Foreclosure University

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Foreclosure on my home in New York affecting my other home in South Carolina

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Question: I built a home in New York two and a half years ago for my daughter to live in. The mortgage and title is in my name only for a current balance of $147,000.00. My wife and I live in South Carolina. Our condo here is on the edge. We could probably sell it for what is owed. We also have a boat that probably has $30,000.00 in equity. Add in a Money Market Account with $35,000.00 and $60,000.00 in what were 401K’s but are now rolled into simple IRA’s. Credit card debt is about $10,000.00 Cars are bought and paid for. My daughter has not been able to make the mortgage payments for the last eight months. I have been making them, along with all of my own payments. It has come to the point where I am going to have to let the bank have the house back. I have about $50,000.00 wrapped up in the house, but when the bottom dropped out in rural upstate NY, it really dropped out, and I could not sell the house at this time. If I let the house go into foreclosure, can they touch any of my other assets. My wife is co-signitor on the condo and boat, but again, not on the NY house. I have excellent credit, but I’m at the age where I seriously doubt that I will be making any major purchases any time soon.

Answer: -Can they come after your assets? No. Because when you signed the paperwork, the bank agreed to loan you the money and used the house as collateral. However, if you ultimately go through foreclosure, the bank has the right to file a judgment against you for the amount they lost. So you are expected to pay the difference or in most cases people will file bankruptcy to eliminate the judgment. By doing so would require you to sell some or all your assets. So the best option is to work out a pay off or settlement with the bank for a fraction of what you owe on the loan. This is called a short sale. By having the bank approve a short sale and asking them to satisfy the loan, they give up their right to file a judgment. You’ll also able to avoid foreclosure and possible bankruptcy. Again the key here is to get them to “satisfy the loan”. By doing a short sale, you’re also giving the buyer a good deal on a home that is upside down. Now if you are successful in getting a short sale approved, more than likely they will just 1099 you for the difference. But that’s a lot better than a judgment. And there is a chance they won’t 1099 you either.

Foreclosure with a Federal Tax Lien

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I traveled to my recorder’s office to research the title on a foreclosure property that had an opening bid posted of $14,600. What I found was a 2008 federal tax lien on the property for $27,600. This was on the same day that the sale was to be held so I did not have the time to research the problem before the sale was held. Briefly, this is what I have learned on the subject from different sites, verified on the IRS web site www.irs.gov/irb/2007-36_IRB/ar17.html: (But I still have a BIG question)

Assuming the debt being foreclosed on is senior to the fed tax lien:

1) The lender foreclosing must give 25 day notice to the IRS of the sale and receive their “consent” to have the sale in order for the junior tax lien to be wiped out.
2) If the IRS has been notified and given consent, the IRS has a 120 day right of redemption after the sale and, if acted upon, the buyer at the sale will be reimbursed the purchase price by the IRS plus interest.
3) If the IRS does not redeem within the 120 days, the tax lien is gone for good.
4) If the IRS has not been notified and given consent, the tax lien is still there.

The Question: As a possible buyer at a sale, how can I know that the the IRS has been sent the proper notice and given consent? Is it always done by the Trustee as a requirement of preparing for a foreclosure sale on a property with a tax lien? Will the IRS respond to a telephone call about this?

I contacted the Trustee (a law firm) holding the sale and they said they would not give out any info about the title of a sale property (standard reply).
It seems important before bidding that I get something in writing from the lender or Trustee that the IRS has been satisfied or some assurance from the IRS direct.

Any experiences with this question would be appreciated…..

 

Answer:

There are a lot of issues here and some missing info, but I think you can break down the analysis into a few basics.

First you say the opening bid is $14,600, but the lien is $27,600. How much is the first lien, how much is the house likely to sell for, and how much is the house actually worth on the market?

If you bid on the house and are unsuccessful, game over. If you happen to get the house, one of two things happen. Either the IRS elects to recover the property and pay you off, or you get them to release the lien.

You say it’s a foreclosure, and let’s also assume the IRS lien is in 2nd position, and the first lien is $50,000. If the house sells for $70,000, the first will collect their $50K, the IRS will probably take the remaining $20K, and release the lien, making the house free and clear, and you get $30,000 of equity.

Now let’s say the value is $100K, but the first lien is 90K. No matter what the sale price is, there isn’t enough equity there for the IRS to fool with. If there is not enough “2nd lien market value” left after the sale, it’s likely they would go away after filing a request.

It really doesn’t matter if the IRS has been notified or not, they will eventually make their decision to redeem and recover, based on any equity left in the home. So as any good investor knows, you just have to know your exit strategy before you buy, to know if it is financially worth the trouble or not.

You either win (get the house and the lien released) or you tie (the IRS repays you and takes the house). I don’t see a “lose” situation here.

Good luck!

 

HELOC in Maricopa County

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Question: I foreclosed on a home in Maricopa county Arizona as of September 15th. I have a Heloc loan which i got with the purchase of the house. They are now saying i still owe them and that the Heloc is like a credit card and i will keep owing. What should i do?

Answer: -Well, you can try to settle the debt with them and pay them a fraction (5% -10%) of the original loan amount, you can do nothing and hope they issue you a 1099 in which you will have to pay taxes on that money you received, or they will file a deficiency judgment against you in which they can garnish wages and so forth until that amount is paid. If it goes that far, most people will file bankruptcy and either get it wiped out completely with a Chapter 7 or agree to pay the lender a certain amount (5% – 10%) over a period of time with a Chapter 13.

Orlando short sales, need urgent help!

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Question: I live in Orlando and I recently got engaged. I am now in a position where I would like to move in with my fiance and sell my property. I have 2 properties that I would like to short sell, my house and a condo. Both properties are obviously not worth what they used to be and I can’t sell either of them for what I owe. I just got a general appraisal on the house today and it is approximately $56,000 less than what I currently owe. I have called both of my banks and gotten the requirements of short sell. My banks are BOA for the house and Wells Fargo for the condo. The bank states that your mortgage should be 31% of your income, mine is closer to 55%. The problem is I believe that in order to sell both properties, I will have to do 3-short sells at one time, one for my house, one for the condo and one for the line of credit or 2nd mortgage for the condo in order to prove hardship.  Does the fact that my mortgage is 55% of my income help me prove financial hardship? Can I short sell my condo to my fiance before we get married? Should I consult a real estate attorney or an agent for help? Any help on this would be greatly appreciated. Thank you!

 

Answer: -55% is a lot, but may not prove financial hardship, unless you’ve had a loss in income or increase in bills or something like that. You can short sell you home to anyone you want as long as they are not related, “arms length” does have some grey area, but that’s your call.   You also risk not getting the short sale approved in which then your home will go to auction and then the 2nd may file a judgment against you for the amount they lost. But if that’s your best option then, yes a short sale is a great route to go. I would definitely seek help from an agent if you need to find some buyers…or investors in your area would probably love to do a short sale on them.

Who is liable for paying unpaid property taxes when I buy a foreclosed home from the bank?

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Question: Who is liable for paying unpaid property taxes when I buy a foreclosed home from the bank?

Answer: -Typically property taxes are senior to any lien on the home including the mortgage…meaning they have priority over everything. So if you are buying a property at the auction, it’s important to research the property and get a title report so you know if there are any unpaid property taxes because you or the winning bidder will be responsible to pay those off. Now if you buy or purchase a property that is REO or in other words “bank owned” then they will pay any of those unpaid property taxes so they can sell the property with a clear title. Hope that helps.

Do we legally Qualify for 1st time Home Buyers Tax Credit?

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Question: We have heard recently from IRS that we may not qualify for the 1st time Home Buyer’s Tax Credit because of our past ownership. We foreclosed on our home due to business failure in January 2006. Home went to courthouse auction May 2006. New Home was purchased and closed on Aug 25th 2009.

At what point of our Michigan foreclosure process would one be no longer legally be considered a home owner of that foreclosed property? Assuming it would be as of the auction date May 2006 then it would be over 3 years from purchase date of new home. Or is the redemption period included as ownership?
The Question is: Do we legally Qualify for 1st time Home Buyers Tax Credit?
Deborah

 

Answer: -Yes from what you’ve described, it sounds like you would qualify for the 1st time Home Buyers Tax Credit based on the 3 years of non-homeownership that qualifies a person to receive the tax credit. However, the IRS must be taking into account the redemption period time, which I believe in Michigan is anywhere from 6 months to 1 year depending on the property, after which time you would technically not own the property anymore. There are other “things” that would disqualify you from receiving the 1st time Home Buyer Tax Credit, but if the IRS specifically told you it was because of past ownership, then I can’t think of anything else that would cause your ownership of a home to be less than the 3 years stated. Maybe someone else can shed more light on this…or you can google IRS First-Time Homebuyer Credit Questions…it has a ton of answers there.

Good Luck.