Based on all projections as shown in the article below, all new condos will be sold by end of 2012, early 2013. That is why 20 new condo projects are being proposed in south Florida. Pre-construction anyone?
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Fueled by 700 new condo sales in the third quarter of 2011, South Florida's seven largest coastal markets have now sold more than 90 percent of the nearly 49,000 new units created during the boom that began in 2003, according to CondoVultures.com.
Buyers paid $340 million for more than 900,000 square feet of livable space between July and September of 2011 in projects located east of Interstate 95 in the coastal markets of Greater Downtown Miami, South Beach, Sunny Isles Beach, Hollywood / Hallandale Beach, Downtown Fort Lauderdale and the Beach, Boca Raton / Deerfield Beach, and Downtown West Palm Beach and Palm Beach Island, according to the report based on the Condo Vultures® Buyers Guide™ eBook series.
Based on the third quarter of 2011 sales, buyers have purchased nearly 2,600 units for more than $1.5 billion in South Florida's seven largest coast markets in the first nine months of the year, according to an analysis of Clerk of the Court records from Miami-Dade, Broward, and Palm Beach counties.
"South Florida's oversupply of new condo product created during the recent boom is on pace to be sold out by 2013," said Peter Zalewski, a principal with the Bal Harbour, Fla.-based real estate consultancy Condo Vultures® LLC. "International buyers with strong foreign currencies deserve much of the credit for the strong sales velocity being experienced in South Florida. The unanswered question is whether the foreign buyers will continue to swarm South Florida given the economic dynamics now playing out in the Euro zone and key countries such as Brazil."
The total number of unsold new condos does not include any of the more than 8,000 units that were purchased in bulk transactions by investment groups that plan to one day resell the units at a premium, according to the Condo Vultures® Bulk Deals Database™.
In anticipation of the eventual sellout of the new condos created during the boom, developers are already proposing 20 new condo projects with more than 4,000 units in each of the counties of South Florida, according to the Condo Vultures® Preconstruction Condo Projects list.
As of Dec. 8, 2011, a pair of new condo towers have already formally initiated construction, according to a new CondoVultures.com report.
Since the week of Oct. 20, 2011, CondoVultures.com has examined South Florida's second quarter residential condo trends in the seven largest coastal condo markets in the tricounty region of Miami-Dade, Broward, and Palm Beach.
On a weekly basis, the Condo Vultures® Market Intelligence Report™ analyzed new condo sales and pricing in Greater Downtown Miami, South Beach, Sunny Isles Beach, Hollywood / Hallandale Beach, Downtown Fort Lauderdale and the Beach, Boca Raton / Deerfield Beach, and Downtown West Palm Beach and Palm Beach Island.
To read the third quarter of 2011 new condo sales reports, please visit the Archives or the Market Intelligence Report™ section of CondoVultures.com.
During the South Florida real estate boom, developers with bank financing created 148 projects with more than 34,000 units in the three Miami-Dade County markets of Greater Downtown Miami, South Beach, and Sunny Isles Beach.
An additional 68 projects with more than 10,000 units were created in two Broward County markets of Hollywood / Hallandale Beach and Downtown Fort Lauderdale and the Beach.
Developers created 28 projects with nearly 4,500 units in the two Palm Beach County markets of Boca Raton / Deerfield Beach and Downtown West Palm Beach and Palm Beach Island.
In the four decades prior to the boom, developers created nearly 700 condominium projects with 76,500 units in the same seven coastal markets in South Florida, according to a comprehensive study undertaken for the Condo Vultures® Official Condo Buyers Guide™ eBook series.
On a market-by-market basis, Greater Downtown Miami has the distinction of being the single neighborhood with the greatest number of new condos created during the boom with nearly 22,250 units. At the end of the third quarter, less than 2,000 units remained under the control of the original developers, according to a recent report from CondoVultures.com.
Sunny Isles Beach ranks second with nearly 6,400 new units created during the boom. As of Sept. 30, 2011, Sunny Isles Beach has about 675 unsold developer units, according to a recent report.
The popular South Beach neighborhood of Miami Beach ranks third with nearly 5,600 new units created since 2003. At the end of the third quarter, South Beach has 1,000 unsold developer units, according to a recent report.
Downtown Fort Lauderdale and the Beach narrowly claimed the No. 4 spot with nearly 5,100 new units added during the boom. As of Sept. 30, 2011, the Downtown Fort Lauderdale and the Beach market has less than 70 developer units unsold if the former Trump International Hotel & Tower - with 298 units and tied up in court - is excluded, according to the report.
The Hollywood / Hallandale Beach market ranks fifth with nearly 5,000 new units created since 2003. At the end of the third quarter of 2011, the Hollywood / Hallandale Beach market is statistically sold out with about five unsold developer units, according to the report.
The Downtown West Palm Beach and Palm Beach Island market ranks sixth in South Florida based on more than 3,400 new units created during the boom. As of Sept. 30, 2011, the Downtown West Palm Beach and Palm Beach Island markets has nearly 650 unsold developer units, according to a recent report.
At the bottom of the list with the fewest number of new units created is the Boca Raton / Deerfield Beach market, where less than 1,050 condos were added during the boom. At the end of the third quarter of 2011, the Boca Raton / Deerfield Beach market had more than 350 units - about 34 percent of the total boom-era inventory for the market - unsold, according to a recent report.
Condo Vultures® relied on public records and private research to complete this study over the course of the last three years.
The results of this exhaustive researching of deeds, condominium documents, and government files is the basis for a series of seven ebooks titled the Official Condo Buyers Guide™. The guides for Greater Downtown Miami, South Beach, and Sunny Isles Beach are already on available for purchase on Amazon.com.
This information is also the foundation for a new Condo Ratings Agency™ service designed to provide guidance on the financial stability of nearly 1,000 condo projects - old and new - with 125,000 units east of Interstate 95 in Miami-Dade, Broward, and Palm Beach counties.
It is important to note there are various stages to a residential real estate transaction in South Florida.
A transaction begins when a property is made available for sale and ends when a title is conveyed from one party to another party as a result of the recording of a deed with the local government.
As part of the process, a property typically goes under contract and into a due diligence phase by which a deal can be canceled.
The CondoVultures.com new condo sales report is based on completed transactions where a deed is recorded and taxes paid as a result of the sale.
Condo Vultures® LLC is a real estate consultancy and marketing company based at 1005 Kane Concourse, Suite 205, Bal Harbour, Florida, 33154. You can reach Condo Vultures® LLC at 800-750-0517.
Tuesday, December 13, 2011
Thursday, September 15, 2011
NAR: Increased Lending, Short Sales Will Reduce REOs
Daily Real Estate News | Thursday, September 15, 2011
Improving access to affordable mortgage financing for qualified home buyers and investors and committing additional resources to loan modifications and short sales will help reduce current and future inventories of real estate owned (REO) properties held by government agencies, according to the National Association of REALTORS®.
In a letter sent today to the U.S. Department of Housing and Urban Development, the Federal Housing Finance Agency, and the U.S. Department of the Treasury, NAR responded to the agencies’ recent request for input and offered its recommendations for selling REO properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration.
In its letter, NAR urged the agencies to create an advisory board as they explore new options for selling foreclosed properties to ensure that efficiently disposing of agency REO properties will minimize taxpayer losses and reduce the negative effects that distressed properties have on local real estate markets.
“As the leading advocate for housing issues, REALTORS®know that foreclosures affect families, communities, the housing market and our nation’s economy,” said NAR President Ron Phipps. “We believe the government has an opportunity to minimize the impact of distressed properties on local markets by expanding financing opportunities, bolstering loan modifications and short sales efforts, and enhancing the efficient disposition of REO properties. This will help stabilize home prices and neighborhoods and help support the broader economic recovery.”
Phipps said that the lack of available and affordable mortgage financing is hurting REO sales and the entire housing market, and urged increased consumer and investor lending. While NAR supports strong underwriting standards, the lack of private capital in the mortgage market, unduly tight underwriting standards, and increasing fees have discouraged many potential home buyers from applying for mortgages. NAR believes ensuring mortgage availability for qualified home buyers and investors will help absorb the excess REO inventory.
To prevent further REO inventory increases, NAR also recommended that the agencies take more aggressive steps to modify loans and, when a family is absolutely unable keep their home, to quickly approve reasonable short sale offers that allow families to avoid foreclosure. Phipps said that while federal programs have been put into place to help keep families in their homes, many of these have fallen short of expectations, and advocated that those resources be applied toward modifying loans and expediting short sales, which are typically less costly than foreclosure.
“Loan modifications keep families in their home and reduce defaults, while short sales keep homes occupied, helping stabilize neighborhoods and home values,” Phipps said. “Expanding resources and ensuring the use of already allocated funds for pre-foreclosure efforts is the best opportunity to reduce taxpayer costs and creates more positive outcomes for homeowners and their communities.”
NAR’s letter also outlined concerns about proposals to pool large volumes of REO properties for bulk sales. While these types of transactions may help quickly alleviate high REO inventories, taxpayers would be required to accept larger losses than are necessary. Phipps said that efforts should be made to incentivize individual versus bulk sales, except in small geographic areas that meet certain criteria, since selling in bulk to large national investors puts a large section of the housing market into the hands of fewer market participants and puts individual home buyers and sellers at a disadvantage.
He also said the success of any bulk sale programs should be determined by the stabilizing effect the program has on a locale and whether it maximizes value to taxpayers. Maximizing the recovery on the agencies’ assets will depend on how property valuations are determined and that those valuations are accurate, appropriate, and reflective of market conditions, such as the valuations available through the Realtors Property Resource™, an NAR subsidiary.
NAR is also concerned about proposals that include lease-to-own elements. Phipps said that agency policies should first be focused on keeping families in their homes through loan modifications or short sales if that’s a better option, and that the agencies should not expedite foreclosures so that those properties could be included in a lease-to-own program. He added that any lease-to-own programs should not be administered by the government, but instead should include the participation of local investors or nonprofits that can manage the specialized needs and challenges of the local market.
“REALTORS® welcome the agencies’ desire to receive input and ideas to help address their REO inventory. We look forward to serving on any advisory board and working together with agency staff, real estate professionals, property managers, and others with extensive real estate industry experience to develop sound strategies and solutions to ongoing REO issues,” said Phipps.
Source: NAR
Improving access to affordable mortgage financing for qualified home buyers and investors and committing additional resources to loan modifications and short sales will help reduce current and future inventories of real estate owned (REO) properties held by government agencies, according to the National Association of REALTORS®.
In a letter sent today to the U.S. Department of Housing and Urban Development, the Federal Housing Finance Agency, and the U.S. Department of the Treasury, NAR responded to the agencies’ recent request for input and offered its recommendations for selling REO properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration.
In its letter, NAR urged the agencies to create an advisory board as they explore new options for selling foreclosed properties to ensure that efficiently disposing of agency REO properties will minimize taxpayer losses and reduce the negative effects that distressed properties have on local real estate markets.
“As the leading advocate for housing issues, REALTORS®know that foreclosures affect families, communities, the housing market and our nation’s economy,” said NAR President Ron Phipps. “We believe the government has an opportunity to minimize the impact of distressed properties on local markets by expanding financing opportunities, bolstering loan modifications and short sales efforts, and enhancing the efficient disposition of REO properties. This will help stabilize home prices and neighborhoods and help support the broader economic recovery.”
Phipps said that the lack of available and affordable mortgage financing is hurting REO sales and the entire housing market, and urged increased consumer and investor lending. While NAR supports strong underwriting standards, the lack of private capital in the mortgage market, unduly tight underwriting standards, and increasing fees have discouraged many potential home buyers from applying for mortgages. NAR believes ensuring mortgage availability for qualified home buyers and investors will help absorb the excess REO inventory.
To prevent further REO inventory increases, NAR also recommended that the agencies take more aggressive steps to modify loans and, when a family is absolutely unable keep their home, to quickly approve reasonable short sale offers that allow families to avoid foreclosure. Phipps said that while federal programs have been put into place to help keep families in their homes, many of these have fallen short of expectations, and advocated that those resources be applied toward modifying loans and expediting short sales, which are typically less costly than foreclosure.
“Loan modifications keep families in their home and reduce defaults, while short sales keep homes occupied, helping stabilize neighborhoods and home values,” Phipps said. “Expanding resources and ensuring the use of already allocated funds for pre-foreclosure efforts is the best opportunity to reduce taxpayer costs and creates more positive outcomes for homeowners and their communities.”
NAR’s letter also outlined concerns about proposals to pool large volumes of REO properties for bulk sales. While these types of transactions may help quickly alleviate high REO inventories, taxpayers would be required to accept larger losses than are necessary. Phipps said that efforts should be made to incentivize individual versus bulk sales, except in small geographic areas that meet certain criteria, since selling in bulk to large national investors puts a large section of the housing market into the hands of fewer market participants and puts individual home buyers and sellers at a disadvantage.
He also said the success of any bulk sale programs should be determined by the stabilizing effect the program has on a locale and whether it maximizes value to taxpayers. Maximizing the recovery on the agencies’ assets will depend on how property valuations are determined and that those valuations are accurate, appropriate, and reflective of market conditions, such as the valuations available through the Realtors Property Resource™, an NAR subsidiary.
NAR is also concerned about proposals that include lease-to-own elements. Phipps said that agency policies should first be focused on keeping families in their homes through loan modifications or short sales if that’s a better option, and that the agencies should not expedite foreclosures so that those properties could be included in a lease-to-own program. He added that any lease-to-own programs should not be administered by the government, but instead should include the participation of local investors or nonprofits that can manage the specialized needs and challenges of the local market.
“REALTORS® welcome the agencies’ desire to receive input and ideas to help address their REO inventory. We look forward to serving on any advisory board and working together with agency staff, real estate professionals, property managers, and others with extensive real estate industry experience to develop sound strategies and solutions to ongoing REO issues,” said Phipps.
Source: NAR
Defaults Soar 33%, Biggest Monthly Gain in 4 Years
Daily Real Estate News | Thursday, September 15, 2011
A new wave of foreclosures hit in August, as banks picked up the pace in taking action against home owners who have fallen behind on their mortgage payments, RealtyTrac Inc. reported Thursday.
The number of U.S. homes that receiving an initial default notice rose 33 percent in August from July. That increase represents the biggest monthly gain in four years, according to RealtyTrac.
"This is really the first time we've seen a significant increase in the number of new foreclosure actions," says Rick Sharga, a senior vice president at RealtyTrac. "It's still possible this is a blip, but I think it's much more likely we're seeing the beginning of a trend here."
The uptick in foreclosure activity follows after months of a slowdown in foreclosures, which started last fall, with banks reviewing foreclosure policies and paperwork after facing lawsuits and criticism over how they processed foreclosures. Some banks even temporarily halted their foreclosures as they more carefully reviewed pending cases. The slowdown was also blamed on court delays in some states.
But some housing experts say the increase in foreclosure activity actually could be good for the housing market. A faster turnaround in foreclosures could help clear the glut of shadow inventory hovering over the market, which many say has caused home values to plummet.
The “bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery," said Josh Levin, a Citi analyst. About 3.7 million more homes are in some stage of foreclosure than in a normal housing market, Levin said.
Banks are on track to repossess about 800,000 homes this year — down from more than 1 million last year, Sharga said.
Overall, 228,098 U.S. homes — or one in every 570 U.S. households — received a foreclosure-related notice in August, a 7 percent increase from July. However, that represents a 33 percent decline from August 2010.
A new wave of foreclosures hit in August, as banks picked up the pace in taking action against home owners who have fallen behind on their mortgage payments, RealtyTrac Inc. reported Thursday.
The number of U.S. homes that receiving an initial default notice rose 33 percent in August from July. That increase represents the biggest monthly gain in four years, according to RealtyTrac.
"This is really the first time we've seen a significant increase in the number of new foreclosure actions," says Rick Sharga, a senior vice president at RealtyTrac. "It's still possible this is a blip, but I think it's much more likely we're seeing the beginning of a trend here."
The uptick in foreclosure activity follows after months of a slowdown in foreclosures, which started last fall, with banks reviewing foreclosure policies and paperwork after facing lawsuits and criticism over how they processed foreclosures. Some banks even temporarily halted their foreclosures as they more carefully reviewed pending cases. The slowdown was also blamed on court delays in some states.
But some housing experts say the increase in foreclosure activity actually could be good for the housing market. A faster turnaround in foreclosures could help clear the glut of shadow inventory hovering over the market, which many say has caused home values to plummet.
The “bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery," said Josh Levin, a Citi analyst. About 3.7 million more homes are in some stage of foreclosure than in a normal housing market, Levin said.
Banks are on track to repossess about 800,000 homes this year — down from more than 1 million last year, Sharga said.
Overall, 228,098 U.S. homes — or one in every 570 U.S. households — received a foreclosure-related notice in August, a 7 percent increase from July. However, that represents a 33 percent decline from August 2010.
Thursday, August 18, 2011
Short Sales Become Bank Foreclosure Shortcut
If this becomes the trend we think it will, we should shorten the time we have to deal with this mess, and get the economy going again.
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By Shanthi Bharatwaj
NEW YORK (TheStreet) — Banks dealing with lengthy, complicated and frequently messy foreclosures are starting to see “short sales” as a quicker and cheaper way of getting bad loans off their books.
The nation’s biggest mortgage servicers- Bank of America(BAC), JPMorgan Chase(JPM) and Wells Fargo(WFC) – are beginning to step up their efforts to ease the short sale process for borrowers who are unsuccessful in getting loan modifications and face the threat of foreclosure.
Servicers are attempting to reach out to borrowers and are paying out more incentives to those suffering financial hardship to help proceed with a short sale. They are also cutting down the time taken to approve short sales, although realtors still complain that the process takes too long.
JPMorgan has processed 120,000 short sales through its proprietary program since June 2009 and now averages 5,000 short sales a month. The bank says its average response time to approve a short sales transaction is 30 days.
“We think the short sale is a good solution for many struggling homeowners and we let them know that it’s an option,” said Christine Holevas, spokesperson for JPMorgan in an email. “Our outreach efforts have increased in the past year or so. Foreclosure can be an expensive and lengthy process for all parties. It’s a good deal for the homeowner and a good deal for us (a cheaper way to get a bad loan off the books.)”
A short sale is seen as a more palatable alternative to foreclosure for borrowers. In its simplest form, borrowers with underwater mortgages sell their homes to a buyer at a price that is approved by the lender. The lender normally forgives the difference between the loan and the sale proceeds- in essence the bank is being shorted for the loan amount.
Previously, lenders were said to prefer foreclosures to short sales because they — or the investors in the loans — figured that more money could be made from the former.
But the average time for the foreclosure process- from the time of notice to the completed foreclosure- is now 318 days in the U.S., according to RealtyTrac.
The foreclosure process in the state of New York, which follows a judicial process, took 966 days on average for properties foreclosed in the second quarter. New Jersey and Florida followed with an average processing time of 944 days and 676 days respectively.
The longer it takes for a foreclosure to be approved, the longer bad loans stay on banks’ books.
Why foreclosures take so long?
Foreclosures are also more expensive, because of the legal expenses involved as well as the expenses for maintenance and upkeep while the property is in foreclosure.
Wells Fargo, for instance, incurred expenses on repossessed homes to the tune of $305 million in the second quarter and $408 million in the first quarter, according to data from SNL. Data for the other big banks wasn’t available.
But at a time when analysts are paying more attention how well expenses are managed, banks might be more willing to look at other alternatives.
According to real estate analytics firm CoreLogic, the number of short sales in the market have tripled in the last two years and transactions are anticipated to grow by 25% in 2011. The markets with the largest short sale volume are California, Arizona, Colorado and Florida.
“Lenders often consider short sales as the lesser of two evils when compared to foreclosures,” Core Logic noted in a May 2011 report on short sales. “While significant losses may be incurred in both foreclosure and short sale scenarios, the overall negative financial impact of short sales is typically less than that of foreclosure. In many cases short sales represent the best way for lenders to minimize their overall losses. In general, all parties fare better when a foreclosure is prevented.”
JPMorgan is now paying certain types of borrowers- such as those with infamous option-arm mortgages as much as $35,000 to help them out with a short sale, the Herald Tribune reports.
JPMorgan spokesperson Holevas told TheStreet that the incentives vary and that they are available only for certain kinds of borrowers. She would not share specifics about the incentives.
CitiMortgages, the mortgage servicing arm of Citigroup(C_) is paying an average $12,000 in incentives, up from between $3,000 and $5,000 in 2010 for short sales on its own loan portfolio, HousingWire reported in June, citing a senior real estate management executive.
Again these incentives are paid out by servicers on the short sales of their own loan portfolios. In cases where loans have been sold, investors often dictate how much is paid out. But it suggests that servicers are beginning to push short sales more aggressively.
J.K. Huey, a senior vice president at Wells Fargo Home Mortgage- REO and Short Sales says transactions through the bank’s proprietary program have been fairly stable. But the bank has seen a pickup in short sales through the government’s HAFA (Home Affordable Foreclosure Alternatives) program, which loosened restrictions in February.
Most of the short sales executed by Wells are in the harder-hit housing markets such as California and Florida, which is also where they service more loans. The borrowers in these transactions are fairly late in their delinquency stage, although Wells does engage with borrowers who reach out to them earlier in the process.
Investors too are willing to consider short sales as a first option.
“Short sale is considered a positive alternative to foreclosures,” said Huey. “Investors for the most part will do a short sale over a foreclosure provided the net present value shows it that way. Investors have been very attentive to this, as has the Treasury.”
Still, the short sale process is not easy and industry observers say sellers and buyers of short sale properties must set realistic expectations.
For one, borrowers should realize that their credit scores aren’t any less affected under a short sale than it is in the case of a foreclosure. In both case, the borrower is considered in default.
However, in a short sale, the borrower’s debt is often forgiven, at least on the first lien. Also, a borrower who does a short sale might be able to apply for another mortgage sooner than he or she could in the case of a foreclosure, where the wait can be as much as 7 years.
For buyers interested in bidding for short sale properties, the process can be frustrating. P/>Jeff Lischer, managing director for regulatory policy at the National Association of Realtors says banks are trying to do improve the process, but realtors still complain that the process is chaotic.
Most still say there is a lot of back and forth in the documentation process as well as disagreements over valuation of the property. Short sale contracts often fall through because there are multiple parties involved. And the process varies significantly from one servicer to another.
“It is hard to know what the rules are,” says Lischer. “You can have a house with two loans serviced by two different servicers. You need to get four parties to sign off on your short sale, instead of one.”
Wells’ Huey says that servicers are now using workflow processes that have shortened the processing time considerably.
In the simplest of cases, where loans are owned by the bank and there are no junior liens or mortgage insurance companies involved, a short sale transaction can be approved in as little as five days, provided all the documentation is in order, she says.
It gets more complicated when there are more parties involved. Investors, junior lien holders and mortgage insurers often want more documentation to prove financial hardship of the seller, proof of funding for the borrower and they usually want to negotiate the price. That adds to the processing time, which takes Wells on an average 15 days.
She also adds that the short sale process can go a lot more smoothly when the real estate agent is someone who understands how to do a short sale. “This is not a regular sale where there is just one contract between a buyer and a seller,” she said.
***********************************************************************
By Shanthi Bharatwaj
NEW YORK (TheStreet) — Banks dealing with lengthy, complicated and frequently messy foreclosures are starting to see “short sales” as a quicker and cheaper way of getting bad loans off their books.
The nation’s biggest mortgage servicers- Bank of America(BAC), JPMorgan Chase(JPM) and Wells Fargo(WFC) – are beginning to step up their efforts to ease the short sale process for borrowers who are unsuccessful in getting loan modifications and face the threat of foreclosure.
Servicers are attempting to reach out to borrowers and are paying out more incentives to those suffering financial hardship to help proceed with a short sale. They are also cutting down the time taken to approve short sales, although realtors still complain that the process takes too long.
JPMorgan has processed 120,000 short sales through its proprietary program since June 2009 and now averages 5,000 short sales a month. The bank says its average response time to approve a short sales transaction is 30 days.
“We think the short sale is a good solution for many struggling homeowners and we let them know that it’s an option,” said Christine Holevas, spokesperson for JPMorgan in an email. “Our outreach efforts have increased in the past year or so. Foreclosure can be an expensive and lengthy process for all parties. It’s a good deal for the homeowner and a good deal for us (a cheaper way to get a bad loan off the books.)”
A short sale is seen as a more palatable alternative to foreclosure for borrowers. In its simplest form, borrowers with underwater mortgages sell their homes to a buyer at a price that is approved by the lender. The lender normally forgives the difference between the loan and the sale proceeds- in essence the bank is being shorted for the loan amount.
Previously, lenders were said to prefer foreclosures to short sales because they — or the investors in the loans — figured that more money could be made from the former.
But the average time for the foreclosure process- from the time of notice to the completed foreclosure- is now 318 days in the U.S., according to RealtyTrac.
The foreclosure process in the state of New York, which follows a judicial process, took 966 days on average for properties foreclosed in the second quarter. New Jersey and Florida followed with an average processing time of 944 days and 676 days respectively.
The longer it takes for a foreclosure to be approved, the longer bad loans stay on banks’ books.
Why foreclosures take so long?
Foreclosures are also more expensive, because of the legal expenses involved as well as the expenses for maintenance and upkeep while the property is in foreclosure.
Wells Fargo, for instance, incurred expenses on repossessed homes to the tune of $305 million in the second quarter and $408 million in the first quarter, according to data from SNL. Data for the other big banks wasn’t available.
But at a time when analysts are paying more attention how well expenses are managed, banks might be more willing to look at other alternatives.
According to real estate analytics firm CoreLogic, the number of short sales in the market have tripled in the last two years and transactions are anticipated to grow by 25% in 2011. The markets with the largest short sale volume are California, Arizona, Colorado and Florida.
“Lenders often consider short sales as the lesser of two evils when compared to foreclosures,” Core Logic noted in a May 2011 report on short sales. “While significant losses may be incurred in both foreclosure and short sale scenarios, the overall negative financial impact of short sales is typically less than that of foreclosure. In many cases short sales represent the best way for lenders to minimize their overall losses. In general, all parties fare better when a foreclosure is prevented.”
JPMorgan is now paying certain types of borrowers- such as those with infamous option-arm mortgages as much as $35,000 to help them out with a short sale, the Herald Tribune reports.
JPMorgan spokesperson Holevas told TheStreet that the incentives vary and that they are available only for certain kinds of borrowers. She would not share specifics about the incentives.
CitiMortgages, the mortgage servicing arm of Citigroup(C_) is paying an average $12,000 in incentives, up from between $3,000 and $5,000 in 2010 for short sales on its own loan portfolio, HousingWire reported in June, citing a senior real estate management executive.
Again these incentives are paid out by servicers on the short sales of their own loan portfolios. In cases where loans have been sold, investors often dictate how much is paid out. But it suggests that servicers are beginning to push short sales more aggressively.
J.K. Huey, a senior vice president at Wells Fargo Home Mortgage- REO and Short Sales says transactions through the bank’s proprietary program have been fairly stable. But the bank has seen a pickup in short sales through the government’s HAFA (Home Affordable Foreclosure Alternatives) program, which loosened restrictions in February.
Most of the short sales executed by Wells are in the harder-hit housing markets such as California and Florida, which is also where they service more loans. The borrowers in these transactions are fairly late in their delinquency stage, although Wells does engage with borrowers who reach out to them earlier in the process.
Investors too are willing to consider short sales as a first option.
“Short sale is considered a positive alternative to foreclosures,” said Huey. “Investors for the most part will do a short sale over a foreclosure provided the net present value shows it that way. Investors have been very attentive to this, as has the Treasury.”
Still, the short sale process is not easy and industry observers say sellers and buyers of short sale properties must set realistic expectations.
For one, borrowers should realize that their credit scores aren’t any less affected under a short sale than it is in the case of a foreclosure. In both case, the borrower is considered in default.
However, in a short sale, the borrower’s debt is often forgiven, at least on the first lien. Also, a borrower who does a short sale might be able to apply for another mortgage sooner than he or she could in the case of a foreclosure, where the wait can be as much as 7 years.
For buyers interested in bidding for short sale properties, the process can be frustrating. P/>Jeff Lischer, managing director for regulatory policy at the National Association of Realtors says banks are trying to do improve the process, but realtors still complain that the process is chaotic.
Most still say there is a lot of back and forth in the documentation process as well as disagreements over valuation of the property. Short sale contracts often fall through because there are multiple parties involved. And the process varies significantly from one servicer to another.
“It is hard to know what the rules are,” says Lischer. “You can have a house with two loans serviced by two different servicers. You need to get four parties to sign off on your short sale, instead of one.”
Wells’ Huey says that servicers are now using workflow processes that have shortened the processing time considerably.
In the simplest of cases, where loans are owned by the bank and there are no junior liens or mortgage insurance companies involved, a short sale transaction can be approved in as little as five days, provided all the documentation is in order, she says.
It gets more complicated when there are more parties involved. Investors, junior lien holders and mortgage insurers often want more documentation to prove financial hardship of the seller, proof of funding for the borrower and they usually want to negotiate the price. That adds to the processing time, which takes Wells on an average 15 days.
She also adds that the short sale process can go a lot more smoothly when the real estate agent is someone who understands how to do a short sale. “This is not a regular sale where there is just one contract between a buyer and a seller,” she said.
Tuesday, August 16, 2011
Foreclosures of expensive homes take longer
Foreclosures of expensive homes take longer
By Julie Schmit, USA TODAY Updated
Foreclosures are taking longer for more-expensive homes than for less-expensive ones, giving those homeowners more time in homes without mortgage payments, new research analyzed for USA TODAY shows.
From January through May, almost 400,000 homes were repossessed by lenders or sold to others at foreclosure auctions. By the time they were repossessed or sold, mortgages on the more-expensive homes were delinquent an average of 647 days, almost four months longer than the less-expensive homes, data from national mortgage tracker LPS Applied Analytics indicate.
The longer time frames occurred in 45 states and ranged from days to months.
LPS broke the homes into categories of those valued under $417,000 and those from $417,000 to $999,999.
Longer foreclosure times may seem to favor owners of more-expensive homes, but banks say loan size “doesn’t dictate the foreclosure process,” says Wells Fargo spokesman Tom Goyda. Lenders aren’t showing favoritism to wealthier people — they’re just doing what makes the most business sense,” says Sean O’Toole, CEO of foreclosure tracker ForeclosureRadar.
Industry analysts say other factors are likely affecting time lines, including the type of:
•Loan. Loans below $417,000 are generally owned by mortgage giants Freddie Mac and Fannie Mae. Their processes lead to quicker resolution than if loans are held by others. “It’s a much simpler process,” says Jason Kopcak, mortgage loan expert at Cantor Fitzgerald.
Bigger loans, often found on pricier homes, tend to be held by lenders or investors. Banks are “moving the stuff they don’t own first,” to satisfy others and limit litigation, says Paul Miller, analyst at FBR Capital Markets.
•Home. Lower-priced homes have a larger pool of buyers. More may be exiting foreclosure via short sale, says Kyle Lundstedt, LPS managing director. Short sales occur when lenders sell for less than what’s owed on the home.
•Homeowner. Those who can buy expensive homes may have more resources to delay foreclosures, says Richard Bove, banking analyst with Rochdale Securities.
Lenders may also be delaying having to take bigger losses that tend to occur with pricier homes, O’Toole says. He recently assessed 155,000 California foreclosures and found that foreclosures took longer for loans over $417,000 than for smaller loans.
Miller says lenders are “not managing their losses that closely.” Foreclosure time lines are mostly driven by investor owners and state laws, says Bank of America spokesman Dan Frahm.
In California, which led in foreclosure sales January through May, more-expensive homes averaged 78 more days delinquent than the others at the time of the sale, LPS’ data show. In Arizona, another big foreclosure state, the pricier homes were 65 more days delinquent at time of the sale. In Florida, that spread was 97 days.
By Julie Schmit, USA TODAY Updated
Foreclosures are taking longer for more-expensive homes than for less-expensive ones, giving those homeowners more time in homes without mortgage payments, new research analyzed for USA TODAY shows.
From January through May, almost 400,000 homes were repossessed by lenders or sold to others at foreclosure auctions. By the time they were repossessed or sold, mortgages on the more-expensive homes were delinquent an average of 647 days, almost four months longer than the less-expensive homes, data from national mortgage tracker LPS Applied Analytics indicate.
The longer time frames occurred in 45 states and ranged from days to months.
LPS broke the homes into categories of those valued under $417,000 and those from $417,000 to $999,999.
Longer foreclosure times may seem to favor owners of more-expensive homes, but banks say loan size “doesn’t dictate the foreclosure process,” says Wells Fargo spokesman Tom Goyda. Lenders aren’t showing favoritism to wealthier people — they’re just doing what makes the most business sense,” says Sean O’Toole, CEO of foreclosure tracker ForeclosureRadar.
Industry analysts say other factors are likely affecting time lines, including the type of:
•Loan. Loans below $417,000 are generally owned by mortgage giants Freddie Mac and Fannie Mae. Their processes lead to quicker resolution than if loans are held by others. “It’s a much simpler process,” says Jason Kopcak, mortgage loan expert at Cantor Fitzgerald.
Bigger loans, often found on pricier homes, tend to be held by lenders or investors. Banks are “moving the stuff they don’t own first,” to satisfy others and limit litigation, says Paul Miller, analyst at FBR Capital Markets.
•Home. Lower-priced homes have a larger pool of buyers. More may be exiting foreclosure via short sale, says Kyle Lundstedt, LPS managing director. Short sales occur when lenders sell for less than what’s owed on the home.
•Homeowner. Those who can buy expensive homes may have more resources to delay foreclosures, says Richard Bove, banking analyst with Rochdale Securities.
Lenders may also be delaying having to take bigger losses that tend to occur with pricier homes, O’Toole says. He recently assessed 155,000 California foreclosures and found that foreclosures took longer for loans over $417,000 than for smaller loans.
Miller says lenders are “not managing their losses that closely.” Foreclosure time lines are mostly driven by investor owners and state laws, says Bank of America spokesman Dan Frahm.
In California, which led in foreclosure sales January through May, more-expensive homes averaged 78 more days delinquent than the others at the time of the sale, LPS’ data show. In Arizona, another big foreclosure state, the pricier homes were 65 more days delinquent at time of the sale. In Florida, that spread was 97 days.
Can the Court Sanction an Attorney for Delaying a Foreclosure?
by Lisa Magill
Can the Court Sanction an Attorney for Delaying a Foreclosure?
YES - says the Fourth District Court of Appeal.
The housing market crisis that led to the massive wave of foreclosures forced thousands and thousands of people to find a new profession or line of work. Real estate agents and mortgage brokers were out of work and many had to re-position themselves in the new economic reality. Attorneys did so as well. Many attorneys lost their real estate and bank related business and therefore turned to other areas of the law.
It takes less than a second to find about 18,600,000 results for "foreclosure defense attorney" on Google. Many of these attorneys are excellent - discovering the 'robo-signers', false or forged documentation and other illegal or just bad practices on the part of lenders, mortgage servicers and/or certain law firms. However, more is not always better when it comes to handling lawsuits, especially in the eyes of the overburdened Judges.
The Fourth District Court of Appeal recently upheld an award of attorney's fees, costs and sanctions against a law firm in an amount over thirty-eight thousand ($38,000.00) dollars. The Court found Section 57.105, Florida Statutes applied to attorneys representing borrowers in foreclosure cases if 1. actions taken in the lawsuit were shown to be for the primary purpose of delaying the case (allowing the borrower to stay in the home without paying) and 2. the attorney knew or should have known those actions were not supported by the material facts of the case.
Here's what happened in this case - the bank filed a foreclosure lawsuit against the borrowers. The borrowers hired an attorney/law firm to represent them in the case. The attorney filed documentation with the Court claiming that the bank violated certain aspects of the Federal Truth in Lending Act. The bank responded with proof it did comply with the Federal Truth in Lending Act, demanding a retraction. The Judge was not happy about this situation obviously and, after various hearings, issued an order requiring payment of the bank's attorney's fees, costs and sanctions for the delay. The appellate Court affirmed the ruling.
While this case involved a bank, the same issues often arise in cases filed by condominium or homeowners associations. The Courts are awarding sanctions in favor of community associations when lenders or debtors use the system to delay a case when they know their position doesn't have merit.
Can the Court Sanction an Attorney for Delaying a Foreclosure?
YES - says the Fourth District Court of Appeal.
The housing market crisis that led to the massive wave of foreclosures forced thousands and thousands of people to find a new profession or line of work. Real estate agents and mortgage brokers were out of work and many had to re-position themselves in the new economic reality. Attorneys did so as well. Many attorneys lost their real estate and bank related business and therefore turned to other areas of the law.
It takes less than a second to find about 18,600,000 results for "foreclosure defense attorney" on Google. Many of these attorneys are excellent - discovering the 'robo-signers', false or forged documentation and other illegal or just bad practices on the part of lenders, mortgage servicers and/or certain law firms. However, more is not always better when it comes to handling lawsuits, especially in the eyes of the overburdened Judges.
The Fourth District Court of Appeal recently upheld an award of attorney's fees, costs and sanctions against a law firm in an amount over thirty-eight thousand ($38,000.00) dollars. The Court found Section 57.105, Florida Statutes applied to attorneys representing borrowers in foreclosure cases if 1. actions taken in the lawsuit were shown to be for the primary purpose of delaying the case (allowing the borrower to stay in the home without paying) and 2. the attorney knew or should have known those actions were not supported by the material facts of the case.
Here's what happened in this case - the bank filed a foreclosure lawsuit against the borrowers. The borrowers hired an attorney/law firm to represent them in the case. The attorney filed documentation with the Court claiming that the bank violated certain aspects of the Federal Truth in Lending Act. The bank responded with proof it did comply with the Federal Truth in Lending Act, demanding a retraction. The Judge was not happy about this situation obviously and, after various hearings, issued an order requiring payment of the bank's attorney's fees, costs and sanctions for the delay. The appellate Court affirmed the ruling.
While this case involved a bank, the same issues often arise in cases filed by condominium or homeowners associations. The Courts are awarding sanctions in favor of community associations when lenders or debtors use the system to delay a case when they know their position doesn't have merit.
Tuesday, July 26, 2011
End of glut: Miami-Dade housing inventory dwindles rapidly
By Yudislaidy Fernandez
Miami-Dade's housing inventory is dwindling as internationals continue a buying frenzy for real estate at discounted prices, reflecting a more balanced market with six months of housing supply.
If sales stay at the current pace, the existing inventory would be absorbed by year's end, making the question of how much inventory is coming down the pipeline key to forecasting what's ahead for the local housing market.
Inventory housing, consisting of single-family homes and condos, has dropped 21% since Jan. 1 and 60% since August 2008, according to data from the Miami Association of Realtors and the Multiple Listing Service.
Peggy Fucci, senior vice president of sales and marketing at ST Residential, which owns a large portfolio of condos, is slowing down sales at towers close to sold out.
The 530-condo Mint at Riverfront began sales in January and has sold 380 units, with 150 left, Ms. Fucci said.
At the 459-unit Infinity at Brickell, sales began a year ago and 50 units remain.
ST Residential has three new condo towers coming online by year's end, Paramount Bay in the Omni area, Artecity in Miami Beach and Dolcevita in Palm Beach Shores.
Overall, 10,459 condos and 6,517 single-family homes are available for sale in Miami-Dade, according to realtors association data.
With sales now averaging 2,117 per month — higher than every year in the past 10 except during the peak in 2005 — if the sales rate holds this inventory will get wiped out by year's end.
The unknown is what will happen with the distressed properties in the pipeline, including when they will get released to the market for sale, as that could significantly impact Miami's housing recovery.
"The fear that is keeping pressure on pricing is the fear of the unknown. How many foreclosures may still come to market?" said Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors. "I don't think anyone really knows for sure. We know a substantial number of foreclosures are out there."
International buyers are the protagonists on Miami's real estate stage right now, as they are actively buying units as investment with the aim of renting them now and in several years, when the market strengthens, selling them at a profit.
In South Florida, the leading buyers are Venezuelans at 28%, Canadians 10%, Brazilians 9% and Argentines 8%, the data show.
The median price of homes acquired by international buyers in South Florida is $272,700, with most buying in the price range of $300,001 to $400,000.
While Miami's sunny beaches remain an important asset, low interest rates, discounted prices and increased accessibility to Miami, as more airlines add flights to Miami International Airport, are key factors fueling sales.
"The reasons I believe our demand will continue to increase is the extreme value people today believe they are receiving," Mr. Shuffield said. "Interest rates are still lower than they have been in the last 50 years and the [currency] exchange rate is also favorable."
http://www.miamitodaynews.com/news/110714/story1.shtml
Miami-Dade's housing inventory is dwindling as internationals continue a buying frenzy for real estate at discounted prices, reflecting a more balanced market with six months of housing supply.
If sales stay at the current pace, the existing inventory would be absorbed by year's end, making the question of how much inventory is coming down the pipeline key to forecasting what's ahead for the local housing market.
Inventory housing, consisting of single-family homes and condos, has dropped 21% since Jan. 1 and 60% since August 2008, according to data from the Miami Association of Realtors and the Multiple Listing Service.
Peggy Fucci, senior vice president of sales and marketing at ST Residential, which owns a large portfolio of condos, is slowing down sales at towers close to sold out.
The 530-condo Mint at Riverfront began sales in January and has sold 380 units, with 150 left, Ms. Fucci said.
At the 459-unit Infinity at Brickell, sales began a year ago and 50 units remain.
ST Residential has three new condo towers coming online by year's end, Paramount Bay in the Omni area, Artecity in Miami Beach and Dolcevita in Palm Beach Shores.
Overall, 10,459 condos and 6,517 single-family homes are available for sale in Miami-Dade, according to realtors association data.
With sales now averaging 2,117 per month — higher than every year in the past 10 except during the peak in 2005 — if the sales rate holds this inventory will get wiped out by year's end.
The unknown is what will happen with the distressed properties in the pipeline, including when they will get released to the market for sale, as that could significantly impact Miami's housing recovery.
"The fear that is keeping pressure on pricing is the fear of the unknown. How many foreclosures may still come to market?" said Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors. "I don't think anyone really knows for sure. We know a substantial number of foreclosures are out there."
International buyers are the protagonists on Miami's real estate stage right now, as they are actively buying units as investment with the aim of renting them now and in several years, when the market strengthens, selling them at a profit.
In South Florida, the leading buyers are Venezuelans at 28%, Canadians 10%, Brazilians 9% and Argentines 8%, the data show.
The median price of homes acquired by international buyers in South Florida is $272,700, with most buying in the price range of $300,001 to $400,000.
While Miami's sunny beaches remain an important asset, low interest rates, discounted prices and increased accessibility to Miami, as more airlines add flights to Miami International Airport, are key factors fueling sales.
"The reasons I believe our demand will continue to increase is the extreme value people today believe they are receiving," Mr. Shuffield said. "Interest rates are still lower than they have been in the last 50 years and the [currency] exchange rate is also favorable."
http://www.miamitodaynews.com/news/110714/story1.shtml
Thursday, June 9, 2011
Dual Track Foreclosures
Alejandro Lazo from the Los Angeles Times report on a common practice called dual track foreclosures. To quote the article, “Financial institutions commonly pursue foreclosure even if a borrower has requested a loan modification, a two-track process the lending industry has argued is necessary to protect its investments. But dual tracking is under fire from regulators and lawmakers in the wake of last year’s “robo-signing” scandal, which revealed widespread foreclosure errors.”
What’s interesting is that the proposed law has been in front of state legislators several times before. In my opinion, the reason this bill is not passing (and probably won’t pass) is because of the bank lobby. Bankers enjoy wasting money but they don’t like wasting time. They know that getting a loan mod approved is a small miracle so they don’t want to stall the foreclosure process. Sounds kind of silly but it’s true.
SO my question is, If you can run a foreclosure and a loan mod in parallel, why won’t the banks allow a loan mod and a short sale to run simultaneously? They say that the seller must choose 1 path or the other but not both. Why?
As for Florida, the banks are currently following the practice of dual-tracking foreclosures and loan modifications, the loan modification process is extremely hard to complete successfully, and banks know this. However, to satisfy government and media, they are doing a best-effort, but in the meantime, they are ready to foreclose as soon as the modification fails.
Take the time to read the entire article. It’s quite interesting.
News Article
California bill ending ‘dual track’ foreclosures faces key vote
Pursuing foreclosure even if a borrower has sought a loan modification has faced criticism. The Senate measure would require a lender to fully evaluate a homeowner for a loan modification first.
By Alejandro Lazo, Los Angeles Times
A proposed law facing a key vote in Sacramento on Wednesday would require lenders in California to make a decision on mortgage modifications for delinquent homeowners before beginning the repossession process, in effect ending “dual track” foreclosures in the state.
Financial institutions commonly pursue foreclosure even if a borrower has requested a loan modification, a two-track process the lending industry has argued is necessary to protect its investments. But dual tracking is under fire from regulators and lawmakers in the wake of last year’s “robo-signing” scandal, which revealed widespread foreclosure errors.
The California Homeowner Protection Act, authored by state Senate President Pro Tem Darrell Steinberg (D-Sacramento) and Sen. Mark Leno (D-San Francisco), is one of the furthest-reaching efforts to limit the practice. Several other states have passed requirements for third-party groups to oversee mediations between mortgage servicers and homeowners.
The California bill, SB 729, would require a lender to fully evaluate a borrower for a loan modification before filing a notice of default, the first stage in the formal repossession process, and a significant change in the way foreclosures are conducted in the Golden State.
The law would give delinquent homeowners the right to sue their lenders to stop foreclosures if they believe the requirement to properly evaluate their loan modification requests had not been followed. If the sale occurs without the proper evaluation, homeowners would also be given the right to sue for damages or to void a foreclosure sale for up to a year after the sale.
Such a change is necessary in the state because the two-track process often leads to unintended foreclosures by mortgage servicers that “don’t know what they are doing” and often bungle the loan modification process, Leno said in an interview.
“We know of folks not only entering the loan modification process, but folks who have already been accepted, and are making timely loan modification payments, and then getting a knock on their door and being told ‘your home will be sold,’” Leno said. “The stories are many and horrifying.”
Groups representing lenders said the legislation overreaches and would only inhibit the state housing market’s recovery by slowing down an already drawn out foreclosure timeline. California’s comparatively streamlined foreclosure system, which allows for a home to be taken back without a court order, has helped the state work through a foreclosure glut relatively quickly and recover faster than other hard-hit states.
“It is just not good for the housing market, which is not good for the state economy, especially when we are at 12% unemployment,” said Dustin Hobbs, a spokesman for the California Mortgage Bankers Assn. “It is a reaction, an overreaction, to procedural mistakes,” he continued, “and this doesn’t really get at solving any of those problems.”
The bill also would make it more difficult for investors to purchase, renovate and resell bank-owned properties to first-time buyers because it gives foreclosed-on homeowners a year to sue after a foreclosure sale, critics said. Home buying by investors has been a significant driver of California home sales since the housing market hit bottom two years ago.
“It’s unlikely that any prospective home buyer would want to buy these properties with that lingering uncertainty hanging over their heads,” said Beth Mills, a spokeswoman for the California Bankers Assn. The bill also would require mortgage servicers to:
•Prove they have a right to foreclose;
• Adhere to new timelines when evaluating borrowers for possible loan modifications;
•Provide an explanation letter detailing why a mortgage modification was not granted if a borrower is denied;
•Make a declaration of compliance with the law each time a notice of default is filed.
The bill also would allow a state banking regulator or the state attorney general to take action against lenders if the law isn’t followed.
Major mortgage servicers are under increased scrutiny since it was revealed last year that they employed so-called robo-signers. These bank employees signed off on legal documents needed in foreclosure cases without reading them or, in several cases, understanding what they were signing.
There were widespread complaints of botched loan modifications that left delinquent borrowers worse off, and foreclosures made without documentation of who owned loans that had been sold and resold in the secondary market where mortgage securities are created and traded. Mortgage servicing operations were shown to be understaffed and employees were poorly trained.
In response, federal regulators this month ordered the nation’s biggest banks to overhaul their procedures and compensate borrowers hurt financially by wrongdoing or negligence. The agreement between the regulators and banks requires mortgage servicers to stop foreclosure once a homeowner is approved for a temporary mortgage modification.
But consumer advocates criticized those orders as watered down and not going far enough. A wider-ranging investigation conducted by a coalition of state attorneys general and other federal agencies is continuing.
Consumer advocates and lawmakers are hoping that the California bill will have momentum following revelations of the foreclosure paperwork debacle. The proposed law is similar to a bill that passed the state Senate last year but was defeated in the Assembly.
The bill faces a hearing and vote in the state Senate’s Banking and Financial Institutions Committee on Wednesday. The committee is headed by Sen. Juan Vargas (D-San Diego), who isn’t completely sold on the legislation, said his chief of staff, Jim Anderson.
“My understanding is that Sen. Vargas has some concerns with the bill, but prefers to ask questions of the author and discuss the bill in the public hearing tomorrow before making his final decision,” Anderson said. Vargas wasn’t available for comment Tuesday.
The bill has been endorsed by a slew of consumer advocacy groups including the Center for Responsible Lending. Many of these groups have slammed federal banking regulators, saying they failed to stop unsafe lending during the housing boom and preempted state attempts to rein in predatory lending.
What’s interesting is that the proposed law has been in front of state legislators several times before. In my opinion, the reason this bill is not passing (and probably won’t pass) is because of the bank lobby. Bankers enjoy wasting money but they don’t like wasting time. They know that getting a loan mod approved is a small miracle so they don’t want to stall the foreclosure process. Sounds kind of silly but it’s true.
SO my question is, If you can run a foreclosure and a loan mod in parallel, why won’t the banks allow a loan mod and a short sale to run simultaneously? They say that the seller must choose 1 path or the other but not both. Why?
As for Florida, the banks are currently following the practice of dual-tracking foreclosures and loan modifications, the loan modification process is extremely hard to complete successfully, and banks know this. However, to satisfy government and media, they are doing a best-effort, but in the meantime, they are ready to foreclose as soon as the modification fails.
Take the time to read the entire article. It’s quite interesting.
News Article
California bill ending ‘dual track’ foreclosures faces key vote
Pursuing foreclosure even if a borrower has sought a loan modification has faced criticism. The Senate measure would require a lender to fully evaluate a homeowner for a loan modification first.
By Alejandro Lazo, Los Angeles Times
A proposed law facing a key vote in Sacramento on Wednesday would require lenders in California to make a decision on mortgage modifications for delinquent homeowners before beginning the repossession process, in effect ending “dual track” foreclosures in the state.
Financial institutions commonly pursue foreclosure even if a borrower has requested a loan modification, a two-track process the lending industry has argued is necessary to protect its investments. But dual tracking is under fire from regulators and lawmakers in the wake of last year’s “robo-signing” scandal, which revealed widespread foreclosure errors.
The California Homeowner Protection Act, authored by state Senate President Pro Tem Darrell Steinberg (D-Sacramento) and Sen. Mark Leno (D-San Francisco), is one of the furthest-reaching efforts to limit the practice. Several other states have passed requirements for third-party groups to oversee mediations between mortgage servicers and homeowners.
The California bill, SB 729, would require a lender to fully evaluate a borrower for a loan modification before filing a notice of default, the first stage in the formal repossession process, and a significant change in the way foreclosures are conducted in the Golden State.
The law would give delinquent homeowners the right to sue their lenders to stop foreclosures if they believe the requirement to properly evaluate their loan modification requests had not been followed. If the sale occurs without the proper evaluation, homeowners would also be given the right to sue for damages or to void a foreclosure sale for up to a year after the sale.
Such a change is necessary in the state because the two-track process often leads to unintended foreclosures by mortgage servicers that “don’t know what they are doing” and often bungle the loan modification process, Leno said in an interview.
“We know of folks not only entering the loan modification process, but folks who have already been accepted, and are making timely loan modification payments, and then getting a knock on their door and being told ‘your home will be sold,’” Leno said. “The stories are many and horrifying.”
Groups representing lenders said the legislation overreaches and would only inhibit the state housing market’s recovery by slowing down an already drawn out foreclosure timeline. California’s comparatively streamlined foreclosure system, which allows for a home to be taken back without a court order, has helped the state work through a foreclosure glut relatively quickly and recover faster than other hard-hit states.
“It is just not good for the housing market, which is not good for the state economy, especially when we are at 12% unemployment,” said Dustin Hobbs, a spokesman for the California Mortgage Bankers Assn. “It is a reaction, an overreaction, to procedural mistakes,” he continued, “and this doesn’t really get at solving any of those problems.”
The bill also would make it more difficult for investors to purchase, renovate and resell bank-owned properties to first-time buyers because it gives foreclosed-on homeowners a year to sue after a foreclosure sale, critics said. Home buying by investors has been a significant driver of California home sales since the housing market hit bottom two years ago.
“It’s unlikely that any prospective home buyer would want to buy these properties with that lingering uncertainty hanging over their heads,” said Beth Mills, a spokeswoman for the California Bankers Assn. The bill also would require mortgage servicers to:
•Prove they have a right to foreclose;
• Adhere to new timelines when evaluating borrowers for possible loan modifications;
•Provide an explanation letter detailing why a mortgage modification was not granted if a borrower is denied;
•Make a declaration of compliance with the law each time a notice of default is filed.
The bill also would allow a state banking regulator or the state attorney general to take action against lenders if the law isn’t followed.
Major mortgage servicers are under increased scrutiny since it was revealed last year that they employed so-called robo-signers. These bank employees signed off on legal documents needed in foreclosure cases without reading them or, in several cases, understanding what they were signing.
There were widespread complaints of botched loan modifications that left delinquent borrowers worse off, and foreclosures made without documentation of who owned loans that had been sold and resold in the secondary market where mortgage securities are created and traded. Mortgage servicing operations were shown to be understaffed and employees were poorly trained.
In response, federal regulators this month ordered the nation’s biggest banks to overhaul their procedures and compensate borrowers hurt financially by wrongdoing or negligence. The agreement between the regulators and banks requires mortgage servicers to stop foreclosure once a homeowner is approved for a temporary mortgage modification.
But consumer advocates criticized those orders as watered down and not going far enough. A wider-ranging investigation conducted by a coalition of state attorneys general and other federal agencies is continuing.
Consumer advocates and lawmakers are hoping that the California bill will have momentum following revelations of the foreclosure paperwork debacle. The proposed law is similar to a bill that passed the state Senate last year but was defeated in the Assembly.
The bill faces a hearing and vote in the state Senate’s Banking and Financial Institutions Committee on Wednesday. The committee is headed by Sen. Juan Vargas (D-San Diego), who isn’t completely sold on the legislation, said his chief of staff, Jim Anderson.
“My understanding is that Sen. Vargas has some concerns with the bill, but prefers to ask questions of the author and discuss the bill in the public hearing tomorrow before making his final decision,” Anderson said. Vargas wasn’t available for comment Tuesday.
The bill has been endorsed by a slew of consumer advocacy groups including the Center for Responsible Lending. Many of these groups have slammed federal banking regulators, saying they failed to stop unsafe lending during the housing boom and preempted state attempts to rein in predatory lending.
Thursday, March 3, 2011
More Foreclosures Headed To Market In 2011
Fannie Mae and Freddie Mac have a huge inventory
Mark Huffman | ConsumerAffairs.com
The recent report that foreclosure filings hit a record high 2.9 million last year might lead you to believe that the worst is over. Especially since the monthly foreclosure totals began to fall late in the year.
But that might be a misreading of the data, analysts say. Foreclosure actions fell late in the year, in large part, because banks slammed on the brakes in the wake of the robo-signing scandal. The pace could pick up again in 2011 — with a vengeance.
RealtyTrac, the private firm that tracks and markets foreclosures, predicts buyers will have plenty of opportunities to snap up bargain-priced foreclosures in the coming year. The reason?
A large number of foreclosed homes, owned by Fannie Mae, Freddie Mac and HUD, are headed to market. Not only are the prices low, but the owners are also throwing in incentives, like preferred financing.
“The cherished account right now is Fannie and Freddie,” said Tom Moon, a Fannie Mae and Freddie Mac approved broker with Pacific Moon Real Estate in Orange County, Calif. “Any broker would like to have Fannie and Freddie because they seem to have the most properties right now.”
Fannie and Freddie properties tend to be lower-priced, entry-level housing that, when it goes up for sale in a foreclosure, is priced even lower. RealtyTrac notes that, in the hard-hit housing market of Orange County, Calif., that’s what is attracting the bulk of active buyers.
Second quarter reports from Fannie and Freddie show the two government sponsored enterprises (GSEs) are acquiring real estate owned (REO) properties through foreclosure at a significantly faster pace than overall growth in REO activity based on RealtyTrac data.
Fannie Mae took ownership of 68,838 REO properties in the second quarter of 2010 — an increase of 114 percent from the second quarter of 2009 — and Freddie Mac took ownership of 34,662 — a 58 percent increase from the previous year.
That compares with a 38 percent in REO activity during the same timeframe, according to RealtyTrac.
Then there’s HUD, which acquired more than 23,000 foreclosed properties through sour FHA loans. The result, analysts say, is a large inventory of homes with a very motivated seller — the U.S. Government or a GSE.
If the foreclosure tsunami hasn’t yet peaked, it could mean another tough year for those trying to sell a home, but even better selection of bargains for buyers.
Mark Huffman | ConsumerAffairs.com
The recent report that foreclosure filings hit a record high 2.9 million last year might lead you to believe that the worst is over. Especially since the monthly foreclosure totals began to fall late in the year.
But that might be a misreading of the data, analysts say. Foreclosure actions fell late in the year, in large part, because banks slammed on the brakes in the wake of the robo-signing scandal. The pace could pick up again in 2011 — with a vengeance.
RealtyTrac, the private firm that tracks and markets foreclosures, predicts buyers will have plenty of opportunities to snap up bargain-priced foreclosures in the coming year. The reason?
A large number of foreclosed homes, owned by Fannie Mae, Freddie Mac and HUD, are headed to market. Not only are the prices low, but the owners are also throwing in incentives, like preferred financing.
“The cherished account right now is Fannie and Freddie,” said Tom Moon, a Fannie Mae and Freddie Mac approved broker with Pacific Moon Real Estate in Orange County, Calif. “Any broker would like to have Fannie and Freddie because they seem to have the most properties right now.”
Fannie and Freddie properties tend to be lower-priced, entry-level housing that, when it goes up for sale in a foreclosure, is priced even lower. RealtyTrac notes that, in the hard-hit housing market of Orange County, Calif., that’s what is attracting the bulk of active buyers.
Second quarter reports from Fannie and Freddie show the two government sponsored enterprises (GSEs) are acquiring real estate owned (REO) properties through foreclosure at a significantly faster pace than overall growth in REO activity based on RealtyTrac data.
Fannie Mae took ownership of 68,838 REO properties in the second quarter of 2010 — an increase of 114 percent from the second quarter of 2009 — and Freddie Mac took ownership of 34,662 — a 58 percent increase from the previous year.
That compares with a 38 percent in REO activity during the same timeframe, according to RealtyTrac.
Then there’s HUD, which acquired more than 23,000 foreclosed properties through sour FHA loans. The result, analysts say, is a large inventory of homes with a very motivated seller — the U.S. Government or a GSE.
If the foreclosure tsunami hasn’t yet peaked, it could mean another tough year for those trying to sell a home, but even better selection of bargains for buyers.
Thursday, February 24, 2011
Credit Score implications of Foreclosures, Short Sales and Bankruptcy
The impact a foreclosure, short sale or bankruptcy have on credit scores can vary depending on the credit profile of a particular person. The amount of the score’s drop is based on the person’s starting score. In general, a foreclosure will reduce a credit score by 140 points, he added; a short sale will drop the score by 130 points.
While both a foreclosure and a short sale will remain on a credit report for seven years, they are often reported differently. A foreclosure is reported as a foreclosure, but short sales can appear as “settled for less than balance owed,” or similar terminology.
There are distinct advantages for someone to choose a short sale over a foreclosure. Specifically, they will have the ability to become homeowners again faster vs had they experienced a foreclosure…here are the recently updated lending guidelines:
Conventional Conforming (FNMA/FHLMC)
1) Foreclosure is 7 years
2) Deed-in-Lieu is 4 years < 80% LTV and 5 years > 80% LTV for primary residences. 7 years for second homes and investment properties regardless of LTV.
3) Short Sales is 2 years < 80% LTV and 5 years > 80% LTV and 7 years > 90% LTV
4) Bankruptcy is 4 years
According to TransUnion foreclosure won’t in and of itself impact credit, particularly since it arrives on the heels of hard financial times.
“Foreclosure will be regarded as a derogatory action on a credit report and will have a more serious impact than a loan modification or a short sale, but only if it is publicly reported,” ……If a property is going into foreclosure, more than likely the damage has already been done to the person’s credit report with missed mortgage payments that resulted in the foreclosure.”
Note: its the MISSED payments that do the most credit damage vs the actual short sale or foreclosure.
A bankruptcy causes a credit score to tumble a maximum of 365 points and appears on the credit report for seven to 10 years, depending on the type of bankruptcy. Again, if the starting score is already low, bankruptcy will drop that score significantly fewer points than if the starting score is high. So, if you have a B/K and your credit score is already low the actual credit point drop is LESS compared to someone with a higher score.
While both a foreclosure and a short sale will remain on a credit report for seven years, they are often reported differently. A foreclosure is reported as a foreclosure, but short sales can appear as “settled for less than balance owed,” or similar terminology.
There are distinct advantages for someone to choose a short sale over a foreclosure. Specifically, they will have the ability to become homeowners again faster vs had they experienced a foreclosure…here are the recently updated lending guidelines:
Conventional Conforming (FNMA/FHLMC)
1) Foreclosure is 7 years
2) Deed-in-Lieu is 4 years < 80% LTV and 5 years > 80% LTV for primary residences. 7 years for second homes and investment properties regardless of LTV.
3) Short Sales is 2 years < 80% LTV and 5 years > 80% LTV and 7 years > 90% LTV
4) Bankruptcy is 4 years
According to TransUnion foreclosure won’t in and of itself impact credit, particularly since it arrives on the heels of hard financial times.
“Foreclosure will be regarded as a derogatory action on a credit report and will have a more serious impact than a loan modification or a short sale, but only if it is publicly reported,” ……If a property is going into foreclosure, more than likely the damage has already been done to the person’s credit report with missed mortgage payments that resulted in the foreclosure.”
Note: its the MISSED payments that do the most credit damage vs the actual short sale or foreclosure.
A bankruptcy causes a credit score to tumble a maximum of 365 points and appears on the credit report for seven to 10 years, depending on the type of bankruptcy. Again, if the starting score is already low, bankruptcy will drop that score significantly fewer points than if the starting score is high. So, if you have a B/K and your credit score is already low the actual credit point drop is LESS compared to someone with a higher score.
Tax implication Q+A for Foreclosure and Short Sales
After a short sale or a foreclosure, will there be taxes owed on the ‘forgiven debt’?
Consult your CPA for more details, but the bottom line is: most homeowners will not owe tax on the forgiven amount. Prior to the Mortgage Forgiveness Debt Relief Act (HR3648), homeowners of primary residences were subject to a “Phantom Tax” on whereby the amount forgiven would count as income. Since the passage of this retroactive law in December 2008, eligible homeowners still report the cancelled debt as income, but they also are granted exclusion to write off the income. The new write off only applies to forgiven debt on primary residences and cancelled debt up to $2,000,000. If you acquired a home equity line of credit (HELOC) after closing that was not used to improve the property, then forgiveness of that loan may be subject to tax.
If you had debt cancelled and are no longer obligated to repay the debt, you generally must include the amount of cancelled debt in your income. However, if it was a discharge of qualified principal residence indebtedness, you may be able to exclude all or part of this amount from being included in your income.
What is qualified principal residence indebtedness?
Qualified principal residence indebtedness is a mortgage that you took out to buy, build, or substantially improve your principal residence. The mortgage must be secured by your principal residence. Any debt secured by your principal residence that you use to refinance qualified principal residence indebtedness is treated as qualified principal residence indebtedness. However, only up to the amount of the old mortgage principal just before the refinancing qualifies for exclusion. Any additional debt that you incurred to substantially improve your principal residence is also treated as qualified principal residence indebtedness.
If the amount of your original mortgage is more than the total of the cost of your principal residence plus the cost of any substantial improvements, the full amount of the original mortgage does not qualify for exclusion. Only the debt that is not more than the cost of your principal residence plus improvements is qualified principal residence indebtedness.
What amount of cancelled debt can be excluded from income?
The exclusion applies ONLY to debt discharged after 2006 and before 2013. The maximum amount that you can treat as qualified principal residence indebtedness is $2 million ($1 if filing Married Filing Separately).
You cannot exclude from income discharge of qualified principal residence indebtedness if the discharge was for services performed for the lender or on account of any other factor not directly related to a decline in the value of your residence or to your financial condition.
Ordering rule: If only a part of a loan is qualified principal residence indebtedness, the exclusion applies only to the extent that the amount discharged exceeds the amount of the loan (immediately before the discharge) that is not qualified principal residence indebtedness.
Example: Assume your principal residence is secured by a debt of $1 million, of which $800,000 is qualified principal residence indebtedness. If your residence is sold for $700,000 and $300,000 of debt is discharged, you would only be able to exclude $100,000 of debt (the $300,000 that was discharged minus the $200,000 of nonqualified debt). The remaining $200,000 of nonqualified debt may qualify in whole or in part for one of the other exclusions, such as the insolvency exclusion.
From the IRS:
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.
The following are the most commonly asked questions and answers about The Mortgage Forgiveness Debt Relief Act and debt cancellation:
What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.
Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.
These exceptions are discussed in detail in Publication 4681.
What is the Mortgage Forgiveness Debt Relief Act of 2007?
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.
What does exclusion of income mean?
Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing
separately.
Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.
How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.
Update:
The Emergency Economic Stabilization Act of 2008 extended the exclusion from gross income for the discharge of qualified principal residence indebtedness by an additional 3 years. The exclusion now applies to debt discharged after 2006 and before 2013. See Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), and Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (For Individuals), for more information.
Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681.
If the forgiven debt is excluded from income, do I have to report it 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.
Do I have to complete the entire Form 982?
No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.
Where can I get this form?
If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery.
Download IRS Form 982 Here.
How do I know or find out how much debt was forgiven?
Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.
Can I exclude debt forgiven on my second home, credit card or car loans?
Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details.
If part of the forgiven debt doesn’t qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?
Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples.
I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.
If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt?
Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster area. See Form 982 for details.
If the remaining balance owed on my mortgage loan that I was personally liable for was canceled after my foreclosure, may I still exclude the canceled debt from income under the qualified principal residence exclusion, even though I no longer own my residence?
Yes, as long as the canceled debt was qualified principal residence indebtedness. See Example 2 on page 13 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.
Will I receive notification of cancellation of debt from my lender?
Yes. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more. The amount cancelled will be in box 2 of the form.
What if I disagree with the amount in box 2?
Contact your lender to work out any discrepancies and have the lender issue a corrected Form 1099-C.
How do I report the forgiveness of debt that is excluded from gross income?
(1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line 2. Any remaining canceled debt must be included as income on your tax return.
(2) File Form 982 with your tax return.
My student loan was cancelled; will this result in taxable income?
In some cases, yes. Your student loan cancellation will not result in taxable income if you agreed to a loan provision requiring you to work in a certain profession for a specified period of time, and you fulfilled this obligation.
Are there other conditions I should know about to exclude the cancellation of student debt?
Yes, your student loan must have been made by:
(a) the federal government, or a state or local government or subdivision;
(b) a tax-exempt public benefit corporation which has control of a state, county or municipal hospital where the employees are considered public employees; or
(c) a school which has a program to encourage students to work in underserved occupations or areas, and has an agreement with one of the above to fund the program, under the direction of a governmental unit or a charitable or educational organization.
Can I exclude cancellation of credit card debt?
In some cases, yes. Nonbusiness credit card debt cancellation can be excluded from income if the cancellation occurred in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See the examples in Publication 4681.
How do I know if I was insolvent?
You are insolvent when your total debts exceed the total fair market value of all of your assets. Assets include everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other investments, or your pension and other retirement accounts.
How should I report the information and items needed to prove insolvency?
Use Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to exclude canceled debt from income to the extent you were insolvent immediately before the cancellation. You were insolvent to the extent that your liabilities exceeded the fair market value of your assets immediately before the cancellation.
To claim this exclusion, you must attach Form 982 to your federal income tax return. Check box 1b on Form 982, and, on line 2, include the smaller of the amount of the debt canceled or the amount by which you were insolvent immediately prior to the cancellation. You must also reduce your tax attributes in Part II of Form 982.
My car was repossessed and I received a 1099-C; can I exclude this amount on my tax return?
Only if the cancellation happened in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See Publication 4681 for examples.
Are there any publications I can read for more information?
Yes.
(1) Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) is new and addresses in a single document the tax consequences of cancellation of debt issues.
(2) See the IRS news release IR-2008-17 with additional questions and answers on IRS.gov.
Consult your CPA for more details, but the bottom line is: most homeowners will not owe tax on the forgiven amount. Prior to the Mortgage Forgiveness Debt Relief Act (HR3648), homeowners of primary residences were subject to a “Phantom Tax” on whereby the amount forgiven would count as income. Since the passage of this retroactive law in December 2008, eligible homeowners still report the cancelled debt as income, but they also are granted exclusion to write off the income. The new write off only applies to forgiven debt on primary residences and cancelled debt up to $2,000,000. If you acquired a home equity line of credit (HELOC) after closing that was not used to improve the property, then forgiveness of that loan may be subject to tax.
If you had debt cancelled and are no longer obligated to repay the debt, you generally must include the amount of cancelled debt in your income. However, if it was a discharge of qualified principal residence indebtedness, you may be able to exclude all or part of this amount from being included in your income.
What is qualified principal residence indebtedness?
Qualified principal residence indebtedness is a mortgage that you took out to buy, build, or substantially improve your principal residence. The mortgage must be secured by your principal residence. Any debt secured by your principal residence that you use to refinance qualified principal residence indebtedness is treated as qualified principal residence indebtedness. However, only up to the amount of the old mortgage principal just before the refinancing qualifies for exclusion. Any additional debt that you incurred to substantially improve your principal residence is also treated as qualified principal residence indebtedness.
If the amount of your original mortgage is more than the total of the cost of your principal residence plus the cost of any substantial improvements, the full amount of the original mortgage does not qualify for exclusion. Only the debt that is not more than the cost of your principal residence plus improvements is qualified principal residence indebtedness.
What amount of cancelled debt can be excluded from income?
The exclusion applies ONLY to debt discharged after 2006 and before 2013. The maximum amount that you can treat as qualified principal residence indebtedness is $2 million ($1 if filing Married Filing Separately).
You cannot exclude from income discharge of qualified principal residence indebtedness if the discharge was for services performed for the lender or on account of any other factor not directly related to a decline in the value of your residence or to your financial condition.
Ordering rule: If only a part of a loan is qualified principal residence indebtedness, the exclusion applies only to the extent that the amount discharged exceeds the amount of the loan (immediately before the discharge) that is not qualified principal residence indebtedness.
Example: Assume your principal residence is secured by a debt of $1 million, of which $800,000 is qualified principal residence indebtedness. If your residence is sold for $700,000 and $300,000 of debt is discharged, you would only be able to exclude $100,000 of debt (the $300,000 that was discharged minus the $200,000 of nonqualified debt). The remaining $200,000 of nonqualified debt may qualify in whole or in part for one of the other exclusions, such as the insolvency exclusion.
From the IRS:
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.
The following are the most commonly asked questions and answers about The Mortgage Forgiveness Debt Relief Act and debt cancellation:
What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.
Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.
These exceptions are discussed in detail in Publication 4681.
What is the Mortgage Forgiveness Debt Relief Act of 2007?
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.
What does exclusion of income mean?
Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing
separately.
Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.
How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.
Update:
The Emergency Economic Stabilization Act of 2008 extended the exclusion from gross income for the discharge of qualified principal residence indebtedness by an additional 3 years. The exclusion now applies to debt discharged after 2006 and before 2013. See Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), and Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (For Individuals), for more information.
Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681.
If the forgiven debt is excluded from income, do I have to report it 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.
Do I have to complete the entire Form 982?
No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.
Where can I get this form?
If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery.
Download IRS Form 982 Here.
How do I know or find out how much debt was forgiven?
Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.
Can I exclude debt forgiven on my second home, credit card or car loans?
Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details.
If part of the forgiven debt doesn’t qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?
Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples.
I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.
If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt?
Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster area. See Form 982 for details.
If the remaining balance owed on my mortgage loan that I was personally liable for was canceled after my foreclosure, may I still exclude the canceled debt from income under the qualified principal residence exclusion, even though I no longer own my residence?
Yes, as long as the canceled debt was qualified principal residence indebtedness. See Example 2 on page 13 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.
Will I receive notification of cancellation of debt from my lender?
Yes. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more. The amount cancelled will be in box 2 of the form.
What if I disagree with the amount in box 2?
Contact your lender to work out any discrepancies and have the lender issue a corrected Form 1099-C.
How do I report the forgiveness of debt that is excluded from gross income?
(1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line 2. Any remaining canceled debt must be included as income on your tax return.
(2) File Form 982 with your tax return.
My student loan was cancelled; will this result in taxable income?
In some cases, yes. Your student loan cancellation will not result in taxable income if you agreed to a loan provision requiring you to work in a certain profession for a specified period of time, and you fulfilled this obligation.
Are there other conditions I should know about to exclude the cancellation of student debt?
Yes, your student loan must have been made by:
(a) the federal government, or a state or local government or subdivision;
(b) a tax-exempt public benefit corporation which has control of a state, county or municipal hospital where the employees are considered public employees; or
(c) a school which has a program to encourage students to work in underserved occupations or areas, and has an agreement with one of the above to fund the program, under the direction of a governmental unit or a charitable or educational organization.
Can I exclude cancellation of credit card debt?
In some cases, yes. Nonbusiness credit card debt cancellation can be excluded from income if the cancellation occurred in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See the examples in Publication 4681.
How do I know if I was insolvent?
You are insolvent when your total debts exceed the total fair market value of all of your assets. Assets include everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other investments, or your pension and other retirement accounts.
How should I report the information and items needed to prove insolvency?
Use Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to exclude canceled debt from income to the extent you were insolvent immediately before the cancellation. You were insolvent to the extent that your liabilities exceeded the fair market value of your assets immediately before the cancellation.
To claim this exclusion, you must attach Form 982 to your federal income tax return. Check box 1b on Form 982, and, on line 2, include the smaller of the amount of the debt canceled or the amount by which you were insolvent immediately prior to the cancellation. You must also reduce your tax attributes in Part II of Form 982.
My car was repossessed and I received a 1099-C; can I exclude this amount on my tax return?
Only if the cancellation happened in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See Publication 4681 for examples.
Are there any publications I can read for more information?
Yes.
(1) Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) is new and addresses in a single document the tax consequences of cancellation of debt issues.
(2) See the IRS news release IR-2008-17 with additional questions and answers on IRS.gov.
Wednesday, February 23, 2011
Massachusetts Foreclosure Ruling Threatens Mortgage Handling
The Supreme Judicial Court in Massachusetts made a pivotal ruling on Friday against U.S. Bancorp (NYSE: USB) and Wells Fargo (NYSE: WFC) in a mortgage foreclosure case. The higher court confirmed the lower court’s ruling which invalidated several foreclosure sales because proof of mortgage ownership was not clear.
“This decision is going to raise serious problems in hundreds of thousands of foreclosure cases,” said homeowner-defense attorney Thomas Cox, a Maine attorney. “It has the potential to require that foreclosures be done over, and I think there’s going to be significant turmoil nationally. There’s going to be major uncertainty.”
Offering another view, American Home Mortgage Servicing, based in Coppell, Texas, said that the “decision is of limited applicability because it is based on law that is unique and specific to Massachusetts. The decision does not extend to foreclosures in other states.” Perhaps not yet, but perhaps a precedent has indeed been set.
The confusion of ownership is a result of the transference of assets into mortgage-backed securities. Wells Fargo and U.S. Bancorp argued that securitization documents provided sufficient evidence proving that they owned the mortgages before the foreclosure sales occurred. The court deemed this insufficient. As foreclosures are rampant, implications of this ruling are widespread. What will happen to those who purchased homes in foreclosure?
The ruling in the case dictates that “any mortgage foreclosure which was initiated by a securitized trust at a time when the trust had not obtained a mortgage assignment which gave it the lawful right to do so is void,” according to Paul Collier III, an attorney representing a homeowner in the case. The homeowner who was evicted still technically owns the home, according to the ruling.
Today, traders will be looking at Financial Select Sector SPDR (NYSE: XLF) to see the market impact of this ruling. XLF already took a dip early Friday from $16.42 to $16.04, before a correction to $16.22 at close. Of further interest will be individual banks, such as Bank of America (NYSE: BAC), which is down almost 1% in pre-market trading. JP Morgan Chase (NYSE: JPM), U.S. Bancorp (NYSE: USB), Goldman Sachs (NYSE: GS), took a similar dip alongside the financial ETF XLF.
“This decision is going to raise serious problems in hundreds of thousands of foreclosure cases,” said homeowner-defense attorney Thomas Cox, a Maine attorney. “It has the potential to require that foreclosures be done over, and I think there’s going to be significant turmoil nationally. There’s going to be major uncertainty.”
Offering another view, American Home Mortgage Servicing, based in Coppell, Texas, said that the “decision is of limited applicability because it is based on law that is unique and specific to Massachusetts. The decision does not extend to foreclosures in other states.” Perhaps not yet, but perhaps a precedent has indeed been set.
The confusion of ownership is a result of the transference of assets into mortgage-backed securities. Wells Fargo and U.S. Bancorp argued that securitization documents provided sufficient evidence proving that they owned the mortgages before the foreclosure sales occurred. The court deemed this insufficient. As foreclosures are rampant, implications of this ruling are widespread. What will happen to those who purchased homes in foreclosure?
The ruling in the case dictates that “any mortgage foreclosure which was initiated by a securitized trust at a time when the trust had not obtained a mortgage assignment which gave it the lawful right to do so is void,” according to Paul Collier III, an attorney representing a homeowner in the case. The homeowner who was evicted still technically owns the home, according to the ruling.
Today, traders will be looking at Financial Select Sector SPDR (NYSE: XLF) to see the market impact of this ruling. XLF already took a dip early Friday from $16.42 to $16.04, before a correction to $16.22 at close. Of further interest will be individual banks, such as Bank of America (NYSE: BAC), which is down almost 1% in pre-market trading. JP Morgan Chase (NYSE: JPM), U.S. Bancorp (NYSE: USB), Goldman Sachs (NYSE: GS), took a similar dip alongside the financial ETF XLF.
Friday, January 21, 2011
Bankruptcies fuel foreclosures due to failed Loan Modifcations
Nadia Vanderhoof from TCPalm brings us an article that exposes the aftermath of our government’s failed band aids. In English, there is a high volume of people that either attempt to enter or enter a mortgage modification program only to be flushed out of the other end in bankruptcy court.
When families go through a loan modification program their goal is to save their house. They typically follow the rules and regulations of the program in an effort to stay in their house. These folks are late on their mortgage payments. Most (if not all) of our governments programs have a requirement that payments must be missed in order to qualify for a modification. As the application period progresses, the homeowners are not only getting deeper and deeper into hole they are also getting closer and closer to foreclosure.
Statistics show that only a small percentage of PERMANENT modifications are approved. In order to stay in their homes and to eliminate the possibility of a deficiency judgment after their house is foreclosed on, more and more people are turning to the bankruptcy courts. Bankruptcies also prolong the inevitable……it prolongs foreclosure but it also prolongs the recovery of our housing market. When the banks foreclose, they will eventually put that property on the market.
A quote from the article tells it all, “Flawed modification programs will continue to undermine Florida’s economic recovery until they are overhauled, said Sean Snaith, director of University of Central Florida’s Institute of Economic Competitiveness.
“I think by and large they (modification programs) are largely viewed as a failure … just a lot of smoke and mirrors without any substance,” Snaith said. “Really, they reach out to the fringe that were likely to default anyway. What would have worked is doing something in terms of principal write-downs to reflect current values because it’s not helping the economy when all these folks paying for underwater mortgages continue to loss equity in their homes. That’s where all your discretionary spending is going.”
News Article
Flawed mortgage modification programs fueling Treasure Coast bankruptcies
By Nadia Vanderhoof
Federal mortgage modification programs aimed at keeping financially at-risk Treasure Coast homeowners from being foreclosed on are instead fueling consumer bankruptcies, according to several housing experts.
Some Treasure Coast homeowners who were denied mortgage modifications through President Obama’s Home Affordable Modification Program say bankruptcy was the only way they legally could get out of their homes and protect future assets from mortgage servicing companies and lenders.
After nightmare experiences and enormous frustration with the modification program, they feared lenders might go after their assets to recoup losses years after a foreclosure or short sale, which is selling a home for less than the remaining balance on the loan.
While there are success stories of the program — which has kept some Treasure Coast residents in their homes and out of foreclosure, the number of people helped is small.
As of October, lenders had granted a meager 2,156 permanent modifications to Treasure Coast homeowners — 384 in Indian River County and another 1,772 in Martin and St. Lucie counties combined.
According to RealtyTrac, foreclosure filings were reported on 11,880 homes in the tri-county region through this year. Another 18,998 were recorded in 2009 and 15,631 in 2008.
Meanwhile, bankruptcies on the Treasure Coast continue to pile up.
In 2008, there were 1,723 consumer bankruptcies filed in Martin, St. Lucie and Indian River counties. That spiked to 2,562 in 2009. This year, the Treasure Coast is on track to surpass those numbers with a staggering 2,202 local consumers already filing for bankruptcy through September alone.
“Some people are being put into a position of bankruptcy because their modification did not take place,” said Richard Peek, president of the Florida Association of Mortgage Brokers. “Not everything is being done as far as assisting people in being able to maintain their homes.”
RESIDENTS STRUGGLE WITH LENDERS
Karen Lehmann is one of those people.
She vacated her Vero Beach home in September and filed for bankruptcy after nearly a two-year modification struggle with Litton Loan Services, the company servicing her mortgage owned by banking giant JPMorgan Chase & Co. With two part-time jobs as proof of income, Lehmann said a modification was approved on her $188,000 mortgage, bringing it down to $146,000 in 2009. The modification was later revoked by Litton despite on-time mortgage payments, months of repeated phone calls, mounds of paperwork, court hearings and mediations.
The reason? She no longer fit the modification guidelines of the loan’s investor.
“When they reneged, that was it. I was so tired, I didn’t have any fight left in me,” Lehmann said. “I had done everything I could. Bankruptcy was my last resort. It was not something I took lightly.”
Lehmann, who paid a reduced monthly mortgage of about $700 before the modification was revoked, said shortly before she moved out of her home of 11 years, Litton and Chase wanted her to agree to a short sale for $94,000.
“I thought, this is never going to stop. They wanted me to sign a quit claim deed and if the house didn’t sell by December, they wanted me out by January,” Lehmann said. “On top of that, they were trying to come after me for more insurance and property taxes. They wanted almost $5,000 more to insure (the home).”
Out of desperation and to prevent further monetary demands from Chase and Litton — Lehmann turned to bankruptcy to protect her finances.
“I wanted to get on with my life. I didn’t want them to try and get back at me later,” Lehmann said. “No doubt, they would have come after me for the balance of the mortgage after the short-sale. With everything that happened, everything I went through, there was no guarantee it was going to end there.”
TREASURE COAST CASE EXEMPLIFIES THOUSANDS
Some financial experts say the events leading up to Lehmann’s bankruptcy aren’t unique. Her ordeal is likely shared by thousands of homeowners nationwide.
Michael Larson, a real estate analyst with Jupiter-based Weiss Research, described Lehmann’s experiences as an unforeseen consequence of the Treasury’s failed modification program.
“The government was overselling this program, over-promising and under-delivering. It was not designed to take care of the key problem and fix the problem of upside-down homes and the structure of those loans,” Larson said. “There’s a fundamental problem with these modification programs and many more people will foreclose, go bankrupt or both as long as there is no long-term change to its design.”
Barbara Bradley-McLeod said her lender, Bank of America, strung her along for about a year, promising a mortgage modification on her Port St. Lucie home after her work hours were cut in 2009.
“Every time I tried to talk to them, they said I was missing something else. Send us this paperwork. We need some other papers,” Bradley-McLeod said. “Then they said that we didn’t qualify because we had a Freddie Mac loan or a Fannie Mae loan. This was after one whole year. And I never missed one mortgage payment.”
Bradley-McLeod filed for bankruptcy earlier this year.
“It seems like the banks, the big companies all got bailed out, but what about the little people? Nothing trickled down to us,” Bradley-McLeod said.
Treasury spokesman Mark Paustenbach said the agency is aware there are problems with the program, but “breaking a contract between a borrower and a servicer would be illegal.”
“We talk to families every day that are at risk of losing their homes and are terribly frustrated by their inability to communicate with their lender and get the help they need,” Paustenbach wrote in an e-mail. “We have worked tirelessly for 18 months to stand up a ground-breaking program that has given half a million of these folks permanent mortgage relief. But we know that we have only begun to address the problem. We will not stop until we make mortgage modifications easier, shorten decision time, reduce paperwork and give homeowners greater peace of mind.”
BANKRUPTCIES CONTINUE TO RISE
In 2009, the Treasury Department announced the Home Affordable Modification Program, a $50 billion Troubled Asset Relief Program program aimed at helping up to 4 million at-risk homeowners avoid foreclosure by reducing their monthly payments. Experts say the program has failed to live up to its promises.
“Many families encounter an incompetent or even predatory mortgage servicing system once they apply to the program, experiencing delays or denials that are inconsistent with the promise of the program guidelines,” said Julia Gordon, senior policy counsel at the Center for Responsible Lending, during her Oct. 27 Congressional testimony. “Hundreds of thousands of people who received trial modifications during HAMP’s initial phase have ended up in a worse financial situation as a result of their participation in the program.”
Other experts say bankruptcies, already on the rise because of the recession, will continue to spike until the avalanche of foreclosures slows down and more pressure is placed on lenders to engage in massive principal reductions.
“In past business cycles, we looked to housing to bring back the economy because of how multifaceted it is,” Metrostudy’s Chief Economist Brad Hunter said. “I don’t think there’s a solution to stimulating the economy without solving the housing problem and getting (gross domestic product) growing again. It isn’t growing fast enough, at this point, because of the unemployment rate, which is tied to housing.”
Flawed modification programs will continue to undermine Florida’s economic recovery until they are overhauled, said Sean Snaith, director of University of Central Florida’s Institute of Economic Competitiveness.
“I think by and large they (modification programs) are largely viewed as a failure … just a lot of smoke and mirrors without any substance,” Snaith said. “Really, they reach out to the fringe that were likely to default anyway. What would have worked is doing something in terms of principal write-downs to reflect current values because it’s not helping the economy when all these folks paying for underwater mortgages continue to loss equity in their homes. That’s where all your discretionary spending is going.”
When families go through a loan modification program their goal is to save their house. They typically follow the rules and regulations of the program in an effort to stay in their house. These folks are late on their mortgage payments. Most (if not all) of our governments programs have a requirement that payments must be missed in order to qualify for a modification. As the application period progresses, the homeowners are not only getting deeper and deeper into hole they are also getting closer and closer to foreclosure.
Statistics show that only a small percentage of PERMANENT modifications are approved. In order to stay in their homes and to eliminate the possibility of a deficiency judgment after their house is foreclosed on, more and more people are turning to the bankruptcy courts. Bankruptcies also prolong the inevitable……it prolongs foreclosure but it also prolongs the recovery of our housing market. When the banks foreclose, they will eventually put that property on the market.
A quote from the article tells it all, “Flawed modification programs will continue to undermine Florida’s economic recovery until they are overhauled, said Sean Snaith, director of University of Central Florida’s Institute of Economic Competitiveness.
“I think by and large they (modification programs) are largely viewed as a failure … just a lot of smoke and mirrors without any substance,” Snaith said. “Really, they reach out to the fringe that were likely to default anyway. What would have worked is doing something in terms of principal write-downs to reflect current values because it’s not helping the economy when all these folks paying for underwater mortgages continue to loss equity in their homes. That’s where all your discretionary spending is going.”
News Article
Flawed mortgage modification programs fueling Treasure Coast bankruptcies
By Nadia Vanderhoof
Federal mortgage modification programs aimed at keeping financially at-risk Treasure Coast homeowners from being foreclosed on are instead fueling consumer bankruptcies, according to several housing experts.
Some Treasure Coast homeowners who were denied mortgage modifications through President Obama’s Home Affordable Modification Program say bankruptcy was the only way they legally could get out of their homes and protect future assets from mortgage servicing companies and lenders.
After nightmare experiences and enormous frustration with the modification program, they feared lenders might go after their assets to recoup losses years after a foreclosure or short sale, which is selling a home for less than the remaining balance on the loan.
While there are success stories of the program — which has kept some Treasure Coast residents in their homes and out of foreclosure, the number of people helped is small.
As of October, lenders had granted a meager 2,156 permanent modifications to Treasure Coast homeowners — 384 in Indian River County and another 1,772 in Martin and St. Lucie counties combined.
According to RealtyTrac, foreclosure filings were reported on 11,880 homes in the tri-county region through this year. Another 18,998 were recorded in 2009 and 15,631 in 2008.
Meanwhile, bankruptcies on the Treasure Coast continue to pile up.
In 2008, there were 1,723 consumer bankruptcies filed in Martin, St. Lucie and Indian River counties. That spiked to 2,562 in 2009. This year, the Treasure Coast is on track to surpass those numbers with a staggering 2,202 local consumers already filing for bankruptcy through September alone.
“Some people are being put into a position of bankruptcy because their modification did not take place,” said Richard Peek, president of the Florida Association of Mortgage Brokers. “Not everything is being done as far as assisting people in being able to maintain their homes.”
RESIDENTS STRUGGLE WITH LENDERS
Karen Lehmann is one of those people.
She vacated her Vero Beach home in September and filed for bankruptcy after nearly a two-year modification struggle with Litton Loan Services, the company servicing her mortgage owned by banking giant JPMorgan Chase & Co. With two part-time jobs as proof of income, Lehmann said a modification was approved on her $188,000 mortgage, bringing it down to $146,000 in 2009. The modification was later revoked by Litton despite on-time mortgage payments, months of repeated phone calls, mounds of paperwork, court hearings and mediations.
The reason? She no longer fit the modification guidelines of the loan’s investor.
“When they reneged, that was it. I was so tired, I didn’t have any fight left in me,” Lehmann said. “I had done everything I could. Bankruptcy was my last resort. It was not something I took lightly.”
Lehmann, who paid a reduced monthly mortgage of about $700 before the modification was revoked, said shortly before she moved out of her home of 11 years, Litton and Chase wanted her to agree to a short sale for $94,000.
“I thought, this is never going to stop. They wanted me to sign a quit claim deed and if the house didn’t sell by December, they wanted me out by January,” Lehmann said. “On top of that, they were trying to come after me for more insurance and property taxes. They wanted almost $5,000 more to insure (the home).”
Out of desperation and to prevent further monetary demands from Chase and Litton — Lehmann turned to bankruptcy to protect her finances.
“I wanted to get on with my life. I didn’t want them to try and get back at me later,” Lehmann said. “No doubt, they would have come after me for the balance of the mortgage after the short-sale. With everything that happened, everything I went through, there was no guarantee it was going to end there.”
TREASURE COAST CASE EXEMPLIFIES THOUSANDS
Some financial experts say the events leading up to Lehmann’s bankruptcy aren’t unique. Her ordeal is likely shared by thousands of homeowners nationwide.
Michael Larson, a real estate analyst with Jupiter-based Weiss Research, described Lehmann’s experiences as an unforeseen consequence of the Treasury’s failed modification program.
“The government was overselling this program, over-promising and under-delivering. It was not designed to take care of the key problem and fix the problem of upside-down homes and the structure of those loans,” Larson said. “There’s a fundamental problem with these modification programs and many more people will foreclose, go bankrupt or both as long as there is no long-term change to its design.”
Barbara Bradley-McLeod said her lender, Bank of America, strung her along for about a year, promising a mortgage modification on her Port St. Lucie home after her work hours were cut in 2009.
“Every time I tried to talk to them, they said I was missing something else. Send us this paperwork. We need some other papers,” Bradley-McLeod said. “Then they said that we didn’t qualify because we had a Freddie Mac loan or a Fannie Mae loan. This was after one whole year. And I never missed one mortgage payment.”
Bradley-McLeod filed for bankruptcy earlier this year.
“It seems like the banks, the big companies all got bailed out, but what about the little people? Nothing trickled down to us,” Bradley-McLeod said.
Treasury spokesman Mark Paustenbach said the agency is aware there are problems with the program, but “breaking a contract between a borrower and a servicer would be illegal.”
“We talk to families every day that are at risk of losing their homes and are terribly frustrated by their inability to communicate with their lender and get the help they need,” Paustenbach wrote in an e-mail. “We have worked tirelessly for 18 months to stand up a ground-breaking program that has given half a million of these folks permanent mortgage relief. But we know that we have only begun to address the problem. We will not stop until we make mortgage modifications easier, shorten decision time, reduce paperwork and give homeowners greater peace of mind.”
BANKRUPTCIES CONTINUE TO RISE
In 2009, the Treasury Department announced the Home Affordable Modification Program, a $50 billion Troubled Asset Relief Program program aimed at helping up to 4 million at-risk homeowners avoid foreclosure by reducing their monthly payments. Experts say the program has failed to live up to its promises.
“Many families encounter an incompetent or even predatory mortgage servicing system once they apply to the program, experiencing delays or denials that are inconsistent with the promise of the program guidelines,” said Julia Gordon, senior policy counsel at the Center for Responsible Lending, during her Oct. 27 Congressional testimony. “Hundreds of thousands of people who received trial modifications during HAMP’s initial phase have ended up in a worse financial situation as a result of their participation in the program.”
Other experts say bankruptcies, already on the rise because of the recession, will continue to spike until the avalanche of foreclosures slows down and more pressure is placed on lenders to engage in massive principal reductions.
“In past business cycles, we looked to housing to bring back the economy because of how multifaceted it is,” Metrostudy’s Chief Economist Brad Hunter said. “I don’t think there’s a solution to stimulating the economy without solving the housing problem and getting (gross domestic product) growing again. It isn’t growing fast enough, at this point, because of the unemployment rate, which is tied to housing.”
Flawed modification programs will continue to undermine Florida’s economic recovery until they are overhauled, said Sean Snaith, director of University of Central Florida’s Institute of Economic Competitiveness.
“I think by and large they (modification programs) are largely viewed as a failure … just a lot of smoke and mirrors without any substance,” Snaith said. “Really, they reach out to the fringe that were likely to default anyway. What would have worked is doing something in terms of principal write-downs to reflect current values because it’s not helping the economy when all these folks paying for underwater mortgages continue to loss equity in their homes. That’s where all your discretionary spending is going.”
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