Mortgage Forgiveness Debt Relief Act EXTENDED

Looks like many distressed home owners received a late Christmas present and another reason to celebrate New Years’ day!! The Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA) expired in New Years’ day. However there was a little known aspect of the “American Taxpayer Relief Act of 2012’’ (ATRA) that included an extension of the MFDRA!! As I write this, the House of Representatives passed the ATRA and now it goes to President Obama for his signature. There were many provisions in the ATRA that received a lot of coverage – including the farm aid portion that will keep milk prices lower (doesn’t affect me since I drink almond milk-LOL)!! However, the extension of President Bush’s MFDRA will provide relief from a tremendous burden facing distressed home owners. In fact, on Monday, I had a failed closing on a multi-million dollar property that had significant ramifications to the seller if the settlement was not completed before the end of the year. A last minute problem caused a delay in settlement that appeared to be catastrophic for the sellers since it now appeared that there would be a tax ramification. The Mortgage Forgiveness Debt Relief Act extension will enable many sellers to breathe a little easier and perhaps it will help the housing market as well. I have another short sale that will be able to be completed now because the sellers were going to breach a contract if the close of escrow was not completed before the end of the year because they did not want to face the tax consequences. They were willing to face a lawsuit over failure to close rather than pay the taxes but now that is not an issue. I know that the National Association of Realtors fought hard for this and their efforts should be appreciated by everyone affected by this. In the grand scheme of things, I am surprised that anyone thought to include this in last minute bills presented by the Senate, but fortunately the MFDRA was extended and there is already reason the cheer in 2013!! Paddy Deighan J.D. Ph.D http://www.homesavers.pro

More on Bankruptcy and Short Sale Negotiation

I posted two blogs in bankruptcy yesterday and several people contacted me with questions so I thought that it made sense to expand on this series of blogs. I mentioned that you do not necessarily need bankruptcy court approval in most bankruptcy short sale scenarios because the debtors are probably in Chapter 7 and the home has no equity so the trustee will likely “abandon:” his or her interest in the property since there is no equity to distribute to creditors. The trustee’s duty is to the creditors and NOT the debtor (as many erroneously believe). I also noted that the real estate agents must be approved by the court in order to receive their commission in matters that require court approval. This is an easy, but essential step. Typically a CV and affidavit will suffice. There is one substantial issue that bears mentioning. When you are working with a client on a short sale, it is not a bad idea to ask them whether they are contemplating bankruptcy. Note, I am not suggesting that you ever SUGGEST bankruptcy. PLEASE do not do this!! However, their home sis underwater and there is a pretty good chance that they are contemplating bankruptcy (or they have already filed and not notified you). This is critical information because when a short sale is in negotiation and the home owner files bankruptcy, the short sale negotiation on the servicer side will be transferred to the bankruptcy department. You guessed it, you are probably starting all over again!! That is why it is critical to ask because it may be prudent to not begin the short sale negotiation AFTER the petition is filed. Of course you can always wait until the debtor is discharged too. However, if you are inclined to wait, I would only do it if it is a Chapter 7 since they are typically of short duration. Having to interrupt a short sale negotiation during a bankruptcy is disruptive for the agents, negotiator, bankruptcy attorney, lender negotiator and debtor. A little information on the owners’ situation may prove to be invaluable. Be careful how you ask about bankruptcy in these politically correct days in which everyone is hyper sensitive!! Padraic Deighan J.D. Ph.D

Bank of America Short Sale – Bankruptcy clarification, Part II

Bank of America Short Sale – bankruptcy clarification, Part II. I previously stated that Bank of America sent a note out about short sale approvals when the home owner is in bankruptcy. The gist of the release was that you need bankruptcy court approval. The good news is that in the majority of your short sales, you will not need bankruptcy court approval. Most home owners (and other debtors) file a Chapter 7 bankruptcy petition. In a chapter 7 in which the home owner is also seeking a short sale, the bankruptcy court approval will not be necessary. Here is why….the trustee will quickly release that the property has no equity – that is why it is a short sale!!! The trustee will “abandon” his or her interest in the property therefore and once it is abandoned, the debtor is free to short sell it. Another nice aspect of a bankruptcy short sale is that upon filing, the file goes to the servicer’s bankruptcy department and this is typically a higher level (quality) of personnel. There will not be as many instances of “well, we cannot find the papers”. They also have higher authority and they are typically “designated” on a file. Many agents run from a short sale when the debtor is in bankruptcy. In many instances, it is actually a blessing (for the above reasons). If the petition is a Chapter 13 or Chapter 11 (they are not exclusively for businesses), there will be a necessity to seek Court approval. I do invoke certain Chapter 11 & Chapter 13 methodologies that would not require bankruptcy court approval and they are related to securitization audits and Quiet Title actions. However, Court approval is not a lengthy or burdensome process. Agents should note that the bankruptcy court must also approve YOU in order for you to receive a commission. This is also not a difficult or lengthy proves, but it must be done. You will provide your resume/CV to the bankruptcy attorney. If you want your commission, you must do this!! Padraic Deighan J.D. Ph.D http://www.homesavers.pro

Clarification of a Bankruptcy – Short Sale Issue Part I

Clarification of a bankruptcy – short sale issue. I read today a release from bank of America that attempted to clarify some bankruptcy issues as they relate to short sale approvals. Essentially what was stated is correct some of the time but not always…in fact a majority of the time, negotiators will NOT have to get short sale approval from the bankruptcy court. The Bank of America release may be found in the agent resource center, but here is the release: Bank of America can review a short sale offer while the loan is in an active bankruptcy. To complete a short sale and issue the approval letter, the bankruptcy documents must be filed and approved by the court. Any final agreement will require bankruptcy court approval. Homeowner(s) should consult with their Bankruptcy Counsel about how these programs could affect their mortgage and their bankruptcy case. When a loan is in bankruptcy, there is an Automatic Stay, also known as a "hold," of any collection activity placed on any and/or all debts to which the debtor is a party. Before the short sale specialist can discuss the short sale, Bank of America must have written authorization from the Homeowner(s') Bankruptcy attorney on the law firm's letterhead to discuss loss mitigation options with the borrower. This is in addition to the Bank of America Third-Party Authorization Form needed from the borrower to speak to the bankruptcy attorney and the listing agent. If Homeowner(s) is/are currently in a bankruptcy proceeding, or have previously obtained a discharge of this debt under applicable bankruptcy law, all communication and notices are for information purposes only and is not an attempt to collect the debt, a demand for payment, or an attempt to impose personal liability for that debt. The Homeowner(s) is/are not obligated to discuss their home loan with Bank of America or enter into a short sale agreement or other loan-assistance program. Customers should consult with their bankruptcy attorney or other advisor about their legal rights and options. For a short sale to be processed to completion for a loan in bankruptcy, Bank of America must receive one of the following releases issued by the bankruptcy court: Granted Motion to Sell* Granted Motion for Relief from Automatic Stay with noted short sale negotiation* Dismissal Discharge with Abandonment, Closing Order, Final Decree, Trustee No Asset Review *A granted Motion differs from a requested Motion. Note: If Homeowner(s) receive(s) a discharge under a Chapter 7 a bankruptcy proceeding: discharge releases the Homeowner(s) from personal liability for certain specified types of debts. The Homeowner(s) is/are no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the Homeowner(s) from taking any form of collection action on discharged debts, including legal action and communications with the Homeowner(s), such as telephone calls, letters, and personal contacts. Although a Homeowner is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien. There are three types of bankruptcy filing, Chapter 7, 11 and 13 (as far as individuals are concerned). The above is sound advice in MOST, but not all Chapter 11 & 13 petitions but it is inapplicable to many Chapter 7 and some Chapter 11 and 14 petitions. Padraic Deighan J.D. Ph.D http://www.homesavers.pro