1099-C Cancellation of Debt

There is a common belief that a 1099-C means that the debt in question has been cancelled and that no further collection may be made by the creditor.  However, this is not the law.  A 1099-C filed by a creditor with the IRS, standing alone, does not mean that the debt has been cancelled.

Pursuant to the Internal Revenue Code, creditors are required to file 1099-C even though an actual discharge of indebtedness has not yet occurred or is even contemplated.  Rather, there may be an event “deemed” to constitute a discharge of the debt solely for purposes of determining the reporting requirement to the IRS.  The courts have held that a “Form 1099-C” is not an admission by the creditor that it has discharged the debt or can no longer pursue collection.

Pursuant the IRS regulations, there are 8 identifiable events which require the creditor to file a 1099-C: (1) a discharge of indebtedness in bankruptcy (2) a cancellation or extinguishment of an indebtedness in a receivership, foreclosure or similar proceeding (3) a cancellation or extinguishment of debt upon the expiration of the statute of limitation (4) a cancellation or extinguishment pursuant to an election of remedies (5) a cancellation or extinguishment of debt where debt unenforceable pursuant to probate or similar proceeding; (6) a discharge of indebtedness pursuant to agreement between the creditor and debtor for less than full consideration; (7) a discharge of indebtedness pursuant to a decision by the creditor to discontinue collection activity and  (8) the expiration of the nonpayment testing period.

So what does this mean?  This means that unless you have received something from the creditor stating that the debt is forgiven in addition to the 1099-C, they still have a right to collect on it unless one of the above exceptions applies.  Collection on debt where a 1099-C has been issued is happening to many people in California who have junior deeds of trusts against their homes.  They received a 1099-C from the lender and then years later someone who bought the debt starts foreclosing on the property.

So what should you do?  If you have received a 1099-C from a lender, especially a lender with a lien against your home, you should call the lender and see if they have actually “forgiven” the debt.  If they have, you need something in writing that says exactly that i.e. the creditor is not going to pursue any further collection on the debt.  In addition, if the lien is against your home, the lender must reconvey the deed of trust.  If the lender will not issue you a letter saying that the debt has been forgiven, you need to seek legal counsel immediately.  A 1099-C without further evidence stating the debt was forgiven is a ticking time bomb. 

1099-C issues are complicated and generally misunderstood.  If you have questions, seek counsel.  I see people for a FREE 30 minute consultation in my offices located in Walnut Creek and Brentwood. 

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING A DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   © 2015

Funding Your Trust

         When a Revocable Living Trust (Trust) is created, the Grantor/Settlor, i.e. the person creating the Trust, declares that certain property is going to be held by the Trust and managed by the Trustee .  In most cases, the person creating the Trust is both the Settlor and Trustee.  The process of putting property into the Trust is called “Funding” the Trust.  The purpose of Funding the Trust is to allow property management by a Trustee other than the Settlor i.e. after the Settlor dies.  The Trustee after the Settlor is called the Successor Trustee. 

 If the Trust is not funded, the Successor Trustee may be unable to manage the Trust without obtaining a court decree declaring the trust property belongs to the Trust.  This can be a complicated process and the outcome uncertain.  In addition, if the Trust is not properly Funded, there may be disputes over ownership of assets.  Therefore, if you have Trust, now is the time to make sure your Trust is Funded.   

         There are two parts to “Funding” the Trust.  First, the Trust needs to list the trust property and have language satisfying the requirement for a declaration that the property listed is to become Trust property as soon as the documents are executed.

         The second part is making sure your Trust has legal title to your assets.  For bank accounts, this means you need to notify the Bank or Brokerage that you have a Trust and put the account in the name of the Trust.  For real property, the Settlor must execute a Grant Deed/Trust Transfer Deed showing the real property transferred to the Trustee of the Trust.  After it is executed and notarized, it must be recorded at the county recorder’s office in the county where the real property is located.  It is particularly important to check your documents if you have sold or refinanced any real property because the lender may have required the real property to have been deeded back to you from the Trust prior to a sale or refinance.  If that was the case, you need to make sure the real property is again put in the Trust.  If you have personal property of substantial value which is not titled already i.e. a car or boat, you may want to consider doing an Assignment of Tangible Personal Property to the Trust.

         In conclusion, if you have a Trust, now is the time to review it.  Make sure that all of the assets you want in the Trust have been listed in the Trust.  Make sure that there is language declaring the assets are in the Trust.  Finally and most importantly, make sure there is recorded Grant Deed/Trust Transfer Deed for real property, Assignment of Personal Property for personal property and confirmation of bank/brokerage accounts are in the name of the Trust.    If you do not know whether your Trust is properly Funded, I see people for a free 30 minute consultation in my Walnut Creek and Brentwood offices.        

*THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING ESTATE PLANNING.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   (925) 939-1680.           

© 2014 Joan Grimes

Do Your Children Owe You Money?

Handling the Issue in Trust

Many times an Estate Planning Client comes into the office saying that their children, grandchildren or another person (maybe the gardener) owes them money.  Sometimes it is only a few hundred dollars, but other times it is hundreds of thousands of dollars.  The loan could have been for a car, down payment on a house or business.  Under the best of circumstances, there is an actual promissory note, but most of the time; it is just a verbal agreement.

If the loan is not large and you will not need the money in the future, we recommend that you try to cancel the obligation before your death and making any necessary distributions to other beneficiaries to equalize treatment.

If it is not possible or desirable to forgive the debt prior to your death, the debt and disposition of the debt should be specifically addressed in the will or trust. There are 2 specific issues that you need to be aware of with regards to addressing a debt in a will or trust.  First, your financial situation may be very different at your time of death than it is today.  If you forgive a home loan secured by a Deed of Trust to son in your will, but your son dies before you, what will happen with the loan?  Is it your intent that the beneficiaries go after the owner of the property to pay back the loan? Second, what are your intentions if there are not sufficient assets to equalize payments to other beneficiaries based on the loan made to one beneficiary?

Loans to children or other people can be a tricky issue in estate planning.  If it is your intention that any loans be canceled upon your death, you should specifically list the borrower, the amount and date of the loan.  In addition, you should indicate whether any estate or inheritance taxes attributable to this forgiveness of debt shall be paid by the individual or is a charge against the estate. Another alternative is to provide that the debt is an offset against that person’s share of the estate.  However, if the debt is large and there are not sufficient assets to equalize a distribution to other beneficiaries or make any other distributions called for under the terms of the will or trust, the question of the balance still due to the estate on the loan should be addressed.

In conclusion, it is a great thing that parents are able and willing to help their children, grandchildren or other people.  However, failure to address assistance given in a will or trust has caused numerous problems among beneficiaries.  It all goes back to “he or she is getting more….”  In order to avoid this problem, I strongly urge you to review your will or trust and see how any loans or advances are handled.

If you have questions about your will or trust, I would be happy to review it with you at no charge. I see people every day for a FREE 30 minute consultation in Walnut Creek and Brentwood.

This article provides only general legal information, and not specific legal advice.  Information contained is not a substitute for a personal consultation with an attorney.  LAW OFFICE OF JOAN M. GRIMES, PHONE (925) 939-1680  191 SAND CREEK ROAD, SUITE 220, BRENTWOOD, CA  94513     © 2014 Joan Grimes

Should 401k and IRA Plans be Put in a Revocable Living Trust?

A common question people ask when they come in to do an Estate Plan is whether their retirement benefits i.e. the 401K, IRA or pension account should be in a Revocable Living Trust (“RLT”).  As you may recall, a RLT is a legal document created during your lifetime that allows you to leave your real and personal property to beneficiaries of your choice.  A RLT is very much like a Will with one BIG exception: there is no Probate with a RLT.   

The most common asset put into a RLT is real property.  By putting real estate into a RLT there is no probate and minimal time delay incurred in transferring assets to beneficiaries with a RLT because no court approval is required.     

The question is more complicated when it comes to having an estate plan that calls for the RLTs to be a beneficiary of retirement accounts.  The first question we ask is whether there is a strong estate planning reason to name a trust as a beneficiary, or is there a way to achieve the same planning goals without incurring the risks and complications of naming a trust?

Our first choice in drafting most estate plans will be for you to leave your retirement benefits i.e. your pension, 401K and IRA outright to your intended beneficiary.  In most cases, this will be your spouse.  However, what should you do if your spouse is not alive and you want to leave your benefits to minor children or to several beneficiaries?

If you want to leave retirement benefits to minor children or you want to leave to them to several people, these are compelling reasons why a RLT should be the beneficiary or a contingent beneficiary.   If you name a beneficiary who does not have capacity to receive the benefits i.e. a minor child, then a conservatorship will be established by the court at great expense to the minor child.

If you have retirement benefits and are considering making a RLT a beneficiary, you will need to check with your retirement benefit administrator regarding naming a RLT as your beneficiary.  Different companies have different rules.  Sometime they require an attorney drafted designation.  Also, it is critical that your beneficiary designation is correct and reflect your intentions.  Who you put on the designation is the person who gets the money.  They have no obligation to share with anyone else. 

If you are considering leaving retirement benefits in a RLT, the beneficiary of the trust must be a person or group of people.  You can’t use a trust to leave retirement benefits to a charity, your church or another trust or any other entity.  That is not to say that other assets of your trust cannot go to a charity or church or another entity, just not the retirement benefits. 

Today retirement benefits are very valuable.  Take the time to understand what your current estate plan for the benefits is and what other options are available to you and your family.   For most people, an Estate Plan including a RLT and all of the ancillary documents including a Power of Attorney and Healthcare Directive should not cost more than $2,000-2,500.  Most attorneys allow people to make payments over time for the work.  If you have separate property from a prior marriage,  business interests that need to be included or a taxable estate, it may be more, but then it is even more important that you properly plan for distribution of your assets in accordance with your wishes without the prying eyes of the public and court system. 

I see people every day for a FREE 30 minute consultation in Walnut Creek and Brentwood.

This article provides only general legal information, and not specific legal advice.  Information contained is not a substitute for a personal consultation with an attorney.  LAW OFFICE OF JOAN M. GRIMES, PHONE (925) 939-1680, 1600 S. MAIN STREET, SUITE 100, WALNUT CREEK, CA  94596;  191 SAND CREEK ROAD, SUITE 220, BRENTWOOD, CA  94513     © 2014 Joan Grimes 

Incapacity Planning

          Jim Hendrix was right when he said: “Life is pleasant. Death is peaceful.  It’s the transition that’s troublesome.”  As baby boomers are moving into retirement at the rate of 10,000 per day many are for the first time thinking about their own mortality and the need to make arrangements for themselves if they cannot handle their own affairs prior to their death.

          The first order of business in planning for incapacity is making sure you have an estate plan.  For most individuals and couple with real property, a simple estate plan will include wills, a revocable trust, durable power of attorneys (“DPOA”)  and health care directives.

          The revocable trust will include real property and any other substantial assets.  However, a revocable trust will not eliminate the need for a power of attorney.  A power of attorney is a written instrument in which one person (the “principal”) designates another person (the “agent”) to act on the principal’s behalf.   Like a revocable trust, a power of attorney allows a principal to entrust the management of his financial affairs to another.  If the power of attorney is made “durable,” it remains in effect even when the principal later loses capacity.  To be a durable power of attorney, it must include the magic words of “This power of attorney shall not be affected by subsequent incapacity of the principal” or similar language.

The advantages of a DPOA are that it is the simplest and least expensive to prepare.  There is also no transfer of title to assets required, court supervision is unnecessary and administrative requirements are minimal.

A DPOA can also be very flexible.  The powers granted to the agent can be very broad or as narrow as the principal wishes.  Sometimes a DPOA is used if a principal is going to be out of the country or is having surgery.

The disadvantageous of a DPOA is that some third parties are still unwilling to do business with an agent despite statutory provision protecting the third parties.  The most common problems arise in the sale of real estate or securities.  On the other hand, third parties usually have little objection to dealing with a trustee acting under a revocable trust.   Another problem of the DPOA is that they are only effective during the principal’s life.  If there is a trust in addition to DPOA, the trustee can immediately exercise all necessary powers to settle the affairs of the trust after the death of the principal.

In conclusion, it is my hope for myself and for you that our transition from life to death is not too troublesome.  To the extent that we plan for the transition, I know it will be easier.  If you do not have an estate plan which includes a durable power of attorney, I recommend that you put it on your list of things to do in the coming year.  If you don’t make a plan for yourself, someone else will and it may not be what you would have wanted.  I see people for a FREE 30 minute consultation at my offices locate in Walnut Creek and Brentwood.

This article provides only general legal information, and not specific legal advice.  Information contained is not a substitute for a personal consultation with an attorney.  Law Office of Joan Grimes, (925) 939-1680. 

© 2013 Joan Grimes

DANGER , DANGER BEWARE OF FILING BANKRUPTCY WITHOUT AN ATTORNEY

    Recently there has been an increase in the number of Debtors coming into the office asking for help.  The problems are always the same.  They filed bankruptcy without an attorney and the Chapter 7 Trustee is now threatening to take their assets or their case cannot be completed because something wasn’t done correctly.  It is very sad and in most cases completely unnecessary.   In an effort to save money, the Debtors are in fact spending far more in the value of the lost assets.    

   Since 2005, a bankruptcy filing without an attorney is very difficult and full of pit falls for the unwary. Among the pits falls are the Means Test required to qualify for bankruptcy, pre-bankruptcy counseling, and analysis of exemptions, preferences, inheritance and tax issues.  And these are just for starters.

Before filing bankruptcy without an attorney, you should consider the following:

1. Pro Se Debtors are easy prey for creditors and the Chapter 7 Trustee.  The creditors and the Chapter 7 Trustee are there to protect the interests of the creditors and the bankruptcy estate.  They are not there to help you. 
2. Pro Se Debtors are led to believe that Bankruptcy is just a fill in the blanks process.  In fact, Bankruptcy law is very complicated area of the law. Filling in the blanks without knowing the law is a recipe for disaster.
3. Pro Se Debtors are not going to be helped by the Chapter 7 trustee.  The bankruptcy trustee will not take responsibility for educating you.    For example, if you fail to claim an exemption or claim the wrong exemption, the trustee is not going to help you.
4. Pro Se Debtors get into trouble because they do not understand the law as it applies to their assets.  Do you understand Joint Tenancy and Tenants in Common?  Does it affect your case?  Did you recently get divorced?  Is the trustee going to object to your settlement? Do you have past due income taxes which are eligible for discharge in bankruptcy? Are your mutual fund protected as an IRA? Do you have an exemption available to protect next year’s tax refund?  Do you have the right to an inheritance?  Did you transfer money in the last year to a family member?  How much equity do you have in your car or your home?  Is it protected? 
5. Pro Se Debtors also get into trouble because they do not understand the extent of disclosure and filing requirements. Do you know the credit counseling and financial management requirements?  Do you know what it means when the US Trustee files a 707(b) motion? Do you know how to answer discovery requests?  Do you know what discovery is?

If you need to file bankruptcy, you should seek legal counsel.  The cost of legal counsel will be a faction of the debt you seek to discharge in the bankruptcy.  It is better in most cases for you to wait a month or two and pay for legal counsel and know your case was done right versus being one of the many cases where there are problems.  Don’t be a penny wise, but a pound foolish especially when you don’t know how many pounds it will.  I see people for a FREE 30 minute consultation at my offices located in Walnut Creek and Brentwood.   

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A  SHORT SALE OR FORECLOSURE. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  GRIMESBKLAW.COM   (925)939-1680

© 2014 Joan Grimes

Short Sales and Foreclosures in 2014

The Law After the Expiration of the Mortgage Debt Relief Act

Before you consider a short sale or foreclosure in 2014, here is the law you should know.

First, there are two types of debts. They are unsecured and secured. Unsecured debt is the bare promise to pay. The most common form is credit card debt. Secured debt, on the other hand, has two parts. The first part is the bare promise to pay which on a car loan or real estate loan is the Promissory Note. What makes secured debt different than unsecured debt is the security given by the borrower to ensure the promise is kept. This security on real property is called a Deed of Trust.

Second, on real estate loans, there are two different types of promises to pay. Non-Recourse or Recourse. A Non-recourse loans is (1) the loan or loans obtained to purchase a 1-4 unit property in which the borrower occupies at least one unit  (2) seller carry back or (3) a refinance after 1/1/13 with no cash out. Everything else is recourse debt i.e. the refinance of the real property with cash out, lines of credit, the loan or loans used to purchase a rental property.

Third, personal liability depends on whether you do a short sale or foreclosure. If you do a short sale, California Code of Civil Procedure (“CCP”) 580e provides that there can be no deficiency owed, collected, requested or rendered for any lender approved short sale of a one to four unit dwelling.  What this means is that a property owner cannot be held personally liable if the lender has agreed to the short sale. 

If a property is foreclosed in a non-judicial sale, you will not have any personal liability as to the loan that is foreclosed on because California is an anti-deficiency state i.e. the lender waives its right to come after you on the loan that they foreclosed on.  However, if there are junior liens to the foreclosing lien, they will have the right to sue you after the foreclose. They are called “sold out” junior i.e. they lost their lien, but they still have the promise to pay and thus have the right to sue you on the promissory note.

Fourth, in every short sale or foreclosure, there are potential tax implications. The IRS/Franchise Tax Board (“FTB”) wants to know two things. (1) Did you make any money on the deal and (2) Did you borrow any money which was not repaid.  If you made money on the deal including taking out cash to buy another house, buy another car, pay off credit card, you may have gain. If you borrowed money which is not repaid either through a foreclosure, you may Cancellation of Debt Income (“CODI”).   The great news on the short sales in 2014  is that both the FTB and the IRS have agreed that there is no CODI on short sales pursuant to CCP 580e.  However, these rulings do not apply to foreclosures.  There are exceptions to the CODI which will apply on foreclosures, but they are limited.

In conclusion, a short sale or foreclosure without legal advice is like jumping into the middle of the ocean with no life vest. Don’t do it.   Do not take on liability which could have been eliminated or reduced with first obtaining legal advice.  I see people every day for a free consultation on short sales and foreclosures in Walnut Creek and Brentwood.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A  SHORT SALE OR FORECLOSURE. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.

© 2014 Joan Grimes

Do you have a Mobile home or Manufactured Home Loan?

Is the Value of the Mobile home less than Balance on the Loan?

Valuing Liens in Chapter 13

One of the advantages of a Chapter 13 bankruptcy is ability to strip a lien on a mobile home or manufactured home loan down to the current fair market value and pay the fair market value through a Chapter 13 Plan.  Here is a common example:  Your Mobile Home has current fair market value of $30,000 and the balance on the loan is $55,000.  Because the balance is greater than the fair market value, the value of the lien can be reduced or “stripped” in a Chapter 13 with you only paying the fair market value of the mobilehome through the Chapter 13 Plan over 3-5 years instead of the contract term which may be up to 30 years. 

When does a Chapter 13 lien stripping case make sense?  First, you need to make sure the fair market value is below the balance due and owing on the loan.  This can easily be done by talking to a realtor in your area or looking at mobile homes in your park that have recently been sold.  Second, you don’t want to file a Chapter 13 to strip a lien unless you really, really want to stay in this mobile home.  A Chapter 13 is a commitment of between 3-5 years.  Third, the amount to be reduced on the balance of the mobile home loan combined with other debt needs to make a Chapter 13 advantageous i.e. you don’t want to file Chapter 13 to reduce the balance on your mobile home by $5,000.00.   

If a Chapter 13 is sounding like something that might work for you, there are several other things to consider.  First, we must make sure all of the owners of the mobile home and all of the people who signed on the loan are filing bankruptcy.  For example, if the property is owned by both you and your parents, we cannot strip off the lien on the mobile home unless both you and your parents are filing bankruptcy. If the property is owned by you and your spouse, only one of you would need to file bankruptcy to strip the lien because all community property is included in the bankruptcy case.  Second, in order to strip off the lien, we have to prove that your mobile home is not worth more than the payoff balance.    Therefore, it is very important to understand the current value of  your mobile home. The value does not include the location or park where the mobile home is located.  Rather, it is current the current value of the mobile home without any attachments or value added for location.

In conclusion, there has never been a better time for Chapter 13 lien stripping cases on mobile homes.  Mobile home values are still very low in relation to amount paid for most of the mobile home in this area.  This is truly the lemonade out lemons recipe if you meet the requirements for a Chapter 13.  Before you keep paying on a mobile home that may be worth one half of your current loan balance, it may be a good idea to consider a Chapter 13 and see what it can do for you.      I see people for a free 30 minute consultation at my offices in Walnut Creek and Brentwood.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A SHORT SALE OR FORECLOSURE. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  GRIMESBKLAW.COM (925) 939-1680

© 2013 Joan Grimes

HAMP Loan Modifications - The Truth be Told

Everyone has had the experience of thinking that something just is not right.  Ok, we know that something is wrong.  We know it is rotten.  It may have been the time your teenager was going to a study group on Saturday night or maybe you got passed over for a job even after your boss tells you that everyone is being treated equitably.   We have all been there.

We knew that things were rotten with the Home Affordable Modification Program (“HAMP”).  How many times could the Bank lose the paperwork, pay stubs?  How long could a modification be in underwriting?  The Trial Payment Plan (“TPP”) said it was 3 months, but it had been 12 months.  How could the Bank not have received the Trial Payments when they had received all of the regular monthly payments prior to HAMP?  How could a loan modification be approved and then denied 6 months later? 

Well in the case of Bank of America and BAC Home Loan Servicing, the facts are starting to come to light.  In a Second Amended Consolidated Class Action Complaint filed in Massachusetts, the Plaintiffs allege that Bank of America systematically failed to comply with the terms of HAMP.  It alleges that the Bank had financial incentive to avoid modifying home loans and to continue to keep a mortgage in a state of default or distress and to push loans toward foreclosure.  According the Compliant, this was especially true when the loans were owned by a third party investor and the Bank was merely servicing the loan. 

Recently, a declaration filed in the case by a former Bank of America employee alleges that employees were told  “to lie to customers and claim that Bank of America had not received documents it had requested, and that it had not received trial payment(when in fact it had).  We were told that admitting that the Bank received documents would “open a can of worms” since the Bank was required to underwrite the loan modification within 30 days of receiving those documents, and it did not have sufficient underwriting staff to complete the underwriting in that time.”  In addition, the employee alleges “Employees were rewarded by meeting a quota of placing a specific number of accounts into foreclosure, including accounts in which the borrower fulfilled a HAMP Trial Period Plan.”         

If you applied for a loan modification with Bank of America or any other HAMP servicer and you think you should have been approved, you should complain to the Bank, the California Attorney General and you should try to join a class action lawsuit.  If you are still in the house, apply again for a loan modification and put in the hardship letter all evidence you have that you were wrongly denied before.    

Character counts.  At the end of the day, what we do matters.  If your house is a big deal to you, then act like it is a big deal.  If you should have received a loan modification, you need to speak up.  If you don’t, they win.  

This is a complicated area of the law and I recommend you to seek legal counsel prior to taking any action on a loan modification or proceeding with a short sale or foreclosure.  There may be personal and tax liability. I provide a free 30 minute consultation at all of my offices located in Walnut Creek and Brentwood.       

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION. © 2013  Joan M. Grimes. (925) 939-1680 Grimesbklaw.com

Joan's Interview With On The House

Listen to Joan Grimes interview on America's #1 Home Improvement Radio Show, On The House with The Carey Brothers that took place on March 2. Joan discussed options for underwater homeowners, Short Sale and more.

Listen to Joan Grimes recent interview on America's #1 Home Improvement Radio Show, On The House with The Carey Brothers.  Joan discussed options for underwater homeowners, Short Sale and more.

Part 1Part 2

Debt Forgiveness on Lines of Credit

The Loan Balance is Gone…. Really?

I have received many calls in the past month from borrowers who have received letters from their mortgage lenders stating that the lender is going to forgive the balance on their line of credit in the next 30 days if the borrower does not call to decline the offer.  Yes, you read that right.  No strings attached.  The balance on the loan will be gone.

So who is doing this?   So far, most of the letters have been coming from Bank of America and Chase.  However, given the requirements of the National Mortgage Settlement, I think we can expect to see the letters from all the Big Five i.e. Ally Financial, Inc. formerly GMAC Mortgage, Residential Capital, Bank of America,  f/k/a Countrywide Home Loans Servicing, Citigroup, Citibank, CitiMortgage, JPMorgan Chase and Wells Fargo Bank.

So, what is the catch?  The catch is that when the debt is forgiven, a 1099c is going to be sent to the borrower for the amount forgiven.  What this means is that amount forgiven is going to be considered income at your current tax rate unless one of the exceptions to the income recognition rule applies.

So what are the exceptions? 

#1- The borrower filed bankruptcy before the debt is forgiven.  The bankruptcy does not have to be finished, but it does have to be filed prior to the end of the 30 days.

#2- The borrower is insolvent.  What this means is that the borrowers does not have assets such as 401k/IRA/pension benefits or other assets.  Many a person has believed themselves to be insolvent only to be informed that those assets they cannot currently reach are still assets for determining solvency.   If you think you are insolvent, be sure to talk to your tax advisor within the 30 day period to confirm.

#3 The Debt being forgiven falls under business debt exception

#4 The Debt being forgiven falls under the farm debt exception.

#5 The Debt being forgiven was one of the original loans used to purchase the home.

#6 You fall under the short sale and mortgage forgiveness act which is still in effect until January 1, 2013 which provides that to the extent the money was used to purchase the property or make significant improvements to the property and it has been your home for the last 2 of 5 years, you do not owe taxes

In conclusion, if you receive one of these letters, I recommend you seek legal counsel immediately to determine whether this offer is in your best interest.  This is a complicated area of the law.  A real estate or bankruptcy attorney should be able to make to an analysis of your situation quickly which will allow you to decide if the debt forgiveness is in your best interest.

I see people for a FREE 30 minute consultation at my offices in Walnut Creek and Brentwood.

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE FOR BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   (925) 323-7772.           

 © 2012 Joan Grimes

National Mortgage Settlement

Listen to Joan Grimes recent interview on America's #1 Home Improvement Radio Show, On The House with The Carey Brothers and Rebecca Cole.  Joan discussed the National Mortgage Settlement and how it affects you, Short Sale and Mortgage Forgiveness and more.

Principal Reductions on Mortgages

Don’t Miss the Boat

Starting this summer, we have been seeing more loan modifications with principal reductions.  Yes, you read that correctly.  The loan modification that came in this morning was from Wells Fargo Home Mortgage and includes a principal reduction of $295,000 leaving a new principal balance of $290,000 on a primary residence that assessed at $285,000.  This is an immediate principal reduction, no strings attached.  We are also seeing principal forgiveness earned over three years and principal forgiveness on lines of credit.

What is causing the change in heart by the lenders?  It is the National Mortgage Settlement (“Settlement”) which started on March 1, 2012 and continues to September 1, 2016.  Servicers covered by the Settlement are Ally Financial, Inc. GMAC Mortgage, Residential Capital, Bank of America, BAC Home Loans Servicing- f/k/a Countrywide Home Loans Servicing, Citigroup, Citibank, CitiMortgage, JPMorgan Chase and Wells Fargo Bank.  Fannie Mae and Freddie Mac loans serviced by the above lenders are not eligible for benefits under the Settlement.

Under the Settlement, no borrower is “entitled” to a modification.  However, servicers receive “credits” toward the value of the “Consumer Relief” they have committed to provide over 3 ½ years through loan modifications and principal reductions.  The Servicers have committed to credits of over $16 Billion dollars under the Settlement. 

Under the Settlement, “Consumer Relief”  granted between March 1, 2012 and February 28, 2013 will receive a 25% bonus credit, so motivation exists for servicers to move quickly this first year. 

Principal write downs will be more available on lower valued properties that are “more” underwater.  The Borrower is also going to need to have adequate income, but still have a hardship.  The settlement provides for principal reductions by at least 10% to achieve target of 31% of Debt to Income (DTI) and 120%  Loan to Value (LTV). Under the terms of the Settlement, 85% plus of the first lien credits are to be for owner occupied loans within the conforming GSE limits.  Loans are 30 days delinquent/imminent default; pre-modification LTV greater than 100% with post-modification target DTI of 31% and post modification LTV less than or equal to 120%.

If your house is really underwater and you really want to keep the home for the long term, I strongly urge you to apply for a loan modification/ principal reduction.  You have nothing to lose.  It is a huge amount of work, but if you are approved, it will be worth all the effort.

However, prior to accepting any loan modification/principal reduction, seek legal counsel.  Every loan modification/principal reduction has the potential adverse personal liability and tax consequences.  If there is a principal reduction, the lender will be required to issue a 1099c which will be considered ordinary income unless you meet certain limited exceptions. If there is a junior lien on the property, a principal reduction prior to a Chapter 13 filing may prevent you from being able to avoid the lien in bankruptcy.

In conclusion, this is a great opportunity to keep your home.  However, this is a complicated area of the law.  No final paperwork should be signed accepting any modification/ principal reduction without the advice of legal counsel. A real estate or bankruptcy attorney should be able to make to an analysis of your situation quickly which will allow you to decide if the modification is the right decision for you.

I see people for a FREE 30 minute consultation at my offices in Walnut Creek and Brentwood.

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE FOR BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   (925) 323-7772.           

© 2012 Joan Grimes

Foreclosures and Short Sales - TV Interview

Bankruptcy Basics - TV Interview

Real Estate Basics - TV Interview

Make over $100,000 a year and still Drowning in Debt?

Bankruptcy for High Income Earners

One of the most overlooked financial tools available to individuals with high income is Chapter 13 of the Bankruptcy Code.  Unlike a Chapter 7 which can require liquidation of assets and has very strict eligibility requirements, a Chapter 13 has greater flexibility in eligibility and allows individuals to retain their assets while paying back something to their creditors from future income.  Some of the powers of a Chapter 13 Bankruptcy include:

1. Availability of Bankruptcy to High Income Debtors - A Chapter 13 allows individuals who would otherwise not be eligible for Chapter 7 bankruptcy to repay debts to the extent of their ability through a 3-5 year plan.  In most cases, Debtors repay between 5-10% of their unsecured debts.
2. Continuing Business Operation - Unlike a Chapter 7 where a trustee can close down a Debtor’s business, a Chapter 13 Debtor has the right to continue operation of the business and has the exclusive right to sell, lease or otherwise use the business assets, in the normal course of operation.
3. Chapter 13 Plan May Modify Secured Creditor Rights - One of the great advantages of a Chapter 13 bankruptcy at this time is ability to strip a lien on your principal residence that does not attach to any equity.  Here is a common example:  Principal residence has current fair market value of $300,000.  The first mortgage has a balance of $400,000 and the second mortgage has a balance of $100,000.  Because the second mortgage does not attach to any equity in the property, the lien can be avoided or “stripped” in a Chapter 13 thereby removing the balance of $100,000 at the completion of the Chapter 13 case.  In addition, if you have other real property which is not your personal residence, you may reduce the secured claims to the current fair market value if you can pay the fair market value of the real property with the contract rate of interest over the terms of the Chapter 13 Plan which cannot exceed 5 years.  Where this makes most sense is on the small rental property.  On cars, the Debtor can reduce a loan balance to the fair market value except that a reduction is not allowed on cars used by the Debtor for his personal use if it was purchased within 910 days of the bankruptcy filing i.e. you need to have had the car loan for 910 days prior to bankruptcy filing. 
4. Curing a Default -  A Chapter 13 Plan can cure a default on a loan with no interest being paid in most cases.
5. Discharge greater than Chapter 7 - A Chapter 13 discharge can encompass many other types of debts which cannot be discharge in a Chapter 7 including criminal matters and taxes.  However, the most frequently used provision is to eliminate debts to a spouse, former spouse or child incurred by the Debtor in the course of marriage dissolution or separation except to the extent those debts constitute “domestic support obligation.”  What this means is that “hold harmless” provisions on real estate obligations and community property settlements obligations can be discharged.     

The above are just some of the advantages of a Chapter 13 bankruptcy case.   If you are a high income earner, a Chapter 13 may be the answer for you.  While it does have some limitations in the amount debt which may be included, there may be flexibility in classification depending on your particular situation.   If you struggling with debt even though you are making a good income, I urge you to seek legal counsel as soon as possible to fully understand the consequences of the decision and the options available.  I see people for a free 30 minute consultation at my offices located in Walnut Creek and Brentwood.

WE ARE DEBT RELIEF AGENCY AND HELP PEOPLE FILE FOR BANKRUPTCY. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UP IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  

GRIMESBKLAW.COM  PHONE 925-323-7772   © 2012 Joan Grimes 

A Fresh Start - Chapter 7 Bankruptcy

If you are drowning in debt, can’t sleep because you are so worried about your bills or can’t answer your phone because it is always bill collectors, a Chapter 7 bankruptcy may be the fresh start you need.

Most bankruptcy cases filed in the United States are Chapter 7 cases.  The purpose of a Chapter 7 is to provide the Debtor with a “fresh start” through a discharge of his or her debts and equitable distributing any available assets among credits.  In most cases there are no non exempt assets to be sold and thus most Debtors retain all of their assets and discharge their debts without any payments to creditors.  If you are having problems paying your debts as they become due and owing, here is what you need to know about Chapter 7.

1. Who is Eligible - A Chapter 7 bankruptcy may be filed by any person or entity who resides in or has a place of business or property in the United States, other than a railroad and certain financial institutions and insurance companies. 
2. No Debt Limit - Unlike a Chapter 13 case, there is no debt limits in a Chapter 7.
3. Exemptions - The Bankruptcy Code and California law allows Debtors to retain many assets in a bankruptcy including retirement accounts, personal injury and workers compensation awards and additional assets in the form of “wild card” exemptions.  For most individuals, all of their assets will be protected and none will be able to creditors.
4. Means Test - If the person filing a Chapter 7 is an individual consumer with a majority of his debts being consumer debt i.e. debts incurred by an individual primarily for personal, family or household purposes, the individual must disclose financial information using a “means test.”   The purpose of the test is to determine potential ability to pay creditors.  If the result of the means test demonstrates the debtor has the potential ability to pay a minimal amount, a presumption arises that the debtor’s bankruptcy filing is an “abuse” and the case is subject to dismissal or conversion to Chapter 11 or 13. 
5. Secured Debt - Secured debt payments such as a home loan or car loan can be used on the means test if the Debtors are making the payments.  However, there are recent bankruptcy cases in which the court has held that when a debtor is no longer paying on secured debts, they may not include said payments for purposes of calculating the means test. 

If you do not have sufficient income to pay your bills as they come due and owing, you should seek legal counsel before withdrawing any monies from a retirement account, savings account or defaulting on a home or car loan.  These are difficult times, but do not miss the help and protection provided by the Bankruptcy Code and California law by waiting too long.    

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.    © 2012 Joan Grimes

The Power of Chapter 13

       One of the most overlooked financial tools available to individuals including small business owners today is Chapter 13 of the Bankruptcy Code.  Unlike a Chapter 7 which can require liquidation of assets and has very strict eligibility requirements, a Chapter 13 has greater flexibility in eligibility and allows individuals to retain their assets while paying back something to their creditors from future income.  Some of the powers of a Chapter 13 Bankruptcy include:

1. Availability of Bankruptcy to High Income Debtors - A Chapter 13 allows individuals who would otherwise not be eligible for Chapter 7 bankruptcy to repay debts to the extent of their ability through a 3-5 year plan.  In most cases, Debtors repay between 5-10% of their unsecured debts.
2. Continuing Business Operation- Unlike a Chapter 7 where a trustee can close down a Debtor’s business, a Chapter 13 Debtor has the right to continue operation of the business and has the exclusive right to sell, lease or otherwise use the business assets, in the normal course of operation.
3. Chapter 13 Plan May Modify Secured Creditor Rights -  One of the great advantages of a Chapter 13 bankruptcy at this time is ability to strip a lien on your principal residence that does not attach to any equity.  Here is a common example:  Principal residence has current fair market value of $300,000.  The first mortgage has a balance of $400,000 and the second mortgage has a balance of $100,000.  Because the second mortgage does not attach to any equity in the property, the lien can be avoided or “stripped” in a Chapter 13 thereby removing the balance of $100,000 at the completion of the Chapter 13 case.  In addition, if you have other real property which is not your personal residence, you may reduce the secured claims to the current fair market value if you can pay the fair market value of the real property with the contract rate of interest over the terms of the Chapter 13 Plan which cannot exceed 5 years.  Where this makes most sense is on the small rental property.  On cars, the Debtor can reduce a loan balance to the fair market value except that a reduction is not allowed on cars used by the Debtor for his personal use if it was obtained within 910 days of the bankruptcy filing i.e. you need to have had the car loan for 910 days prior to bankruptcy filing. 
4. Curing a Default -  A Chapter 13 Plan can cure a default on a loan with no interest being paid in most cases.
5. Discharge greater than Chapter 7 -  A Chapter 13 discharge can encompass many other types of debts which cannot be discharge in a Chapter 7 including criminal matters and taxes.  However, the most frequently used provision is to eliminate debts to a spouse, former spouse or child incurred by the Debtor in the course of marriage dissolution or separation except to the extent those debts constitute “domestic support.”  What this means is that “hold harmless” provisions on real estate obligations and community property settlements obligations can be discharged.     

          The above are just some of the advantages of a Chapter 13 bankruptcy case.   While it may not be as quick and easy as a Chapter 7, it may provide the debt relief which cannot be obtained with a debt consolidation or repayment plan.  If you are considering a default on your home or other debts, I urge you to seek legal counsel as soon as possible to fully understand the consequences of the decision and the options available.  I see people for a free 30 minute consultation at  my offices located in Walnut Creek, Antioch and Brentwood.

WE ARE DEBT RELIEF AGENCY AND HELP PEOPLE FILE FOR BANKRUPTCY. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UP IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION. 

GRIMESBKLAW.COM  PHONE 925-323-7772   © 2011 Joan Grimes