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Archive for the ‘SHORT SALES’ Category

The Home Affordable Refinance Program — a government refinancing program for underwater home owners — will be expanded for another two years, the Federal Housing Finance Agency announces. HARP was originally set to expire Dec. 31, 2013, but will now be extended to the end of 2015 – December 31, 2015.

“More than 2 million home owners have refinanced through HARP, proving it a useful tool for reducing risk,” says FHFA acting director Edward DeMarco.

Home owners eligible to apply for refinancing under HARP must have a Fannie Mae- or Freddie Mac-backed mortgage that was guaranteed on or before May 31, 2009, must be current on their loan, and must have a current loan-to-value ratio more than 80 percent.

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http://my.chicagotribune.com/#section/-1/article/p2p-75347532/

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SOURCE: REALTOR Magazine, Chicago Tribune

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Starting June 15, 2012 as per the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, both agencies must give short-sale buyers a final decision within 60 days. (In a short sale, a lender agrees to accept less than the balance on a mortgage.)

The new guidelines also will require the mortgage giants to respond to initial short-sale requests within 30 days of receiving an offer from a potential buyer. (more…)

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More than 200,000 underwater home owners with mortgages through Bank of America may be eligible to have a reduction in the amount they owe on their loan, which could possibly trim their monthly payments by up to 35 percent.

Bank of America has sent letters to home owners who may be eligible to take part in a program to write-off a portion of underwater home owners’ mortgage principal, reducing it by, on average, $150,000 each.

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The bank’s move stems from the $25 billion settlement, which it and four other of the nation’s largest lenders reached earlier this year with federal and state officials over past foreclosure mishandlings. Bank of America agreed to reduce some home owners’ mortgage principles as part of the settlement.

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Home owners eligible for the principal write-offs must be:

  • “underwater” (owing more on their mortgage than their property is currently worth),
  • have a loan owned or serviced by Bank of America,
  • be at least 60 days behind on their mortgage payments as of the end of January.
  • in order for the mortgage reductions to be made permanent, home owners must make at least three on-time payments.

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“To the extent principal reduction and other modification tools help us turn mortgages headed for possible foreclosure into long-term performing loans, it will be positive for home owners, mortgage investors and communities,” said Ron Sturzenegger, a legacy asset servicing executive.

Bank of America Starts Mortgage Reduction Effort,”

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SOURCE: The New York Times; REALTOR Magazine

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Most of us know the housing bubble of 2002-2006 and the subsequent housing crash that followed in 2007 was caused by the deregulation of the lending industry by the government, which brought into the market many sub-prime lenders offering no-downpayment-interest-only-loans,  ARM loans and option ARM loans, and other “exotic” loans.

This easy credit and availability of money artificially increased demand for homes, which in turn artificially increased home prices until they became unsustainable, which led to the housing crash – all in a span of a few short years. (more…)

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More than 4 million homes have been lost to foreclosure since 2005 and many of those former home owners are now ready to purchase again.

Some banks have guidelines that prevent them from issuing loans to people with a foreclosure or short sale in their credit history in some cases for as much as seven years. However, every lender may have their own guidelines so buyers need to contact their lenders directly for details.

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Aside from the the waiting period to qualify for a loan after a short sale or a foreclosure, former home owners will need to repair their credit scores so they’ll have a better chance at qualifying for financing again in the future at a good interest rate. 

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The good news is some former home owners, particularly those who foreclosed or did a short sale due to extenuating circumstances like a job loss or illness, are finding the wait may not be as long as they were once told.

FHA, Fannie Mae and Freddie Mac have a shorter waiting period for borrowers who can justify that the circumstance for the foreclosure or bankruptcy occurred because of an illness or job loss — or other “extenuating circumstance” — that may help reduce their wait to qualify for lender financing.

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The wait-time for lender financing for former home owners with foreclosures or short sales varies among lenders and government entities..

Fannie Mae and Freddie Mac loan wait due to extenuating circumstances, like job loss:

  • 3 year waiting period following a  foreclosure
  • 2 year wait following a short sale, deed in lieu, or discharge or dismissal of bankruptcy

Fannie Mae and Freddie Mac loan wait with NO extenuating circumstances:

  • 7 years following a foreclosure
  • 4 years after bankruptcy

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Loans insured by FHA, the Federal Housing Administration:

  • 3 years after a foreclosure
  • 2 years after a bankruptcy is discharged
  • 3 years after a short sale with NO extenuating circumstances
  • may be WAIVED after a short sale with extenuating circumstances

Borrowers have to wait three years after short sale and foreclosure to secure a FHA loan UNLESS they can prove the short sale was due to a job loss or other extenuating circumstances and then the wait-time can be waived.

Also, for borrowers who can come up with a higher down payment on their next home purchase, they may also not have as long to wait. For example, Fannie Mae will reduce the wait from seven years to two years for borrowers who come with a down payment of 20 percent or more.

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NOTE: Vivianne Rutkowski is a REALTOR, not a Lender. For financing information and advice always contact your LENDER and for a legal advice always contact your lawyer.

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SOURCE: Associated Press; REALTOR Magazine

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Lenders do, on occasion, forgive some portion of a borrower’s debt in the short sale. The general tax rule that applies to any debt forgiveness is that the forgiven amount is treated as ordinary income and the borrower must pay tax on the forgiven amount.  The amount forgiven is treated as taxable income to the borrower.

However, a law enacted in December 2007 provided relief to troubled borrowers when some portion of mortgage debt is forgiven. That debt forgiveness relief expires on Dec. 31, 2012 – unless The Congress approves extension.

Use this information to better understand mortgage debt cancellation:

General Rule for Debt Forgiveness:

If a lender forgives some or all of an individual’s debts, the general rule is that the forgiven amount is treated as ordinary income and the borrower must pay tax on the forgiven amount. Exceptions apply for bankruptcy, insolvency and certain other situations, including mortgage debt. (See below)

Current Law for Mortgage Debt (January 1, 2007 through Dec 31, 2012):

A borrower can be excused from paying tax on forgiven mortgage debt. The debt must be secured by a principal residence and the total amount of the outstanding obligation may not exceed the original mortgage amount plus the cost of any improvements. The objective of the legislation was to assure fairness: Homeowners should not be required to pay income tax where there is no cash realized in a transaction.

Example: The provision is best understood with an example.

Assume a family purchased their home for $175,000, with a mortgage of $150,000. In 2012, they need to sell the home. They find that the value of homes in their area has declined, so they can sell for only $120,000. At the time of the sale, the outstanding balance on their mortgage is $132,000. Thus, there will not be enough cash at settlement to repay the lender the full balance of the mortgage. If the lender forgives the entire difference between the amount owed ($132,000) and the sales price ($120,000), the debt forgiven will be $12,000. The relief provision assures that the homeowner will not pay tax on the $12,000 forgiven.

Does the relief apply only to a sale?

No. The provision has broader application. Lenders might forgive some portion of mortgage debt in a sale known as a “short sale” (as above, when value at sale is less than the amount owed) or in a foreclosure when the debt is wiped out. In addition, if a borrower still living in the home is able to make an arrangement with a lender that reduces the principal balance of a mortgage, the amount forgiven in that workout will not be taxed.

Can the homeowners in a short sale or foreclosure claim a loss?

No. The loss is considered a personal loss and is therefore ineligible for either capital loss or ordinary loss treatment.

What happens to the seller when mortgage debt is forgiven?

Until January 1, 2013, the homeowner will pay no tax on any forgiven amount. Under pre-2007 law, the amount of forgiven mortgage debt (the $12,000 in the example above), would have been treated as income, and taxed at ordinary income rates.

Does this provision apply to a refinanced mortgage?

Only in limited circumstances. The relief provision can apply to either an original or a refinanced mortgage. If the mortgage has been refinanced at any time, the relief is available only up to the amount of the original debt (plus the cost of any improvements). Thus, if the original mortgage was $125,000 and later refinanced in a cash-out arrangement for a debt totaling $140,000, the $15,000 cash-out is not eligible for relief if a lender later forgives some amount related to the cash-out. Tax relief is generally not available for second mortgages or home-equity lines of credit where the funds are not used for home improvement. Any amount that is not eligible for the relief provision will be taxed as ordinary income.

How does the homeowner get the correct information to the IRS?

The lender is required to provide the homeowner and the IRS with a Form 1099 reflecting the amount of the forgiven debt. The borrower/homeowner must file a Form 982 to reflect the amount forgiven and to show the reason why the forgiven amount is not taxable. Any taxable portion of forgiven debt will then be reported on the homeowner’s Form 1040 for the tax year in which the debt was forgiven. For example, a lender that forgave mortgage debt in March 2012 would provide the 1099 information to the IRS and the homeowner as required. The forgiven amount would then be reflected as appropriate on the 2012 Forms 982 and 1040 that will be due April 15, 2013.

Is there a limit on the amount of eligible debt?

Yes. Up to $2 million of mortgage debt on a principal residence may be forgiven tax-free. Any amount of forgiven debt above $2 million is taxable as ordinary income.

Does this provision apply to commercial real estate?

Permanent rules enacted in 1993 provide relief to debt-burdened commercial real estate and rental properties. The 2007 provision puts commercial/investment property and residential owner-occupied property on similar footing.

What if a property declines in value, but the owner stays in the house?

The provision would not apply. The provision applies only at the time of sale or other disposition or when there is a workout (reduction of existing debt) with the lender. No mechanism exists to reflect a loss of value while the property is still being used as a residence. (See the question on capital losses, above.)

Do all lenders forgive mortgage debt when property values decline or in foreclosure?

No. Some states have laws that allow a lender to require a repayment arrangement, particularly if the borrower has other assets. Forgiveness of debt is always at the lender’s discretion.

When did this legislation pass?

A version of the mortgage relief provision passed the House in 1999 and 2000, but was not enacted. The rules of current law were enacted in 2007 as part of H.R. 3648, a bill focused solely on housing issues. The original rules were effective from January 1, 2007 through December 31, 2009. The provision was extended through December 31, 2012 in 2008 as part of the stimulus legislation enacted in 2008. (HR 1424, PL 110-343).

More information here: http://www.irs.gov/individuals/article/0,,id=179414,00.html

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http://www.irs.gov/newsroom/article/0,,id=174034,00.html

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NOTE: I’m a REALTOR, not a tax accountant. For TAX advice always contact a CPA accountant. For information regarding your mortgage loan contact your lender. If you live in Northern Virginia, Fairfax County VA, Loudoun County VA, and Prince William County VA, you may contact me directly for information regarding the short sale process.

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SOURCE: IRS,  REALTOR Magazine

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Five mortgage insurers have granted Fannie Mae mortgage servicers the authority to complete a short sale or deeds in lieu of foreclosure without getting their separate approval, HousingWire reported.

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Traditionally, mortgage insurance groups have had to give the OK before a short sale could be processed on a property with a guaranteed loan.

Now, without that extra step of mortgage insurers’ approval, Fannie mortgage servicers may be able to speed up short sale approvals on Fannie-backed loans.

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The PMI Group, which filed for bankruptcy in November 2011, is the latest mortgage insurer to grant Fannie Mae the authority to no longer wait for its approval on short sales starting with February 2012.

The other four mortgage insurers that also gave Fannie Mae the authority are:

  • Genworth,
  • MGIC,
  • Republic Mortgage Insurance Co.,
  • Radian Guaranty.

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Regardless, Fannie Mae has instructed its mortgage servicers to make sure a short sale does not conflict with any existing mortgage insurance coverage before approving it.

More here: PMI Group Latest Mortgage Insurer to Give Fannie Mae Short-Sale Authority

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SOURCE: HousingWire 

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