Judges revisiting foreclosure cases may help owners but clog market

TAMPA, Fla. – Oct. 5, 2010 – On Florida’s west coast, where the housing bust has flooded courts with foreclosure filings, the chief judge of the 6th Judicial Circuit has little sympathy for lenders who have routinely submitted flawed and possibly fraudulent foreclosure cases.

J. Thomas McGrady, whose jurisdiction includes two hard-hit counties with more than 1 million people in the Tampa area, said Monday that foreclosures based on improper paperwork should be tossed out.

Judges “are going to have to vacate that judgment and start over again,” he said.

Across the country, judges facing pressure from homeowners and their attorneys are beginning to reexamine old cases and dismiss pending ones. The trend could lead to overturned evictions, and it could stall foreclosure cases for years and scare away buyers of millions of seized properties clogging the real estate market.

“We’ve never been inundated to this extent with this number of cases alleging fraudulent paperwork,” said Peter D. Blanc, chief judge of the 15th Judicial Circuit Court, in West Palm Beach. “We’re in new territory, and we’re struggling to determine what the proper solution is.”

Judges nationwide have broad latitude in deciding whether to accept new paperwork and whether to charge the lenders with fraud for submitting problematic documents in the first place.

Even before three of the nation’s largest lenders – Bank of America, J.P. Morgan Chase and Ally Financial – announced moratoriums on foreclosures in the 23 states that require a court order to evict a borrower from a home, some judges were beginning to push back against banks with sloppy or fraudulent filings.

The lenders have acknowledged that a handful of employees signing off on hundreds of thousands of files may not have read them, but they have insisted that the problem amounts to a technical issue that can be fixed easily by replacing old documents with new ones. They say that the facts proving that borrowers missed their payments are sound and that the procedural errors might delay foreclosures but won’t change the outcome.

As the situation in Florida shows, it’s unlikely to wind up so simple.

Armies of consumer attorneys and homeowners are seizing on the paperwork issues to try to protect individual homes from foreclosure and bring into question the legitimacy of the millions of foreclosures undertaken since the housing crisis began in 2007.

The recent moratoriums have made life easier for people such as Michael Gaier, a Philadelphia lawyer who has taken on 130 clients hoping to fight their foreclosures.

Before, he said, judges churning through foreclosure cases tended “to roll their eyes, because they’ve heard every story in the book,” he said. But now, “I don’t have to convince them on my own. I don’t have to start from scratch,” he said, because the moratoriums show that the banks “know that something is wrong.”

Gaier and other lawyers say they have been flooded with calls from new clients who had lost hope of keeping their homes but now see an opportunity to stay. In addition, homeowners who had been complaining of flawed or forged paperwork for years feel they are finally getting traction.

“My reaction is, it’s about time. In the past, people thought we were crazy; the judges laughed at us. Now everyone knows there is a serious problem,” said Denise McMillan, 51, who was evicted from her four-bedroom home in Pikesville, Md., in July and has been coordinating online with others fighting foreclosure.

The collective decisions of judges across the country could turn a foreclosure slowdown into a far larger mess if they determine that homes were wrongly seized and resold by lenders. Foreclosed homes accounted for nearly one-fourth of all residential sales in the second quarter, according to a report by RealtyTrac released last week.

That possibility already is driving away potential buyers of bank-owned properties who don’t want to get caught in legal battles between banks and borrowers. At least one company that provides title insurance, Old Republic Title, has refused to work on homes foreclosed by Ally’s GMAC mortgage unit.

Travis John, a broker in central Florida who specializes in distressed sales, said buyers in recent weeks have seen the headlines about problems in the foreclosure process and have shied away.

“If buyers continue to have this fear – if we have even 30 percent less sales – that would be traumatic,” he said. “We’re already in a traumatic market.”

Across Florida, which has the most foreclosure filings of any state, mortgage companies are already submitting formal requests to judges for the withdrawal of documents that they say were “not properly verified.”

Such actions show that the flawed paperwork is “a serious problem,” said veteran circuit court judge Lynn Tepper, who has presided over foreclosure cases in Pasco County, north of Tampa.

“They’ve conceded that the affidavit is flawed,” Tepper said. That means the judgment based on the affidavit must have been problematic as well – and that the decisions should be reversed.

Tepper sent a chill through law firms working for lenders this spring when she threw out a request for a foreclosure and ruled that U.S. Bank perpetrated fraud by submitting backdated documents that purported to show the lender owning the loan at the time of the foreclosure.

The homeowner, Ernest E. Harpster, got his home back despite the fact that he owed $190,000 on the loan. Tepper also ruled that U.S. Bank could not refile the case.

These days, Tepper is plodding slowly through the pending cases, looking closely at signatures and notarizations, making sure the names and numbers look accurate and legitimate.

“You have to be careful,” she said. “It used to be such a pro forma thing; it was a no-brainer. That’s surely not the case now.”

Copyright © 2010 washingtonpost.com

 Reprinted with permission. Florida Realtors®. All rights reserved. 

Homebuyer tax credit causing headaches and trouble

TAMPA, Fla. – Sept. 17, 2010 – The federal homebuyer tax credit did its job to boost the real estate market, but many involved – from buyers to the IRS – have run into problems with confusing wording and stipulations.

The result: Hundreds of thousands who’ve already filed for the credit will have to give the money back.

More than 2.6 million eligible for the credit have bought homes since July 2008. They’ve received $19 billion in tax breaks.

But it turns out nearly half of those who received the money for the credit, claimed on their 2009 tax returns, will have to return it, according to an audit from the U.S. Treasury Inspector General for Tax Administration.

And a recording error could lead the IRS to ask tens of thousands more to return the money even though they are entitled to keep it.

This means anyone who bought a home in 2008 or later should make sure they applied for the correct credit and compensated accordingly. Paperwork should be checked, and buyers who are asked to repay need to double-check that, too.

Apparently, some mistakenly thought they qualified. Others tried to cheat the system, and the IRS failed to catch them until after the checks cashed.

About 950,000 of the nearly 1.8 million Americans who claimed the tax credit on their 2009 return should not have received the money.

Part of the confusion was because homebuyers were eligible for two different types of credits, depending on when their homes were purchased. The government’s first version of the credit was a no-interest loan of up to $7,500. It was required to be paid back over 15 years.

Congress eliminated the repayment requirement for homes bought in 2009, but those who claimed the credit for homes purchased in 2008 will still be required to repay it, beginning when they file their 2010 income tax return. Some who bought in 2008, the audit said, tricked the IRS into granting them the credit by lying about their closing date on their application.

But the IRS caused part of the problem. Apparently, it recorded the wrong home purchase date for about 73,000 that claimed the credit. That could mean some will be asked to pay back money they weren’t required to repay, the report said.

Here are some things to keep in mind if you haven’t yet claimed your credit or if you’re checking your paperwork.

• You don’t have to wait to claim your credit on your 2010 return if you bought this year. If you purchased a home before the April 30 deadline, you can amend your taxes to claim the credit.

• There are two credits available. One is for first-time buyers or those who have not owned a home in the past three years. The maximum for this credit is $8,000 and does not have to be paid back. It applies to purchases made this year between Jan. 1 and April 30.

• Some buyers who already owned homes can claim a credit worth up to $6,500 for purchases made between Nov. 7 and April 30. To qualify, the buyer must have owned a primary residence for at least five consecutive years out of the past eight years. This credit also does not need to be paid back.

• There are income and price requirements. If the home was purchased after Nov. 6, it can cost no more than $800,000. Also, if purchased after that date, individuals cannot earn more than $125,000 and married couples filing jointly cannot earn more than $225,000.

• If you’re claiming the credit, a paper filing is necessary. Only taxpayers not claiming the credit can file electronically. Buyers can still use electronic forms, but must print them out and mail them in, along with form 5405.

• Buyers must prove they are eligible. You’ll need to send a copy of the HUD settlement statement along with the tax form. If you’re claiming the longtime owner credit, also include proof, such as copies of mortgage interest statements, property tax records or homeowner’s insurance records.

• The credit is for your primary home. If you decide to rent or sell the home within three years, the credit must be repaid.

Copyright © 2010 Tampa Tribune, Fla., Shannon Behnken. Distributed by McClatchy-Tribune Information Services.

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Housing Trends eNewsletter

JUNE - 2010 Newsletter Housing Trends eNewsletter

Welcome to the most current Housing Trends eNewsletter. This eNewsletter is specially designed for you, with national and local housing information that you may find useful whether you’re in the market for a home, thinking about selling your home, or just interested in homeowner issues in general.

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Lawmakers consider home tax credit extension

WASHINGTON – June 11, 2010 – Homebuyers may get an extra three months to finish qualifying for federal tax incentives that boosted home sales this spring.

Senate Majority Leader Harry Reid, D-Nev., said Thursday he wants to give buyers until Sept. 30 to complete their purchases and qualify for tax credits of up to $8,000. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale.

The proposal would only allow people who already have signed contracts to finish at the later date. The National Association of Realtors estimates that about 180,000 homebuyers who already signed purchase agreements are likely to miss the deadline.

Reid introduced the proposal as an amendment to a bill that would extend jobless benefits through the end of November. Joining him were Sen. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn.

The Senate is expected to take up the amendment next week. Senate Democratic leaders hope to finish work on the jobless benefits bill next week, but they have yet to secure enough votes.

Reid, who faces perhaps the toughest re-election campaign of his political career, represents a state that has the nation’s highest foreclosure rate.

The Realtors group has been pushing hard in Congress for the extension. Mortgage lenders, the trade group says, have been swamped with borrowers trying to get approved by the end of the month. Many potential borrowers are unlikely to make the deadline.

“Time is of the essence,” said Lucien Salvant, a spokesman for the group. “It’s important for Congress to get this done, because there’s whole bunch of loans that aren’t going to close on time.”

First-time buyers were eligible for a tax credit of up to $8,000. Current owners who bought and moved into another home could qualify for a credit of up to $6,500.

Copyright 2010 The Associated Press, Alan Zibel (AP Real Estate Writer). All rights reserved. Associated Press Writer Stephen Ohlemacher contributed to this report from Washington. Reprinted with permission. Florida Realtors®. All rights reserved. 

Freddie Mac: Mortgage rates hit low for year

WASHINGTON – June 11, 2010 – Rates on 30-year fixed mortgages fell this week to the lowest level of the year and barely shy of the all-time low.

Mortgage finance company Freddie Mac says the average rate sank to 4.72 percent, down from 4.79 percent last week. It was just above the record of 4.71 set last December.

The average rate on a 15-year fixed-rate mortgage hit 4.17 percent, down from 4.2 percent last week and the lowest on records dating back to August 1991.

Though mortgage rates are at attractive levels, the housing market hasn’t benefited. The number of customers applying for a mortgage to purchase a property fell to the lowest level in 13 years last week and was down 35 percent from a month ago, according to the Mortgage Bankers Association.

That’s a sign the market is struggling without a tax credit of up to $8,000 for first-time buyers, which expired at the end of April.

The government has taken massive steps to help the housing market recover. A campaign by the Federal Reserve to reduce borrowing costs for consumers pushed rates down to extraordinarily low levels last year. Rates were expected to rise after the program ended this spring, but have fallen instead over the past two months.

Investors, wary of the European debt crisis and the turbulent stock market, have shifted money into the safety of U.S. Treasury bonds. That has pushed down the interest rate, or yield, on U.S. Treasury debt. Fixed mortgage rates tend to track that yield.

More recently, the latest report on the U.S. employment picture showed that few private-sector jobs are being created. That made investors nervous about the stock market and pushed up bond prices, which pulls down rates.

“Following a relatively weak employment report, bond yields fell this week and mortgage rates followed,” said Frank Nothaft, Freddie Mac’s chief economist.

Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.

Rates on five-year, adjustable-rate mortgages averaged 3.92 percent, down from 3.94 percent a week earlier. Rates on one-year, adjustable-rate mortgages fell to 3.91 percent from 3.95 percent. That was the lowest average since May 2004.

The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount.

The nationwide fee for loans in Freddie Mac’s survey averaged 0.7 a point for 30-year, 15-year and 5-year loans. The average fee for 1-year loans was 0.6 of a point.

Copyright 2010 The Associated Press, Alan Zibel (AP Real Estate Writer). All rights reserved. Reprinted with permission. Florida Realtors®. All rights reserved. 

Fed officials conflicted on mortgage program

WASHINGTON – Jan. 7, 2010 – Some Federal Reserve policymakers last month were conflicted over whether to expand or cut back a program intended to drive down mortgage rates and bolster the housing market, according to a document released Wednesday. 

Minutes of the Fed’s closed-door meeting on Dec. 15-16 revealed that a “few members” thought that the Fed’s $1.25 trillion program to buy mortgage securities from Fannie Mae and Freddie Mac might need to be expanded and extended beyond its current end date of March 31. Such an additional dose of stimulus would be especially needed if the economic recovery were to weaken, they argued. 

However, one member thought the program could be “scaled back” given the improvement in economic and financial conditions. 

The debate over the future of the program comes amid uncertainties about the vigor of the budding economic recovery. 

At the December meeting, Fed policymakers decided not to make any changes to the program. At their September meeting, they opted to slow the pace of the purchases, wrapping them up by the end of March, rather than the end of 2009. 

The minutes don’t identify speakers by name but seeks to provide a more detailed account of the Fed’s private discussions. 

Some Fed officials remained concerned about the economy’s ability to mount a self-sustaining recovery once government supports are removed. To that end, those officials worried that improvements seen in the housing market might be “undercut” this year as the Fed’s mortgage-buying program winds down, the government’s home buyer tax credits expire at the end of April and home foreclosures grow. 

Getting the housing market back on firm footing is a key ingredient to a lasting recovery. The collapse of the housing market, which dragged down home prices with it, was the catalyst for the longest and worst recession to hit the country since the 1930s. 

“Generally the outlook was for gains in housing activity to continue. However, some participants still viewed the improved outlook as quite tentative and again pointed to potential sources of softness,” the minutes said. 

To nurture the recovery, the Fed at the December meeting kept its key bank lending rate at a record low near zero and pledged to hold it there for an “extended period.” The goal: low interest rates will entice people and businesses to boost spending, which will fuel economic growth. 

Economists said the Fed is all but certain to leave rates at record lows at its next meeting on Jan. 26-27 and probably for a good chunk of this year. 

“Overall, there is nothing here to suggest that interest rates will rise for quite some time,” Paul Ashworth, economist at Capital Economics Ltd., said of the Fed minutes. Ashworth is among the economists predicting economic growth will slow in the second half of this year as President Barack Obama’s $787 billion stimulus package of tax cuts and increased government spending fades. 

Most Fed officials don’t currently see inflation as a problem because companies have “little ability to raise their prices” in the fragile economic environment. But they had mixed views about inflation risks. 

Some noted that rising prices of oil and other commodities could boost inflation pressures down the road. Others thought investors’ expectations of inflation could edge up because of large federal government budget deficits and vast sums of money the Fed pumped into the economy to fight the financial crisis. 

However, others predicted that the sluggish recovery and “slack” in the economy – meaning factories operating well below capacity and the weak labor market – would keep inflation under wraps. 

At the December meeting, Fed staff gave several presentations on research into “inflation dynamics.” 

The biggest challenge facing Fed Chairman Ben Bernanke and his colleagues is to decide when to start boosting interest rates. Moving too soon could short-circuit the recovery. Waiting too long could unleash inflation. 

Copyright © 2009 The Associated Press, Jeannine Aversa, AP economics writer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.




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Taxes 2009: Get it together now

WASHINGTON – Dec. 11, 2009 – For millions of Americans, “consultant” or “freelancer” is a euphemism for “unemployed.” 

But whether you’re self-employed by choice or circumstances, there’s a lot you can do between now and year’s end to reduce your 2009 tax bill. One of the advantages of self-employment is that you have more control over your tax destiny than folks who have their taxes withheld from their paychecks. Some examples of tax-saving steps you can take before the end of the year: 

Purchase needed materials. When you’re self-employed, everything you buy for your business, from manila envelopes to a new computer, is deductible. By making those purchases now, you can deduct the expense on your 2009 tax return instead of waiting until next year, says Mary Canning, dean of the school of taxation and accounting at Golden Gate University in San Francisco. 

“If you’re thinking your laptop isn’t functioning very well or you need a new scanner, this might be the time to do that kind of purchase,” Canning says. 

A purchase made with a credit card counts as a 2009 expense, even if you don’t pay the bill until 2010, Canning says. 

Make sure you keep receipts and other records for these purchases, says Justin Ransome, partner in Grant Thornton’s National Tax Office. If you’re audited, the IRS will ask you to prove that these were legitimate business expenses, he says. 

Delay income. If you’re employed, your company probably won’t agree to hold on to your last paycheck until Jan. 1 (although this sometimes works if you’re due a bonus or commission). But if you’re working for yourself, your clients may be happy to wait until next year to pay you for recent services. 

Use health insurance tax breaks. Most workers who are covered by their employer’s health insurance can’t deduct their portion of the premium. Out-of-pocket expenses aren’t deductible unless they exceed 7.5 percent of adjusted gross income. 

For the self-employed, though, 100 percent of health insurance premiums are deductible, says Mark Luscombe, tax analyst for tax publisher CCH. You can also deduct the cost of providing health insurance for your spouse and your dependents. However, the deduction can’t exceed the net income of your business. 

If you purchased an individual insurance policy, you may be eligible to contribute to a health savings account. Contributions to a health savings account can be used to pay for deductibles and other costs that aren’t reimbursed by your insurance plan. 

Unlike the flexible spending accounts offered by many employers, money remaining in HSAs at year’s end can be rolled over to future years. Self-employed workers can deduct contributions to an HSA, and withdrawals are tax-free as long as the money is used for qualified health care expenses, says Eddie Gershman, a partner with Deloitte Tax. 

To qualify for an HSA, you must have a high-deductible insurance policy, which the government defines as one with a minimum deductible of $1,150 for an individual or $2,300 for a family. 

The maximum you can contribute is $3,000 for an individual or $5,950 for family coverage. 

Save for retirement. For the newly self-employed, saving for retirement may seem like an unaffordable luxury. But squirreling away even a small amount can reduce your 2009 tax bill. 

There are several retirement-savings plans available to the self-employed, but the SEP-IRA is the easiest to set up, Gershman says. Contributions are deductible, and you can contribute up to 25 percent of your earned income, up to a maximum of $49,000 in 2009. 

You have until the due date of your 2009 tax return to set up and fund a SEP-IRA, so you can wait until April 15, or even longer if you file for an extension. But the sooner you start saving, the sooner you’ll start earning money. 

Start planning now. Finally, this is a good time to review your records and start planning for 2010, says Gale Northrop, a financial consultant for Schwab. If taxes aren’t withheld from your paychecks, you’re supposed to pay estimated taxes every quarter. 

Tax tips for everybody else 

While taxpayers who work for an employer have fewer options, there are year-end steps they can also take: 

Give to charity. Donations are deductible as long as the charity or non-profit is qualified to receive deduction contributions (IRS Publication 78 includes a list of qualified organizations, but doesn’t include many religious groups that are also eligible.) 

Timing is important if you want to claim the deduction on your 2009 tax return. Contributions made by check are considered delivered on the day they’re mailed, according to Grant Thornton. Contributions paid with a credit card are deductible in the year the charge occurs, even if you don’t pay the bill until next year. In general, pledges – no matter how heartfelt – aren’t deductible until you make the payment. 

Buy a car. OK, you probably shouldn’t buy a car just to get a tax break. But if you’re in the market for a new vehicle anyway, buying one before year’s end could lower your taxes. You can deduct sales and excise taxes on new vehicle purchases of up to $49,500. You can claim this deduction even if you don’t itemize. 

Harvest investment losses. Last year’s market meltdown and the economic downturn incinerated a lot of companies. If some of the securities in your portfolio are smoldering, you may be eager to ditch them and claim a loss for worthless securities. But if the stock continues to trade – even if it trades only infrequently in informal markets such as the Pink Sheets – it’s not considered worthless. In addition, the IRS requires you to claim the loss in the year the security becomes worthless, which is often difficult to figure out until well after the fact. 

There are, however, other ways to claim a loss on securities that you believe are beyond redemption, says James Van Grevenhof, tax analyst for Thomson Reuters. One is to sell the security to an unrelated third party, which could include your broker, a cousin or a friend (you can’t sell it to a parent, child or sibling). You can claim the difference between the amount you paid and the proceeds from the sale as a loss on your tax return. 

If no one is willing to buy your securities, you can abandon the stock, Van Grevenhof says. You must permanently relinquish all rights to the security, he says. You can accomplish this by contacting your broker or the company that issues the security. 

Capital losses can be used to offset capital gains from the sale of securities. 

If you had no capital gains this year, you can deduct up to $3,000 of your losses against ordinary income. Losses that exceed that amount can be carried over to future years. 

Copyright © 2009 USA Today


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