Email
Print
by 
Home borrowers are facing foreclosure that shouldn’t be. Senator McCain blames home loan lenders
. Home loan lenders are NOT doing the REQUIRED Note Modification. Instead, irrational lenders are illegally doing Foreclosures and Short Sales in violation of their own rules.
Home owners must force their lender to do the REQUIRED Note Modifications.
The required immediate Note Modification gives homeowners time until the housing market recovers, the economy recovers, homeowners’ credit can start being repaired to its previous flawless condition, and do NOT add to the already bloated for sale/rent housing inventory. That’s why HUD, Freddie and Fannie had their foreclosure mitigation requirements, and Congress and the President signed foreclosure mitigation legislation into law.
FOR HOME LOANS SOLD TO FREDDIE MAC
In May 2007, Freddie Mac REQUIRED loan modifications to AVOID foreclosures.
From Freddie Mac’s website: “As the real estate market continues to change in many areas of the country, many borrowers who are facing financial hardship are finding it increasingly difficult to make their mortgage payments, which may result in jeopardized credit and even loss of their home. But help is available. We offer many alternatives to explore with borrowers who are delinquent on their mortgage payments. For borrowers who face foreclosure, it’s reducing the borrower's note rate or monthly payment, or extending the maturity date, and a loan modification is a possible option for a borrower in default.”
FOR HOME LOANS SOLD TO FANNIE MAE
On October 4, 2006 , Fannie Mae REQUIRED loan modifications to AVOID foreclosures.
From Fannie Mae’s website: “This Announcement describes an additional option now available to servicers for modifying delinquent adjustable-rate conventional mortgages and introduces new and enhanced forms for documenting modifications of both adjustable-rate and fixed-rate conventional mortgages. In order to avoid foreclosures of delinquent mortgages, we allow servicers to modify the terms of delinquent conventional mortgages with our prior approval and that of the mortgage insurer, if any. Currently, servicers may recommend to us modifications that extend the term of the mortgage, provide for reamortization of the outstanding debt, change adjustable-rate mortgages to fixed-rate mortgages (using the current market interest rate for the remaining term of the mortgage), capitalize delinquent interest and escrow items or advances (and costs, if allowed by state law), and/or reduce the existing interest rate to the current market rate or to a below-market interest rate.”
FHA INSURED HOME LOANS
In 2005, HUD put forth its “FHA Loss Mitigation Program gives lenders the authority and responsibility to assist homeowners who have fallen into financial difficulties with their home mortgages.
HUD published a final rule that dramatically increased the financial damages that HUD can seek against lenders that fail to utilize its mitigation programs. The rules provide for additional damages of triple the amount of any FHA mortgage insurance benefit claimed by a lender.
Both the positive and the negative reinforcement techniques or minimize their impact on the FHA insurance funds and homeowners themselves and are meant to prevent foreclosures.”
In support of ALL the REQUIRED note modifications, there is the Emergency Home Ownership and Mortgage Equity Protection Act of 2007 . President Bush signed HR 3648, The Mortgage Forgiveness Debt Relief Act of 2007 . It created a three-year exception, starting January 1, 2007, for IRS debt forgiveness on owner-occupied home loans. "The goal of the Administration and legislators is to reduce the number of foreclosures and the need for short sales by allowing homeowners to renegotiate their loans without tax consequences." So the clock is ticking for homeowners to get their Note Modifications the lenders are REQUIRED to give them.
I Blame Greedy Home Loan Lenders For Frightening Recession. For years, Freddie Mac , Fannie Mae , HUD and the VA have had Foreclosure Mitigation Standards in place that REQUIRE Note Modifications. In this story, Is Your Lender A Patriot Or Terrorist?, is a sample letter to send to your lender.
The home loan lender’s continuing stupidity is Why You Should Wait To Buy A House.
Do NOT do a Short Sale and do NOT let the lender foreclose on you.
Note Modification versus Short-Sale versus Foreclosure.
Although a Short Sale is not as damaging on the credit report as a foreclosure, the IRS has very complex tax consequences in a debt renegotiation, such as a Short Sale, or foreclosure, that are more detrimental for solvent taxpayers than those who are insolvent or bankrupt as each generates Cancellation of Debt Income. A borrower who refinanced their home to take the cash out to buy another home, then let the first home go to foreclosure thinking they are getting off scott-free with the foreclosure, while enjoying their new home, is solvent as all they did was transfer equity, and commit Mortgage Fraud. The first thing to establish is what the home’s basis is. The IRS definition for basis is your investment in the home for tax purposes. It usually starts with the cost to acquire the house. Adjusted basis is the increase or decrease in the original basis according to certain events. Increases to basis include but are not limited to improvements having a useful life of more than a year, assessments for local improvements, sales tax, the cost of extending utility lines to the home, legal fees such as the cost of defending or perfecting title, and zoning costs. Decreases to basis include but are not limited to depreciation, nontaxable corporate distributions, casualty and theft losses, easements, and rebates from the seller. IRS Pub 551 Basis of Assets is a handy reference. Taxable gain or loss on a house is determined by the difference of the selling price/amount realized and its adjusted basis. Recently a client of mine found out she was eligible for a $7,000 refund for the overpayment of her 2004 Federal taxes as she did not know her home she sold had a basis adjustment for the $42,000 in legal fees defending its title.
IRC 61(a)(12) CODI, Cancellation of Debt Income other than as a gift, creates taxable income to the debtor unless an exception applies. In a Short Sale, the lender issues a 1099-C to the IRS. In a Short Sale example of a home, whether it be primary, second home, or third home, John bought his home in Reno in November 2004 for $290,000. In November 2005, John refinanced to a new loan for $380,000. Unfortunately, today its Fair Market Value is $260,000. John can no longer make the payments due to his legal split with Mary, his spousal equivalent. In 2007 John sells the property through a Realtor who successfully negotiated a Short Sale of $120,000 loan reduction with John’s lender, so John walked away with no immediate out-of pocket loss. John has a $120,000 nondeductible loss (adjustment to basis) on his home. The $120,000 principal reduction is taxable income in 2007 to John. (rev. Rul. 82-202) It is reported as “Other Income” on Line 21 of the 1040. If John had bought with seller-financing, there is special rule IRC 108 (e) (5). If three conditions are met, the borrower reduces the property’s basis and does not recognize CODI.
The IRS treats a foreclosure as a sale or exchange from which the borrower may realize gain or loss. In a foreclosure, the lender issues a 1099-A to the IRS. In a recourse state such as Nevada, the lender checks Box 5 as “Yes.” The borrower is personally liable to pay any amount of the debt not covered by the property’s value. The amount realized for borrower’s Federal gain or loss on the transaction is the smaller of debt cancelled or FMV of the transferred property. The borrower’s CODI is ordinary income if the loan balance exceeds the property’s FMV. If John had gone to foreclosure, his adjusted basis is $290,000, the recourse debt cancelled is $380,000 and the FMV of the property is $260,000. Here he realizes $260,000. The cancelled debt ($380,000) up to the property’s FMV ($260,000). Compare amount ($260,000) realized with adjusted basis ($290,000). John has a $30,000 non-deductible loss. He also recognizes ordinary income equal to the CODI of $120,000 ($380,000 debt cancelled less $260,000 FMV). This $120,000 is the part of the cancelled debt not included in the amount realized.
In a Short Sale example of a rental house, if John had bought and used the house as a rental, if John is not insolvent or bankrupt, if John can meet the required extent of his involvement, John can elect on Form 982 to exclude from gross income any income from the discharge of QRPBD (Qualified Real Property Business Debt). IRC 108(c)(3) QRPBD includes debt 1) that was incurred or assumed in connection with real property used in trade or business and that is secured by such real property, 2) debt incurred or assumed to acquire, construct, reconstruct, or substantially improve real property used in a trade or business. IRC 108(c)(1) Income excluded for the discharge of QRPBD reduces the basis of the taxpayers depreciable real property, first to the property with the discharged debt, then to the taxpayer’s other depreciable real property proportionally, on each property’s relative adjusted basis.
Print
Report abuse
Report abuse
Subscribe to
Connect With Us
Become a Fan
Follow us
Thanks for the plug to my Is Your Lender A Patriot Or Terrorist. I’ve been trying for months to do exactly this loan modification – with Countrywide, and aren't they quite the uppity bunch of idiots. Countrywide’s high employee turn-over rate, employee lack of experience and training, and the overall poor morale at Countrywide, are all a hell of a bunch of obstacles to overcome! Always the same fax number, (800) 658-0395, but never the same employee; Temena McGee, Michelle Langley, Ashley Stix, Brandon Coltin, tomorrow another name equally as inexperienced, has no training, doesn’t care, and changes the Countrywide story every damn time.
Obama “urged the government to help borrowers come out from under their mortgages.” McCain "wants to curb the rising foreclosures nationwide." All the government pieces are in place to avoid all these damn foreclosures, but the lenders won’t play ball by the rules. Instead the terrorist lenders continue to drive Americans out of their homes and further drive down the house prices.