Articles

Forgiven Debt May Be Considered Income by the IRS

As many Americans rush to file their 2011 taxes to meet the April 17th deadline, some may wonder whether they have to pay tax on forgiven mortgage debt. Many individuals who have had mortgage debt forgiven after successfully negotiating with a mortgage company may find they owe tax on the forgiven debt, though there are exceptions to the rule. Income Tax on Forgiven Debt The IRS requires individuals to pay income tax on forgiven mortgage debt. Historically, this includes any loan modifications that reduced the total amount owed on a mortgage and mortgage debt forgiven in the event of a foreclosure. The IRS provides this simplified example on its website: If a homeowner had a loan of $10,000, paid back $2,000, then defaulted on the loan, there was a cancelation of debt of $8,000 and that $8,000 is taxable income. Any amount of canceled debt over $600 must be reported to the IRS, even if it qualifies for some of the following exclusions. What Types of Forgiven or Canceled Debt is Non-Taxable Fortunately, a law passed in 2007 protects homeowners who have had mortgage debt forgiven through foreclosure. The Mortgage Forgiveness Debt Relief Act applies to most homeowners who have had debt forgiven on their principal residences. Rental or business properties are not eligible. The forgiven debt must exceed $600 but be less than $2 million and been forgiven between 2007 and 2012. Other canceled debt may also be non-taxable. Debts discharged through bankruptcy are not considered taxable income. Homeowners that can claim insolvency may also be exempt from paying tax on canceled mortgage debt. A homeowner can claim insolvency if his or her...

Faster Foreclosures in Florida? Not Yet.

The last day of the Florida legislative session saw the quiet death of several bills that would speed the foreclosure process for some homes. The sponsors hope the legislation will help spur economic recovery in the state and plan to try again next session. Florida has suffered a heavy blow from the real estate crisis of the last few years. At times, it has been among the top states for mortgage delinquencies, foreclosures and falling real estate values. The real estate market has been crippled by a glut of foreclosed properties with an estimated 368,000 foreclosure cases working their way through the Florida courts. In February, RealtyTrac noted an increase of almost 53 percent for South Florida foreclosure filings compared with the same period in 2011. These properties in foreclosure inhibit the improvement of real estate prices. Uncertainty over when foreclosed properties will sell within a neighborhood, and at what price, depresses the selling price of all properties. An Added Burden on Borrowers Many consumer advocates complained that the proposed legislation to speed the foreclosure process limited consumer rights and reduced borrower protections in the case of wrongful foreclosures. The current language of the bill would speed the foreclosure process by allowing a bank or other lender to request a “show cause” hearing and receive an immediate ruling from a judge on whether a legitimate defense existed. The legislation also reduced the time a lender could seek to collect a deficiency balance on a foreclosed property from five years to one year. This was one provision that consumer advocates approved. Overall the proposed changes to Florida’s foreclosure law would have benefited the banks...

Florida Homeowners Fight Foreclosure, Met With Injustice

For one homeowner facing foreclosure in Winter Springs, the Judge tried to speed through the case and would not give him a chance to defend himself. This was because the Judge was scheduled to hear over 300 foreclosure cases in just three days. The Florida court system is struggling to manage a backlog of foreclosure cases. The overload resulted from an end to the funding that paid retired judges to hear the cases. Foreclosures have flooded the court system making foreclosure defense even more complicated. Florida Homeowners Fighting Foreclosure In 2007, the young professional had purchased his home in Winter Springs, but was now faced with foreclosure after losing his job. He had been able to pay his mortgage from savings for months while searching for employment. However, when his savings ran out, he could not make his mortgage payments. Then the bank filed for foreclosure. The system works the same for every resident: a foreclosure is filed with the court and the homeowner receives a summons and complaint. If the homeowner submits an answer to the complaint, then a court date is set and the court will make a decision after from hearing from both parties. However, when one judge hears 300 cases in three days very little time is spent on each case. Tips if Facing Foreclosure Steps can be taken to avoid becoming part of the foreclosure system. If you fall behind in mortgage payments, contact the mortgage company. Speak with the loss mitigation department to determine if restructuring options exist. If an agreement is reached over the phone, a written letter of confirmation should be completed and signed...

Help May Be on the Horizon for Florida Homeowners Facing Foreclosure

In December 2009, the Florida Supreme Court ordered that lenders and borrowers be allowed to file for pre-suit mediation prior to initiating the foreclosure process. This pre-suit mediation program, dubbed Residential Mortgage Foreclosure Mediation, fulfills Florida’s mediation requirement for all foreclosure matters and allows lenders and borrowers to voluntarily attempt to obtain a resolution. The goal of the program is to help homeowners keep their homes and give them a fresh start financially. The program was initially available only in state courts. However, in recent months the Federal Bankruptcy Court enlisted bankruptcy trustee Laurie Weatherford’s help in creating a similar program to help homeowners in the federal bankruptcy courts. Bankruptcy judges had grown concerned with the number of debtors who were entering their court rooms owing more on their mortgages then their properties were worth, and seriously behind on their mortgage payments. The federal program works in conjunction with Chapter 13 bankruptcy proceedings. Chapter 13 proceedings can often allow homeowners to keep their homes by working out a debt repayment plan with their creditors. How does the Mortgage Mediation Program Work? The program requires the borrower and lender to come together to work out a resolution. In the first stage, the lender and borrower select a mediator. Mediators are neutral parties who work with the lender and borrower toward a resolution. Once a mediator is chosen, the lender and borrower, and often the borrower’s attorney, sit down together and try to find a solution that keeps the homeowner in their home. Many times the lender will agree to modify the current mortgage. A mortgage modification often lowers the current interest rate on the...

Feds Provide Recourse for Wrongful Foreclosure Victims

It’s no secret that Florida and the rest of the country has suffered through and continues to suffer through a tough economy.  The Great Recession has claimed the livelihoods and homes of many throughout Orlando as savings and even retirement accounts have been tapped into to make ends meet. At the same time, far too many homeowners faced foreclosure because of improper behavior on the part of their mortgage servicers. Sadly, Orlando foreclosure defense attorneys see it all the time. But, finally, the federal government has taken notice of these wrongful foreclosures and is giving Orlando-area homeownes, as well as homeowners throughout the U.S., a way to fight back. Independent Foreclosure Reviews Available Borrowers whose primary residence was in the foreclosure process at some point between January 1, 2009 and December 31, 2010 are eligible to seek an independent review of their foreclosure proceedings if they believe they were wronged by their mortgage servicer. The reviews are available to customers of 24 major mortgage servicers including Chase, CitiBank, Countrywide, GMAC Mortgage, Bank of America, IndyMac, U.S. Bank, Wachovia, Washington Mutual and Wells Fargo. Borrowers who are found to have suffered financial injury may be entitled to monetary compensation. Qualifying financial injuries include, but are not limited to the following: The balance of the mortgage at the time of foreclosure was more than the borrower actually owed The borrower was complying with the terms of a mortgage modification agreement, but the servicer still proceeded with a foreclosure sale The foreclosure action took place while the borrower was protected by bankruptcy The borrower properly requested assistance or modification and was waiting on a decision when the foreclosure sale happened The...
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