Will You Owe Income Tax If You Short Sell Your Home?
If a bank writes off debt in a short sale, it’s a “taxable event,” and the lender tells the Internal Revenue Service about the deal by submitting a “Form 1099-C, Cancellation of Debt” at the end of the year. Home sellers must acknowledge the amount when they fill out their federal taxes. Through Dec. 31, 2012, however, the federal government forgives any tax liability associated with forgiveness of a mortgage loan.
“In general, homeowners believe the government will extend this tax provision,” says San Diego Realtor Joy Bender. “However, as evidenced by the First Time Homebuyer Credit expiration in 2010, you can’t always count on the government to bail you out.”
The government generally considers forgiven debt to be income. If a seller has signed legal loan papers to take out a $200,000 mortgage and the lender accepts $100,000 in a short sale, for example, the seller received the equivalent of $100,000 in free money by government estimates. As a result, the IRS taxes it. For tax year 2012, however, the government still forgives the debt; in 2013, it might not.
The tax amount can be significant. On a debt of $100,000, a short-sale seller in the 25 percent tax bracket could end up owing $25,000 in income taxes.
Since short sales can take months and even fall through, homeowners considering a short sale may want to start the process sooner rather than later.
© 2012 Florida Realtors®
Banks offer more cash incentives for short sales
More banks are offering homeowners incentives to sell their houses in a short sale to avoid costly foreclosure expenses for the bank. In fact, some banks are offering struggling homeowners as much as $35,000 to do a short sale, according to CNNMoney.
Many homeowners have been surprised at banks’ recent willingness to approve short sales.
“Initially, the homeowners are skeptical,” says Elizabeth Weintraub, a real estate professional in Sacramento, Calif. “The bank may have already turned down their request for a modification. Then, one day, they call and say, ‘Let us give you some cash.’”
For banks, the incentives have proven to be a smarter move than letting a property fall into foreclosure.
“The first choice is a modification, but if that’s impossible, then a short sale is a faster, more efficient solution,” says Tom Kelly, a spokesman for Chase Mortgage.
With a foreclosure, homeowners stop making their mortgage payments and usually property taxes as well. They also often put off maintenance issues, which can cause the home to lose value even more. Foreclosed homes sold, on average, for 22 percent less than homes not in foreclosure in December, according to National Association of Realtors®’ data. For comparison, discounts for short sales were about 14 percent.
“I’ve seen a lot of foreclosures for sale where it would cost a lot more than $20,000 to get them into condition to sell again,” says John Hayton, a short sale specialist in Orlando, Fla.
Source: “Banks Pay Delinquent Borrowers $35,000 to Sell Their Homes,” CNNMoney (Feb. 10, 2012)
State AGs Sue Bank of America
As officials from all 50 states investigate the causes of the recent “Foreclosure-gate” fiasco, two attorneys general have decided to go after Wall Street on their own. On Friday, Arizona and Nevada’s attorneys general slapped Bank of America and its mortgage servicing subsidiary with a blistering lawsuit (PDF). The states say the lender made “false assurances” about modifying homeowners’ mortgages while foreclosing on them at the same time and gave “inaccurate and deceptive reasons” for rejecting loan modification requests. “Nevadans who were trying desperately to save their homes were unable to get truthful information in order to make critical life decisions,” Nevada attorney general Catherine Masto said in a statement.
The states suing Bank of America are among the hardest hit in the housing meltdown. In the third quarter of 2010, Nevada led the country in foreclosures, with one in every 99 properties in foreclosure—five times the national average. What’s more, 54 percent of all home sales in the Silver State were of foreclosed properties, according to RealtyTrac. Arizona had the fourth-highest foreclosure rate.
Here’s more from the New York Times on Arizona and Nevada’s suit:
Indeed, according to the lawsuits, Bank of America’s efforts were the most anemic of the big banks and were not confined to the Western states but rather “reflect a pervasive nationwide pattern and practice of conduct.” The lawsuit noted that Bank of America ranked last in “virtually every homeowner experience metric” monitored in a monthly report on the federal home loan modification program.
Ms. Masto of Nevada said her office’s findings were confirmed by interviews with consumers, former employees, third parties and documents. Former employees said that Bank of America’s modification staff was “chaotic, understaffed and not oriented to customers,” according to a news release. One former employee said, “The main purpose of the training is to teach us how to get customers off the phone in less than 10 minutes.”
Another employee said, “When checking on a borrower’s status, I often found that the modification request had not been dealt with or was so old that the request had become inactive. Yet, I was instructed to inform borrowers that they were ‘active and in status.’ One time I complained to a supervisor that I felt I always was lying to borrowers.”
In its defense, a Bank of America official told the New York Times that the bank was disappointed with the suit. The attorneys general, he added, didn’t fully take into account Bank of America’s efforts to help beleagured homeowners.
For Bank of America’s foreclosure relief efforts, though, the devil is in the details. As the bipartisan Congressional Oversight Panel highlighted in its December report, Bank of America’s success rate in the Obama administration’s flagship relief effort, the Home Affordable Modification Program (HAMP), is a miserable 30 percent. By contrast, top performers like Wachovia Mortgage and HomeEq Servicing boast rates of 89 percent. Bank of America’s mortgages, together with JPMorgan Chase and CitiMortgage, also comprised two-thirds of all loan modifications that are stuck in foreclosure limbo, waiting to either be approved or dumped from HAMP.
Protesting homeowners getting arrested? A top state investigator pledging to “put people in jail” for foreclosure fraud? When you put the data alongside the Arizona and Nevada attorneys general’s body of evidence, it’s not hard to see why American are so angry about the foreclosure debacle.
Thousands Of Foreclosures Are Put On Hold.
Does The Bank Have The Right To Take My Home?
Millions of U.S. mortgages have been shuttled around the global financial system – sold and resold by firms – without the documents that traditionally prove who legally owns the loans.
Now, as many of these loans have fallen into default and banks have sought to seize homes, judges around the country have increasingly ruled that lenders had no right to foreclose, because they lacked clear title.
These fundamental concerns over ownership extend beyond those that surfaced over the past two weeks amid reports of fraudulent loan documents and corporate “robo-signers.”
The court decisions, should they continue to spread, could call into doubt the ownership of mortgages throughout the country, raising urgent challenges for both the real estate market and the wider financial system.
For struggling homeowners trying to avoid foreclosure, it could mean an opportunity to challenge the banks they argue have been unhelpful at best and deceptive at worst. But it also threatens to leave them in prolonged limbo, stuck in homes they still can’t afford and waiting for the foreclosure process to begin anew.
For big banks, “there’s a possible nightmare scenario here that no foreclosure is valid,” said Nancy Bush, a banking analyst from NAB Research. If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities – an expensive and potentially crippling proposition.
For the fragile housing market, already clogged with foreclosure cases, it could mean gridlock and confusion for years. And there is concern in Washington that if the real estate market and financial institutions suffer harm, it could force the government to step in again. Attorney General Eric H. Holder Jr. said Wednesday he is looking into the allegations of improper foreclosures, and Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee, said he plans to hold hearings on the issue.
At the core of the fights over the legal standing of banks in foreclosure cases is Mortgage Electronic Registration Systems, based in Reston.
The company, known as MERS, was created more than a decade ago by the mortgage industry, including mortgage giants Fannie Mae and Freddie Mac, GMAC, and the Mortgage Bankers Association.
MERS allowed big financial firms to trade mortgages at lightning speed while largely bypassing local property laws throughout the country that required new forms and filing fees each time a loan changed hands, lawyers say.
The idea behind it was to build a centralized registry to track loans electronically as they were traded by big financial firms. Without this system, the business of creating massive securities made of thousands of mortgages would likely have never taken off. The company’s role caused few objections until millions of homes began to fall into foreclosure.
In recent years, the company has faced numerous court challenges, including separate class-action lawsuits in California and Nevada – the epicenter of the foreclosure crisis. Lawyers in other states have also challenged the company’s legal standing in court.
Kentucky lawyer Heather Boone McKeever has filed a state class-action suit and a federal civil racketeering class-action suit on behalf of homeowners facing foreclosure, alleging that MERS and financial firms that did business with it have tried to foreclose on homes without holding proper titles.
“They have no legal standing and no right to foreclose,” McKeever said. “If you or I did this one time, we’d be in jail.”
Judges in various states have also weighed in.
In August, the Maine Supreme Court threw out a foreclosure case because “MERS did not have a stake in the proceedings and therefore had no standing to initiate the foreclosure action.”
In May, a New York judge dismissed another case because the assignment of the loan by MERS to the bank HSBC was “defective,” he said. The plaintiff’s counsel seemed to be “operating in a parallel mortgage universe,” the judge wrote.
Also in May, a California judge said MERS could not foreclose on a home, because it was merely a representative for Citibank and did not own the loan.
On the other hand, Minnesota legislators passed a law stating that MERS explicitly has the right to bring foreclosure cases. And on its Web site and in e-mails, MERS cites numerous court decisions around the country that it says demonstrate the company’s right to act on behalf of lenders and to undertake foreclosures.
“Assertions that somehow MERS creates a defect in the mortgage or deed of trust are not supported by the facts,” a company spokeswoman said.
But that’s precisely what lawyers are arguing with more frequency throughout the country. If such an argument gains traction in the wake of recent foreclosure moratoriums, the consequences for banks could be enormous.
“It’s an issue of the whole process of foreclosure having been so muddied by the [securitization] process,” said Bush, the banking analyst. “It is no longer a straightforward legalistic process, which is what foreclosures are supposed to be.”
Janet Tavakoli, founder and president of Tavakoli Structured Finance, a Chicago-based consulting firm, said that for much of the past decade, when banks were creating mortgage-backed securities as fast as possible, there was little time to check all the documents and make sure the paperwork was in order.
But now, when judges, lawyers and elected officials are demanding proper paperwork before foreclosures can proceed, the banks’ paperwork problems have been laid bare, she said.
The result: “Banks are vulnerable to lawsuits from investors in the [securitization] trusts,” Tavakoli said.
Referring to the federal government’s $700 billion Troubled Assets Relief Program for banks, she added, “This problem could cost the banks significantly more money, which could mean TARP II.”
By Brady Dennis and Ariana Eunjung Cha
Washington Post Staff Writers
Thursday, October 7, 2010; 12:01 AM
Bill could speed up short sale
WASHINGTON – Sept. 17, 2010 – Homeowners underwater on their mortgage may find relief through a bill strongly supported by the National Association of Realtors®. The bill, if passed by Congress and signed by President Obama, would force lenders to respond to a short sale request within 45 days.
The legislation, H.R. 6133, “Prompt Decision for Qualification of Short Sale Act of 2010,” was filed yesterday in Congress by U.S. Reps. Robert Andrews (D-N.J.) and Tom Rooney (R-Fla.).
“The short sale, which requires lender approval, is an important instrument for homeowners who owe more than their home is worth,” says NAR President Vicki Cox Golder. “While the lending community has worked to improve the size and training of their short sales staffs, they still have a long way to go on improving response times. As the leading advocate for homeownership issues, NAR believes that quicker attention to the short sales process is vital to help homeowners … as well as the nation’s economy.”
The number of potential short sale properties is rising across the country. According to NAR data, in the second quarter of 2010, four states have a significant share of properties with short-sale potential: Florida has 27 percent, Nevada 32 percent, California 28 percent, and Arizona 24 percent.
“Unfortunately, homeowners who need to execute a short sale are severely hampered because lenders (loan servicers) are unable to decide whether to approve a short sale within a reasonable amount of time,” Golder said. “Potential homebuyers are walking away from purchasing short sale property because the lender has taken many months and still not responded to their request for an approval of a proposed short sale price. Many consumers have mentioned that the delay in short sale price approval exceeds 90 days, and in many cases never arrives.”
Golder says she commends Reps. Andrews and Rooney for their efforts on the bill and urges Congress to pass the bill quickly.
Joey Fatone, formerly a member of N’Sync, celebrity dancer on Dancing with the Stars, and host of the NBC game show called “The Singing Bee” will auction his Orlando home on September 11th.
The 12,400 sq. ft. home is currently listed for $6.5 million, and the minimum bid for auction is $3.7 million.
Paradise Found, a 12,000+ sqft gated, 4.36 acre lakefront estate on Butler Chain of Lakes. Boasts 6 bdrms, 6 baths, 4 half baths, home theater room (w/stadium seating), office/study, game room, 10+car garages, $1M+ resort-style pool, dock/boathouse. Please view the Virtual Tour photography to appreciate the splendor and lavish inclusions of this palatially proportioned and exquisitely appointed lakefront estate. The gourmet kitchen boasts granite counters and island, dual refrigerators, two built-in ovens, and breakfast room. The formal living and dining rooms are ideal for informal family gatherings or hosting gala events. The majestic 3,800-sqft master wing boasts vestibule entry, spacious sitting room w/butler’s pantry, dual-sided fireplace; a nearly 700 sqft master closet w/3 dressing islands, built in perimeter shelving and hidden access door. The master bath suite offers separate sauna, steam room, dual water closets, walk-in shower, and Jacuzzi tub. The theater room provides a private retreat, stadium seating, large projection screen, and state-of-the-art surround sound. The upstairs game room/bonus area includes a separate serving bar, and there is a second laundry room, multiple bedroom and bath suites, and two private balconies from which to enjoy panoramic vistas of the expansive, manicured grounds and azure lake views. The resort-style pool is undoubtedly the most dramatic and infinitely-appointed offering in residential history! State-of-the-art security, surveillance and sound systems.
See More Photos HERE
Its A Great Time To Buy!!
The tax credit expired, but it’s still a great time to buy a home thanks to low mortgage rates and motivated sellers. Here are five reasons why now is a great time to buy:
1. Low mortgage rates serve as an equity shock absorber. When buyers borrow at today’s record-low rates, they start building equity as soon as they close. That means they can absorb a few ups and downs as the still-recovering housing market gains traction.
2. Houses are in move-in condition. Homeowners continue to spend on maintenance and repair, according to the Harvard Joint Center on Housing. As these houses enter the market, they stand in marked contrast to tattered foreclosures.
3. Terrific houses are coming on the market. Foreclosures are finally starting to clear the system, and they are being replaced by some very attractive properties.
4. Appraisal regulations are finally aligned with market realities. Fannie Mae has adjusted its appraisal guidelines, giving appraisers more flexibility to set values that reflect the current market.
5. Plenty of programs. Many programs that encourage middle-class families to buy homes still exist, despite market downturns. Buyers who qualify can get a big boost by combining one of these programs with today’s low mortgage rates.
Short Sale Help Line
CALL US 407-584-7235
This is an outline of how we have created a team of Real Estate Professionals to help distressed home owners.
Today’s economy has changed the dynamic of the real estate transaction quite drastically. Because of the huge ramp up in housing prices over the past few years and the inevitable bursting of the “Bubble” many homeowners are currently “Underwater” this means the home is worth less than the amount owed to the bank. According to statistics by our local organizations such as the Orlando Regional Realtor Association approximately 55% of Central Florida homeowners are in such a position.
Economic hardships in this country have had an impact on everyone, many home owners are no longer in a position to pay their mortgage and some who were paying interest only or adjustable rates are being impacted even harder as these items mature.
Kelley Real Estate Group and Saint Lawrence Title have combined their efforts with a local real estate attorney to help these homeowners out of this burdening situation. One of our top priorities is to first educate people on the process of a short sale and implications of a foreclosure. Most owners think if they simply walk a way and allow the bank to foreclose the problem is over when the reality is that it is just the beginning. Most lenders will file a deficiency judgment- Deficiency judgment Florida allows lenders to come after your wages, levy your bank accounts and put liens on your other properties. This type of legal action can take an already stressful situation and intensify it.
These terrible hardships are tearing families apart and destroying peoples lives and we need to fight back to get these home owners back on track to enjoying life instead of worrying themselves to death.
What is the cost?
The greatest part of this whole process is the total out of pocket expense to the home owner is ZERO! If your wondering how we can combine the efforts of these real estate experts and help home owners without expecting a penny from them well this is how. When a home is listed for sale by Kelley Real Estate Group and the short sale is negotiated and handled by the attorney and the closing by Saint Lawrence Title all of our fees are added to the banks net loss. So the bank pays our fees NOT the seller. All of the partners in this mission are licensed by the State Of Florida and regulated by The Florida Real Estate Commission, The Florida Bar, and The Department Of Insurance, as well as our high standards and ethics.
CALL US 407-584-7235
Bank of America Retard Division for Short Sales
Source: Agent Genius Magazine
By Russell Shaw
Bank of America is to be Highly Commended for their complete willingness to give so many intellectually challenged people jobs as executives. Sure, year in – year out, most other banks have always been willing to hire a few people who couldn’t think straight. But those other banks aren’t getting any awards for what they did for one simple reason: what they did was so darn common. Now any buzz kill who cares to can go look and find some other division of Bank of America / Countrywide that isn’t being run totally by retards (for example, their REO loss mitigation department).
But I challenge anyone to find any other bank that even comes close to Bank of America / Countrywide’s short sale loss mitigation departments for non-stop, over the top policies and procedures that make life difficult, impossible or at least a lot less profitable for the following four groups (not listed in their order of importance and there may well be others).
* All agents – either on the buyer or seller side
* All potential buyers of any property where B of A holds a 1st lien position
* All of the sellers (their borrowers) trying to work with them to avoid foreclosure
* Themselves.
If B of A is in a 2nd lien position, oddly enough they have workable policies in place (seller IS going to sign a note prior to close to pay the bank a small part of what they owe). They don’t flex on this issue but it is a knowable and not completely unfair rule. If they are in 1st lien position their standard and unvarying behavior (if that behavior were being attributed to an individual person) is nothing short of psychotic or completely retarded – at least down at the imbecile level. No rational judgement, no possibility at all of dealing with them the same way we deal with all the other banks on short sales.
Other than limited personal – and for the most part, completely anecdotal data, most agents doing short sales on the buy or the sell side have a very odd picture of the overall scene. Loads and loads of mostly worthless gibberish. Notice how Chase and Wells Fargo are grouped in the same category as Bank of America? Wells does not ever pay any of the buyer’s closing costs and won’t pay for a home warranty. But ….. you can routinely close an escrow from start to finish with Wells in about 30 days. Actually close, it takes less then two weeks to get an approval. Same with Chase. Try that with B of A / Countrywide (who collectively have about half of all problem loans in the U.S.) It takes a minimum of 90 days to get any response back from B of A. And if you send them anything after submitting the original package (anything, even a better offer) that 90 day clock is reset. So, with B of A four to five months to actually close a transaction is not uncommon.
It gets better. Here is a charming response we received from B of A a month or so back:
“Bank of America is now requiring most sellers to contribute to the loss in order to qualify for a short sale. Please prepare your client for that probability and be ready to let me know how much cash the seller can bring to closing. If no cash is available, the alternative is a promissory note for a larger portion of the loss. this requirement is firm–no contribution from the seller will result in the short sale being declined. There are vary few exemption made to this. The approval time once the file has been submitted will depend on the size of the loss, the investor and the MI insurer, if any.”
Arizona is one of ten states that have “anti-deficiency protection” due to the nature of how foreclosure works here – it takes only 90 days from the time the lender files for a Trustee’s Sale for them to take the house back. Therefore, the anti-deficiency protection (very basic rules – there are others: The same purchase money loan is still on the property, e.g., they never took any money out of the house via a refi and it was a residential property of 2.5 acres or less).
The response from B of A above was on a transaction where our seller would have no possible liability of any kind if the bank were to foreclose. None. In this case there was precisely nothing they could legally do to go after him and yet, even after being told this and being asked to please verify it with their legal department, they were not willing to budge – forcing the seller to let them foreclose. They get a house back that they really don’t want for many reasons, a neighborhood winds up with an abandoned home that will invariably sell for less money after the bank gets it back and so it goes.
It is as though a complete division of Bank of America executives went looking and anything they found that could slow down the process, make it more difficult for everybody involved or simply thwart the actual goal completely – they carefully noted what that was and then adopted it as firm policy. I’m impressed.
