Fannie Mae and Freddie Mac will allow Foreclosed on Homeowners to Purchase Back Their Former Homes

Fannie Mae and Freddie Mac will allow Foreclosed on Homeowners to Purchase Back Their Former Homes for Fair Market Value. Previously, the foreclosed on homeowner could not purchase back their home as it was believed that allowing this would lead to homeowners purposely defaulting on their loans to get a better rate. Now it is admitted that offering the opportunity to purchase back the home at the fair market value, even if less than the amount of the mortgage, is the same as the procedure for selling to third parties. Unfortunately, again to prevent purposeful default on mortgages, this new rule on foreclosed homes is limited to the 121,000 that these companies have already foreclosed on and own.

Foreclosure Win in 4th District Court of Appeal

A defendant in a foreclosure case filed by Wells Fargo was able to prevent summary judgment in a case appealed to the 4th District Court of Appeal. The trial court granted summary judgment in the matter. The homeowner appealed on the basis of 14 affirmative defenses. The 4th District agreed that 13 of the affirmative defenses were not valid. As to the 14th Affirmative Defense, however, The 4th District ruled in the homeowner’s favor. The defense was that the mortgage, received by Wells Fargo from Countrywide, did not contain a description of the property. This only gets the homeowner over the summary judgment stage of the litigation (where it has to be proven that there is no issue of material fact and that the bank should win without a trial). Now the case will proceed to a trial to who that the homeowner owes the money under the mortgage and note, has not paid, and that the money is owed to Wells Fargo.

Defective Gun Lawsuit – Pawnshop Owner Held Liable for Defective Gun

A woman whose son was killed when a gun he purchased from a pawn shop fell and discharged on a table was awarded $6 million. According to the plaintiff’s pretrial order the gun was “defectively designed as the surfaces were rounded” so that it was “susceptible to firing when the firearm is dropped or otherwise subject to a sudden jarring”. The order also claimed that the safety device was defective in that it “does not fully enter a cut in the slide and is made of plastic, which is easily deformed due to normal interactions with metal parts of the firearm.” While the maker, as well as all other companies/individuals in the route leading to the ultimate sale of a defective product, can be liable in strict liability, this case turned on negligence since the owner of the pawnshop left a live round in the gun after trying to remove a jam.

In general, a court would dismiss a strict liability claim against the maker of a well made gun as the gun is considered inherently dangerous and cannot be made safer. However, in the case above it was submitted that the product was defective, and therefore not well made.

Mortgage Forgiveness Tax Relief – Short Sales, Loan Modifications, Principal Reduction

Homeowners who sold their properties in a short sale recently are still waiting to see whether the difference between the selling price and the amount owed under the mortgage will be taxable income by the IRS. In a short sale, the lender usually agrees to allow the sale of the property for less than the mortgage and forgives the unpaid balance of the mortgage. However, the IRS considers this a gain to the homeowner and treats the difference as income taxable to the seller. Previously, under the mortgage debt relief act, in response to the vast amount of foreclosures, was put in place to exempt this “gain” from tax. However, the law was not renewed by Congress on December 31, 2013.

Whether Congress will be able to act and renew the law is a question that can cost homeowners tens of thousands of dollars. For example, one in the 28% tax bracket who had $100,000 forgiven in a short sale or mortgage loan modification would owe $28,000 in tax. Many of these people, who recently ended up without a home, would be strained to pay this tax, if they had the ability at all.

MICHAEL D. STEWART, ESQ.
Law Offices of Michael D. Stewart
The 200 Building
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Miami, Florida 33131
email: ms@TheMiamiLaw.com
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Debts Canceled in Bankruptcy Still Hurt Credit Scores

Large banks have been ignoring bankruptcy filings by letting debts remain on consumer’s credit scores. Consumer’s seeking to obtain a mortgage are often faced with having to pay these extinguished debts, which are no longer valid, in order to eliminate the debts from their credit reports. Lawyers for the United States Trustee Program, an arm of the Justice Department, are investigating JPMorgan Chase, Bank of America, Citigroup and Synchrony Financial (formerly GE Capital) for supposedly violating federal bankruptcy law “by ignoring the discharge injunction”.

Once a consumer receives a bankruptcy discharge, banks are required to update credit reports to reflect that the debts are no longer owed – taking off listings such as “past due” and “charged off”. Banks, however, are refusing to do this. Bankruptcy judges suspect that these are not merely innocent mistakes, but actually are debt collection tactics which force consumers desiring a clean credit report to pay off debts they no longer legally owe.

Banks, which usually sell soured debts to third-party collectors, bolster the value of the accounts by leaving the debts intact on the credit report, which makes it more likely that a debtor will pay the debt they no longer owe. Consumers often are unaware that this practice is illegal.

When old debts have been extinguished in bankruptcy, banks sell the debt to the third-party debt collector, while leaving the consumer’s credit report tarnished. Under the purchase agreement between the bank and third-party debt collector, banks are allowed to keep any payment it receives from a consumer within 18 months or later after its sale of the portfolio (paid because the consumer is attempting to fix their credit score even though they do not owe the debt). Other times banks receive a percentage of the amount of illegal debt the debt collectors are able to extract from consumers.

Should the United States Trustee’s office find that the banks are violating bankruptcy law in their practices, they could audit the banks and impose severe penalties.