ForeclosureEducationandStrategy

This is a hub page built to education anyone going thru foreclosure. I personally have gone thru the foreclosure process and know that it is a frustrating world out there as when you search on 'foreclosure help' or 'mortgage default' your google search mostly finds only web pages of sites that offer to 'buy your house for cash' or 'give you a full price offer' or worse, some 'credit education' website that advises you (for a fee of course) what to do.

The Foreclosure and Strategy Manifesto:

You will never be pitched here, nor be asked to enter your email and contact details so your name can be sold and you are then bombarded with calls/letters/etc.!

What is Foreclosure?

Foreclosure happens when one can no longer make payments on their mortgage. It varies state to state but generally the foreclosure process takes more than 6 months...and in today's environment with the banks being shell-shocked in exploding amounts of paperwork...I've seen foreclosures take up to one year!

Technically, the mortgage or 'deed of trust' (some States call it a 'mortgage' and some states a 'deed of trust') is in default when the borrower (Trustor) misses the first payment. However, most lenders (Beneficiaries) won't begin the foreclosure process until the third payment is missed.

In California, the state of the market is that foreclosures pretty much are on the 6 month timeline. Meaning that if you stop making the mortgage payments starting in January...then you can count on July having the home foreclosed on if nothing is done to stop the foreclosure.

In Florida however, foreclosures should follow the same timeline but I've seen lenders take up to one year to foreclose since the first payment was not made. One foreclosure attorney that represents lenders indicated to me that in Florida, there are only a few firms that lenders use to do the legal foreclosure process and they are 'swamped' right now...thus a backlog of paperwork causing a much slower foreclosure process in the state of Florida.

To learn more about state by state specific laws on foreclosure,click here.

What to Do if you are in Default of your Mortgage Payments?

Well, I can say I feel for you as I know what it is like to get the onslaught of phone calls, letters in your mailbox, process servers at your door serving you with court papers or other legal documents, and real estate investors knocking at your door wanting to buy your house.

The first thing to do which is the hardest...is phone your lender. Let them know what is going on and you'd be suprised in today's market, how they just might try to work something out.

This hub page will be a little different than what is out there on the internet. I'm going to unleash the secrets real estate investors, attornies and banks don't want you to know. Such secrets and techniques as:

1. Giving the deed back to the bank and including key words on the deed so that you are not held liable for a "deficiency judgement".
2. Calculations to determine if you should 'walk away' or 'stay'
3. Bankruptcy options - what your bankruptcy attorney may not tell you about - the 'deficiency judgement' and how from a tax perspective, it may be a wash with the IRS
4. How this impacts your credit
5. Calling the bank - they may work with you to keep your house - now is the time to call and ask!
6. New Tactic you may not have heard about, hiring an attorney to fight the bank for Truth in Lending Violations or asking the foreclosing bank lawyers to show proof they can foreclose by providing to the courts the original signed note of the borrower.

Why give the Deed Back to the Bank?

Well, if the decision is to walk away...then you could save the bank lots of legal fees by simply mailing hte deed back to them. They may not take it or send it back to you...but at least if they try to go after you two years later when you are back on your feet and making money, you can show to the judge that you acted in good faith in giving the house back. You see, a deficiency judgement must be via the civil courts and you can fight it.

What is a Deficiency Judgement?

If your home gets foreclosed on and the bank sells it at auction (the courthouse steps) for less than what is owed on it, then the difference is what the bank could go after you for as a "Deficiency Judgement". For example, if you owe $300,000 on the first mortgage and the house sells at auction by the bank or trustee for $200,000...then the $100,000 difference is the 'deficiency amount". The bank must get a civil judgement against you in order to go after you for those funds.

In addition, the bank will most likely put the deficiency judgment on your credit record, adding yet one more item to 'clean' up on your credit as you get back on your feet! If you are really concerned about your personal credit and how to improve your credit after or during this process, you will find one of the best credit repair companies that is family owned, operated since early 2000 to be found at Credit Empowerment. Just mention to them Mia Roman told you about them and they will give you a 10% discount on any of their packages.

I will also start another hub page on credit repair as I've used a few companies and some are down right scoundrels and some really know their stuff and can genuinely help you!

The Three Letters you Never Want to Hear...?

Well, the news gets worse..the three letters everyone dreads are quite simply , the IRS. The $100,000 deficiency in the above example, well since the bank then 'forgave' the difference of the loan amount vs sold amount...they will send a 1099 to the IRS with your social security number and come tax time, the IRS thinks you've made $100,000! Now how much in bed is the IRS with the credit lending businesses to have that wonky kind of reporting? Paying taxes on a benefit or cash you never received?

What is worse is that if there is anyone in the world you don't want to owe - it is the IRS. Most banks won't chase you down to collect the 'deficiency' amount, but the IRS, that is another matter. I found this post on a Florida Bankruptcy Law blog attorney informative on the IRS 1099 and deficiency judgements.

So listen up and this is key...DO NOT get scared or freaked out...there are options on dealing with this:

1. In the example above, if you purchased the home for $300,000 and the bank sells it for $200,000 and you get a 1099 for $100,000...well guess what, on your taxes you can also then show a loss of $100,000 via the asset, your home selling for $100,000 less than capital acquisition...so voila, they wash out each other so NET ZERO TAX on that ugly 1099 from the bank! Bet your tax attorney, bankruptcy attorney, real estate investor friend never told you that! :)

2. If 1 above doesn't apply and you 'refinanced' the home to the $300,000 first mortgage, then your option could be to simply negotiate with the IRS...you obviously don't have the money to pay that tax debt and as it 'ages' the IRS will more likely negotiate with you so it is a win/win for all parties.

3. The B-Word, yes - I will mention it here as you'd be nuts not to weigh all your options here. Bankruptcy is a tough pill to swallow but if you truly need a fresh start to get out of this mess, then it will eliminate the deficiency judgements and if the 1099 has not been issued yet, the IRS 1099 tax issue goes away as well.

4. Short Sale your house with a realtor or investor. This is the choice 'thrown' upon you by many letters and knocks at your door and may work for you. Just try to make sure the bank waives the deficiency judgement as part of your agreement to purchase and sale of your home.

Wow - I would be remiss to not post this on my hubpage for all of you!

Grrreat News! You no longer will have to worry about the "Phantom Income" IRS issue if your house gets foreclosed on and it is sold for less

at the auction or as REO (Real Estate Owned) than what you owed on it ....

"When your home is losing value and your family is under financial

stress, the last thing you need is to be hit with higher taxes.

So I'm working with members of both parties to pass a bill that will protect

homeowners from having to pay taxes on cancelled mortgage debt."

─ President George W. Bush, 9/1/07

Here is the link to the Mortgage Forgiveness Debt Relief Act signed

in December, 2007.

Even Cramer wonders how the banks are getting away with this....even stating the the banks are writing wonderul pieces of fiction...fabricated in a style Hemmingway or Faulkner would be proud of.

See the Cramer "raging on the banks" in full video at CNBC's Squawk Box. Cramer says he is "fed up with it. The American people should be fed up with it."

Cramer says it was all about commision - by jamming it to the clients. For a majority of mortgage brokers, the commissions on the loan products were so gigantic they were enticed to get the loan done no matter what. The sad thing about it is that the executives of most of the big banks...will walk away with millions.

This is a short info-blurb on a new technique being used to delay the foreclosure process and in fact, fight the banks. It is something you may not read too much about in the press as I'm sure most banks won't want to have this knowldege spread too far in the realm of the Internet.

Here is the news...there are a small amount of lawyers who are using Truth In Lending violations and "show me the original note" as a negotiating tactic to work with the banks, save one's credit and even in some cases, get the interest payments you paid back.

I wil report on this tactic more as more cases get heard but there has already been one federal case where the Judge basically threw bank attornies out of the court room for lack of sufficient basis to go after a homeowner as they could not provide the original note.

Think about it, there has been a colassal amount of loans done in the last few years, huge volumes then being sold in these 'creative financing debt instruments on Wall Street' to numerous parties...so who kept track of where the original signed notes are?