Weitz Law Firm - 520 Kirkland Way, Ste 103 - Kirkland, WA - (425) 889-9300

Monday, June 28, 2010

Deed In Lieu- are they for you?


AP- Short sales have been the hot solution for financially stressed homeowners and their lenders for the past year, but here's another potent foreclosure alternative that's about to take center stage: deeds-in-lieu.

Some of the nation's largest mortgage servicers and lenders are gearing up campaigns to reach carefully targeted borrowers with cash incentives that sometimes range into five figures, plus a simple message: Let's bypass all the time-consuming hassles of short sales and foreclosures. Just deed us the title to your underwater home, and we'll call it a deal. We won't come after you to collect any deficiency between what you owe us and what we obtain from the home sale. We might even be able to wrap up the whole transaction in as little as 30 to 45 days. How about it?

Mortgage companies say troubled borrowers increasingly are signing up. One of the largest servicers, Bank of America, has mailed out 100,000 deed-in-lieu solicitations to customers in the past 60 days, and its volume of completed transactions is breaking company records, according to officials.

What precisely are deeds-in-lieu? The full name is deeds-in-lieu-of-foreclosure. They are voluntary transfers of property ownership from borrowers to creditors that make court-directed foreclosures unnecessary.

The concept is one of the oldest in real estate, but it got a special boost this year when the Obama administration included it as an option in its Home Affordable Foreclosure Alternatives program, and mortgage giant Fannie Mae cut the penalty-box time for homeowners who use the technique from four years to two before they can qualify for another home mortgage.

Deeds-in-lieu also are surging because they provide a win-win for borrowers and mortgage investors that short sales often cannot match. Tops on the list: speed.

Travis Hamel Olsen, chief operating officer of Loan Resolution Corp., a Scottsdale, Ariz., firm that works with lenders to solve troubled borrowers' problems, said deeds-in-lieu represent "a very expeditious way to move on" for underwater borrowers facing potential foreclosure.

"A lot of owners just want to be finished with it, now," he said. "They don't want to deal with (the house) anymore."

They don't want to deal with real-estate agents or signs on the front lawn that reveal their financial squeeze to neighbors. They don't want to haggle with potential buyers coming in with lowball prices. But they also don't want to simply walk away — strategically default — because that will crater their credit files and scores for as long as seven years.

Not only is it cheaper for lenders to do deeds-in-lieu to gain control of those properties, but with current mortgage rates below 5 percent, they're likely to be able to resell them faster and on potentially more favorable terms in the summer and fall.

"If you can get a lot of inventory moving in the next couple of months" of prime homebuying season, said Hebner, "you are solving a lot of problems."

Matt Vernon, Bank of America's top short-sale and deed-in-lieu executive, said the technique works so well for both borrowers and mortgage owners that his company is running pilot programs in major markets to alert borrowers who might benefit.

To sweeten the pot, Bank of America is offering cash incentives that range anywhere from $3,000 to $15,000 — and it is getting a strong response, according to Vernon.

What are the downsides or limitations of deeds-in-lieu for homeowners? Probably the most important, say experts, is they don't work for every situation involving serious mortgage default.

For example, if you have equity in the property, you'll probably want to pursue a loan modification first, then a short sale, rather than hand your equity stake over to the lender.

Deeds-in-lieu usually don't work when there are multiple mortgages from different creditors encumbering the property. Also, though deeds-in-lieu do less damage to credit histories than foreclosures or bankruptcies, they definitely leave a mark.

Fair Isaac, developer of the widely used FICO credit score, says on its "MyFico" website that deeds-in-lieu and short sales are both treated as "not paid as agreed" accounts, and are treated the same by the FICO scoring model.

Weitz- In some situations, this can be a great deal for both the lender and the borrower. That said, if the ability to live rent and mortgage free for a period of 6 months (and potentially much longer) is of interest, then foreclosure may be the desired choice for the borrower.

For more information on your options with foreclosure, short sale and other distressed issues, consider seeking the advice of a Seattle Short Sale Attorney.

Thursday, June 24, 2010

Fannie set to penalize defaulters


AP-

Fannie Mae said Wednesday it would "lock out" borrowers from getting a new loan for seven years if they default on a mortgage they could afford to pay. (Weitz – seems incredibly subjective – can someone afford to pay if it means that every last disposal dollar goes into their mortgage?) The move represents the latest effort by the mortgage industry to prevent a new wave of losses that could result if more borrowers who can afford their monthly payments instead opt to "strategically" default on loans, because they owe far more than their homes are worth.

"Walking away from a mortgage is bad for borrowers and bad for communities, and our approach is meant to deter the disturbing trend toward strategic defaulting," said Terence Edwards, Fannie's executive vice president for credit portfolio management.

The government-owned mortgage-finance titan also said it planned to step up legal actions to pursue deficiency judgments in states that allow lenders to go after borrowers' other assets. In addition, Fannie said it would instruct its lender partners to monitor delinquent loans owned by Fannie, and recommend cases that warrant attention. (Weitz – Post foreclosure, the general course of action has been to sell off the debt to third party creditors who already go after assets. That said, they typically are willing to settle the debt).

Fannie's move comes amid greater concern that it has become socially acceptable for borrowers to stop paying their loans, and that such a shift could exacerbate the housing bust. Those worries are particularly acute in Arizona, Nevada, Florida and other hard-hit housing markets where it could take years for borrowers to return to positive equity.

Nearly one in four homeowners with a mortgage is underwater, or owes more than their home is worth, according to CoreLogic, a real-estate data firm. A Morgan Stanley report estimated that around 12% of all mortgage defaults in February were strategic.

In 2008, Fannie revised to five years from four the period that borrowers with a foreclosure must wait before they are eligible for a new loan. Under the new rules, the five-year waiting period is eliminated. Borrowers who can't document "extenuating circumstances" or show that they made an effort with their lender to avoid foreclosure will have to wait seven years to get a new loan; those who can demonstrate hardship or attempted a workout with their lender may have to wait only three years.

Its smaller sibling, Freddie Mac, also requires borrowers with a foreclosure to wait at least five years. Foreclosures can stay on a credit report for up to seven years.
Even as it steps up penalties, Fannie is preparing to reduce waiting periods for borrowers facing hardship who surrender their homes and avoid foreclosure.

Under previously announced rules that take effect next month, Fannie will reduce waiting periods to two years for borrowers who agree to transfer their homes to the company through a "deed in lieu of foreclosure," or who complete short sales, where homes are sold for less than the amount owed.

Weitz – Freddie wants to preclude you from getting a loan through them for an additional 2 years after foreclosure. Perhaps Freddie should preclude themselves from issuing loans as their failure to maintain credit standards partially caused the problem in the first place….just a thought.

For information on your rights in Foreclosure, consider contacting a Foreclosure Attorney.

Our Contact Information:

Weitz Law Firm, PLLC
5400 Carillon Point
Kirkland, WA 98033
(425) 889-9300
scottweitz@weitzlawfirm.com

Wednesday, June 23, 2010

New Administration Loan Program

AP Report: 6/22/10

Another day, another questionable use of your tax dollars:

The Obama administration has approved five state-designed plans to help homeowners as part of a $1.5 billion effort to assist areas slammed by the housing bust.
The Treasury Department said Wednesday that plans for Arizona, California, Florida, Michigan and Nevada had received approval.

The states estimate that the plans are projected to help up to 93,000 homeowners. That's a small part of the administration's main existing $75 billion mortgage assistance program, which is widely viewed as a disappointment.

The states were picked because they experienced at least a 20 percent decline in home prices. The programs, which vary by state, will help borrowers who have lost jobs make mortgage payments, cancel second mortgages that have blocked loan modifications and assist with the payment of piled-up mortgage bills.

According to the proposals from state housing finance agencies, the largest recipient of the funding is California, which will get nearly $700 million to assist about 46,000 borrowers. California officials are asking for matching contributions from lenders for its programs, which provide subsidies to unemployed borrowers and those who have missed mortgage payments, and for reductions in borrowers' principal balances.

Florida is getting the second-largest pot of money, $418 million. That will help about 12,500 borrowers. Treasury officials approved the state's plan to help the unemployed, but rejected two of the state's proposals.
Those included a plan to provide homeowners facing foreclosure with legal representation. A proposal to give homebuyers assistance with downpayments was also rejected, according to the Florida Housing Finance Corp.

Michigan will receive about $155 million to assist 17,000 borrowers, including 11,000 who are currently drawing unemployment benefits. It plans to start distributing the money in mid-July and estimates it could take up to 18 months to distribute all the cash. A major piece of Michigan's plan offers assistance to homeowners receiving unemployment benefits. Those who qualify could get half of their monthly mortgage paid for through the program -- as much as $750 a month for up to a year.
The state also would help homeowners who have fallen behind on payments because of a temporary layoff or a medical condition.

Arizona will receive $125 million for 12,000 borrowers. Nevada will receive $103 million for about 5,000 homeowners.

Besides these states, the Obama administration is providing an additional $600 million in financial support to help homeowners in states with high rates of unemployment. Those states -- Ohio, North Carolina, South Carolina, Oregon and Rhode Island -- have submitted plans to the Treasury Department. They are being reviewed now, with approvals expected in August.

More than a third of the 1.2 million borrowers who have enrolled in the Obama administration's main mortgage modification program have dropped out, officials said this week. About 340,000 homeowners, or 27 percent of those who started the program, have received permanent loan modifications and are making payments on time.

Weitz: Since the Making Home Affordable Program has gone so well (not really), I'm sure this will solve all our problems (not really). To sum up what the government is doing: we are going to pay the mortgage payments for unemployed folks in hard hit states....hardly seems fair to those that are working hard every day to pay off their mortgage(s). In general, I am not a big fan of this type of policy. Sure, unemployment benefits have utility to provide essentials...but paying off a mortgage!!...in the legal world, we like to call this 'a slippery slope' or 'grounds for abuse'.

1099 Income from a foreclosure or short sale?


I have a lot of clients that are concerned of incurring tax liability upon a short sale or foreclosure. Luckily, there are few circumstances in which a taxpayer would actually be subject to 1099 income in the case of a foreclosure or short due to the 2007 Mortgage Debt Relief Act. Below is an outline of the Act and how it applies to you. For more information, consider contacting a Seattle Foreclosure Attorney.



The Mortgage Debt Relief Act and Debt Cancellation

As a general rule, the Mortgage Debt relief Act generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Additionally, debt reduced through mortgage modifications and principal reductions qualifies for this relief.

This provision applies to debt forgiven in calendar years 2007-1012 up to $ 2 Million.

Other exceptions to Cancellation of Debt 'COD' income:

1) Qualified principal residence indebtedness (same as outlined above)
2) Debts discharged in bankruptcy are not taxable income
3) If a taxpayer is insolvent (debts are more than the fair market value of total assets)
4) Non-recourse Loans – if a lender’s only remedy is to repossess property being financed (ie. The lender cannot pursue you personally in the case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in COD income. However, it may have other tax consequences.

Frequently asked questions:

Does the Mortgage Forgiveness Debt Relief apply to all cancelled debts?
No, the Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your primary residence, or to refinance debt incurred for those purposes. Additionally, the debt must be secured by the home.

Do I have to report forgiven debt on my tax return?
Yes, the amount of debt forgiven must be reported on FORM 982 and this form must be attached to your tax return.

Are losses on my home deductible as ‘Capital Losses’?
No. Losses from the sale or foreclosure of personal property are not deductible.

For more information on your rights in foreclosure or short sale, consider contacting a Seattle Foreclosure attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point, Building 5000
Kirkland, WA 98033
(425) 889-9300
www.weitzlawfirm.com

Thursday, June 3, 2010

Housing Double Dip? Is the debate over?

The home buyer tax credit is done. Sales contracts had to be entered by April 30.

What have the after effects been, you ask?

May, traditionally the height of the spring housing season, has seen Mortgage purchase applications drop nearly FORTY (not a typo) percent from a month ago to their lowest level since April 1997!

Weitz:

Dare I say: look out below. While I applaud the government for trying to fix our housing problems with arbitrary government stimulus, the simply reality is that you can not artificially pull forward future demand and not expect severe consequences. The government wrongly assumed that the economy would have fully recovered by the expiration of the tax credit. This has not come to fruition. What program are they going to come up with next to 'save the housing market'? Your guess is as good as mine.


Our Firm:

Weitz Law Firm, pllc
5400 Carillon Point
Kirkland, WA 98033
(425) 889-9300
scottweitz@weitzlawfirm.com

Bank of America: Mortgage Walkaways have huge incentive

Yesterday, Bank of America Executives unveiled their new "Principal Reduction Enhancement Program", which is an earcned principal forgiveness plan for broowers behind on their mortgages and whose loans are at least 20 percent underwater.

The Plan employs a 'principal reduction as the first step toward reaching HAMP's affordable payment target of 31 percent of household income when modifying certain NHRP eligible mortgages (rather than lowering the interest rate)

WHY ARE THEY GETTING MORE AGGRESSIVE?

The simple reality, as we've predicted since the blog began, is that borrowers are walking away in masses. The B of A exces now acknowledge that the problem is beginning to snow ball. Jack Schakett, a B of A credit loss mitigation executive, admitted that the number of 'strategic defaulters' were more than B of A has ever experienced before. Schakett says that the foreclosure process is still taking 13 to 14 months, which equates to over a year of free rent for defaulters.

In March, 31 percent of foreclosures were deemed to be 'strategic defaults' according to a recent study by Northwestern Univeristy.

Weitz:

While its encouraging that Bank of America, who has been notoriously difficult on borrowers in the short sale and foreclosure process, is working to assist borrowers, I question the secondary effects as those that stay current on their mortgage question why they are not privy to the same privileges. In the end, I fear it will only encourage more homeowners to default on payments.

For more information, consider contacting a Seattle Foreclosure Attorney.

Our Firm:
Weitz Law Firm, PLLC
5400 Carillon Point
Kirkland, WA 98033
(425) 889-9300
scottweitz@weitzlawfirm.com