Short sale fraud second mortgage shakedown (Video)
January 17, 2010 By 4 Comments
Distressed Real Estate News and Opinion
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Wow! Shocking although not surprising in some ways to see what some second loan/home equity lenders will do to try to get the money they’re owed in a foreclosure. If they’d done their due diligence they’d have known not to lend the money or as much money in the first place because they would end up with a potential short sale.
Some state laws have made it tougher, if not downright impossible, for lenders to collect such short-sale debt. But others allow lenders to have free rein unless, that is, you had the foresight to get your mortgage company to agree to a “waiver of deficiency.”
Even if someone in your lender’s office made a verbal promise saying you’d be totally off the hook when the deal was done, it could be pretty tough to prove in court. So barring something in writing, stating that you aren’t responsible for the deficiency … well, you know the rest.
The amount at stake is a small amount it probably wouldn’t be worth taking the mortgage company to court over. But you should feel free to discuss the issue with a real estate attorney who may recognize other recourses based on all facts of the case.
Now to the matter of your tax treatment. There is help: The Mortgage Forgiveness Debt Relief Act of 2007, which was signed into law in December 2007. It was designed to relieve taxes on forgiven debt, previously considered by the IRS as “phantom income” that is realized in a short sale or foreclosure. It applies to most relief given after Jan. 1, 2007, and through 2012.
What if I’ve filed my returns and didn’t take advantage of the Mortgage Forgiveness Debt Relief Act of 2007?
The good news is you can correct your little faux pas by filing an amended return for the 2007 and 2008 tax years, using Form 1040X, the Amended U.S. Individual Income Tax Return. Be sure to explain the change very clearly on the amended return. Such amendments are common and shouldn’t be a red flag for an audit, should that concern you.
You should also try to negotiate the deficiency to obtain a lower amount. When you hear, “We’ll settle,” that usually means there’s room for more negotiation. Make sure you mention to the mortgage company that you believe it gave you wrong or even deceptive information when you made your short-sale decision.
There’s another scam out there that was encountered by my son. When he made a purchase offer on a foreclosed house with a personal check for the $1700 earnest money deposit, the foreclosure sales company countered with what sounds like a scam deal. They required a cashiers check for the earnest money deposit and included a requirement that he must secure financing within 13 days and home inspection in 7 days. We all know that currently it is not possible to secure financing that quickly and doubtful that the inspection could be completed that quickly, thus the contract would default and he would lose the earnest money deposit. He countered with a longer deadline for securing the loan and inspection and it was denied so he walked away from the deal.
I believe someone should be investigating the companies that are responsible for selling these foreclosed homes as less astute buyers could be taken in by these tactics and their REaltors being anxious to close deals may not advising their clients to walk away from potentially fraudulent practices.
Anyone who actually says “…done their due diligence they’d have known not to lend the money or as much money in the first place because they would end up with a potential short sale”
IS OBVIOUSLY BLISSFULLY UNAWARE IN THEIR OWN WORLD as to what is going on in the REAL world. Banks who did the “due dilligence” 6 years ago during the housing boom, were not in the mindset that a housing crash and recession would follow. I was a banker with good credit that bought a house well within my means, had two children (as most familes do increase in members over time), and then lost my job in one of the worst hit industries and areas in the south. Additionally, my husband, a project manager in commercial construction lost his job and had to take a pay cut by working maintenance for a community. Unable to obtain a new job at anywhere near my previous pay, I took on a temporary internship to make ends meet. When that ended, I was left with nothing. I am trying to short sale now. I am still the same person I was 6 years ago when I purchased. I even tried to modify through the HAMP program but my mortgage company stated that I had to cancel health insurance for my children in order to be approved-because that was considered a luxury expense. So I don’t think your comment is very educated and in line with what is really happening out there in the REAL world.