short sale aftermath

[unhappy with CW]

Hi, we have Countrywide, now B of A. Our short sale is with a negotiator currently. They said it will have to go to another negotiator now because we have "PMI" private mortgage insurance. I didn't know we had that, maybe the investor had that? Anyway, does this hurt or help our chances of our short sale being approved, and what does PMI mean exactly? Also, if we get it approved, how do we get them to put it in writing that they wont come after us for the 2nd mortgage? (we had refinanced and taken out about 13,000 to pay off cars, etc.) Is it possible to get away without owing anyone anything? Also, is the IRS going to tax us on this as income? Thanks so much, sorry for all the questions!

[faith]

Unhappy,
Welcome to this forum.
PMI means Private MOrtgage Insurance which the lender paid for to insure homes and properties to protect themselves if the homeowners failed to pay their mortgage payments. Because there's a lot of millions of dollars lost due to the market crises, the PMI companies are not forgiving the balance owed by the homeowners and will only approve the Short Sale if they agree to sign a promissory note to pay for whatever the settlement they want to settle for the amount owed. Yes, you can make a settlement or negotiate to settle the balance owed to PMI companies.

For example, your balance owed including the amount you have refinance is $100k, you can negotiate to settle the amount by paying 10-30% of the amount owed, you start with the lowest percentage, say 10% of $100k is $10,000, if they say no go to 15% which is $15,000 and so on. Then tell the negotiator to pay it in 30 years and no interest and put in writing that they will not pursue any deficiency judgment against you. This is very important and the key that you need to ask them. Since you refinanced your loan it is a recourse loan and therefore they can pursue you for a deficiency judgment, in this case, only a court can decide if they can pursue against you or not. Countrywide used Old Republic Indemnity as their PMI, they probably use other PMI companies but what I know they used Old Republic Indemnity on my second mortgage.

In California if you have a Purchase Money Mortgage and never refinance there is an Anti Deficiency Judgment called lace w:st="on">Californialace> Section 580b meaning your lender can not pursue any deficiency judgment once the house forecloses or sold. If your home qualified as a principal residence and has purchase money mortgage then if you do Short Sale, the balance owed called deficiency judgment is covered under CA Section 580b which states:

No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser

Where both a chattel mortgage and a deed of trust or mortgage have been given to secure payment of the balance of the combined purchase price of both real and personal property, no deficiency judgment shall lie at any time under any one thereof if no deficiency judgment would lie under the deed of trust or mortgage on the real property or estate for years therein.

Your home must be your principal residence in which the you and family lives. It includes the conventional single family home, condominium or cooperative, a mobile home or a duplex. If the taxpayer has more than one residence, it is the home in which the taxpayer lives most of the time.


As far as IRS debt forgiveness of the balance owed and if it is considered income
please click the IRS website to answer your questions regarding this matter.

,The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

There's a group of lawyers here in this site that can help you answer your questions regarding your situation, see link below.
.
http://www.loansafe.org/forum/california-attorneys/

It is for your best interest that you ask a lawyer who has expertise in Real Estate, Loan Modfication, and Bankruptcy laws. You can check the State Bar Association to see if the lawyer you have in mind is licensed to practice laws.

http://members.calbar.ca.gov/search/member.aspx

God bless and take care.

[Hodgini66]

Originally Posted by faith

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

Even if you don't qualify under the terms and conditions set forth under this act, AND assuming you are not collectible (no net assets to speak of) there is still hope by filing a fairly well-kept-secret form 982 with IRS called "INSOLVENCY".

Basically, if you are worth nothing on paper and you receive a 1099 for debt forgiveness, you get off the hook on some level (or all levels) , tax-wise.

Consult a competent CPA/tax advisor. First question to ask when interviewing?

"Have you ever filed a Form 982 on behalf of a client?" LOL

http://www.irs.gov/pub/irs-pdf/f982.pdf

In case you wondered... TurboTax doesn't handle situations with this complexity (it actually tells you to consult with a tax advisor! ROFL), so you'd better hire a competent CPA/Tax advisor with prior experience in this area.

Best of Luck!

[faith]

Originally Posted by Hodgini66

Even if you don't qualify under the terms and conditions set forth under this act, AND assuming you are not collectible (no net assets to speak of) there is still hope by filing a fairly well-kept-secret form 982 with IRS called "INSOLVENCY".

Basically, if you are worth nothing on paper and you receive a 1099 for debt forgiveness, you get off the hook on some level (or all levels) , tax-wise.

Consult a competent CPA/tax advisor. First question to ask when interviewing?

"Have you ever filed a Form 982 on behalf of a client?" LOL

http://www.irs.gov/pub/irs-pdf/f982.pdf

In case you wondered... TurboTax doesn't handle situations with this complexity (it actually tells you to consult with a tax advisor! ROFL), so you'd better hire a competent CPA/Tax advisor with prior experience in this area.

Best of Luck!

Hodgini66,
Just want to let you know that I have been using Turbo tax for decades including this year for last year's income tax and yes I have used 982, I do not trust HR Block or any accountant. I have bad experienced with HR block when I've went to one of their office, the agent that was assigned to me made a lot of mistakes and when I've reviewed her work, I found a lot of mistakes, so I did it myself. I enrolled in Income Tax Preparer class at Federated Tax Service and learned how to make income tax and have been preparing income tax for me, family and friends free of charge.

As far as 982 form you can complete it yourself when you receive your 1099C from the lender. In my case Countrywide did not send me the 1099C this year inspite of repeated phone calls and requests. Thank God I have an email from CW negotiator stating that the investor will send me the 1099C and how much the balance forgiven. I've made a copy of this email from that negotiator and attach it to my letter telling them that the lender and the investor did not send me the 1099C, Both IRS and Franchise Tax Board accepted my letter and the form 982 and sent me a refund of $90.

If you don't know how to prepare your income tax, it is for your best interest to hire an Accountant as Hodgin has indicated but make sure that he is licensed, check also the Better Business Bureau for ratings and complaints..

Good luck and take care.

[cdmosaic]

I would caution you about the anti-deficiency protection after a short sale. It is my understanding that 580b is not relevant to short sales. You need to see an attorney to discuss your specifics and how they relate to a short sale. This is because unless the lender agrees, a short sale doesn’t eliminate your obligations under the mortgage, it merely releases the lien from the property. If you do not negotiate otherwise and your state law allows it, you may remain liable for any deficiency that results from the ultimate sale of the property.

California has two primary laws that deal with foreclosures and ensuing potential deficiencies. These two laws are 580b and 580d, and are found in the California Code of Civil Procedure. Essentially, one provides that no deficiency may arise under any circumstance as long as the loan was “purchase money” and the other provides that no deficiency may arise if the lender makes an “irrevocable election” to pursue the property thru a “non-judicial sale.”

CCP 580b: This is the purchase money rule. Under this rule, a lender cannot pursue a debtor after foreclosure for any deficiency balance as long as the qualifications under 580b are met. That means that if there was a judicial or non-judicial sale, and the lender did not receive their full loan balance from the sale and money is still owed, they can not enforce payment on the difference.

CCP 580d: This is the Trustee Sale Non-Deficiency Rule: Under this rule, once a lender irrevocably elects to proceed with a non-judicial sale, it is prohibited from proceeding any further on any deficiency. That means that if even if there is non-judicial sale, and the lender did not receive their full loan balance from the sale where you still owe money, it still cannot enforce payment on the difference.

Also, BofA has recently stated they have changed their policy regarding short sales.
“Bank of America has reportedly changed its short sale agreements to provide that the homeowner will remain liable for any unpaid balance owed on the mortgage after the sale.”
Short Sales and Bank of America : Mortgage Law Network