Archive for May, 2013

FORECLOSURE AND SHORT SALE TAX CONSEQUENCES

Last week I wrote about the difference between a Deed in Lieu of Foreclosure and a Short Sale. As I mentioned in that article there are tax consequences of either. Following is an analysis of that subject.

If you earn a salary or Christmas bonus from your employer, it is taxed as income. You have been paid for your work and owe taxes. If you get a $50,000 loan to buy a house, you are paid $50,000 by the lender – sort of a salary – that you never touch, because it is immediately paid to the house’s previous owner. Meanwhile you owe that money to the mortgage company. The same principle works for credit card purchases.

Later, if you are unable to repay the mortgage company, or the credit card company, they may offer to agree to reduce the amount they will try to collect from you, if you make a one-time payment of a portion of the amount you owe. For mortgages this can either be through a deed in lieu of foreclosure, or a short sale. Either way, for example, that $50,000 you owe on the mortgage may be reduced to $25,000. The mortgage company agrees that because you have returned the house to them, or found a new buyer at the reduced amount, and it is valued at $25,000, they will be happy and forgive you of the other $25,000.

But the IRS is not so forgiving. In their eyes it is like you are working for an employer, the mortgage company, and it has just given you a Christmas bonus – the forgiveness of your obligation to repay the $25,000. Just like the Christmas bonus, the IRS considers that amount as taxable income, and you will receive a 1099 form that notifies you of the taxable amount of the debt forgiveness. [None of this happens in a bankruptcy. In a bankruptcy, you are NOT taxed for debt that is discharged in the bankruptcy].

But here’s the point of this article. Since a federal act of 2007 that was to expire in December of 2012, there has been a law that permits you to exclude income made through a short sale or a deed in lieu (see my last article or my blog). Refer to the following web sites for further explanations:

http://www.irs.com/articles/mortgage-debt-relief-act-extended
http://www.fisherlawmn.com/blog/2013/01/03/Mortgage-Forgiveness-Debt-Relief-Act-Extension-Good-for-Short-Sales.aspx

That act has been extended to end in January 1 of 2014. Under the provisions of the law, you will not be taxed on the difference between what you owe on the original loan, and the amount the mortgage company actually gets from the sale, or return of the residence, if the loan qualifies (among the qualifications, the loan must have been for your primary residence). Or if you refinance the home and the new refinanced amount reflects the home’s decline in value due to no fault of your own, the reduction in the old value that in the past might have been subject to taxation as income, can be disqualified as income by following the IRS guidelines. See:

http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-

To use this law, you must act fast. A short sale or a deed in lieu is a lengthy process that can take six months or longer.

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SHORT SALE VRS. DEED IN LIEU

If you need to understand the meaning of the above phrases, you probably need a lawyer. You have fallen behind on your mortgage, fear a foreclosure, and are looking for ways to avoid the lender taking your home from you. Talk to a lawyer!

Regardless, it is to your benefit to understand the difference between these two options to stop a foreclosure, whether you use them or not, and whether you hire a lawyer or not.

Deed in Lieu of Foreclosure – If you know that you are not going to be able to catch up on delinquent loan payments, you have worked with the mortgage loss mitigation department (the division that helps people who have fallen behind), and you expect a foreclosure to be filed (and maybe even if it has already been filed); you might be a good candidate for a deed in lieu of foreclosure. By this process, you turn the home over to the lender without both of you having to go through the legal hassles of the foreclosure, and your credit score should be hurt less than if your property is foreclosed upon. The lender will only make this deal with you if he knows that there has been no revenge damage to the property, and only if you agree to leave by a date much sooner than if there were a foreclosure. You give the lender the house, and if you’re lucky, and he makes the proper agreement on paper (that’s why you need a lawyer) you may not owe any more money on the mortgage.

Short Sale – After a deed in lieu, the mortgagor is left with a home that probably hasn’t been cared for during the previous years while the owner made sporadic payments, the property has been vacated, and is no longer an attractive home with pillow shams and the smell of baking bread when realtors try to show the home to buyers. The mortgage company expects to sell the property for much less than it would be worth if not for the deed in lieu.

If you can find a buyer that wants to buy the house before you vacate it, you are taking a heavy burden off the lender, and the lender makes money off your efforts to sell the home. You are in essence acting as an agent of the mortgage company and saving it lots of time and trouble. Of course a short sale must occur with the knowledge and cooperation of the lender, but it may permit you to sell the property, rather than risking damage during the foreclosure process, and later trying to sell an abandoned home that could become the neighborhood crack house during its vacancy.

There are potentially serious taxation and loan deficiency consequences of a foreclosure, a deed in lieu, or a short sale that you must understand before deciding which might be best for you.

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NATIONAL “DO NOT CALL” LIST NEEDS YOUR HELP

I have written before about the do not call list. My home has been on the list for years, but in the last year, I have been getting regular illegal calls from businesses that disregard the federal law, and call anyway. I don’t think that our government really cares, but as a former Ralph Nader worker (from back before he gave away a presidential election), I believe it is the obligation of us all to do what we can to stop these calls.
The National Do Not Call Registry website has two pages for us to enter information about these scofflaws who keep calling even after you have been on the list for 30 days.

The website address is https://complaints.donotcall.gov

The site is not very user friendly, so here are some of the particulars about how to enter a complaint I’ve learned as I enter my complaints regularly:

1) When you enter your phone number, use no spaces or periods or dashes (it adds the dashes automatically). Enter your number all the way to the left of the field for the phone number, or it will not accept the number.
2) When entering the date the call was received, you MUST enter back slashes (the vertical lines on your keyboard that lean at the top, to the right, “/”) to separate the month, day, and year. The month must be entered as two digits (for April, enter, “04”), two digits for the day, and the year cannot be “13”, it must be four digits (“2013”).

The website only lets you enter one complaint at a time. After entering one, if you want to enter another, just close the link, and reopen the site.
When I get a call from one of these illegal callers, I always have tried to talk to someone, but the businesses instruct their employees to give out no information over the phone. I have explained that before I will agree to do business with the caller, I need to know the business name, phone number, or website address – at that point the caller immediately hangs up.

I keep a notepad by my phone and when I get a call, I note the name on the caller ID, the phone number, the date, the time, any conversation that occurs if I talk to someone, and I always call the number back after the employee hangs up, and I follow the recording’s instructions to be put on the “company” do not call list. I call the federal “Do Not Call List” monthly and give them the information.
It’s your duty as a citizen.

Don’t take these illegal calls without fighting back.

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$35,000 FOR ILLINOIS HOMEOWNERS TO HELP STOP FORECLOSURE

The federal Department of Housing and Urban Development (www.hud.gov) is administering a program to help homeowners with pending foreclosures keep their homes. Beginning April 1, of this year, the amount of money available to Illinois homeowners through the program has increased to $35,000. In this state, the program is administered through the Illinois Housing Development Authority (IHDA) and is called the Illinois Hardest Hit Program (www.illinoishardesthit.org).

Through the program, there are two types of assistance available:

1) Reinstatement assistance to pay mortgage arrearages, fees and penalties in full, and

2) Monthly mortgage payment assistance to pay 100% of the mortgage payment owed to the mortgage company for up to 18 months while the homeowner makes monthly partial payments to IHDA during the period of time the homeowner receives help through the program, and rarely some payments after.

To qualify, the property in question must be in Illinois, the household must have had a 20% reduction of income due to unemployment that is no fault of the applicant, household income must be at or below 120% of the area median income (the 120% is about $71,833 for a family of two), the loan balance must not be more than $500,000, your liquid assets must not exceed $17,500, the property must be the only residence of the borrower, property could be a 1-4 unit building as long as the applicant lives in one unit, mortgage must be a fixed or adjustable rate loan, mortgage company must agree to the plan, applicant must not have been convicted of a mortgage-related felony in the last ten years, the grant money available must be enough to bring your mortgage current and make a minimum of six forward monthly mortgage payments.

Applying for help through the program is free. Funds may be available even if the property is in foreclosure. Visit the website at (www.illinoishardesthit.org), or call 1-855-533-7411.

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TINTED WINDOWS ON VEHICLES IN ILLINOIS

I’ve always been curious about the Illinois laws concerning tinted windows on vehicles, and until recently have failed to read the statute to understand them. Like nearly every other thing in the practice of law – it’s not that easy. The Illinois tinted windows law is four pages long. Obviously this is one of those laws that will affect few of us, but there are some drivers that like the style of tinted windows, and some who are older who have medical needs for tinting. Following is a distilled version of the law:

1) Windshields can be tinted from the top to six inches below the top.
2) Driver and passenger side windows cannot be tinted unless:
a) The windows behind the driver are tinted to block less than 30% of the light, the front side windows may be tinted to block no more than 50% of the light.
b) All windows except the windshield may be tinted to admit at least 35% of light.
c) Original manufactured installed smoked glass may be permitted on vehicles that permit at least 50% of light to enter.
d) Tint waivers may be authorized by a physician.
e) Rear window screens are permitted, if the side windows are not tinted, and if there are mirrors outside the car on each side.
3) These rules do not apply to vehicles properly registered in other jurisdictions.

I was surprised to learn that police officers have at their disposal, a mechanism used to measure the amount of light that shines through tinted windows.

As a DUI lawyer, I am inclined to advise anyone who drives after consuming alcohol, to never drive a vehicle with tinting other than on the top six inches of the windshield. If there is any tint on a side or rear window, you are inviting the police to stop you, and to determine if your glass is illegally tinted, and whether there is anything else for which you can be arrested.

These laws have a legitimate purpose. They save the lives of police officers who need to see what you are doing after the police pull you over. If the officer can’t see you, he will realize that his life – and yours – is in jeopardy as he approaches your vehicle after a stop with his gun in his hand.

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How to Stop Nuisance Charity Solicitation Calls

I’ve been on the “do not call” list for years and still get charity nuisance calls. Following are my suggestions for stopping those calls. Remember, the Do Not Call List will not stop charity calls:

It is important to understand that the charity probably does not even know that you are being called. The phone solicitation is usually contracted out to a firm that makes calls for many companies as their only business. The callers are usually people unaffiliated with the charity, people who don’t give a hoot about the charity or you. They only care about looking busy when their bosses walk by, or when their statistics are periodically reviewed.

1) When a charity calls you, tell the caller that you want to be taken off their calling list.
2) When that doesn’t work, during the next call, get the caller’s name and phone number, and tell her that your lawyer advises you to never make donations over the phone without doing so. Then ask to speak to the caller’s supervisor, so you can be doubly sure you are dealing with a legitimate caller. Get the supervisor’s name and the name of the company the calls are being made from and the name of the charity. Tell the supervisor that you have been continually harassed (it is a good idea to tell her the dates, times, and calling number from a pad of paper you keep next to your phone, and using your caller ID) and that you will make no more donations until the calls stop for (suggest a period of time, maybe six months).
3) If the calls continue, go directly to the charity. The last time I did this, the charity which was one involving Native Americans, listed in a solicitation letter, only the contact phone numbers of two Attorneys General. I called and each said all they do is verify whether the charity is listed with that state. So if you have no phone number, search the internet for a home office for the charity. Contact that office, and tell them about the harassment, who is doing it (use your notes) and that you will not donate ever again until the calls have stopped.
4) Contact: Mail Preference Service, Direct Marketing Association, PO Box 643, Carmel, NY 10512, or at www.dmachoice.org. Tell them that you want your name removed from both the profit and nonprofit lists.
5) Contact the Illinois Attorney General at: http://illinoisattorneygeneral.gov or call 800-243-0618. There you can file a consumer complaint if you have the correct address of the charity that is harassing you.

Be very careful who you donate to. Be sure you keep records of the address you mail checks or phone numbers if you decide to make phone donations (I strongly advise against phone donations). Tell the charity that you do not want your name provided to any other entity, and you want to know what number to call to stop the calls if their charity starts calling you at home. If you decide to donate by phone, don’t do so during a phone solicitation call, ask the solicitor for the address and phone number of the charity, then make your donation directly to the charity.

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