You are currently browsing the tag archive for the ‘Bremerton bankruptcy’ tag.
[Categories: Washington Bankruptcy Attorney]
There is a "secret formula" which is determining whether you are eligible for a HAMP – it is called the NPV – the "net present value".
What is this formula? I found two descriptions:
Description #1: This first is an official brief description from the "Frequently Asked Questions" portion of a government document – it recites as follows:
"Apply a Net Present Value (NPV) test to determine whether the value of the loan to the investor will be greater if the loan is modified (factoring in the government’s incentive payments) [versus if the loan is foreclosed and the foreclosed house sold by the foreclosing lender]. If the modified is not of greater value [greater NPV] the investor and servicer may still modify the loan. However, modification in such cases is nto required. Please note: Your servicer may re-run the NPV test before the modification becomes official if they receive new information taht could affect your NPV score. If the modified loan is of greater [NPV], the servicer must offer you a modification under HAMP, and, ifyou accept the offer, will put you on a trial modification (typically three months) at the new payment level. [ ] Misrepresenting any information required for the Home Affordable Modifidcation is a violation of Federal law and has serious legal consequences." Revised June 8, 2010, a copy is available at: http://makinghomeaffordable.gov/docs/BORROWER%20FAQs_6-8-10.pdf
Note that a list of servicers that have agreed to participate in HAMP modifications is available at a government website. Also included is a list of those HAMP programs (there is more than one HAMP program – adding to the confusion) in which the respective servicers have agreed to participate at: http://www.makinghomeaffordable.com/contact_servicer.html
Description #2 of NPV test – This description comes from an on-line post by an "in the trenches" individual who has claimed to have participated in and successfully completed 100 modifications:
January 2010: "The "NPV Test" (NPV is "Net Pesent Value") is a formula used to determine your eligibility for a loan modification under the HAMP Program. The purpose running an NPV calculation test is to decide if the investor of your mortgage is in a better profit position by approving you for a modification (basically which choice gets more money to their bottom line) or if they would have a higher profit margin by allowing the property to foreclose. This formula takes many different factors such as current value, foreclosure costs, resale time and compares this with payments on the reduced rates, how much principal they would have to defer interest free to make you qualify under 31% of your gross (pretax) income, after the other "waterfall process" steps the HAMP underwriting guideline require in order to lower your payment were first calculated, along with the risk in possible repeat default, and many other figures that are called values. In other words, it is the comparison of two formulas with multiple factors, that are then compared to see which is greater in profit to the investor of your loan. The investor is usually not the same as your servicer.
If the borrower is not approved for a HAMP modification because the transaction failed the NPV calculations, then the servicer must, explain what the NPV means tell you the factors used to make the NPV decision and advise you that you may request the values used in making the calculations along with the date the process was completed within 30 days of the notice of denial. and dates. The reason they have to provide this information to you is to give you the opportunity to make any necessary corrections to the values they used as they make or break your ability to be considered eligible for the Home Affordable Modification Program.
You or your authorized representative, can request the specific NPV values verbally or by writing to the servicer within 30 calendar days from the notice date and they must answer your request within 10 days.
If you request the NPV values and you have a foreclosure sale pending the servicer must not complete the foreclosure sale until 30 days after they deliver those values to you to give you time to correct the inaccurate values. If there are any.
Once the evidence that the NPV values used were inaccurate, the servicer has the burden to make the necessary verifications to see if the corrections are material to the outcome of the NPV.
Some values don’t affect the outcome and do not warrant a change from the original NPV. If you find inaccurate values in the NPV calculations and you follow the protocol for advising the lender then your servicer must reconcile the inaccuracies prior to proceeding with any foreclosure sale.
As always the best way to win at the loan modification game is to learn everything you can about the process so you can be empowered and successful with your loan modification and saving your home."
See Anna Cuevas at http://ezinearticles.com/?Denied-For-HAMP-Because-You-Failed-NPV-Calculations—What-is-NPV-Test?&id=3574993
f
This is part IV of a seven part series. I look at definitions of Discharge of Indebtedness Income vs. taxable debt forgiveness income. Note that the tax consequences of foreclosure or short sale of a commercial or rental property will likely be much different than discussed here. In this series, we are looking at your primary residence in which you reside.
You could be facing foreclosure or short sale nearly anywhere in Western Washington- and we can help. It doesn’t matter where you are at in Western Washington. I regularly service communities in and around Seattle, Washington; Federal Way, Washington; Bremerton, Washington; Gig Harbor, Washington; Silerdale, Washington; Bangor, Washington; Tacoma, Washington; Renton, Washington; Auburn, Washington; Tukwila, Washington; Lakewood, Washington; University Place, Washington; Puyallup, Washington; and Olympia, Washington.
I have clients as far north as Snohomish County and Whatcom County, and as far south as Clark County, Washington and Skamania County, Washington. We have many clients in Aberdeen, Hoquiam and Gray’s Harbor County, along with the Kitsap area and Key Penninsula; you MUST be aware of potential tax consequences of a "short sale" or foreclosure.
As discussed before, the $250,000 capital gains exclusion plays a large roll in whether you have taxable income on your personal residence post short sale or foreclosure.
Note that this analysis is limited to your personal residence in which you have lived for at least two years. As stated earlier, investment, commercial and rental properties will have a much different result than discussed here – remember to always consult your tax professional. Properties you received as a gift or inheritance can have a different result as well, so always consult your tax professional in any distress sale situation.
The National Consumer Law Center’s publication "Foreclosure Prevention Counseling", 2009 edition, available for $60.00 at www.consumerlaw.org, at Chapter 9, pages 147-152, treats this subject well.
Now, recognize that for starters, Discharge of Indebtedness Income is not necessarily always the same as taxable debt forgiveness income, according to the NCLC manual "Foreclosure Prevention Counseling" 2009 edition, at page 149.
Discharge of Indebtedness Income – the IRS considers that a taxpayer has income from discharge of indebtedness when a lender forgives some or all of a debt. If the obligation to repay a debt is forgiven, then the government looks to see if that borrowed money now constitutes income to the borrower and, if so, how much. That income is taxable like any other income the homeowner receives. Nevertheless, as described in posts five, six and seven of this blog post series, there are a number of exceptions that may mean that discharge of indebtedness may produce no taxable income at all.
Lets talk for a moment about three situations in which tax MIGHT be due … but don’t panic … the next three blog posts in this series will put your mind at ease. These three situations rarely result in any taxable income. But so that you completely understand the concept, here are the three POTENTIAL (not certain) taxable income creation situations:
First, if there is a foreclosure and the homeowner is not laible for the deficiency, that forgiveness of the deficiency is a discharge of indebtedness income.
Second, another example is a short sale where the house sells for less than the debt and wehere the lender has agreed to forego any deficiency.
The third example would be a loan modification in which the lender forgave the principal of the debt or wrote the debt down. The amount of forgiven debt would also be discharge of indebtedness income.
Note that discharge of indebtedness income is VERY DIFFERENT AND DISTINCT from capital gains income. I reprint for you here the example from an earlier blog post (#3 of this seven part series) to illustrate difference.
Note from the partially reprinted/reposted example info below, it is possible for a short sale to result in both a capital gain and also a discharge of indebtedness situation. Each of (1) capital gains and (2) discharge of indebtedness must be analyzed separately and independently:
:::::::::::::::::::::::::::::::::::::::::::::::::::
Example #1 – single person completing short sale – illustration of development of capital gain and discharge of indebtedness income
$50,000 original purchase price of principal residence many years ago (no funds expended on improvements during ownership so as to increase basis)
$210,000 amount on mortgage after many rounds of refinancing to "pull out equity"
-$150,000 less: short sale price when homeowner falls into financial distress
$60,000 indebtedness not paid due to short sale
$100,000 capital gain ($150,000 short sale price – $50,000 acquisition price = $100,000)
$60,000 Discharge of Indebtedness Income (but Debtor may not have to pay tax on this 60k – read later blog posts #5, #6, and #7 in this series as we work through defining and diferentiating "Discharge of Indebtedness Income vs. taxable debt forgiveness income)
$100,000 capital gain – no tax due, because the capital gain exclusion is $250,000 for a single person on a principal residence.
::::::::::::::::::::::::::::::::::::::::::::::::
Ok, so our stressed out example short sale debtor above is off the hook for capital gains tax! But will he/she escape income tax on the $60,000 discharge of indebtedness income tax? Stay tuned for more! forthcoming posts #5, #6 and #7 of this series may will "save the day" for our stressed-out example debtor above … stay tuned to find out how and why!
As stated before, remember, that regardless of where the property is located in Western Washington, be it Tacoma, Federal Way, Renton, Auburn, Tukwila, Kent, Bremerton, Silverdale, I can often be of foreclosure and/or short sale assistance. I enjoy meeting with clients from areas as diverse as Bellevue, Olympia, Chehalis, Aberdeen, Olympia, Lacey, Graham, Puyallup, Orting, Chehalis, Centralia and Gig Harbor.
Remember, in Western, Washington, I am here to help you, regardless of where you are facing a foreclosure or short sale, be it Federal Way, Washington; Burien, Washington; Seatac, Washington; Des Moines, Washington; Bremerton, Washington; Silverdale, Washington; Tacoma, Washington; Renton, Washington; Auburn, Washington; Tukwila, Washington; Lakewood, Washington; University Place, Washington; Puyallup, Washington; Graham, Washington; Orting, Washington; Spanaway, Washington; Lacey, Washington; or Olympia, Washington.
This is part III of a seven part series. I look at an example of the short sale of a principal residence – in some ensuing blog posts I will be looking at a definition of "discharge of indebtedness income" and also "taxable debt forgiveness income" as follow ups to this and earlier post examples of foreclosures/short sales – and the tax foreclosure or short sale of a commercial or rental property will likely be much different.
You could be facing foreclosure or short sale nearly anywhere in Western Washington- and we can help. It doesn’t matter where you are at in Western Washington. I regularly service communities in and around Seattle, Washington; Federal Way, Washington; Bremerton, Washington; Gig Harbor, Washington; Silerdale, Washington; Bangor, Washington; Tacoma, Washington; Renton, Washington; Auburn, Washington; Tukwila, Washington; Lakewood, Washington; University Place, Washington; Puyallup, Washington; and Olympia, Washington. I have clients as far north as Snohomish County and Whatcom County, and as far south as Clark County, Washington and Skamania County, Washington. We have many clients in Aberdeen, Hoquiam and Gray’s Harbor County, along with the Kitsap area and Key Penninsula; you MUST be aware of potential tax consequences of a "short sale" or foreclosure.
The $250,000 capital gains exclusion plays a large roll in whether you have taxable income on your personal residence post short sale.
Note that this analysis is limited to your personal residence in which you have lived for at least two years. As stated earlier, investment, commercial and rental properties will have a much different result than discussed here – remember to always consult your tax professional. Properties you received as a gift or inheritance can have a different result as well, so always consult your tax professional.
The National Consumer Law Center’s publication "Foreclosure Prevention Counseling", 2009 edition, available for $60.00 at www.consumerlaw.org, at Chapter 9, pages 147-152, treats this subject well.
As stated before, remember, that regardless of where the property is located in Washington, be it Tacoma, Federal Way, Renton, Auburn, Tukwila, Kent, Bremerton, Silverdale, Bellevue, Olympia, Chehalis, Aberdeen, Olympia, Lacey, Graham, Puyallup, Orting, Chehalis, Centralia, for starters, Discharge of Indebtedness Income is not necessarily always the same as taxable debt forgiveness income, according to the NCLC manual "Foreclosure Prevention Counseling" 2009 edition, at page 149.
Example #1 – single person completing short sale
$50,000 original purchase price of principal residence many years ago (no funds expended on improvements during ownership so as to increase basis)
$210,000 amount on mortgage after many rounds of refinancing to "pull out equity"
-$150,000 less: short sale price when homeowner falls into financial distress
$60,000 indebtedness not paid due to short sale
$100,000 capital gain ($150,000 short sale price – $50,000 acquisition price = $100,000)
$60,000 Discharge of Indebtedness Income (but Debtor may not have to pay tax on this 60k – read later blog posts in this series as we work through defining and diferentiating "Discharge of Indebtedness Income vs. taxable debt forgiveness income)
$100,000 capital gain – no tax due, because the capital gain exclusion is $250,000 for a single person on a principal residence.
Remember, in Western, Washington, I am here to help you, regardless of where you are facing a foreclosure or short sale, be it Federal Way, Washington; Burien, Washington; Seatac, Washington; Des Moines, Washington; Bremerton, Washington; Silverdale, Washington; Tacoma, Washington; Renton, Washington; Auburn, Washington; Tukwila, Washington; Lakewood, Washington; University Place, Washington; Puyallup, Washington; Graham, Washington; Orting, Washington; Spanaway, Washington; Lacey, Washington; or Olympia, Washington.
This is part II of a seven part series. We look at a few examples of foreclosured homes and some sample tax impacts of such foreclosure.
Regardless of where you are facing a foreclosure or short sale, be it Federal Way, Washington; Bremerton, Washington; Tacoma, Washington; Renton, Washington; Auburn, Washington; Tukwila, Washington; Lakewood, Washington; University Place, Washington; Puyallup, Washington; or Olympia, Washington; you MUST be aware of potential tax consequences of a "short sale" or foreclosure.
The $250,000 capital gains exclusion plays a large roll in whether you have taxable income on your personal residence post foreclosure.
Note that this analysis is limited to your personal residence in which you have lived for at least two years.
The National Consumer Law Center’s publication "Foreclosure Prevention Counseling", 2009 edition, available for $60.00 at www.consumerlaw.org, at Chapter 9, pages 147-152, treats this subject well.
For starters, Discharge of Indebtedness Income is not necessarily always the same as taxable debt forgiveness income, according to the NCLC, at page 149.
Here are some "foreclosure" examples of taxable income related to the foreclosure of a principal residence. Note that this analysis would not apply if a home you rented out as a business was foreclosed. That situation is much more sticky – you should see your CPA if you have a business or rental property foreclosed.
Example #1 – single person foreclosed upon
$50,000 purchase price of home "way back when"
+$10,000 improvements to home like a new deck and changed shower to bathtub
$60,000 basis in home
The home was refinanced many times to "pull out" equity, so the debt against the home at the time of foreclosure was $325,000.
In addition, $5,000 in "kash for keys" was paid to the single person owner after foreclosure as an incentive to move out without damaging the property.
At the time of foreclosure, the house was appraised at $400,000 by the bank.
$60,000 basis (home purchase price plus $10k improvement)
$330,000 "sale" price (e.g. amount of debt $325k + $5k paid "kash for keys"
$270,000 capital gain ($330k – $60k = $270k)
$250,000 capital gain exclusion
$20,000 capital gain
$3,000 capital gain tax due ($20k x .15 = $3k tax due)
Note: Read on in later posts in this blog – One of five exclusions to the obligation to pay $3,000 in capital gains tax may come into play
Example #2 – single person foreclosed upon
$125,000 home acquisition price, no improvements made to increase basis
$132,000 debt owed on home at time of foreclosure, including foreclosure fees
$80,000 home fair market value at time of foreclosure as housing prices have collapsed
$45,000 capital loss – capital losses are not taxable, thus homeowner does not owe any tax due to foreclosure as a capital tax.
HOWEVER, in this example #2, the single person foreclosed upon could potentially owe income tax (as no capital gain tax) as discharge of indebtedness income/taxable debt forgiveness income. More on this later over the next few blog posts.
In the next few blog posts of this seven part series, I will cover and explain in a very basic manner how discharge of indebtedness income can result in taxable debt forgiveness income – and will also discuss the five exceptions/exclusions to tax on the income.
Remember, we are here to help you, regardless of where you are facing a foreclosure or short sale, be it Federal Way, Washington; Bremerton, Washington; Tacoma, Washington; Renton, Washington; Auburn, Washington; Tukwila, Washington; Lakewood, Washington; University Place, Washington; Puyallup, Washington; Graham, Washington; Orting, Washington; Spanaway, Washington; Lacey, Washington; or Olympia, Washington.
Regardless of where you are facing a foreclosure or short sale, be it Federal Way, Washington; Bremerton, Washington; Tacoma, Washington; Renton, Washington; Auburn, Washington; Tukwila, Washington; Lakewood, Washington; University Place, Washington; Puyallup, Washington; or Olympia, Washington; you MUST be aware of potential tax consequences of a "short sale" or foreclosure.
The $250,000 capital gains exclusion plays a large roll in whether you have taxable income on your personal residence post foreclosure.
Note that this analysis is limited to your personal residence in which you have lived for at least two years.
The National Consumer Law Center’s publication "Foreclosure Prevention Counseling", 2009 edition, available for $60.00 at www.consumerlaw.org, at Chapter 9, pages 147-152, treats this subject well.
For starters, Discharge of Indebtedness Income is not necessarily always the same as taxable debt forgiveness income, according to the NCLC, at page 149.
To understand the problem of Discharge of Indebtedness Income/taxable debt forgiveness income, you should understand how a normal (non distress) transaction would result (or not result) in income:
Example #1 from the NCLC:
$100,000 purchase price of home
+$30,000 add: improvements (new deck, addition, etc)
$130,000 new basis
$160,000 sale price
-$9,000 less: sales expenses
$151,000 net sale price
$21,000 capital gain
$250,000 capital gain exclusion
$-0- taxable gain
$-0- taxable gain tax to be paid
Example #2 – single homeowner
$20,000 purchase price
+$30,000 certain improvements
$50,000 new basis
$600,000 sale price
-$40,000 less: sales expenses
$560,000 net sales price
$510,000 capital gain ($560,000 – $50,000 = $510,000)
-$250,000 capital gain exclusion
$260,000 taxable gain
$39,000 capital gains tax payable $260k x .15 tax rate = $39,000; assuming 15% tax rate on long term capital gain)
The foregoing examples contemplate a "normal" sale – not short sales nor foreclosures.
In an ensuing post, I will provide some examples of foreclosure/short sale operation.
What was the Tamaulipas Massacre?
"On August 24, 2010, an 18 year old Ecuadorean approached a military checkpoint in Tamaulipas, Mexico, a northern state in Mexico. He had been shot in the neck and explained that he had just escaped a massacre. Mexican marines followed his directions to a barn a few miles away. There they found 72 men and women shot dead. The teenager told the marines how the group, migrants from Central and South America, had been kidnapped on their way to the United states by bandits claiming to belong to the Zetas, a Mexican drug trafficking gang. When the group refused to work for the gang, they were executed, with only two confirmed survivors." From The Economist, September 11, 2010, page 36.
"…the price of being smuggled accross the border has risen from perhaps $2,000 per person to as much as $10,000, according to STRATFOR, a global intelligence company based in Texas."
"A 2010 report from the United Nations Office on Drugs and Crime (UNODC) estimates that human smuggling is a $6.6 billion industry in Mexico, and that 90% of unauthorised immigrants crossing into the United States through Mexico hired a smuggler at some point along the journey – for food, for shelter, for a hiding spot in the back of a tractor trailer, for guidance about where to find water on the trail. [ ] …some coyotes (smugglers) are members of their comunities in good standing, esteemed for having helped friends and neighbors."
Why is a bankruptcy lawyer blogging about illegal immigration, massacres and border smugglers?
Because this massive migration (850,000 people crossed the border without authorization in 2005, down to about 300,000 today) will provide you with job security.
Many, most perhaps, of these migrants do not speak English. English is very difficult to learn. In contrast, Spanish lends itself to literacy, in that it can be picked up relatively quickly and is straightforward in spelling and usage.
With latino populations in many areas at a "tipping point" where many do not need to learn English to survive, these people need human interfaces with the economy. You can be just that human interface…and be paid well for it.
Are you tired of being unemployed and laid off? Use your spare time to learn Spanish. This will guarantee that when you are re-employed, you will be one of THE LAST ones to be laid off, as opposed to the first.
Even if you are laid off, I have little doubt that your Spanish abilities will help you to become a finalist in almost every job for which you apply.
Stabilize and take control of your future….learn Spanish. You can search this blog using the Google site-search function (the little Google box up in the corner) to learn more about how you can learn to speak Spanish economically and quickly.
Times are tough all over. If you need to make a little extra time to study your Spanish language texts, consider filing for bankruptcy and then drop your work schedule to 32 hours per week because post bankruptcy you may not need to work so many hours to stay ahead of your bills. Use the resulting 8 hours to polish your Spanish skills. Sacrificing a bit of time right now could pay future dividends in the form of job and income security.
You must be logged in to post a comment.