With more Americans finding themselves in danger of losing their homes to foreclosure, loan modification companies are becoming more popular, as are scammers on the hunt for desperate homeowners.
One out of every nine homeowners in the U.S. is behind on their mortgage payments by more than three months. Families struggling to keep their home can be easily lured by scammers immediately guaranteeing modifications without requesting the necessary information to secure such a change.
Take the time to get to know who your lender is and who actually owns your particular loan. Most mortgages are owned by a single bank or are otherwise turned into a mortgage-backed security and are now owned by a number of different people.
Scammers will sometimes act suspiciously and make odd requests when you are sending them or your bank important, personal information. One red flag is being asked to pay for a percentage of the fees upfront. It is definitely uncommon and even illegal in some states to charge anything upfront for these services.
A homeowner wanting a loan modification can choose to work with their lender themselves or to seek professional help with an attorney or non-profit counseling service. Most experts don’t recommend attempting to secure your own modification unless you have some experience withforeclosure and finances.
Scrutinize documents so that you are absolutely sure of what you are signing before you sign it. Be wary of any strange or forged-looking papers. Be sure to protect yourself and your investment. It is important to know exactly what you are being promised, and what could happen if you are unable to meet your new obligations.
According to data from RealtyTrac, a company that markets foreclosed properties online, 84 percent of the nation’s metro areas saw a decline in home foreclosures during the first half of 2011. The company also reported that the nation-wide foreclosure rate has dropped 29 percent in the past 12 months.
Industry analysts attribute much of the slowdown in foreclosures to the glut of foreclosed properties on which lenders already foreclosed and cannot sell, not to any dramatic turnaround in the country’s housing market. Additionally, lenders are being more cautious in how they proceed in foreclosing on homes after the 2010 “robo-signing” scandal over how lenders were having attorneys process foreclosure documents without actually verifying the contents of the documents was accurate – and essentially committing foreclosure fraud.
While this may signal poor news for the nation’s economy, lenders being less anxious to foreclose property may help homeowners who are struggling to make their mortgage payments and trying to avoid foreclosure. With a backlog of properties already in lenders’ possession, lenders are less likely to institute new foreclosure proceedings on mortgagees who are behind in payments, giving people extra time to try to get back on track financially before they are in serious danger of losing their homes.
Additionally, lenders may be more open to negotiating a loan modification with more favorable terms for the homeowner so that he or she can make the monthly payments. Finally, lenders might approve more short sales in an effort to avoid the whole foreclosure process and ensure that the lender does not have yet another property to try to sell.
While the news that foreclosure rate has dropped only because lenders have already foreclosed on so many other homes may be disappointing for those looking for signs of recovery in the nation’s economy, this may end up being beneficial for some people who are suffering the brunt of the poor economy and are in danger of losing their homes.
Every day it seems to be the same story: the economy is struggling. Homeowners are struggling. Many homeowners face foreclosure. To save their homes and their livelihoods, many homeowners seek help from outside firms and companies. Opportunistic companies take advantage of homeowners and other consumers who are struggling financially by offering empty promises of help – for a price.
Recently, Indiana Attorney General Greg Zoeller filed lawsuits against two credit services and foreclosure consultants who offered financial assistance to struggling homeowners and promised to help them out of debt. The firms advertised on the Internet to woo the homeowners, but what’s worse is that these firms are accused of specifically targeting vulnerable homeowners by researching public records of
foreclosures. With these records, the firms contacted homeowners with what appeared to be a random offer of help. Desperate, some homeowners accepted the help and lost money because of it.
The two firms, Community One Law Center and National Law Partners of Florida and California, allegedly accepted deposits in return for a promise to help the homeowner out of debt. According to the Indiana Attorney General, homeowners paid the firms anywhere from $499 to $2,699 for their assistance. The homeowners did not receive the help they were promised.
Consumer Fraud Complaints on the Rise
In this difficult economy, consumers have become vulnerable to scams promising to help with debt or reducing debt. Other cases of consumer fraud that have been in the news lately include “robo-signing” affidavits and empty promises from debt settlement companies. According to the Indiana Attorney General, complaints of consumer fraud are up 19 percent.
In order to avoid these scams, homeowners and other consumers should be wary of firms which offer financial assistance or debt reduction services that require payment by the homeowner or other consumer.
You don’t have to look far to find allegations of consumer fraud. One thing is clear – consumers need to be on high alert so they do not become victims.
Indianapolis foreclosure rates have taken a turn for the worse and rose recently to 3.58 percent of all mortgages. This increase is up from last year’s figure of 3.19 percent according to mortgage tracking service Corelogic, which tracks national foreclosure data. Indianapolis has remained higher than the national foreclosure rate, which was 3.44 percent in July.
There are a number of indications that homeowners are still in a very tough financial situation. The percentage of mortgages over 90 days delinquent rose to 6.41 in July, up slightly from the June rate of 6.39. This is the first increase in the month-to-month tracking of these statistics since January according to the Corelogic report. One good sign is that the delinquency rate overall is down 6.98 percent this year from July 2010.
Robo-signing is a widespread problem in Indiana and has a direct affect on many of the problems that homeowners are having across the state. “Robo-signing” is the term given to the problem of low-paid workers signing important documents that they haven’t read, are not qualified to read or are not qualified to sign. Many of these documents found in recording offices were not only foreclosure documents but thousands of other homeownership documents unrelated to foreclosures.
The scandal and investigation that followed has revealed more than 8,000 suspect documents in Allen County alone, according to the Journal Gazette. The inability to verify documents due to signing concerns and fraudulent documents can delay home sales, further adding to the already strained housing market.
Some homeowners have been able to negotiate their way out of underwater mortgages and have emerged free and clear, due to short sales, foreclosures and other options that they may have had available for their situation.
Or have they?
If you managed to get out of a bad mortgage, you do need to confirm you don’t run afoul of the IRS by failing to pay any applicable tax on that loan forgiveness.
Cancellation of Debt
When a bank or other lender forgives a debt, some accounting must be considered. A loan does not qualify as income, because you have to repay the lender with interest, so that money “costs” you.
If the loan is forgiven, the amount “cancelled” can be counted as income, as you received money and did not pay it back. This seems particularly unfair in the context of underwater mortgages; given the property is no longer worth the original loan value, but the “gain” is based on the loan value.
The Mortgage Forgiveness Debt Relief Act
Congress recognized that for many people, if you are in a financial circumstance that necessitates a cancellation of debt, receiving a tax bill for the mortgage forgiveness, might not feel appropriate.
The Mortgage Debt Relief Act of 2007 to allows taxpayers to avoid liability for the “income” resulting from the discharge of debt on your principal residence.
To be eligible, the debt forgiveness must have occurred from 2007 through 2012.
The debt must be related to a “decline in the home’s value or the taxpayer’s financial condition.” $2 million may be forgiven ($1 million if married filing separately.)
Equity loan debt qualifies, but only if the proceeds were used for improvements to the home. If you used a $20,000 home equity loan for paying off credit card debt or buying a car, it cannot be excluded from your income tax.
When doing your taxes, you will now if you have potential debt forgiveness income if your received the IRS Form 1099-C, Cancellation of Debt from your lender.
Carrie Frantz, of Walton Legal Services, will be a presenter at an upcoming NBI seminar. This will be a hands-on walk through the foreclosure process and its legal considerations. Please see the attached for further information.
After attorneys general from 49 states investigated a slew of reports that banks were using fraudulently signed documents to speed up foreclosures in court the national mortgage settlement was put into place. There were also complaints of wrongful foreclosures and other issues coming from the banks’ improper handlings of borrower’s accounts. The banks, however, are progressing rather slowly.
Few Borrowers Given Assistance
The settlement was supposed to help one million borrowers and give $10 billion to struggling borrowers in the form of debt relief. The settlement went into effect over five months ago and the banks have only helped 7,093 borrowers by writing off $750 million in first mortgage debt. The banks have a total of three years to complete the terms of the settlement, if they complete it in the first year, they receive financial incentives.
Bank of America is one of the five banks, and also the bank with the highest settlement obligations. This bank, however, had not made any changes as of the end of June according to the monitor of the national mortgage settlement. The Bank of America claims to have given $596 in relief to 3,823 borrowers.
The banks say that the majority of the relief so far is coming in the form of a short sale. A short sale occurs when a bank sells the borrower’s home for less money than is owed on the home. The bank then agrees to not pursue any further action on the property.
Some Say the Settlement is not Enough
Within the housing community there are critics of the settlement. They say that the agreement is not enough to deal with the current housing crisis. They claim that only 10% of outstanding loans will qualify under the settlement. This is because the main mortgage holders in the country, Fannie Mae and Freddie Mac, are not included in the settlement.
Critics also argue that they are skeptical as to whether the banks will perform the agreement. The agreement requires the banks to implement changes to prevent errors and help with other issues the banks were having in regards to the mortgages. Attorneys and housing counselors who are now working with struggling borrowers claim that the banks’ compliance with the new rules is not as good as it should be.
Individuals struggling with mortgage debt or suspect fraudulent bank practices as were involved in the settlement should seek help before the problem gets out of control. An attorney is a great resource for struggling borrowers and those who feel as if they are being treated unfairly by their lender to get back on track.
The Great Recession and housing market crash brought with it unprecedented numbers in terms of foreclosures. Not only did the housing crash effect homeowners who really wanted to continue living in their homes, but it also had an impact on neighborhoods as homes now sit vacant.
Part of the issue with these now vacant homes, is not only are these homes susceptible to crime and property damage, but there are plenty of cases where the homeowner still technically owns the property and now owes back property taxes and other fees.
These types of homes have been labeled as “zombie” foreclosures. This is when a homeowner received notice of the foreclosure and moved out, only to find out years later that they still legally owned the home.
According to RealtyTrac, in the past three months there have been roughly 302,000 homes in the U.S. that fall under the category of “zombie” foreclosure. Indiana is one of the states with a high number of these types of properties.
In looking at how this even became a problem, one must look back to 2008 when the housing market crashed and banks were having a hard time re-selling properties. In order to save money on costs associated with foreclosures, the banks would just not officially foreclose on the home. While good for the banks, for the homeowners it has become disastrous. Not only is their credit score now affected by the foreclosure, but the unpaid property tax debt only further drives down their credit score.
For those in Indiana who are either facing foreclosure now, or who are living in fear of a foreclosure, as the “zombie” foreclosure issues goes to show, it is important to talk with an attorney when figuring out what next steps need to be taken. Maybe filing for bankruptcy is the best option in order to just avoid the foreclosure process altogether? Or, maybe getting rid of a second mortgage is the best choice? Either way, an attorney can walk through these scenarios with a struggling Indiana homeowner.