Critical Due Diligence That Could Save You Thousands!

The homeowner has certain rights which should not be tread upon during this foreclosure process. Below are some Senate Bills and forms that the homeowner should have within reach to avoid being taken advantage of during this time.

SB 1137This is a Senate bill that was passed in 2008 to ensure that Lenders are following certain procedures before issuing a Notice of Default.

The rules of the new law outlined below apply to loans that were secured by the homeowner between January 1, 2003 and December 31, 2007. This bill only applies  to loans where the homeowner is occupying the home. These rules will remain effective until January 1, 2013.  The requirements are extensive and the full text should be consulted for details. The full text can be found here.

  1. A Notice of Default (NOD) may not be filed by the lender until 30 days after contact is made in person or by telephone with a homeowner to asses their financial situation and explore their options to avoid foreclosure, or until 30 days after satisfying specific due diligence requirements.
  2. During the initial contact the homeowner must be advised of the right to request a second meeting.  If a meeting is requested then it must be scheduled within 14 days.
  3. An assessment of the homeowner’s financial situation and a discussion of their options can occur at either the first contact or at the subsequent meeting, but in either case the homeowner must be provided a toll-free number for HUD certified housing counseling agencies.
  4. A NOD must include a declaration that the homeowner has been contacted or due diligence has been used to try to contact the homeowner or that the homeowner has surrendered the property.  Due diligence includes providing a link to information on the options to avoid foreclosure on the web site of the beneficiary or their agent.
  5. If a NOD was filed prior to the effective date of the new law, without a subsequent notice of rescission, then a new declaration must be included as part of the notice of sale.  The declaration must state that the homeowner was contacted to assess their financial situation and explore options to avoid foreclosure or that no contact occurred; in which case the efforts made to contact the homeowner   must be listed.
  6. A NOD may be filed when a homeowner has not been contacted as required by the new law if the failure to contact the homeowner occurred despite the due diligence of the lender or their agent.  The actions that constitute due diligence are listed in the new law.
  7. A new notice has been created by the law and must be posted and mailed at the same time a notice of sale is posted.  The notice advises residents that the property may be sold and that their right to continue to reside in the property may be affected, along with certain other information.

www.makinghomeaffordable.gov –  This is a website set up by the Obama Administration.  The Making Home Affordable Program offers help and  includes opportunities to modify or refinance your mortgage to lower your monthly payment. This website also includes the Home Affordable Foreclosure Alternatives Program for homeowners who are interested in a short sale or deed-in-lieu of foreclosure.

Tax Forms- There are certain tax forms that homeowners should ask a tax professional about.  These forms include the following:

1099A -This is an M9 credit rating and should be utilized in the case of a foreclosure.

1099C -Cancellation of Debt. Homeowners whose debt is reduced or eliminated should receive a year-end statement (Form 1099-C) from their lender. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure. Here is an instruction page on what to do with a 1099C, as well as a 1099A.

Form 982 Normally, if a homeowner has a debt forgiven, the remaining loan total is considered to be a taxable income. For example, if the homeowner has a loan for $10,000 and pays off $2,000 before having the loan forgiven, the remaining $8,000 would be considered taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude debt forgiven on their property if the balance of their loan was $2 million or less. The limit is $1 million for a married person filing a separate return. Debt forgiven on second homes, rental property, business property, credit cards or car loans do not qualify for the new tax-relief act. See Form 982 for details.

FAQ about the Mortgage Forgiveness Debt Relief Act and Debt Cancellation.

 

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