Purchasing a Home
Buying a home will likely be the largest and most important financial transaction of your life. It can be exciting. It can get emotional. And one thing is for sure: it requires that you address a number of complex issues that can only be resolved by an experienced real estate attorney. At The Gil Law Group, we put our experience to work for you to ensure a smooth transaction.
There are a number of reasons to engage a qualified real estate attorney at the earliest stage of the real estate transaction, before you sign a contract. To proceed without the advice and counsel of an attorney is like walking into a maze blindfolded. Remember, once you've signed a contract, you are bound by its terms. Before you sign, your attorney will explain those terms and suggest changes that will protect your investment and enjoyment of your new home.
The Gil Law Group are proud members of the Illinois Real Estate Lawyer's Association.
HUD's New Buyer Select Program
We have partnered with title companies to act as the Closing Agent for client's purchasing a HUD home. The new HUD program, entitled "Buyer Select," applies to all contracts accepted by HUD after March 1, 2013. The Buyer can now select the Closing Agent to facilitate closing the transaction.
Selling a Home
Congratulations! You've closed on your home, you're aware of the tax advantages of home ownership, and you're really a homeowner! Now you're ready to settle down. Several years down the road, you may decide to sell your dream home. You may be delighted to discover that your home is worth more than you paid for it. Now let The Gil Law Group be there to make sure that you get as much out of your sale as possible. Our experienced attorneys have handled thousands of real estate transactions. Experience counts.
When interest rates drop, there's a mad rush to refinance old mortgages closed at a higher rate. Put our experience to the test and let us help you navigate through the process to make sure you're getting the best deal possible.
Below is a timeline for a mortgage foreclosure.
First month missed payment – your lender will contact you by letter or phone.
Second month missed payment – your lender is likely to begin calling you to discuss why you have not made your payments. It is important that you take their phone calls. Talk to your lender and explain your situation and what you are trying to do to resolve it. At this time, you still may be able to make one payment to prevent yourself from falling three months behind.
Third month missed payment – after the third payment is missed, you will receive a letter from your lender stating the amount you are delinquent, and that you have 30 days to bring your mortgage current. This is called a "Demand Letter" or "Notice to Accelerate." If you do not pay the specified amount or make some type of arrangements by the given date, the lender may begin foreclosure proceedings. They are unlikely to accept less than the total due without arrangements being made if you receive this letter. You still have time to work something out with your lender.
Fourth month missed payment – now you are nearing the end of time allowed in your Demand or Notice to Accelerate Letter. When the 30 days ends, if you have not paid the full amount or worked out arrangements you will be referred to your lender's attorneys. You will incur all attorney fees as part of your delinquency.
Sheriff's or Public Trustee's Sale – the attorney will schedule a Sale. This is the actual day of foreclosure. You may be notified of the date by mail, a notice is taped to your door, and the sale may be advertised in a local paper. The time between the Demand or Notice to Accelerate Letter and the actual Sale varies by state. In some states it can be as quick as 2-3 months. This is not the move-out date, but the end is near. You have until the date of sale to make arrangements with your lender, or pay the total amount owed, including attorney fees.
Redemption Period – after the sale date, you may enter a redemption period. You will be notified of your time frame on the same notice that your state uses for your Sheriff's or Public Trustee's Sale.
Important: Stay in contact with your lender, and get assistance as early as possible. All dates are estimated and vary according to your mortgage company.
The following are some options to avoid or solve a foreclosure. Let us help you decide which option is best for you.
Negotiate with your lender.
Sell your home
Deed in lieu of Foreclosure
A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.
In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the borrower. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. Neither side is "doing the other a favor;" a short sale is simply the most economical solution to a problem. Banks will incur a smaller financial loss than would result from foreclosure or continued non-payment. Borrowers are able to mitigate damage to their credit history, and partially control the debt. A short sale is typically faster and less expensive than a foreclosure. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.
Lenders often have loss mitigation departments that evaluate potential short sale transactions. The majority have pre-determined criteria for such transactions, but they may be open to offers, and their willingness varies. A bank will typically determine the amount of equity (or lack thereof), by determining the probable selling price from an appraisal or Broker Price Opinion (abbreviated BPO or BOV).
Lenders may accept short sale offers or requests for short sales even if a Notice of Default has not been issued or recorded with the locality where the property is located. Given the unprecedented and overwhelming number of losses that mortgage lenders have suffered from the 2009 foreclosure crisis, they are now more willing to accept short sales than ever before. This presents an opportunity for "under-water" borrowers who owe more on their mortgage than their property is worth and are having trouble selling to avoid foreclosure as a result.
Mortgages are modified to the benefit of the borrower in one or more of the following ways:
Reduction in interest rate, or a change from a floating to a fixed rate, or in how the floating rate is computed
Reduction in principal
Reduction in late fees or other penalties
Lengthening of the loan term
Capping the monthly payment to a percentage of household income
Mortgage forbearance program
The borrower can be current, late, in default, in bankruptcy, or in foreclosure at the time the application for modification is made. The programs available will vary accordingly.
There may be modifications made at the discretion of the lender. The lender is motivated to offer better terms to the borrower because of the expectation that the borrower might be able to afford a lower payment, and that a performing loan (i.e. one in which payments are current) will be more valuable ultimately than the proceeds obtained from a foreclosure sale.
The state and federal government may structure a mortgage modification program as voluntary on the part of the lender, but may provide incentives for the lender to participate. A mandatory mortgage modification program requires the lender to modify mortgages meeting the criteria with respect to the borrower, the property, and the loan payment history.
The Obama Administration's Federal Making Home Affordable Program includes opportunities to modify or refinance your mortgage to make your monthly payments more affordable. It also includes the Home Affordable Alternatives Program for homeowners who are interested in a short sale or deed-in-lieu of foreclosure.
THE MORTGAGE FORGIVENESS DEBT RELIEF ACT
The Mortgage Forgiveness Debt Relief Act expired December 31, 2013. The Act prevented homeowners who go through a short sale or foreclosure from being taxed on the amount of their mortgage debt that has been forgiven. (Normally, debt that has been forgiven by a lender counts as taxable income.) A short sale transaction would have had to close before Dec. 31, 2013 in order to take advantage of the Act's tax exemption. The good news is there is still a way to avoid paying income tax on forgiven debt.
IRS "Insolvency Clause" Offers Tax-Saving Alternative
Homeowners that are panicking about potentially hefty tax bills are probably not aware that they may still qualify for tax relief via the IRS "insolvency clause". The clause states that a seller is exempt from paying tax on any forgiven debt to the extent that they are insolvent. In other words, if the seller's debts and liabilities exceed their assets by more than the amount of debt forgiven, they do not have to pay taxes on the forgiven debt.
Here's an example:
A seller has a home valued at $300,000, but the mortgage debt is $400,000. We short sell the property for $300K and the bank elects to forgive the debt on the $100,000 shortfall amount. Since debt that has been forgiven counts as taxable income, the IRS would treat the $100,000 of forgiven debt as income.
MORTGAGE DEBT SALE PRICE FORGIVEN DEBT
$400,000 - $300,000 = $100,000
This is where the insolvency clause formula comes in. Begin by adding up all of your debts/liabilities in one column and all of your assets in another. For this formula, the IRS wants you to include the mortgage debt as a liability, and the fair market value of your house as an asset. Let’s say you have $600,000 in assets and $700,000 in debts/liabilities. You are insolvent by $100,000.
ASSETS LIABILITIES INSOLVENCY
$600,000 - $700,0000 = [ $100,000 ]
Since your insolvency amount of $100,000 equals the forgiven debt amount of $100,000, it’s a wash and you will not have to pay taxes on that forgiven debt. You are shielded dollar-for-dollar on the amount of forgiven debt up to your insolvency number. Let's say you were only insolvent by $80,000. In that case, you would still have to pay income tax on the remaining $20,000 of forgiven debt.
INSOLVENCY FORIVEN DEBT TAXABLE INCOME
[ $100,000 ] - $100,000 = -0-