Log In   ·   Become A Member

Debt Forgiveness - Reverse Mortgages And Short-Sales

John A. Viteritti

  |   1 Comment · Print Article

After the real estate crash in the first decade of the new century, many home owners found themselves in situations where they could no longer remain current in their mortgage payments. (Photo: www.facebook.com)

Two issues intended to assist borrowers with mortgage indebtedness, because of their complexity can be very confusing to a borrower - starting with the terms mortgagor and mortgagee. While most consumers use the phrase when borrowing money from a bank, "I got a mortgage," the correct phrase is, "I gave the bank a mortgage (lien) on my property in return for a loan." The mortgagor (borrower) gives the lien to the bank (mortgagee).

The two situations addressed in this article have to do with debt forgiveness and reverse mortgages.

After the real estate crash in the first decade of the new century, many home owners found themselves in situations where they could no longer remain current in their mortgage payments, and the amount owed to the bank was more than the home was likely to sell for. While the bank had the right to foreclose, this was not a cost effective resort for the bank. During the time that the bank started the foreclosure until it prevailed in court, it could take years during which time the bank had to pay the taxes and manage the property. If successful, the market conditions being what they were, a sale of the property would still result in a price less than owed by the previous owner. These circumstances gave rise to the short-sale, subject to federal and state regulation whereby the bank would agree to accept the price that the property sold for from the borrower as satisfaction for the debt. A downside for the owner was that the amount forgiven by the bank was considered taxable income to the delinquent buyer, even though the borrower was taxed for money he didn't receive. In order to relieve the borrower from this burden, under the Mortgage Forgiveness Debt Relief Act enacted December 20, 2007, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was $2 million or less, and $1 million for a married person filing a separate return.

The law applies to debt forgiven in calendar years 2007 through 2016.

The other topic covered in this article has to do with reverse mortgages. Among the federal government's eligibility requirement is that all of the homeowners must be at least 62 years of age, and the amount received is based, among other factors, on the age of the youngest borrower. It became a practice for borrowers to leave the younger spouse off the deed in order to be eligible for higher amounts, not realizing that if the person named died, the surviving spouse had to repay the loan. A September 30, 2013 federal court decision, Bennett V. Donovan, ruled that the HUD regulation violates federal law. But it also found that the court did not have the authority to require HUD to take any particular action to remedy its error and sent the matter back to HUD to correct the problem. HUD has revised its requirements allowing the surviving spouse to remain in the home under clearly defined circumstances for loans taken out after August 4, 2014. For loans taken out after that date, the banks now have the option to delay foreclosure under clearly prescribed circumstances.

Anyone who finds themselves in any of the circumstances addressed in this article should seek legal counsel.


John is a St. John's University graduate, licensed Real Estate broker, lecturer, teaches real estate license classes at LIU, NYU, and Cook Maran Real Estate School, and is a well-respected consultant to the real estate industry. www.johnaviteritti.com




Related Articles:

Guest (Samson Parker) from http://www.alohamortgagesolutions.com/ says::
Are the guidelines for reverse mortgage same for all countries? And same issues are addressed in all countries? Actually I am living in Hawaii and looking to learn everything about reverse mortgage, its conditions and guidelines.
Nov 4, 2016 8:10 am

 

Submit Your Comment

Please note, you are not currently logged in. Your comment will be submitted as a guest.
To submit your comment as a member, please click here.
Your Name:
Location:*
Comments:*
* Comments will be reviewed and posted in a timely fashion
* All fields are required
Question:*
What color is a banana?
(For spam prevention, thanks)
 
 
 
http://www.hamptons.com/gallery/ads/2003.gif
http://www.hamptons.com/gallery/ads/1824.gif
Bridgehampton National Bank
For over 100 years Bridgehampton National Bank has been the East End's hometown bank. Many success stories...one bank, BNB!

Advertise on Hamptons.com - Have your business be seen by over 2 million viewers including NEW searches
Hamptons.com- Our exclusive online magazine has 2.6 million Page Views YTD for 2015. Contact us to join our elite group of clients that benefit from having a presence on the Hamptons award winning publication www.Hamptons.com

Hamptons Carpet One Floor & Home
We pay less,and so do you.With over 1,000 stores in our buying group, we can get the lowest prices from the best flooring manufacturers — and pass the savings on to you.Visit our other locations: Hamptons Carpet One Floor & Home, 675 North Sea Road,Southampton, NY 11968

Southampton Masonry-Visiting the Southampton or the Wainscott locations is an exciting experience.
Southampton Masonry has been serving Long Island's masonry and tile needs since 1975. Delivering quality products from Manhattan to Montauk for over three decades. The company's continued success is due primarily to their number one priority: customer satisfaction, with a promise of prompt and courteous service from the professional, knowledgeable staff. Southampton Masonry has the largest inventory on the east end. As direct importers they can offer a large variety of the finest quality products at the most competitive pricing for both your interior and exterior projects.

CP Complete- Landscape Design & Construction
Paul Guillo And Chris Hall Two Of The Most Respected Names In The Community Together, they are partners in CP Complete. They bring their years of experience and integrity to creating and renovating luxury backyards.

D+J Concepts is known for a high-end cutting edge approach to design.
D+J Concepts is known for a high-end cutting edge approach to design with a balance between functionality and imagination. We skillfully and tastefully transform ordinary spaces into classic modern styles, which are understated, and luxe. We’re known for our modern transitional style incorporating antiques and modern elements for an unexpected edge.