Category: Deed in Lieu

North Carolina Mortgage Foreclosure Process – Lost Loan Notes

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Categories: borrower, Deed in Lieu, foreclosure, Foreclosures & Mortgage Loan Relief, Jason A McGrath, loan note, lost note, mortgage, Mortgage Loan Modification, North Carolina
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In this video, focusing on the North Carolina foreclosure process, attorney Jason McGrath discusses how a lost loan note can affect a foreclosure proceeding.

It is important to note that foreclosures can vary greatly depending on the smallest detail. An experienced real estate contract lawyer in Charlotte NC should be able to access your particular situation and guide you toward the best possible resolution.

If you are facing a foreclosure situation in North Carolina, please fill out our confidential client intake form for legal assistance. We have staff available to assist with real estate and mortgage matters in Tennessee, North Carolina, South Carolina, Georgia, Florida, and even Ohio.

Being Sued by a Mortgage Insurance Company for an Insurance Policy you Paid for?

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Categories: CitiMortgage, Deed in Lieu, foreclosure, homeowners, Jason A McGrath, Life and the Law, mortgage loan, North Carolina, PMI, private mortgage insurance, Private Mortgage Insurance (PMI), Real Estate, short sale

As attorneys who provide a variety of real estate and mortgage related services, including foreclosures and post-foreclosure disputes, we know that many (most?) borrowers really don’t understand private mortgage insurance. Known as PMI, private mortgage insurance is to benefit the lender, not the borrower – even though the borrower is paying for it.

What makes it worse from the borrower’s perspective is that, in addition to being foreclosed on, a borrower can end up being sued by the mortgage insurance company in relation to the very same policy the borrower paid for. The highly technical terms we use to describe this include:

Technical terms

We’ve advised and defended borrowers in these cases. The most common fact scenario is this one:

  • a foreclosure takes place (or sometimes even a short sale or a deed-in-lieu of foreclosure);

 

  • the loan is not paid off in full;

 

  • the creditor (lender / loan note holder) makes a claim against the private mortgage insurance policy;

 

  • the mortgage insurance company pays the creditor to reimburse it for its losses on the loan;

 

  • the mortgage insurance company sues the borrower / former homeowner, under the theory of “We only had to pay out on this policy because you didn’t pay the loan off in full, so you owe us”; and
  • the borrower is shocked, comes to us for help.

We’ve seen cases in which the mortgage insurance company may not actually have paid out the money it was seeking to recover, in which the mortgage insurance company was unable to even produce the insurance policy at issue, and in which the borrower has been assured by the persons involved in the deal (before our involvement) that the borrower was going to be “free and clear” after a foreclosure, short sale, or deed-in-lieu. However, we’ve also seen cases in which the borrower did appear to legally owe the monies being sought by the insurance company.

These cases usually – in our experience and based on our assistance – go away without the borrower having to pay what the mortgage insurance company is seeking. However, each case and each client is different, and no guarantees or predictions can be made. The bottom line is that anyone wanting to reach a settlement with the lender / note holder before the property is disposed of and anyone who has been notified of a claim against them related to PMI should be educated and informed and perhaps seek professional assistance. 

McGrath & Spielberger, PLLC provides legal services in Florida, Georgia, North Carolina, Ohio, South Carolina, and Tennessee, as well as in some Federal courts. The Firm offers full scale representation, as well as limited scope services, as appropriate for the situation. Please be advised that the content on this website is not legal advice, but rather informational, and no attorney-client relationship is formed without the express agreement of this law firm. Thank you.

Mortgage Loan Debt Forgiveness

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Categories: debt forgiveness, Deed in Lieu, foreclosure, Foreclosures & Mortgage Loan Relief, Kelly Brown, loan modification, mortgage loan debt, mortgage loan debt income, short sales, tax, Tax Issues

Is Canceled Mortgage Loan Debt Income that you are Taxed on?

As an attorney with specific tax law knowledge who also works with borrowers to avoid foreclosure and/or to otherwise resolve mortgage loan problems, I deal with short sales, deeds in lieu of foreclosure, loan modifications, and mortgage loan settlements on a regular basis. Borrowers are usually thrilled to be able to get rid of unwanted mortgage debt either through disposing of the property, as part of a discounted pay off which allows them to keep the property, or in the form of a principal reduction as part of a modification. However, the mortgage loan debt canceled as a result of these types of transactions can have negative future tax consequences for the borrower.

Generally, canceled or reduced mortgage principal is treated as income by the IRS, which means the amount of forgiven/reduced debt would normally be taxable income to the borrower. However, the Federal Government enacted the Mortgage Forgiveness Debt Relief Act of 2007 (the “Act”) to exclude up to $2 million of forgiven debt on a taxpayer’s primary residence from taxable income. This type of forgiven debt is specifically referred to as “Qualified Principal Residence Indebtedness”. The Act has been extended several times, with the most recent extension occurring in January 2015 to retroactively cover 2014, meaning that certain mortgage debt which was canceled or forgiven in 2014 need not be included as income to the borrower. 

North Carolina and South Carolina have different approaches on these matters as far as state income taxes. In most recent years, North Carolina followed the Federal Government’s lead and enacted legislation to exclude Qualified Principal Residence Indebtedness from a taxpayer’s income for state tax purposes. The North Carolina state exclusion expired in 2013 (just like the Federal exclusion), but unlike the Federal Government, North Carolina has not yet extended the exclusion to cover 2014. Thus, as of the date of this writing, the exclusion currently applies to 2014 for purposes of South Carolina state income taxes but not for North Carolina state income taxes (but changes may be taking place within weeks).

The debate surrounding the debt forgiveness exclusion is a hot topic for North Carolina lawmakers. In February 2015, the North Carolina State Senate passed a bill that requires forgiven debt to be included as income. North Carolina’s initial failure to extend the exclusion and the effect on homeowners was recently discussed by McGrath & Spielberger attorney Jason McGrath when he was interviewed by the Charlotte Observer.

The bill was subsequently rewritten by the NC House of Representatives to exclude forgiven debt from income and then passed by the NC House in early March 2015. As it currently stands, a Conference Committee with members from both the Senate and the House was appointed late last week to hash out whether North Carolina will follow the lead of the IRS and allow certain forgiven mortgage loan debt to be excluded from state taxation from the borrower side for certain debt canceled in 2014. Governor McCrory, of course, can sign or refuse to sign whichever version of the bill is presented to him.

At this point, homeowners with Qualified Principal Residence Indebtedness from 2014 will be able to exclude the forgiven debt amount from Federal income tax but would have to include that amount for North Carolina state income tax purposes. Homeowners facing foreclosure and other difficult mortgage loan situations could be forced into deciding whether to keep the home or pay at least state income tax later as to any canceled mortgage loan debt.

In contrast, South Carolina closely resembles the Federal income tax laws with only a few modifications. South Carolina has simplified its tax scheme by deciding to follow the Federal government’s lead on tax laws with any differences expressly stated in the South Carolina statutes. In fact, § 12-6-40(c) of the South Carolina Code of Laws specifically states, “If Internal Revenue Code sections adopted by this State which expired or portions thereof expired on December 31, 2013, are extended, but otherwise not amended, by congressional enactment during 2014, these sections or portions thereof also are extended for South Carolina income tax purposes in the same manner that they are extended for Federal income tax purposes.” Qualified Principal Residence Indebtedness is not mentioned or excluded in the South Carolina Income Tax Act and thus, one can conclude that the retroactive extension of the Mortgage Forgiveness Debt Relief Act of 2007 by the Federal Government allows a borrower in South Carolina to exclude certain forgiven debt for South Carolina state income tax purposes.

In addition to the Qualified Principal Residence Indebtedness exclusion, borrowers, including those in both North Carolina and South Carolina may be able to exclude some or all of forgiven debt from Federal taxation under the IRS’ insolvency exemption. The insolvency exemption allows a taxpayer to exclude canceled or forgiven debt from income if the taxpayer is insolvent. A borrower is insolvent when the total of all the liabilities exceed the fair market value of all the assets immediately before the cancellation of the debt. However, a borrower can only exclude forgiven debt up to the amount he or she was insolvent. 

Whatever you do, just make sure you are fully aware of the potential consequences of your mortgage loan resolution; there’s nothing worse than a nasty tax surprise hitting you out of the blue. If you need advice regarding a tax situation, a distressed mortgage loan, or something similar, please don’t hesitate to contact us to speak to an attorney Charlotte NC and Mt Pleasant SC.

Will a Foreclosure Start or Continue While a Modification or Other Mortgage Relief Request is Pending?

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Categories: Deed in Lieu, foreclosure, Foreclosures & Mortgage Loan Relief, Mortgage Loan Modification, Mortgage Modification, National Mortgage Settlement, short sale
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One of the most common questions that I and other lawyers in my firm are asked by borrowers is weather a foreclosure action will start or commence even if the borrower is supposedly being considered for a mortgage loan modification or other type of mortgage relief such as a forbearance plan, a short sale, or a deed in lieu of foreclosure. Of course a relevant and important follow up question is why lenders continue to foreclose even if a mortgage relief option is supposedly in the works.

Unfortunately, in almost every circumstance, a mortgage lender/servicer such as Bank of America, Citibank, Chase, GMAC, and Wells Fargo will commence or continue foreclosure activities even while representatives of such loan servicers continue to tell the borrower that they are being considered for a modification, or even on the verge of receiving a final mortgage relief offer. Many of our clients have expressed that they feel as though the lender is dangling a carrot out in front of them with the one hand, while whipping them with the other. Many borrowers have expressed that they feel as though lenders are intentionally leading them on about the possibility of a mortgage relief option, just so the borrower is lulled into a false sense of security while the lender continues to foreclose.
I have one very important suggestion for you. I have handled numerous cases in which the mortgage lender or servicer has actually, from its standpoint, halted or even dismissed a foreclosure action but has either failed to communicate that to its foreclosure lawyers or to the borrower or the attorney for the borrower.  If you are facing foreclosure, be sure to attempt to have direct contact with the entities who are prosecuting the foreclosure, or have your attorney do the same if you are represented.  It is important to – as best as you can – make sure that you are as well informed as possible. Yes, of course, getting information out of these lenders is almost impossible at times, but it is important that you keep making the effort.

In order to be fair, we have to consider the reasons why mortgage loan lenders and servicers may continue to foreclose even though mortgage relief options are being considered.  As in almost all legal matters which involve opposing sides, one side may wish to impose pressure on the other in order to get what it wants.  From a strategical perspective, an attorney advising the lender may very well advise the lender to keep the pressure on for a number of reasons.  Since some borrowers are unable to comply with the terms of a mortgage relief opportunity, and others simply turn down opportunities for mortgage relief, the bank may be best served by continuing a foreclosure action until a mortgage relief option is finalized.  Keep in mind that the banks can typically take a situation to the very edge of a foreclosure sale yet not execute that sale if some final resolution short of foreclosure can be reached.

Let me make one final comment on this topic.  You should be aware that there are numerous prohibitions against foreclosure under certain circumstances.  These prohibitions may be found in federal law, state law, federal government program guidelines, court orders, court settlements, etc.  Further information on this specific topic will be provided in on our website, including pages which discuss prohibitions against foreclosure contained within the Making Home Affordable program.

McGrath & Spielberger, PLLC provides assistance to borrowers in need of mortgage relief services, such as mortgage loan modification, foreclosure negotiation, refinancing, and deed-in-lieu or other negotiated settlement resolutions.