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Is The FDIC Paying OneWest Bank Not to Modify Loans? »

No, the FDIC is NOT paying OneWest a bonus if they avoid loan modification. Despite the allegations of a recently circulated internet video, the FDIC agreement with OneWest Bank does not provide a financial incentive to encourage short sale rather than the modification of delinquent home loans. In fact, OneWest Bank is contractually required to participate in the Home Affordable Modification Program (HAMP) by its loss share agreement with the FDIC. Read the rest

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Missing Name in Notary Acknowledgment Really Means Bad Mortgage in Massachusetts »

“Money moves electronically, but paper moves at human speed.”  I wrote that back in August to introduce a new decision that allowed a bankruptcy trustee to set aside a mortgage under Massachusetts law, where the name was missing from the notary’s acknowledgment.

The borrower had signed the mortgage, but the notary public was hurried and didn’t write in the name where it belonged a second time.

That case has been affirmed on appeal, and the lender paid $120,000 to the trustee to keep the mortgage.  Wow !!  Good news for the trustee.  Neutral for the borrower, as nothing in the decision voided the enforcement of the mortgage against the borrower.

Creative, crafty attorneys can work up an advantage from this.  I won’t say any more in public . . .

Tax Fact 10-Mortgage Debt Forgiveness: Forms 1099-A and 1099-C »

If your home is foreclosed, sold at a short sale, or if you give the home back to your lender in satisfaction of your debt, IRS Tax Fact 10 tells us to watch for a 1099-C or 1099-A statement in the mail during the next calendar year.  Lenders are required to send the 1099 forms by the last day of February in the year following the tax year in which debt cancellation or forgiveness occurs.  When you get the 1099-C, look at it carefully.  If you think something is wrong on the notification, call the lender who issued the statement and see if you can get them to correct it.  This is easier said than done but the IRS recommends that you take this course of action. Read the rest

Tax Fact 9-Make Sure Address Current With Mortgage Lender »

Most home lenders, banks and government agencies are required to notify you and the IRS if they cancel all or a part of your debt.  This is done by the issuance of  Form 1099-C or, at times, Form 1099-A.  By law, these forms must show the amount of debt forgiven and the fair market value of any property involved.  For this reason, Tax Fact 9 points out that it is important that you make sure your home lender has your current address, even after foreclosure.  If you have been foreclosed, it is likely you will have moved out of your home and have a new mailing address.  The post office will forward your mail, if you ask them to do so, for six or twelve months depending on the type of request you make.  However, the system is not perfect and you may not get the notice if it is sent to the wrong address. Read the rest

Tax Fact 8-Mortgage Debt Forgiveness for Property Not Principal Residence »

As you know from the previous “Tax Facts”, when mortgage debt is forgiven, it can be excluded from income if it is qualified principle residence debt, and you know that a qualified principal residence must be the main home of the taxpayer.  What happens to mortgage debt that is cancelled on a second home, rental property, or business property?  Can this too be excluded from income under the Mortgage Debt Relief Act of 2007?  IRS Tax Fact 8 makes it clear that the answer is no. Read the rest

Tax Fact 7-IRS Form 982 is Important »

The IRS wants you to know, in Tax Fact 7, that you must use Form 982 in order to claim that forgiven mortgage debt should not be included in your income for tax purposes.  IRS Form 982, entitled “Reduction of Tax Attributes Due to Discharge of Indebtedness” must be attached to your federal income tax return for the tax year in which the qualified debt was forgiven.  Despite the lengthy and confusing form name, the form itself is only one page long.  It comes with detailed instructions that have examples of how the form should be used.  Form 982 can be found on the IRS website.  Read the rest

Tax Fact 6-Cancelled Debt From a Refinance Can Be Taxable Income »

In explaining tax on mortgage debt forgiveness, the IRS stresses, as tax fact number 6, that proceeds of refinance debt used for purposes, other than buying, building, or making a substantial improvement in the principle residence, do not qualify for exclusion from income if the debt is cancelled.  This can be important.  Many lenders require home owners to payoff outstanding credit card debt when they refinance their home.  This made sense to the lender, in that it would be easier for the homeowner to make the required house payments if they did not have to pay other debt.  However, money used to payoff credit card debts is not “qualified” for exclusion from income under the Mortgage Forgiveness Debt Relief Act of 2007. Read the rest

Tax Fact 5-Refinance Debt for Improvements is Excludable »

IRS tax fact number 5 tells us that refinanced debt proceeds used for the purpose of substantially improving your personal residence qualify for exclusion from income if the debt is later is cancelled.  In other words, if you re-finance your principal residence home mortgage and use the excess funds (the portion not used to pay off your old mortgage) for substantial improvements to your home, any of that debt, if cancelled, qualifies for the exclustion.  The use of loan proceeds is clearly important in determining whether or not later debt cancellation results in taxable income. Read the rest

Tax Fact 4-Only Certain Mortgage Debt Qualifies For Exclusion »

Mortgage debt forgiveness is considered to be income unless it is excluded.  Principal residence debt has its own exclusion from income if it is cancelled or forgiven by the lender.  To “qualify” it must be what is defined by the Internal Revenue Service as “qualified principal residence debt”.  The debt must have been used to buy, build or substantially improve the principal residence of the taxpayer and the home must act as security for the debt.

With the substantial increase in home prices that occurred over the ten years beginning in 2000, many people sought to access this “residential piggy bank” by refinancing their home.  Read the rest

Tax Fact 3-Debt Cancelled through Mortgage Restructuring is Eligible »

The IRS, in listing ten important facts about mortgage debt forgiveness, points out that debt on a principal residence that is cancelled by restructuring the loan in cooperation with the lender can exclude it from taxable income.  Subject to the two million dollar limit on the Mortgage Forgiveness Debt Relief Act of 2007, a write down of the balance due to a lender, which can cause cancellation of debt, may qualify for exclusion of that debt cancellation from income.

With the government sponsored Home Affordable Modification Program (HAMP), modifications are beginning to pick up speed which means mortgage restructuring may become a more common occurrence. Read the rest

Tax Fact 2-Mortgage Debt Forgiveness Exclusion Financial Limits »

In order to qualify for full exclusion from income when debt is cancelled on the taxpayer’s principal residence, the amount of debt cancelled cannot be more than two million dollars for a married couple or individual; or if an individual is married but filing a separate return, the debt cancelled cannot be more than one million dollars.  Even in California that would be a pretty big house.  The two million dollar limit does not refer to the amount of the home loan, the limitation is only applied to the amount of debt cancelled or forgiven.  The amount of debt cancelled is calculated by subtracting the fair market value of the principal residence from the amount of debt secured against it at the time of cancellation. Read the rest

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