Posted by Joan Bergstrom on 1/3/09 11:43pm
Msg #273460

Loan Modifications

I have no idea how they got these reductions and the borrowers didn't discuss how they got their reduction and I certainly couldn't ask. They almost seemed embarrassed about the modification and there wasn't any "high fives"
as there was in 2003-04 when the game was on to see who could get the lowest interest rate.

2. Loan modifications where the terms are changed/interest rate reduction/or picking up applications for loan modifications.

I was hired by 2 borrowers to notarize their modification agreement.

One borrower got a 40 year fixed rate at 4% interest. She was ecstatic and couldn't wait to tell me how she got this rate. She got this loan by paying a fee to a company to negotiate for her.

The other borrower got a 1/2 point reduction and 2 years of interest only payments and then the company will re-negotiate in 2011. She did this modification by herself and didn't pay anything to a 3rd party. I didn't ask her but she wanted to share her experience.

3. Working for a 3rd party company who get the modification for a borrower and the borrower usually pays somewhere between $1,000 and ...........

I picked up checks ($1,800) and got the borrowers to sign the loan modification application and returned them to the 3rd party. No notary work here but I think these 3rd party companies like the idea of a notary representing them.

These are my experiences. What are yours?

Reply by Joan Bergstrom on 1/3/09 11:46pm
Msg #273461

Sorry, This is what I meant to post

It is interesting how these loan modifications affect us as a Notary/Loan-Signers?

I haven't done all that many but this is what I have experienced.

1. Actual slashing of a borrowers loan amount; I have done 3 of these modifications where the borrowers had the loan amount reduced on their loans from $65,000 to $140,000.

I have no idea how they got these reductions and the borrowers didn't discuss how they got their reduction and I certainly couldn't ask. They almost seemed embarrassed about the modification and there wasn't any "high fives"
as there was in 2003-04 when the game was on to see who could get the lowest interest rate.

2. Loan modifications where the terms are changed/interest rate reduction/or picking up applications for loan modifications.

I was hired by 2 borrowers to notarize their modification agreement.

One borrower got a 40 year fixed rate at 4% interest. She was ecstatic and couldn't wait to tell me how she got this rate. She got this loan by paying a fee to a company to negotiate for her.

The other borrower got a 1/2 point reduction and 2 years of interest only payments and then the company will re-negotiate in 2011. She did this modification by herself and didn't pay anything to a 3rd party. I didn't ask her but she wanted to share her experience.

3. Working for a 3rd party company who gets the modification for a borrower and the borrower usually pays somewhere between $1,000 and ...........

I picked up checks ($1,800) and got the borrowers to sign the loan modification application and returned them to the 3rd party. No notary work here but I think these 3rd party companies like the idea of a notary representing them.

These are my experiences.

Reply by John_NorCal on 1/3/09 11:59pm
Msg #273462

Re: Sorry, This is what I meant to post n/m

Reply by John_NorCal on 1/4/09 12:02am
Msg #273463

And this is what I meant to post.....

Speaking from a tax standpoint, I think I would rather be the one who got a rate reduction rather than the principal reduction. Could be some very surprised people when they find they have to pay taxes on the amount that was reduced.

Reply by Joan Bergstrom on 1/4/09 1:10am
Msg #273465

Re: And this is what I meant to post.....

John
I coldn't agree more. A 4% fixed interest rate for 40 years. She hit the " Jackpot" in my opinion!

Reply by PAW on 1/4/09 6:56am
Msg #273476

Re: And this is what I meant to post.....

Under the Economic Recovery Act of 2008, **if** the loan was modified under the act, I believe there is no tax liability on the reduced amount. However, if the lender does not participate in the Act, then there certainly may be some tax liability on the homeowners part. Unfortunately, I'd bet that most people don't ask the appropriate question.

Reply by John_NorCal on 1/4/09 9:45am
Msg #273484

Re: And this is what I meant to post.....

If that is true, it hasn't gotten through to all of the tax up date seminars that I've been attending Paul.

Reply by John_NorCal on 1/4/09 10:04am
Msg #273491

You got me thinking further Paul,

so I pulled out the book from the latest seminar that I attended on Dec 5th. To excerpt:

Exception from Income:

Cancellation of debt (COD) is excludable from income if it occurs:

1. in bankruptcy
2. To an insolvent borrower, but only to the extent of insolvency
3. With qualified farm debt
4. With qualified real property business debt *for taxpayers other tlhan C corps)
5. With Seller financing
6. When payment of the debt would result in a tax deduction to the borrower
7. With certain student loans, or
8. Bona fide dispute.

So to the best of my knowledge, a taxpayer receiving cancellation of debt will receive a 1099-C for the amount that is cancelled in most cases.

Reply by PAW on 1/4/09 8:20pm
Msg #273551

Refer to IRS-2008-17

Extended to 2012 by the Economic Recovery Act of 2008

Reply by John_NorCal on 1/4/09 9:48pm
Msg #273558

Re: Refer to IRS-2008-17

Extension of the act did not change the elements of the law namely the circumstances in which cancellation of debt may or may not be taxable. See my post below (to simplify - sort of)

Reply by PAW on 1/5/09 7:36am
Msg #273570

Re: Refer to IRS-2008-17

Agreed. I don't think we are disagreeing on anything. You stated it much more clearly than I. The devil (or angel in some cases) is in the details of how the modification is handled.

Reply by Linda_H/FL on 1/4/09 9:53am
Msg #273489

Re: And this is what I meant to post.....

"Unfortunately, I'd bet that most people don't ask the appropriate question."

In which case, LO's or Mod reps (or whoever is the direct link between the Mortgagor and Lender) should be making sure these people are advised to see an accountant about the balance that's written off....my crystal ball says IRS appeals skyrocket and court dockets explode with lawsuits if people are NOT properly advised that this forgiven amount may or may not be taxable...MHO

Reply by 101livescan on 1/4/09 9:22am
Msg #273480

Re: And this is what I meant to post.....

What I'm seeing more of is that the loan amount isn't reduced so much as the rate/terms are reduced/modified. EVERY BORROWER CAN DO THEIR OWN WORKOUT, they don't have to pay these exhorbitant fees to LOAN MODIFICATION COMPANIES. There will be an avalanche of foreclosures in some parts of the country, like Florida. It is far from over. Lenders are motivated and compelled by SB 1137 to do workouts wherever they can to help borrowers stay in their homes. This isn't going to be a big piece of the biz, some homeowners cannot be saved from foreclosure because of the neg am features of their loans. They are so upside down. Most of the lenders who u/w these loans are out of business, and the loans are being serviced by other companies. Where the save is is where the loan was sold so many times, no one knows where the original note/deed of trust are physically, and the foreclosing entity can't produce, so how can they foreclose when they don't have these critical instruments? They can't.

Countrywide is doing loan modifications because they lost a lawsuit last summer and they are mandated to do workouts wherever possible. Their foreclosure activity stalled out 4th quarter 2008. Starting to rev up again. Now that SB 1137 is clearly understand by all lenders, we'll start to see some activity to rescue whoever can be rescued.

Yes, tax liabilities for any amount forgiven by lender to borrowers. Borrowers need to seek some legal expertise to make sure they aren't buying in for more expenses down the line. I do several modifications a week.

Reply by ReneeK_MI on 1/4/09 10:26am
Msg #273495

John - re: modifications & tax liability ...

What about this (below), and am I nuts or didn't we talk about this before? (RHETORICAL!):

"The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principle residence. Debt reduced through mortgage restructuring-loan modification-as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.

This provision applies to debt forgiven in 2007,2008 or 2009. Up to $2 million dollars of forgiven debt is eligible for this exclusion - $1 million if filing separately. The exclusion does not apply if the discharge of mortgage debt is due to services performed for the lender or any other reason not directly related to a decline in the home's value or the taxpayers financial condition. The amount of mortgage debt excluded will reduce the taxpayers cost basis in the home. For more detailed information, please consult the IRS website."

(excerpt from an e-zine article, just curious about what it says)

Reply by Accesstoledo on 1/4/09 10:53am
Msg #273500

Re: John - re: modifications & tax liability ...

I had one Cristmas week, in an attorney's office, where there was a $57,000 forgiveness on a Michigan property. When the subject came up during the closing, the attorney infactically told the Borrower to see a tax attorney before the RTC expired.

Reply by John_NorCal on 1/4/09 11:03am
Msg #273501

Re: John - re: modifications & tax liability ...

What has to be looked at is the nature of the debt i.e. was it recourse or non-recourse. Was it a refinance or purchase money. In the case of a refinance it is non taxable only to the extent of the original mortgage. If it is non recourse as are most purchase money DOT's, then it is not generally taxable. These are some of the variables that affect whether the cancellation is taxable or not.

Reply by John_NorCal on 1/4/09 11:10am
Msg #273502

To simplify, (sort of)

The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing separately.

So is it taxable? ---- It all depends!

Reply by Susan Fischer on 1/4/09 5:26pm
Msg #273544

Great thread. And splendid analysis, John. Ain't it the

truth, that "It all depends;" the first sentence in every test question
in law school, and subsequently every legal question out there.

QPRI. Simplified is so good.

Reply by ReneeK_MI on 1/5/09 5:24am
Msg #273566

Thanks for clearing that up! =O

Excellent ... life is all in the details, eh?!

Reply by 101livescan on 1/4/09 9:26am
Msg #273482

Re: Sorry, This is what I meant to post

Who were the lenders on these modifications?

Statistics are beginning to show that now modifications loans performed in 2007-08 are in trouble again, due mostly to job losses.

More foreclosures where borrowers simply can't pull it together in this economy

Reply by GF_CA on 1/4/09 5:26am
Msg #273471

I modified my loan on an investment property. The bank give me a fix rate at 6% for 40 years.

Reply by Dave_CA on 1/4/09 10:24am
Msg #273494

I did one a couple of weeks ago where the borrower told me the bank had contacted her.
It was a WAMU "Pick a Payment" loan and they wanted to modify it.
They gave her a credit for the closing costs, paid some back taxes and gave her a 30 year fixed at 2%.
I want one...

Reply by MW/VA on 1/4/09 10:40am
Msg #273498

I'm curious. Was 21st Century involved in any of these? I've heard rumors of the loan mods, but haven't seen any of them yet in this part of the country.

Reply by MsM/CT on 1/4/09 1:51pm
Msg #273527

I've done 17 in the past 3 months all from the same lender. Mods included a reduction to the principle. According to the borrowers, they were late on several payments and the late fees were being added to the principle by the day. In all cases, the lender contacted the borrower after the mortgage company bailouts were approved.

Yes, I always get life stories it seems.