Comments on: Sending a Message?

By: Kingside

Kingside — Sat, 14 Nov 2009 06:52:58 +0000

Relief under the 2007 act only really works for purchase money loans and rate and term refinances. If it is a cash our refi, it probably won’t qualify.

By: tj & the bear

tj & the bear — Sat, 14 Nov 2009 04:13:00 +0000

http://www.irs.gov/individuals/article/0,,id=179414,00.html

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

By: Kingside

Kingside — Sat, 14 Nov 2009 00:44:23 +0000

I doubt lenders/servicers are conducting academic analysis about recovery rates on sold out junior liens. Much if not most of this paper are in securitized pools. The negotiater on the front line involved in processing a short sale is far removed from the person who may ulimately try to recover on the unsecured note. I think there is opportunity for short sellers to get out of a recourse debt through a short sale, but the other side of that coin is the cancellation of debt issue which will result in them getting 1099′ed for forgiven debt at ordinary income rates.

If last cycle is any indication, most of this recourse paper will not be held or brought to judgment by the holder, but will be sold off at a discount to collection specialists. Even the non-recourse debt will be sold off, even though it is not legally collectable.

By: dacounselor

dacounselor — Sat, 14 Nov 2009 00:26:42 +0000

That’s correct Irene. Assuming a 100% BK rate, the lender will come out ahead by taking 10 cents on the dollar. But I doubt anyone is operating under a 100% BK model or anything close to it. You could have a 90% BK rate and at least break even. It’s unlikely that there will be a high enough rate of BK’s to render a policy of enforcing judgments less profitable than a 10 cents on the dollar policy.

By: Irene

Irene — Fri, 13 Nov 2009 22:42:31 +0000

dacounselor… don’t forget… all that wage garnishing goes by the wayside with bankruptcy.. They should take the $10,000 and move on. They were in second position and that is why they received higher interest… more risk. Then when the risk comes home to roost they complain about it.Like I said… The lawyers will all be happy next year.

By: shadash

shadash — Fri, 13 Nov 2009 21:36:42 +0000

sika,

I think you forgot Patrick…

http://patrick.net/housing/crash.html

BTW since the market is doing so well you should put all your money in Housing and Stocks.

By: dacounselor

dacounselor — Fri, 13 Nov 2009 21:29:46 +0000

I doubt many recourse 2nds are going to discount the loan 90%. Just get a judgment for the full amount – earning 10%/yr interest on it by the way – and start garnishing wages and raiding bank accounts. And lien any future real estate purchase. Kind of poetic, isn’t it?

By: Kingside

Kingside — Fri, 13 Nov 2009 21:15:43 +0000

If a loan is true non-recourse (purchase money for 1-4 unit owner occupied aka CCP Sec 580b protection), I don’t think a lender has a shot in hell at legitimately getting recourse against a borrower through a short sale. California’s Supreme Court has previously ruled that in all but “non-standard” purchase money transactions, 580b is non-waivable. DeBarard v. Lim (1999) 20 Cal 4th 659.

So those uninformed servicers who try to get recourse against a consumer through the short sale process where it didn’t have it before, will likely be getting sued for what are called Rosenthal act violations (California’s fair debt collection statute which incorporates the Federal Fair Debt collection act). I will take those cases all day.

By: CA Law

CA Law — Fri, 13 Nov 2009 19:18:39 +0000

Thanks Jim,
I saw the opportunity to get a good thread going and took it. Hope you dont mind. While it is clear in a non-judicial foreclosure the case law regarding recourse on short sales involving purchase money (i.e. non recourse) loans is very incomplete and frankly has not been tested. It will no doubt be battled in the courts over the next decade particularly once the economy recovers. Most lenders and attorneys beleive it will fall in favor of the borrowers and thus many issue solid releases on purchase money 1st mortgages.

Where the lenders are going after borrowers now is on the recourse/refinaced loans, as they should. The direction given to loss mitigation negotiators at lenders is very different with these loans. Borrowers usually have the opportunity to buy a release today for 10 to 50 cents on the dollar. Banks arent stupid and understand that recovering 10 to 50% today is better than the uncertainty of collecting down the road.

The Realtors on this property were likely commenting on the things they have heard on the street – that the 2nd should be happy getting 10 cents on the dollar. If it was a purchase money loan, they probably would have. But the property was refinanced to the tune of more than $300,000. This is not a low end neighborhood and the owner either had substantially earnings at one time and likely has good earning power ahead. Why would BOA walk away from that?

By: Irene

Irene — Fri, 13 Nov 2009 18:27:04 +0000

If you really think that BofA understands what is going on here, you have more faith in them than I ever will. There are any number of drones manning these desks and they have a protocol to follow. Jim is right about these short sellers not being told the tax and recourse implications of these sales. Mr. and Mrs. seller believe that the bank is agreeing to take less than the mortgage amount. They are not.. and in almost all cases they will reserve the right to recourse. My office has tripled the legal budget for next year because we have had so many agents not fully disclose this to sellers. The attorneys will be very happy soon.I always have the sellers take the settlement sheet to an attorney to explain just where they stand on this.I have only been successful once with getting the bank to remove the “recourse” language. That was Wachovia… Scary stuff!