Homeowners who had short sales in 2014 are now one giant step closer to receiving tax relief on any money they received as the result of the sale of their home, after the Senate passed the Mortgage Debt Forgiveness Act by a wide margin on Tuesday.
In a vote late Tuesday, the Senate passed an extension of the Mortgage Debt Forgiveness Act by a vote of 76-16. The extension applies to any short sale conducted in 2014.
The Mortgage Debt Forgiveness Act also passed by a wide margin in the House of Representatives two weeks ago. In the House, the short sale tax break passed by a 378-46 margin.
A slate of expired tax breaks and extensions that Congressional infighting has left unrenewed could hit homeowners who had short sales with massive tax bills.
Without Congressional action to renew the breaks, those whom banks allowed to sell their homes for less than the amount of their mortgage would have to pay taxes on the forgiven mortgage debt as if it were income.
Short selling became common after the housing crisis started, with homeowners who were unable to pay their monthly mortgage bills even as the value of their homes dropped.
RealtyTrac estimates that in the first three quarters of 2014, there have been more than 170,000 short sales representing a mortgage debt forgiveness of $8.1 billion total. The average short sale has a mortgage forgiveness of about $75,000, which if the tax break expires would be counted as income.
NEW YORK – Wall Street’s self-funded regulator said on Monday it fined Bank of America Corp’s Merrill Lynch unit a total of $6 million over violations of certain short-selling rules designed to prevent market manipulation.
In a short sale, a trader borrows stock and then sells it at a lower price to turn a profit. If one of the parties in a transaction does not have enough cash to pay for the position, or does not own the underlying assets that are to be delivered, the result is a “fail-to-deliver position” that must be closed out by borrowing or buying securities of like kind and quantity.
The Financial Industry Regulatory Authority (FINRA) said that from September 2008 to July 2012, Merrill Lynch Professional Clearing Corp did not attempt to close out certain fail-to-deliver positions, and lacked systems and procedures in to address the close-out requirements during much of that time.
The regulator also blasted Merrill’s supervisory systems and procedures. It said that from September 2008 through March 2011, Merrill’s broker dealer improperly allowed the allocation of fail-to-deliver positions to clients based solely on each client’s short position regardless of whether those clients caused or contributed to Merrill’s fail-to-deliver position.
The Mortgage Reports:
NEW FANNIE MAE RULES FOR BANKRUPTCY, PRE-FORECLOSURE, & SHORT SALES
Recently, Fannie Mae changed its mortgage rules for borrowers with a recent bankruptcy, pre-foreclosure, or short sale. The group has reduced its mandatory waiting period after such an event from four years to 2 years.
The change nearly mirrors a similar update from the FHA as part of that group’s Back to Work program. Via FHA Back to Work, certain mortgage borrowers are eligible to apply for a loan just 12 months after a significant derogatory event.
“Significant derogatory event” is defined as any one of the following which may appear on a person’s mortgage credit report:
- A pre-foreclosure
- A short sale
- A deed-in-lieu of foreclosure
- A bankruptcy
- A mortgage loan charge-off
This is the same bank that is being investigated by NY AG for redlining of minority homeowners.
The Office of Inspector General of the United States Department of Housing and Urban Development has released a report alleging that EverBank violated the policies of the Federal Housing Administration’s Preforeclosure Sale Program.
According to the report from the HUD-OIG, EverBank improperly determined whether borrowers were eligible to participate in the FHA’s preforeclosure sale program and as a result of those failings, the FHA insurance fund paid approximately $1.57 million in improper claims.
HUD-OIG said that it audited EverBank’s preforeclosure sale program because “it had the highest Florida preforeclosure sale claims of all servicing lenders located in Florida and more than 50% of its Florida FHA claims were from preforeclosure sales with more than $12.9 million paid from 2011 through 2013.”
HUD-OIG said that its objective in the investigation was to determine whether EverBank had gone through the proper steps before a property was placed into the preforeclosure sale program.
“EverBank did not ensure that the mortgagors’ default on the FHA-insured mortgages was due to an adverse and unavoidable financial situation,” the HUD-OIG report stated. “Also, EverBank did not conduct a thorough and independent verification of the mortgagors’ income, claimed expenses and personal resources to properly determine if they had the ability to pay their mortgage payments. Lastly, EverBank did not substantiate that mortgagors’ need to vacate the FHA-insured property was due to the cause of the default.”
LOS ANGELES – A former Bank of America worker on Monday was sentenced to 2½ years and federal prison and ordered to forfeit his house for taking $1.2 million in bribes to approve cheap short sales on properties on which the bank held mortgages.
Kevin Lauricella, 29, of Thousand Oaks, also was ordered to pay $5.7 in restitution to Bank of America, and to forfeit his home, which he bought with some of the bribe money, the U.S. Attorney’s Office said in a statement.
Lauricella pleaded guilty in January to two felonies: taking bribes and making false entries in the bank’s books and records.
Lauricella worked in BofA’s Short Sales Department in Simi Valley in 2010 and 2011. He was responsible for negotiating short sales. His “fraudulent short sales also clouded the title on the properties, which in turn resulted in expensive litigation for innocent parties, including individuals who purchased the homes later,” according to the U.S. attorney.