Posted on 09/22/2011 12:27:31 PM PDT by reaganaut1
To avoid further clogging the already sluggish home foreclosure pipeline, some lenders have been offering cash incentives to strapped homeowners at risk of foreclosure to complete short sales and move out of their homes.
Chase, for instance, has been quietly offering as much as $35,000 to homeowners who are “upside down” on their loans — meaning, they owe more than the home is currently worth. In a short sale, the lender allows the sale of the home for less than the loan amount and often relieves the borrower of any further obligation.
The incentives began late last year and are available nationally, a Chase spokesman said. Why would the bank want to pay more money to a homeowner who hasn’t been keeping up with the mortgage payments? It generally wraps up the transaction much more quickly, and leaves the home in better shape for resale. “A short sale generally produces a better and faster result for the homeowner, the investor and the community than a foreclosure,” the Chase spokesman said in an e-mail. Chase has completed more than 140,000 shorts sales since the start of 2009. The program is continuing.
Wells Fargo also offers relocation incentives for short sales as well as “deed in lieu of foreclosure” transactions in some markets with extended foreclosure timelines, like Florida. The payments apply only to first-lien loans that Wells holds for its own portfolio (rather than loans it merely services for others), a spokesman said. The amount varies, based on factors like the loan balance and appraised value of the home, but can be as much as $20,000.
(Excerpt) Read more at bucks.blogs.nytimes.com ...
It appears the lenders are making offers. This much better than getting the government involved. And it may be the banks are using taxpayers money to do this.
Ha! That’ll work...not! No sale, unless they’re 25% of listings.
/johnny
A contract is an agreement between parties, usually two. If the parties want to modify the contract, they can do so, unless the contract itself says they cannot.
In fact, one VERY conservative Federal Court judge, Richard Posner, has peddled an idea called the “theory of efficient breech”, whereby under certain circumstances the BEST thing for EVERYONE is to breech the contract, because EVERYONE comes out ahead.
A contract is not some kind of sacred document beyond modification by those who made it. In fact, mortal man can EVEN agree to discard a covenant made with G_d himself, should G_d be agreeable to a new covenant.
I sold some shorts at a yard sale once. I only got 50 cents for them, but the buyer paid cash...
“Chase, for instance, has been quietly offering as much as $35,000 to homeowners who are “upside down” on their loans — meaning, they owe more than the home is currently worth. In a short sale, the lender allows the sale of the home for less than the loan amount and often relieves the borrower of any further obligation.”
Does this not throw the overextended borrower into the clutches of the IRS directly with a tax bill for the amount the mortgage is reduced? Does not the IRS consider this income?
Some banks are forcing, have forced the reductions on homeowners mortgages without the homeowners consent, and have exposed the homeowners to the IRS liability.
The money will be reported on a form 1099 as other income.
It is up to the taxpayer to pay the tax on it or not. The “not” part might get expensive, though.
That explains why two families in my neighborhood have moved back into the house they abandoned six months ago...maybe the bank hasn’t started foreclosure and they can get some free Obama dollars.
Congress has passed laws that do not treat deficiencies as income.
Sure would be nice if those of us who worked hard to pay our mortgages, but are now underwater because of everyone who couldn’t dragging the market into the dregs, would get some incentives.
Instead, some analysis companies are flagging any home sales less than the previous owner’s mortgage as being “short sales” even though they’re legitimate sales in a severely depressed market.
Banks who treat their customers in the same ethical manner are less likely to have some government flunky like Bawney Frank legislate what they consider ethical.
I am nit a tax expert & this is not advice. My understanding is that in certain instances (first mortgage, primary residence) there is protection from liability for imputed income.
“The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.”
The reality of a lot of foreclosed property is the residents vacate the premises up to a year or more before the bank resells the property. In the mean time the bank has to process the foreclosure through the courts, has to winterize the property, insure it, hire maintenance workers, and suffer losses from vandals and animals. Also, the house shows better when furnished. Keeping the people in the home until its sold could save them lots of money. On the other side, most families that are losing their home want to move on and get a stable place to live.
Is this a case where the homeowner was forced to buy PMI because they didn’t have the 20% down, and the PMI pays the bank the difference in what the sale brings in and the amount of the mortgage, them the PMI goes after the homeowner. I never thought PMI was really insurance and, thankfully, I never had to get it when I bought my house.
The house of cards - it’s collapsing.
http://www.irsvideos.gov/CanceledDebt
So what is the difference between total COD and taxable COD? Here are the exceptions and exclusions that can account for the difference.
Exceptions are:
Amounts otherwise excluded from income
Certain student loans
Deductible debt, for taxpayers using the cash method of accounting, and
Price reduced after purchase
Exclusions are:
Bankruptcy
Insolvency
Qualified farm indebtedness
Qualified real property business indebtedness
Qualified principal residence indebtedness, and
Certain non-business debt of a qualified individual because of the Midwestern disasters
Thanks.
Yes.this happened to me. IRS says up to $250k single or $500k MFJ is not taxable as income in short sale of primary residence.
Yes.this happened to me. IRS says up to $250k single or $500k MFJ is not taxable as income in short sale of primary residence.
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