This bill is sponsored by Barney Frank. For once there is some sense to something in Congress.

the nuts and bolts of it are that the deficiencies in foreclosures that are typically passed to a foreclosed homeowner in a short sale disappear.

Why does this make sense? For one thing, when someone loses a home to foreclosure, they lose all of the equity (income) in the foreclosure, because the banks sell them off at a loss. If there is a profit from the foreclosure dale, the bank keeps the profit.

Secondly, is the sale is at a loss, the bank gets to expense the loss anyway. But the homeowner has to claim the deficiency as unearned income on their taxes, putting them further in the hole. This isn't and never has been right. Now the homeowner gets a shot at a little relief from the loss of a home. My understanding is that this bill should be through the House, and on its way to the Senate for approval. It should have full support of both houses, and in the executive office.

You are being encouraged to contact your Reps and Senators to support the measure.

 

 

4 Comments on New Foreclosure Bill in The House

Very interesting. Thank you for the information. We handle a lot of short sale transactions, and I am happy to hear The Congress is researching the process.

11/20/2007 09:33 AM by Melissa Devitt (Park Place Title, Inc.)


Does the bill specifically allow the bank to continue to write-off the loss?  Typically when debt forgiveness is done, a 1099 is issued to the debtor.  If the 1099 is not going to be issued, then can the lender write it off?

11/20/2007 10:08 AM by Rob Arnold, Florida Realtor / Investor (Sand Dollar Realty Group, Inc.)


I was not aware that the homeowner had to show the deficiency as unearned income.  Very informative post, Lou.  Nice to know that Congress does useful stuff sometimes!

11/20/2007 10:42 AM by Judith Reppert (United Country Countryside Realty)


I have not read the entire text of the bill, but the excerpts appear to let the lender expense off the deficiency, since this is lost income, without having to "1099" the Borrower. It makes sense in the accounting side, since the lender increases the expense side of the loan (deficiency) and writes down income for the loss, and get as tx benefit on its books in reduced tax expense.

The Borrower should not incur an unearned income penalty, since there is no economic gain. This would be true even in some of those 125% LTV programs, because the economic benefit of the asset is lost to the borrower when the property goes into repossession by the bank. In fact, the Borrower now has to find another home, or loses potential income from the property if it was a rental.

 Both parties actually lose in a foreclosure. Why should one have an extra penalty for losing their real estate asset to foreclosure?

 

 

11/26/2007 10:43 AM by Lou Farris (Global Realty Marketing)


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Real Estate Agent: Lou Farris (Global Realty Marketing)
Lou Farris
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