Freddie Mac short sale Archives

URGENT – IRS and FTB Update Regarding Short Sales

in 1099 taxes, Anti-deficiency laws, California real estate, California tax exemption, Debt forgiveness, Deed in Lieu, Distressed Homeowners, Foreclosure, Foreclosures, Form 982 tax exemption, Homeowners Exemption, Insolvency Exemption, Mortgage Debt Relief Act, Mortgage Deficiency, Non-recourse loan, Personal Residence, Principal residence, Purchase Money Mortgage, Recourse loan, SB 458, Senate Bill 30, Senate Bill 391, Short sale, Underwater/by Brian Ripley

The California Association of Realtors yesterday issued a press release stating that, as a result of recent rulings by the Internal Revenue Service and California Franchise Tax Board, mortgage debt forgiven in a California short sale is no longer taxable as income.

This is huge news, since the tax exemption for this income tax was scheduled to expire on December 31, 2013 when the Mortgage Debt Relief Act expired. Without these rulings from IRS and FTB, California homeowners whose short sales did not close by year end were facing potentially enormous tax liability.

The IRS ruling was contained in a letter to Senator Barbara Boxer. The FTB ruling was in a letter obtained the C.A.R. from Board of Equalization member George Runner.

The rationale for the rulings appears to be that debt forgiven in a short sale is not considered “recourse” debt under California law, thus exempting it from taxation.

The C.A.R. press release does not state whether this ruling also will apply to short sale of non-primary residences in California, or if it is limited to only certain types of mortgage debt. I have requested my tax experts to review the actual letters and updated regulations to clarify these issues; I will provide that response immediately upon receipt.

At this point, it appears that similar protections will be extended to homeowners whose properties are foreclosed after December 31, 2013 where the debt forgiven was used to buy, build, or make substantial improvements to a primary residence. It does not appear these protections will apply to “deed in lieu” transactions.

California homeowners with pending short sales may breathe a sigh of relief. For these folks, it would appear that Christmas came a few weeks early this year.

SB 30 Update

in 1099 taxes, Anti-deficiency laws, California real estate, California tax exemption, Debt forgiveness, Distressed Homeowners, Form 982 tax exemption, Homeowners Exemption, Insolvency Exemption, Mortgage Debt Relief Act, Mortgage Deficiency, SB 30, SB 391, Senate Bill 30, Senate Bill 391, Short sale/by Brian Ripley

Just a quick update on the status of the California “debt forgiveness” tax measure:

As previously reported, the California Senate passed the California Association of Realtors-sponsored tax relief bill without a single “no” vote on June 20. The bill was then referred to the state Assembly, where it continues to languish. A hearing on the bill is scheduled before the Assembly’s Revenue and Taxation committee on August 12, 2013.

As also reported, the bill as currently drafted remains linked to Senate Bill 391, which imposes new fees for the recording of real estate documents, and which SB 30-sponsor CAR opposes. This means SB 30 will fail unless SB 391 also passes, or unless the two bills are unlinked. SB 391 is also scheduled for a hearing on August 12, 2013 before the Assembly’s Housing & Community Committee.

Stay tuned….

Still No News on SB 30 (StateTax Exemption for Forgiven Mortgage Debt)

in 1099 taxes, California real estate, California tax exemption, Debt forgiveness, Distressed Homeowners, Foreclosure, Foreclosures, Form 982 tax exemption, Homeowners Exemption, Mortgage Debt Relief Act, Mortgage Deficiency, Personal Residence, Principal residence, SB 30, Senate Bill 30, Short sale/by Brian Ripley

As scheduled, the state legislature’s Appropriations Committee held a hearing earlier this month to determine the fate of Senate Bill 30. As a reminder, this is the bill that, if passed, would restore the state tax exemption for the “shadow income” homeowners are imputed to have received if their home is foreclosed or sold in a short sale. That exemption expired on December 31, 2012.

Unfortunately, the committee chose to “table” consideration of the bill to a later date. Specifically, the bill was placed in the AC’s “Suspense File”, to which the committee sends any bill with an annual cost of more than $150,000. Suspense File bills are then considered at one hearing after the state budget has been prepared and the committee has a better sense of available revenue. No testimony is presented – either by the bill’s author or any witness – at the Suspense File hearing.

At present, we have no definitive date on which the Suspense Bill hearing will occur. And the current high volume wrangling between the governor and the legislature over education funding makes it unlikely a final vote on SB 30 will occur pending resolution of these other political “hot potato” budget issues. Stay tuned.

URGENT: FHFA Announces New Fannie/Freddie Short Sale Guidelines

in Fannie Mae, Freddie Mac, HAFA, Short sale, Uncategorized/by Brian Ripley

The Federal Housing Financial Administration (FHFA) has just announced that it will align guidelines for Fannie Mae and Freddie Mac short sales and allow lenders and servicers to quickly and more easily qualify borrowers for a short sale. Real estate professionals and associations have long advocated for a streamlined, standardized short sale process, and some of the changes below address some of the main concerns involving these transactions.

Effective November 1, 2012, the primary changes are as follows:

Eliminates current Fannie Mae and Freddie Mac short sale programs and creates a single standard short sale process for both entities (Fannie and Freddie HAFA programs will expire at the end of the year).
Enables servicers to quickly and easily qualify certain borrowers for short sales who are current on their mortgages without waiting for an approval from Fannie Mae or Freddie Mac Offers special treatment for military personnel with Permanent Change of Station (PCS) orders.
Standardizes and clarifies foreclosure suspensions on a property with an approved short sale.
May pay borrowers up to $3,000 in relocation assistance.
Fannie Mae and Freddie Mac will offer up to $6,000 to subordinate lien holders to expedite a short sale.

FHFA also clarified that a borrower experiencing a hardship must wait at least two years following a short sale before becoming eligible for a new Fannie Mae or Freddie Mac loan.

It is hoped that these new guidelines will improve short sales eligibility for those troubled homeowners trying to avoid a foreclosure so they can move on with their lives. Of course, only time will tell….

See Fannie Mae’s press release regarding the new short sale guidelines: http://www.fanniemae.com/portal/about-us/media/corporate-news/2012/5814.html

For a copy of Freddie Mac’s Servicer Bulletin go to: http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1216.pdf

URGENT: New Fannie/Freddie Short Sale Guidelines Take Effect June 15, 2012

in Fannie Mae, Freddie Mac, HAFA, Short sale, Uncategorized, Underwater/by Brian Ripley

Fannie Mae and Freddie Mac have announced aggressive new guidelines applicable to short sales involving FM loans. The intention, as with most of the recent changes in federal “distressed property” programs, is to streamline the short sale process. Many experts, this writer included, harbor serious doubts whether the guidelines can be achieved.

Chief among the new guidelines, effective June 15, 2012, is the requirement that servicers review and respond to short sale offers or requests within 30 days. Servicers requiring more than 30 days must transmit weekly updates to the borrower/seller, and in all cases provide a final response within 60 days. For HAFA short sales, the clock starts ticking once the borrower has presented a complete short sale approval package. Requests for pre-approval of short sales also must be completed within the new time frames.

As one who has been tracking short sales since 2007, I frankly question whether these new deadlines can — and will — be met. Certainly, I have observed situations where short sales are processed start-to-finish in 2 months or less; however, these are far and away the exception than the rule. More typically, the short sale process from submission of the borrower’s package to issuance of approval by the servicer is 3-4 months or longer. And indeed the timeline can be extended significantly where short sale approval must be issued by more than one lender/servicer.

The new guidelines provide financial incentives to servicers that complete short sales within the new FM timeline. In addition, banks servicing Fannie loans risk fines and other penalties if they fail to follow the guidelines. However, from what I’ve been able to determine, these penalties represent a proverbial “slap on the wrist.” Only time will tell whether servicers that have to date have dragged their feet in processing short sales will now suddenly “snap to” and provide the timely review and approvals that have left far too many borrowers hanging. Hope springs eternal….

Here is a link to a complete copy of the Servicer Guide Announcement: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2012/svc1207.pdf

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