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In a bill that would be retroactive to January 1st, 2014 (when the benefit expired), the Senate has passed a two year extension of tax relief for home owners who have had mortgage debt forgiven by a lender.
Typically debt forgiven has always been treated as income for tax purposes, but with the explosion of foreclosures after the end of the real estate bubble in 2008, Congress granted a temporary tax provision eliminating the tax which expired at the end of last year. The mortgage forgiveness tax relief act provided in the past has been one of Congress’ bipartisan success stories, and there’s a good chance an extension will pass the House of Representatives this year, too, analysts say.
Some 350,000 households could be affected by the tax if relief isn’t extended, because that’s the number of households who sold their house last year as a short sale.
Since 2009 hundreds of thousands of homeowners have completed short sales and it is estimated that there are still more than 6 million homes underwater throughout the country. Even if the law does expire, some homeowners will still be eligible to exclude the income from forgiven indebtedness. Even if the federal law is not extended prior to December 31, lawmakers who support its extension have indicated that they will push to have it extended as soon as possible and will attempt to make its effective date retroactive to January 1.
Long after most of the fallout of foreclosures from the subprime lending crisis has worked its way throught the real estate markets of DC and Virginia, we now see Maryland foreclosures spiking because foreclosure of many of the Maryland problem loans were delayed until now.
Maryland is getting a second dose of the housing crisis — a sequel that foreclosure experts and state officials knew was coming but no one wanted to see. Between January and June, Maryland went from having one of the lowest foreclosure rates in the nation to the third highest as banks worked their way through a backlog of delinquent loans, created in part by the state’s long foreclosure process. In the first three months of the year, there were 9,339 foreclosure filings in Maryland, more than twice the total of a year earlier but still far below the peak of 16,788 during the last three months of 2009, state data shows.
Foreclosure hot spots, once concentrated in Prince George’s County and Baltimore, are suddenly appearing across the state, in communities from Baltimore County to the Eastern Shore, especially in areas that have yet to recover from the recession and where unemployment rates remain high.
Housing experts had been bracing for a second wave of foreclosures since 2010, when lenders were forced to halt all foreclosures while they addressed massive documentation problems. All the while, the backlog of troubled loans grew, mainly in states such as Maryland, where courts approve foreclosures and the process takes much longer. The speed can be brutal for homeowners, consumer advocates said, leaving them few chances to challenge lenders.
For the past year, the growing “shadow inventory” of homes in or on the edge of foreclosure has loomed over Maryland’s housing market.
But the second wave of foreclosures is unlikely to be as devastating as the first one, experts said, because it coincides with a housing recovery that is making it easier for banks to offload distressed homes.
Another sign that the surge in foreclosures is temporary: Fewer Marylanders are falling behind on their mortgages.
The resilience of the housing recovery is evident in Prince George’s, an epicenter of the housing crisis. And for the first time in five years, no part of Prince George’s appears on the state housing agency’s quarterly “severe foreclosure hot spot” list, state data show. Home prices have gone up in her neighborhood, but not enough to help the Adegbuyis, who bought their house in 2005 for $583,000. She and her husband began negotiating with her bank in 2008, after she was laid off from her workforce development job. In other parts of Maryland, pockets of increased foreclosure activity are showing up in economically depressed areas such as Dorchester and Wicomico counties, largely because of local conditions and high rates of unemployment, said Clarence J. Jessica Smith-Harper of Mid-Shore Pro Bono legal services, which serves five Eastern Shore counties, said she sees the foreclosure surge on a daily basis. Some clients are suffering fallout from predatory loans, she said, while others borrowed against their homes to keep small businesses afloat, only to fall behind when better times did not return.
Maryland, which received $60 million in the nationwide settlement with lenders, is better prepared to help homeowners facing foreclosure this time around, having spent millions of taxpayer dollars on emergency grants, housing counselors, and razing or rehabbing vacant foreclosures. Adegbuyi went to a June meeting of the Prince George’s County Foreclosure Task Force, which reviews the county’s response to foreclosures and proposes policies. In a July 29 letter to the task force, more than a dozen housing-advocacy groups said the task force needed more “concrete programs to help current homeowners at risk of foreclosure.” They cited examples of programs in other cities, such as Boston, where local governments and nonprofit groups are buying foreclosed homes and reselling them to the former owners at current market value. The county plans a $2 million direct-assistance program this year, he said, to help homeowners facing foreclosure who can show they can handle their mortgage payments going forward. At the current rate, it will take 18 months for the backlog of foreclosures to clear, state policy analyst Flora M. The Home Affordable Modification Program, or HAMP, was established in 2009 and has largely been seen as a failure because of the limited number of loan modifications completed, about one forth that predicted by the programs proponents, but if the actions alleged were typical there is no wonder why the program was not more successful. The District and some 40 states, including Maryland and Virginia, allow lenders to go after consumers for the deficiency.
For example, among bank servicers, the percentage of resolutions in the loan modification category decreased to 26 percent in the last half of 2012 from 57 percent in the first half of 2010, according to Fitch’s latest quarterly index. However, for nonbank servicers, loan modifications are ranged between 69 to 71 percent during the same time period.
In instances where modifications are not possible, the rating agency explained servicers will look to a short sale, which allows servicers to save by avoiding the cost of dealing with a foreclosure.
Banks also tend to higher more temporary employees, at 12 percent on average, compared to about 3.5 percent for nonbank servicers, according to the report.
In addition, the number of loans per employee is much higher for banks though the number has decreased significantly over the last two years from about 800 to about 500 in 2012. One reason for the difference could be the requirements for banks under the national mortgage settlement, as well as the difference in staffing levels, according to Fitch. About 30 percent of more than 3.9 million households whose properties were foreclosed on in 2009 and 2010 nearly lost their homes due to foreclosure errors, government regulators said. Nearly 1.2 million borrowers faced foreclosure notices even after not having defaulted on their mortgage, being protected under federal laws, or having been in good standing under bank-approved plans to either modify their loan or temporarily delay their payments, according to a report from the Huffington Post. Payments have started being mailed this week to many of those affected, after about a dozen financial institutions agreed to make $3.6 billion in cash payouts to more than 4 million borrowers who potentially faced wrongful foreclosures from 2009 and 2010.
CoreLogic® recently released its National Foreclosure Report for February, which provides data on completed U.S.

As a basis of comparison, prior to the decline in the housing market in 2007, completed foreclosures averaged 21,000 per month nationwide between 2000 and 2006.
If a couple is not married when they purchase a house, the possibility of a future split looms large, and they should agree before the purchase on how the house will be handled if it occurs. If a couple is married when they purchase the house, the presumption is that they will remain together, and deciding on how they will divide the house if they split is the last thing they want to think about. Selling the house is the way to a quick and clean break: The only issue is deciding how the proceeds are to be divided, although this can be quite contentious when it is not agreed upon beforehand. One approach a third party could use is to divide the net proceeds according to each party’s contribution to the equity in the house when it is sold. When one party retains the house, it can get complicated: Very often one of the parties wants to remain in the house. A clean break also requires that the departing party be removed from any  existing mortgage obligation.
Taking the  departing partner off the hook: In most cases that I encounter, the party leaving the house is less concerned with his claim to equity in the house than in obtaining relief from liability on the mortgage. The most equitable  resolution: If I were drafting an agreement for a loved one, not knowing whether they were more likely to be the remaining or the departing party, it would grant the remaining party 14 months to make the settlement payment, and to remove the departing party from the mortgage. Complications introduced by a declining market: If the house is worth less than the  mortgage balance when the couple split, which is very possible if they  purchased in 2005-2007 and split today, the options are grim. Since the housing bubble burst seven years ago, almost two million properties have started but never completed the foreclosure process, according to RealtyTrac.
Citi told her attorney, Judith Fox, that the holdup was due to a lien on the home that they were never told about.
Mustapha Sesay, a 45 year-old father of two, thought he had lost his Brandywine, Md., home in 2008. Typically the second mortgage holder is out of luck if there isn’t enough cash from the foreclosure sale to pay off both the first and second lien, said Cheryl Cassell, director of the housing counselor network for the National Community Reinvestment Coalition. In a $25 billion settlement with the state attorneys general last spring, the nation’s five largest mortgage lenders agreed to inform borrowers of any decision to forgo or delay a foreclosure.
Debt is forgiven if a home is part of a short sale, loan modification or foreclosure and the payment received by the lender is less than the debt owed.. Although this is well below the estimated 11 million homes that were underwater at the peak of the housing crisis, it also illustrates that many homeowners are still faced with the prospect of short-selling their home.
Many kept the brakes on until last year, when they reached a nationwide settlement with state attorneys general over their practices.
Lawmakers in Annapolis also passed a series of reforms to help homeowners try to save their homes, which made the foreclosure timeline even longer. But the shorter timeline, economists said, also allows Virginia and other nonjudicial states to move foreclosures off the market more quickly.
Homeowners and policymakers, especially in hard-hit areas such as Prince George’s, feared that once it was unleashed, it would depress home prices and prolong a housing slump. Despite a 26 percent increase in foreclosure filings compared with the same period last year, the county no longer accounts for the largest share of foreclosures in the state. Her house is not technically in foreclosure, but she recently received a letter from bank lawyers saying that legal action is pending. She cited an 1850s house in Caroline County with a stream underneath it whose owner hasn’t paid the mortgage in three years.
But as more desperate people begin turning up at counseling centers, housing advocates are pushing for more direct aid for homeowners. She left frustrated with the task force’s focus on housing counseling, down-payment assistance, and rehabbing vacant foreclosures. And for putting homes into foreclosure, they say Bank of America rewarded them with gift cards to Target and Bed Bath & Beyond. Of nearly $30 billion in bailout funds allocated to housing programs, including HAMP, the Treasury has only spent about $5.2 billion.
An attorney in California wrote me that in his state “lenders are selling those debts to collection agencies and they are actively trying to get payments.”  But the bankruptcy court ruling in Tennessee ultimately may provide a way out for former homeowners who received IRS Form 1099-C, a cancellation of debt document.
That the former homeowner may not be legally obligated to pay income tax on the amount did not change the judge’s view. You have the absolute right to file a defense, claiming that the 1099-C form you received from the lender is clear evidence that your debt was canceled.  Doesn’t “canceled” mean anything? In 2012, short sales represented 51 percent of resolutions for bank servicers, up from a low of 20 percent in 2010. In late 2010, bank staffing levels expanded rapidly as banks worked to address the high level of defaults, but they are now reducing their staff as defaulted loans become resolved or transferred.
For nonbanks, it takes about 14 months to resolve loans through a repayment, modification, short sale or foreclosure, while banks take about 22 months to resolve a delinquency.
Of those borrowers, more than 244,000 did eventually lose their homes, new government data shows.
Completed foreclosures are an indication of the total number of homes actually lost to foreclosure. If they can’t agree on that, they should reconsider whether they want to live together. Nonetheless, the issues that arise with a split are the same whether the split is anticipated beforehand or not.
Unless the couple can agree to accept the judgment of a neutral third party, it will have to be delegated to lawyers to negotiate, at which points the costs begin to mount. Suppose, for example, that the couple paid $100,000 for a house, took a mortgage of $80,000, paid $20,000 down plus $3,000 in settlement costs, and sells it after five years when the loan balance is $74,000. In such case, the cleanest approach is to have the remaining party pay the departing party the latter’s share of the net property value.
This means that the remaining party must have the  income and credit required to refinance the mortgage in her own name.

The more equity they have in the house, the more cash the  resident party needs for that purpose.
Many departing parties believe erroneously that they are off the hook if the party remaining in the house agrees in writing to assume full responsibility for the mortgage. Some can be induced to do it if the partner remaining with the house has a perfect payment record and can document that they are solely responsible for the payments.
That means the borrower still technically owns the house and is on the hook for property taxes, fees and homeowners’ association dues. While no one knows the exact number, it’s estimated that tens of thousands could be zombie foreclosures. The deed-in-lieu alone lowered her score by 80 to 120 points, but the unpaid debt meant her credit kept taking a hit. But, depending on state law, second mortgage holders can sue homeowners to pay off the notes — even after they lose the home in a foreclosure or the lender can sell the debt to a collection agencies.
But victim’s attorneys said the banks have not been careful about following that policy. As a result, prior to 2007 homeowners whose homes were foreclosed upon or who completed short sale transactions or loan modifications which included reductions in principal indebtedness were potentially required to pay taxes on the amount of indebtedness which was forgiven in those transactions.
But homeowners who are considering a short sale and their agents should take this pending expiration into account and seek competent legal or tax advice so they will be prepared for the ramifications to them, if any, that will result if the law is not extended by Congress prior to the end of the year. Once among the shortest in the nation, Maryland’s is now among the longest: an average of 575 days as of June, according to foreclosure-tracking firm RealtyTrac. The couple started to fall seriously behind on their mortgage after her husband was laid off in 2011. While that is longer than officials would like, buying more time for struggling homeowners is worth it, she said. By contrast, Bank of America, alone, has received tens and tens of billions in bailout funds and loan guarantees since the financial crisis began.  HAMP was set to expire at the end of the year. Typically, the lender sends you the IRS form, telling you that your debt has been canceled. Supreme Court.  If you received the form 1099-C and the lender is pursuing you for a deficiency, contact an attorney in your jurisdiction and tell him or her about the William Reed case (Eastern District of Tennessee bankruptcy court, case No. Nonbank services though have shown a need to expand in response to their growing portfolios. Since the financial crisis began in September 2008, there have been approximately 4.2 million completed foreclosures across the country. The difference is that agreement is much easier and less costly if done beforehand when the relationship is warm. Total contributions  of the parties to equity in the house at the time of sale consist of $23,000 in  cash at purchase, plus $6,000 in reducing the loan balance. A home equity loan is not possible  unless both parties become responsible, which is the last thing the departing  party wants. If neither wants to remain in the house and make the payments, the alternative is foreclosure, which will destroy the credit of both parties. Nearly two years later, she received a property tax bill from the City of South Bend for $5,000. Upon doing a title search, Fox found no evidence of a lien until well after the bank agreed to the deed-in-lieu deal. Eventually her credit card companies cut her off, even though she said she was making her payments. The Mortgage Forgiveness Debt Relief Act of 2007 was passed by Congress in order to modify the law by providing taxpayers who met certain requirements an exemption from taxation on the forgiven indebtedness.
It is interesting to note that Maryland, which is estimated to have more than 200,000 homes with negative equity plans to extend a law that exempts its residents from state taxes even if the federal law expires.
In Virginia, where court approval for foreclosures is not required, it takes 184 days, the shortest of any state. Once an applicant was finally rejected after a long delay, the bank would offer them an in-house alternative. That form is used to calculate whether you’d owe any federal taxes (which Congress suspended this year) or state taxes on the amount that was forgiven. Month over month, the foreclosure inventory was down 1.8 percent from January 2013 to February 2013. The two parties must also agree on how their respective ownership shares are to be calculated, and how the house will be valued. Departing  partners remain liable for their mortgages unless the lender agrees to remove them. If one party wants to stay in the house and continue to make the payments, the party that leaves avoids foreclosure but will remain liable for the mortgage indefinitely.
That law, however, is scheduled to expire on December 31, 2013 and, unless extended by Congress, will result in the loss of this exemption and the imposition of additional and potentially significant taxes on thousands of distressed homeowners.
On a month-over-month basis, completed foreclosures fell from 58,000* in January 2013 to the February level of 54,000, a decrease of 7 percent. Since the  property is not being sold, its value must be based on an appraisal, which  requires the parties to agree on who will select the appraiser, who will pay for it, and whether marketing costs will be deducted from the valuation. Nathan said she has since paid off the lien with the hope that Citi will take the deed on the home.

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