Tag Archives: servicers

A Happy New Year With a Few Twists

mortgage debt forgivenessThe HOT topic for real estate that everyone was talking about coming up to the new year is official, but with an asterisk regarding the extensions of the Mortgage Forgiveness Debt Relief Act and American Taxpayer Relief Act. This is a little lengthy article, but worth your extra 15 minutes to digest. While federal government has extended the tax law, California to this date has not extended their tax law, but more importantly the Mortgage Debt Forgiveness has been definitely extended. What does all this mean to you and your situation, whether owner-occupied or an investment property that is upside down and you’re wanting an answer to what you have to do, CALL ME for help. Letting a property go to foreclosure or doing a Deed in Lieu could put you in a liability situation for all the debt of a Trust Deed. I work with CPAs and attorneys that can help. After over 20 years of short sales, hundreds closed, you owe it to yourself to only talk to the BEST!  CALL NOW! JOHN A SILVA — 619-890-3648. MAKE IT YOUR BEST YEAR!

III. Extension of Mortgage Cancellation of Debt Relief

Q 4. What is mortgage cancellation of debt relief?

A. As a result of a foreclosure on a recourse loan, a short sale or a deed in lieu of foreclosure, a lender may cancel, reduce or forgive the debt that the borrower owes on the loan. The IRS and the California Franchise Tax Board consider this cancelled or forgiven debt as income to the borrower. As a result, the forgiveness or cancellation of the whole or a portion of the loan balance, often termed “cancellation of debt income,” may result in a tax liability.

The cancellation of debt income is generally treated as “ordinary income,” as opposed to capital gains income which is taxed at a lower rate, and the taxpayer will typically receive a 1099 tax form from the lender in the amount of the cancellation of debt.

Under the tax law there exist various situations where the cancellation of debt income is not taxable including bankruptcy, insolvency and when there is a foreclosure on a non-recourse loan. However, for most homeowners involved in a short sale, foreclosure or deed in lieu of foreclosure, the tax relief provided by the Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) signed by President Bush on December 20, 2007 and subsequently extended by the Emergency Economic Stabilization Act of 2008, provides the most important protection against having to pay tax on the cancellation of debt income.

As a result of the Mortgage Forgiveness Debt Relief Act of 2007, Internal Revenue Code §108(a)(1) (E) was added and provides that a taxpayer will not be taxed upon cancellation of debt income if the following conditions are met:

The property sold in the short sale is the taxpayer’s principal residence, as that term is used in IRC §121.

The cancellation of debt is Qualified Principal Residence Indebtedness under IRC Section 163(h)(3)(B). Qualified Principal Residence Indebtedness is a loan secured by the residence used to acquire, construct or substantially improve the residence. The income relief provided is capped at $1,000,000 in the case of a married person filing a separate return and $2,000,000 for all others. Any reduction of indebtedness excluded by IRC §108(a)(1)(E) will be applied to reduce the basis of the taxpayer’s principal residence, but not below zero. This could result in a higher amount of capital gains tax owed by the taxpayer. Also the cancellation of debt relief provided by the law, therefore, does not apply to any portion taken as “cash out” and not used to substantially improve the residence.

Q 5. How does the American Taxpayer Relief Act affect the mortgage cancellation of debt relief?

A. The original law applied to indebtedness discharged before January 1, 2010. That end date was extended by three years from 2010 to 2013 pursuant to H.R. 1424, the Emergency Economic Stabilization Act of 2008. The new law extends the date one year further to any indebtedness discharged prior to January 1, 2014.

Q 6. Does the federal law apply to potential cancellation of debt income under California tax law?

A. No. California has its own cancellation of debt relief law which has been codified as California Revenue and Tax Code Section 17144.5 which is similar to the federal law but with some significant differences (see next question). That law has expired. However, C.A.R. has sponsored Senate Bill 30 (Calderon, D- Montebello) to extend California’s debt relief protections which is currently pending. The proposed law would be effective retroactive to January 1, 2013. Information on the status of the bill can be found at www.leginfo.ca.gov.

Q 7. What are some of the differences between the state and federal law on cancellation of debt on qualified principal residences?

A. California law has different limits for maximum indebtedness and the amount of cancellation of debt income that can be forgiven which are detailed below:

The maximum amount of qualified principal residence indebtedness is $800,000 for married couples filing jointly, registered domestic partners filing jointly, single persons, head of household, or widow/widower; and $400,000 for married couples or registered domestic partners filing separately;

The maximum amount of debt relief income that can be forgiven is $500,000 for married couples filing jointly, registered domestic partners filing jointly, single persons, head of household, or widow/widower; and $250,000 for married couples or registered domestic partners filing separately.

This is an excerpt from California Association of Realtors Legal — Part 2 coming next week will be on Taxation of Foreclosures and Short Sale.

New short-sale program offers relief for underwater homeowners

One of the federal government’s most-important financial relief efforts for underwater homeowners started operating Nov. 1.

  •  Traditionally short sales, where the lender agrees to accept less than the full amount owed and the house is sold to a new purchaser at a discounted price, are associated with extended periods of delinquency by the original owner. The new Fannie-Freddie program breaks with tradition by allowing short sales for owners who are current on their payments but are encountering a hardship that could force them into default.
  • Eligible hardships under the new program run the gamut: Job loss or reduction in income; divorce or separation; death of a borrower or another wage earner who helps pay the mortgage; serious illness or disability; employment transfer of 50 miles or greater; natural or man-made disaster; a sudden increase in housing expenses beyond the borrower’s control; a business failure; and “other,” meaning a serious financial issue that isn’t one of the above.
  • Homeowners who participate in this new program should be aware that although officials at the Federal Housing Finance Agency – the agency that oversees the program – are working on possible solutions with the credit industry at the moment, it appears that borrowers who use the new program may be hit with significant penalties on their FICO credit scores – 150 points or more.
  • Other factors to consider are promissory notes and other “contributions.” In the majority of states where lenders can pursue deficiencies, Fannie and Freddie expect borrowers who have assets to either make upfront cash contributions covering some of the loan balance owed or sign a promissory note. This would be in exchange for an official waiver of the debt for credit reporting purposes, potentially producing a more favorable credit score for the sellers.
  • Finally, participants should be aware of second-lien hurdles. The program sets a $6,000 limit on what second lien holders – banks that have extended equity lines of credit or second mortgages on underwater properties – can collect out of the new short sales. Some banks, however, don’t consider this a sufficient amount and may threaten to thwart sales if they cannot somehow extract more.

Read the full story
http://www.latimes.com/business/realestate/la-fi-harney-20121111,0,6735335.story

All About Private Mortgage Insurance

Private Mortgage Insurance (PMI) is a financial instrument that can be used by potential homebuyers to get into a home that they would otherwise not be able to afford. Basically, PMI acts as a safety net for lenders who want to process a loan for a borrower who does not have the 20 percent down payment that is usually required to qualify for a mortgage. This insurance, which can get a qualified borrower into a home with as little as 3-5 percent down, is typically used by first time home buyers.

In order to understand the details of Private Mortgage Insurance, it is important to understand the motivation of lenders. Lenders are in business to make money and borrowers who have a down payment of less than 20 percent are most likely to default. If a lender approves too many loans to unqualified borrowers, they open themselves up to risk if those loans begin to default.

Normally the lender that you are dealing with will provide you with information on a PMI policy and will secure it for you. The initial cost of the PMI can either be added to your closing costs or tacked onto your monthly mortgage payments. This mortgage insurance can range in price from � to 1 percent of the loan amount each year. Borrowers will need to continue to make mortgage insurance payments until they have reached the 20 percent equity threshold.

The Homeowners Protection Act passed in 1998 contains a number of provisions to protect the interests of PMI borrowers. The main provision of the act calls for the automatic termination of the policy when the borrower reaches 22 percent equity in their home (based on the original property value). There are also provisions that require the lender to provide the borrower with information on termination and cancellation of the policy.

If you would like more information on a Private Mortgage Insurance policy and how it can help you get into your dream house today, let me know and I can recommend a qualified lender.

Call me for more information or for a qualified lender recommendation – (619) 890-3648! – John A Silva

5 myths about credit scores and mortgages

Remember that department-store card you signed up for to get an instant discount? Or the medical bill you didn’t pay on time?

What seem like minor moves could drive down your credit score, which factors in big time when you’re trying to finance your future home. Lenders look at how much you make, what you own and how much you’re able to put down — but your credit score also is a major factor.

“It’s four basic factors: income, assets, credit and the property itself,” said Chad Baker, a loan officer at Prime Lending, which has offices in the UTC area and Mission Valley.

“If anything is wrong with the four, then you will have problems,” he added. “If you need a higher down payment, then you can offset it with a gift from a friend or family member. But if you’ve exhausted everything (to fix your credit,) there’s nothing you can do. So, it’s extremely important.”

The good news: Certain credit-score issues can be fixed on your own at no cost as long as you understand a few financial basics — from paying bills on time to requesting your free credit reports. Those simple pointers could help you not only qualify for a mortgage but also save you up to thousands of dollars in the long run.

They can also make or break your chances in today’s tougher lending environment, which generally requires a bigger down payment and more proof of income than during the last housing boom.

A recent study shows the average credit score for someone who successfully closed any kind of mortgage in April was 745 (with 20 percent down). The findings, based on 20 percent of loan originations in the country, are from Ellie Mae, which provides services to the mortgage industry.

The U.S. average is 692, and California’s is 691, according to FICO, which rates consumers’ credit histories on a scale of 300 to 850. So, if you don’t have the 745 score cited in the Ellie Mae study, does that mean your chances of getting a mortgage are nil? No, mortgage insiders say. U-T San Diego busts that credit myth and others in this how-to guide:

Myth: Lenders are looking for one magic number.

Fact: The score range you should shoot for depends on what kind of mortgage you want…

Myth: There’s nothing I can do to change my credit score.

Fact: You have more control than you think. Changes all start with knowing what’s in your credit report…

Myth: Even if I do find an error in my credit report, it will take forever to correct.

Fact: You can get a rapid rescore done with the help of the lender…

Myth: I’ve never been late on any payment, so it’s a waste of time to check my score.

Fact: Errors in credit reports happen all the time…

Myth: The definitive source to get my free credit report is freecreditreport.com.

Fact: It’s actually annualcreditreport.com

Read U~T San Diego’s article in full here: “5 myths about credit scores and mortgages”.

What’s in a mortgage payment?

What’s in a mortgage payment? This infographic breaks down a mortgage payment into P.I.T.I. – principal, interest, taxes, insurance. When you’re buying a house, keep informed about how much that home will cost you, based on how much you put down and whether or not you will need to pay mortgage insurance.

mortgage paymentsThis mortgage payment-related infographic is from mlsmaps.com.

Mortgage Delinquencies Expected to Drop

FICO’s quarterly survey of bank risk professionals found a reversal in the sentiment of U.S. lenders, with expectations for loan repayments more upbeat in the first quarter of 2012 than they had been during the previous quarter.

The survey, conducted for Minneapolis-based FICO by the Professional Risk Managers’ International Association (PRMIA), found fewer lenders anticipating a rise in delinquencies on home loans than at any time since FICO launched its survey in early 2010.

In the latest survey, the number of respondents expecting mortgage delinquencies to increase over the next six months was 12 percentage points lower than last quarter – dropping from 47 to 35 percent…

Read the rest of this article by DSNews.com here: “Lenders’ Risk Managers Expect Mortgage Delinquencies to Drop“.

Foreclosure rates are dropping in California

California had the third biggest decrease among U.S. states in the number of homes in some stage of the foreclosure process, CoreLogic reported. As of February, 2.4 percent of the California homes with a mortgage, or about 160,000 households, faced the possibility of foreclosure.

That’s down 0.6 of a percentage point from January of last year, when 3 percent of homes were in the foreclosure process, CoreLogic reported.

CoreLogic’s February numbers showed also that:

  • 6.7 percent of the state’s mortgaged homes, or about 458,000 households, were 90 days or more late on their house payments. That’s down from 9 percent in February of last year.
  • Banks seized 154,212 homes through foreclosure in the 12 months ending in February.
  • Nationwide, banks seized 3.4 million homes through foreclosure during the past 3 ½ years – and 862,418 in the past year alone.
  • An additional 1.4 million U.S. homes, or 3.4 percent of all homes with a mortgage, were in the foreclosure process.
  • That’s down from 3.6 percent in February of last year, when 1.5 million U.S. households were in the foreclosure process.
  • The five states with the highest proportion of homes in the foreclosure process were Florida, 12 percent; New Jersey, 6.6 percent; Illinois, 5.4 percent; Nevada, 5 percent; and New York, 4.9 percent.
  • The five states with the lowest proportion in the foreclosure process were Wyoming, 0.7 percent; Alaska, 0.8 percent; North Dakota, 0.8 percent; Nebraska, 1 percent; and Montana, 1.4 percent.

“The overall foreclosure inventory is decreasing because sales (of bank-owned homes) were up in February,” said CoreLogic Chief Economist Mark Fleming. “With the spring buying season upon us, the inventory may decline further.” This article is from the OC Register: “Calif. foreclosure rates dropping“.

Understanding Foreclosure

Understanding Foreclosure

It is an unfortunate commentary, but when economic activity declines and housing activity decreases, more real property enters the foreclosure process. High interest rates and creative financing arrangements also are contributing factors.

When prices are rapidly accelerating during a real estate “bonanza”, many people go to any lengths available to get into the market through investments in vacation homes, rental housing and “trading up” to more expensive properties. In some cases, this results in the taking on of high interest rate payments and second, third and even fourth deeds of trust. Many buyers anticipate that interest rates will drop and home prices will continue to escalate. Neither may occur, and borrowers may be faced with large “balloon” payments becoming due. When payments cannot be met, the foreclosure process looms on the horizon.

understanding foreclosuresIn the foreclosure process, one thing should be kept in mind: as a general rule, a lender would rather receive payments than receive a home due to a foreclosure. Lenders are not in the business of selling real estate and will often try to accommodate property owners who are having payment problems. The best plan is to contact the lender before payment problems arise. If monthly payments are too hefty, it may be that a lender will be able to make some alternative payment arrangements until the owner’s financial situation improves.

Let’s say, however, that a property owner has missed payments and has not made any alternate arrangements with the lender. In this case, the lender may decide to begin the foreclosure process. Under such circumstances, the lender, whether a bank, savings and loan or private party, will request that the trustee, often a title company, file a notice of default with the county recorder’s office. A copy of the notice is mailed to the property owner.

If the default is due to a balloon payment not being made when due, the lender can require full payment on the entire outstanding loan as the only way to cure the default. If the default is not cured, the lender may direct the trustee to sell the property at a public sale.

In cases of a public sale, a notice of sale must be published in a local newspaper and posted in a public place, usually the courthouse, for three consecutive weeks. Once the notice of sale has been recorded, the property owner has until 5 days prior to the published sale date to bring the loan current. If the owner cures the default by making up the payments, the deed of trust will be reinstated and regular monthly payments will continue as before. After this time, it may still be possible for the property owner to work out a postponement on the sale with the lender. However, if no postponement is reached, the property goes “on the block”. At the sale, buyers must pay the amount of their bid in cash, cashier’s check or other instrument acceptable to the trustee. A lender may “credit bid” up to the amount of the obligation being foreclosed upon.

With the recent attention given to foreclosure, there also has been corresponding interest in buying foreclosed properties. However, caveat emptor: buyer beware. Foreclosed properties are very likely to b e burdened with overdue taxes, liens and clouded titles. A buyer should do his homework and ask a local title company for information concerning these outstanding liens and encumbrances. Title insurance may or may not be available following a foreclosure sale and various exceptions may be included in any title insurance policy issued to a buyer of a foreclosed property.

This article is by California Title Company and Cam Hunter.

More questions? Need help with your property being foreclosed on?  Please, call me and let me help!

John A. Silva, Realtor

(619) 890-3648 | www.JohnASilva.com