Category Archives: Foreclosure

Will the Mortgage Forgiveness Debt Relief Act Continue in 2014?

Cut Taxes shutterstock_120256129The Mortgage Forgiveness Debt Relief Act of 2007 expired on December 31, 2013. But because Congress is still considering a bill that would extend the Act through 2014, there’s no need to worry yet if you think you might have mortgage debt forgiven in 2014.

What Is the Mortgage Forgiveness Debt Relief Act?

If a creditor (such as your mortgage lender) forgives some or all of your debt, the IRS treats the forgiven debt as income. This means that you normally have to pay income taxes on forgiven debt. (There are some exceptions to the rule that you must pay taxes on forgiven debt.)

This could be bad news if you are a homeowner who recently had mortgage debt forgiven, perhaps after a foreclosure or short sale, or as part of a loan modification.  Luckily, about seven years ago Congress came to the rescue and passed the Mortgage Forgiveness Debt Relief Act of 2007.  Under the Act, homeowners with certain types of forgiven mortgage debt don’t have to pay income tax on the forgiven amount.  (Not all forgiven mortgage debt qualifies for this tax break. For details, see Nolo’s article Canceled Mortgage Debt: What Happens at Tax Time?)

The Act originally applied to mortgage debt forgiven between 2007 and 2009, but it has been extended several times. The most recent extension, however, expired on December 31, 2013.

Will the Act Be Extended Again?

A current bill in Congress, the Tax Extenders Act of 2013 (S. 1859), sponsored by Senator Harry Reid, would extend the Act through 2014. While not much seems to get done in Congress these days, some experts think that passage of the Mortgage Forgiveness Debt Relief Act likely.  We’ll keep tabs on the issue and report back on the bill’s progress.

Filing Bankruptcy on the Eve of a Foreclosure Sale

Bankruptcy_Petition_iStock_000008359066XSmallASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I filed a Chapter 13 bankruptcy petition yesterday, late in the afternoon. I filed in California on my own, without an attorney. A foreclosure sale is set for tomorrow. After I got my bankruptcy case number I tried to contact the parties involved in the foreclosure to give them notice of my bankruptcy filing. I couldn’t reach anyone in the lender’s foreclosure office, nor can I find an email address or a fax number to notify anyone to stop the foreclosure. What should I do? 

Trista  

Dear Trista,

If you act quickly, you might be able to prevent the sale from going through. Even if the sale occurs, it’s possible you can void it (but it won’t be easy). Here’s what to do.

(Learn how Chapter 13 bankruptcy can help you save your home from foreclosure.)

Go to the Foreclosure Sale

You should attend the actual foreclosure sale, or send a reliable person to the sale. Get there early and provide proof of the bankruptcy filing to the auctioneer before the sale starts.

If You Can’t Attend, Record a Bankruptcy Notice

If you can’t attend the foreclosure sale, immediately record a Notice of Bankruptcy in the county recorder’s office. Do this in the county where the real estate is located.

Will the Bankruptcy Stop the Foreclosure?

The filing of a bankruptcy (assuming there are no prior bankruptcy filings), creates an automatic stay which prohibits most collection efforts, including a foreclosure. Courts have held that a foreclosure sale is void or voidable, when done in violation of the automatic stay. (Learn more about how the automatic stay stops foreclosure.)

Even so, it can get awfully tricky. Doubly so if the sale is conducted and the property gets purchased by an innocent buyer – what we lawyers call a BFP (“bona fide purchaser for value”).

There is at least one key court decision stating that the foreclosure sale is still voidable even if the property is bought by a BFP. However, it can be a litigation mess for a debtor who is trying to get a foreclosure sale rescinded. (In fact, I was the lawyer for the successful homeowner in that case. See Walker v. California Mortgage Service, 861 F.2d 597.)

If the Sale Has Occurred: Record the Bankruptcy Notice Before the Recordation of the Trustee’s Deed

Even if the sale has already been held, it is very helpful to record a bankruptcy notice before a trustee’s deed is recorded. The trustee’s deed upon sale is typically not issued to the successful bidder until a few days after the sale.

The recorded notice imposes what we lawyers call “constructive notice” upon all the parties involved. Constructive notice of the sale should remove any defenses that a BFP would raise if you have to bring a legal action seeking to void the sale.

Of course, you should continue efforts to notify the lenders and the foreclosure agents.

— Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

My spouse is the only borrower on our reverse mortgage. If he dies, will I lose the home?

Question

I have a reverse mortgage with my spouse, but I am not on the loan documents. If my spouse dies, will I lose the home?

Answer

In the past, the answer would be – probably. But because of a new court decision, that may be changing.

Foreclosure of Reverse Mortgages When Borrower-Spouse Dies

It is not uncommon for only one spouse to be a signatory on a reverse mortgage. Brokers sometimes advise couples to leave the younger spouse off the reverse mortgage so that they couple can borrow more money. Often, the broker tells the couple that structuring the documents this way won’t affect the non-borrower spouse’s right to live in the home. But in the past, this was often not true. Many times, when the spouse on the mortgage died, the holder of the reverse mortgage would demand full payment of the reverse mortgage — and if the spouse could not repay the entire loan (which was often the case), he or she would then face foreclose.  (Learn more about foreclosure of reverse mortgages.)

Bennett v. Donovan

In Bennett et al. v. Donovan, 2013 WL 5442154 (D.D.C. Sept. 30, 2013), the United States District Court for the District of Columbia ruled that a Housing and Urban Department (HUD) regulation that allows lenders to demand that surviving spouses immediately repay reverse mortgage loans upon the death of their spouses violates federal law. The court remanded the case to HUD to fix the problem in accordance with the court’s decision. It remains to be seen exactly how HUD will fix the problem, but it may led to regulatory changes.

To learn more about this case, including the factual background and the reasoning behind the decision, see Nolo’s article New Rule: Spouses Not Named on Reverse Mortgages Are Protected From Foreclosure.

 

Big Banks Find a Way Around the National Mortgage Settlement

Bank SignThe National Mortgage Settlement was supposed to hold five major banks (Ally, Bank of America, Citi, JPMorgan Chase, and Wells Fargo) accountable for the servicing violations that contributed to the foreclosure crisis in this county. (Learn more in Nolo’s article National Mortgage Settlement: Can You Benefit?)

However, not only has servicing misconduct continued to occur (see Nolo’s article Making Sure Banks Comply With the National Mortgage Settlement), but the banks have found a way to avoid complying with the settlement altogether –- by selling off their servicing rights.

What is a Mortgage Servicer?

Mortgage servicers collect and process payments, as well as handle foreclosures when borrowers can’t make their payments. The five banks that are part of the National Mortgage Settlement are the country’s five largest mortgage servicers.

Servicing Reforms Under the National Mortgage Settlement

The National Mortgage Settlement mandated specific standards for mortgage servicers to follow, like prohibiting dual tracking (when a mortgage holder continues to foreclose on a homeowner’s home while simultaneously considering the homeowner’s application for a loan modification) and providing a single point of contact for borrowers in the loss mitigation process. (Learn more about the servicing requirements that the banks must follow when servicing loans and dealing with homeowners in foreclosure in Nolo’s article National Mortgage Settlement: New Rules Help Protect Homeowners in Foreclosure.)

Banks Selling Off Servicing Rights to Avoid Settlement Obligations

It seems that these banks have come up a way to avoid the obligations imposed by the settlement: by selling the mortgage-servicing rights to servicing firms like Green Tree, Nationstar, and Ocwen. By selling the servicing rights, the banks can bypass the settlement standards, along with the costs and efforts associated with ensuring compliance with them.

What This Means for You

This means that if you were counting on the National Mortgage Settlement to ensure you receive fair, honest treatment from your bank during the foreclosure or loss mitigation process, instead you may have to deal with a company that is not bound by the terms of that settlement.

The good news is the new servicing rules imposed by the Consumer Financial Protection Bureau (which are similar to the rules mandated by the National Mortgage Settlement) apply to all servicers, not just big banks. Those rules go into effect on January 10, 2014. And a few states, like California, have enacted legislation with reforms similar to those in the National Mortgage Settlement that apply to all mortgage servicers as well. (Learn more in Nolo’s articles New Federal Rules Protecting Homeowners With Mortgages and New Laws Prohibiting Dual Tracking in the Foreclosure Context.)

by Guest Blogger & Nolo Contributing Editor Amy Loftsgordon

Halloween Fright: Vampire and Zombie Foreclosures

halloween pumpkinWhat do foreclosures have in common with Halloween?  Two words — zombies and vampires.

Zombie foreclosures and vampire foreclosures are recent trends in the foreclosure landscape. They are appropriately named because foreclosures are always scary, and particularly so in these situations. (Zombie foreclosures are scary for homeowners and vampire foreclosures are scary for the economy).

Zombie Foreclosures

If you are a homeowner facing foreclosure, you could be haunted by a zombie foreclosure. How? You receive a foreclosure notice from the bank (perhaps it’s a Notice of Default, Notice of Foreclosure Sale, or some other notice that the mortgage servicer provides to initiate a foreclosure or move it down the line), decide to walk away from your home, pack up, and leave – assuming the foreclosure will go through.

But here’s the catch: Sometimes the bank won’t complete the foreclosure, or at least not right away. (To learn why this happens, see Nolo’s article Zombie Foreclosures.) While your home is in limbo, you remain the legal owner. This means you are on the hook for property taxes, HOA dues, and maintenance on the property. Homeowners that get haunted by zombie foreclosures are often shocked when months or years later they:

  • are sued for unpaid property taxes or HOA assessments, or
  • get bills or face fines for violating housing codes and ordinances as the home and property fall into disrepair or get vandalized.

Needless to say, these additional unpaid and delinquent debts don’t help your efforts to rebuild your credit after the foreclosure.

How to Avoid a Zombie Foreclosure

The best defense to a zombie foreclosure? Stay put until the foreclosure sale has occurred and you receive a notice to vacate. It’s also a good idea to confirm that title to the home has actually been transferred to the bank. You can do this by checking with the local county recorder’s office or website.

Vampire Foreclosures

Vampire foreclosures are not scary for former homeowners, but some experts are worried that too many of them will haunt the economy.

In a vampire foreclosure, although the foreclosure is completed, the bank doesn’t force the homeowner leave, so he or she stays on, living in the home. This can actually be a good thing for neighborhoods – the property is not vacant so it’s not a target for vandalism and the ex-homeowner takes care of the home (taking out the trash, maintaining the lawn, repairing broken gates, replacing front porch lights) which reduces community blight. And it can be good for the ex-homeowner too, allowing him or her to save up money to use for a security deposit on a rental home, pay down other debts, or otherwise improve his or her financial situation.

But some economists worry that keeping these houses off the market creates an artificially low inventory, which could inflate housing prices. Then, when all of these homes do hit the housing market , the increased inventory could deflate home prices. (To learn more, see Nolo’s article on Vampire Foreclosures.)

Can I Keep “Cash for Keys” Money I Receive After My Bankruptcy Is Over?

Cash for KeysASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions. 

Dear Leon, 

My husband and I just got a Chapter 7 discharge. We were previously in foreclosure and walked away from our home.  

Before we left, our mortgage lender offered us a series of payments payable in two week increments if we moved out voluntarily. The longer we stayed, the less we would get. We did a final walk through with the bank representative (we were supposed to leave the house in “broom clean” condition) and then he handed us the final check. The total amount the lender paid us was $8,310. 

Here’s my question: Can we keep this money or do we have to give it to the bankruptcy court? 

Sincerely, 

Crystal

Dear Crystal,

I have great news for you. You can keep the money you received from the lender’s “cash for keys” deal and don’t have to report it to the bankruptcy trustee, if the following are both true:

  • your house was correctly listed in your bankruptcy case, and
  • the court made an order “closing” your bankruptcy case.

Cash for Keys

The deal the lender offered to you is referred to as “cash for keys.” In a cash for keys deal, the lender offers money to induce you to voluntarily leave the property. Cash for keys deals are common in foreclosures, evictions, and deeds in lieu of foreclosure.

In a typical cash for keys deal, the lender sets a deadline for you to be out. You don’t get the money until you vacate. “Broom clean” means you have tidied up the place, didn’t damage anything, and didn’t leave a pile of junk behind. There is typically a final inspection where you hand in the keys and the lender hands you a check.

Assets in Your Possession When Your Bankruptcy Case Closes Are Yours to Keep

The filing of a bankruptcy case creates an estate composed of everything you own. You can exempt certain assets from the bankruptcy estate – if assets are exempt you can keep them. After you get a bankruptcy discharge the court normally issues an order closing your case. The law says that upon closing the case, all assets still in your possession that you listed in the bankruptcy (whether exempt or not), will revert back to you.

If you correctly listed your home in the bankruptcy and the court issued and order closing your case, then you had every right to enter into the cash for keys agreement. The resulting money is yours to keep and you don’t have to report it to the bankruptcy trustee.

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Judge Tells Homeowners in Foreclosure: Cut Off Padlocks and Stay Put

Closed houseIn a recent public address in Buffalo City Hall, Housing Court Judge Patrick M. Carney gave homeowners in foreclosure some advice: Stay in your home until the foreclosure sale is over and you get a court order telling you to leave.

When a bank wants to foreclose on your home, it must go through certain state foreclosure procedures. You don’t have to leave the home until the bank follows the procedures and sells your home. It seems simple — so why would Judge Carney feel the need to state what seems like the obvious?  Enter the banks and property management companies.

Banks Trying to Get Homeowners Out Earlier

Judge Carney talked about banks’ “carefully worded” notices that might confuse homeowners into thinking they had to leave their homes right away, before the end of the foreclosure process. (Read more about Judge Carney’s comments.)

Property Management Companies Stand to Gain From Vacant Homes

But there are other, less subtle, attempts to get homeowners to leave. Some banks hire property management companies to deal with properties that are in foreclosure. Often, these companies are tasked with checking to see if the homeowner still occupies the home. If the home is vacant, the company is paid to take steps to secure and maintain the property. This means that if the homeowner no longer lives in the property, the management company will make more money than if the homeowner is still there.

So what’s a property management company to do if the homeowner decides to stay until the foreclosure process is over?  How about padlock the door, throw out the homeowner’s possessions, and treat the home as abandoned. At least, that’s what Illinois Attorney General Lisa Madigan claims one big industry player, Safeguard, is doing.  (Read more about the Illinois Attorney General Case against Safeguard.)  Apparently, this is happening in New York too, because Judge Carney told homeowners to cut off padlocks on their front doors (presumably placed there by similar companies) and continue living in their homes until the bank has the legal right to kick them out. (Read more about banks treating occupied homes as vacant.)

Why Stay in Your Home?

Many people leave their homes before the foreclosure process is complete, not understanding that the home could linger in limbo for years. Because of the high number of foreclosures and low property values, some homes remain in the foreclosure process for years before the bank actually sells the property.

But until ownership changes hands, you are on the hook for property taxes and upkeep of the property. Some homeowners who have moved on, thinking their home will soon be sold, are shocked to later get a hefty bill for property taxes or for city and county fines for trash removal and maintenance costs. The situation is so common, that there’s now a name for it– zombie foreclosure.

When to Leave?

Judge Carney’s advice: Leave your home when you get a court order with a notice to leave.

Foreclosure Abuse: Banks Treat Homes as Vacant When Homeowners Still Live There

BurglarHomeowners who have missed mortgage payments (and even some that haven’t) might be subject to the newest foreclosure scandal – property management firms (hired by the banks) declaring homes abandoned and then breaking down doors, removing or damaging personal items, or changing the locks.

How does this happen? If a homeowner is 45 days late in making mortgage payments, banks often hire property management firms to determine if the home is vacant or abandoned. All in all, that’s not a bad thing to do.  Here’s the problem:  Apparently some property management firms have been deeming homes vacant when they clearly aren’t.

A recent lawsuit filed by the Illinois Attorney General Lisa Madigan alleges that Safeguard, the largest property management company in this industry, has been breaking into homes, damaging property, and changing locks even when there are clear signs that the homes are occupied — such as barking dogs, neighbors’ statements that someone lives in the home, cars in driveways, or even, in one case, the homeowner’s repeated calls to the property management company stating that he still lived in the home.

According to Madigan, her office has received over 400 complaints against Safeguard.

House Flip From Hell: Can Bankruptcy Help?

Upside Down HouseASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Property Flipping: Don’t Try This at Home! 

Dear Leon, 

I’m in the middle of the house flip from hell. I bought a fixer-upper with the intention of remodeling and selling it. But I’ve run out of money, maxed out my credit cards, and cannot pay the mortgage. The project is stuck – I can’t continue with improvements and no one wants to buy it as is. If I file for bankruptcy, will the bankruptcy trustee finish the construction and sell the house to pay my debts? 

Flipping a house sure isn’t as easy as the TV shows make it sound! 

— Franco in Riverside California

Dear Franco,

I’m sorry your project won’t succeed. If you file for bankruptcy, you will at least have the chance to wipe out your credit card debts.

But as far as the house flip is concerned, don’t get your hopes up. A bankruptcy trustee sells real estate “as is.” It sounds like there is no equity in the property. What usually happens in such cases is that the trustee abandons the property and the lender winds up taking it back in foreclosure. After that, the lender will probably sell it “as is” to recoup whatever it can get. (To learn how Chapter 7 bankruptcy works, including the role of the bankruptcy trustee in selling your nonexempt property, see Nolo’s Chapter 7 Bankruptcy area.)

You should see an experienced bankruptcy lawyer right away for further case evaluation. You might also consider getting Nolo’s The Foreclosure Survival Guide. It explains the foreclosure process and helps you make realistic decisions if you cannot afford your home or other property. It wouldn’t hurt to read it immediately.

To find a bankruptcy lawyer, take a look at Nolo’s Lawyer Directory. Or check out Nolo’s article How To Find a Bankruptcy Lawyer for tips on getting the right lawyer for your case.

And about those Property Flip TV shows…they should come with a warning: Don’t try this at home.

— Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

What You Should Know About Timeshares & Timeshare Foreclosures

Swimming pool at VIP villas, Antalya, TurkeyThinking about buying a timeshare? Trying to get rid of a timeshare you no longer want? Can’t make your timeshare payments? Facing a timeshare foreclosure?

If any of these scenarios apply to you, be sure to check out Nolo’s new online articles on timeshares.

  • If you are thinking about purchasing a timeshare or have one you want to get rid of, check out our Buying or Selling a Timeshare topic area.
  • If you are having trouble making payments or are already in foreclosure, visit our Timeshare Foreclosure topic area.

Buying and Selling a Timeshare

Timeshare salespeople are notorious for making the hard sell. All too often, people join a timeshare sales presentation in order to get a free hotel stay or round of golf, and end up walking out as a timeshare owner.  Unfortunately, many folks who sign timeshare contracts do not understand the full costs involved, tax issues, or contract cancellation rights. And if you’re looking to unload your timeshare, scammers await.

Before you attend a timeshare presentation, sign a timeshare contract, or pay money to a timeshare reseller, visit Nolo’s Buying or Selling a Timeshare topic area.

Timeshare Foreclosures

In most cases, buying a timeshare is the same as buying an interest in a piece of real estate. This means that if you default on the loan payments, taxes, assessments, or developer fees, you could face foreclosure. To learn about how timeshare foreclosures work, what happens if your timeshare is foreclosed, and how to avoid a timeshare foreclosure, check out the articles in Nolo’s Timeshare Foreclosure topic area.

State Laws Governing Timeshares and Timeshare Foreclosures

Much of timeshare law, such as foreclosure procedures, rights of cancellation, required contract disclosures, and rules regulating timeshare resellers, is governed by state law. Nolo has articles discussing the specific state laws governing timeshares in California, Texas, New York, and Florida. And Nolo will be expanding this list in the near future – so check back soon to find the timeshare laws in your state.