reprinted from HouseLogic with permission of the NATIONAL ASSOCIATION OF REALTORS
Copyright 2010. All rights reserved.

Fannie Mae and Freddie Mac to Streamline Short Sales

 New Timelines Take Effect in June 

The Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac to develop enhanced and aligned strategies for facilitating short sales, deeds-in-lieu and deeds-for-lease in order to help more homeowners avoid foreclosure. The effort will come in stages with the first taking place this June. The new, aligned timelines include the requirement that mortgage servicers review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer.

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“FHFA and the Enterprises are committed to enhancing the short sales and deeds-in-lieu process as additional tools to prevent foreclosure, keep homes occupied and help maintain stable communities,” said FHFA Acting Director Edward J. DeMarco. “These timeline and borrower communication announcements set minimum standards and provide clear expectations regarding these important foreclosure alternatives.”

With the alignment, servicers will be required to do the following: 

  • review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer and a complete borrower response package;
  • provide weekly status updates to the borrower if the short sale offer is still under review after 30 calendar days;
  • make and communicate final decisions to the borrower within 60 calendar days of receipt of the offer and complete borrower response package.

By the end of 2012, Fannie Mae and Freddie Mac will announce additional enhancements addressing borrower eligibility and evaluation, documentation simplification, property valuation, fraud mitigation, payments to subordinate lien holders, and mortgage insurance.

6 Creative Ways to Afford a Home

1. Investigate local, state, and national down payment assistance programs. These programs give qualified applicants loans or grants to cover all or part of your required down payment. National programs include the Nehemiah program, www.getdownpayment.com, and the American Dream Down Payment Fund from the Department of Housing and Urban Development, www.hud.gov.

2. Explore seller financing. In some cases, sellers may be willing to finance all or part of the purchase price of the home and let you repay them gradually, just as you would do with a mortgage.

3. Consider a shared-appreciation or shared-equity arrangement. Under this arrangement, your family, friends, or even a third-party may buy a portion of the home and share in any appreciation when the home is sold. The owner/occupant usually pays the mortgage, property taxes, and maintenance costs, but all the investors’ names are usually on the mortgage. Companies are available that can help you find such an investor, if your family can t participate.

4. Ask your family for help. Perhaps a family member will loan you money for the down payment or act as a co-signer for the mortgage. Lenders often like to have a co-signer if you have little credit history.

5. Lease with the option to buy. Renting the home for a year or more will give you the chance to save more toward your down payment. And in many cases, owners will apply some of the rental amount toward the purchase price. You usually have to pay a small, nonrefundable option fee to the owner.

6. Consider a short-term second mortgage. If you can qualify for a short-term second mortgage, this would give you money to make a larger down payment. This may be possible if you re in good financial standing, with a strong income and little other debt.

Reprinted from REALTOR magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS .
Copyright 2008. All rights reserved.

Notice of Default & Investor Purchase Agreement

A general understanding of the Home Equity Sales Contracts Law (California Civil Code Sections 1695 through 1695.17, referred to as HESC below) is essential for any real estate professional who handles sales of residential properties.  This law applies only if ALL four of the following conditions are met:

(1)  the property being sold is residential one-to-four units;
(2)  the owner currently occupies the property;
(3)  a Notice of Default (NOD) has been recorded against the property; and
(4)  the buyer does not intend to occupy the property (i.e., buyer is an investor).

If any one or more of the four conditions has not been met, then the HESC doesn’t apply and none of the conditions or restrictions discussed below apply (e.g., no special contract need be used, there is no special rescission period).

The primary purpose of this legal article is to assist the real estate licensee in adequately and safely handling such a transaction when all four conditions are met, and to present the licensee with a working knowledge of general concepts for dealing with such situations. The highly technical forms, precise language, and exacting notice requirements mandated by law are not included here.

Whenever in doubt of their individual circumstances, readers should seek the advice of an attorney for legal advice in this highly technical area.

1.  Why did the legislature enact these laws?

A   These laws were enacted in response to practices that occurred in connection with sales of property in foreclosure. Although a variety of schemes were used, the results of such practices were generally the same. For example, loans, offers of services or sales contracts often involved an unsophisticated homeowner under financial duress signing complex documents with contractual terms which were financially impossible to meet. They frequently included transferring title to the equity purchaser at the same time as the contract was signed, giving the seller no opportunity to consider the transaction. Sometimes, by way of clandestine financial structuring or by hidden transfer language, the homeowner’s equity and/or title was mistakenly transferred without the owner’s intention to do so. The ultimate result was that the homeowner lost his/her property and/or equity to these unscrupulous individuals.

2.  What is the intent and purpose of Home Equity Sales Contracts law (HESC)?

A   The intent and purpose of this law is to:

  • Provide homeowners with information necessary to make informed, intelligent sales decisions;
  • Require written sales agreements;
  • Safeguard the public against deceit and financial hardship;
  • Insure fair dealing in the sale and purchase of homes in foreclosure;
  • Prohibit misleading representations;
  • Restrict unfair contractual terms;
  • Provide homeowners reasonable opportunity to rescind sales to equity purchasers; and
  • Protect homeowners’ equity.

(Cal. Civ. Code § 1695.)

II.  Definitions

3.  What is a Home Equity Sales “Contract”?

A   Basically, a Home Equity Sales Contract is any contract of sale between an equity purchaser and an equity seller of a residence in foreclosure.   However, see the exemptions in Question 15.  (Cal. Civ. Code § 1695.1(e).)

4.  In the above general definition, the word contract has been emphasized. Why is that?

A    The law defines a Home Equity Sale Contract in very particular manner. This contract is defined as any contract, agreement, or arrangement, or any term thereof between an equity purchaser and equity seller incident to the sale of a residence in foreclosure. However, the Code additionally defines an equity contract as any offer incident to the sale of a residence in foreclosure between these parties.  (Cal. Civ. Code § 1695.1(e).)

5.  Why would a mere offer be given the same protection as a contract?

A    Here again, the law provides a far-reaching special protection to residential owners in foreclosure. Even before entering into a traditional contract, it is unlawful for any person to initiate or negotiate a sale of a residence in foreclosure to an equity purchaser if the person takes unconscionable advantage of the seller.  (Cal. Civi. Code § 1695.13.)

6.  Who is an equity purchaser?

A    An equity purchaser is defined as any person who acquires title to any residence in foreclosure unless exempt as discussed in Question 15 (Cal. Civ. Code § 1695.1(a)).

7.  What is a “residence in foreclosure”?

A    A residence in foreclosure means residential real property consisting of one-to-four family dwelling units one of which the owner (seller) occupies as his or her principal place of residence, and against which there is an outstanding notice of default properly recorded (Cal. Civ. Code § 1695.1(b)).

The court of appeal has found this law to apply only when the owners/victims actually live in the residence subject to foreclosure.   (In re Phelps, 93 Cal. App. 4th 451 (2001).)

III.  Legal Effects

8.  What actions must the equity purchaser avoid?

A   This law require precise and exact conduct of the equity purchaser and the various prohibitions are as follows:

  • Do not make any untrue or misleading statements regarding value, proceeds, contract terms, seller’s rights, or obligations (Cal. Civ. Code § 1695.6(d));
  • Do not induce equity seller to execute or accept any executed instrument of conveyance until the seller’s 5-day cancellation period has elapsed (Cal. Civ. Code § 1695.6(b)(1));
  • Do not record any instrument of conveyance signed by the seller until the seller’s 5-day cancellation period has elapsed (Cal. Civ. Code § 1695.6(b)(2));
  • Do not transfer or encumber or purport to transfer or encumber any interest in such property to any third party until the seller’s 5-day cancellation period has elapsed (Cal. Civ. Code § 1695.6(b)(3));
  • Do not pay equity seller any consideration until the seller’s 5-day cancellation period has elapsed (Cal. Civ. Code § 1695.6(b)(4));
  • Return any documents signed by equity seller within 10 days following receipt of notice of cancellation, without any conditions (Cal. Civ. Code § 1695.6(c)).

9. What are the remedies of an equity seller in the event these laws are violated?

A   An equity seller has been provided a multitude of legal rights under these laws in addition to the traditional legal rights of a party to a contract.  If the equity purchaser violates any requirements in Question 8 or takes unconscionable advantage of the owner in foreclosure, the seller may file a court action for recovery of all damages, injunction, other equitable relief, or a combination of these remedies (Cal. Civ. Code § 1695.7).

Furthermore, fraud or deceit upon the equity seller may result in criminal penalties on the equity purchaser up to $25,000 or up to one year in jail (Cal. Civ. Code § 1695.8).

10. What are the damages that an equity seller can recover?

A    In an action for damages, the equity seller can recover:

  • Actual damages;
  • Attorney’s fees and costs; and
  • Mandatory exemplary damages in an amount not less than three times the seller’s actual damages or a civil penalty of up to $2500 if no exemplary damages are awarded.

(Cal. Civ. Code § 1695.7.)

11.  What are the legal rights of an equity seller under the HESC?

A    The seller has the following legal rights:

  • FIVE-DAY CANCELLATION PERIOD: Cancellation of the purchase contract by the equity seller forfive full business days from when the equity seller signs the contract or up to 8:00 a.m. of the trustee’s sale date whichever occurs first;
  • TWO-YEAR CONTRACT RESCISSION PERIOD: Rescission of any transaction found to be unconscionable within two years of recordation of the conveyance (Cal. Civ. Code § 1695.14);
  • NO WAIVER BY SELLER: Any waiver of any provision of these laws by the equity seller is void (Cal. Civ. Code § 1695.10); and
  • NO LIMITATION ON PURCHASER’S DAMAGES: Any contract provision which attempts or purports to limit the liability of the equity purchaser from damages resulting from the statement or conduct of his/her representative is void (Cal. Civ. Code § 1695.16).

12.  Who is a “representative” of the equity purchaser?

A   Under the law, a representative of the equity purchaser is a person who in any manner solicits, induces, or causes any property owner in foreclosure to transfer title to the equity purchaser (Cal. Civ. Code § 1695.15(b)).

A representative of an equity purchaser is also a person who solicits any member of the property owner’s family or household to induce or cause the equity seller to transfer title to an equity purchaser (Cal. Civ. Code § 1695.15(b)).

13.  What does HESC require of a representative of the equity purchaser?

A   A representative of the equity purchaser must:

  1. Provide written proof to the equity seller that the representative has a valid, current “California Real Estate Sales License” (Cal. Civ. Code § 1695.17(a)(1));
  2. Provide a written statement, under penalty of perjury, that the representative of the equity purchaser has the above license.  The written statement under penalty of perjury must be provided to both the equity seller and equity purchaser prior to transfer of any interest in the subject real property. (Cal. Civ. Code § 1695.17(a)(2).)

Should these requirements not be fulfilled, the equity seller may choose to have the purchase contract voided by the court.  Even if the seller cancels, the equity purchaser is liable for all damages caused by the failure to comply with these requirements. (Cal. Civ. Code § 1695.17(b).)

C.A.R. form DPL, “A Declaration and Proof of Real Estate License” satisfies this written statement requirement.

14.  What about the bond requirement found in Civil Code Section 1695.17?

A    The Fourth District Court of Appeal in Schweitzer v. Westminster Investments held that the bond requirement under Civil Code Section 1695.17 for an equity purchaser’s representative is “void for vagueness under the due process clause and may not be enforced.” The California Supreme Court has declined to review this case which means that the previous bond requirement has been eliminated from HESC. (Schweitzer v. Westminster Investments, 157 Cal. App. 4th 1195 (2007),review denied March 26, 2008.)

Equity purchasers and their representatives, however, must still comply with the other requirements of HESC as discussed in this article.

IV.  Exemptions from the Home Equity Sales Contract Law (HESC)

15.  When does HESC not apply?

A    HESC applies only if ALL four of the following conditions are met:

(1)  the property being sold is residential one-to-four units;
(2)  the owner currently occupies the property;
(3)  a Notice of Default (NOD) has been recorded against the property; and
(4)  the buyer does not intend to occupy the property (i.e., buyer is an investor).

If any one or more of the four conditions has not been met, then HESC does not apply and none of the conditions or restrictions discussed in this article apply (e.g., no special contract need be used, no give-day cancellation period, and there is no two-year rescission period). (Cal. Civ. Code § 1695.1.)

In addition, HESC does not apply when a buyer acquires title in the manner as follows:

  • By a deed in lieu of foreclosure of any voluntary lien or encumbrance of record;
  • By a deed from a trustee acting under the power of sale contained in a deed of trust or mortgage at a foreclosure sale;
  • At any sale of property authorized by statute (such as a tax sale);
  • By order or judgment of any court (such as probate or family law court); or
  • From a spouse, blood relative, or blood relative of a spouse.   (Cal. Civ. Code § 1695.1(a).)

16.  What if an notice of default (NOD) is recorded while the transaction is in escrow or right after the contract is signed but before opening escrow?

A   The language of Civil Code Section 1695.1(b) in defining a “residence in foreclosure” refers to a residence against which there is an outstanding recorded notice of default.  HESC does not address the issue of whether the law applies if the NOD is recorded after the execution of a sales contract.  There is no appellate case dealing with this issue.  However, a Riverside County Superior Court has considered this issue and has made the determination that HESC does not apply if the NOD has not been recorded at the time the parties entered into the sales contract.  (Davis v. Varney, Case No. RIC 425604.)

With no recorded NOD, the transaction is not subject to HESC when the parties sign the contract.  It certainly does not seem reasonable to make the transaction subject to HESC and to force a purchaser, in essence, to start all over again just because an NOD is later recorded.

Unfortunately, a superior court decision is not binding law.  Thus, the law is not clear on this issue.

V.  Agency and Other Issues

Q 17.  Is a real estate licensee subject to the civil and criminal penalties imposed by HESC when representing the equity seller or equity purchaser?

A   No. HESC imposes these penalties on the equity purchaser. (Cal. Civ. Code § § 1695.7, 1695.8, 1695.15, 1695.17(b).)  Of course, all the penalties for violation of the real estate law and laws governing fiduciaries still apply.

18.  My buyer claims to be purchasing for the purpose of using the property as a personal residence. However, I don’t feel comfortable about that statement. What should I do?

A  Normally a licensee is not responsible for the hidden undisclosed true intent of a buyer. However, be aware of possible red flags that may arise. For example, the conduct and actions of the buyer may raise questions about his/her veracity when the loan application indicates non-occupier status or title vesting in another person.  You may want to urge the buyer to comply with HESC to avoid the potential civil and criminal penalties to which the equity purchaser is liable.  (Cal. Civ. Code § 1695.8 ($25,000 fine and/or imprisonment in jail for a up to a year).)

19.  Does C.A.R. have the applicable forms required by this law?

A  Yes.  The following forms for HESC transactions are available at http://store.car.org  or on WINForms®:

  • Notice of Default Purchase Agreement (C.A.R. Form NODPA). The NODPA is the purchase agreement to be used for HESC transactions printed in the statutorily-required format.
  • Declaration and Proof of California Real Estate License (C.A.R. Form DPL). The DPL satisfies the duty of the representative to provide proof .
  • Notice of Cancellation of the Notice of Default Purchase Agreement (C.A.R. Form HENC). The HENC is the form for the equity seller to use if the seller desires to cancel the sale within 5 business days of signing the contract.   Two copies of the HENC must be completed in full except for the equity seller’s signature.  The cancellation date and time to be written on this form is midnight of the date 5 business days after the equity seller signs the contract or 8:00 am of the trustee’s sale if that will occur sooner (Cal. Civ. Code § 1695.4(a)).

20.  Where can I obtain additional information?

A  This legal article is just one of the many legal publications and services offered by C.A.R. to its members. For a complete listing of C.A.R.’s legal products and services, please visit car.org.

Readers who require specific advice should consult an attorney. C.A.R. members requiring legal assistance may contact C.A.R.’s Member Legal Hotline at (213) 739-8282, Monday through Friday, 9 a.m. to 6 p.m. and Saturday, 10 a.m. to 2 p.m.  C.A.R. members who are broker-owners, office managers, or Designated REALTORS® may contact the Member Legal Hotline at (213) 739-8350 to receive expedited service. Members may also submit online requests to speak with an attorney on the Member Legal Hotline by going to http://www.car.org/legal/legal-hotline-access/.  Written correspondence should be addressed to:

CALIFORNIA ASSOCIATION OF REALTORS®
Member Legal Services
525 South Virgil Avenue
Los Angeles, CA 90020


The information contained herein is believed accurate as of March 9, 2011. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney. Revised by Sonia M. Younglove, Esq.

Copyright© 2011 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided credit is given to the C.A.R.Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved.

The Short Sale Tax Implications

In case of a real estate there are short sale tax implications which have to be noted. Primarily there are chances of receiving a form 1099-C for the total amount of loss which the lender has to bear. According to an U. S government agency dealing with taxes named Internal Revenue Service this is interpreted as loan forgiveness. Tax payment has to be made on the basis of the financial status of the borrower. If the borrower is solvent and has some assets like saving, he has to pay the required amount of tax.

A borrower can make debt settlement with the lender for a lesser amount than the total amount due. Thereby the former might have to report this debt which has been forgiven as regular income along with some exceptions. The categories which fall under forgiven debt are money due after foreclosure or repossession of property or unpaid credit accounts. The exceptions are:

o The lender exempts an amount which is more than the principal amount of the debt. A 1099-C form has to be delivered to the borrower at the year end. According to the IRS the written off debt amount has to be reported as income while filing tax return by the borrower.

In case of non delivery of the form to the borrower it is assumed to have directly forwarded to IRS by the lender. If the borrower does not report the exempted debt amount as income, there can be serious consequences. One can receive a tax bill or an audit notice if IRS is aware of the transaction on their database.

o Circumstances where the forgiven amount of debt was treated as a gift, one is not required to report the same as income.

o The borrower faces bankruptcy and discharges the debt.

o Borrower’s insolvency before the creditor’s settlement of debt is considered.

Consultation is suggested from a qualified tax and legal counsel to check whether it is possible to avail the benefits from these exceptions.

The debt amount which a borrower escapes is sometimes referred to as phantom income. Often a lender makes a probe to judge the truthfulness of the status of the borrower. This is referred to as deficiency judgment which is the difference between the total amount due and the amount paid out of short sale. Henceforth the burden on the borrower increases further. He loses the property, earns nil from the transaction and can suffer from possible insolvency. This can result in a permanent setback for the borrower.

So there has been a solution to this problem. A new federal legislation has been formulated comprising of a temporary three years moratorium. It relates to the tax treatment of the exempted debt that does not exceed the basis of the owner in the home.

The lender in a short sale makes some verification regarding the estimated closing costs on HUD-1 form used by the settlement agent. The cost includes the taxes, real estate commissions, homeowner dues, title insurance costs and other closing costs. Approval of the said form by the lender is necessary for the closing of the short sale transaction.

The short sale tax implications has been formulated and reviewed continuously to suit both the lenders and the borrowers.

Article Source: http://www.articlesnatch.com

About the Author:
Short Sale Tax Implications…what implications? All you need to know about Short Sales and tax considerations at http://www.nphsrealestate.org/short-sale/law-tax

Short Sales Tips for Sellers

If you’re thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won’t cover your total mortgage obligation and closing costs, and you don’t have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.

1. Consider loan modification first. If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home. Your lender may agree to a modification such as: Refinancing your loan at a lower interest rate; providing a different payment plan to help you get caught up; or providing a forbearance period if your situation is temporary. When a loan modification still isn t enough to relieve your financial problems, a short sale could be your best option if:

* Your property is worth less than the total mortgage you owe on it.
* You have a financial hardship, such as a job loss or major medical bills.
* You have contacted your lender and it is willing to entertain a short sale.

2. Hire a qualified team. The first step to a short sale is to hire a qualified real estate professional and a real estate attorney who specialize in short sales. Interview at least three candidates for each and look for prior short-sale experience. Short sales have proliferated only in the last few years, so it may be hard to find practitioners who have closed a lot of short sales. You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won’t try to take advantage of your situation or pressure you to do something that isn’t in your best interest. A qualified real estate professional can:

* Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
* Help you set an appropriate listing price for your home, market the home, and get it sold.
* Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).
* Ease the process of working with your lender or lenders.
* Negotiate the contract with the buyers.
* Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval. You can t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.

3. Begin gathering documentation before any offers come in. Your lender will give you a list of documents it requires to consider a short sale. The short-sale  package that accompanies any offer typically must include:

* A hardship letter detailing your financial situation and why you need the short sale
* A copy of the purchase contract and listing agreement
* Proof of your income and assets
* Copies of your federal income tax returns for the past two years

4. Prepare buyers for a lengthy waiting period. Even if you’re well organized and have all the documents in place, be prepared for a long process. Waiting for your lender s review of the short-sale package can take several weeks to months. Some experts say:

* If you have only one mortgage, the review can take about two months.
* With a first and second mortgage with the same lender, the review can take about three months.
* With two or more mortgages with different lenders, it can take four months or longer.

When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back at square one. (Your real estate attorney and real estate professional, with your authorization, can work your lender s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.)

5. Don’t expect a short sale to solve your financial problems. Even if your lender does approve the short sale, it may not be the end of all your financial woes. Here are some things to keep in mind:

* You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can t pay back the balance, talk with your real estate attorney about your options.
* Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount. Under a temporary measure passed in 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify.
* Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will impact your credit score less than foreclosure and bankruptcy.

Reprinted from REALTOR magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS .
Copyright 2008. All rights reserved.

6 Tips for Buying a Home in a Short Sale

By: G. M. Filisko

By preparing for a real estate short sale, you can emerge with a great home at a favorable price.

When sellers need to sell their home for less than they owe on their mortgage, they’re shooting for a short sale. Short sale homes can sometimes be bargains, but only if you do your homework, stay patient, and remain unemotional during the sometimes lengthy and difficult short sale process.

Here are six tips for protecting yourself emotionally and financially when bidding on a short sale.

1. Get help from a short sale expert
A real estate agent experienced in short sales can identify which homes are being offered as short sales, help you determine a purchase price, and advise you on what to include in your offer to make the lender view it favorably. Ask agents how many buyers they’ve represented in short sales and, of those, how many successfully closed the transaction.

2. Build a team
Ask agents to recommend real estate attorneys knowledgeable in short sales and title experts. A title officer can do a title search to identify all the liens attached to a property you’re interested in. Because each lienholder must consent to a short sale, a property with multiple liens, like first and second mortgages, mechanic’s and condominium liens, or homeowners association liens, will be harder to purchase.
A title search may cost $250 to $300 up front, but it can help weed out less desirable properties requiring multiple approvals.

3. Know the home’s fair market value
By agreeing to a short sale, lenders are consenting to lose money on the loan they made to the sellers to purchase the home. Their goal is to keep those losses as low as possible. If your offer is dramatically less than the home’s fair market value, it may be rejected. Your agent can help you identify the price that’s good for you. The lender will determine whether approval is in its best interest.

4. Expect delays
There are two stages to a short sale. First, the sellers must consent to your purchase offer. Then they must submit it to their lender, along with documentation to convince the lender to agree to the sale.
The lender approval process can take weeks or months, even longer if the lender counteroffers. Expect bigger delays if several lienholders are involved; each can make a counteroffer or reject your offer.

5. Firm up your financing
Lenders will weigh your ability to close the transaction. If you’re preapproved for a mortgage, have a large downpayment, and can close at any time, they’ll consider your offer stronger than that of a buyer whose financing is less secure.

6. Avoid contingencies
If you must sell your current home before you can close on the short-sale property, or you need to close by a firm deadline, your offer may present too many moving parts for a lender to approve it.
Also, consider ordering an inspection so you’re fully informed about the home. Keep in mind that lenders are unlikely to approve an offer seeking repairs or credits for such work. You’ll probably have to purchase the home “as is,” which means in its present condition.

This article includes general information about tax laws and consequences, but isn’t intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.

More from HouseLogic
What you need to know about the homebuyer tax credit (http://www.houselogic.com/articles/homebuyer-tax-credit-what-you-need-know/)

(http://thegreenists.com/food/ted-talk-being-a-weekday-vegetarian/5803) How to claim your homebuyer tax credit (http://www.houselogic.com/articles/claim-your-homebuyer-tax-credits/)
Other web resources
More on short sales (http://www.nolo.com/legal-encyclopedia/article-30016.html)

Real-life discussions of short sales (http://www.npr.org/templates/story/story.php storyId=104803015)

G.M. Filisko is an attorney and award-winning writer who luckily has avoided the need for a short sale on her properties. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Visit houselogic.com for more articles like this. Reprinted from HouseLogic with permission of the NATIONAL ASSOCIATION OF REALTORS
Copyright 2010. All rights reserved.

Changes to the HAFA Short Sale

Beginning June 15, Fannie Mae and Freddie Mac will require mortgage servicers to make decisions on short sales under new guidelines, specifically:

  • acknowledge the documentation was received within three business days;
  • notify the borrower within five days if more paperwork is needed;
  • review and respond to a borrower within 30 days of receiving all documentation for short sale properties (the servicer can take up to 60 days on a decision if negotiations with mortgage insurers or other stakeholders linger); and
  • provide weekly status updates to the borrower if a short sale decision lingers past the 30 days.

The new Federal Housing Finance Agency (FHFA) guidelines are designed to assist the most inventory-constrained markets in the United States with inventory levels by moving properties through the short sale process more efficiently.

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Short Sale Highlights

We are aggressively and successfully performing short sales thus helping hundreds of people to avoid foreclosure in Charlotte, Lee and Collier counties. No worries if your property is not located in these areas. These highlights hold true nationwide. However, you should always consult your tax professional and attorney for your specific situation. With that said Here are some short sale highlights!!

    • A short sale can have a much less negative effect on your credit than a foreclosure or deed in lieu of foreclosure
    • A short sale acts as a traditional closing with specified close date once we get an approval
    • In most cases a short sale approval will have the language for a waiver of deficiency.
    • If you maintain your credit you may be able to purchase a home in 24 months or less.
    • We have other affiliates who have sold homes to people who have short sold their home 90 days from the short sale date. They kept current on their payment all the way to close and bought 3 months later!!
    • Banks are more willing to do a short sale than foreclose on you. The time is now when things are so lenient and the government encourages it.
    • Banks are making the short sale process even easier!
    • It is estimated that there will be another 3,000,000 short sales, deed in lieu of foreclosure and foreclosures combined nationwide before we see this slow down. Why foreclose when you do not have to?
    • A short sale will cost you NOTHING! If anyone is charging you money to do a short sale, RUN!
    • A short sale is a means to a quicker recovery for you and your family.
    • This can be time to relieve a bad asset for you! IE negative every month b/c the rental market is so low!
    • The short sale process is fairly easy for you There are certain documents that are required. Once we get them from you, it is all up to us!
    • We do not guarantee a short sale but we have a strong closing percentage
    • Short sales can be done with 2 mortgages on the property.
    • A short sale will clean up all past liens Back taxes, HOA fees, etc All are paid by your lender at closing.
    • We average 7 days on the market for short sales.
    • You do not have to be delinquent on your mortgage to do a short sale. It is a personal decision.
    • Depending on how the property is held, you may not be taxed on the deficient amount! Speak with your accountant.
    • Timelines for short sale approval are becoming quicker and quicker.

I am sure I am forgetting some other things, but these should answer some of the most common questions homeowners have about short sales.


Article Source: http://www.articlesnatch.com

About the Author:
Steve Daria is the Broker / Owner at Maxim Realtors, LLC in Fort Myers, Fl.

Maxim Realtors, LLC is short sale servicing all of Lee, Collier and Charlotte Counties That is Punta Gorda, North Fort Myers, Pine Island, Cape Coral, Fort Myers, Sanibel Island, Captiva Island, Lehigh Acres, Fort Myers Beach, Estero, Bonita Springs, Naples, Marco.

Read more: http://www.articlesnatch.com/Article/Short-Sale-Highlights/1193769#ixzz1hJY10Izy
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