before and after attorny

[debee]

Not quite sure that ex. is on point.
I see it as more of a situation where, an unisured motorist is at fault in an accident and the party injured does have insurance. The insurance company pays their customer and then sues the uninsured motorist. That happens pretty frequently.
Can't see why that wouldn't/couldn't happen with a PMI carrier and a default.
That being said, I've never heard of that happening-likely because recovery is remote. I mean, there's a difference in getting a few thousand dollar judgment paid against someone for property damage vs a default running into many tens of thousands of dollars. Likely, you'd be sitting with worthless paper.

Yeah, I think I saw that same analogy in an article on PMI at a Real estate website. I have problems with it.

For one thing, the homeowner isn't uninsured like a driver. In fact, the homeowner is the one buying the PMI insurance. They don't benefit from it, but they pay for it. The only difference between the fire insurance analogy and PMI is the loss payee. One names whoever the homeowner indicates (self, bank + self, Aunt Betty, the cat) and the other names the lender.

Also, the PMI company is in the business of taking risks and profiting by those risks. That's the whole point of their business. They charge the monthly premium knowing that at least some of those who are paying it will default. Those who don't default pay for those who do, with a good deal left over for the company's bottom line.

[keepmine]

I can't imagine a PMI lawsuit - the insurance is specifically against borrower default, so it doesn't make sense that the insurance provider could sue the person for the thing they are insuring against. It would be like paying a monthly fee for accidental fire insurance, having an accidental fire loss and then getting sued by the insurance company because there was an accidental fire.

Anyway, I guess crazier things have happened. I love what bankruptcy can do. Once the mortgage is included & discharged, the debtor can forget about deficiencies and PMI and all the rest of it. The thing is dead, forever.

Not quite sure that ex. is on point.
I see it as more of a situation where, an unisured motorist is at fault in an accident and the party injured does have insurance. The insurance company pays their customer and then sues the uninsured motorist. That happens pretty frequently.
Can't see why that wouldn't/couldn't happen with a PMI carrier and a default.
That being said, I've never heard of that happening-likely because recovery is remote. I mean, there's a difference in getting a few thousand dollar judgment paid against someone for property damage vs a default running into many tens of thousands of dollars. Likely, you'd be sitting with worthless paper.

[tobee43]

I can't imagine a PMI lawsuit - the insurance is specifically against borrower default, so it doesn't make sense that the insurance provider could sue the person for the thing they are insuring against. It would be like paying a monthly fee for accidental fire insurance, having an accidental fire loss and then getting sued by the insurance company because there was an accidental fire.

Anyway, I guess crazier things have happened. I love what bankruptcy can do. Once the mortgage is included & discharged, the debtor can forget about deficiencies and PMI and all the rest of it. The thing is dead, forever.

that's the way i understand it as well. once the bk is file and the house with it's mortgage was in included, the bk was discharged and closed, would hopefully close the entire situation concerning any default deficiency.

did we really agree on someting...ROFL!!!!!!!!!!! i think so!

[debee]

I can't imagine a PMI lawsuit - the insurance is specifically against borrower default, so it doesn't make sense that the insurance provider could sue the person for the thing they are insuring against. It would be like paying a monthly fee for accidental fire insurance, having an accidental fire loss and then getting sued by the insurance company because there was an accidental fire.

Anyway, I guess crazier things have happened. I love what bankruptcy can do. Once the mortgage is included & discharged, the debtor can forget about deficiencies and PMI and all the rest of it. The thing is dead, forever.

[tobee43]

If I was living in a recourse state and the only thing standing between me and possible bankruptcy was a PMI-insured first loan, I would definitely be looking into it.

To muddy the water a bit more-would the debtors PMI carrier have recourse against them?
Might not hurt to include your PMI carrier in your creditors matrix.

keepmine, i know we did include it all in our petition...since the mortgage was an FHA with PMI, the entire amount was listed. the PMI would come from an FHA claim, (i know HUD's in there somewhere, since they are tied together). so, actually the PMI on an FHA is backed or insured by the goverment which is US? isn't it??? holy COW.i think i'll be going MIA on this..

still interesting none the less.

[keepmine]

If I was living in a recourse state and the only thing standing between me and possible bankruptcy was a PMI-insured first loan, I would definitely be looking into it.

To muddy the water a bit more-would the debtors PMI carrier have recourse against them?
Might not hurt to include your PMI carrier in your creditors matrix.

[debee]

Alper has some good articles at his site. Someone on the forum hired him and apparently he's pretty interesting in person too.

I don't know about PMI. You couldn't get a deficiency judgment on a PMI-insured loan where I live (first mortgages aren't recourse in CA) so I've never had motive to research that issue. If I was living in a recourse state and the only thing standing between me and possible bankruptcy was a PMI-insured first loan, I would definitely be looking into it.

[tobee43]

I agree!

tobee does all the forum readers a service by posting information about the Mortgage Debt Forgiveness Act in her blog. I just skimmed that information and I believe it is correct. The IRS link takes you to the "authorized" facts which repeat what others have said on this thread: deficiency judgments are not "forgiven".

However, it's important that forum readers & especially OP understand that the realtytrac article is wrong. It's important that forum readers and OP are clear on this one point:

A deficiency judgment is NOT forgiven as part of the Mortgage Debt Forgiveness Act, and is enforceable whether the debtor is insolvent or not.

Once OP has the correct information, he can make the best decision for his circumstance.

ETA: link to news article I just posted which may help readers understand how deficiency judgments work: depending on state collection law, they can come after you ten years after you get the judgment! twenty years later! Here's the article: http://www.bkforum.com/showthread.ph...amp-Unpaid-HOA

good one debee, and they are very different, i hear you the the realytrac, i believe they are like i believe zillow on their pricing or values of home. neither are the greatest of "good" source information. but, i took it because it covered "other" areas that were applicable. (or so i thought).

also what's your thoughts on if the owner had PMI on the mortgage??? wouldn't that cover any deficiency???

i get confused....here's from one of my more reliable sources...from Alper...that's referencing florida mostly.


NEW ASSET PROTECTION TOOLS - Mortgage Foreclosure Deficiency

"Many Florida real estate investors are concerned about personal liability from mortgage foreclosure deficiency judgments. Although they accept loss of equity, if any, in property which is foreclosed by their mortgage lender, people are afraid of a deficiency judgment. A deficiency judgment refers to a mortgage lender’s judgment against the borrower for the difference between the outstanding balance of the mortgage note, plus costs and attorneys fees, and the value of the property foreclosed. The property value is determined on the date of the foreclosure sale. Personal liability from mortgage debt is today a principal reason for asset protection planning.

In Florida, a mortgage foreclosure does not automatically result in a deficiency judgment. Just because you lose a property at foreclosure does not mean you will remain personally liable for money owed to the lender . To obtain a deficiency judgment against the borrower the foreclosure sale the mortgage lender has to file a motion for a deficiency after the foreclosure sale, and the court must hold a separate evidentially hearing on the lender’s request for deficiency liability. At the evidentially hearing the mortgage lender has to show the court evidence that the property’s value on the sale date was less than the note balance. The borrower can get his own appraisal or can use the government's tax assessed value as evidence of value. If the property was worth more than note balance on sale date the court will not give the mortgage lender a deficiency judgment against the borrower. The borrower may present evidence of value in the form of a formal appraisal or other less formal opinions of value such as the local government's tax assessed value.

During the recent real estate boom deficiency judgments were uncommon because increasing real estate values brought home values above note balances of defaulting mortgages. Additionally, lenders could take back "upside down" properties and hold them until the rising market made them whole. Deficiency liability is a problem in a declining market. Up to this point in the real estate crash few of the national mortgage service companies with conventional first mortgages have been pursuing deficient judgments, especially mortgages on owner occupied homes.There has been an increase in deficiency actions by smaller regional lenders. Many attorneys and other experts speculate that first mortgage deficiency lawsuits will increase in the future as lenders resolve foreclosure backlogs and as they sell their deficiency rights to third party investors and collection firms. Smaller regional mortgage lenders are pursing deficiency judgments more often than before. Florida law gives mortgage lenders five years to pursue a mortgage deficiency claim.

Second mortgage lenders and private lenders are more likely than first mortgage holders to go after the borrowers by suing for default on the underlying promissory note. There has been a significant increase in second mortgage lawsuits since the beginning of 2009. Banks that made commercial loans to developers or builders almost always file a lawsuit against the individual borrower to enforceand collect upon the promissory note or personal guarantee of a business loan.

If a mortgage lender pursues a deficiency judgment you should hire an attorney to defend the deficiency. In many cases, an attorney can use procedural defenses and substantive lending law to defeat a deficiency claim, and the attorney can negotiate an acceptable settlement for much less than the total deficiency liability in most cases.

One way to avoid deficiency liability, or to modify your mortgage to avoid foreclosure, is court ordered mediation with your mortgage lender through a new mediation program in Chapter 13 bankruptcy cases. If you file a Chapter 13 bankruptcy in the Orlando division the the federal bankruptcy court will very soon after filing issue an order requiring the lender to participate in good faith mediation to discuss mortgage modification. The HAMP mortgage program was modified this year to eliminate bankruptcy as an obstacle to mortgage relief.


Another problem with mortgage foreclosure is possible income tax consequences. The general rule is that when a lender forgives or cancels a debt the borrower can incur income tax on the amount of debt forgiveness. When you arrange a discount in your mortgage in order to sell house (a so-called "short sale") the mortgage lender will cancel part of your mortgage debt and you will receive a tax form 1099 telling the IRS that you have imputed income for the amount of debt reduction. You will also incur income tax liability for a deed in lieu of foreclosure. The taxable income will be the difference between the property value and the balance of the mortgage loan on the date you surrender the property to the bank.

A foreclosure may result in cancellation of debt income depending on whether the bank pursues a deficiency judgment. If the mortgage lender gets a deficiency judgment for the difference between the property value on foreclosure sale date and the mortgage balance the lender is not forgiving any part of the loan. If the bank chooses not to pursue a deficiency judgment, or pursues the judgment unsuccessfully, the borrower may incur income tax liability for debt foregiveness.

In December, 2007, Congress acted to protect many debtors from income tax liability associated with foreclosure avoidance. The Mortgage Forgiveness Debt Relief Act of 2007 states that homeowners will not be subject to income tax from release from mortgage liability if and to the extent the mortgage proceeds were used to buy or improve their primary residence. There is no income tax shelter from foregiveness of mortgage debts for investment property, vacation homes, or mortgages used for businesses or to pay off credit card balances. You should speak with an attorney or CPA familiar with the new law to see if you qualify for income tax protection.

For those borrowers who do not qualify for protection of the new Act there is an insolvency exception to imputed income from the cancellation of mortgage debt. If a borrower is financially insolvent when he surrenders the mortgaged property to the lender voluntarily or through foreclosure there will be no imputed income. A borrower who files bankruptcy is presumed to be insolvent, so that a bankruptcy debtor cannot suffer imputed income tax liability because the bankruptcy discharges personal liability under a mortgage note. More information is available from IRS Publication 908 and IRS tax form 982. Both forms can be found at irs.gov.

The tax law permits many real estate investors to offset imputed debt foregiveness income with corresponding tax losses. For example, if a lender forecloses on a parcel of income producing rental property the taxpayer may be able to report an operating loss to offset all imputed income from debt foregiveness in the same year that the the mortgage lender issues the Form 1099. When a foreclosed property was not income producing, but was held solely for future appreciation (example: vacant land), the deduction from ordinary income of capital losses in excess of capital gain may be limited to $3,000 per year so that the total loss will have to be deducted over future tax years. You should consult your CPA to determine the tax impact of a mortgage foreclosure on your tax situation. The tax impact of foreclosure is not a legal issue."

[debee]

I agree!

tobee does all the forum readers a service by posting information about the Mortgage Debt Forgiveness Act in her blog. I just skimmed that information and I believe it is correct. The IRS link takes you to the "authorized" facts which repeat what others have said on this thread: deficiency judgments are not "forgiven".

However, it's important that forum readers & especially OP understand that the realtytrac article is wrong. It's important that forum readers and OP are clear on this one point:

A deficiency judgment is NOT forgiven as part of the Mortgage Debt Forgiveness Act, and is enforceable whether the debtor is insolvent or not.

Once OP has the correct information, he can make the best decision for his circumstance.

ETA: link to news article I just posted which may help readers understand how deficiency judgments work: depending on state collection law, they can come after you ten years after you get the judgment! twenty years later! Here's the article: http://www.bkforum.com/showthread.ph...amp-Unpaid-HOA

[tobee43]

thank you, i hope it is as updated and correct as possible. i really do appreciate that you looked!!

[LostItAll2]

http://www.bkforum.com/entry.php?818-The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation

I think I found it? Why can't you post it? Tobee that's a great reference.

[FairyPoor]

Oh, also Tobee thank you, I just clicked on your blogs, the one about the Mortgage Forgivness Act.

I'm going to try and put the link in, I hope I do this correctly. Oh, I can't post it, but I see you have an entire blog on the subject matter.

[FairyPoor]

I have always found Realty Trac quite accurate in many cases. It is difficult to know if any source is really correct. I personally would rather speak to someone who has experienced the situation as Tobee has pointed out.

[LostItAll2]

Tobee, thank you so much for all that informative information. That must have been so much work and it appreciated by many I hope.

[tobee43]

a show of hands please for all of you that had to pay on a deficiency, whether it be applicable to a short sale or a foreclosure!!

would really like to know one just one person that has been sued for the deficiency and had to pay. not saying it's impossible, but the act does protect you regardless until 2012. however, the proofs are not in the words of the bill itself, it's actually in what happens in real life.

i know at least ....just off hand 4 people that never had to pay a dime in nj and they just walked away from their homes, there were substantial deficiencies, and no one pursued them. but, then again that was nj.