Archive for Foreclosure

ANOTHER BIG MORTGAGE BANK ADMITS WRONGDOING DISTRESSED MORTGAGE HOLDERS TO BENEFIT THIS COULD MEAN YOU!

Citigroup has agreed to pay $7 billion dollars to acquire a settlement offered by the U.S. Attorney General. One of the nation’s biggest mortgage banks, Citigroup, like JP Morgan before them, has agreed to pay this settlement because of selling securities backed by unstable mortgages. The buyers of the securities suffered mammoth financial losses when the value of the securities dropped as the mortgages that backed them failed. Among those losers in Illinois were several of our largest retirement systems.

Illinois is to receive $84 billion, which is divided into $44 million for the pension funds and $40 million for consumers. That $40 million is available for refinancing of mortgages that are past due. Such refinancing should permit many Illinoisans to reduce their home mortgage interest rates. Because so many families had their mortgages foreclosed, the settlement includes money to build rental units in larger cities so displaced families have somewhere to go.

Details of the disbursement of the settlement will be available through the Illinois Attorney General’s Office. If you have a Citigroup mortgage, ask them about options available for you through the settlement.

No Citigroup executives have yet been found criminally liable for their roles in the 2008 financial disaster that touched nearly the entire world. Portions of the $7 billion settlement will be tax deductible for Citigroup. After the settlement, stock shares for Citigroup went up 3 percent as investors regained their confidence in the company in light of the certainty of the amount owed through the finalized agreement.

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JPMORGAN CHASE TO GIVE $4 BILLION TO HELP DISTRESSED MORTGAGES

It was recently announced that JPMorgan Chase & Company settled a civil liability claim with the U.S. Department of Justice. Chase was sued for signing mortgages with a high probability of foreclosure, and selling them in bundles to unsuspecting investors. As the mortgages failed, the investments lost their value, and soon our whole economy was injured by the 2008 financial crisis.

This $13 billion dollar settlement is the largest settlement of fines and damages negotiated by the U.S. Government in a single civil suit. Illinois is to receive $100 million dollars of the settlement. The agreement requires Chase to allocate four billion dollars to consumers to help distressed mortgages and properties. HUD Secretary Shaun Donovan says that the settlement “could benefit more than 100,000 borrowers.”

About a billion and a half dollars of the settlement is to be made available to aid borrowers whose mortgage balance exceeds the value of their properties. Chase presumably would renegotiate the principal and possibly the interest rate for such mortgages. Another half billion dollars is to be made available to restructure mortgages to reduce monthly payments.

The remaining two billion dollars will be allocated to assist low and moderate income borrowers to obtain affordable mortgages in areas that been most affected by the housing crisis. Another portion of the settlement will be used to demolish abandoned properties in blighted areas.

If you have a Chase mortgage that you cannot afford, or if you are interested in getting a new mortgage, there may be money in the settlement for you. As of this writing, the deal had just been struck, so if you believe you might be eligible for the benefits under this settlement, contact Chase, or the Office of the Illinois Attorney General.

If you are worried about your stock in JPMorgan Chase, rest assured that much of the settlement will be tax-deductible for Chase, our nation’s largest bank.

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FORCED PLACE INSURANCE AND WELLS FARGO

If you have a mortgage through Wells Fargo and have paid “forced place insurance” in the past, you may have been over-billed. Forced place insurance is home insurance that is paid for by the mortgage company after you have failed to pay home insurance in accordance with your obligation to do so as created by your mortgage agreement. If you don’t pay your home insurance on time, there is a grace period during which the home can be insured before the policy lapses. The mortgage company will not let a home they could acquire through foreclosure, go uninsured. Before the insurance can be cancelled, the mortgage company forces you to accept the insurance company and policy that they choose, and your monthly mortgage payments increase by the extra amount you pay for forced place insurance – which in virtually all circumstances costs much more than the home insurance coverage you can acquire on the open market.

A law firm is considering a class action lawsuit to collect money for Wells Fargo mortgage holders who have paid excessive prices for forced place insurance. In a class action lawsuit you simply tell the attorney that you want to be included, and wait for a settlement, should he win. If you are not included in the lawsuit, you can still sue Wells Fargo, but you will have to find your own attorney. To find out more about this lawsuit, contact info@ktmc.com, or call 888-299-7706.

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AVAILABILITY OF IL HARDEST HIT PROGRAM FUNDS ENDS SOON

The Illinois Hardest Hit program is a federally funded grant available to help you pay your mortgage if you have fallen behind because of unemployment or underemployment. The program can help by paying up to $35,000 toward your mortgage. The program will accept no more applications after September 30, 2013. The money in the fund is rapidly depleting, so if you plan to apply, do so immediately. There is no guarantee that funds will be available through September 30. Apply at www.illinoishardesthit.com or call 855-873-7405.

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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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$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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OPTIONS TO FORECLOSURE

After a filed or threatened foreclosure, if you have decided to surrender your house, talk to the bank and see if they will just take the house without requiring you to pay any more toward your mortgage. Even if they agree to such an arrangement you would be wise to consult an attorney to be sure the deal you’re making is the one you are signing. Such an agreement by the bank will basically be a mathematical analysis of market value versus the amount you owe on your loan. If the bank can sell the house to someone new, now, and get as much as they would get from you if they sued you, the bank might cooperate with you and let you surrender it. Remember that you can always surrender a home to a bank; the real question is whether they will sue you for the money remaining due on the mortgage.

The days of driving downtown to the bank to have a cigar with “George Bailey” to decide if he will let you miss a few more payments while you are off work from a back injury, are about over. Most banks or local loan institutions sell your mortgage to a new company maybe several times in the course of the first few years of the mortgage. You will know who you are making your payments to (the loan servicer), but you won’t know anyone at that organization.

Don’t turn your back on the situation, ignoring the past due notices, and forcing the bank to foreclose. With the current status of all the big financial institutions that have lied in foreclosure hearings, with the glut in the housing market, and with the political pressures for mortgage companies to work with mortgagors, the financial institutions do not want to foreclose!
If you want to keep your house, there is a step to pursue before foreclosure or bankruptcy – contact the mortgage company’s “loss mitigation department. After the recent recession, nearly all the big mortgage companies created “loss mitigation departments.” These new divisions of mortgage companies have the job of working with people in danger of foreclosure, to modify the terms of the mortgage so no foreclosure is necessary.

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