Short Sale = Sell BEFORE 2012 = NO Taxes owed
Loan Mod = Sell AFTER 2012 = Big IRS Taxes Owed
Late IRS taxes = late fees,interest,penalties,liens,bank levies,wage garnishment

IRS tax law (ENDS in 2012)
http://irstax.notlong.com

We could buy your house AND negotiate the short sale!
Call 612-234-5502

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The Year Is 2014, and an Alarming amount of homeowners have been hit with the largest 1099 Tidal Wave they’ve ever seen. The amount is so large they don’t know how to EVER pay such a big amount back to the IRS. They know that IRS taxes just don’t go away, they add penalties and late fees and keep increasing.

The question is how did such a devastating event hurt so many people at once, and how could we have prevented this tragic event from happening?

Back in 2010 many early WARNINGS were given by top newspapers such as MSNBC and the Wall Street Journal.
http://www.msnbc.msn.com/id/34126239/ns/business-real_estate/
http://online.wsj.com/article/SB125903489722661849.html

They all WARNED of how 1 in ever 4 Americans had houses underwater,
with growing foreclosures, they all WARNED what was inevitable.

If only Americans had listened and prepared for the worst. Today a few Americans who didn’t do loan mods were sheltered and survived.

So how did so many Homeowners with Loan Mods get caught in this disaster?

The Date was Dec. 20th, 2007
(see News Release IR-2008-17)
IRS enacted on that exact day what has now became known as:
The Mortgage Forgiveness Debt Relief Act of 2007

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

The act was originally released for a couple of years, IRS was kind enough to extend it through 2012.

The mistake most homeowners made is they were focused on their jobs, living arrangements, bills and other things, homeowners hadn’t realized at that moment was the “biggest tax gift” of all with a deadline of 2012.
Reports said that Houses had fallen by 25% form 2006 to late 2009.
So understand this, that was the banks collateral, a house worth 25% less, why would a bank want this liability back, they didn’t want the problem, so banks packaged loan modifications terms so that homeowners
would continue to pay for the problem.

What had happened is that homeowners elected to do what they thought was the best idea at the time, which was to do a loan modification, and keep the house.  What most homeowners didn’t realize or consider is the early warnings from MSNBC, the Wall Street Journal and the news that 1 in 4 houses were underwater, and new bank owned foreclosures were selling every day further driving down prices. In the background house prices continued to go down, and these homeowners kept living in their home.

Today in 2014, you may ask why did the homeowners stay in thier home. It’s a great question, at the time, it seemed like an easier solution. On these loan modification the banks offered them fixed interest rates to stop their adjustable rate mortgages from adjusting higher.  Some got ok interest rates. Many homeowners got to put their 3 late payments to the back of the loan and get a quick fix.  What appeared to be a quick fix at the time, was ony a quick fix, in that they didn’t have to think about it, for just a little while.

A couple of years later, Everything started to unravel when these same homeowners finally realized that they couldn’t afford the payments in the depressed economy, they needed to move to a smaller home.  They now were ready to sell their house for what was owed, but remember 1  in 4 Americans owed too much on their home, and even if years later that % went down, it’s likely these loan mod homeowners were the ones still holding on to the old high pricing. The homeowners found that they couldn’t sell. They now were ready to give the house back to the bank or do a short sale, but the worst part was yet to come.

You see those homeowners back in 2010-2011 figured they would not worry about the 1099 from the IRS, or the lender because of all of the bailouts and that mortgage forgiveness act they once heard about. That act was set to end in 2012, and now these homeowners found themselves in foreclosure in 2012, in a drawn out foreclosure that either left them with a lost house to the bank in foreclosure or a short sale, BUT after 2012, the deadline had passed. Homeowners now found themselves with the potential of paying the big difference from what the house sold for and what they owed.

For example, $250,000 mortgage balance owing, which sold for $180,000, sellers now found themselves with a pain of a 1099 for $70,000 all so they could, a few years earlier, get a fixed interest rate for a couple of more years.  What sellers had failed to realize is that their natural, and non forced, timeline for moving would come up way before the prices of houses came up.  Remember back from 2006 to late 2009, most said Minnesota houses went down 25% in value.  Why didn’t the sellers realize that their houses wouldn’t appreciate 25% or even 30% to cover listing agent commissions within only the next few years, which would be necessary by the time they’d eventually move.  This amount of appreciation could easily take 7-10 years to accomplish, which is about the time it will take for their credit to recover from that foreclosure or bankruptcy they now find on their credit report.

Please Call:  (612) 234-5502

Disclaimer:
None of the above is meant as tax or legal advice, furthermore
we are not tax accountants, CPA’S or attorney’s please seek professional advice. Everyone’s situation is different and what may be right for one may not be for another.  Their are also possibilities that the IRS could extend the
Mortgage forgiveness act beyond 2012.

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In our hidden risks of loan modification hand out you will see that 31.57% increased the payment, 26.58% have an unchanged payment, that’s 58% that are unchanged or increased, these aren’t good stats.  It also shows how many re-default on the payments in the very near future.  Many of the people I have talked to in the business claim to charge $3500-$5000 upfront just to attempt the loan modifications, sometimes I have heard of $3500 fee to the broker/negotiator as well as payments the homeowner is behing, often the homeowner doesn’t have that money.  We find that the main problem is that homeowners owe too much on their house and what they need to do is just negotiate down the principle balance and sell the house and plan on going to get another house in the future.  We can help you with the short sale process, please just give us a call and we can help out, we are experts at the short sale business.  Please go to www.WeCallYourBank.com and fill out your info.

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Short Sale Assistance Group discusses how many people will not qualify for a loan modification. You must have a Fannie Mae or Freddie Mac loan. If you are unemployed you won’t qualify he states. If it’s a rental property, or you have a high debt to income ratio. More than 110% over financed, it probably won’t work for you. Go to www.wecallyourbank.com to fill out your info to get started on a short sale.

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Todd talks about how 14.7% of all loan modifications are working out. If you make too much money you may not be approved for a loan modification and be turned down. If they can see that a little bit of a lower interest rate still doesn’t fix your problem, you will likely be turned down. You are unlikely to find a loan modification that will lower your principle balance so that is why a short sale is needed.
If you decide a short sale is best for you go to www.wecallyourbank.com

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“Bank of America Corp. and Wells Fargo & Co. were the worst performers among the biggest U.S. banks in modifying loans for struggling homeowners, according to a Treasury Department report.”

It appears the large banks aren’t prepared to handle all of these loan modification requests, so many aren’t getting done.

“Many banks don’t yet have the capacity to process the volume of loan modifications being demanded, said David Sisko, the head of default management services for Deloitte & Touche LLP. He said modification specialists have gone from processing an average of 50 to 100 loans a month to 200 to 300.”

It appears that these banks can’t handle all of the loan modification requests that may explain why so many loan modifications aren’t getting done.  We have another blog post on the stats and risks of loan modifications, and well as altering timelines now being released on the foreclosure process with loan mods.

“Unless key challenges are addressed, this program will never get to full scale,” said Brenda Muniz, the legislative director for the Association of Community Organizations for Reform Now, or ACORN. “Servicers remain woefully understaffed, they are overwhelmed by the large volume of borrowers seeking loan mods and they are violating” program terms, she said.”

It seems it’s just a matter of them being overwhelmed and understaffed, if you attempt that one time to do a loan modification and it drags out, than you may lose your change to do anything else if you run out of time.

“Some banks are requiring borrowers to make up-front payments to receive modifications and foreclosing on loans without reviewing their eligibility for modification, she said.”

There has been talk of a lot of applicants for loan modifications needing to pay a lot of money upfront, and that’s the opposite of short sales where the seller’s don’t pay anything up front.

“Eligible loans under HAMP are those that are at least 60 days past due, in foreclosure or bankruptcy, and originated prior to 2009. The underlying property must be owner occupied and conform to Fannie Mae and Freddie Mac loan limits, which can be as high as $729,750 in some areas. The data excludes Federal Housing Administration and Veterans Affairs loans.”

that’s a lot of rules and ineligible loans.  We are seeing short sales getting done even if you are zero payments behind currently, this is beginning to be an increasing trend with the new ARMS coming due.

“A lot of these modifications are very hard to do, it takes time and you can’t rush it,” said Paul Miller, a bank analyst for FBR Capital Markets in Arlington, Virginia.”

It appears people believe these loan modifications are very hard to do, banks maybe just don’t have a plan for how to get them done in a timely matter, if at all.

“The government is under a lot of pressure to react and they announce these programs where the infrastructure is not in place to service the program,” Miller said.”

“More than 1.5 million properties received a default or auction notice or were seized by banks in the six months through June, Irvine, California-basedRealtyTrac Inc. said July 16 in a statement. That’s a 15 percent increase from a year earlier.”

With the growing number of foreclosures, I think we will continue to see an increase in the popularity of short sales, as more foreclosures become available, it will continue to lower comp prices in all neighborhoods, causing the effect of even those with no financial problems to do short sales.

If you are interested in doing a short sale, please fill out your info at www.wecallyourbank.com

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http://www.foreclosurenightmare.com/LOANMOD-TIMELINE-Postponement of foreclosure affidavit.pdf
http://www.foreclosurenightmare.com/LOANMOD-TIMELINE-FactSheet_Postponement_foreclosureFAQ.pdf

The property is to be classified as homestead under Minnesota Statutes, section 273.124, is occupied by owner as a homestead, and is improved with not more than four dwelling units.

Also the owner has agreed to shorten Owner’s redemption period from any foreclosure sale of the property to 5 weeks in exchange for the postponement of the foreclosure sale for five months.

Before attempting a loan modification you should see the risks and the low likelihood that they are approved, see through the stats.  http://foreclosurenightmare.com/loan-modification-risks.pdf

If the loan modification doesn’t work, as most don’t, then you now are left with as little as 6 weeks left in redemption period which is hardly enough time to market the property or have an option of selling on a short sale.  You will have to plan ahead on this and work the short sale, knowing to do that ahead of time.  You are unlikely to get a principle balance reduction on a loan modification and that’s what almost everyone needs right now, that’s why they are doing short sales.  Now that you understand timelines a little more it’s important that you get started on a short sale as soon as possible so that we have ample time to negotiate with your bank(s) and have enough time to market the property at the lower price to get the property sold for you.  To start the short sale process, please go to www.wecallyourbank.com

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http://www.nytimes.com/2009/07/30/business/30services.html?pagewanted=1&_r=1

It appears from this article that mortgage servicers are in the business just to collect fees. They’s like to keep the foreclosure process stretching out so they can keep collecting those fees it’s in their best interest, but not in the home owners best interest. This doesn’t help when it comes to the home owner wishing to do a loan modification.

“Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees forinsurance, appraisals, title searches and legal services.

“It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen,” said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial. “I don’t think they’re motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It’s a license to do whatever they want.”

It talks about how servicers may wish to foreclosure over modify.

“When borrowers fall behind, mortgage companies typically collect late fees reaching 6 percent of the monthly payments.”

Many of the top lenders are quoted in this article it’s worth a read.  After reading this article you may not believe that a lender wants to do a loan modification and that foreclosure is inevitable.  Let us help you with that situation and get the house sold as quickly as possible through a short sale. We negotiate short sales every day, and we would like the opportunity to help you.  After you read the article and are convinced that a short sale is the way to go, please fill out your info at www.wecallyourbank.com

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http://foreclosurenightmare.com/loan-modification-risks.pdf

The 2nd way a loan mofication is done is Amortization Term Increase

The typical mortgage term is 30 years.  The loan is “amortized” or paid back with principle and interest over a 30 year period.  In order to make the loan more affordable, the lender may offer to extend the term of the loan to 40 or even 50 years.  Here is the effect on a $250,000 loan at 7.5% for 30 years:

30 Year Term Loan the monthly payment is $1748.04

Now, extend the term of the loan:

40 year term loan, the monthly payment is $1645.18 a savings of $102.86

50 year term loan, the monthly payment is $1600.58 a savings of $147.46

Notice that the savings is small but the total payments over the term of the loan increases dramatically with an Amortization term increase.  (A great advantage to the lender). This may be the least attractive option to the borrower.

The 3rd example is the Principle Balance Reduction

Of all loan modification options, the principle balance reduction is the most attractive to the borrower.  The lender is actually reducing the balance due on the loan.  For example, if the original loan was for $250,000, the lender may be willing to reduce the balance down to $200,000 in a severely depressed real estate market.  Once accomplished, the lender is required to report this loss to the shareholders, and as a result, principle reduction is the least favorite modification to the lender.

The principle balance reduction has the effect of reducing the monthly payment and the total payments over the life of the loan. Example:

The original loan amount $250,000- Principle Reduction $50,000= New Balance $200,000

Interest Rate-7.5% Term 30 Years

Monthly Payment on $250,000: $1748.04

Monthly Payment on $200,000 $1398.43

Savings is $349.61

Not only does this reduce your monthly payment, the principle balance reduction greatly reduces your total payments over the life of the loan.

The 3rd part to our Loan Modifications Risks will show statistics, the pie chart is in the full article PDF link above.

www.wecallyourbank.com

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http://foreclosurenightmare.com/loan-modification-risks.pdf

A loan modification is a change to the original terms of a mortgage.  When a borrower purchases property secured by a mortgage, the lender will specify the terms of the loan.  These terms include interest rate, amount of the loan, terms of the loan (number of years until the loan is paid off), monthly payment, and amortization schedule.

If the borrower is unable to make the scheduled payments, then the lender/bank has some tough choices. The lender may decide to foreclose. accept a deed-in-lieu of title or short sale or engage in a loan modification.  If the borrower can prove to the lender that he has the ability to repay the loan if the lender agrees to alter some of the terms, the lender may agree to “Modify” the loan.

Here are some of the changes that may be made:

-Temporarily reduce the interest rate

-Permanent interest rate reduction

-Change amortization schedule to allow an interest only loan (no principle repayment for a number of years)

-Extend the term of the loan (ex. stretch out the loan from 30 years to 40 or 50 years.

-Any combination of the choices above

The process of loan modification is an attempt to construct new loan terms where the borrower can consistently pay the mortgage payment plus all other household bills.  The lender does not want to place the borrower in the situation where the mortgage payment consumes the major part of the family budget.  The lender will take into account the entire budget, including car payments, utility bills, food, and credit card payments.  The lenders “loss mitigation” department will consider all expenses that the borrower will incur to live a normal life.

With an Interest rate reduction it’s the easiest way to modify a loan by lower the interest rate.  Because simply put when an interest rate goes down, the payment goes down.  For example let’s say a homeowner has a mortgage loan for $250,000 at an interest rate of 7.50% amortized for 30 years.

The monthly payment at 7.5% is $1748.04

The lender agrees to lower the interest rate to 4.50%

The monthly payment at 4.5% is $1266.71

That is a savings of $481.33

The sum of the total payments over the life of the loan decrease.

Find out in the next article how many load modifications aren’t working, statistics show.

www.wecallyourbank.com

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