Finally, a lawsuit is filed in Seattle against Bank of America. It says that Bank of America dragged its foot in every matter denying the homeowners of the true benefits of both TARP and HAMP
Archive for March, 2010|Monthly archive page
The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program. This is a good news but its impact is still being considered by lenders and government officials. This proposal prohibit “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.
“It is one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts,” Treasury spokeswoman Meg Reilly said in an e-mail. “This proposal has not been approved and there are no immediate planned announcements on the issue.”
At present, lenders can initiate foreclosure proceedings on any loan that hasn’t been submitted for HAMP eligibility. Under current HAMP rules, foreclosure litigation can proceed while borrowers are under review for the program or even in a trial modification. As you may know, widespred changes have been made in state laws including state of Nevada under AB 149 which prohibits foreclosure without offering homeowners a last chance to review loan modification before giving banks a carte blanche for foreclosure.
The proposed changes would prohibit lenders from initiating new foreclosure actions before loan screening by HAMP and would require lenders to halt existing proceedings for borrowers once they are in a trial repayment plan.
The Treasury Department will soon release guidance “which will include a set of improved protections for borrowers” in HAMP, Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office, said today in testimony prepared for a House Oversight and Government Reform subcommittee. She didn’t provide details.
The proposal goes further than rules adopted amid the crisis by federally controlled mortgage-finance companies Freddie Mac and Fannie Mae, which require lenders to review borrowers for a federal loan modification before a foreclosed property can be sold.
About 89 percent of outstanding residential mortgage loans are covered by the voluntary HAMP program.
About 2.82 million U.S. homeowners lost properties to foreclosure last year and 4.5 million filings are expected in 2010, RealtyTrac Inc., an Irvine, California data company, said last month.
Obama’s foreclosure prevention initiative, announced in February 2009 to help as many as 4 million Americans avert foreclosure, has modified 116,297 loans through steps such as lowering interest rates or lengthening repayment terms. More than 830,000 borrowers received trial repayment plans through January, according to Treasury data.
“Foreclosure processes differ among states, and the process is often confusing to homeowners already facing distress,” Caldwell said in her prepared testimony. “Treasury has been reviewing guidelines around outreach and the foreclosure process as part of its continual assessment of program effectiveness and transparency.”
Foreclosures may reach as many as 7 million mortgages, and an additional 5 million are at risk of default because borrowers owe more than the property is worth, Laurie Goodman, senior managing director at Amherst Securities Group LP in New York, said in a Feb. 17 interview.
[As is common, please consult a tax consultant to discuss your own peculiar situation]
As we may know now that the Obama administration and private lenders now actively considering mortgage principal-reduction programs to help financially distressed homeowners. However, the Internal Revenue Service has issued a new advisory to taxpayers who sells homes in short sale or via surrender deed in lieu of foreclosure.
The federal tax code generally treats any forgiveness of debt by a creditor in excess of $600 as ordinary taxable income to the recipient. However, under legislation that took effect in 2007, certain home mortgage debt cancellations ” such as through loan modifications, short sales or foreclosures” may be exempted from tax treatment as income. Sheila Bair, chairman of the Federal Deposit Insurance Corp., recently confirmed that her agency is working on a new program to expand the use of principal mortgage reductions to keep underwater borrowers out of foreclosure.
The Tax Implications: IRS guidance issued March 4 spelled out, step by step, how financially troubled and underwater borrowers can qualify for tax relief when a lender agrees to lower their debt. Now, folks who are considering a short sale or loan modification or any other quick way to shed away or walk away from their homes (some calling it strategic default), must think the following before they do anything in this regard.
1. The federal tax exclusion only applies to mortgage balances on your principal residence ” your main home” and not on second homes, rental real estate or business property.
2. The maximum amount of forgiven debt eligible under the law is $2 million for married taxpayers filing jointly and $1 million for single filers.
3. Your debt reduction can only be for loan amounts that you’ve used to “buy, build or substantially improve your principal residence.” This includes refinancings that increased your total mortgage debt attributable to renovations and capital improvements of your house.
4. Let us say if you used the proceeds for other personal purposes, such as to pay off credit-card bills, buy cars or invest in stocks, the mortgage debt attributable to those expenditures is not eligible for tax exclusion.
5. Again, let us put another way, if you refinanced and used some of the proceeds to purchase a boat and pay off business debts. Those expenditures would not qualify for the tax-relief provisions because they were not intended to substantially improve your house or build a residence.
6. The lender is required by law to issue you an IRS Form 1099-C, a “Cancellation of Debt” notice, which is also sent to the IRS.
7. The form shows not only the amount of debt discharged but the estimated fair-market value of the house securing the debt as well.
8. If you’ve been foreclosed upon or you do a short sale and you lose money in the process, don’t claim a tax loss on your federal filing. The IRS will turn you down.
9. However, if you go to foreclosure and your lender agrees to cancel all or part of the unpaid mortgage balance as part of the deal, then you can file for an exemption from the IRS.
10. What if your lender reduces the debt on your house but you continue to own the property and live in it? There’s a tax wrinkle in the fine print: The IRS will require you to reduce your “basis” in the house ” your “cost” for tax purposes” by the amount of the forgiven debt.
11. Finally, if you want to claim the debt forgiveness exemption, download IRS Form 982 (available at http://www.irs.gov) and attach it to your return for the year in which the debt was forgiven. And don’t assume this tax-code benefit to homeowners will be around forever. It expires at the end of 2012.
Abandonment of the property is one of the most commonly misunderstood concept under bankruptcy. An abandonment is based on three interests when someone files bankruptcy petition. It affects the following interests
- Lienholder’s interst,
-the debtor’s exemption interest,
-estate’s interest in any remaining equity.
Let us say if a debtor owns a home worth $200,000 subject to the consensual lien of $50,000.00. Before bankruptcy, there are only two interest in the property –the lienholder’s and the owners’. On filing bankruptcy, the estate’s interest also become part of the lien into this equation. There are now three entities who has a relative interest in the property. The bankruptcy Code authorizes the trustee to abandon estate property that is “burdensome to the estate or of inconsequential value and benefit to the estate”. The estate can relinquish its claims –which in other words is called abandonment. When trustee finds out nothing but problem, and again trustee are to make quick money on the estate and they are really not in the business of property management or being auctioneers.