Funding Your Trust

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         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

Short Sales and Foreclosures in 2014

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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

HAMP Loan Modifications - The Truth be Told

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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

Principal Reductions on Mortgages

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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