Posts Tagged ‘short sale’

Intero Insider: HAFA Spells Relief … Or Does It?

By Gino Blefari | May 4th, 2010 0 Comments

At the beginning of April, the Federal Government introduced new measures aimed at helping Americans avoid foreclosure. Sort of lost in all of the news about how great the real estate market’s been doing, Home Affordable Foreclosure Alternatives (HAFA), are designed to help struggling homeowners who, regardless of effort to keep their homes, simply can’t afford to.

“A short sale would really help … if only the bank would agree.”

Now, maybe it will. Banks already participating in the Government’s HAMP program are required to participate in HAFA, as well. Mortgage holders have been notoriously difficult to deal with when it comes to short sales. One hand doesn’t know what the other is doing, approvals take virtual eternities (if they ever come at all), homeowners who’re feverishly trying to sell their homes or face the spectre of foreclosure are lost in a sea of confusion about how to proceed in the process.

With a glut of foreclosed homes (over a million at last count), banks are having to rethink their options. Each foreclosure costs banks upwards of $100,000 more than a short sale, but until now, they’ve not been enthusiastic about approving them.

The HAFA program should make things a bit easier on everyone. Whether it’ll work is another matter altogether.

The new guidelines institute a timeline, so that all parties involved will know about what they can expect and when. Sellers will be able to get pre-approval and know what the absolute bottom-line acceptable prices will be. Junior lienholders, who typically get left out in the cold and who are, typically, the factors in denying short sales, will be able to recoup some of their losses. Improvements are definitely being made to the system (although “system” is far too precise a word to pin on the old way of doing things).

A major benefit to HAFA is that it will, hopefully, allow homeowners to leave their properties with their heads held high, and with their dignity intact by fully releasing them from the liability of their loan.

In California, which has been one of the 4 states hardest hit by the foreclosure crisis, there’s a bit more to the program.

The recipients of $700 million dollars in additional aid, the State of California has proposed assistance to low-to-moderate income level homeowners through means such as principal write-downs for those who owe more on their home than it is worth (it’ll be interesting to hear reactions from people who are in the same situation but who are still making their payments on time), relocation assistance, subsidized mortgage payments, or temporary aid for the unemployed who are at risk of foreclosure.

They are, sadly, many more homeowners affected by this crisis that won’t be helped, for one reason or another, by this program or any other.

If you’re a homeowner in distress, please contact your lender. Ask your Intero real estate professional. Find out what alternatives you have before it’s too late.

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Intero Insider: Wait – I Still Owe What?

By Gino Blefari | April 21st, 2010 0 Comments

Each day, the news brings us tiny glimmers of hope that the economic woes that have turned the real estate market into a morass of unpalatable realities might just be behind us. Each day, however, there seem to be items served alongside those glimmers that give me pause.

These items, after making me take several deep breaths, have me advising my clients, customers, and Intero agents that patience will be the better part of valor when it comes to economic recovery.

We know that millions of Americans, and lots and lots of Californians among them, have lost their homes to foreclosure. Going through that process is more difficult than most people can possibly imagine. It’s a pride-swallowing siege that affects every aspect of your life. Once it’s done, however, it’s done and, typically, people can begin the process of rebuilding their lives.

Unless they can’t.

What if, after going through a foreclosure and having a mortgage discharged, you also have a second mortgage to pay? What then?

California is a non-recourse state. This means that any loan taken for the purpose of buying a home is discharged once a foreclosure has taken place. Debt collectors cannot pursue borrowers for loans in default that were used to purchase a home.

Loans that were taken for other purposes? Lenders can, and often do, do whatever it takes to collect what is owed.

If a second mortgage was taken and that money was used to help finance the purchase of a home, then it’s non-recourse debt. But often, banks and lenders won’t tell the borrowers that. There’s a loophole in the legal speak that governs such things that says that there’s nothing preventing the borrower from “voluntarily” repaying the debt. So lots of people who’re not under an obligation to repay find themselves on the receiving end of dunning calls and letters and struggling to make payments when and where they can.

If a second mortgage was taken and it was not used as part of a home purchase? Well, those monies are due and payable, regardless.

Whether lenders will try and collect is another matter altogether.

In California alone, almost $500 billion in home equity lines of credit (or other such loans) were taken out by homeowners. Banks are going to collect when and where they can. Sadly, a borrower’s personal net worth may be the deciding factor in their decision to pursue or not to pursue.

So, what are the options?

Well, one is to pay the debt if you’re able. If you can’t, my best advice would be to consult with an attorney to discuss your options.  You may find your attorney will tell you that a short sale would allow you to negotiate part or all of your deficiency away.  If this is the case, find a certified short sale agent within any of our offices to help guide you through the process.

There are options, but it’s best to explore them sooner, rather than later. If you have concerns relating to foreclosure or your ability to borrow money to purchase a home, please consult your Intero agent. The road to recovery is a tough one, but it can be ridden. We all just have to be patient.

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Intero Insider: Did You Hear That?

By Gino Blefari | April 13th, 2010 0 Comments

A collective sigh of relief is being issued by taxpayers who’d not only lost their homes, their dreams, and large chunks of their pride, but who were staring down tax bills that they couldn’t fathom how to pay.

It might not soothe all their wounds, but a measure passed last week by the California State Legislature will, when signed by Governor Schwarzenegger, give some much-needed breathing room to the thousands of Californians who lost their homes to foreclosure or who had to sell them in a short sale.

You see, mortgage debt that is forgiven, which happens when your mortgagor allows you to sell your home short or after a foreclosure, is taxable, both federally and at the state level. A moratorium was placed on the federal tax, but in California, a state riddled with crushing debt, there were serious questions about whether the tax would be levied.

Others affected by this measure are those who got loan modifications that lessened the amount that was owed to the mortgagor.

Assuming that the governor signs the bill, which he has said he will do, it will provide relief to upwards of 100,000 Californians through 2012, when the measure is set to expire.

Our state is certainly one that needs income, and it’s estimated that California will collect about $34 million less in taxes as a result of this bill. No matter how badly the money is needed, however, generating that income at the cost of rendering our taxpayers, quite literally, penniless is too much of a price to pay.

If you’ve been involved in a foreclosure, short sale, or have had mortgage debt forgiven, you may be eligible to claim the relief on your 2009 State and federal income tax returns.

As always, whenever you have questions relating to taxes, be sure to contact your accountant or financial planner; they’ll have the best advice and will give you the proper guidance.

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Intero Insider: To Forgive Or Not To Forgive? That Is The Question.

By Gino Blefari | March 10th, 2010 0 Comments

Even in a “normal” year (when someone actually finds one of those, please tell me), I am bombarded each spring with questions about real estate transactions and their implications on Federal and State income taxes.

In a year in which we’re experiencing continued economic hardships, and since many of those hardships relate directly to home sales and foreclosures, I’m getting far more than usual.

Right out of the blocks, I tell them that I’m not a tax professional and that any questions that they have ought to be directed to their accountants and financial advisors. That said, I like to do all I can to help folks out, so I answer questions where I am able.

One of the most frequent questions I hear — and the one whose answer seems somewhat out of reach — pertains to short sales.

“I sold my house this year, but it was a short sale. Can the IRS or my state tax the forgiven debt?”

The answer is, “Yes. Yes, they can.” A better question is, “Will they?”

With regard to the Federal Government, the answer is “no”. In a move meant to encourage homeowners to work out alternatives to foreclosure, the Federal Government has placed a moratorium on the taxation of forgiven mortgage debt through 2012.

Many states have followed suit, but there are a great many who have not. One of the states in which the question has yet to be answered is California, a state that has been hit harder than most in this period of crisis, and also one whose economic woes far exceed that of any other.

While it may sound unfair, forgiven debt has always been treated as income and, until the Mortgage Forgiveness Debt Relief Act of 2007 was enacted, that income could (and would) be taxable.

At the time of this writing, Governor Schwarzenegger had not made a decision with regard to the state collecting taxes on forgiven debts, but in a state that is as cash-starved as California, there is a strong possibility that he’ll have no choice but to do so.

If you sold your home last year and that sale was a short sale, there are heady tax implications attached to it. It is imperative that you consult with your accountant or financial advisor, so that you can adequately prepare to meet the tax man, should he come a’calling.

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Intero Insider: Selling Short? Keep Track of Everything

By Gino Blefari | February 17th, 2010 0 Comments

It’s that time of year again. The Winter Holidays are behind us, we’ve cheered a new Super Bowl champion and exchanged boxes of chocolates for Valentine’s Day. That can only mean one thing: Tax Season is upon us.

When it comes to your home, there is plenty of documentation of which you need to keep track when it comes time to file your annual return. For those of you filing “standard” income tax returns, this is all fairly clear and straightforward.

With the current real estate climate, however, there are scores situations, like having lost a home to foreclosure, or staring personal bankruptcy in the face, in which many never thought they’d find themselves. Situations like these can make filing taxes a bit trickier.

There’s one circumstance in particular on which I’d like to focus today:

Short sales.

If you’ve gone through the short sale process (where you can no longer afford the payments on your home, but your lender allows you to sell the home at loss, rather than go through with foreclosure), then you know it’s long, it’s arduous, and it’s one in which things have the potential to be very murky.

When completing the reams and reams of paperwork required by your lender to complete the short sale process, it’s likely that you signed a promissory note, or other like document, granting the lender the right to take action against you to collect the deficient amount. This is pretty standard. It’s possible, though, that you also got a copy of a document with the heading 1099-C, which the lender has filed with the IRS, indicating that the unpaid portion of the loan has been canceled. This is a trigger for the IRS to assess taxes against the forgiven debt.

Wait. What?

“How is that possible?” you might ask. Good question. It doesn’t stand to reason that a lender can pursue you for unpaid debt and that the IRS can assess taxes, as well. Logic would dictate that one or the other is reasonable, but not both.

Keep copies of everything having to do with anything related to the transaction.

If you signed paperwork indicating that the lender can take collection action against you, but you’ve also received a 1099-C for the uncollected debt, you’ll have plenty of documented proof to show the IRS that you don’t owe taxes on that amount. Similarly, if there is nothing in your sale paperwork that gives the bank the right to collect the debt, nor is there any other reference to it, the 1099-C will serve as evidence should the bank, at some point, decide to take action against you.

They can’t have it both ways.

I’m not a tax professional. I’m not certified to give that sort of advice. But I can advise you to seek the counsel of a tax professional, so that negotiating the maze of tax ramifications that come with a short sale is made somewhat easier.

For additional information you can also download IRS Publication 4681 from the IRS website at www.IRS.gov

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Foreclosures and other Opportunities

By Rick Soukoulis | August 10th, 2009 0 Comments

Have you ever noticed the changes in late night ads and infomercials for real estate opportunities? During a boom period, the late night ads are all about how to buy with nothing down and how to build an empire of rental houses.  People who bought the programs all speak glowingly into the camera about how much they are making in a week, and it seems they’re always filmed from some beach in Hawaii where they’ve presumably retired to.

But isn’t it kind of amazing how quickly the ads change once the real estate cycle turns?

Over the last few months, I’ve noticed a not-so-subtle change, as most of these late night ads now tell us how much money there is to be made in foreclosures, short sales, and other side effects of a difficult real estate environment.

Are these ads accurate?  Is there big money to be made during times of great stress in the housing markets?

They answer is that there can be, but that it’s gotten much more tricky this time around.

Why do I say that?

In the old days, and this may have been just  15 years ago or less, dealing with foreclosures and the like was pretty simple.  There was a good chance that the loan was owned by a local bank or savings & loan, and many realtors developed relationships with the foreclosure departments at these banks.

When good deals came along, the bank would call the realtors they worked with, and everyone made money.

Like a lot of things in modern life, things have gotten much more complex.

It sounds strange, but it’s not so simple to understand who owns a given loan anymore,

You’ve all heard of securitizations, right? It’s taking a large number of loans and putting them into a mortgage-backed security of some sort and then selling that security on Wall Street.

It’s like a bond that’s backed up by a whole bunch of individual mortgages.

That part sounds pretty simple, and whoever owns that security really owns the underlying mortgages.

For a number of reasons, we now have financial “engineers” who take a lot of the securities and then slice them into thin pieces.  They’ll then take these thin slices from maybe 10 different mortgage securities and combine them into new securities.

I know it sounds strange, but a single loan could end up being a part of 5-10 different securities. One might get the interest payments of the loan, while a totally different security might have the principal payments. One security might absorb the first 10% loss on a loan, while another security could absorb loses that exceed that 10%.

If you’re getting just a bit confused, well, it is confusing.

When you’re dealing with foreclosures, short sales and loan modifications, at some point you need to talk to the owner of that loan.  At some point you need the owner of that loan to sign off on what you’re trying to accomplish.

If it’s unclear who owns that loan, you’ll most likely need a decision that can only come from the owner of that security, or perhaps the custodian.

And not to scare you, but here’s a very possible scenario:  The loan you need a decision on could be part of a mortgage security owned by the Michigan State Teachers Retirement Fund. But another part of that loan could be owned by an insurance company in Japan.

How the heck will you ever get a decision on your proposed loan modification or short sale?  Unless you know your way around this world of securitizations, or unless you know someone who does, you might not ever know that the custodian for these securities can make the decision.

 My point is quite simple:  Financial engineering by Wall Street has made things more complicated, but there is some good news to this situation.  There are mortgage professionals who understand this process and who can guide you through it successfully. Intero Mortgage is here to help.

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