Northern California Mortgage Mods

Property taxes are almost unique among taxes:  no human being is liable for a property tax.

Under California law, the county’s property tax lien is first in the line of lienholders on a piece of property.  The property taxes come ahead of even the senior mortgage lien.

First in line

The priority of the tax is why one of the promises in the standard California deed of trust is a promise to pay the taxes. And that’s why the lender will step in and pay them if the homeowner doesn’t.

If the taxes are unpaid for sufficiently long, the county’s lien entitles it to conduct a tax sale and take title to the property.  A tax sale destroys all of the other, junior liens on the property.  That fact keeps the lender interested in whether the taxes are paid.

With the power to sell the property out from under the homeowner, the county does not need a claim against the owner of the property.  Which, after all that’s gone above, gets me to my point:  you have no personal liability for property taxes.

No one in California (and I can’t speak for any other state) can be sued to collect a property tax.  Walk away from a home with the taxes unpaid, and the tax remains as a charge against the real estate.  It does not result in a collection suit for a money judgment against the homeowner.

 When you can’t pay everything

Homeowners struggling to hang on to a home in the face of reduced income  may have to make choices about which liens to pay.

I suggest that not paying the property taxes is the safest bet. Property taxes must be delinquent for 5 years before the county can hold a sale.  There is no immediate threat that the property will be lost to a tax sale.

There is a very good chance that the mortgage lender will pay the tax to protect its position, and to stop the running of a very high rate of interest on the unpaid tax.

Another time, we’ll talk about whether to pay the first or the second when there’s not enough to go round.

Image credit:  Fotolia

Santa Cruz County mortgage lending lawyer Bill Purdy is our guest author.

Taxable Debt Relief?-Do Ask- Do Tell

Are you currently facing foreclosure? Was your home foreclosed upon in the last 3 years?

Are you considering short selling your home? Did you short sell your home for far less than what was owed to the lender(s)?

Have you received a form 1099-C and/or a form 1099-A from the lender(s)? If so, you’re one the new walking wounded.

What happens now?

Why of course the self-same taxpayers who footed the Wall Street bailout, are receiving huge, crushing income tax bills from the IRS and the California Franchise Tax Board.

These tax bills are so large, most middle class Americans will never be able to actually repay the tax owed, even over time. No matter how long they live.

The IRS is now forcibly collecting taxes for the same cancelled debt the debt buyers are still trying to collect. (Remember the famous video of the water buffalo in Kruger National Park, torn head from hindquarters by a lion and a crocodile at the same time?)

Millions of Americans are getting form 1099-C and 1099-A, Information Returns.

This “information”  will ripen into tax bills unless the recipient takes deliberate thoughtful action.

The resulting tax bills tend to be massive ones.  Many times the tax bills purport to show that the former homeowners owe more taxes in one year than many of they actually made that year.

Very often these taxes can be completely avoided or tremendously reduced.

The truth is no one actually knows how many of these “taxpayers” actually owe ANY of the money they are now being forced to pay.

The IRS’s own form 982 contains at least three exceptions that can wipe out or substantially reduce federal and state income taxes on otherwise taxable relief of indebtedness income tax for former homeowners.

•    There is an exception for debt reduced or forgiven in bankruptcy.
•    There is a separate exception for taxpayers who were insolvent at the time the debt relief occurred.
•    There is still another exception for Qualified Principal Residence Indebtedness.

In California, and some other states, there is a fourth HUGE exception for non-recourse loans.

And yet again, another situation: the foreclosure or short sale of a rental property can often result in little or no tax due because of the suspended passive loss rules and an IRS form 4797 ordinary losses on the disposition of the rental property. The problem is the former property owner has to know what they are doing.

Step one is the realization that you must affirmatively DO SOMETHING.

Most former homeowners have no idea what to do with the 1099-A and 1099-C forms they are NOW getting.

Tens of thousands of CPA(s) and tax preparers have no idea either. The IRS is not helping.

If you are a former homeowner, don’t keep this secret.

Do ask and do tell a competent tax practitioner if you have received from 1099-C or form 1099-A, because the government isn’t telling or helping.

The United States Government is in active partnership with the lending institutions that sent out the forms and has been since the bailout started.
If possible get to a solid tax advisor before you let your home go in foreclosure or short sale. This will maximize your options.

But even if you didn’t do this before foreclosure, more often than not, there is a way to radically reduce or wipe out the tax.

However nothing today is automatic: you must push back.

By William Purdy- Bay Area Tax and Mortgage Lawyer , Simmons & Purdy.

When you’re trying to save your home, just as important as a to-do list  is a list of Don’ts.

Bill Purdy, a law professor and Santa Cruz County real estate  lawyer, is my go-to guy for mortgage and foreclosure issues.  Here’s his  list of worthless ideas  for saving your home.

Today just about everyone knows someone who’s experiencing problems with one or more of their mortgages.  We’ve counseled thousands of borrowers in the last 7 years.

As a result, we’ve identified a series of recurrent themes that lend themselves to a list.  They are in no particular order,  save all of them come up extremely frequently. So here they are with no further ado.

1. The bank needs to show me my note-

Forget about this one. Typically you’ll need to pay about $100,000 in attorney’s fees just to get the bank into court.

In California the attorneys for the bank will eventually show up and produce a note. It may not be much of a note, but they’ll find one. Or make one.

Whatever they do produce, regardless of its condition or legal sufficiency, California courts have shown themselves to be slavishly attendant to every whim of the lending industry. Nobody gets a free house. You’ll lose. It doesn’t matter what the banks and servicers did with your note, or to it. It just doesn’t matter.

2. My Loan’s Got RESPA Violations-

You’d be better off with a partridge in a pear tree, or a lovely bunch of coconuts. In fact, Truth in Lending violations would be much better.

However these days, even TILA violations have been so severely hobbled by the fawning, obsequious, toadies in the federal and state courts, that even TILA violations are almost impossible to assert and enforce in California.

RESPA or the Real Estate Settlement Procedures Act sounds like a formidable weapon a homeowner can use against lenders. It isn’t.

The few private rights of action afforded by RESPA allow the besieged property owner to collect what amount to paltry penalties. RESPA violations even if proven, will NOT stop foreclosure in California especially where the lender is using the non-judicial foreclosure route, and they almost always do.

Forget about RESPA if you are trying to stop a foreclosure. RESPA is a tiny adhesive bandage handed out by the government with great ceremony, for borrowers who’ve been gut-shot with an assault weapon.

3. I Paid My Loan Mod Specialist $______

Just fill in the blank with whatever you forked out up front. Chances are right around 100% you’ve been defrauded.

Your “specialist” is requesting the information from you, and sending it to the lender, if you are lucky. You are paying thousands for this service, simple as that.

For the record, no attorney can get you a loan modification. He or she cannot waive an imperious hand and force the banks into cowering, whimpering, docile cooperation. Neither can anyone else.

The elected officials in the federal government literally gave away 7.2 trillion taxpayer dollars to private companies in the financial industry. The banks were not required to give out a single loan modification return. Not one.

Fraud by the banks is rampant in this area. They are immune to criminal or civil prosecution for what they have done to American homeowners and continue to do. Your elected officials have seen to that.

You have no right to a loan modification whatsoever. Consult a HUD certified specialist nonprofit organization. The real good ones don’t charge a cent. Surepath Financial comes to mind (800)540-2227.

4. I Need to Do a Short Sale to Save My Credit Rating-

What a load of hooey. This might be true on certain occasions under specific circumstances. People with security clearances and those in law enforcement and fire departments come to mind. Their credit rating problems can cost then their top secret clearance or even their job.

Since most lenders and servicers fraudulently inform borrowers trying to get loan mods or obtain short sale approval that they must stop paying on their loans to even be considered, many borrowers have already had their credit pillaged by the lender by the time the short sale closes.

Short sales have their place and it’s an important one for some borrowers, especially now in California with the advent of enhanced CCP 580(e) last year.

Improved CCP 580(e) prohibits all lenders, (not just the first mortgage holder) who accept money at the short sale, from later seeking deficiencies.

Short sales are not a universal panacea for credit woes. We’re seeing borrowers who did short sales about 2 ½ years ago buying new homes now and that’s a hopeful sign. But we’re also seeing people, who filed bankruptcy 2 years ago with 725 credit ratings today.

So there you have Bill’s  list of  worthless diversions in the mortgage morass.   That’s straight talk from an expert.  Take it to heart.

Image: © Tom Bayer – Fotolia.com

The form in the mail promised an independent review of your lender’s foreclosure practices.

However, it  looked a lot like come-ons from scammers.

Two clients this week asked if this was real and whether they should sign up.

I read the form and did a little research.  I concluded

One, it is real.

Two, it may not make much difference.

The Federal Reserve has required several misbehaving  lenders and loan servicers to offer borrowers an independent review of their foreclosure. The mortgage servicers subject to the Fed’s enforcement action are

• GMAC Mortgage,
• HSBC Finance Corporation,
• SunTrust Mortgage, and
• EMC Mortgage Corporation-

The Comptroller of the Currency  regulates another class of lenders, and it has required a foreclosure review of this group of servicers

The program offers the prospect of money damages where foreclosure procedures were defective.

The New York Time’s Gretchen Mortgenson is not hopeful.  Her Christmas Day column detailed charges that the “independent” auditors are in bed with the banks they are supposed to be evaluating.

The National Consumer Law Center is likewise skeptical.  NCLC claims the review process may harm homeowners in that it threatens to strip homeowners of their claims with respect to irregularities in the underlying loans.

The servicers subject to review have set up a site to answer questions on the review process.

Letters to eligible homeowners were expected to have gone out in the last two months of 2011.   The application must be returned with a postmark no later than April 30, 2012.

We’ll follow this story as it develops.

Image courtesy of ImageMD.