Foreclosure Fiasco

Big states set to make mortgage deal real

Some relief for more than a million beleaguered homeowners appears to be at hand, as New York and California will join just about all the other states in a $25 billion foreclosure settlement with the nation's largest banks, according to a person familiar with negotiations.

A few other states were still on the fence as of late Wednesday, the person said.

With those two big states, the deal could be worth as much as $25 billion when it is announced, either Thursday or Friday, another person familiar with the talks said.

Requests for comment to the New York Attorney General's Office were not returned. A spokesman from the California Attorney General's Office said the state was still in negotiations.

For more than a year, state attorneys general, regulators, federal officials and big banks have been in talks about a settlement of allegations of improper foreclosures based on "robosigning," seizures made without proper paperwork.

As of Wednesday night, at least 42 had signed on, which would yield as much as $25 billion available for qualified homeowners. The deal marks the largest housing relief available "underwater" homeowners whose principal exceeds their home's value, as well as those who have been foreclosed on, since the financial crisis began.

Obama proposes new home refinancing plan

Under an earlier draft of the deal, some 1 million U.S. homeowners who are underwater on their mortgages could be eligible for as much as $20,000 in relief of principal owed, according to Secretary of Housing and Urban Development Shaun Donovan.

But the relief would only be available to those homeowners whose mortgages haven't been sold to the government-sponsored mortgage guarantors Fannie Mae and Freddie Mac.

In return, mortgage servicers in states that agree to the deal would get immunity from future state servicing and originating claims -- although homeowners could pursue claims against banks and states could still pursue criminal investigations.

Nonjudicial foreclosure

Historically, the vast majority of judicial foreclosures have been unopposed, since most defaulting borrowers have no money with which to hire counsel. Therefore, the U.S. financial services industry has lobbied since the mid-19th century for faster foreclosure procedures that would not clog up state courts with uncontested cases, and would lower the cost of credit (because it must always have the cost of recovering collateral built-in)

What The Mortgage Relief Plan Would Do For Homeowners

There are two important elements of the plan and details of both have been a subject of fierce disagreement. One, which could be worth about $25 billion, relates to how much money would be allocated to benefit homeowners and the specific relief they would receive. The other involves the power states would have to investigate past practices by banks, oversee future ones and monitor compliance with the plan.

If the plan is adopted, here’s what it would do for homeowners in specific situations.

Mortgage underwater but current with payments. More than 10 million homeowners in the U.S., due to a decline in home prices, owe more on their mortgages than their houses are worth. So even though interest rates have declined, they have been unable to refinance. The latest plan would enable people who have been making loan payments on time to save about $3,000 a year on their mortgage by refinancing with lower-interest loans guaranteed by the Federal Housing Administration.

Mortgage underwater and behind with payments. Depending on how many states sign on to the plan, up to $17 billion would be set aside to reduce principal for homeowners who are behind on their payments and owe more than their houses are currently worth. The plan would not guarantee a minimum amount of mortgage relief by state.

Victims of foreclosure fraud. The plan would provide payments of about $1,800 apiece to approximately 750,000 families that have been the victim of an improper foreclosure practice. Since 2010, federal authorities have been investigating banks’ routine electronic notarization of documents being transferred from one financial institution to another as part of the foreclosure process–a practice known as robo-signing.

Compensation is likely to be offered to people who lost their homes between Jan. 1, 2008, and Dec. 31, 2011. They would not be required to give up their right to sue the financial institutions. Banks, among them the five biggest mortgage providers–Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial—want to be relieved of liability for future claims involving robo-signing.

In announcing the plan on Feb. 1, the President said he was “working to turn more foreclosed homes into rental housing.” So far such a plan is not contained in the pending proposal.

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

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. 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.

Superbowl weekend.... someone please give me some money

I wish I could just throw a superbowl party, but I am in debt. Maybe I should bet on the Giants and that could help pay my mortgage. Nothing like a gambling loan.

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