Wednesday, January 28, 2015

Recent Case Illuminates FHA-HAMP Requirements

If there’s a dispute between a homeowner and a mortgage servicer concerning the requirements of the Federal Housing Administration’s Home Affordable Modification Program (FHA-HAMP) when it comes to a foreclosure sale, who’s likely to win? A recent case, CitiMortgage, Inc. v. Lewis, suggests that a homeowner, at the very least, should have the opportunity to prove that her mortgage servicer violated FHA-HAMP requirements in order to vacate the sale of her property.
Facts of the Case
In 2011, CitiMortgage began foreclosure proceedings against the defendant, Robin Lewis, for failing to make timely mortgage payments. On August 30, 2011, CitiMortgage filed its foreclosure complaint. On September 29, 2011, the defendant filed a pro se appearance and answer to CitiMortgage’s complaint. On March 12, 2012, the defended applied for a mortgage modification through the FHA-HAMP. Just 11 days after the defendant submitted her FHA-HAMP application, CitiMortgage got its judgment of foreclosure, which provided for the property’s sale through a sheriff’s sale or a judicial sale.
By June 22, the defendant was officially denied help through FHA-HAMP. In fact, she received two different letters, about three days apart, denying her FHA-HAMP application. However, shortly thereafter, on June 27, 2012, she received a letter indicating that CitiMortgage required 30 days to determine whether she was in fact eligible “to participate in a foreclosure prevention program.” The defendant’s home was sold on July 2, 2012 through a sheriff’s sale. The defendant filed a motion to have the sale vacated.
It’s not clear why the defendant received two letters denying her FHA-HAMP application due to insufficient income, followed by a third letter indicating that her mortgage modification application was under consideration. However, the defendant did, in fact, receive these three letters. The lower court denied her motion to set aside the sale of her home, and the defendant appealed. The primary issue in this case was whether the defendant’s house was sold in violation of FHA-HAMP requirements.
Appellate Court Finds for Defendant
Under Illinois law, in order to have a sale vacated, the defendant would have to prove:
1)    She applied for assistance under the FHA-HAMP; and
2)    Her property was sold in material violation of the FHA-HAMP.
The Appellate Court looked at the materials the defendant supplied with her FHA-HAMP application and determined that the lower court’s record clearly demonstrated that she had applied for assistance under FHA-HAMP and thus met the first requirement to have the property sale vacated. However, the Court then had to determine whether the defendant’s property was sold in material violation of the FHA-HAMP’s requirements.
The Court took a close look at the fact that the defendant received a letter on June 27, 2012, which indicated that a review of her mortgage modification application would take 30 days. Although the letter didn’t clearly state that the defendant was being evaluated for the FHA-HAMP, the Court emphasized that CitiMortgage knew at that time that the defendant had applied for an FHA-HAMP modification, but it failed to “render a determination on the application prior to the sale” of the defendant’s property.
Why is this important? In short, HAMP guidelines require a mortgage service to “suspend a sale as necessary to evaluate the borrower for HAMP is a timely application is submitted.” Because the defendant submitted a timely application and it was pending at the time of the sheriff’s sale, the Court vacated the lower court’s decision. The Court ordered a new evidentiary hearing to further evaluate whether the defendant’s house was sold in violation of the FHA-HAMP requirements.
Contact an Illinois Foreclosure Defense Attorney
While the FHA-HAMP requirements can be quite complex, an experienced Chicago foreclosure defense lawyer can help you to understand your rights under federal and state law. If you have questions about avoiding foreclosure or applying for a mortgage modification under the FHA-HAMP, don’t hesitate to contact an experienced Oak Park foreclosure defense attorney.
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Tuesday, January 13, 2015

Renewed Tax Break for Short Sales

Did you elect to have a short sale in 2014 instead of facing foreclosure? Many homeowners across the country who had short sales believed that they’d be facing very high tax bills this year. However, according to a recent article in HousingWire, the House of Representatives and the Senate recently passed a one-year extension of the Mortgage Debt Forgiveness Act, which included the Tax Increase Prevention Act of 2014. By renewing tax breaks for those who had short sales, Congress has given homeowners the opportunity to save some money in 2015.
Taxes and Short Sales: What Should You Know?
When a homeowner faces foreclosure, it’s possible to have a short sale instead. In a short sale, the mortgage lender allows the homeowner to sell his or her property for an amount lower than what the homeowner still owes on the mortgage. Why would a mortgage lender agree to a short sale? Basically, it allows a mortgage lender to avoid the costs and headaches associated with a foreclosure, and it permits the homeowner to do the same (while also allowing the homeowner to help his or her credit rating). The difference between the sale price of your house and the amount you owe on the mortgage is called a “deficiency.”
It’s important to remember, however, that mortgage lenders can still try to collect that additional money on your mortgage loan. Depending on which state you live in, a lender can file a lawsuit to obtain the short sale “deficiency.”  In Illinois, mortgage lenders can seek deficiency judgments against homeowners. In other words, unless the lender agrees to waive its right to the short sale deficiency or forgive that amount, a homeowner who has a short sale could end up owing a significant amount of money.
When lenders forgive short sale deficiencies, homeowners can still owe taxes on the amount that was forgiven. The Internal Revenue Service (IRS) says that a forgiven deficiency is like income, and thus the homeowner will owe taxes on it.
So, let’s say a homeowner owes $300,000 on her mortgage loan. She has a short sale and sells the house for only $250,000. The deficiency is $50,000. Even if the lender forgives this amount, the IRS says that the homeowner can owe taxes on the $50,000 as if it were income.
The Mortgage Debt Forgiveness Act allows homeowners who have short sales to exclude some or all of this amount from income for tax purposes. Most importantly, it allowed debt that was forgiven between 2007 through 2013 to be excluded from income. Now, Congress’s decision to extend the Act for another year means that homeowners who had short sales in 2014 won’t need to worry about high taxes on forgiven debt.
Short Sales in 2014
Why is it important to extend the Act through 2014? This past year, the average short sale, according to HousingWire, has a mortgage forgiveness of anywhere between $75,000 and nearly $90,000. For families who struggle to make ends meet, that’s a very substantial amount of money, and taxing it like income would cost those families quite a bit. In addition, RealtyTrac estimates that 2014 saw approximately 170,000 short sales across the country, which resulted in a total “mortgage debt forgiven of about $8.1 billion in the first three quarters of 2014 alone.”
Congress’s decision to extend the Act only applies to short sales that happened in 2014, however. We’ll need to see how the recently elected members of Congress handle additional extensions in 2015. In the meantime, if you have questions about foreclosure or short sales in the Chicago area, contact an experienced Oak Park consumer protection attorney today.
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Friday, January 2, 2015

Sluggish Foreclosures in Illinois

Over the last year, the total number of Illinois home foreclosures has declined noticeably. Yet as the volume of foreclosures dropped, the amount of time for each foreclosure rose significantly, according to a recent article Crain’s Chicago Business. Indeed, “the average time it took lenders to foreclose on a home in the state climbed to a new high of 889 days,” which was up from 828 days in 2013. What’s going on? And what will the average foreclosure time in Illinois look like in 2015?
Foreclosure Times Rising Across the Country
Illinois isn’t alone in facing lengthier foreclosure times. To be sure, foreclosure times are on the rise across the country, although Illinois has the fifth-highest time between notice of default and repossession. Just how long is 889 days? To put it in perspective, that’s almost two and a half years. The average across the country was 615 days, which is a little under two years’ time. The only states with higher foreclosure times than Illinois include New Jersey, Florida, Hawaii, and New York.
Why are foreclosure times rising if the total number of foreclosures are falling? When looking at the numbers alone, the phenomenon doesn’t make a lot of sense. Traditional thinking tells us that high foreclosure times are an effect of clogged courts. And if courts have fewer foreclosures to handle, logic tells us that there should be a shorter number of days between the start and completion of a foreclosure. In addition, the “fast-track” laws that exist in a number of states—including Illinois—are aimed at speeding up this process even more. So what’s the delay?
Abandoned Homes and Fast-Tracking
According to Illinois State Senator Jacqueline Collins, who sponsored the “fast-track” legislation, the primary problem is that foreclosures in hard-hit communities just aren’t ready for the market. Certain communities, especially in the Chicago area, still have “too many boarded-up homes in foreclosure.” Collins explained that, despite ability for the courts to fast-track foreclosures, the Illinois housing market just isn’t seeing an improvement “in hard-pressed communities.”
The fast-track legislation, which took effect in June of 2013, has helped city across Illinois to “get abandoned residential properties back into use and provide help to homeowners at risk of foreclosure.” Yet that legislation just hasn’t made a significant impact in lower-income areas. Collins emphasized that the legislation may need some “tweaking,” as lenders could potentially use to “only to take back abandoned homes in stronger markets.”
Foreclosure Approval Requirements
While many commentators believe that abandoned properties in hard-hit Illinois areas are to blame for the lengthy time period for foreclosures, others believe that new requirements for lenders may be playing a role. In 2013, the Illinois Supreme Court designed new requirements that lenders must meet in order to have a judge approve a foreclosure. The rules were aimed at ensuring “homeowners and lenders were fairly treated,” yet they may be resulting in “some motions being denied and delays.”

Do you have questions about foreclosures or the Chicago housing market? Don’t hesitate to contact an experienced Chicago real estate attorney today.