Walking away from a mortgage you can afford won’t be the end of the story
By Buck Wargo (contact)
Friday, Sept. 3, 2010 | 2 a.m.
The news is bad enough that three homeowners out of four in the Las Vegas Valley owe more on their houses than they’re worth. And there’s no comfort in the prediction that the local real estate market won’t recover for years. For the full story click below.
Filing turns out to be ‘a relief’ for widow
Life as Renne Fortier knew it changed in January 2009.
Her husband, Mark, was diagnosed with CNS lymphoma, a brain tumor, while he was working in Hawaii. By March, he was gone and she was a 38-year-old widow with one income and two daughters, ages 16 and 11, to support. Click below for the entire story.
http://www.lvrj.com/business/chapter-7-not-final-chapter-102326189.html
The phrase “Delinquent Mortgage,” once a foreign concept for many Americans, has now become part of our everyday vernacular. When nearly 4 million homeowners are currently 60 or more days behind on their mortgages, it is actually no surprise that citizens nationwide are buzzing about the housing crisis. That crisis is worse here in Las Vegas than it is in many other areas of the country and Las Vegas citizens are certainly feeling the economic pinch.
More than 60 percent of homeowners nationwide who have seriously delinquent loans are still not involved in any form of loss mitigation with their lenders, probably due to the frustration with the processes available. In fact, a recent performance report indicates that nearly half of the property owners approved for trial loan modifications have fallen out of the program. By the end of July 2010, approximately 616,839 out of the total of 1,307,489 HAMP three-month trial plans have been cancelled since the program began. This tremendous dropout rate may be due to the lengthy process of obtaining a permanent modification. For instance, as a result of the backlog, only 36,695 HAMP restructurings were converted to permanent status during the month of July.
For those who are already involved in loan modifications or short sales, the process may soon become even more difficult and time consuming as Fannie Mae and Freddie Mac have become more aggressive in forcing originating lenders to buy back bad loans. A report by Fitch Ratings illustrates that, in a worst-case scenario, the buybacks may result in a combined loss of between $17 billion and $42 billion for the nation’s four largest banks – Bank of America, JPMorgan Chase, Wells Fargo, and Citi. Considering these numbers, it is safe to assume that the process will become even more tedious.
Despite homeowners’ understandable frustrations with the short sale and loan modification processes, these avenues may preserve some homeowners’ rights down the road. For example, if a lender tries to pursue a deficiency judgment following a foreclosure, the homeowner has the ability to demonstrate efforts to work with the lender to mitigate losses. It is hopeful that the courts will not turn a blind eye to these whole-hearted attempts. As such, underwater homeowners should become informed, seek assistance from a legitimate source, and do their best to stay patient.
Kelle L. Kuebler, Attorney*
*Licensed only in New York and Connecticut
Don’t miss the upcoming Town Hall meeting in which Tisha Black, Esq., will address YOUR legal questions about the current Real Estate market. This meeting will be on September 25, 2010 at 10:00 AM located at the Green Valley Ranch. Please submit any questions you would like to have answered at this very important meeting through Twitter or Facebook.
Starting September 7, 2010, the Federal Housing Administration (FHA) will offer a new refinance program to qualifying underwater homeowners. To be able to participate in the program you must be current on your home loan, your credit score must be 500 or above, and the home must constitute your primary residence. Further, all lien holders related to the property must agree to the refinance and agree to write off at least ten percent (10%) of the unpaid principal balance. As most borrowers know, lenders are loathed to write off any of the principal regardless of the possible incentives. The program does, however, offer more incentives beyond new FHA-insured mortgages. The program contemplates certain incentives for any second lien holders to provide a full or partial extinguishment of the lien. HUD says interested homeowners should contact their lenders to determine if they are eligible and whether or not their lender agrees to write down a portion of the unpaid principal. Keep in mind that the present loan must be a non-FHA loan.
Tisha Black Chernine, Esq.
Rarely does a loan modification include a principal reduction. The typical loan modification only deals with the first mortgage and will only reduce the monthly payment, not the total amount due and owing. For most Las Vegans it does not make sense to keep paying on an asset that is completely upside-down.
Therefore, many people turn to Chapter 13 bankruptcy to modify their loans AND reduce the principal balance. Chapter 13 bankruptcy can eliminate your second mortgage completely while bringing any missed payments on your first mortgage current over a three or five year period. In bankruptcy, removing the second lien on a property is called “lien stripping.” You can lien strip only if the value of your house is LESS than what you owe on your first mortgage.
For example, if the value of your home is $175,000 and you have a first mortgage of $200,000 and a second mortgage of $150,000, in a Chapter 13 bankruptcy you completely eliminate the second mortgage and only pay on the first mortgage. Thus, in Chapter 13 bankruptcy you were able to reduce the principal amount of your home by $150,000.
Chapter 13 bankruptcy has many other benefits and, in some cases, can save your home. To learn more, please visit Black & LoBello’s Bankruptcy Website for more details.
Randy M. Creighton, Esq.
Prudential Americana hosts Tisha Black Chernine as a legal expert on the housing market in Las Vegas. Click here to watch the video.
If the bank foreclosed on your house or you abandoned it, and the lender cancelled your debt, you may receive IRS forms from the lender regarding that cancelled debt. Your lender may send you an IRS Form 1099-A, Acquisition or Abandonment of Secured Property or an IRS Form 1099-C, Cancellation of Debt. If you used the debt to purchase, build, or substantially improve your primary residence, that debt may qualify as “acquisition debt,” and be eligible for the Home Mortgage Debt Forgiveness Relief program. If you have received either Form 1099-A or Form 1099-C, the IRS recommends you review IRS Publication 523 and 525 to determine whether you must include the debt amount on your tax return as income.
This article does NOT constitute tax advice. If you desire tax planning or assistance, seek a qualified professional.
Carlos L. McDade, Esq.
A bankruptcy court in Pennsylvania recently ruled on an issue that has been a frequent source of confusion to those working with short sales.
The issue is whether a 1099-C issued by a lender to a borrower automatically relieves the borrower of liability for the debt. In other words, is a creditor prevented from pursuing collection of a debt for which it has issued a 1099-C pursuant to IRS requirements?
A 1099-C is issued to the borrower by the lender for “cancelled” debt. This debt generally is taxable income to the borrower. The exceptions to this have been covered extensively in other articles including that for purchase money debt on a primary residence.
In the case of In re Zilka (407 B.R. 684) the court considered this issue in a situation that did not involve a short sale. Nonetheless, the case is illustrative of what may happen when a court considers the issue in a short sale context. The judge wrote:
[The creditor’s] issuance of the Forms 1099-C did not itself operate to legally discharge the Debtor from further liability on each of the [creditor’s] four claims. That is because Forms 1009-C, as a matter of law, do not themselves operate to legally discharge debtors from liability on those claims that are described in the Forms 1099-C.
The court addressed the issue of a taxpayer who has paid tax on cancelled debt that is the subject of the 1099-C. It found that the issuance of a corrected 1099-C would allow the creditor to pursue the debt in such a situation. This can be distinguished form a short sale of a primary residence where the owner most likely is subject to tax relief.
Robert B. Noggle, Esq.
Nevada requires that a deed of trust be used to secure a real estate loan. Although commonly referred to as a mortgage, a deed of trust has significant differences from a mortgage. In addition, states using deeds of trust differ among themselves in their requirements.
All mortgages are two-party instruments between the lender and the borrower. Foreclosure of a mortgage requires the lender to file a complaint with the appropriate court and proceed through the judicial process. Anecdotal reports from mortgage states such as Ohio indicate that borrowers can delay these cases for years. The process is slow and expensive.
Deeds of trust are three-party instruments. There is a beneficiary, who is the lender; a trustee who is a third party responsible for the foreclosure process including filing the Notice of Default and related documents; and the trustor who is the borrower. A foreclosure of a deed of trust does not require that a court case be filed. It is fast and inexpensive compared to a mortgage foreclosure.
In Nevada the foreclosure process begins with the filing of a notice of default by the trustee. The borrower has 35 days from that date to bring the delinquent payments current together with the lender’s costs and fees. Starting on the 36th day, to prevent foreclosure the borrower must pay the entire principal balance owing together with interest and any additional amounts owing for fees and costs. 21 days prior to the trustee’s foreclosure sale the trustee must publish a notice of the sale once each week and also post the notice. At the end of 111 days the property may be sold at the trustee’s sale. The borrower has no right of redemption after the sale.
Nevada is a full recourse state until October 1, 2009. This means that the foreclosing lender has six months to file a complaint against the borrower seeking the recovery of the deficiency after the sale. After the six month period lapses the lender is barred from filing suit to recover the deficiency. Full recourse means that the borrower is liable for the deficiency regardless of the purpose of the loan. There is no exemption for loans used to purchase an owner occupied residence.
Effective October 1, 2009, Nevada becomes a limited recourse state similar to California. Loans made after October 1, 2009; by a financial institution to a borrower who continuously occupies the property as a primary residence are nonrecourse. This means that the lender may not pursue a foreclosed borrower to recover a deficiency.
Nevada recently joined the small number of states that entitle the borrower receiving a notice of default to request mandatory mediation with the lender. This applies to all primary residences receiving a notice of default starting July 1, 2009.
Tisha Black Chernine, Esq.
