....are bad. This one's not even very clever. The "bad guys" write up two contracts. One contract is the "real deal." The other contract goes to the end lender. Sometimes it is the real estate agent who comes up with this scheme, sometimes the buyer, sometimes the mortgage broker. Sometimes even the attorney. But the effect is the same. Maybe the buyer wants to put some cash in his pocket. Maybe the real estate agent or the mortgage broker want to pad their commission.
Say the seller wants $100,000 for the house. There will be a contract which specifies this price--the real deal. Then we have the second contract. This will either be a completely separate contract or just an extra page which will be conveniently removed before the appraiser and/or end lender get hold of it. This contract will say the purchase price is $140,000 and the buyer will "refund" the extra $40,000 to the seller, either under the table or via a "flexible" closing agent.
Again, not even clever. This is fraud, pure and simple. If the lender does not know the whole transaction, you are committing fraud. Hope you look good in orange....
www.thomasmoens.com
Showing posts with label mortgage. Show all posts
Showing posts with label mortgage. Show all posts
Friday, March 28, 2008
Wednesday, March 5, 2008
Mortgage Forgiveness Debt Relief Act of 2007
With all the talk of foreclosures, short sales, workouts, principal reductions, etc., I am surprised we have not heard more about the Mortgage Forgiveness Debt Relief Act of 2007 (the Act). Under the Act, people may be able to exclude debt forgiven on their principal residence. The balance on the loan must be less than $2 million ($1 million for a married taxpayer filing a separate return, and the debt must have been forgiven in 2007, 2008, or 2009.
It appears to apply whether the debt was forgiven pursuant to a short sale, a foreclosure, or a workout with the lender to reduce the principal balance. Since just yesterday Ben Bernanke suggested that lenders should forgive portions of mortgages when the borrowers are at risk of defaulting, the Act will be very important for many people.
To qualify under the Act, the debt must have been used to buy, build, or substantially improve principal residences, as well as being secured by that residence. That would seem to mean that folks who pulled out tons of equity to pay off credit cards, buy boats, etc. might not qualify.
More details are on Form 982, and its accompanying instructions. Apparently, because this revision took place so late in the year, many tax preparation software packages do not include the updated form.
It appears to apply whether the debt was forgiven pursuant to a short sale, a foreclosure, or a workout with the lender to reduce the principal balance. Since just yesterday Ben Bernanke suggested that lenders should forgive portions of mortgages when the borrowers are at risk of defaulting, the Act will be very important for many people.
To qualify under the Act, the debt must have been used to buy, build, or substantially improve principal residences, as well as being secured by that residence. That would seem to mean that folks who pulled out tons of equity to pay off credit cards, buy boats, etc. might not qualify.
More details are on Form 982, and its accompanying instructions. Apparently, because this revision took place so late in the year, many tax preparation software packages do not include the updated form.
Monday, March 3, 2008
Spouses need to sign mortgages
Loan officers in Iowa and Illinois please take note: Spouses need to sign the mortgage. We just had a closing go awry because the loan officer told the married borrower that her husband did not need to sign the mortgage. No matter how many times we try to make it clear, if a person is married, except in certain rare circumstances, the spouse needs to sign the mortgage. And anyone who signs a mortgage should be signing a Truth in Lending Statement as well as a Notice of Right to Cancel if it is a refinance of your residence.
This is especially true in Iowa, where the mortgage is VOID if not signed by both husband and wife. V-O-I-D. As in, it has no effect, means nothing, rubbish, bird cage liner. Wells Fargo found out the hard way recently when they were not allowed to foreclose their mortgage lien because the wife did not sign the mortgage. They came in pretty cocky with all kinds of fancy legal theories why they should be able to foreclose anyway. The judges said nope. Only they used a few more words than that. And no it does not matter that you are in the process of getting a divorce, legally separated, or even just generally annoyed with your spouse.
What I think trips people up is that there are three different things we are talking about here:
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This is especially true in Iowa, where the mortgage is VOID if not signed by both husband and wife. V-O-I-D. As in, it has no effect, means nothing, rubbish, bird cage liner. Wells Fargo found out the hard way recently when they were not allowed to foreclose their mortgage lien because the wife did not sign the mortgage. They came in pretty cocky with all kinds of fancy legal theories why they should be able to foreclose anyway. The judges said nope. Only they used a few more words than that. And no it does not matter that you are in the process of getting a divorce, legally separated, or even just generally annoyed with your spouse.
What I think trips people up is that there are three different things we are talking about here:
- Who is in title, or who owns the property? Only the individuals named on the deed own the property.
- Who owes the money? Only the individuals who sign the promissory note owe money to the lender.
- Who signs the mortgage? The more the merrier from the lender's perspective. Everyone who owns the property MUST sign the mortgage. Everyone who signs the note should sign it. The spouse(s) of everyone who owns the property MUST sign it. Signing the mortgage does not mean you owe money. It only means you agree to give up your rights to the property if the payments are not made by whoever signed the note.
www.thomasmoens.com
Friday, February 8, 2008
Short Sales
First of all, what is a short sale? It is simply paying the lender less than the amount due on your mortgage loan in exchange for a release of lien against the real estate.
Why would a lender agree to this? Foreclosure is much more time consuming and expensive. The lender owns your property after foreclosure, and is responsible for maintenance, taxes, and most importantly, selling the property. So, accepting a short sale is sort of a "bird in the hand" theory. The lender knows the property is sold, and they know exactly what they are going to receive. With foreclosure, it can take months (even years) before the property is sold, and there is no way to know how much the lender will get when it eventually sells.
Why isn't the the perfect plan to avoid foreclosure? There are some risks involved for the home owner. Most people think that they no longer owe the money because the mortgage has been released. That is not necessarily the case. More often than not, the lender wants all the money to which they are entitled--and who can blame them. This point needs to be negotiated. If the lender actually does forgive the debt, another potential pitfall is the tax liability of the forgiven debt. Since you are given a "gift" of not having to pay back the money, this can be considered income. There are circumstances where you would be responsible for the taxes on this forgiven debt.
How do you do it? There is a great deal to be aware of when you try to do a short sale. Please don't try to do this on your own. Make sure you hire a competent real estate attorney to assist you. Your attorney will probably need your written authorization to contact the lender. Your attorney will prepare a preliminary settlement statement so that the lender can see that the sale price of the home is not sufficient to pay off the loan. Some lenders will require hardship letters. Some will even want appraisals so they can see you aren't selling the property for less than you could.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.
www.thomasmoens.com
Why would a lender agree to this? Foreclosure is much more time consuming and expensive. The lender owns your property after foreclosure, and is responsible for maintenance, taxes, and most importantly, selling the property. So, accepting a short sale is sort of a "bird in the hand" theory. The lender knows the property is sold, and they know exactly what they are going to receive. With foreclosure, it can take months (even years) before the property is sold, and there is no way to know how much the lender will get when it eventually sells.
Why isn't the the perfect plan to avoid foreclosure? There are some risks involved for the home owner. Most people think that they no longer owe the money because the mortgage has been released. That is not necessarily the case. More often than not, the lender wants all the money to which they are entitled--and who can blame them. This point needs to be negotiated. If the lender actually does forgive the debt, another potential pitfall is the tax liability of the forgiven debt. Since you are given a "gift" of not having to pay back the money, this can be considered income. There are circumstances where you would be responsible for the taxes on this forgiven debt.
How do you do it? There is a great deal to be aware of when you try to do a short sale. Please don't try to do this on your own. Make sure you hire a competent real estate attorney to assist you. Your attorney will probably need your written authorization to contact the lender. Your attorney will prepare a preliminary settlement statement so that the lender can see that the sale price of the home is not sufficient to pay off the loan. Some lenders will require hardship letters. Some will even want appraisals so they can see you aren't selling the property for less than you could.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.
www.thomasmoens.com
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