FHA Eases Condo Financing Rules

FHA eases burdensome condo financing rules
The biggest source of funding for low-down-payment condo mortgages, the Federal Housing Administration, has revamped controversial rules that caused thousands of building across the country to lose their eligibility for FHA financing.

Making sense of the story

• The revised guidelines, which were issued Sept. 13 and took effect immediately, should make it easier for a large number of homeowner associations to seek certification by the FHA.  Without approval of an entire development, no individual unit can be financed or refinanced with an FHA mortgage.
  
   
• The previous rules prohibited FHA insurance of units in buildings where more than 25 percent of the total floor space was used for commercial or nonresidential purposes.  Yet many condominiums in urban areas have lower floors devoted to retail stores and offices that generate revenues that help support the entire project.  The revised rules allow exceptions of up to 35 percent commercial use, and provide for additional case-by-case exceptions to 50 percent or higher.
  
   
• The Community Associations Institute, the condo industry’s largest trade group, is predicting that the relaxed FHA rules will spark home sales and helps tens of thousands of condominium communities begin to recover from the housing slump.
  
   
• The new rules also offer greater flexibility on investor ownership.  In existing developments, one or more investors are now allowed to own up to 50 percent of the total units provided that at least half of the units are owner-occupied.  The previous rule required that no more than 10 percent of units could be owned by a single investor.

Read the full story

E Housing Newsletter

Click on the link for the most up to date National Association of Realtors Housing statistics
Newsletter http://wendyjimenez.housingtrendsenewsletter.com 

10 Common Short Sale Myths

t’s likely you’ve heard the term “short sale” thrown around quite a bit. What exactly is a short sale?

A short sale is when a bank agrees to accept less than the total amount owed on a mortgage to avoid having to foreclose on the property. This is not a new practice; banks have been doing short sales for years. Only recently, due to the current state of the housing market and economy, has this process become a part of the public consciousness.

To be eligible for a short sale you first have to qualify!

To qualify for a short sale:

• Your house must be worth less than you owe on it.
• You must be able to prove that you are the victim of a true financial hardship, such as a decrease in wages, job loss, or medical condition that has altered your ability to make the same income as when the loan was originated. Divorce, estate situations, etc… also qualify. There are some exceptions to hardship now, but for the most part the bank or investor will need to verify some type of hardship.

Now that you have a basic understanding of what a short sale is, there are some huge misconceptions when it comes to a short sale vs. a foreclosure. We take the most common myths surrounding both short sales and foreclosures and give a brief explanation. LET’S BUST SOME MYTHS!!

1.) If you let your home go to foreclosure you are done with the situation and you can walk away with a clean slate. The reality is that this couldn’t be any farther from the truth in most situations. You could end up with an IRS tax liability and still owing the bank money. Let me explain. Please keep in mind that if your property does go into foreclosure you may be liable for the difference of what is owed on the property versus what is sells for at auction, in the form of a deficiency balance! Please note this is state specific and in most states you will be liable for the shortfall, but in some states the bank may not always be able to pursue the debt. Check your state law as it varies widely from state to state.

Here is an example of how a deficiency balance works

If you owe $200,000 on the property and it sells at auction for $150,000, you could be liable for the $50,000 difference if your state law allows it.

Not only could you be liable for the difference to the bank, but in some situations you could also be liable to the IRS! Although there are exemptions (mostly for principle residences) under the Mortgage Debt Forgiveness Act, there are times when you could be taxed on both a short sale and a foreclosure, even in a principle residence situation. Since the tax code on this is a little complicated and I am not a CPA, I advise always talking to a CPA when in this situation as you are weighing your options. Hard to believe? Well, believe it or not, the IRS counts the difference between the sale and the charged off debt as a “gain” on your taxes. That’s right-you lost money and it’s counted as a gain! (I didn’t make that rule, that’s a wonderful brainchild of the IRS). Banks and the IRS can go as far as attaching your wages. Not to mention if you let your home go to foreclosure you will have that on your credit, as well.

Guess What? A short sale can alleviate your liability to the bank, in most situations. There are also exceptions to this, but in most cases banks are releasing homeowners from the deficiency balance on a short sale.

2.) There are no options to avoid foreclosure. Now more than ever, there are options to avoid foreclosure. Besides a short sale, loan modifications along with deed in lieu are also examples of the many options. In most cases (but not all) a short sale is the best option. Either way, there are more options today than there have ever been to avoid foreclosure.

3.) Banks do not want to participate in a short sale, or, it is too hard to qualify for a short sale. Banks would rather perform a short sale than a foreclosure any day. A foreclosure takes a long time and creates a huge expense for the banks; a short sale saves both time and money. In working with some of the biggest lenders and servicers in the country they have told me that on average they net 17-25% more on a short sale than on a foreclosure. A testament to this is the financial incentives now being offered by banks, and how much the entire process has recently changed to try and streamline the process for all parties. Banks more than ever welcome short sales. Qualifying for a short sale is easier than you think, you need to have a true financial hardship, or a change in your finances and your house has to be worth less than what you owe on it. Not only do consumers, but banks also now have government incentives to participate in short sales.

4.) Short sales are not that common. At this present time, short sales range from 10-50 % of sales in various markets and it is predicted that in 2012 we will have more short sales than any other year, to date. Due to economic changes in the last few years, this is something that is affecting millions of Americans. Short sales are in every market, and are not just limited to any particular income class. This has affected everyone from all facets of life. A short sale should be looked at as a helpful tool, not a negative stigma. That is why the government is offering programs that actually pay consumers to participate in short sales. It is not just affecting one community; it is affecting communities and consumers across the nation.

5.) The short sale process is too difficult and they often get denied.Though the short sale process is time consuming; it is not as difficult as the media would have you believe. The problem is that most short sales are denied because of a misunderstanding of the process. It is true that if the short sale process is not followed correctly there is a good chance of getting denied. An experienced agent knows how to avoid this. Short sales require a lot of experience, and a special skill set. If you are looking to go the option of a short sale make sure your agent is skilled and experienced in this area.

6.) Short sales will cost me money out of pocket. A short sale should not cost you any out of pocket money. In fact, you could get between $3000-up to $30,000 to participate in a short sale. In many ways, a short sale may put you in a better financial position than prior to the short sale. Almost every short sale program now has some type of financial incentive for the home owner, as long as it is a principle residence, and we are even seeing relocation money being paid on some investment/second homes. As a seller of a property you should never have to pay for any short sale cost upfront to any professional service. Realtors charge a commission that is paid for by the bank. In most communities there are also non-profits and HUD counselors who can help you with foreclosure prevention options for free. The only potential cost you could incur is if the bank would not release you from a deficiency balance in the short sale, which is happening less and less now.

7.) If I am behind on my payments, I can perform a short sale any time. The farther you get behind on your payments, the harder it is to get a short sale approved. The closer a property gets to a foreclosure the harder it is to convince the bank to perform a short sale. As they get closer to a foreclosure sale more money is spent, thus deterring them from doing a short sale. If you think you need to perform a short sale, time is of the essence; the sooner you start the process, the better. Waiting too long can trigger the ramifications of a foreclosure, losing the ability to do a short sale as a viable option.

8.) I have already been sent a foreclosure notice so I can’t perform a short sale. For the most part just because you received a foreclosure notice or notice of default it does not mean that you do not have time to perform a short sale. The timeline and specifics do vary from state to state, but having done short sales all over the country, I have seen banks postpone a foreclosure to work a short sale option as close as 30 days prior to the scheduled foreclosure auction, but the longer you wait the less chance you have. If you have received a legal foreclosure notice, please reach out to a professional right away. The longer you wait, and the closer you get to foreclosure, the fewer options you have. If you have received a notice to foreclose this means the bank is filing paperwork and starting the process to take legal action to repossess the house. You still have time at this point to prevent foreclosure, but do not hesitate! The closer you get to the foreclosure date the harder it becomes to negotiate with the bank for whichever option you choose.

9.) I was denied for a loan modification, so I know I will get denied for a short sale. Short sales and loan modifications are handled by two separate departments at the bank. These processes are totally different in approval and denial. If you got denied for a modification you can still apply for a short sale; in some cases you can get a short sale approved faster than a loan modification, as some loan modifications are denied because they cannot reduce the loan low enough based on the consumers income.

10.) If I go through a short sale I cannot buy another house for a long time. The time to buy another house depends on your entire credit picture and can vary from 2-3 years. There are even a few FHA programs that allow for a purchase sooner than that. It is possible to purchase a home in less than 2 years after going through a short sale, but the guidelines are pretty tight, each case is different but that is a reality.

These are just a few of the common myths surrounding short sales and foreclosure. With the options available today, no homeowner should ever have to go through foreclosure, and hopefully this information can help a few more homeowners think twice before walking away from their home not realizing the possible long term ramifications a foreclosure can have.

10 Things You Need to Know About the 3.8% tax

1.) When you add up all of your income from every possible source, and that total is less than $200,000 ($250,000 on a joint tax return), you will NOT be subject to this tax.

2.) The 3.8% tax will NEVER be collected as a transfer tax on real estate of any type, so you’ll NEVER pay this tax at the time that you purchase a home or other investment property.

3.) You’ll NEVER pay this tax at settlement when you sell your home or investment property. Any capital gain you realize at settlement is just one component of that year’s gross income.

4.) If you sell your principal residence, you will still receive the full benefit of the $250,000 (single tax return)/$500,000 (married filing joint tax return) exclusion on the sale of that home. If your capital gain is greater than these amounts, then you will include any gain above these amounts as income on your Form 1040 tax return. Even then, if your total income (including this taxable portion of gain on your residence) is less than the $200,000/$250,000 amounts, you will NOT pay this tax. If your total income is more than these amounts, a formula will protect some portion of your investment.

5.) The tax applies to other types of investment income, not just real estate. If your income is more than the $200,000/$250,000 amount, then the tax formula will be applied to capital gains, interest income, dividend income and net rents (i.e., rents after expenses).

6.) The tax goes into effect in 2013. If you have investment income in 2013, you won’t pay the 3.8% tax until you file your 2013 Form 1040 tax return in 2014. The 3.8% tax for any later year will be paid in the following calendar year when the tax returns are filed.

7.) In any particular year, if you have NO income from capital gains, rents, interest or dividends, you’ll NEVER pay this tax, even if you have millions of dollars of other types of income.

8.) The formula that determines the amount of 3.8% tax due will ALWAYSprotect $200,000 ($250,000 on a joint return) of your income from any burden of the 3.8% tax. For example, if you are single and have a total of $201,000 income, the 3.8% tax would NEVER be imposed on more than $1000.

9.) It’s true that investment income from rents on an investment propertycould be subject to the 3.8% tax. BUT: The only rental income that would be included in your gross income and therefore possibly subject to the tax is netrental income: gross rents minus expenses like depreciation, interest, property tax, maintenance and utilities.

10.) The tax was enacted along with the health care legislation in 2010. It was added to the package just hours before the final vote and without review. NAR strongly opposed the tax at the time, and remains hopeful that it will not go into effect. The tax will no doubt be debated during the upcoming tax reform debates in 2013.

Preparing Your Home for Sale

Preparing Your Home For Sale? Think Builders Model Home

Are your Preparing Your Home For Sale? Think Builders Model Home.  

Have you visited a Builders Model Home recently? If not maybe you should prior to preparing your home on the market.  Most builders especially national builders are savvy business people, they have conducted an immense amount of research on trends, buyer expectations and what buyers respond to.  Home builders spend a lot of money to properly stage and present their model homes....why? because it sells homes.  If a buyer were to walk into three of the exact same builder floor plans with one being the builders staged model, another being a finished but “Blank” home and another occupied home poorly decorated, unkempt or unorganized which do you think the buyer would favor?  Even when priced higher the model home wins every time!  It’s warm with good light, soft colors, soft furniture and everything beautifully coordinated.  

I realize most sellers are not professional stagers but when it’s time to prepare your home for the market Think Builders Model Home!  You won't find clutter, nicks and dings, dirty carpets or dingy windows. You won’t find years of dirt standing on top of baseboards or ceiling fans.  You won't find kitchen cabinets lined up with small appliances and last nights dinner. What you will find is organization, cleanliness and purpose.  Builders sell hundred of thousands of homes utilizing the principles of simplicity, color and design. 

As a home seller be prepared when listing your home, de-personalize, deep clean, paint, clean windows, organize and since you're moving anyway go ahead and  box it up and store it away.  Think Builders Model Home while you prepare your home for sale then try to emulate their philosophy.  Remember when a full service Realtor® as myself markets your home they are sharing high resolution photographs all over the world wide web so make it shine and be proud.  Don’t give buyers unnecessary objections.  A little work today can easily shorten your time on market and add to your net proceeds. Make that upfront effort, we’ll have your home SOLD in no time.

More lenders offering FHA 203(k) rehab loans

With distressed and bank-owned properties often in need of work to make them move-in ready, more lenders are offering renovation loans backed by the Federal Housing Administration.

Irvine, Calif.-based Impac Mortgage says it will offer both standard and streamline FHA 203(k) loans through its consumer lending division starting in September.

Sherman Oaks, Calif.-based Prospect Mortgage is opening a correspondent lending divisionto help lenders serve customers in search of FHA renovation loans.

"With so many REO and foreclosure properties available today, renovation lending has grown from a niche product to one of the best financing solutions in today's market," said Doug Long, president of Prospect Mortgage Retail and Correspondent Lending, in astatement.

Correspondent lenders originate and fund loans in their own name and, after closing, sell those loans to other, larger lenders.

"Through our new correspondent division, we're excited to share our experience -- and our commitment to renovation opportunities -- by helping lenders offer the 203(k) product to capture new business and help more homebuyers," Long said.

The FHA Section 203(k) program insures loans made by FHA-approved lenders for the rehabilitation and repair of single-family properties. Prospect Mortgage's new correspondent lending division will focus on funding FHA 203(k) loans.

Impac Mortgage -- the "doing business as" name of Excel Mortgage Servicing Inc., a subsidiary of Integrated Real Estate Service Corp. -- say's it's entered into a relationship with another company, RenovationReady, to provide services to home buyers who want to renovate or rehabilitate their homes.

RenovationReady, a joint venture between Granite Companies and Chadron Group LLC, provides property certification, loan fulfillment, and risk management services for banks and mortgage professionals originating renovation loans, including FHA 203(k) and Fannie Mae HomeStyle or HomePath loans.

"With 70 percent of America's housing stock being built before 1992 and too many foreclosed properties damaged and uninhabitable, we see a tremendous opportunity to meet the demands of an underserved market," said Impac Mortgage President William Ashmore in a statement.

Prospect Mortgage is backed by Sterling Capital Partners, a private equity firm with about $5 billion of assets under management and offices in Chicago, Baltimore, and Miami. Citing HUD data, Prospect Mortgage says it is the second-largest FHA 203(k) loan originator in the country.

"We've ... achieved this position by focusing on our renovation lending platform and consistently supporting it with a team of sales and operations specialists with more than a quarter century of renovation lending expertise," Long said.

In July 2011, Prospect Mortgage agreed to pay $3.1 million to settle allegations by federal housing regulators that the company entered into sham affiliated business arrangements in order to pay kickbacks to real estate brokers, agents, banks, mortgage servicers and others who referred business to it. The company denied the allegations and agreed to dissolve the affiliated businesses.

FORECLOSURE STARTS DECLINE IN AUGUST

Notices of Default filed in California during August were down 23.6 percent from the prior month, and down 49.1 percent compared with last year, according to data from ForeclosureRadar. The decline in foreclosure starts is even more significant on an average daily basis, down 30.2 percent from the prior month in California with 23 business days in August compared with 21 business days in July.

 

Foreclosure sales, however, increased 23.7 percent in California on a month-over-month basis. On an average daily basis, the increase was up 12.9 percent from the prior month.

"We continue to see reports that there will be a wave of foreclosure sales after the election or at the start of the year,” said Sean O'Toole, founder & CEO of ForeclosureRadar. “The lack of foreclosure starts this month puts a nail in the coffin of this theory. There will be no wave of foreclosures for at least five months. The good news for investors and first-time buyers is that foreclosure sales have at least remained flat or slightly up, continuing to provide some opportunities in the meantime.

Interiors: Study hardwood flooring options before buying

If installing new hardwood floors is on the list of things you'd like to do around the house before the holidays, you are probably looking for some great deals.

If so, here are some things to expect and some things to consider.

The ad barrage is constant –– in the newspapers, tabloid inserts and television spots boasting of real deals on wood flooring. Are they really deals? Or are they just a tease to get you in the store?

There actually are some pretty good deals available, and with the economy being what it is and jobs being scarce, contractors are willing to do work at lower prices. That's good news for consumers. But as always, you get what you pay for.

With an ad for wood flooring, check to see if the price includes installation. If so, does it include all the materials, such as glue, staples, nails? What about the finishing trim?

When you actually go to purchase the flooring, the price might vary greatly with different installation scenarios. Will the wood be floated? Will it be glued to cement? Is a sub-floor needed? Moisture protection might be needed in some instances. If you live in a condominium, soundproof sub-flooring usually is required.

The labor is usually the most expensive part of the deal. Other price increases might include removing carpet or moving furniture.

Rick Menger, president of Vintage Floors and Interiors in Hollywood, Fla., offers this advice for dealing with companies offering competitive pricing:

-- Expect limited selection.
-- Expect work that is average to good, at best.
-- Don't expect attention to every detail. You will find imperfections.
-- Expect the price to go up dramatically if the job presents any unforeseen challenge.
-- Plan to take on some of the prep work and cleanup. Don't expect "white glove" service.
-- Anticipate that your floor will have a limited life and will need to be refinished within three or five years.
  
There will be some exceptions to the above, but don't count on it. If you can live with these things, then you know you are making the right choice. If you can't, then don't go down that path. Always remember, if it sounds too good to be true, it usually is.

Did You Know?

Unclog a Drain
1) Pour 3/4 - 1 cup baking soda in the drain
2) Pour 1/2 cup vinegar in the drain and immediately cover the drain (use a plug or set a plate over it-you want to keep everything inside the drain).
3) Leave everything to sit and work for about 30 minutes (don't us the sink during this time).
4) After 30 minutes, remove the cover and let hot water run through the pipes for about 2-3 minutes.

for really tough clogs you may need to repeat-but if you do this on a regular basis (once a month)it keeps the drains clear and fresh without any problems.

Strategic Defaults

Strategic defaults may be the next challenge to a housing recovery. Investopedia defines ‘strategic default’:

“A deliberate default by a borrower. As the name implies, a strategic default is done as a financial strategy and not involuntarily. Strategic defaults are commonly employed by mortgage holders of residential and commercial property who have analyzed the costs and benefits of defaulting rather than continuing to make payments and found it more beneficial to default.”

A new foreclosure is created every time a seller voluntarily decides to stop making their mortgage payment. Obviously, an increase in foreclosures puts downward pressure on the values of other homes in the community. We believe there are several reasons this could be another headwind to any recovery in housing.

There Are 11.4 Million Homes in Negative Equity

According to CoreLogic’s most recent Negative Equity Report, there are over 11.4 million homes where the value of the home is less than the value of the mortgage(s) on that home, a situation know as negative equity or being ‘underwater’.

Negative Equity Is the Primary Reason Baby Boomers Default

According to a survey by web site You Walk Away, 68% of baby boomers who walked away from their homes (strategic default) listed ‘property value’ as the main reason. 88% of the defaulters did not access any of their retirement savings before walking away and 97% would advise family members in the same predicament to also default.

The Moral Objection to Not Default is Diminishing

In the past, homeowners felt a moral obligation to repay their debts. That is beginning to change. Dr. Andrew Jennings, chief analytics officer at FICOexplains:

“After five years of a brutal housing market, many people now view their homes more objectively and with less sentimentality. Regardless of legal or ethical issues around strategic defaults, lenders must account for this risk when they evaluate mortgage applications in declining markets. Many homeowners who find themselves upside down on mortgages in the future are likely to consider strategic default as an acceptable exit strategy.”

Prices Could Soften Again Over the Next 6 Months

As we reported Monday, many experts feel that prices might falter again before they finally stabilize in 2013. Every time prices fall more homes fall deeper into negative equity. The CoreLogic report mentioned above also states that 2.3 million homes had less than 5 percent equity, referred to as near-negative equity.

We will continue to keep our fingers on the pulse of this issue to monitor whether or not it begins to slow the momentum the housing recovery is currently experiencing.

Do You Shred?

How many of you Shred your sensitive information before discarding it?  If you don't, you should.  Why?  Your personal information in the hands of a savvy thief could result in major identity theft resulting in a nightmare for you.  Correcting our accounts causes hours of lost time and creates major frustrations and headaches.  Thieves rifle through trash and do dumpster diving to retrieve your personal information and commit fraudulent activities such as establishing a false identity, obtain credit cards,  establish bank accounts, and commit other crimes.  A portable Shredder is a MUST in all households and can be purchased at any office supply store.  the Federal Trade Commission estimates 5 to 10 million people suffer every ear from some form of identity theft or fraud.  Listed below are items the should be shredded:
*Pre-approved credit card applications & reports.
*Obsolete financial records including loans and credit reports
*Cancelled & voided checks
*Employment records, personal resumes & pay or pension stubs.
*Old driver's licenses, passports, visas & credit cards
*ATM receipts
*Personal medical records
*Tax preparation worksheets & tax forms
*Investment transactions including IRA, stock, & property transactions
*Mailing labels from all mail & packages
*All legal documents including insurance forms
*documents containing a social security number (even if only the last 4 numbers), birth dates, your mother's maiden name, passwords, PINs, signatures, & account numbers

The best types of shredders to purchase are the crosscut, confetti cut, or diamond cut.  The strip cut does not adequately shred documents because they can be easily re-pieced.  You want a shredder that cuts documents into the smallest pieces possible.  Don't think "identity theft will never to me."  It can and will likely happen unless you protect yourself.

When Adjustable Rate Mortgages Make Sense

When an adjustable-rate mortgage makes sense
When the housing market began declining, many people claimed that adjustable-rate mortgages (ARMs) were the cause.  However, recently they’ve been making a comeback, especially among affluent borrowers.

Making sense of the story

• An ARM offers an introductory period in which the borrower pays a lower interest rate than with a fixed loan; after that, the rate can fluctuate up or down.

• With rates near historic lows, the safety of locking in a fixed-rate appeals to many borrowers.  But these borrowers are paying a premium for that security.  The spread between rates on 30-year fixed-rate mortgages and the most-popular ARMs now stand at about one percentage point, more than double the difference just five years ago.
  
• That means that homeowners who are planning to either move or pay off their mortgage over the next few years can save big with an ARM.
  
• Borrowers can determine if an ARM is the right loan option for them by looking at their financial situation and the terms of the ARM. ARMs carry risks in periods of rising interest rates, but can be cheaper over a longer term if interest rates decline. An ARM may be a good option to consider for borrowers who plan to own the home for only a few years, expect an increase in future earnings, or the prevailing interest rate for a fixed-rate mortgage is too high.
  
• Before deciding to apply for an ARM, borrowers should consider if their income is likely to rise enough to cover higher mortgage payments if interest rates increase; whether they will be taking on other sizable debts such as car loans or school tuition in the near future; how long they plan to own the home; and whether their mortgage payments can increase even if interest rates generally do not increase.

How Is National Mortgage Settlement $ Being Spent?

Mortgage Debt Relief Act running out of time?

By Stephen Fishman
Inman News®

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Ordinarily, if all or part of a home loan is forgiven by the lender, either in a short sale or foreclosure, the amount forgiven is taxable income. Thus, for example, a homeowner who had $100,000 in mortgage debt forgiven through a short sale would have to pay income tax on the $100,000.

However, Congress adopted the Mortgage Debt Relief Act of 2007 to save millions of underwater homeowners from this tax disaster. Under the Act, homeowners can exclude from their taxable income up to $2 million of debt forgiven on their principal residence during 2007 through 2012. The Act applies to debt reduced through mortgage restructuring, as well as forgiven in connection with a foreclosure.

But the Mortgage Debt Relief Act expires on January 1, 2013. Any mortgage debt forgiven after that date will be fully taxable, unless the Act is extended. To avoid this deadline, a home must not only be sold before the deadline, but the lender must formally forgive the loan in a letter issued before January 1, 2013.

Will the Mortgage Debt Relief Act be extended past 2012? No one knows. In its 2013 budget, the Obama Administration asked that the Act be extended for two years. Several bills have been pending in Congress to extend it as well, but so far nothing has happened. No one has any idea what Congress will do, and it likely won't act until after the election on November 8, if then. It may depend on who wins the election.

Homeowners who want to take advantage of the Mortgage Debt Relief Act must sell their homes before the end of the year. It may already be too late for most homeowners, since short sales often take many months to complete. But some homeowners may be able to complete a short sale before the deadline if they act now -- it all depends on the property and lenders involved. There will likely be a deluge of sellers trying to meet the end of year deadline.

Keep in mind, however, that even if the Mortgage Debt Relief Act is allowed to expire, many homeowners will still be able to avoid paying income tax on their forgiven mortgage debt.

One way to do this is for the home to file for bankruptcy and have the debt discharged by the bankruptcy court. Debts discharged through bankruptcy are not considered taxable income.

Alternatively, if the homeowner is insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable. You are insolvent when your total debts are more than the fair market value of your total assets. For these purposes your assets the value of everything you own. This includes things like your interest in a pension plan and the value of your retirement account.

For details, see IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments

How to Improve your FICO Score

First and most obvious is to pay all your bills on time.  Check your credit report for accuracy.  You can get a free annual report by writing directly to the credit bureaus.  Dispute any inaccuracies immediately.  You may dispute with creditors and with the bureaus.  Even neutral information should be disputed.  for example if a credit limit is reported lower than it really is, it will appear that you are using more of your available credit than you really are and this will lower your score.  Negotiate with collectors and businesses to remove any late payments. Sometimes creditors will remove negatives in exchange for a prompt payment.  Be sure to get any promises in writing before making a payment, once the account is paid the creditor has little incentive to live up to any promises.  When nothing else works, pursue legal action.  Collectors and businesses do not want to go to court, it is costly and they have nothing to gain by reporting negative information about you.  Decrease your ratio of how much credit you use vs. how much credit you have.  This can be done by paying off your balances of by increasing your credit availability, and not using it.

California Homeowner Bill of Rights

The Homeowner Bill of Rights prohibits a series of inherently unfair bank practices that have needlessly forced thousands of Californians into foreclosure. The law restricts dual-track foreclosures, where a lender forecloses on a borrower despite being in discussions over a loan modification to save the home. It also guarantees struggling homeowners a single point of contact at their lender with knowledge of their loan and direct access to decision makers, and imposes civil penalties on fraudulently signed mortgage documents.  In addition, homeowners may require loan servicers to document their right to foreclose.

The laws will go into effect on January 1, 2013, and borrowers can access courts to enforce their rights under this legislation.

The Homeowner Bill of Rights builds upon and extends reforms first negotiated in the recent national mortgage settlement between 49 states and leading lenders. Attorney General Harris secured up to $18 billion for California homeowners in that agreement, and has also built a Mortgage Fraud Strike Force to investigate crime and fraud associated with mortgages and foreclosures.

“The California Homeowner Bill of Rights will give struggling homeowners a fighting shot to keep their home,” said Attorney General Harris. “This legislation will make the mortgage and foreclosure process more fair and transparent, which will benefit homeowners, their community, and the housing market as a whole.”

“Californians should not have to suffer the abusive tactics of those who would push foreclosure behind the back of an unsuspecting homeowner,” said Governor Brown. “These new rules make the foreclosure process more transparent so that loan servicers cannot promise one thing while doing the exact opposite.”

The Homeowner Bill of Rights consists of a series of related bills, including two identical bills that were passed on July 2 by the state Senate and Assembly: AB 278 (Eng, Feuer, Pérez, Mitchell) and SB 900 (Leno, Evans, Corbett, DeSaulnier, Pavley, Steinberg).

The California Homeowner Bill of Rights also contains a variety of bills outside of the conference committee process. These will enhance law enforcement responses to mortgage and foreclosure-related crime, in part by empowering the Attorney General to call a grand jury in response to financial crimes spanning multiple jurisdictions. Additional elements will help communities fight blight related to foreclosure, and provide enhanced protections for tenants in foreclosed homes. Please see the attached fact sheet for the status of these bills.

The California Homeowner Bill of Rights was introduced February 29, 2012 at a press conference featuring Assembly Speaker John A. Pérez and Senate President pro Tem Darrell Steinberg and bill authors from the Assembly and Senate.

More details about the California Homeowner Bill of Rights are found on the attached fact sheet. To learn more about how the bills impact California homeowners, review the slideshow at: www.oag.ca.gov.