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The Law Office of R. Spencer Lauterbach is a full service general practice law firm. Mr. Lauterbach and his staff service individuals, families and business owners. The Law Office of R. Spencer Lauterbach provides "boutique" quality service to all clients, with a commitment to giving individual attention at a reasonable fee.

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Occupy Our Homes Movement to Address Mortgage Crisis

As the foreclosures continue to plague homeowners throughout America, the Occupy Wall Street movement has begun a new campaign of protests, this time against the banking system, entitled, “Occupy Our Homes”. According to one of the Occupy our Homes organizers, Max Berger, “This shift from protesting Wall Street fraud to taking action on behalf of people who were harmed by it.” It brings the movement into neighborhoods and gives people a sense of what is really at stake.” The Occupy Our Homes organizers say the focus is on “liberation of vacant bank-owned homes for those in need, and the defense of families under threat of foreclosure and eviction.”

Calling for a “national day of action to stop and reverse foreclosures, the Occupy Our Homes movement planned events in December in more than twenty cities, including New York, Chicago and Los Angeles. In New York, participants marched through the East New York neighborhood in Brooklyn, then took possession of a foreclosed home, cleaning it and chanting “Our Homes Are Under Attack; We’ve Got to Take Them Back”. According to the group, the occupied house was foreclosed upon by Bank of America and empty for three years”. The Occupy Wall Street press team stated that a single mother with two children moved into the home from New York shelters after being denied a rent subsidized apartment due to city budget cuts.

Throughout other parts of the country, homeowners are working with the protestors and refusing to leave their homes despite being unable to pay their mortgages. The majority of these homeowners complain of the extreme difficulties they face in attempting to modify their loans with bank.

While the Occupy Our Homes movement is one means of addressing the economic distress facing our country, it is important to know that there are also legal remedies available for homeowners. The Law Firm of R.Spencer Lauterbach concentrates in the field of mortgage foreclosures, loan modifications and short sales. Mr. Lauterbach has been successful in providing legal counsel and negotiating with the banks to qualify for modifications. His clients have been able to remain in their homes during foreclosure proceedings with banks. Please call Spencer Lauterbach for mortgage modification and defense of foreclosure processings at (845) 639-1699.


At Least One Million Foreclosure Filings Pushed Into 2012

MORTGAGE FORCLOSURE CRISIS CONTINUES-LIMITED CONGRESSIONAL RELIEF

It is estimated that approximately 1.7 million properties entered foreclosure during the first six months of 2011. This figure, however, is actually lower than originally anticipated. Unfortunately the reason is not due to a decrease in foreclosures. Rather, mortgages are being stalled as result of ongoing problems with mortgage servicers and the housing market. According to estimates from Realty Trac, approximately 1 million foreclosures should have taken place in 2011, but did not, and will now happen in 2012, or later even. Most likely this will slow the housing market’s recovery. Continued defaults and foreclosures push down home values, and ultimately hurt the economy.

A Modest Move Toward Mortgage Relief

Given this backlog and the unprecedented amount of homes either currently in or heading into foreclosure, new rules may help a limited amount of borrowers. The government-run mortgage companies, Fannie Mae and Freddie Mac, have issued rules that will help homeowners who are current on their mortgage payments, to refinance their high-rate mortgages into lower-rate loans. That means lower monthly payments. The goal of lowering payments is that it will reduce the likelihood of default and, ultimately, reduce the skyrocketing foreclosure rate.

Prior attempts by the Obama Administration to ease mortgage debt relief have come up short. In order to be more effective, this new plan requires the administration to diligently monitor the rules, to prevent banks from charging excessive fees or imposing overly restrictive rules on homeowners.

To qualify, borrowers must meet the following requirements:
  • owe more on their mortgages than their homes are worth, or
  • have only a small amount of home equity
  • have loans owned or backed by Fannie Mae or Freddie Mac
  • have not missed a payment in the last six months
  • have not had more than one late payment in the past year

As you can see, the new refinancing plan will not provide relief for most of those homeowners who are already underwater. An estimated 14.5 million borrowers are behind, on average, by $50,000 in their payments. Only 1.5 to 2 million will qualify to refinance under the new standards, according to private analysts.

Until more aggressive, broad-reaching legislation is adopted, such as reducing the principal balance for struggling homeowners, there are laws to protect homeowner’s rights. The Law Office of R. Spencer Lauterbach specializes in providing legal redress for homeowners threatened by foreclosure of their home. Mr. Lauterbach is recognized as a preeminent attorney in foreclosure prevention law. Our firm has protected numerous homeowners from the danger of losing their homes. Our services include assisting with the complex modification process, foreclosure settlements and foreclosure defense litigation. Mr. Lauterbach’s expertise in real estate law and foreclosure defense has been able to save homeowners from losing their home to the bank and remain in their homes. If you are facing foreclosure or are interested in proceeding with a modification, please contact the Law Office of R. Spencer Lauterbach at (845) 639-1699. Learn about your rights and protections under the law.

Let the Law Firm of R. Spencer Lauterbach protect and defend your rights and mount the best defense to keeping your home—the most important financial asset!


Mortgage Modifications and Foreclosure Defense

Homeowners beware! Applying for a loan modification does not protect you from your lender’s attempts to foreclosure your home.

For so many American homeowners these days, paying the mortgage has created a financial hardship. For some, making the payment is no longer possible. In more and more of these instances, homeowners are turning to their lenders to seek a downward modification of the terms of their mortgages. Typically, it is a reduction in the interest rate that is most likely to be obtained, which will reduce the monthly payment.

The loan modification application process is onerous and frustrating. After completing a loan application and providing the lender with a small stack of financial documents, it is quitecommon for the lender to continually request additional information and documentation. Lenders will state that they have not received documents that you know you sent, or will tell you that the documents that you sent are no longer current and must be updated. This can go on for weeks, months, and sometimes, years. Why does this happen? The lenders are understaffed and overwhelmed. In some cases it’s a matter of competence. In a larger sense, the lenders are dealing with a crisis which, in their long histories of lending, they have not had to deal with before and, quite frankly, they are not good at it.

In most cases, homeowners don’t make their mortgage payments while their modification applications are pending. Technically this is a default under the terms of the mortgage. Despite the representations made by the lenders’ customer service representatives, lenders can, and will, start foreclosure proceedings even though they are considering the modification application. Sometimes a homeowner will be told, upon receipt of the foreclosure papers, that they need not respond to them. As long as the modification application is in, and kept current, lenders have sometimes told their borrowers that they need not take any further steps in the foreclosure proceeding. This is false information and, if followed, can lead to disastrous results, including loss of the home.

Whenever a homeowner receives a foreclosure notice, known as a “Summons and Complaint”, defensive action must be taken. Applying for a mortgage modification is not sufficient. Where no defensive papers are submitted, the lender will simply barrel through the foreclosure process and sell the property on the courthouse steps. In the saddest of situations, a homeowner who has been told that a modification is just days away, may find that the home has been lost in foreclosure and the next step is to pack up and find somewhere else to live.

The bottom line is that a homeowner must respond appropriately when served with foreclosure papers. The lender’s advice must not be relied upon. By starting a foreclosure case, the lender is posing a direct challenge to title to the home and cannot be ignored. Legal counsel should be obtained immediately and appropriate action to defend against the lender’s efforts must be taken.



Debt Forgiveness in Short Sales

Practice Alert Many homeowners have had to dispose of their homes in short sales (where the sales proceeds are insufficient to pay off the mortgage and the lender cancels the balance) to attempt to get out from under unmanageable debt. AlthoughCode Sec. 108(a)(1)(E) provides relief to many taxpayers from the tax rule that would generally include cancelled mortgage debt in income, taxpayers and their advisors need to be aware of the relief provision's limits.

RIA observation: There is, of course, no loss deduction allowed on a short sale of a personal residence. So a taxpayer who receives less than what he paid for his home cannot use that loss to offset other income. For personal-use property, such as a taxpayer's personal residence, an individual's deduction is limited underCode Sec. 165 to losses arising from fire, storm, shipwreck, or other casualty, or from theft.

Background. In general, a taxpayer realizes income when debt is forgiven. (Code Sec. 61(a)(12)) That's because the discharge of a debt provides the debtor with an economic benefit equivalent to income. The rationale is that the taxpayer should not get to use and keep the forgiven loan proceeds for himself without any tax consequences. However, there are several exceptions and exclusions that may result in all or part of a taxpayer's income from the cancellation of debt being nontaxable. In particular, the Mortgage Relief Act, effective for debt discharged on or after Jan. 1, 2007 and before Jan. 1, 2013, generally allows taxpayers to exclude up to $2 million of mortgage debt forgiveness on their principal residence. Specifically, under the exclusion, gross income doesn't include any discharge of qualified principal residence debt. (Code Sec. 108(a)(1)(E)) Qualified principal residence debt is acquisition debt under Code Sec. 163(h)(3)(B) with respect to the taxpayers's principal residence, but with a $2 million limit ($1 million for married individuals filing separately). (Code Sec. 108(h)(2)) This exclusion applies where a taxpayer restructures the acquisition debt on a principal residence, loses a principal residence in a foreclosure, or sells a principal residence in a short sale. The exclusion is claimed by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), and attaching it to the taxpayers' applicable income tax return. The basis of the taxpayers' principal residence is reduced by the excluded amount, but not below zero.

Illustration 1: Tom owns a principal residence that is subject to an $850,000 mortgage for which he is personally liable. The residence has declined in value to between $700,000 and $750,000. Tom has lost his job and can't find another. The lender has agreed to allow a short sale of the property for $735,000 and to cancel the remaining $115,000 of the $850,000 debt. Tom realizes $115,000 of debt discharge income, which is excludible to the extent that the debt was qualified principal residence debt. (IRS Pub No. 4681, (2009), p. 8)

RIA caution: The mortgage debt forgiveness provision is not an all-encompassing relief provision. It is one of the statutory exceptions to the general rule that debt cancellation results in income, and the relief that it provides only extends as far as the terms of the statute.

Accordingly, in applying this provision, taxpayers and their tax advisors must keep the following in mind: - The mortgage debt forgiveness exclusion applies to cancelled debt, not gain. In some short sales, the taxpayer may have gain from the sale of the property instead of, or in addition to, income from discharge of debt. To the extent that the income is treated as gain, it isn't eligible for the mortgage debt forgiveness exclusion (or for the bankruptcy or insolvency exclusions). For example, when a recourse debt is discharged or reduced on the debtor's transfer of property, the transfer is treated as a sale or exchange of the property to the extent of the transferred property's fair market value (FMV). (Reg. § 1.1001-2(a)(2)) Any gain on this deemed sale or exchange—i.e., any excess of the property's FMV over its adjusted basis—is treated as taxable gain, not as discharge of debt income. The amount of discharged debt in excess of the property's FMV is treated as discharge of debt income. However, all or part of the gain may be excludible from gross income under the Code Sec. 121 home-sale rules, see below.

Illustration 2: In a short sale, Jeff's basis in the home was $170,000, the home's FMV was $200,000, and the outstanding amount of mortgage debt on the home was $220,000. The home is sold for its FMV and the lender cancels the $20,000 balance of the loan. Jeff realizes $30,000 of gain from the sale ($200,000 (home's FMV) − $170,000 (basis) = $30,000). Jeff also realizes $20,000 of discharge of debt income ($220,000 (total outstanding debt) − $200,000 (home's FMV)). (“Questions and Answers On Home Foreclosure and Debt Cancellation,” Fact Sheet HFDC)

RIA observation: Even if the mortgage debt forgiveness exclusion doesn't apply, gain on a home sale may be partially or completely protected by the exclusion under Code Sec. 121. A taxpayer may exclude up to $250,000 ($500,000 for certain joint return filers) of gain from the sale or exchange of property owned and used as his principal residence for two of the preceding five years, unless he excluded gain from another sale or exchange during the preceding two years. Even if the two-out-of-five-year ownership and use rule isn't met, a taxpayer is allowed a reduced maximum exclusion if the sale or exchange was because of a change in place of employment, health, or unforeseen circumstances. Under Reg. § 1.121-3, unforeseen circumstances include an involuntary conversion or a job loss.

- There is no exclusion for debt forgiven on a vacation home, second home, business property, or rental property. The relief provision only applies to a “principal residence.” This term has the same meaning as under the homesale exclusion rules of Code Sec. 121. (Code Sec. 108(h)(5)) A principal residence can be a house, houseboat, mobile home, cooperative apartment, condominium, or house trailer. If a taxpayer was using more than one property as a residence, whether or not a particular property is used by the taxpayer as his principal residence depends on all the facts and circumstances. In no event, however, can a taxpayer have more than one principal residence at any one time.

- The mortgage debt forgiveness exclusion may not apply to a home equity loan or second mortgage. The relief provision only applies to “acquisition debt” of a principal residence. This is debt incurred in the acquisition, construction, or substantial improvement of an individual's principal residence that is secured by the residence. Often a taxpayer takes out a home equity loan (i.e., a type of second mortgage) to use his home as a “piggy bank.” He borrows the money to pay off credit card debt, pay his children's tuition, or even take a long-deferred vacation. While this may be a good financial decision, this debt isn't covered by the relief provision.

Illustration 3: Bill bought a main home for $315,000, using a $300,000 mortgage loan that was secured by the home. Bill later took out a $50,000 second mortgage that was used to add a garage. Both the first and second mortgages qualify for the exclusion. If the second mortgage loan proceeds were instead used to pay credit card bills and college tuition, they wouldn't qualify for the exclusion. (IRS Pub No. 4681, (2009), p. 7)

- The mortgage debt forgiveness exclusion may not fully apply to a refinance mortgage. Refinanced qualified principal residence debt is eligible for the exclusion up to the amount of the old mortgage principal just before the refinancing. (IR 2008-17, H Rept No. 110-356 (PL 110-142) p. 5) If the amount of the taxpayer's original mortgage is more than the cost of the principal residence plus the cost of any substantial improvements, only the debt that doesn't exceed the cost of the principal residence plus improvements is qualified principal residence debt. (Instructions to Form 982, (3/2009), p. 4) Illustration 4: Assume that Bill in Illustration (3) refinanced the first and second mortgages into a single loan of $400,000, when the outstanding principal was $325,000. Bill used $75,000 of the loan proceeds to pay credit card bills. Only $325,000 of the $400,000 refinanced debt is qualified principal residence debt that is eligible for the exclusion. (IRS Pub No. 4681, (2009), p. 7)

- The mortgage debt forgiveness exclusion doesn't apply if the discharge of the loan was on account of services performed for the lender or any other factor not directly related to a decline in the residence's value or to the taxpayer's financial condition. (Code Sec. 108(h)(3)) Thus, where the debtor is employed by the lender, and the discharge of debt relates to the employment services performed, the discharge won't qualify for the exclusion.

- The exclusion doesn't apply to a taxpayer in a Title 11 bankruptcy. (Code Sec. 108(h)(3)) An insolvent taxpayer (other than one in a Title 11 bankruptcy) can elect to have the mortgage forgiveness exclusion not apply and can instead rely on the Code Sec. 108(a)(1)(B) exclusion for insolvent taxpayers. (Code Sec. 108(a)(2))

RIA observation: A taxpayer or his advisor should be aware of all the exclusions under Code Sec. 108. No amount is included in a taxpayer's gross income by reason of a discharge of debt if the discharge:
  • occurs in a Title 11 (bankruptcy) case;
  • occurs when the taxpayer is insolvent;
  • is a discharge of qualified farm debt;
  • is a discharge of qualified real property business debt of a taxpayer other than a C corporation; or
  • is a discharge of up to $2 million of mortgage debt on the taxpayer's main home

RIA Research References: For the mortgage debt forgiveness exclusion, see FTC 2d/FIN ¶ J-7417; United States Tax Reporter ¶ 1084.01; TaxDesk ¶ 188,029.

Source: Federal Tax Updates on Checkpoint Newsstand tab 4/21/2011