Ten Facts About Mortgage Debt Forgiveness...

The IRS has posted Ten Facts About Mortgage Debt Forgiveness in order to provide clarity when mortgage debt is forgiven. Debt forgiveness means the lender agrees to cancel the debt and give up it's rights to collect on the debt. When a debt is forgiven, the IRS requires the lender to file a 1099, since the IRS considers forgiven debt as income.

So keep these the ten facts in mind when negotiating a short sale, loan modification, principle reduction, and/or deed in lieu.

The following is the text from the IRS web pageyour mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.

2. The limit is $1 million for a married person filing a separate return.

3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.

9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.

10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. Taxpayers may obtain a copy of this publication and Form 982 either by downloading them from IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Read more »

Homeowner is "Unlogged" by Bank of America/Countrywide

When does it end. In a previous post at debthelp.tv I wrote about America's Servicing Company aka Wells Fargo's home retention representative refusing to let a homeowner pre-qualify for a federal government approved modification program. This time, a homeowner was "unlogged"

Recently, I was asked to assist a friend with a Countrywide/Bank of America home loan modification. With my assistance, Mike (name changed for security) was approved for a 3 month pre-trial home loan modification under the Making Homes Affordable aka Home Affordable Modification Plan aka HAMP. The HAMP program let’s homeowners enter into a temporary 3 month lower payment trial period. During the trial period the homeowner sends the lender the required financial documentation in order to get a permanent modification. The application and approval for the 3 month lower payment trial period is given within minutes after a homeowner provides the lender with his or her income and expense info over the phone.

In the middle of January, Mike was approved by Melody, a home retention representative(name changed, however we have her extension and id number). After Mike provided his income and expenses, Melody said he was approved for a monthly trial payment of $2340.50. Mike's original mortgage payment was $3300. Melody explained to Mike that he would receive the HAMP pre-trial package by Fed Ex. The package would contain his approval letter for the pre-trial period and the instructions for submission of the required documentation for a permanent loan modification.

After almost two weeks, Mike decided to call Countrywide/Bank of America's home retention department. Mike never received the HAMP pre-trial package as promised by Melody. Mike spoke with a home retention representative who was obviously based in another country. The rep said that there was no record of Mike's HAMP 3 month trial payment approval. We asked to be transferred to another department. The rep transferred us to another rep from the home retention department. This new rep also said there is no record of Mike's pre-trial approval for HAMP. We gave the rep Melody's information including her extension and id number. We asked this rep to contact Melody to confirm. The rep insisted that there was no information to provide, since there is no record of his conversation with Melody. So I advised Mike to hang up and call back. We called the home retention department number on Bank of America's website. The phone was answered by a nice young lady. We asked if she worked in the home retention department. She said "No, I am a concierge". HUH!?! We both laughed and Mike said "I don't need (no stinkin')concierge, I need a home retention rep." She was a little offended because it was clear Mike was impatient. So she connected us to the home retention department.

Mike spoke with another home retention rep and once again he explained the same story about his approval for the HAMP 3 month trial program by Melody. This time we started to get some answers. The rep said hold on for a minute. She returned to the line and said "I found the details of your conversation with Melody, it looks like that your conversation with Melody was UNLOGGED."

OK...Now let's wait a minute. Unlogged? There can only be one definition of "unlogged" when a lender's home retention rep uses it. This rep unknowingly admitted that Mike's conversation with Melody was taken off the system, so presumably no one would know he had the conversation and thus no immediate record of his approval. Any other homeowner going through this would have given up on the first try. Not I. If there is one rule one must follow when it comes to dealing with a lender, it is "Not all representatives are trained the same, therefore you must speak to more than one representative to make sure you get what you ask for".

This is when I took over and asked the rep to get a supervisor to speak with Mike. Leslie, "the supervisor" picked up the line. This was her story. Apparently, Melody entered Mike's information "manually" because there was an error in the system. Melody made a "manual" referral of Mike's information for a loan modification. Mike was in a "semi-delinquency" status because he was only 2 months behind. Mike should not have been approved for a 3 month pre-trial program until he was reviewed by another department. They had Mike's income and expense information which would be reviewed in the meantime. When Mike asked Leslie about the lower payments ($2340.50) that Melody approved him for, Leslie said "Well you should pay something because we sent a letter of intent to foreclose". She then said "I am not saying he was denied the 3 month trial program, it just that we need to send him the package". When asked about how long it will take to get the package, Leslie said "at least 45 days, you've got to understand we have so many people applying for a modification."

Then came the moment of truth: Mike asked Leslie "Why was my conversation with Melody 'Unlogged'? What does that mean?". Leslie paused, then said "Well the conversation with Melody was not put into the 'notes', because Melody must have forgotten to do it." Then the obvious question was "Well, how did you now Melody talked with Mike". Leslie said "We have a separate report log that is more detailed...and like, this has all the details, like when Mike made a payment, but it wasn't in the notes".

Blah Blah Blah...

There are a few rules one must follow when it comes to asking a lender for a modification:

First, "Lenders pass the buck to the front line of overworked, overwhelmed, underpaid, poorly trained, international and national representatives who are not prepared for the homeowner assault"

Second, "None of it will ever makes sense, just focus on the prize and get a letter agreeing to a modification"

Third, "Ask questions, after questions, and take notes after notes. A diary is essential"

Fourth, "A supervisor is normally another representative sitting next to another rep in an adjacent cubicle...or whoever is not on the phone and available."

Fifth, "Fight hard, be patient, don't give up and make sure you're not UNLOGGED"

At the end, Mike is still not approved under HAMP.

By the way, new rules for each new day when dealing with lenders.

Read more »

Accidental Landlord's : A Good Solution For Tough Times

People all over are looking for ways to survive during this economic crunch. What can property owners do if they can't sell their house? They can rent out the house or rooms in the house. Often these homeowner, now accidental landlords, end up moving into a cheap apartment while there home is rented.

Time magazine has a good introductory article on this phenomenon. The author notes that this can save homeowners' in a cash crunch.

Even though being a landlord is not an easy path, in times like this it can make perfect sense.

Our future posts will talk more about Accidental Landlords and give tips for the best strategies.

Read the entire article here: Accidental Landlords: Renting What Won't Sell

Read more »