What is MERS and Had They Lost Their Significance?

What To Do With Mers?
Most of the mortgages are owned by an entity called MERS (Mortgage Electronic Recording System). This is not some physical entity, it is just like an electronic warehouse which keeps title record of most of the mortgages in USA. Now, irrespective of the fact that you are making your mortgage payments directly to your lender, this entity possibly may have all of your records. It is an electronic entity. Many cases have been decided in USA calling it a non party-in-interest. This term is a legal terms which means that only legal entity can sue or be sued. Every action in US courts must be initiated by a real party in interest and be defended by a real party in interest. MERS as such is not a real party in interest. They can be identified in your mortgage record as the “mortgagee of record” or sometimes as “nominee” or agent for the purpose of making future transfer of transactions.

What Is MERS and How Does It Work?
It was a mysterious electronic organization, a very large electronic database of mortgages and mortgage transactions. It was crafted in the mid 1990s as a legal device to replace the county land title recording system. The real estate boom was largely attributed to MERS as the securitization process culminates with MERS. Most of the lenders joined MERS happily as it transferred and registered all the mortgage transaction to its data bank. The lenders saved lots of money because most of the transaction took place electronically and saved millions for lenders as they saved having local agents in various counties throughout USA. Also, most of its work was generic, similar, and ingenuity was required so there was a tremendous cost saving which made lenders very rich, and softened their lending practices.

Innumerable Problems Created by the MERS System
We know that under the traditional (and legally authorized) method of keeping track of who owns what, any person is free to walk into a land records office and search the entire historical record of who bought and sold any particular piece of property. In other words, this was commonly called a “title search.” Under the MERS system, however, no such search is possible. MERS Members are not required to report transfers to the database and so there is no real way to be sure about who owns what.

One Court Says: MERS Doesn’t Deliver Clear Title
Back to our previous comment that MERS cannot sue in their names because they are not a real party in interest. As it is one of the cardinal principle of transfer that a note follows the deed and they cannot be sold separately. In In re Agard, a bankruptcy judge analyzed MERS for the purpose of deciding whether a bank seeking foreclosure could prove that it owned the promissory note accompanying the mortgage — a prerequisite in bankruptcy court when asking the court for permission to proceed with the foreclosure. Previously, MERS had attempted to assign the mortgage and promissory note to the foreclosing bank and the question was whether it successfully did so.

The bankruptcy court in Nevada had decided that MERS is not a proper party which can sue in its own name because it had not entered into any transactions with the homeowners. It concluded that MERS, as currently structured, did not deliver clear title to the foreclosing bank.
MERS Announces Some Changes
Because of the various problems it faces in the Courts, MERS has recently announced that it is changing one of its membership rules (Rule 8) to require that members no longer foreclose in MERS name. MERS has also told its members that assignments out of MERS’s name should be recorded in the county land records even if the state law doesn’t require it.

Our Military Is Protected from Foreclosure under The Servicemen Act (SCRA)

We have been approached by few military families whose home were foreclosed while the owner were performing military services overseas. This is very painful, but unfortunately, it has been done and the homes were foreclosed in clear violation of the SCRA. In one case, our law office helped getting back garnished wages of a police officer back. Two mortgage servicing companies have agreed to settle federal complaints that they wrongfully foreclosed on the homes of at least 178 military service members and to set aside a minimum of $22 million to compensate those victims. This is a great victory for the Justice Department that various lenders had settled such cases. The lenders include, of course the notorious one i.e Countrywide Home Loan Servicing and Saxon Mortgage Services. These companies knowingly and repeatedly violated the Service members Civil Relief Act, a federal law that extends an array of financial and legal protections to military personnel. The former Countrywide unit agreed to pay $20 million to approximately 160 victims of illegal foreclosures from January 2006 to May 2009. It also agreed to reimburse victims of any other illegal military foreclosures found to have occurred from May 2009 to the end of last year.
NY Times has posted one such painful story of Sgt. James B. Hourley who was away on war duties in Iraq. In violation of a law intended to protect active military personnel from creditors, agents of Deutsche Bank foreclosed on his small Michigan house, forcing Sergeant Hurley’s wife, Brandie, and her two young children to move out and find shelter elsewhere.

“When the sergeant returned in December 2005, he drove past the densely wooded riverfront property outside Hartford, Mich. The peaceful little home was still there — winter birds still darted over the gazebo he had built near the water’s edge — but it almost certainly would never be his again. Less than two months before his return from the war, the bank’s agents sold the property to a buyer in Chicago for $76,000. Since then, Sergeant Hurley has been on an odyssey through the legal system, with little hope of a happy ending — indeed, the foreclosure that cost him his home may also cost him his marriage. ”Brandie took this very badly,” said Sergeant Hurley, 45, a plainspoken man who was disabled in Iraq and is now unemployed. ”We’re trying to piece it together.”

“In March 2009, a federal judge ruled that the bank’s foreclosure in 2004 violated federal law but the battle did not end there for Sergeant Hurley. Typically, banks respond quickly to public reports of errors affecting military families. But today, more than six years after the illegal foreclosure, Deutsche Bank Trust Company and its primary co-defendant, a Morgan Stanley subsidiary called Saxon Mortgage Services, are still in court disputing whether Sergeant Hurley is owed significant damages. Exhibits show that at least 100 other military mortgages are being serviced for Deutsche Bank, but it is not clear whether other service members have been affected by the policy that resulted in the Hurley foreclosure.”

In court papers, lawyers for Saxon and the bank assert the sergeant is entitled to recover no more than the fair market value of his lost home. His lawyers argue that the defendants should pay much more than that — including an award of punitive damages to deter big lenders from future violations of the law. The law is called the Service members Civil Relief Act, and it protects service members on active duty from many of the legal consequences of their forced absence.

We suggest as a foreclosure defense attorney, and working in this field for long time, we encourage any military family (living in Nevada) to ask our free legal help in this regard. We would not charge any money upfront from any such familiy AND EVEN ADVANCE COURT COST, if they have meritorious case while their loved one were performing military services overseas. Call us at (702) 270-9100 and even get a free consultation over the phone.

Foreclosure Lawyers Not Above Board–Judge Berate Bank Lawyers

While we criticize everyone including lenders, mortgage brokers, bank attorneys has been berated by judges lately. Now judges are lamenting and doing their scorching criticism of lawyers–notably bank lawyers. Judges have accused lawyers of processing shoddy or fabricated paperwork when representing their clients i.e banks. Here, is one such judge. Judge Arthur M. Schack of New York State Supreme Court in Brooklyn has taken aim at an upstate lawyer, Steven J. Baum, referring to one filing as “incredible, outrageous, ludicrous and disingenuous.” As we know, New York judges are also trying to take the lead in fixing the mortgage mess by leaning on the lawyers. In November, a judge ordered Mr. Baum’s firm to pay nearly $20,000 in fines and costs related to papers that he said contained numerous “falsities.” The judge, Scott Fairgrieve of Nassau County District Court, wrote that “swearing to false statements reflects poorly on the profession as a whole.”

The courts in New York State, along with Florida, have begun requiring that lawyers in foreclosure cases vouch for the accuracy of the documents they present. This also prompted a protest from the New York bar. We know that involvement of lawyers in questionable transaction can expose them to disciplinary conduct under their respective bar associations. It may reflect very poorly on our profession as a whole. The role of lawyers is under scrutiny in 23 states where foreclosures must be reviewed by a court. The situation has become especially heated for high-volume firms whose practices mirror the so-called robo-signing of some financial institutions. Robo signing, as you may know, was an accelerated process to do foreclosure without actually physically signing by someone knowledgeable and was merely a rubber stamp hoodwinked the foreclosure process.

Massachusetts Settles Suits Against Mortgage Lender Option One

We are hearing good news of homeowners fight against their predatory lenders. One such good news came from Massachusetts. Associated Press had reported (published in NY Times also in their August 11, 2011 issue) that Option One now known as Sand Canyon, agreed to make loan modification valued at $115 milliont to homeowners facing foreclosure. This lender has issued from 2004 through 2007 risky loans that did not document borrowers’ incomes to confirm they could afford the loans. Our readers may like to know that this lender is a subsidiary of H&R Block. They did not care of the general eligibility of homeowners and just based everything on their own model of not doing any loan modifications. Nearly 5,500 homeowners could get some relief on their loan payments under the settlement.

Refinancing Plan for Mortgages

Finally, something good came in the news and that is the refinancing of underwater homes. Despite the fact that there has been a very low interest rate available but many homeowners could not take benefit due to the fact of bad appraisals and their bad credit owing to delinquencies on their homes. However, good news is that Obama Administration is actively thinking of helping homeowners in refinancing their deep under water homes. Also, this would impact economy in creating more jobs, stopping foreclosure and the surplus money thus saved put back into our economy. It is an excellent proposal and we completely support it. Here is the full article:

U.S. May Back Refinance Plan for Mortgages
By SHAILA DEWAN and LOUISE STORY
The Obama administration is considering further actions to strengthen the housing market, but the bar is high: plans must help a broad swath of homeowners, stimulate the economy and cost next to nothing.

One proposal would allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, about 4 percent, according to two people briefed on the administration’s discussions who asked not to be identified because they were not allowed to talk about the information.

A wave of refinancing could be a strong stimulus to the economy, because it would lower consumers’ mortgage bills right away and allow them to spend elsewhere. But such a sweeping change could face opposition from the regulator who oversees Fannie Mae and Freddie Mac, and from investors in government-backed mortgage bonds.

Administration officials said on Wednesday that they were weighing a range of proposals, including changes to its previous refinancing programs to increase the number of homeowners taking part. They are also working on a home rental program that would try to shore up housing prices by preventing hundreds of thousands of foreclosed homes from flooding the market. That program is further along — the administration requested ideas for execution from the private sector earlier this month.

But refinancing could have far greater breadth, saving homeowners, by one estimate, $85 billion a year. Despite record low interest rates, many homeowners have been unable to refinance their loans either because they owe more than their houses are now worth or because their credit is tarnished.

Exactly how a refinancing plan might work is still under discussion. It is unclear, for example, whether people who are delinquent on their mortgages would be eligible or whether lenders would administer it. Federal officials have consistently overestimated the number of households that would be helped by their various housing assistance programs.

A working group of housing experts across several federal agencies could recommend one or both proposals, or come up with new ones. Or it might decide to do nothing.

Investors may suspect a plan is in the works. Fannie and Freddie mortgage bonds had been trading well above their face value because so few people were refinancing, keeping returns on the bonds high. But those bond prices dropped sharply this week.

Administration discussions about housing proposals have taken on added urgency this summer because the housing market is continuing to deteriorate. On Wednesday, the government said that prices of homes with government-backed mortgages fell 5.9 percent in the second quarter from a year earlier, the biggest decline since 2009. More than one in five homeowners with mortgages owe more than their homes are worth. Some analysts are now predicting waves of foreclosures and a continuing slide in home prices.

There is not much time to help the market before the 2012 election, and given Congressional resistance to other types of stimulus, housing may be the only economic fix in reach. Federal programs to assist homeowners have been regarded as ineffective so far, and they are complex.

“We are looking at trying to encourage more participation in all of the programs, including those that help with refinancing,” said Phyllis Caldwell, who oversees housing policy at the Treasury Department.

Some economists say that with housing prices and interest rates at affordable levels, only fear is keeping consumers out of the market. Frank E. Nothaft, the chief economist at Freddie Mac, said the federal action could instill confidence.

“It almost seems to me you want to have some type of announcement or policy, program or something from the federal government that provides that clear signal that we are here supporting the housing market and this is indeed a good time to really consider buying,” Mr. Nothaft said.

The refinancing idea has been around since at least 2008, but proponents say the recent drop in interest rates to below 4 percent may breathe new life into the plan.

“This is the best stimulus out there because it doesn’t increase the deficit, it accomplishes monetary policy, and it reduces defaults in housing,” said Christopher J. Mayer, an economist at the Columbia Business School. “So I think this is low-hanging fruit.” Mr. Mayer and a colleague, Glenn Hubbard, who was chairman of the Council of Economic Advisers under President George W. Bush, proposed an early version of the plan.

The idea is appealing because it would not necessarily require Congressional action. It also would not tap any of the $45.6 billion in Troubled Asset Relief Funds that was set aside to help struggling homeowners. Only $22.9 billion of that pool has been spent or pledged so far, and fewer than 1.7 million loans have been modified under federal programs. But Andrea Risotto, a Treasury spokeswoman, said whatever was left would be used to reduce the federal deficit.

A mass refinancing plan would spread the benefits of the Federal Reserve’s most important economic policy response, low interest rates, to more people. As of July, an estimated $2.4 trillion in mortgages backed by Fannie and Freddie carried interest rates of 4.5 percent or higher.

The two prevailing ideas, lowering rates on mortgages and converting houses owned by government entities like Freddie and Fannie into rentals and other uses, have somewhat different pockets of support. Investment firms would like to participate in the rental program, especially if the government lends them money to participate. For the most part, banks prefer the refinancing plan. There are many high-ranking proponents of the refinancing plan. Joseph Tracy, a senior adviser to the chairman of the New York Federal Reserve, has circulated a presentation in support of the plan. And Richard B. Berner, who recently joined the Treasury Department as counselor to Secretary Timothy F. Geithner, argued in favor of a blanket refinancing in his previous job as chief United States economist for Morgan Stanley. The proponents say the plan carries little risk because the mortgages are already guaranteed by Fannie Mae and Freddie Mac. They also say it makes those loans less likely to go into default and ultimately foreclosure.

But the plan has some drawbacks. Some officials fear that promoting mass refinancings today could spook investors and make borrowing more expensive, for both homeowners and the federal government, in the future.

The government has already encouraged some refinancing through the Federal Housing Administration and through Fannie and Freddie, but participation is limited. For example, the Home Affordable Refinance Program excludes homeowners who owe more than 125 percent of the value of their house. To spur more refinancing, the government may decide to encourage Fannie and Freddie to lift such restrictions.

But government officials cautioned that Fannie and Freddie do not do the administration’s bidding, even though they are essentially owned by taxpayers. Edward J. DeMarco, who oversees the companies as acting director of the Federal Housing Finance Agency, has voiced concerns about any plan that might cost the companies money, according to the two people briefed on the discussions. “F.H.F.A. remains open to all ideas that provide needed assistance to borrowers” while minimizing the cost to taxpayers, Mr. DeMarco said in a written statement.

A broader criticism of a refinancing expansion is that it would not do enough to address the two main drivers of foreclosures: homes worth less than their mortgages, and a sudden loss of income, like unemployment. American homeowners currently owe some $700 billion more than their homes are worth.

This article has been revised to reflect the following correction:

Correction: August 26, 2011

An article on Thursday about the Obama administration’s consideration of a proposal to allow homeowners with government-backed mortgages to refinance them at today’s lower interest rates misstated Edward DeMarco’s title at the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. He is its acting director, not its chairman.

Bank of America was Slapped with Historic Judgment

Can the economy revive without help to homeowners?

The homeowners are bleeding for long time and the scant help has given them no respite. The statistics are increasing and still Las Vegas is number one in foreclosure sale. None of the higher constitutional authorities had done any thorough probe in this matter. We hear lots of news but no solution so far. Only half-hearted measures had been taken and none of that has produced any tangible result to correct the rampant situation. Now, we have another fiasco and that is that the Standard and Poor’s has purposely overrated the toxic mortgage rating/securities before this financial fiasco erupted with full force. Yes, the same S&P which has decreased the rating on USA which resulted and still bleeding our markets by a descent of 1500 points so far.

We rather not say much about Congress as much has been said in the media. As usual we have assembly of incompetent, nincompoop, and do nothing people who like to come to the house, fight and then go to long vacation. As we know,tens of millions of Americans are continuously being crushed by this mortgage crisis. See for example, the stock of Bank of American. They had taken a big hit–some 10 billion loss only this years, and there stock price has been reduced to half the size. Yet, when it comes to loan modification, they resisted every request for loan modification. At least the homeowners were reaffirming the original debt. But BAC rather let it go to short sale for one third of the original loan, then give a reduced payments to the genuine, and hardprssed homeowners. We tried, we called several times, sent innumerable paperwork, and yet same annoying people gave us the same annoying news.

Obama administration has no mechanism to enforce, no accountability other than advice to bank to “do their best”. There were two other crook organization who thanks got are bankruptcy now i.e Freedie Mae and Fannie Mae. Banks took advantage of their idiocy and incompetence and made millions dumping bad securities upon them. Of course, there is no let up in sight. We have left with one thing, and that is reducing principle once for all. The reckless borrowers are no more on the horizons. Thus, this is good time to reward genuine homeowners. Also, we suggest to let the bankruptcy courts do the loan modification. Somehow they are already involved via chapter 13 this time.

Homeowners Needs Help–The Economy is Not Reviving

href=”http://www.nytimes.com/2011/08/22/opinion/homeowners-need-help.html?_r=1&hp”>

Mountain of paperworks for loan modification

The following post is an interesting link where a homeowner was swamped endlessly with paperwork after paperwork by bank. This shows how callous a system has become, rubbing the miseries of homeowners.

http://redtape.msnbc.msn.com/_news/2011/06/27/6957811-why-is-housing-market-stuck-this-family-offers-one-answer

Finally, Nevada Sued Bank of America

We all know that Bank of America is the slowest, laziest bank when it comes to loan modification. There customer service is horrible, and when it comes to simple straight forward loan modification, they keep on dragging their feet, and find some excuse to delay the loan modification. Tired of this fiasco, the attorney generals of both Nevada and Arizona mustered courage and sued the BOA. Let us hope that bring some quick good result for the homeowners in Nevada.

http://www.nytimes.com/2010/12/18/business/18mortgage.html?ref=foreclosures&pagewanted=print

Military Families Targeted in Foreclosure Crisis

New York Times has recently reported in a detailed article that even military families are not spared in this ongoing foreclosure mess and targeted by lenders, foreclosure scam agencies and others. How shameful it is that these families suffer from the hands of these predators. Here is the full article.

http://www.nytimes.com/2011/03/12/business/12military.html?_r=1&ref=foreclosures#

Nevada Mediation Rules Changed

The Supreme Court of Nevada has changed rules effective March 1, 2011.
Here is the set of new and amended rules.

http://www.nevadajudiciary.us/index.php/viewdocumentsandforms/func-startdown/5925/

Bank of America Halts Foreclosure Across USA

Now, finally some good news. Bank of America halted all foreclosure throughout the United States. Here is the link to the news:
http://www.dailyfinance.com/article/bofa-halts-foreclosure-sales-in-50/1317455/

Horror Tales of Robo-Signing

Robo-signing is just the latest discovery how the lenders manipulated and acceleratated the process of service, affidavits, notorizations of documents in foreclosing millions of homes. Please see more details in the attached article.

http://www.dailyfinance.com/story/real-estate/robo-signing-scandal-california-democrats-call-for-federal-prob/19662343/re .

Robo-Signing Controversy? What is it?

The “robo-signing” controversy over lenders’ allegedly lax foreclosure procedures is picking up momentum, with the Office of Comptroller of the Currency ordering the nation’s largest lenders to review their foreclosure processes. The robo signature identifies a process where a signature is affixed on the default notices, or other mortgage documents without reliable means or authenticity thus accelerating the foreclosure process. This denies all the legal avenues available to a distressed homeowners. The OCC has directed Bank of America, J.P. Morgan Chase, Citibank, HSBC, PNC Bank, U.S. Bank, Wells Fargo and GMAC Mortgage to make sure they are following proper procedures. Basically, this robo controversy is alive when banks foreclosure department streamlined the foreclosure process by falsely submitting affidavits, and forged signature. Also, this included bypassing state foreclosure procedure and notice laws. The foreclosure machinery in the banks are slowing down the process of streamlining this foreclosure process of rapid home repossessions.

This would also slow down evictions sharply. The questionable foreclosure would considerably slow down if not completed halted. Also, this would slow down resolutions of short sales and outright eviction. Of course this is a mass denial of distressed homeowners rights and destroyed the homeownership values throughout USA.

It may have some better consequences as this may help somewhat recovery of the real estate market. Of course that is a far-fetched thought. Most of the states, including Nevada, are facing large number of foreclosed homes continuously coming to the market and depressing the neighborhoods. Some economist think that it may as shock therabpy. This can be a happy ending but still there is lots of confusion.

As more defaulting homeowners become aware of the lenders’ problems, they are expected to hire lawyers and challenge the proceedings against them. And if completed foreclosures were not properly done, families who bought the troubled homes could be vulnerable to claims by the former owners. This in nutshell a continuous saga of despair and hope mixed together.

Old Republic National Title already sent a bulletin to its agents NO no any insurance to policies issued by GMAC Mortgage.

GMAC has acknowledged legal missteps in processing mortgages, and JPMorgan Chase has acknowledged the possibility of missteps, and both have suspended all foreclosures in the 23 states where they need a court’s approval.
Attorneys general in half a dozen states are demanding action or opening investigations. The Treasury Department said Thursday it was asking regulators to look into “these troubling developments.”

GMAC and Chase are in trouble because, overwhelmed with foreclosures, they tried to process them as quickly and cheaply as possible, defense lawyers say. The companies say they are reviewing their procedures to take care of any violations.

The missteps stemmed from the affidavits the lenders file as they seek a quick or summary judgment in thousands of foreclosure cases. The affidavits state certain facts about the case, including the amount owed, which the signer indicates he has personal knowledge of. Without the affidavit, the lender would have to prove the facts at trial.

In depositions taken by lawyers for homeowners, executives at GMAC and Chase said they or their teams signed 10,000 or more affidavits and related documents a month. That did not give them time to review the cases.
Many necessary documents have disappeared, with defense lawyers saying the lenders often do not even have standing to foreclose.

Do we need foreclosure courts in Nevada?

There are too many cases filed everyday in the courts in Nevada about wrongful foreclosure, temporary injunction concerning forelcosure. It is almost blocking and taking the precious time from our judicial systems to adjudicate the complex foreclosure cases. Meanwhile all the parties including homeowners, lenders and other involved stays in a state of limbo unless the judge decides on these cases. We have Business Courts, Landlord-Tenant Court and of course Construction Defects courts. Nevada legislators needs to seriously think about establishing foreclosure courts. However, Florida has answer to this by especially making Foreclosures Courts separate and apart from their judicial system.

There are too many cases filed everyday in the courts in Nevada about wrongful foreclosure, temporary injunction concerning forelcosure. It is almost blocking and taking the precious time from our judicial systems to adjudicate the complex foreclosure cases. Meanwhile all the parties including homeowners, lenders and other involved stays in a state of limbo unless the judge decides on these cases. We have Business Courts, Landlord-Tenant Court and of course Construction Defects courts. Nevada legislators needs to seriously think about establishing foreclosure courts. However, Florida has answer to this by especially making Foreclosures Courts separate and apart from their judicial system.

To be sure, adjudicating foreclosure cases is difficult, complicated by multiple transfers of mortgages and notes when a loan is sold, bewildering paperwork submitted by loan servicers and shoddy record-keeping by the many institutions that touched the mortgages during the byzantine securitization process that fueled the housing boom.

http://www.nytimes.com/2010/09/05/business/05house.html?ref=foreclosures

How to bounce back after bankruptcy?

Can you bounce back after bankruptcy?
I have been asked many times what would be the life after bankruptcy and how the debtors can reestablish their credit again and acquire credit again. Of course, it would be difficult and time consuming, but it is not impossible. Soon after the discharge of bankruptcy, one start getting offers from credit card companies and a secured credit card is an ideal form for reestablishing credit. Actually, almost anyone can get credit soon after a bankruptcy. It’s just a matter of knowing how and what steps to take. Of course, bankruptcy deals a devastating blow to your credit and your credit score, the three-digit number lenders use to gauge your credit-worthiness. your FICO is at the bottom of scores, but you should not be discouraged by this devasating score. Of course, you can build it slowly and surely. But the effects don’t have to be lasting. Long before the bankruptcy drops off your credit report, you could be qualifying for loans with good rates and terms. I still consider FICO a fiction but it still runs your credit life, and all the lenders use this tool all the time. So, it is an important yardstick.

Nothing in credit remains forever. A bankruptcy legally can remain on your credit report for up to 10 years, but its effect on your credit score can start to diminish the day your case is closed — if you adopt responsible credit habits such as paying your bills on time, using only a small portion of your available credit and not applying for too much credit at once. Well, to start, one must learn some lesson, some financial education after declaring bankruptcy and devise a saner financial course. The days of wasteful expenditure should be gone forever and one must always learn new tools, education, train, or get a professional training to acquire more money. Of course, if you become wealthier, it may solve lots of your financial problems.

You may live on cash for quite some time and paying by cash is a good habit, but still one has to use credit. Afterall, we live in a credit society and we have to travle, hire a cab or rent a car and buy grocery sometime on credit cards. You have to get and use credit to build your credit score. But if you want to rebuild your credit score, you can’t sit on the sidelines.

Did you ever try to make a budget? Of course a written budge, and not something on whims only. No technical knowledge is required. Simply write one page all sources of your income and on the next page write faithfully all of your expenditure, and see why there is so much widespread deficit in both. Why can’t you balance the budget and live a healthy life.
Of course it is time to clean up your credit report. You may find someone who can help you or you can write simple letters to all the credit bureaus. Possibly, your credit report may still show some of the delinquencies which ought to have been wiped out but still lingering there like a bad dream. Also, if you have other serious mistakes on your credit report, those need to be corrected as well. Your credit score is based on information in your credit report, so errors on your report can seriously dampen your score.

How to write a hardship letter?

By Malik Ahmad, Attorney at Law

(No copy rights reserved: Use it extensively with your own revision at your own risk, just send me an email of acknowledgement. No legal advice is meant and provided here]

[Malik Ahmad is a Las Vegas Attorney having his own law office. He can be reached at Malik11397@aol.com. He is admitted to all the courts in the state of Nevada. His areas of practice include real estate, bankruptcy and loan modification].

By far writing and inclusion of a hardship letter is a must (a sine quo nun to use the legal lingo) and most sought after requirement by your lenders. This hardship letter does not require and asking for the best English language writing skills but at least it mandates a strong composition which details all the hardship you are presently suffering. Give them a laundry list of all the economic problems you have. Don’t make it too long. A synopsis is enough. Here, in this brief article I am going to touch all those spots on which your lender may base its loan modification decision. Remember, the other supporting documents your lender requires are: (1) the bank statements; (2) the tax record for two years and (3) the paystubs. Almost every lender requires this hardship letter. Here, I am giving first all the hardship points which may or may not be required and suitable in each and every case, but which you can edit to suit your particular needs.

1. Hardship about yourself:

You are telling your own story. Write like a story.

“I had a continuous job at the IBM for the last 7 years, and the company shut down the local plant. Consequently, I was laid off from work. I have been looking for work for quite some time. Initially, I was drawing unemployment compensation, but since last few weeks (or months) I have ran out of this compensation. I almost send my resume to various employers. Due to the current hardship, I am not getting many responses.

“We barely are making our normal household expenses. If you look at our history of mortgage payments, you would see that we had a pattern of timely payments on our mortgage since originally we bought this home in 1999. It is only three months ago when we were first delinquent. We though we would catch up. Initially, we borrowed from our lines of equity, but that has been cut down and now frozen by our bank. We do not like to borrow from family and friends at this time.”

2. About Your Family:

“Luckily, my wife is still employed. She is employed as a registered nurse at the local hospital. She used to work overtime, but because of the depressing conditions, the hospital had cut down her overtime. Additionally, she worked part time but recently the County had laid down its benefit program for the indigent”.

“We had lately an extended family in our home as parents of my wife had joined us. My 82 mother in law is in frail health accompanied by my 92 years old father in law. Presently, both are living with because they rural place where they lived had no modern medical facilities. My mother in law is suffering from Alzheimer. My wife had to take her quite often to the local professional medical offices. They had to go at least three times a week. Even though our in laws sometime contribute in household things but largely we bear the expenses.”

“Unfortunately, our 10 year old son was diagnosed with the disease of the liver. We had to buy the latest medicine which is not covered by our health plan, and there is no generic substitute of these medicines. We had to spend an upward of $300 every month on these medicines.”

“We had recently borrowed $20,000 from our pension and which was spent on paying all the old bills. We ran out this money quickly, and now the Pension Fund has placed severe restrictions on any more withdrawal.”

“My wife who worked as a registered nurse in the local hospital always wanted to pursue a master degree in public health administration (MBA, Public Administration, Nurse Practitioner etc). She has enrolled in the University of Nevada in their master program where one more year has left in her completion. She likes to become a university nursing teacher. Our expenses are quadrupled because of her enrollment and doing lesser numbers of hours at her regular employment”.

“I am enrolled in an MBA Program in the University of Phoenix (CPA, Law school, chef school, auto technician course, vocation schools etc). It is night program which is extended to 4 years degree program. I have almost finished the first two years. It was a wise expenditure of my savings as I was expecting a promotion in the place of my work. Hopefully, someday I would be rewarded for this hard work.”

3. General Situation:

“We had a lower interest rate initially for the first two years. We had a good FICO score and always though that we can get better interest rate. Our loan officer promised us that once we are entrenched in our home for some time, we would be eligible for better interest rate. We had not seen any better interest rate other than the fact that these interests are constantly rising. We used to pay a payment of $1650 per month, which was increased for an upward adjustment to $1850 and now since the last three months had gone up to $2450. This is an exorbitant amount which unfortunately we cannot pay. There is a choice to either pay for the basic necessities of life or pay just the mortgage only. We had also seen a sharp increase in our utilities bill including the cost of transportation. Furthermore, my commute time has been increased due to our work place relocated in far off place from my home.”

“Our loan officer always told us that our interest rate is locked at 5% percent. We were shocked when our attorney friend came to our home for a social function and we showed him our escrow papers. According to him, there are quite a few violations of RESPA and TILA. We were never provided a copy of the good faith estimate. We were not provided this entire disclosure certificate under TILA. Our attorney friend had told us that in his opinion we are a victim of some predatory lending practices, and that we should seek an immediate legal help. He also told us to seek some forensic loan audit.”

“We are not litigious people. At this time we are requesting a loan modification with a significant decrease in our interest rate as well as a reduction in our principal balance. We are not delinquent kind of people. We like this home, and like to continue staying here. This has been a part of our American Dream. Our economic hardship is temporary and hopefully would resolve in next few years. At this time we are requesting a loan modification with a significant decrease in our interest rate as well principal. Interest rates are historically low and your bank had also accepted federal bailout money. We do not anticipate another loan modification, and if this done right we would abide by all the terms and conditions set by it.

What is mortgage forgiveness Act?

The Mortgage Forgiveness Debt Relief Act of 2007 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, qualify for this relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

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 of 2007.

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, 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.

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

There are two possible consequences you must consider:

Taxable cancellation of debt income.(Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans.)
A reportable gain from the disposition of the home (because foreclosures are treated like sales for tax purposes).(Note: Often some or all of the gain from the sale of a personal residence qualifies for exclusion from 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 taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.

Step 2 – Figuring Gain from Foreclosure

4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure ________
5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ____________
6. Subtract line 5 from line 4. If less than zero, enter zero.

The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.

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. Can you provide examples?

A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.

The borrower figures income from the foreclosure as follows:

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.___$220,000__
2. Enter the fair market value of the property from Form 1099-C, box 7. ___$200,000__
3. Subtract line 2 from line 1.If less than zero, enter zero.___$20,000__

The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.

Step 2 – Figuring Gain from Foreclosure

4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure. __$200,000__
5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ___$170,000__
6. Subtract line 5 from line 4.If less than zero, enter zero.___$30,000__

The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.

In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000 minus $170,000), because they owned and lived in their home as a principal residence for at least two years. Ordinarily, the borrower would also have taxable debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the borrower’s liabilities exceed assets by $20,000 ($250,000 minus $230,000) there is no tax on the canceled debt.

Other examples can be found in IRS Publication 544, Sales and Other Dispositions of Assets, under the section “Foreclosures and Repossessions”.

6. 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. Retain all records related to the purchase of your home and all related debt.

7. 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.

8. 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.

More Banks Falling

We all know how slow the banks are when it comes to loan modification. We send repeatedly the loan documents with all the requirements, and yet the bank still keeps on asking more and more documents and never even acknowledging the docs which they already had received. Well, banks keep on losing money because they were not getting any mortgage payments, nor any modified payments from homeowners, yet paying their HOA, insurance, home upkeep, cash for keys and foreclosure fees. This all compound to their losses. We always thought they would listen, and business judgment would prevail where they can cut their losses. However, lots of banks are also working on some kind of “Exit Strategy” or “Strategic Default” which many homeowners are doing. Please read this link and see how many banks are “foreclosing” upon themselves. (i.e declaring bankruptcy)

http://www.dailyfinance.com/story/insurance/2010-bank-closures-failures/19561975/