Bad Credit? Had a short sale or foreclosure? I can help you buy a house!

This week I had a meeting to discuss the details of the launch of a new type of lease-option program for my clients.  This is very exciting news for the thousands of buyers looking to do a lease option in Palm Beach, Martin, St Lucie or Dade Counties the ability to lease option a very wide range of homes.

Our program is unique as it allows people who would not qualify for traditional home financing due to a short sale, foreclosure, or credit issues to select the home they would like to buy at some point, have our investor purchase it, and have a long-term lease with the option to purchase WITHOUT having to make the typical large, non-refundable option payment.

Since the market crash I have had dozens and dozens of people asking me to help them find a seller that would do a ‘lease-option’ or hoping to find someone to owner finance. This has always been (until now) a very difficult goal to accomplish as the minute number of sellers that would consider a lease option for their home are looking for a significant non-refundable deposit to be included. 

These clients, and thousands more like them, are not able to buy at the present time for any number of reasons, but need the security of a long-term housing solution and typically are very specific about the school district they need to be in. They don’t want to pursue a standard rental and the uncertainty that comes along with it…the owner can decide to not renew the lease, sell the house, or even let it go into foreclosure forcing the tenant to move every year and uprooting their family over and over.

What makes my new program so unique is that, once approved, the buyer/tenant gets the ability to go and shop for the homes they want to eventually buy (within their approved budget) and once a home is identified, our investor with my assistance, purchases the home as a cash sale for the buyer/tenant.



After the normal inspections, the sale can close quickly as there is no financing involved. Sellers who may have been unable or reluctant to do a lease option themselves get the benefit of a quick, cash sale.  The buyer has the flexibility to move in with much less than the typical lease option would require too.  A security deposit, and first and last month’s rent is typical.  Much less than would be typical for an owner financed purchase.



Right now in Palm Beach county there are under a dozen homes that have offered non traditional financing, or lease option programs (and they require a big, non-refundable deposit).  But now I have a way to satisfy sellers looking for a hassle free sale, and to help buyers that are looking for a lease option program.



The basic criteria we look for with the buyer is steady income, no serious criminal history,  and a minimum household income of $50,000. With regards to homes that qualify we allow homes priced up to $500k and homes that are in good school districts.



If you think that this program may work for you, give me a call right away at 561.602.1258 to set up your initial meeting.  Regardless of credit issues, a prior short sale, bankruptcy, or even a foreclosure this could be a new way to get your family’s next home. I am very excited to have this great option to give families the housing stability they need in the school districts they want with the prospect of buying their home in the near future!



Call me today to see if you can pick out your new lease-option home!



Steve Jackson

561.602.1258
email me

Don't tax PHANTOM INCOME!

Congress has begun its “Lame Duck” session with a big list of unfinished business items. 

Number 1 on my list is an extension of “The Mortgage Forgiveness Tax Relief Act.”

This bipartisan legislation would extend an expired provision that has helped millions of distressed American families (and dozens of our short sale clients) by allowing tax relief for homeowners when lenders forgive a portion of their mortgage debt.

Today’s housing market is finally recovering. However, there are still many homeowners unable to meet their mortgage obligations. 

Estimates show that about 5.3 million homes are still under water. In addition, there are still more than 1 million homes in the process of foreclosure.  Many of these over 6 million homeowners could greatly benefit from completing a short sale.

If “The Mortgage Forgiveness Tax Relief Act” is not enacted, hundreds of thousands of American families who did the right thing by short-selling their home or received a much needed loan reduction from their lender will have to pay income tax on “phantom income.”  And millions more will not be afforded the opportunity to exit a very difficult situation with dignity.

Urge your Member of Congress and Senators to act on “The Mortgage Forgiveness Tax Relief Act” before the end of 2014 and help provide certainty for struggling homeowners and stability for our nation’s housing markets.

Click HERE for our Mortgage Debt Cancellation and Relief Q and A



Call me on my direct line if you have any questions regarding the above or if you’d like to meet so we can discuss your situation.





Steve Jackson 561.602.1258

Short Sale or not? Quite a bit tougher question now

Homeowners who avoid foreclosure through short sales or a loan modification that incorporates loan forgiveness could owe the IRS big bucks because partisan wrangling is holding up extension of a popular tax break designed to help them.

"We're talking about people who are financially distressed and simply don't have the wherewithal to pay this tax liability," says Steve Brown, president of the National Association of Realtors. "If they had the money, they wouldn't be in distress."

Before 2007, homeowners who worked something out with their lenders to avoid foreclosure would find suddenly that the Internal Revenue Service treated any principal a bank forgave as taxable. Say you owed $400,000 on a home whose value had dropped to $300,000 because of the housing bust, but you couldn't afford to either keep up the mortgage payments or sell the place and make up the $100,000 shortfall.

If you got the bank to agree to a "deed in lieu of foreclosure" taking back the house and forgoing the remaining $100,000 the IRS would consider the unpaid principal as "income" on which you owed taxes. You'd owe potentially as much as $30,000 or more on the money (and possibly state income taxes as well) even though you were probably broke. Taxes also applied if you got a "principal reduction," in which you stayed in the home and the bank agreed to reduce your loan balance because it's not worth foreclosing, or if you did a "short sale" in which you sell your home at market prices and give the bank all proceeds, with the lender forgiving any amount over the sale price.

Then Congress passed a law with bipartisan support to temporarily waive these taxes, but the measure expired Dec. 31 2013 despite backing on both sides of the aisle for its continuance.

The Senate Finance Committee endorsed the measure as part of a package to extend some 50 tax breaks that expired at year's end. But Republicans are blocking a full Senate vote unless they can add a proposal to repeal a 2.3% medical-device tax that took effect as part of the "Obamacare" act.

Senate Majority Leader Harry Reid (D-Nev.) has countered by refusing to allow any amendments to the measure, apparently so Democrats facing re-election in states where Obamacare is unpopular can avoid voting on the medical-device tax. The measure is also bogged down in the House.

Democrats and Republicans blame each other for the gridlock.

"Congress needs to stop playing political games and act to help millions of families," says Democratic Sen. Debbie Stabenow of foreclosure-wracked Michigan, who co-sponsored the tax break's proposed extension with Republican Sen. Dean Heller of Nevada, another state hard hit by foreclosures.

But Don Stewart, spokesman for Senate Minority Leader Sen. Mitch McConnell (R-Ky.), faults Reid for the tax break's demise.

"Sen. Reid allowed no amendments," Stewart says. "That was his decision."

The NAR sees the tax break's expiration as especially bad news for short sales, which Realtors consider crucial to helping the still-shaky housing sector recover.

"A short sale is far better for the market than a foreclosure, because during a short sale the home normally remains occupied and maintained and then passes directly to the next owner without ever sitting vacant and abandoned.

We expect Congress to renew the tax break retroactively after Election Day, but says there's no guarantee that will happen and that the housing sector will suffer in the meantime. The NAR recently lowered its projection for 2014 short sales to 200,000 homes from 330,000 in part due to the tax break's termination.

"Getting a bank to approve a short sale is already a very difficult process," Brown says. "We think the fact that [short-sellers] could now also face a significant tax liability is enough to give any well-informed home seller pause."

 

Come back to the blog regularly for updates on this issue as they happen. Or please feel comfortable giving me a call anytime to discuss your situation and options.

Thanks for reading…Steve Jackson…561.602.1258

Loan modification hostage taking

(Reuters) - Joseph and Neidin Henard thought they had finally fixed the mortgage that was crushing them.

In January, the couple reached a settlement with every company that had a stake in the mortgage on their house in Santa Cruz, California, a deal that would have slashed their monthly payment by almost 40 percent to $3,337. It was the end of a process that started with their defaulting in 2009.

But when they saw the final paperwork for their settlement, they found that Ocwen Financial Corp, the company that collected and processed their mortgage payments, had added an extra clause: they could not say or print or post anything negative about Ocwen, ever.

The Henards' experience was not unusual. Mortgage payment collectors at companies including Ocwen, Bank of America Corp and PNC Financial Services Group are agreeing to ease the terms of borrowers' underwater mortgages, but they are increasingly demanding that homeowners promise not to insult them publicly, consumer lawyers say. In many cases, they are demanding that homeowners' lawyers agree to the same terms. Sometimes, they even require borrowers to agree not to sue them again.

These clauses can hurt borrowers who later have problems with their mortgage collector by preventing them from complaining publicly about their difficulties or suing, lawyers said. If a collector, known as a servicer, makes an error, getting everything fixed can be a nightmare without litigation or public outcry.

A 2013 report by the National Consumer Law Center found that servicers routinely lost borrowers' paperwork, inaccurately input information, failed to send important letters to the correct address—or sometimes just didn't send them at all.

"If your servicer screws up, you can't say anything about it," said homeowner attorney Danielle Kelley in Tallahassee, Florida. "The homeowner has no defense."

Regulators are taking note. After Reuters' story was published on Wednesday, New York's Superintendent of Financial Services, Benjamin Lawsky, said he is investigating Ocwen's use of these clauses. A source familiar with Lawsky's thinking said that he could expand the probe to other servicers.

Gag orders and bans on suing are appearing when borrowers use litigation to settle foreclosure and loan modification cases. But they are also popping up when servicers modify loan terms outside of the courts, known as "ordinary loan modifications," according to consumer lawyers.

Bank of America doesn't include non-disparagement clauses and releases of claims in the course of ordinary loan modifications - just in ones involving negotiated legal settlements, spokesman Rick Simon said. Waivers don't preclude customers from filing suits on post-settlement issues, he said.

PNC's vice president of external communications, Marcey Zwiebel, said "these clauses are part of the consideration we receive for agreeing to settle the case. This helps to ensure that the discussion is not re-opened in public after the case has been settled."

Ocwen declined to comment, citing pending litigation.

Ocwen, Bank of America and PNC did not respond to requests for comment about Lawsky's investigation.

Bryce acknowledges that the language is ambiguous - under the waivers, homeowners often give up the right to sue on claims "whether existing now or to come into existence in the future."

The non-disparagement clauses are meant to protect banks from public insults from borrowers, which the lender can often not respond to without violating privacy laws, Bryce said.

Banks and servicers have been facing bad publicity along these lines for years, and while quantifying the impact of this bad-mouthing is difficult, few banks would choose to face it.

On a Facebook page devoted to denigrating Bank of America, one homeowner said, "They are without a doubt the worst organization I have ever dealt with. Keep suing them America! They deserve it!!"

JUST WANTING IT TO END

Clauses preventing future disparagement and lawsuits first started appearing after the housing crash, but they have grown more widespread in the last six months, said Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington.

In January, the Consumer Financial Protection Bureau, a U.S. government agency, said it examined two servicers who were requiring homeowners to give up their right to sue as part of ordinary loan modifications. The CFPB said the practice was "unfair," and required the two servicers to cease the practice.

The agency also directed the servicers to stop enforcing existing waiver clauses and "to provide notice to the borrowers that it would not enforce these waivers in the future," according to a CFPB Supervisory Highlights bulletin. The agency didn't name the two servicers.

LOAN MODIFICATIONS

During the past few years, loan servicers have been renegotiating mortgage terms with borrowers who have fallen behind on their payments. Since the housing crash, there have been about 1.3 million loan modifications done under the government's Home Affordable Modification Program, according to the U.S. Department of Treasury. Servicers have done an additional 5.6 million modifications in-house.

Companies like Ocwen say that modifying mortgages is cheaper than foreclosing. Servicers modify mortgages through some combination of changing monthly payments or interest rates, lengthening the terms of loans, and changing the principal owed, either by forgiving some of the loan or by adding on penalties and fees to make it bigger.

The 2012 National Mortgage settlement, which covered Ally Financial Group, Bank of America, Citigroup Inc, JPMorgan Chase & Co and Wells Fargo & Co prohibited the use of waivers during the course of offering normal loan modifications—though it did allow for waivers in the event of litigation. Waivers were also forbidden under HAMP modifications.

That still leaves plenty of room for servicers to try to block borrowers from suing, or to use gag clauses.

Attorneys say the experience of the Henards was typical: the gag orders often pop up after borrowers think deal negotiations have been completed.

The Henards balked when they saw the Ocwen clause stating that they were to "not make any derogatory and/or disparaging comments about Ocwen or publish or discuss this Agreement or the settlement and compromise evidenced hereby on the internet or with the media."

"We are worried about them coming back against people in the future," said Dan Mulligan, the Henards' attorney. "It's just a risk you don't want to take." The Henards have about $680,000 outstanding on their mortgage.

Ocwen responded in court documents that the language was "standard boilerplate." The Henards haven't signed the non-disparagement clause. The issue is still being dealt with by the two sides' lawyers.

Consumer lawyers also object to being gagged themselves. Some lawyers challenge the banks to strike the language — or water it down. Attorneys also sometimes instruct their clients to fire them. That way, the homeowner can agree to the terms while the attorney doesn't have to.

"The banks are attempting to hold our clients hostage with a provision they know we cannot agree to," said University of Notre Dame law professor Judith Fox, who runs a clinic for troubled homeowners and who has also petitioned the Indiana Bar Association over attempts to muzzle attorneys. "It is coercive and unethical."

(Reporting by Michelle Conlin, Editing by Dan Wilchins and John Pickering)

 

UP TO THE MINUTE UPDATE: NEW YORK (Reuters) - Ocwen Financial Corp agrees to stop requiring some homeowners to not criticize the company publicly.

Buying a home after a short sale…How long must you wait?

 

Someone who sold his or her home in a short sale or lost it in a foreclosure would normally have to wait 36 months to purchase a primary residence again with an FHA fixed-rate mortgage. However, the FHA Back to Work Program allows a buyer to purchase a primary home just 12 months after a foreclosure, short sale or a deed in lieu of foreclosure.

The program — which was announced in 2013, and extended through Sept. 30, 2016 — aims to fulfill a lofty goal: offering families a second chance at homeownership. The sticking point, however, is that you’ll need to specifically document the financial problems that caused you to forfeit your prior home in order to qualify.

How You Can Qualify

In order to qualify for the FHA Back to Work Program, you need to show that the loss of your previous home was truly due to circumstances beyond your control. Unfortunately, the program does not consider previous loan modifications, adjustable-rate loan recasting, inability to rent a previous income property, or even divorce to be sufficient enough reasons to qualify.

Loss of Income

You need to show a 20% loss of income or more for at least six consecutive months leading up to the event to qualify. For example, if the previous foreclosure, short sale or deed in lieu happened due to loss of income, you would meet this requirement if your pre-event income was $100,000, and dropped to $80,000 or lower for six consecutive months beforehand.

How to support your claim: The lender with whom you’re applying will order a verification of employment. The verification of employment would support the dates of when the loss of income occurred. Other supporting documentation would include lower year-to-date earnings with pay stubs within the dates your income dropped. W-2s and/or tax returns that show lower reported wages for that time frame will also meet the FHA requirement.

Full Recovery With Satisfactory Credit

The FHA wants you to demonstrate that you’re back on both feet. You’ll need to show that since the previous financial calamity, you have re-established your income and have paid your other obligations as agreed.

How to support your claim: You’ll need a credit score of at least 640 or have gone through a HUD-approved counseling agency related to homeownership and residential mortgage loans.

Tip: A 12-month favorable credit history on your other debt obligations would support the credit score requirement.

Missing the FHA Second-Chance Boat

These FHA requirements draw a clear line in the sand by asking for specific related documentation that led to the loss of the home. If a buyer who had a foreclosure, short sale or deed in lieu of foreclosure is unable to provide a clear, documented 20% loss of income for six consecutive months leading up to the event, it will be difficult for them to get qualified for this program.  Here’s why:

The nature of lending in today’s credit environment involves revealing all aspects of the borrower’s credit, debt, income and assets. A simple letter of explanation detailing the events that led to the event is simply not enough; for this program, supporting documentation needs to corroborate the story.

Post-Foreclosure Timelines

If the short sale, foreclosure or deed in lieu of foreclosure took place within the last 12 to 36 months…

Then a documentable loss of income of 20% or more for six months remains in effect.

If the short sale, foreclosure or deed in lieu of foreclosure took place 36 months ago or longer…

Then the previous loss of income documentation threshold does not apply, and a borrower would be eligible for a new FHA loan, as long as the credit, debt, income and assets are acceptable with the lender. A previous house loss does not automatically preclude your ability to qualify.

If the short sale, foreclosure or deed in lieu of foreclosure took place 36 months ago or longer…

Then the lending requirements for other types of loans are as follows:

• Conventional loan – You’re eligible with 20% down (to avoid private mortgage insurance) seven years after the event, or three years after with documentable extenuating circumstances and a lender exception;
• VA loan – 36 months out from the date of the event;
• USDA loan — 36 months out from the date of the event;
• Jumbo mortgage (this is for loan amounts that exceed the maximum loan limit for a conventional loan in your area) — most lenders require seven years from a foreclosure or a deed in lieu, for a short sale they want 30% down and 36 months out or longer.

Thanks for reading…Steve Jackson, 561.602.1258

If you have gone through a short sale and are once again thinking that renting is losing it’s attractiveness and that it may be time to buy another home…give me a call and lets see what we can do.

Dispelling the Myths

The short sale is an important tool for helping distressed homeowners avoid foreclosure and eliminate their mortgage debt.  And thanks to key changes made, Freddie Mac short sales today are taking less time to process on average than ever before. But for a lot of borrowers, short sales remain a mystery.  Here are eight common misconceptions about short sales – and the facts every distressed homeowner should know.

Myth: I will be responsible for the entire amount owed on the mortgage.

Fact:  Not necessarily. Under the Freddie Mac Standard Short Sale program, borrowers who complete a short sale in good faith and are in compliance with all laws and Freddie Mac policies will not be pursued by Freddie Mac for the entire amount owed under the mortgage. If you have the financial ability, you may be asked to make a one-time payment or sign a new promissory note for a portion of the unpaid balance after the short sale closes. .

Myth: I can’t get a short sale on an investment property or second home.

Fact:  Investment properties and second homes are eligible for a Freddie Mac short sale if borrowers meet the eligibility requirements.

Myth: A short sale is not an option for me because I’m current on my mortgage payments.

Fact:  Even if you are current on your mortgage payments, you may be eligible for a short sale.  In addition to meeting the general eligibility requirements, the property must also be your primary residence and your debt to income ratio must be greater than 55 percent.

Myth:  I won’t qualify because my servicer has strict guidelines on short sales.

Fact:  Every borrower is eligible to be considered for a Freddie Mac short sale providing they meet the eligibility requirements. Freddie Mac increased the authority of its servicers to approve short sales for qualifying financial hardships for homeowners who are past due or current on their mortgage payments. In addition, servicers now have the independent authority to approve short sales without a separate and potentially time-consuming review by the mortgage insurance company.

Myth: A short sale will affect my eligibility for a new mortgage.

Fact:   If your financial difficulties were the result of income loss, medical emergencies or other extenuating circumstances beyond your control, you may be eligible for a new Freddie Mac mortgage once you’ve established acceptable credit for at least 24 months after completing the short sale. However borrowers who require a short sale as the result of personal financial mismanagement must re-establish acceptable credit for at least 48 months to become eligible for a mortgage backed by Freddie Mac.  You should start speaking to a lender about a new mortgage two years after your short sale closed.

Myth: Short sales can take several months to complete.

Fact: With Freddie Mac's Standard Short Sale, the time lines are significantly shorter. Servicers have 30 days to make and communicate a decision to you once they receive your completed application. Once approved, you can expect to close on your short sale within 60 days – working with an experienced real estate agent can help expedite the process.

Myth:  I have a second mortgage on my home, so a short sale is not an option.

Fact:  If you meet the other eligibility requirements, you may be able to obtain a Freddie Mac short sale even though you have a second mortgage.  For example, under our short sale program, we are offering up to $6,000 to subordinate lien holders – who are like second mortgage companies – in exchange for releasing the subordinate lien, extinguishing the underlying indebtedness and waiving the right to pursue deficiency.

Myth: A short sale will ruin my credit score.

Fact:  While only the credit reporting agencies that calculate your credit score will know for sure, it’s possible that a short sale might be better for your score than a foreclosure. Even if it isn’t, a short sale gives you time to find a more affordable place to live and exit gracefully from your obligation.

Should You Consider A Short Sale?

If all retention options have been exhausted or are not possible, a short sale is a good alternative to foreclosure that allows distressed homeowners to gracefully leave their home and transition to more affordable housing. It's also typically less damaging to a borrower's credit report than foreclosure, and usually reduces the amount of time a borrower needs to wait to get a new mortgage down the road.

A short sale may make sense if you:

• Do not qualify for any options to keep your home, including a loan modification, forbearance, or reinstatement.
• Need to move in order to keep or obtain employment.
• Don't think you could sell your home at a price that would cover your outstanding mortgage amount.

Find out if Freddie Mac owns your mortgage by visiting our Loan Look-up Tool.

Bill to extend short sale tax forgiveness update

(The Mortgage Debt Relief Act of 2007 makes debt that is reduced or cancelled through a loan modification or debt forgiven through a foreclosure or short sale tax-exempt. Other criteria also apply, such as the indebtedness must be on a principal residence and the maximum amount that can be claimed for the tax break is $2 million.)

Congressman Bill Foster (D-Illinois) introduced the Homeowners Debt Relief Extension Act (H.R. 3856) on Tuesday. The bill would extend the mortgage debt tax exemption that’s been in place since 2007 for another two years.

Foster’s bill would ensure any qualifying reduction or cancellation of mortgage debt is not considered taxable income by extending this tax relief through January 1, 2016, for debt forgiven after December 31, 2013.

Foster’s proposal calls for the costs of such an extension to be offset by repealing a tax break in the Internal Revenue Code’s Section 199 for oil and gas companies. Foster says the Section 199 deductions are no longer necessary since oil and gas companies are making billions in profits each year.

 

Come back to the blog daily for up to the minute updates on this important legislation.

Thanks for reading…Steve Jackson…561.602.1258

Short Sale Tax Relief for 2014?

On December 31, 2013 The Mortgage Debt Relief Act of 2007 expired!  Without an extension, homeowners who have any amount of a mortgage forgiven by a lender either in a short sale or foreclosure would be subject to paying “phantom income tax” on the amount of the forgiveness.  Homeowners shouldn’t be forced to pay tax on money they’ve already lost with cash they never received – and never will receive. That’s crazy…don’t you think?

Current U.S. Senate Legislation: S. 1187 the “Mortgage Forgiveness Tax Relief Act” introduced on June 19, 2013 by Senators Stabenow (D-MI), Menendez (D-NJ) Isakson (R-GA) and Heller (R-NV).

Current U.S. House Legislation: H.R.2994 “Mortgage Forgiveness Tax Relief Act of 2013” introduced on August 2, 2013 by Congressmen Reed (R-NY) and Rangel (D-NY)

NAR has aggressively sought co-sponsors for both the House and Senate bills, currently 19 Senators have cosponsored S.1187 and 48 Members of Congress have cosponsored H.R.2994

Where it stands today, House: The United States House of Representatives adjourned the first session of the 113^th Congress without taking action on H.R. 2994.

Where it stands - Senate:  On December 19, 2013, Senator Debbie Stabenow (D-MI) conducted a discussion, known as a colloquy, with a number of colleagues on the Senate Floor to underscore the importance of passing this legislation.  After the colloquy concluded, Senate Majority Leader Harry Reid (D-NV) came to the floor to request Unanimous Consent to bring up and pass a number of expiring tax provisions, including Mortgage Cancellation.  Under Senate rules only one Senator has to object to stop the process, and Senator Reid’s request was objected to.  Senator Reid then announced his intention to work with Republicans to pass a tax extenders bill – including mortgage cancellation, early in 2014 that would be retroactive.  A few days ago, Senate Finance Committee Chairman Max Baucus (D-MT) also expressed his intention to move the bill, along with a limited number of other tax provisions early in 2014.

So…if you’ve waited to move forward with a short sale on your home, keep reading here for the latest update or feel free to call me any time at 561.602.1258

Happy/Healthy New Year…and thanks for reading.

Steve Jackson

Happy Holidays to all of my loyal blog readers!

Show Me The Money!!

IMPORTANT NEWS FOR ANY HOMEOWNER WHO OWES MORE ON THEIR MORTGAGE THAN THEIR HOME IS WORTH!!

PLEASE FORWARD THIS POST TO YOUR FRIENDS AND FAMILY…

TALLAHASSEE—During a press conference on Friday, September 20, Florida Housing Finance Corporation (Florida Housing) announced that next week, Florida homeowners who have remained current on their mortgages may apply for federal assistance from the Florida Hardest-Hit Fund Principal Reduction (HHF-PR) Program. The online application, www.PrincipalReductionFLHHF.org, will open at 9:00 a.m. (Eastern) on Wednesday, September 25, and will be available in all 67 counties. ON A FIRST COME-FIRST SERVED BASIS

“This morning, Florida Housing’s Board of Directors approved $350 million in federal Hardest-Hit funds allocated to our state to be used specifically for a principal reduction program,” said Steve Auger, executive director of Florida Housing. “While our state’s housing market continues to recover, many Florida homeowners have remained current on their mortgage payments in spite of their homes being substantially underwater. For those who qualify, this new program can help to reduce their principal balance, which can result in a lower monthly payment and put more money in their pockets.”

Initially, only 25,000 completed and submitted applications will be accepted for eligibility determination, via the website only. When that number has been reached, the ability to start a new application will be disabled so that staff can begin processing the completed applications. However, if additional funding is available for the program after this initial launch, Florida Housing will notify the public prior to re-opening the application process.

The Florida HHF-PR program is designed to provide up to $50,000 to eligible homeowners who owe at least 125% more on their home than its current market value—commonly known as having a home that is “underwater.” Funds will be applied to reduce the principal balance of the first mortgage to reduce the loan-to-value (LTV) of the first mortgage to no less than 100%. The mortgage can then be recast (re-amortized) or refinanced to produce a lower monthly mortgage payment.

The minimum qualifications a homeowner must meet to be considered for participation in the Florida HHF-PR program are as follows:

· Must be a Florida resident and a legal US resident/legal alien, and occupy the property as the primary residence;

· Must be current on the monthly mortgage payment—first mortgage payment cannot have been 60 or more days late within the past 24 months;

· The first mortgage must have originated prior to January 1, 2010;

· The unpaid principal balance for the first mortgage cannot exceed $350,000;

· The loan-to-value for the first mortgage must be greater than 125%—in other words, home must be more than 125% “underwater”; and

· The total household income, including all persons age 18 years and older who live in the home, must be less than 140% of the area median income.

Principal reduction program funds will be in the form of a 0% percent, deferred-payment loan that will be subordinate to current mortgages on the home. The loan can be forgiven over a five-year period, at a rate of 20% each year. For conventional mortgages, once HHF-PR funds are applied to the principal, the mortgage will be recast (the terms of the loans will remain the same, but the loan will be re-amortized).

If the borrower has a FHA, VA or USDA-RD mortgage, the mortgage will need to be refinanced within 120 days after closing on HHF principal reduction funds in order to receive the pro rata forgiveness.

If a refinance is not completed within the specified time, the principal reduction loan will be 100% forgiven after a full five years of the borrower remaining in the home.

Homeowners in every Florida county may apply for the Florida HHF-PR program by using the official website: www.PrincipalReductionFLHHF.org. The site contains all the information users will need to begin the application process, including a program fact sheet and answers to frequently asked questions. Additionally, the Florida HHF Toll-free Information Line [1-(877)-863-5244] will be open on Saturday, September 21, and Sunday, September 22, from 9:00 a.m. – 5:00 p.m. to answer any questions callers may have about the program.

Application for the Florida HHF-PR program is FREE-OF-CHARGE, and applicants will not be asked to pay for any eligibility determination services in conjunction with applying for the program.

To My Blog Readers: If you apply for this program please follow up with me and let me know what happens/how it goes. Thanks

Steve Jackson…561.602.1258

 

You may not know this about short sales

1. You can complete a short sale if you are current on your mortgage. There are many short sale programs available (including the Treasury’s HAFA program) in which you can complete a short sale without even missing a mortgage payment. However, the guidelines set forth by the investor that owns the note on the mortgage are what would dictate whether the short sale could be completed with no late payments. Best advice: continue to make mortgage payments, if possible. Later, when the negotiator reviews the file, he or she will alert you whether late payments would be a requirement to approve the short sale. At that time, you can make a decision about how to proceed.
2. You cannot submit more than one offer to the bank at a time. Short sale lenders review and process one offer at a time. Then, if necessary, the short sale lender will provide the agent with a counter offer. If the buyer does not want to move forward and negotiate or accept the counter offer, then the agent can submit a back up offer. Only one offer is processed at a time. If your agent submits multiple offers to the bank, it will complicate and possibly derail the process.
3. All contracts must be fully executed. The borrower or the individual named on the title is the seller of the property and the buyer is the individual that wishes to purchase the property. While the offer will need to go to the lender in order to be “approved”, it must be fully executed (signed, initialed, and dates) by both buyer and seller before being sent to the short sale lender.

If you have any questions concerning the short sale process…feel free to call me directly at 561.602.1258.

Thanks for reading…Steve Jackson

Govt to take the sting out of Short Sales and Foreclosures

The Obama administration wants to create a mortgage market that is more forgiving to borrowers who lost their homes due to the recession, an effort that could widen the pool of potential homeowners.

A recent rule change lets certain borrowers who have gone through a foreclosure, bankruptcy or other adverse event—but who have repaired their credit—become eligible to receive a new mortgage backed by the Federal Housing Administration after waiting as little as one year. Previously, they had to wait at least three years before they could qualify for a new government-backed loan.

To be eligible for the new FHA loans, borrowers must show that their foreclosure or bankruptcy was caused by a job loss or reduction in income that was beyond their control. Borrowers also must prove their incomes have had a "full recovery" and complete housing counseling before getting a new mortgage.

But it isn't clear if banks will be eager to offer loans with the new terms at a time when they are facing a wave of lawsuits and investigations related to other government-backed loans. The FHA already offers among the most flexible lending standards today, requiring down payments of just 3.5%.

"It's difficult to see how lenders would even consider doing mortgages with higher risk" in the current environment, said David Stevens, the chief executive of the Mortgage Bankers Association, who served as the FHA's commissioner from 2009 to 2011. Lenders aren't going to expand credit "while you're suing them and threatening them over minor errors."

The policy change reflects broader concerns among administration officials and federal regulators that the mortgage-credit pendulum has swung too far to the restrictive side from the days of lax lending rules that fueled the bubble. Some economists say too-strict credit standards are shutting out some creditworthy borrowers and holding back economic growth. Low participation in the recovery by young buyers "absolutely is a problem, and I'm not exactly an 'easy credit' guy," said Thomas Lawler, a housing economist in Leesburg, Va.

The new rules, which expire in three years, also apply to former homeowners who completed a short sale, where a bank approves the sale for less than the amount owed.

Shaun Donovan, the secretary for the Department of Housing and Urban Development, which runs the FHA, played down potential criticism that the agency might invite a return to risky lending practices. "What we are talking about is getting back to responsible, plain-vanilla lending," he said in an interview. "We believe these are low-risk loans that can be made safely."

In the four years ended last September, some 3.9 million homes had been lost to foreclosure. About 1 million borrowers who went through foreclosure during the crisis have already waited the required three years to be eligible for an FHA-backed mortgage, and by early next year that number could rise to 1.5 million, according to estimates from Moody's Analytics.

In speeches this year, officials at the Federal Reserve have raised concerns that tight lending standards could make it harder for younger borrowers, who tend to have lower credit scores, to obtain mortgages. The Fed's quarterly surveys of senior loan officers have found that while banks have indicated a growing willingness to extend credit to borrowers with high credit scores, about 30% of lenders in April reported that they were less likely than a year earlier to extend FHA-backed loans to borrowers with lower credit scores.

Still, not all lenders believe tight credit is the problem. Logan Mohtashami, a mortgage broker in Irvine, Calif., argues that weak income growth is a bigger problem. "Getting a loan done is a lot more work, but if you have the financial goods, you get the loan," he said.

But Mr. Mohtashami said he isn't concerned that the FHA rule changes invites a return to bubble-era excesses. "This can't be compared to subprime. The problem back then was that nobody was verifying anything," he said. "This still requires people to qualify for the loan, verify the job, verify the assets."

Write to Nick Timiraos at nick.timiraos@wsj.com

FHA says…Foreclosures? No problem!

FHA Back To Work Program Waives Foreclosure, Bankruptcy, And Short Sale Waiting Periods

The Federal Housing Administration (FHA) has waived its 3-year foreclosure waiting period. Effective August 15, 2013, FHA has agreed to waive the current 3 year wait period under a new program called “Back-To-Work-Extenuating Circumstances”

What is the FHA Back To Work - Extenuating Circumstances program?
The FHA Back To Work - Extenuating Circumstances program is the FHA's "second chance" for mortgage applicants who have experienced financial hardship as a result of unemployment or severe reduction in income.  Borrowers with a recent history of bankruptcy, foreclosure, judgment, short sale, loan modification or deed-in-lieu can now apply and get FHA approved for an FHA-insured mortgage.  It will still allow up to 96.50% financing!  This will certainly open the door for many who lost their jobs and their homes as a result of the recession. The FHA realizes that, sometimes, credit events may be beyond clients’ control, and that credit histories don't always reflect a person's true ability or willingness to pay on a mortgage.

If you have experienced any of the following financial difficulties, they may be program-eligible:
•Pre-foreclosure sales
•Short sales
•Deed-in-lieu
•Foreclosure
•Chapter 7 bankruptcy
•Chapter 13 bankruptcy
•Loan modification
•Forbearance agreements

If you think you may qualify for this new program and believe that now is a good time to get back into a home of your own, call me.

Thanks…Steve Jackson

561.602.1258

Lets keep this housing party going!

There was a time when those who defaulted on their debt, especially mortgages, had to wait 3-5 years before they became eligible for any form of new credit, let alone a brand new mortgage. That, however, was in the Old Normal. In the New one things are different: so different, that for anyone who filed a bankruptcy on or before July 2012, we have good news for you - the FHA (subject to an explanation and several almost painless conditions) will be happy to provide you with a brand new mortgage.

From the recent FHA Mortgagee Letter 2013-26:

FHA is continuing its commitment to fully evaluate borrowers who have experienced periods of financial difficulty due to extenuating circumstances.

As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.

To that end, FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that:

• certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
• the borrower has demonstrated full recovery from the event; and,
• the borrower has completed housing counseling.

Housing counseling is an important resource for both first-time home buyers and repeat home owners. Housing counseling enables borrowers to better understand their loan options and obligations, and assists borrowers in the creation and assessment of their household budget, accessing reliable information and resources, avoiding scams, and being better prepared for future financial shocks, among other benefits to the borrower.

Well, we did say almost painless: it is only logical that after filing bankruptcy one should go to housing counseling. Surely that will 'learn' one to buy that 18 bedroom McMansion that the evil banker, gun against head, forced down one's throat.

Either way, once done with the grueling "counseling" sessions, and providing evidence one didn't blow it all in Vegas, the FHA makes one eligible for a new mortgage even with a prior recent bankruptcy, and not just any but Chapter 7 as well as 13, as follows:

D. Economic Event-Related Chapter 7 Bankruptcy

The lender must verify and document that:

• a minimum of twelve (12) months have elapsed since the date of discharge of the bankruptcy; and
• the bankruptcy was the result of the Economic Event.

E. Economic Event-Related Chapter 13 Bankruptcy

The lender must verify and document that:

• the Chapter 13 Bankruptcy was discharged prior to loan application and all required bankruptcy payments were made on-time, or a minimum of twelve (12) months of the pay-out period under the bankruptcy has elapsed and all required bankruptcy payments were made on time; and
• the bankruptcy was the result of the Economic Event.

But what if, gasp, the existing bankruptcy has not yet been discharged? Don't worry: the FHA's got you covered even then:

If the Chapter 13 Bankruptcy was not discharged prior to loan application, the lender must also verify and document that the borrower has received written permission from the Bankruptcy Court to enter into the subject mortgage transaction.

And so on. There are other conditions (the full FHA Mortgagee Letter can be found here) but if the only gate for a bankruptcy as a restraining factor is for 12 months to have gone by, one can imagine just how "strict" the other conditions have to be.

So…party on!

Thanks for reading…as always.

Steve Jackson

561.602.1258

BofA channels Seinfeld’s ‘soup nazi’…No Loan Modification for you!

Bank of America Corp., rewarded staff with cash bonuses and gift cards for meeting quotas tied to sending distressed homeowners into foreclosure, former employees said in court documents.

Mortgage workers falsified records and were told to delay U.S. loan-assistance applications by requesting paperwork that the Charlotte, North Carolina-based bank had already received, according to statements from ex-employees filed last week in federal court in Boston. The lender improperly disqualified applicants to the Home Affordable Modification Program, or HAMP, according to a May 23 statement from Simone Gordon, a loss-mitigation specialist who left the company in 2012.

“We were regularly drilled that it was our job to maximize fees for the bank by fostering and extending delay of the HAMP modification process by any means we could,” Gordon said. Managers instructed staff to “delay modifications by telling homeowners who called in that their documents were ‘under review,’ when in fact, there had been no review,” she said.

The lender unsuccessfully tried to dismiss the complaint in 2011. U.S. District Judge Rya Zobel ruled that the case could proceed while dismissing some claims. Zobel is scheduled to consider the class-certification request at an Aug. 1 hearing.

Loan collectors who put at least 10 customers into foreclosure, including those who were in trial modifications, were given a $500 bonus, said Gordon, who worked at Bank of America for more than four years. Other rewards included gift cards for retailers including Target (TGT) and Bed, Bath and Beyond, she said.

Another former employee, Theresa Terrelonge, said loan officers were given restaurant gift cards and $25 cash awards for denying loan applications. The incentives moved workers to improperly reject applicants, Terrelonge said in a May 15 statement.

“I witnessed employees and managers change and falsify information in the systems of record, and remove documents from homeowners’ files to make the account appear ineligible for a loan modification,” said Terrelonge, a loan servicing representative. This allowed managers to meet quotas for closed cases, she said.

Bank of America instructed employees to delay applications and mislead customers “as part of a deliberate practice of stringing homeowners along,” lawyers said in a June 7 filing.

The law firm is in contact with more than 1,000 Bank of America customers who said they completed requirements for a trial and were denied permanent modifications, attorney Steve Berman of Hagens Berman Sobol Shapiro LLP said in a court filing. Lawyers supported their claims with declarations from the seven employees, many of whom said they had access to the bank’s software, which allowed them to understand the process.

“I personally reviewed hundreds of files in which the computer systems showed that the homeowner had fulfilled a trial-period plan” before being denied, said William Wilson, a loan manager who left the firm in August. “On many occasions, homeowners who did not receive the permanent modification that they were entitled to ultimately lost their homes.”

The bank offered some applicants who should’ve gotten HAMP modifications a more-expensive private loan that charged as much as 5 percent interest, compared with 2 percent under the U.S. program, said Wilson, a case-management leader overseeing 13 others.

The bank held a twice-monthly “blitz” in which thousands of cases were improperly denied, Wilson said. Employees would certify to the U.S. Treasury Department false reasons for rejections, he said.

And the story goes on…and, from what I hear in the field, I can’t believe that this is the only bank doing the same or similar things.

If you, or someone you know has gone through a situation like this…first thing is to contact a good foreclosure attorney. After that, it may be prudent to give me a call to discuss disposing of your home via a short sale before the bank can foreclose on you.

Reach me directly at 561.354.6011 or email

Thanks for reading…Steve Jackson

 

 

 

Read the complete Original article on Bloomberg

Hardship letter info

One of the items your lender or servicer will ask for during the short sale process is a hardship letter. A hardship letter is a written explanation as to what “event” has caused you to fall behind or be at risk for immanent default on your mortgage.

This letter acts much like an outline or biography of your current issues that are negatively affecting your ability to meet your financial obligations and that are preventing you from selling your home.

Now, we do not suggest that you write a book because most likely it will not get the attention of an over worked, $12 an hour loss mitigation employee. Keep it short and to the point. Usually 1or 2 pages is more than enough to get your point across.

Here is an example some hardships that we have seen lenders consider favorably during the short sale process:

• Adjustable Rate Mortgage Reset-Payment Shock
• Illness
• Loss of Job
• Reduced Income (reduced/eliminated bonus, overtime, reduced hours, etc)
• Failed Business
• Job Relocation
• Death of Spouse or Co-Borrower
• Death
• Incarceration
• Divorce
• Marital Separation
• Military Duty
• Medical/Health issues
• Damage to Property (natural disaster or unnatural)
• Other (call us to discuss)

Now that you understand what your lender or servicer is looking for, it’s time to sit down and write a hardship letter. I made it easy for you by giving you a couple templates below that you can use as a boiler plate for your own letter. Make sure you make it unique to your situation. And we always suggest that it be a handwritten letter.

Remember that your hardship letter is only one piece of the short sale process, but key in helping you avoid foreclosure. You will still need to jump over quite a few hurdles with your lender before they will approve a short sale.

Example Hardship Letter:

Name: (Your Name)

Address: (Your Address)

Lender Name: (Your Lender)

Loan #: (your Loan #)

To Whom It May Concern:

I am writing this letter to explain my unfortunate set of circumstances that have caused us to become delinquent on our mortgage. We have done everything in our power to make ends meet but unfortunately we have fallen short and would like you to consider approving us for a short sale of our home.

The main reason that caused us to be late is (insert reason here and don’t be too lengthy and long winded) Soon after being late and our income not being nearly enough, we have fallen further and further behind. Now, it’s to the point where we cannot afford to pay what is owed to (lender). At this time we have exhausted all of our income and resources so we are turning to you for help.

(The approximate date of hardship and we believe that our situation is Permanent.)

We truly hope that you will consider working with us and we are anxious to get this settled so we all can move on.

Sincerely and Respectfully,

Borrower’s Signature

Date

Co-Borrower’s Signature

Date

---

EXAMPLE  Hardship Letter 2
Date
To: Countrywide Mortgage account #

Re: Short Sale Request

Due to the recent adjustment to the mortgage I currently have with your company, I am finding it very difficult to afford the new payment. I have a 3 year fixed rate which is now adjustable and is schedule to adjust again in Feb. 2014.

Considering my current income, there will be no way I can afford the increased payments. Hopefully you will allow us to complete a short sale on our home and avoid foreclosure.

My mortgage was originally written by another company and bought by Countrywide. The original mortgage terms were terrible but it was the only loan I was qualified for at the time. I was assured that refinancing would be no problem but that turned out not to be true due to the downturn of the housing industry.

The main problem is that my property is now worth about 15-20% less than what I paid for it which is preventing me from being able to sell or refinance.

I believe this addresses the situation I currently find myself in along with many other homeowners. Attached is our financial documentation showing our current income and expenses.

Thanks you for your time and consideration.

---

The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney and/or CPA to obtain advice with respect to any particular issue or problem.

Thanks for reading and feel free to call with any questions…Steve Jackson

561.602.1258

We broke up…Can I still short sell the house?

Sadly, this is a question I get several times a year.

If you want to know if you should short sale properties after a breakup or divorce, then you are not alone. In fact, if you are curious about whether or not to short sale a home or just move directly to bankruptcy, again, you are not alone.

Up until 2007, so few people dealt with upside-down real estate issues that you were branded a pariah if you had a foreclosure or short sale on your record. But that just is not the case anymore. The real estate market crash has left millions of people in bad circumstances, and they are facing what feels like the hardest decision of their lives.

 

Here is an email question on this subject:

In 2007 and 2008, I bought 3 properties. Well, after a nasty breakup and horrible renters I’m now in dire straights. I need to know what the best solution is for my situation. I owe more on all the homes than they are worth. I can no longer lease the rentals for the amount it takes to cover the mortgages, which has drained my savings account. The question I have is: Should I short sale and will I be left with a hefty short sale tax bill for the rentals? Or, should I simply call it quits and file bankruptcy? – Thank you, DT

Before I proceed, I do want to remind you that I am not an attorney or accountant and I do not write for the purpose of dispensing legal or tax advice.

Short sales can take a long time, the process is loaded with so many variables, and if you have an experienced short sale agent on your team you should be able to change your mind at any time up until closing if you have worked out a loan modification, deed-in-lieu or some other agreement that you feel better suits your situation..

So, if you start down the road to a short sale and the bank doesn’t give you an offer that you like, you do not have to take it. There are many crucial areas that need to be negotiated and explained to you and that is where having an experienced short sale agent can be the difference between getting rid of a property through short sale versus having to file bankruptcy.

So my final answer to “DT” is: Your situation is tricky…how were the properties titled? Who is on the mortgage as well as the note? Are there other liens against the properties? A Short sale MAY be in your best interest. If it is determined that a short sale is the best way to go work with somebody who knows how to short sale properties and avoid bankruptcy if possible. Remember, you are not alone, there are millions of other people who have or will be dealing with very similar issues. Fix your problem today by meeting with somebody who really knows how to short sale real estate.

Of course, if you need to speak with somebody in Palm Beach County who knows how to short sale properties, just drop me a note or call me at 561.602.1258 and we can schedule a time to review your situation and explore all of your options.

Thanks for reading…Steve Jackson

Does it pay to sell?

Senator on a Mission to Change the Way Short Sales Affect Credit Reporting

May 17 2013, 1:43PM

Senator Bill Nelson (D-FL has asked for an investigation and possible "crackdown" on the manner in which short sales are impacting consumer credit files.   Nelson said that short sales are now often reported to the credit agencies using the same code that designates a completed foreclosure.

In letters sent earlier this month to Edith Ramirez, Chairwoman of the Federal Trade Commission (FTC) and Richard Cordray, Director of the Consumer Financial Protection Bureau (CFPB) Nelson called the credit coding practice "disturbing" and said that there are key differences between a short sale and a foreclosure and both have major but different implications for consumers' credit ratings.

"If a short sale is reported as a foreclosure, it could unfairly ruin short sellers' credit scores and make it more expensive for them to borrow," the letters said.  "Instead of being able to qualify for a new home loan in just two years due to a short sale, they may have to wait up to seven years if that short sale is reported as a foreclosure.  This actually could delay their re-entry into the housing market, stifling economic recovery for all homeowners."

Nelson said that the practice is also tainting consumers' ability to qualify for other types of credit such as auto loans and can affect their costs for insurance as well.  "Based on recent reviews conducted by mortgage giants such as Fannie Mae and Freddie Mac," he said, "the controversial reporting practice is widely known in the industry but little has been done to fix it."

Short sales are becoming increasingly common and Nelson represents a state that continues to be among the worst in the nation for the number of homeowners who have negative equity or who are unable to make mortgage payments and must exit - voluntarily or otherwise - home ownership.  Some homeowners seek short sales even while making mortgage payments in order to avoid an eventual default.  "Many homeowners who go through short sales are hoping for a fresh start," Nelson said in a news release.  "Instead, a lot of them might not even know they're continuing to be punished."

Banks and credit bureaus contend the problem lies in the standardized credit reporting software which, they say has no special code to report a short sale.  Nelson said regardless of the reasons many homeowners are being punished twice, first because of the economic downturn and loss of value in their home, then because of incorrectly coded credit reports.  This is occurring even as homeowners are offered encouragement and even incentives from banks and the government to pursue short sales.  
Nelson asked both agency heads to "vigorously and immediately enforce the accuracy provisions in the federal credit-reporting law; and, to conduct a complete and thorough investigation of the aforementioned credit-reporting practices.  I also ask that you penalize responsible parties in the mortgage- and credit-reporting industries, if they don't fix this coding problem within 90 days."

Thanks for reading…Steve Jackson, 561.602.1258

Call me on my direct number, above, if you have any question regarding short selling, deed-in-lieu or foreclosure on your Florida home.

Read the original article on the MortgageNewsDaily.com site

Some tax time info…

HUGE (and obvious) disclaimer right up front…I AM NOT AN ACCOUNTANT OR TAX ATTORNEY…CONTACT THE APPROPRIATE PROFESSIONAL FOR ANY AND ALL TAX ADVICE.

Ok..now that we have that out of the way…below I’ll answer a few of the most common questions I get from my short sale clients regarding the Mortgage Forgiveness Debt Relief Act.

The Mortgage Forgiveness Debt Relief Act generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief.

The amount excluded reduces the taxpayer’s cost basis in the home. More details. Further information, including detailed examples, can also be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

The questions and answers, below, are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act.

1. What is Cancellation of Debt?

If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you and then forgives that balance, there is a cancellation of debt of $8,000, which generally is taxable income to you.

2. Is Cancellation of Debt income always taxable?

Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

• Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
• Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
• Certain farm debts:If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
• Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences, as discussed in Question 3 below. (FLORIDA IS NOT a non-recourse state for residential mortgages)

3. I lost my home through foreclosure.  Are there tax consequences? 

• There MAY be a Taxable cancellation of debt income

Use the following steps to compute the income to be reported from a foreclosure:

Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section.  You have no income from cancellation of debt.)

1. Enter the total amount of the debt immediately prior to the foreclosure.___________
2. Enter the fair market value of the property from Form 1099-C, box 7. ___________
3. Subtract line 2 from line 1.If less than zero, enter zero.___________

The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C.  This amount is generally taxable unless you meet one of the exceptions in question 2.

4. I lost money on the foreclosure of my home.  Can I claim a loss on my tax return?

No.  Losses from the sale or foreclosure of personal property are not deductible. 

5.  I don’t agree with the information on the Form 1099-C.  What should I do?

Contact the lender.  The lender should issue a corrected form if the information is determined to be incorrect.  Always retain all records related to the purchase and sale (or foreclosure) of your home and all related debt.

6. I received a notice from the IRS on this. What should I do?

The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.

7. Where else can I go to get tax help?

If you are having difficulty resolving a tax problem (such as one involving an IRS bill, letter or notice) through normal IRS channels, the Taxpayer Advocate Service may be able to help. For more information, you can also call the TAS toll-free case intake line at 1-877-777-4778, TTY/TDD 1-800-829-4059.

In some cases, you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC).  LITCs are independent organizations that represent low income taxpayers in tax disputes with the IRS. Find information on an LITCs in your area.

Related Items:

• Publication 523, Selling Your Home

• Publication 544, Sales and Other Dispositions of Assets

• Publication 908, Bankruptcy Tax Guide

• Form 1040, U.S. Individual Income Tax Return

• Form 1040, Schedule D, Capital Gains and Losses

• Form 1099-C, Cancellation of Debt

• Form 9465, Installment Agreement Request

Making Moving Easier for Children

From a great parenting blog, Little Hearts/Gentle Parenting, that I read whenever I can, comes this post on kids and moving

Transitions are hard on everyone, and when the whole family is affected such as in a big move to a new home, parents often get so caught up in the logistics of the move and their own stresses that helping their children cope with the move can get lost in the chaos. Here are a few things you can do to ease the transition for your little people without adding more stress to yourself:

1. With small children, it can be tempting to build up the move beforehand to make it seem like an exciting adventure, but over excitement can be just as stressful and overwhelming to small children (and big ones!) as anxiety can be. Instead, try to keep things as low-key as possible. Wait until it’s close to time to actually start packing before discussing the move with your little one, and then use simple, age-appropriate language to tell them that you are all moving together (emphasize together so there’s no misunderstanding!) to a new house.
2. Show them pictures of the new house, the new yard, their new room, the kitchen, bathroom, living room, etc. Ask them where they’d like to put their bed and draw it on the picture with a marker. Do the same with their toy box, toothbrush, high chair, sandbox, and anything they ask about to reassure them that their things are coming along on the move and to begin to familiarize them with their new space. Give them a marker and another set of pictures of the new house to draw on so they can begin to make it their own.
3. Put boxes in their room a few days before the move and let them begin to pack their own things in their own time. You can go back and repack the boxes when they’re asleep or playing elsewhere if needed. Giving them some control over the move will help tremendously with their feelings of being taken away from their familiar home.
4. Keep a few familiar toys out for the actual move to help your little one see that their things are coming with them. If possible, let them help with loading the boxes from their room onto the truck, too. Knowing that their toys and clothes and bed are coming with them on the move is very comforting.
5. Pack a travel bag with new toys and activities and healthy, familiar snacks for moving day. The novelty of the new toys will help them to travel more happily, and the familiar snacks will keep their tummies settled and hunger at bay making for a calmer trip for all.
6. At the new house, unpack your little one’s things first if at all possible so that they can see for themselves that they made the trip and can begin settling in right away. Take the time to play with them, too. It’s amazing how a few minutes of playing together can settle a small child when they’re stressed!
7. Don’t be surprised if your little one is clingy and whiney for a few days after the move. After unpacking their things, don’t try to rush to unpack everything else all at once. Give your child all of the time and attention they need to help ease the transition for them.
8. Nighttime can be the hardest for children in a new home, so be prepared for lots of cuddling and possibly a night visitor in your bed for a while. Being there for your little one at night is as important as being there for them in the day!
9. Involve them in unpacking and putting away everything from kitchen utensils to books to linens to clothes. Children are very tactile, and actually touching all of the places and putting familiar things from their old home away in the new home can help them to begin to feel at home themselves.
10. Stick to familiar routines such as bedtime, naptime, etc. But don’t be rigid about schedules. Your little one has been through a huge change and needs extra attention and understanding from their source of comfort and security…you!
11. Introduce new things like playgroups, pediatricians, babysitters, churches, etc. slowly, spread out over as long a period of time as possible. The move itself is overwhelming enough in its newness without adding in a ton of other unfamiliar things right away.
12. Find some things near your new home that are familiar to your little one from your previous home such as a chain grocery store, toy store, restaurant, etc. Seeing and visiting familiar places is vastly reassuring for small children because they can see for themselves that you can still buy them food and other necessities even though you’ve moved.

Giving your child the reassurance that some things will remain the same even when so many things have changed helps to stabilize and assure them that their needs will still be met and life will still go on in many of the same patterns and routines they are used to. Remaining calm and available for your little one, even in the midst of your own stresses over the move, is key. But take care of yourself, too. Change is hard on everyone, so cut yourself some slack and don’t try to do everything at once. Remember, slow and steady wins the race!

 

Thanks for reading…Steve Jackson…561.602.1258