NOW when lenders pursue foreclosures and simultaneously negotiate with clients to modify their mortgages so that payments become more affordable. Homeowners will not wind up being evicted even though they had been working with the bank to modify their loans in order to avoid foreclosure.
This Bill will favor banks because no lawsuit can go forward if the bank or service first fixes the alleged problem with documentation or procedures, according to the bills.
The Bills narrowed the measures to apply only to modifications on first-lien mortgages. The compromises also limited the protections to only owner-occupied residential properties with fewer than four living units. The proposed law does not cover mortgage holders who bought property for investments and so-called strategic defaulters, who turn in keys and voluntary go into foreclosure.
Gov. Jerry Brown hasn’t said whether he supports the two bills, written by 10 Democratic lawmakers, including the Senate and Assembly leaders. Those lawmakers, however, said they couldn’t foresee any circumstances in which Brown might use his veto powers.
This bill just came out and I am sure there will be a lot of changes on its way to formalizing this. One thing for sure I know is that if this bill passes, loan modification will be done quicker to then start the foreclosure process for non qualified homeowners.
Debt Relief Act 2007 expiring this December 2012
The Mortgage Debt Relief Act expires at the end of the year and there appears to be a big push in the real estate industry to get homeowners considering a short sale to move quickly. The Act offers relief to homeowners who would owe taxes on the mortgage debt after a short sale or foreclosure. Real estate and tax experts warn that some agents may used this expiration as a gimmick to get more listings and even may offer some bad advice along the way.
Q: Dear Ken, with this debt relief act expiring year end what will happen after, will the lenders pursue a civil judgment on foreclosed or short sales of properties?
Ken Go: The Mortgage Debt Relief Act is not common knowledge. Potentially millions of people will find themselves stuck with a huge tax bill after foreclosure if the government doesn’t renew the Debt Relief Act at the end of 2012 or if they don’t finalize their foreclosure by that date. The bill may well expire, like when Congress chose not to renew the homebuyers tax credit. The Mortgage Debt Relief Act was created to protect homeowners who are foreclosing on principal residences only and who have never refinanced by taking out a home equity line of credit. The Internal Revenue Service states that The Mortgage 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, qualifies for the relief.
Check with your CPA and ask them about filling a 982 form with your debt cancellation notice.
Today, mostly all the short sales approval carries a lien release and a debt forgiveness clause which assures the homeowners that once the short sale is processed the borrowers will no longer be liable for the debt and with the “Debt Relief Act” still in place can write off the taxes they would have had to file due to the forgiveness of debt.
Remember, if you had a Short Sale completed in the previous year please do not forget to file the 1099C you would have gotten from your previous lender. That might seem like an earned income for the debt forgiven by your lender thru the short sale process, IRS still would like that to be properly declared. Please check with your CPA about that. I have gotten calls for IRS calling on 1099C’s not filled properly.
Loan stripping of second mortgages is commonly misunderstood. Homeowners filing for bankruptcy somehow think that the second loan (if they have it) will drop off after filling. I have gotten many calls and have simultaneously checked with title if the second lien has been removed. But unfortunately this is not a very common occurrence, your second lien might not be collecting anymore but rest assure it’s still tied to your property and is considered a lien. Please clarify with your attorney how a lien may or may not be removed after filling for BK thru a motion for the courts to release the lien. That I believe is the most important part of getting your second loan completely off your title and property. Please inquire fully the steps and warranties of such.
I am sure millions of homeowners would just walk from their homes if they didn’t get their principle reduced like the Joneses next door. It’s the old adage, “If you did it for them, then why can’t you do it for me?” Now multiply that by millions and millions of people and you can see why this will not happen anytime soon.
* * *
Thanks for your inquiries and please call me anytime, Ken Go of 1st Innovative Finance Group at (562)508-7048 or write to [email protected].