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Is there a program for renters of homes that are going into foreclosure that would enable the renter to stay?
You can stay, but in foreclosure, the question is, do you want to?
The landlord hasn’t been paying the mortgage and probably won’t be fixing anything that breaks. You have between eight and 12 months from the first foreclosure notice to when the house or condo is sold at a foreclosure auction, says attorney Karl Klein of The Klein Law Group in Miami. When it is sold, your lease terminates and you will probably be evicted, because the new owner will want to empty it out and try to sell it.
Your options are few. Freddie Mac has a program to rent foreclosed homes to tenants on a month-to-month basis. And some, not many, landlords are offering “cash for keys,” to get you to move out quickly so they can put the home on the market.
Worried that your financially stressed landlord won’t give you back your security deposit and last month’s rent? Write a letter to the landlord saying that he has “broken the lease” by interrupting “your quiet and peaceful enjoyment of the premises,” says Broward attorney Charles L. Simon, who specializes in landlord-tenant law. Tell him to apply your last month’s rent to your next monthly payment. Then apply your security deposit to the following month. After those two months, you will resume paying your normal rent for as long as you stay. (Bank that money. You can use it for your next deposit) Do not stop paying your rent altogether – even if you don’t trust your landlord.. The landlord still has the right to evict you, as long as he controls the property. What if I sold my home in a short sale?
Your lender will probably send you a 1099 form, which reports income from a real estate transaction. But you many not have to add that to your taxable income. Scharin explained that the cancelled mortgage debt is not income to you if: It was for your primary mortgage on your principal residence.
If the debt was cancelled between 2007 and the end of 2012
If it’s not over $2 million. Under recent tax law changes, if you meet those provisions, you don’t have to pay tax on a mortgage that is forgiven. You should be sure to keep good records in case you ever are questions about this. The IRS also gets a copy of that 1099 form. Anything else about the tax code that can help in these tough times? Scharin says if you’ve had a big drop in your income, you should look over your return one more time. You may now be able to squeeze in some deductions or tax credits that either you couldn’t take when your income was higher or you were only partially eligible to take. “You could be missing out on things like the child tax credit or an education credit,” Scharin said. We have been asking for a loan modification for our mortgage. We’re 60 days behind on the payments. My lender says it can’t be done. Is that true? You’re right. You’re wrong. Sound familiar? Anyone trying to fix a mortgage these days has to feel confused. Even though, as I have reported, major lenders – Bank of America, Wells Fargo, and others -- say they’re working under the new Department of Treasury program to modify mortgages to make them more affordable, readers and consumer advocates are telling me that few people are getting approved. To be fair, the Treasury program only began this month, Bank of America spokeswoman Juman Bauwens pointed out. So if you applied last month, it was harder to get through the process. The rules on what lenders will do are changing all the time, says attorney Jeffrey Tromberg of the Florida Debt Relief Center in Fort Lauderdale. A lender might refuse to talk until you’re behind on your payments while another might not talk to you because of that. If you want to give this a try, Tromberg, who is also Florida chair of the National Association of Consumer Bankruptcy Attorneys, says you should write a “hardship letter.” Explain how you got into financial trouble, what you’ve done to address your problems (sold the second card, cut your grocery bill, for example) and how you plan to get out of this situation. Also, go to the lender with all your financial paperwork in order, says Bank of America’s Bauwens – loan information, proof of your income and a list of your debts and expenses. Watch out for a few things. Tromberg notes that Florida legislators last year banned anyone from taking an upfront fee for arranging a loan modification --- except for attorneys. The Florida Bar recently warned attorneys about partnering with foreclosure “consultants” or other non-lawyers whose goal is to skirt that law. And, be clear about what you’re getting in to. Not all loan modifications result in lower monthly payments. Sometimes, new fees or the payments you missed are rolled back into the loan, making your principal larger than before or your loan term longer. Because few loans are being made and many aren’t lowering the payments for troubled borrowers, Tromberg says, “I am not seeing a lot of loan modifications succeed We have a 10-year mortgage with Citibank and the payments are killing us. Does the government have some sort of modification program where we can lengthen the mortgage and lower the monthly payments? There is now. The Making Home Affordable program launched March 4 actually gives lenders an incentive to modify loans, bring the interest rate down to as low as 2 percent and to extend the term of the loan for as long as 40 years. A lender who cuts the monthly payment to 31 percent of the borrower’s gross monthly income potentially can also receive a payment from the Treasury Department to offset that reduction.
The program works for borrowers who are at risk or falling behind on their mortgages as well as those who are up to 60 days delinquent. The guidelines cover mortgages owned by Fannie Mae and Freddie Mac as well as those lenders that are receiving federal bailout money. It applies to loans amounts up to $729,750. And, it can help lenders refinance loans that are underwater, or slightly higher than the value of the home. So check with your lender. At least one, Fifth Third Mortgage Company, said it would automatically review more than 200,000 mortgages to see who might be eligible.
How has the first-time homebuyers tax credit changed with the economic stimulus law? Under the old law, first-time buyers could get a tax credit up to $7,500 for a home purchased between April 9, 2008, and July 1, 2009. You’d take the credit on your 2008 return. You must pay this credit amount back over 15 years, starting two years after the purchase. Under the stimulus law, the old law stands. But now, the credit limit is raised to $8,000 and it applies to homes purchased between Jan. 1, 2009, and Nov. 30, 2009. This would not have to be repaid unless you sell the home within three years of the purchase. The new rules don’t apply to purchases in 2008. So last year’s buyers will have to repay
The confusing part: If you buy in the first half of 2009 but were planning to take the credit on your 2008 return under the old law, you would not get the extra $500 credit. And although some think they should have been informed about this before they set a date to buy a house last year, the law wasn’t in place until the end of 2008. So all who bought houses April 8, 2008 or earlier are simply not eligible for this credit.
Will I be 1099ed in a short sale? For homeowners in trouble, a short sale can be a lifesaver. Lenders allow a house to be sold for less than is owed on the mortgage and then write off the rest. The homeowner just walks away. Unless the owner is an investor, that is. A short sale gets these owners off the hook for the loan, but many will get a surprise from Uncle Sam next tax season: an income tax bill based on the amount forgiven by the lender. “I’m telling you this is going to be a big issue,” said Ralph Fisher, a Lutz attorney who specializes in foreclosure. “If you’re an investor, watch out.” As the Bay area’s foreclosure rate steadily increases each month, short sales are becoming a popular alternative for financially strapped homeowners who owe more than their homes are worth. Late last year, as lenders started to permit more short sales, President Bush signed the Mortgage Forgiveness Debt Relief Act. Before the legislation, all homeowners had to pay income tax on the loan amount written off by the lender. Under the new law, owners won’t have to pay taxes on that amount, up to the original mortgage amount on the purchase of the home. But that’s only if the home is their primary residence. 
345 Bayshore Condo The president and legislators apparently took no pity on investors who gobbled up properties by the dozens during Florida’s red-hot housing boom and now can’t pay their mortgages. Those buyers, if they’re lucky enough to get a lender to agree to a short sale, will be stuck paying the resulting income tax. That goes for owners of secondary homes as well, said Sue Hales, spokeswoman for the IRS. Homeowners who work out a short sale should receive a 1099 tax form with their lenders, she said. Once they get the form, she said, they should carefully check the values of the shortfall amount and the house value. For example, if a homeowner owes $250,000 on a mortgage and the lender agrees to let him or her sell the home for $200,000, the lender would forgive the $50,000. But if the owner doesn’t live in the home, he or she will have to claim the forgiven $50,000 as income. Until late last year, the average homeowner had never heard of a short sale. Now, neighborhoods throughout the Tampa Bay area are dotted with for sale signs denoting the home as a “short sale.” Of the 16,677 Hillsborough County area homes listed for sale in the Multiple Listing Service, nearly 20 percent are marked as a short sale. Brad Monroe, a real estate agent and former president of the Greater Tampa Association of Realtors, said he thinks the actual number of short sales occurring is much higher. Agents in Pasco County report short sales are as high as 60 percent of the properties they’re selling. With real estate generally slow all over Florida, some real estate agents and title companies are specializing in getting lenders to approve short sales. Borrowers facing foreclosure are jumping on the opportunity. Getting a short sale approved at all is difficult, and lenders aren’t always willing to approve them. However, faced with millions of dollars in losses in foreclosures — plus court costs — they are more likely now to approve short sales. Still, real estate agents say the approvals are often delayed or denied. When homeowners do get approved for a short sale, a lot of borrowers aren’t getting good tax advice from some of the real estate professionals helping them with their deals, said Mike Edenfield, an attorney who works with foreclosures. “Most people aren’t aware of it at all,” he said of the income tax requirement. “Florida is typically a debtor’s paradise. But the IRS has a super priority. For the investor out there who bought a bunch of condos and is now in trouble, they’re going to get bitten.” FORECLOSURE If you are reading this, you probably have discovered the house or condo you rent (the “property”) is in foreclosure. You may have been notified because a process server gave you a copy of the foreclosure lawsuit or posted a notice on your door. If so, consider yourself fortunate because increasingly more tenants are first finding out when the Sheriff arrives to change the locks and clear the property. Many unscrupulous landlords will continue to collect their tenant’s rent payments, even though they know eviction is inevitable and just a few weeks to months away. For those tenants, the shock of being forcibly evicted combined with the apparent loss of their security deposit and last month’s rent money, causes anger, embarrassment and rudely disrupts their lives. Students, families, retirees – no one is immune from this risk, but with a little knowledge and some determination you can keep from becoming a victim and minimize the disruption this event will have on your life. The information below is being provided as a public service to help educate those tenants who have just found out their property is in foreclosure. As a tenant of a property in foreclosure, you have limited options to stop your eviction. However, you do have some options to delay the actual eviction date, which can give you enough time to find a new place and get back on your feet. To start, let’s do a quick overview of what foreclosure is and how it works. Simple Overview of the Foreclosure Process Foreclosure is the name of a lawsuit filed by a bank when a property owner stops paying their mortgage. In a foreclosure lawsuit, the bank asks a judge to order the property to be sold at public auction. This process, from filing to auction, takes at least 4-6 months. At the auction the bank gets an automatic bid for the amount owed. If no one bids higher, then the bank gets the property, free and clear of anyone else’s claim. This transfer breaks the lease between owner and tenant. The bank now owns the property and typically the first thing a bank does is ask the Sheriff to clear the property and change the locks. As a tenant, there is practically no way to stop the foreclosure lawsuit and auction. So what can a Tenant do? There are limited tenant rights when foreclosure happens. If a tenant finds out early in the process, they can continue to stay on the property and pay rent for many months before they have to leave. There is a section near the end regarding paying rent for tenants early in the foreclosure process. If the tenant finds out late in the process, then a tenant really has only two options – move out before eviction or delay the foreclosure process. If you can move out without much difficulty, then by all means do so. But most people simply can’t move on short notice and without the money needed to sign a new lease. For them, delaying the foreclosure process is their only option. To delay you either need the bank’s attorney to agree to delay the auction or ask a judge to do so. Delaying Foreclosure For ease of presentation, let us break the foreclosure process into three different phases: the filing of the foreclosure; the auction of the property; and the eviction of the tenant. By determining which phase you are in, you will be better able to choose a proper course of action in postponing or eliminating eviction.  Foreclosure Timeline Phase 1 Phase 1 is what we call the period from the filing of the foreclosure until 30 days before the auction. There is nothing really to do at this point, because the auction and eviction dates are unknown. One thing a tenant should check is if the property’s mortgage was recorded after the lease was signed. If so, the lease may survive the foreclosure auction and you may be able to remain in the property until your lease ends. To see if this applies to you, look at a copy of the foreclosure complaint you received or that was filed with the court. The mortgage will be attached and the date it was recorded should be on the first page near the top. Phase 2 Phase 2 starts 30 days prior to the foreclosure auction and ends at the actual auction. At this point, a tenant’s best strategy is to try to delay the auction. By delaying the auction, you in turn delay the eviction thus ending up with more time for you to stay in the property. This can be done by filing a “Motion to Delay Auction” with the local circuit court. A judge must approve this motion and the better your reason, the greater you chance of success. Examples of good reasons are: you were unaware until now the foreclosure was pending; you have a work/family emergency that requires your attention and thus cannot properly respond to the foreclosure lawsuit; you do not have the money saved yet to rent a new house/condo; recent job loss; recent health issues; you are a senior citizen with limited mobility; you are disabled/handicapped. Even if none of those apply, you can always request leniency from the court, and a judge may agree to delay the auction to give you more time to move out. When you file your motion, ask the judge’s chambers to schedule a hearing date and you should mail a notice of hearing to the bank’s attorney and your landlord. Be sure to dress appropriately for the hearing and be respectful to the judge. Calmly explain your situation and the judge may give you additional time. Phase 3 Phase 3 is the period between the auction and the eviction. A few weeks after the auction a Sheriff’s Deputy will come to the property and post an eviction notice. Once an eviction notice has been given, you will usually have only 48-72 hours to pack and leave. You do not have much time and need to act quickly! In Phase 3 you have two options to delay eviction. Option #1 is to file a Motion to Extend Sheriff’s Execution. If granted by the judge, this will prevent the Sheriff from returning to evict you for a period of time set by the Judge. Option #2 is to call the REO Agent and ask for “cash for keys.” This is exactly as it sounds; the REO Agent will compensate you for having to leave the property before the end of your lease. When you leave the premises, you will receive a set amount of money provided you leave the premises clean and in good condition. You can expect between $250 to $2,500 for this, depending on the property value, what you agree to leave behind, and the resources of the REO Agent. Calling the Bank’s Attorney The phone number and name of the bank’s attorney is listed on the foreclosure complaint and on the lis pendens. When you call, be polite and respectful. Being angry about the situation can only hurt you. After all, it is not the attorney’s fault the property is in foreclosure and they are just doing their job. Tell the attorney how much time you need to delay the foreclosure auction. Having a good reason (finances, family issues, travel plans) helps a lot. Ideally they will understand and delay the auction. But realistically, this is a 50/50 shot – sometimes foreclosure attorneys do not have the authority to grant any delay and even getting one on the phone is difficult as they handle hundreds of cases and cannot attend to every call. Recent Developments Foreclosure filings have grown significantly, and the process appears to have slowed down. It appears that in many counties, the process is taking around 8 months, and in more and more cases a year or longer. Foreclosure firms, court clerks and bank REO managers are finding themselves swamped with the sheer number of filings and cases pending 18 months or longer are not uncommon. Should I Keep Paying Rent? The most frequent question we hear from tenants is "If my landlord is in foreclosure, can I stop paying rent?" A tenant's first thought is that if their landlord isn't paying their mortgage, why should they pay rent? However, stopping rent payments can be a mistake. The landlord owns the property until the auction, and we have seen landlords evict a tenant who refuses to pay rent in order to re-rent to another tenant for the remaining months before the auction and to keep the first tenant's security deposit. The good news is there are legal defenses that may allow you to stop paying rent, provided you are willing to move out of the property at some point. There is no one-size-fits-all solution to each tenant. For some tenants, a landlord's foreclosure is the perfect opportunity to get out early from a lease, for others, it's a good opportunity to lower their rent payments. Sometimes tenants and their landlords can have a frank discussion and reach a new understanding about their rental situation. Sometimes, that's not possible. If talking to your landlord doesn't help, or you don't want to talk to your landlord, we suggest a tenant consult with an attorney to fully understand their rights before attempting to stop or modify their rent payments. Conclusion Forclosure is disruptive for a tenant. However, armed with a little knowledge, you can handle it on your terms and minimize the problems
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