George — As you know in the nearly two years I have been working as the lead attorney for The Short Sale Negotiator, taxes are one of the biggest considerations people faced with losing their home fret about. Like all situations, a client should never let the tax tale wag the dog. Ever since I graduated Georgetown University Law Center and Graduate School of Business, I have been highly involved in personal income tax from my half decade experience at the National Tax Office of KPMG and my near decade experience of running Tucker & Associates, PLLC, a full service real estate and tax law firm.

Essentially, the IRC mirrors the Section 121 requirements for mitigation of tax loss on Cancellation of Indebtedness Income. In other words, if you have met the 24 out of the previous 60 months occupancy requirements as a married couple your first $500,000 in debt ($250,000) is forgiven, much like your first $500,000 in capital gain would be excluded from income.

Clearly, for investment properties or second homes it is a different story. However, what we do at Tucker & Associates, PLLC, in conjunction with the Short Sale Negotiator is examine the complete picture to help assess the clients situation. Perfect example, we helped a charming couple short sale their investment property last week. They were concerned about the 1099-C they would receive from their lender for the $165,000 of debt we got them relieved from with no personal recourse. However, I reminded them they had substantial improvements which were basis additions to their property which helped their situation — in fact it is easiest to examine the numerics:

House Purchased for $650,000
20% down Payment $130,000
Loan $520,000
Lender Received $355,000 on Short Sale

The popular press, myths men, and some of the hucksters out there led them to believe they would have a $165,000 of ordinary income on their 2009 taxes! WRONG. Their basis was $650,000 the $130,000 they already lost (their hard earned down payment), would be netted out of their tax calculation. Additionally, they had receipts and bills for a $40,000 finished basement. Hence, they actually had a capital loss (since it was a transaction entered into for profit – an investment property) of $10,000!

Additionally, if you qualify as a real estate professional, meaning the majority of your income is earned in the real property trade, this loss would have been ordinary, and come straight off the top.

At Tucker & Associates, PLLC and the Short Sale Negotiator we not only level the playing field, we empower you with the knowledge to get your life back on track. Never believe that foreclosure or bankruptcy is a better option – you have two viable options – loan modification or our Hybrid Refinance if you want to stay — short sale if you rather go. Best of luck, remember knowledge is power!

Lawrence Tucker, Esquire, MBA, guest blogger.
Principal Attorney, Tucker & Associates, PLLC.

When you are faced with losing your home, whether it is voluntarily by means of a Short Sale Solution or by Foreclosure, it is important to understand the potential tax burden is a “Constant”. You will have to determine the right course of action to mitigate the ramifications of the forgiven debt. Do not be alarmed. Focus on the solution for the mortgage and the house. The mitigation of the 1099C for the potential taxes on the forgiven debt will fall into place.

Every one of our customers is scared of three things when considering a Short Sale Solution.

• How will this affect my Credit?
• What about the Taxes Ramifications?
• What about the Deficiency or otherwise the Personal Liability?

These three questions cause most people a significant amount of stress and loss of sleep. With a basic plan it doesn’t need to be this way. I want to briefly focus on the tax question.

The 1099C is a federal reporting requirement for forgiven and unpaid debt placed on the lenders by the IRS. Anything to do with the IRS scares people to death. Step back for a moment. This is only a reporting requirement and not a henchman’s order to come and drag you and your family to the castle dungeon.

If you worry so much about the “Constant”, and you don’t address a solution for the mortgage and the house, then you are going to have a much bigger problem with foreclosure and you will still eventually have to address the tax issue.

Put the solution for the mortgage problem at the forefront and take some time to research mitigation strategies for the potential tax issue. Our program outlines four primary areas that you can take to your tax advisor to mitigate the tax issue without the worry.

The vast majority of homeowners that are considering a solution with their primary residence will be protected from any tax burden on forgiven debt under the Mortgage Forgiveness Debt Relief Act of 2007. It’s almost been a year since this legislation has passed and most people are either unaware of it or unsure and it causes them stress.

In a normal setting, debt forgiveness would result in taxable income. The new legislation allows for the exclusion of tax on up to 2 million in forgiven mortgage debt on your primary residence.

For more on this legislation go to IRS.gov and look up IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. You can always give Uncle Sam at call as well at 800-Tax-Form (800) 829 3676 and ask about form 982.

If it is not your primary residence our program will guide you through what you need to suggest to your tax advisor to address the tax issue. There is no reason to be alarmed. Simply consult a tax advisor or accountant in the calendar year when you complete your short sale.

There is a solution to the tax issue through proper mitigation, accounting, and filings that will protect you. All the laws and avenues of mitigate regarding this issue already exist so please stop worrying yourself to death.

Nobody wants to deal with the Tax Man because his reputation precedes him. That is certainly understandable. However, given the magnitude of the housing crisis, this is not one of those times to be afraid. Focus on the solution and you will be ok.

GHunter

Well we have all had just about enough from Congress. Congress and the regulatory houses did not just make a few mistakes. They were absent and its time for you to make them accountable at the polls. What am I talking about?

Remember Fannie Mae, Freddie Mac, Bear Sterns, and Lehman Brothers? Great American institutions and everything is going to be just fine until it isn’t. There are people in office and at the Securities Exchange Commission (SEC) that represent that they will look after the markets and ensure that it is fair for the little guy.

Fannie and Freddie were fine and about a month later they weren’t fine and had to be nationalized. Oh come on, conservatorship means insufficient capital as far as the eye can see and if you were a stockholder it means “toast”.

Bear Sterns is really what I am itching to talk about. Both Bear and Lehman were fine on a given Monday. Their CEO’s said they were adequately capitalized and they would be fine. What a pack of lies. The most recent statement came from Dick Fuld of Lehman Brothers. I am sure that Dick didn’t know about the 45 to 1 leverage, or that no one in God’s creation wanted to buy them, or that the leveraged residential and commercial mortgage paper was no good. His parents knew long ago and that is why they named him appropriately “Dick”. How does it feel to be a Lehman Brothers stockholder? I would like to see guys like this go to jail. Where the hell is Sarbanes Oxley?

This brings me to Bear Sterns. Bear was a similar situation and in my opinion based on personal experience more of a culprit than Lehman. Based on what I am about to share with you Bear should be out of business and Lehman should have been saved. Although who am I to make all this stuff up? It must have just been a dream. I had a dream that we were selling significant qualities of mortgage paper to Bear Sterns. Under the cover of the insurance agencies and their backhanded triple A rated deals the mortgage paper was garbage and the regulators were blind to what was taking place. In 06 & 07 Bear Sterns was pushing the financing envelope beyond anyone’s imagination. No one was coherent or even present to question it.

Enter the “Straw Buyer”. If you can sell anything in a pool of mortgages on Wall Street and the government doesn’t care then why should you? Bear Sterns did exactly this, at least as far as my dream goes.

The Straw Buyer is a person with good credit and a job that joins an investor group and writes a contract for the purchase of a property. This person has no money but they do have good credit and a job. To Bear Sterns this was an opportunity to find a way to give this person a loan. Why worry about underwriting guidelines like “reserves” or “skin in the game”. Let’s let the people find somebody else’s money and we will give them a loan. Let me clarify, not just any loan, how about a loan up to $1,000,000 with no income verification and only four credit trades with a 12 month history. You only need guidelines if you have to convince the market that is buying the paper that it is good paper. If there is no threshold to raise the money then do what ever you please. Wow!

How did the straw buyer get the loan if they had no money of their own? What lender would create a mortgage program that would allow this under any type of protective underwriting guidelines? Bear Sterns wanted to fill more pools of securitizations to Wall Street so they allowed loans to straw buyers who were members of investor clubs. The investor clubs would have a couple accounts with a couple hundred thousand dollars in them. These account statements would be shared with multiples of borrowers accompanied by a letter from the investment club that stated the buyer was a member and had the rights to the funds. Wow again!. The straw buyer would buy the house and the investor club would make the payments as long as the real estate market continued to go up. Properties were sold and the club and the straw buyer shared the profit. If the real estate market cracked and the club got caught with the property the straw buyer agreed to take the foreclosure and stick the problem to the lender. That is exactly what happened.

This was a great gig for the straw buyers and the investment clubs. Well now that the party ended and the wave of delinquencies and foreclosures has hit us, everyone is blaming the homeowners. The homeowners must just be stupid or is there something else that nobody wants to talk about. Bear Sterns never should have allowed any perspective buyer to obtain a mortgage without their own money. This is pure unadulterated greed and they got away with it while the regulators were literally asleep at the wheel.

What a dream that was. I wouldn’t want to claim it to be more than fiction because it may really look bad and interfere with all the photo ops Congress likes to enjoy. Heaven forbid that anyone at the SEC should have to actually earn their paychecks. Showing up for work and cashing them is more in line with reality.

When you vote you should know the extent that our country’s leadership was absent. This was despicable. Let’s vote these idiots out of office and bring accountability and prudent underwriting guidelines back. I am voting for experience and strong track records that can be validated. Go forward on November 4th and make your vote count.

What do you think? This is America and I am tired of this crap.

GHunter

This is a new program we have coming out this week that will give people another option to stay in there home. If you are not interested in a Short Sale Solution and you would like to keep your home and Avoid Foreclosure, the Hybrid Refinance is another constructive option to consider.

The program will provide a new competitive 30 year fixed rate loan that will allow homeowners to enjoy many of the benefits of both a Loan Modification and a Short Sale while keeping their home with an affordable long term solution. The key here is long term and not a short term fix with unaffordable strings attached. We still don’t know all the details of the government program but we do know that there will be many restrictions with both short and long term strings attached.

How does the Hybrid Refinance work?

We provide you a new 30 year fixed rate loan at a market rate from our national banking affiliate. Our Expert Negotiators, in conjunction with our legal team, will contact your lender(s) to mitigate and/or restructure the residual mortgage debt above 85% of the current fair market appraised value of your home.

The residual mortgage debt will either be forgiven or restructured so as to allow you to keep your home for the long term.

How is it a Hybrid of a Loan Modification and a Short Sale Solution?

The Hybrid Refinance resembles a Loan Modification by providing you with a new affordable loan but with a new lender. Your old lender gets the majority of their mortgage paid off and maintains the majority of their original interest in a restructured format as an incentive to cooperate. The Hybrid resembles a Short Sale in that we mitigate and/or restructure the mortgage debt. In the end you get to keep your home and you have an affordable solution that is quantified upfront and not an expensive short term fix.

Who is the best candidate for the Hybrid Refinance?

• Homeowners that can qualify for a new loan and want to stay in their home with an affordable solution
• Homeowners, those that are either not currently delinquent or no more than 90 days delinquent on their current mortgage.
• Anyone that is facing a payment increase in the short term from an adjustable rate mortgage that is looking for a long term solution.

What is the cost?

The total cost for this service is $2,495 plus standard refinance costs that can be rolled into the new loan. Interest rates are very competitive and we only offer a 30 year fixed rate loan.

Example: $400,000 In total mortgage debt.
$350,000 Appraised value of the home.
$297,500 New 30 year fixed loan (85% Loan-to-Value)
$104,500 Restructured or Forgiven debt.

If you are interested in the Hybrid Refinance Program please apply online under Full Service and note Hybrid Refinance in the notes section of the application. A representative will call you back within 72 hours for a personal phone consultation.

Any clients that enroll in the Hybrid Refinance Program and are not completely satisfied with the solution also have the option of later switching to a Short Sale Solution without having to pay any additional retainer fees.

GHunter

The Federal Housing Administration (FHA) was created to help make buying a home more affordable and also to open up the housing market to a much larger buying pool. Many people think that the FHA lends the money directly to the consumer, but in actuality the money is lent by a bank or broker, and then FHA insures the lender against loss.

Bank of America, as well as most of the major and smaller banks, lend money through the FHA program to perspective homeowners nationwide. This program was the most popular lending program when I got into the business in 1983 and a large percentage of the mortgages made today are guaranteed by FHA.

The FHA loan has many advantages:

-The minimum down payment is 3.50% of the sales price currently up to a maximum of $729,900. However, current legislation will cut that to $625,000 Jan. 1st, 2009 unless something changes on the legislative front.

- The funds for the down payment may be a gift from a related third party. This has really helped many graduating college students buy a home rather than rent.

- FHA also allows for related parties to cosign (co-guarantee) a loan in order to bring the income qualifying ratios within line, and allow a person who otherwise may not qualify on their own to obtain a mortgage. This is the only loan program I know of that provides this option.

- The FHA required minimum credit score varies from bank to bank, but it is much more forgiving as compared to any conventional loan. For example, Bank of America requires a minimum credit score of 560 for FHA loans and 680 for conventional loans.

-You are eligible for an FHA loan even if you are a permanent resident alien. U.S. citizenship is not required.

-FHA loans are available to purchase a single family home, townhouse, or an FHA approved condominium.

-The FHA loan is assumable by a qualified purchaser. Back in the 1980’s this was a huge advantage to people selling their homes, when they were accompanied by an 8.0% FHA mortgage that was assumable, to a buyer of their property in an environment when the rates were as high 14%. I believe this will again prove to be a huge advantage in the future as rates rise from these historic lows.

-The interest rates are very attractive. Today’s rates on 30 year fixed are 6.25% (always subject to change). An adjustable rate mortgage with a slightly lower rate is also available at your option.

-The seller can opt to pay up to 6.0% of the sales price towards closing costs and pre-paids or escrows (excluding the down payment). This affords the buyer the option of only having to come up with the 3.50% minimum down payment as long as the seller has agreed to contribute the maximum toward closing costs.

I have done many FHA loans in my life and most of the people that I have helped with these mortgages have ended up as very happy homeowners. With all the misinformation in the today’s market regarding the lack of mortgage programs with less than 20% down, the FHA mortgage program in many cases can be viewed as the vehicle of choice.

Let’s thank the government for spending our money wisely on this program given it has stood the test of time and has proven to actually benefits homeowners.

Eric Steinkraus, Guest Blogger
Eric.p.steinkraus@bankofamerica.com

It is very important for all real estate professionals to work as a team and exercise certain elements of control if they want to be successful with Short Sales.

What some people preach, but fail to practice, is that repeat business from happy customers is earned. In order to earn the opportunity of a renewed client in as little as 12-24 months the client must follow our credit strategy and the team must execute on a plan together.

I am going to offer you an example that will help everyone understand what is at stake and what can happen when even small elements of teamwork are not present.

On September 10th a Short Sale for one of our Full Service clients was due to settle after four hard months of negotiations with two lenders had been completed. This was a particularly grueling negotiation because both lenders had taken the position that they were insulated from the housing crisis and didn’t have to agree to anything. Let’s just call this laughable and belligerent. After four months both lenders took a more realistic and constructive approach and both Short Sale Proposals were finally approved.

Each lender had a different agreement with mandatory deadlines to receive the approved figures and funds before agreeing to release the liens. The second trust agreement was particularly onerous and our team strongly suggested that all parties use our affiliate settlement company, New Era Title. We knew that if the deadlines were not met that this transaction could suffer. Further, our affiliate title company guaranteed competitive fees with a fee match program so the purchasers were treated fairly. The only issue at stake was the necessary level of control and experience to satisfy all variables required by the lenders to successfully complete this transaction.

In spite of our argument and suggestions, the purchasing realtor demanded that we use their title company to represent the purchaser, and they assured everyone that their title company was experience with short sales. Well that apparently was not the case.

The contract went to settlement and everyone showed up with their money. Our title company represented the seller and played traffic cop in an attempt to help the other title company complete the transaction. After settlement the other title company demanded an agreement by the second trust lender be changed before they would fund. Some of the agreements are vague, and at time ambiguous, and always subject to interpretation based on the previously approved numbers. We were not able to get the agreement changed. After significant efforts from all other participants the purchasers’ title company finally agreed to fund the transaction. However, there was only one problem. The deadline for the second trust has passed by three full business days. The entire transaction was now potentially in jeopardy.

From this point, when the title company finally sent the money, the second trust lender rejected it and decided to take $4200 out of our seller’s bank account with no notice. The seller had already put up the necessary funds required to close and was only left with $10.29 in his bank account after the seizure of funds. The homeowner now didn’t have money to pay his bills, which for all intensive purposes left him short of funds to reclose the transaction. The 2nd lender went on to make it clear that the seller had missed the deadline and that they really didn’t care to hear arguments of fairness. The second trust lender dictated that they were owned the money and that it would not be returned and that any agreement would have to be reworked for approval.

Due to the delays, the next thing that happened was that the purchaser got cold feet and withdrew from the transaction. In a period of 12 days, a solution for a distressed homeowner and his family, came completely apart because of a greedy self righteous realtor demanded that they use their inexperienced title company.

Everybody lost in this scenario. The client recently called me and asked what was going to happen to him and his family. I told him that the first trust lender was restarting foreclosure immediately because their deadline had now also passed. I explained that the lender has this legal right to foreclosure and that we have a very small window to get a new contract and resurrect the transaction.

Personally, I have a difficult time understanding why some people are so against the team concept. When you know the risks ahead of time, and you still chose to force a rookie paralegal on a short sale when they have no experience, I think that is just selfish. I was told it came down to the purchasing realtor having a limited partnership or controlled business arrangement financial interest in the title company that was chosen for the purchaser.

If you are so against teamwork, and you have no room for compassion for the distressed homeowner that is trying to provide a solution for their lender, maybe you should reconsider participating in Short Sales.

The Short Sale Solution, done properly, is an excellent means of avoiding foreclosure and everyone can win if we keep the “I” out of Team.

GHunter.

Another client complained just this morning that they had spent six months trying to get a Loan Modification approved with their lender, only to discover that they simply could not afford the remedy.

This is a real problem in the current environment. The fundamental issue with a Loan Modification is that the lender is only focused on the money they are owed and they are discounting the cooperation of the homeowner. Put a different way, the lender is assuming they hold all the cards and that the homeowner must cooperate as they dictate terms.

If the homeowner cannot afford the modified terms they then have little choice but not to make the payments. The general attitude of the lenders is that they don’t care. Dropping an unaffordable payment by a couple hundred bucks is not going to keep a family in a home. There is nothing that will force the lenders to reconsider unless you focus on a more level solution.

This brings us back to the Short Sale Solution. This actually uncovers the incentive to cooperate with the homeowner by revealing the downside of ambivalence, and the risks associated with the lack of the cooperation and foreclosure.

Again, with all the strings attached to loan modifications, it time to lose the strong moral character and get realistic about a solution. The lender is a machine and they don’t care about you. Once you accept this concept you will be much better off. Stop calling them pleading your case and hoping they will come to your rescue. Focus on a real solution.

The only good thing that I have seen recently with failed Loan Modifications is that homeowners clearly see that the lender does not have their best interest at heart. Seeing this by first hand experience is very startling. This usually puts the homeowner on a clear path of indifference with a solution and their family’s best interest at the forefront.

If you are looking for help and you want to avoid foreclosure, let me save you months of anguish and false hope. Investigate both a Loan Modification and a Short Sale Solution as a means of avoiding foreclosure. Then you will be in a much better position to make the right decision for your situation.

GHunter

A Loan Modification is an option to consider with your lender only if you really want to stay in your current home. This process requires that you complete an application and submit it back to your lender with personal financial documentation. This process can normally take up to sixty days for approval. The benefit here is that if you can afford the final outcome, you get to stay in your home.

The downside is that if there are too many strings attached you can potentially get taken advantage of for no good reason. Weight the strings attached the and over-all costs very carefully against alternatives of a Short Sale. Both will give you the option to avoid foreclosure.

Many people use the loan modification process as a stalling mechanism to ward off an approaching foreclosure date. This is an excellent tactic for that purpose but you still need an ultimate plan regarding whether to stay in your current home or sell it.

There are many risks associated with a loan modification. The primary risk is that there is no level playing field to negotiate as compared to a short sale. Yes, it is true that you can stay in your home and avoid foreclosure, but at what cost, and can you bear the cost over the long term or is this just a temporary fix.

Here in lies the problem. Unlike a Short Sale, where there are clearly defined benefits for the lender, a loan modification theoretically is like calling up your lender and telling them your problem with the hopes that they will be fair and come to your aid. Many lenders will come to your aid and they will also be fair. However, you won’t get everything you want and you will have to measure carefully the benefits.

The good news is that if you are unhappy with the terms of the final Loan Modification you can always still choose the Short Sale option immediately afterward and still avoid foreclosure with a little training and knowledge. You always have the right to break the terms of the Loan Modification and move towards a Short Sale Solution so don’t feel you are pinned down permanently with any such decision.

Here is an example of the risk that caused me to use the term “beware” in the heading.

A gentleman recently was referred to me by a local realtor. This individual was an ex military person with strong moral character and he wanted to do the right thing. He and his wife were struggling with a housing payment that had recently adjusted to approximately $4500 per month. They were imminently facing foreclosure with no plan so they called their lender and it was suggested that they apply for a Loan Modification. They completed the credit application and submitted the financial information along with a check for $10,000. Now for a little context, this family had already spent $150,000 improving the house and trailing the bid of the market down over the past 18 months in an attempt to sell it in the open market. They were told by their lender that everything looked good, and that with their check for $10,000 on deposit, a foreclosure date would not be set and they would hear right about the 60 day mark. Well, the verdict came back form the lender and if you will humor me for a minute I would like to adlib the way I interpreted the conversation.

“Thanks for the $10,000, we already cashed your check. Your new payment is now $5,500 per month”. “What, you have to be kidding?” “We were having problems paying the $4500.” “Yes, I understand sir but these are the terms of the committee and if you don’t make it we will foreclose on you and kick you to the curb. Have a nice day!”

It gets better. This gentleman was so angry it took me personally over several weeks and collectively several hours to calm him down and convince him to stop with the anger and start focusing on the solution. I told him what an old Uncle once said to me growing up. He said, “you can punch a man in the eye and it will hurt him for a week or you hit him in his wallet and it will hurt for a very long time”. Together we decided that it was only fair to punch the lender in the wallet.

This was morally wrong for the lender to take advantage of this family in this way. However, the lender’s point of view was, “they owed us the money”. The homeowner was not able to find anyone at the lender who cared enough to listen to him.

He is now proposing a Short Sale to his lender. Not all lenders are so unscrupulous. The lesson here is to proceed with caution and not with a false sense of security when requesting a Loan Modification from your lender. In the end, our man will prevail and the anger will be gone.

When you are considering a loan modification, please beware and very skeptical if you are required to put up large sums of money. There are downside risks. You know this is very true when the FDIC is advertising that they will consider Loan Modifications with no up front money.

You may simply be better off choosing the proactive path of a short sale and find another home. Lenders are machines in recapture mode and they can make it very rough on you.

GHunter