IRS Now Willing to Subordinate Tax Lien

Text of Federal Tax Lien Relief Press Briefing December 16, 2008

Federal Tax Lien Relief Press Briefing Opening Remarks - IRS Commissioner Douglas Shulman

Good afternoon, everybody. Thanks so much for spending the time with us today. These are clearly difficult times for the U.S. economy. Many homeowners are at risk of losing their homes. Many are hoping to refinance at lower rates, and in some cases, homeowners are forced to sell their homes and get the best deal they can in the current marketplace. This is a particularly important time for government leaders to be mindful of the various challenges we face together as a nation.

At the IRS, we need to ensure that we balance our responsibility to enforce the law with the economic realities facing many American citizens today. In a small but potentially important way for some families, the IRS is trying very hard to help. Today, I'm announcing an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home. For taxpayers who are trying to refinance their mortgage, the existence of a tax lien generally means that the new lender will not go through with the refinancing. But in a lot of cases, the IRS will decide to make the federal tax lien secondary to another lien, such as a new mortgage.

The IRS is ready to help taxpayers who find themselves in these situations. Where we can subordinate our lien to help a family win that new refinance mortgage, that may mean that they can stay in their homes. Some taxpayers are also trying to sell their homes. Often, they have no equity in the home because it has gone down in value. Again, the tax lien makes it unlikely that a new buyer could get a mortgage on the property. In these cases, we can discharge the tax lien so that the sale can proceed.

I want to stress the IRS is doing whatever it can under the constraints of the law and common sense to avoid getting in the way of people trying to save their homes or sell their homes. It currently takes about thirty days to apply for and receive either a discharge or a subordination of a federal tax lien. The IRS is committed to putting in place whatever resources are needed to speed this process up as much as possible, so that we will not be the party delaying a closing or a settlement. So, the question is, will this help a lot of families? I'm not in a position to predict how many families this will affect or how many families will take advantage of these new, expedited IRS procedures, but I can say that there are more than a million federal tax liens outstanding today, tied to both real and personal property.

Let me just give you a little more how it works. Then I'll be happy to take some questions. And then Fred Schindler, our technical expert, will take you through as many questions as you have. A taxpayer or their representative, such as their lender, may request that the IRS make a tax lien secondary to the lien by a lending institution that is refinancing or restructuring a loan. A taxpayer may also request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien in some cases.

Taxpayers can find all the information they need at www.irs.gov. You know, I think the main message and what we want to let people know is that, as commissioner, I've given instructions to all IRS personnel to work with taxpayers on any mortgage-related issue. We've shifted resources to expedite our subordination process. We're gonna go the extra mile 'cause we're very sensitive that this is an important issue the taxpayers are gonna be working through in these difficult economic times.

Audio File: Federal Tax Lien Relief - IRS Commissioner Douglas Shulman - 12/16/08, 4 minutes and 31 seconds long. The audio file will open in Windows Player, and you will be able to pause, fast forward, rewind, mute, and control the volume from the interactive player.
Audio Press Briefings Table of Contents page

Streamlined Loan Modification Process from Fannie Mae

December 18, 2008

Streamlined Modification Program (SMP) Now Available to Borrowers
Program Part of Ongoing Effort to Prevent Foreclosures

WASHINGTON, DC -- Fannie Mae (FNM/NYSE), today said that the Streamlined Modification Program (SMP) announced by the Federal Housing Finance Agency (FHFA) in November is now available to Fannie Mae servicers and borrowers as an option to help prevent foreclosures. Fannie Mae on December 12, 2008, provided information and guidelines to its servicers regarding the implementation of the SMP.

The SMP is designed to be a streamlined process for modifying the loans of a large number of borrowers who are delinquent in their mortgage payment and may be able to avoid a foreclosure through the program. As FHFA has indicated, SMP was intended to help set standards in the mortgage servicing industry for conducting loan modification programs on a large scale as a foreclosure prevention measure.

Fannie Mae has been working with FHFA and 27 lenders and servicers in the HOPE NOW alliance to implement the SMP. Under the program, borrowers who meet certain eligibility criteria and demonstrate financial hardship may be eligible for a loan modification that reduces their monthly principal and interest payment. The streamlined process allows a borrower to sign a single document at the outset of the workout process that both establishes a new monthly payment during a three-month trial period, and sets forth the modification terms that will take effect if the borrower makes the new payments during the trial period. The program is available to borrowers who have missed at least three monthly payments on their existing mortgages.

"By bringing the collective efforts of FHFA, Treasury, HOPE NOW, Fannie Mae, Freddie Mac and other mortgage industry participants together through the SMP to confront the foreclosure challenge, we'll be able to help more families across America stay in their homes," said Herb Allison, Fannie Mae president and CEO. "Along with other recently announced initiatives by Fannie Mae to reach and help financially troubled borrowers earlier, including our Early Workout program, the SMP is a critical component of our company's foreclosure prevention efforts. These efforts are helping more than 10,000 delinquent borrowers every month get back on track."

Modification Options

Through the SMP, servicers may change the terms of a loan to reduce a borrower's first lien monthly mortgage payment, including taxes, insurance and homeowners association payments, to an amount equal to 38 percent of gross monthly income. The changes in terms may include one or more of the following:

Adding the accrued interest, escrow advances and costs to the principal balance of the loan, if allowed by state law;
Extending the length of the mortgage loan as appropriate;
Reducing the mortgage loan interest rate in increments of 0.125 percent to an interest rate that is not less than 3 percent. If the new rate is set below the market interest rate, after five years it will step up in annual increments to either the original loan interest rate or the market interest rate at the time of the modification, whichever is lower;
Forbearing on a portion of the principal, which will require the borrower to make a balloon payment when the loan matures, is paid off, or is refinanced.
Eligibility

Highlights of the SMP's eligibility requirements communicated to servicers include:

Conforming conventional and jumbo conforming mortgage loans originated on or before January 1, 2008;
Borrowers who are at least three or more payments past due and are not currently in bankruptcy;
Only one-unit, owner-occupied, primary residences; and
Current mark-to-market loan-to-value ratio of 90 percent or more.
Servicers will be sending modification solicitation letters beginning this month to thousands of borrowers believed to be eligible for the program. It is critical that eligible borrowers respond to these letters and reach out to their servicers to determine if they can receive SMP assistance. Also, borrowers who don't receive a letter are encouraged to contact their servicer to see if they may be eligible for SMP help. Fannie Mae will be working with servicers to monitor and improve implementation of the program as necessary.

Negotiating an I.R.S. Tax Lien on a Short Sale

Some Considerations and Talking Points

If an IRS lien is wiped out by a trustee sale, the IRS has 120 days to redeem the property from the winning bidder and resell it. (These days the willing bidder is usually the lender who takes back the property.)

The IRS will release their right of redemption if he new owner pays “an amount determined to be equal to that right” or, if the right of redemption is “DETERMINED TO BE WITHOUT VALUE, you will NOT BE REQUIORED TO PAY to obtain a release.”

If the short sale is not completed and the property and goes back to the lender and the IRS does decide to redeem the property, they would be required to pay:

1. The actual amount paid for the property at the foreclosure sale (if the lender takes the property back the “price paid” could include the outstanding loan balance plus accrued interest, all late charges, fees, foreclosure costs, etc. In today’s market this amount could well exceed the amount the IRS could resell the property for.)

2. 6% interest on the amount paid from the date of the foreclosure sale to the date of redemption.

3. Reimbursements for any ‘necessary” expenses incurred to maintain the property i.e.: leaking roof, leaking pipes, etc. (just not cosmetic repairs).

A lien discharge is not a free pass for the taxpayer to ignore unpaid taxes. The agency is simply RELESING THE LIEN ON THE TAXPAIERS HOME, NOT absolving the taxpayer of ultimate responsibility to pay due tax. Rather, in these instances, the IRS simply releases its claim on the affected home. The taxpayer, however, still is responsible for that due tax.

The removal of a tax lien from a residence doesn't prevent the IRS from placing another one against other property. The IRS can shift its legal claim to the taxpayers' other assets, such as other real estate, a car, even wages and other income.

Therefore IT IS IN THE INTEREST of the IRS to release the home because the short sale may help the homeowners get back on their feet and therefore they may be more able to eventually make good on the IRS lien.

The Process

The process to request a discharge of a tax lien typically takes around 30 days after the agency receives an application. However, according to a recent statement by IRS Commissioner Doug Shulman, “in response to the current economic situation, the IRS is expediting the process it uses to deal with residential tax liens.”

To contact the IRS on the homeowner/taxpayer’s behalf you will need to have the homeowner sign IRS Form 8821 Tax Information Authorization.

http://www.irs.gov/pub/irs-pdf/f8821.pdf

For step by step instruction on how to apply for a Certificate of Discharge of Property from Federal Tax Lien go to:

http://www.irs.gov/pub/irs-pdf/p783.pdf

For the correct address to submit the request go to:

http://www.irs.gov/pub/irs-pdf/p4235.pdf

Is it Worth it?

All that said, many with experience in the short sale business recommend just skipping properties with tax liens, HOAs, judgments etc., and move on to a property that is easier to work and that has less “moving pieces.”

Hope this helps.

Best of luck.

Will "C" Buyer be able to CLOSE?

We all know by now that buyer funding sources can be an irksome challenge to overcome. Finding an end buyer or in this case a "C" buyer is not like a normal real estate deal where if the buyer is "Qualified" then it's pretty much a slam dunk.

As back-to-back closers we have to qualify the buyer and their lender, and sometimes maybe even their Real Estate Agent.... One of my deals fell apart because we did not qualify the lender, I thought the real estate agent I was working with was doing that, but as it turns out he either did not know what to look for, or just completely forgot. 

As it turned out the loan was FHA and of course the lender was no happy to hear he wouldn't be doing any business on this property after having the buyer pre-qualified for about 4 months.

The buyer was given the chance to work with one of our conventional lenders that could have qualified them no problem, but the agent representing the buyer kept dragging her feet, and evidently did not approach them with it. Her agencies attorney told her she could not represent this type of deal anyway. I am sure if I had the time and patience I could have sat down and explained to the attorney how it works, and possibly get his blessing. He just did not understand it, so he told the agent not to be involved. What a mess!

So from now on I immediately look at all offers that come in to determine what kind of loan it is. It should say right on the offer who the lender is and what kind of a loan.

If it is what appears to be a COMPATIBLE loan which typically must be conventional, and everything else checks out ok IE the offer is high enough, not too many contingencies, etc...Then I make the call.

After introducing myself and letting them know I am working on such and such property. I tell them I have been doing the negotiating with the lender to get the payoff...

I then ask like this: Does this loan have any seasoning guidelines? They will usually come back with a confused answer, not really sure what or why I am asking. I go on to explain; in the process of getting a payoff for these short sales we often will use a "Negotiating Buyer," and SOMETIMES this Negotiating Buyer will also be used to close the deal, therefore the property would be transferred from this Negotiating buyer to the buyer that is getting the loan through you. Then I shut up and let them talk. You would be surprised at how many lenders will come back with "Oh so the buyer would be buying it from an investor, correct?" Most lenders know what a double close, or in their world a "Flip" is, but only some will be ok with it. SO, then if they say no problem then I follow up with wanting them to check into it for me just to be sure..... 

But what if they say No Way we have seasoning issues here. Notice the word SOMETIMES in my conversation above is in CAPS! They may or may not catch this when you are talking to them, but it is framed this way to keep it your mind that you not trying to corner this lender into doing something they cannot, or will not do. For me it really is just a less stressful way of breaking the news to them.....

 

So getting back to the objection. First off, if this is the only buyer you think will work, and if you are down to the wire and don't want to take a chance with having the buyer use another lender, then you can tell this lender that "Well it sounds like you have seasoning requirements that just won't allow my Negotiating Buyer to close this deal, no problem we can set it up to close with the owner of record, i'll be in touch, thanks have a nice day".

You can also touch base with the buyer's agent in sort of the same way. Although there really are Not as many real estate agencies as lenders that would object to a back-to-back. Sometimes I just do not even say anything, and it seems to go fine. In any case it is something to also keep in mind.

Until we have proven solutions to the seasoning issues, it will require more tact then the average deal to get em' closed.

 

We are the Only HOPE for homeowners!

Excerpts from the AP news service on Foreclosures:  12-11-08

 

Despite the trillions of dollars in federal money advanced or committed to shore up the nation's financial system, efforts by lenders and government agencies have failed to halt the relentless rise in foreclosures. Relatively little has been spent directly to help head off home foreclosures, in part because of opposition from some lawmakers and Bush administration officials who fear rewarding bad decisions by borrowers.

After this fall’s $700 billion rescue package and recent debate about the auto industry bailout, Congress also faces pressure to move more aggressively and spend taxpayer funds to try to break the financial and legal logjam that threatens to send millions more homeowners into foreclosure next year.

“I do think we’re going to come to a point early next year when it becomes obvious that the foreclosure problem is so severe that we’re going to have to take a shot a something like this,” said Moody’s Economy.com chief economist Mark Zandi.

Workouts that don't work
Efforts to reverse the rise in foreclosures began in earnest in October 2007, when the White House unveiled the HOPE NOW Alliance, a voluntary industry effort to help homeowners work out unaffordable loans. Since July 2007, lenders working with the HOPE NOW Alliance have reworked some 2.7 million mortgages, according to the group’s data. Roughly 1.7 million of those involved repayment plans, which typically increase the monthly mortgage bill to make up for missed payments.

Many homeowners find the new payment even harder to keep up with, a big reason the “redefault” rate, the number of loan workouts that later fail, is rising. More than half of all homeowners who had their loans modified in the first half of the year are already in default again, according to the Comptroller of the Currency.

A second option is to lower the monthly payment by stretching out the term of the loan, resetting interest payments to current market rates or forgiving some of the principal. Since July 2007, just under a million mortgages were modified to change the terms of the loan, according to HOPE NOW data.

“Within the world of workouts, we are seeing a lot of repayment plans and not a lot of modifications,” said Adam Levitin, a Georgetown University law professor who recently wrote a paper on the problems servicers are As a result, the foreclosure rate continues to rise. Though hundreds of thousands of homeowners have been helped, millions more have lost their homes. Without aggressive new efforts, another 3.6 million homeowners will likely lose their homes over the next two years, according to Moody’s Economy.com.

That number is expected to swell as homeowners with so-called ‘pay option’ adjustable-rate mortgages see their monthly payments begin rising by an average 63 percent, according to a recent research report by Fitch Ratings. That wave of resets is not expected to crest until 2010 and could double the delinquency rate unless aggressive prevention measures are taken, the report said.

“The impact of the option-ARM defaults is already under way," said William Longbrake, the retired vice chairman of Washington Mutual, a failed bank that was one of the biggest originators of pay-option ARMs. "Already the option-ARM defaults are rising quite rapidly.” modifying loans.

WASHINGTON - Government efforts to provide easier credit to consumers and jump-start flagging home sales could push mortgage rates "well below 4 percent," a federal regulator said Wednesday.

James Lockhart, whose agency oversees government-controlled mortgage giants Fannie Mae and Freddie Mac, made the comments at a meeting of Women in Housing & Finance, an industry group. He did not say how long it would take to achieve such a drop and has declined to provide a firm target for mortgage ratesTreasury Department officials have been considering a program to lower mortgage rates, which would not apply to refinanced loans. Real estate agents and builders have been lobbying intensely in Washington for government efforts to spur home sales amid a severe decline in the U.S. housing market.

But lower mortgage rates also could prevent housing prices from dropping as much as they otherwise would. That would mute their effect on the overall economy.

Meanwhile, demand for new housing has plummeted as the financial crisis intensified this fall. Total sales in 20 major U.S. markets analyzed in a Deutsche Bank report plunged 65 percent in October from the same month last year.

Cancellations of new home purchases in those markets rose to 29 percent in October, the highest since the credit crisis started in August 2007, Deutsche Bank analyst Nishu Sood wrote in the report published Wednesday.

Nearly half of all new home transactions were canceled in Las Vegas in October, while more than 40 percent were canceled in Phoenix, San Diego and Denver, according to the report.

To summarize; we have not seen the bottom yet........ There are many more foreclosures to come, and interest rates have been, and should continue to drop. As the article states, we could see 4%. 

The Government has created this problem in the first place, and now they are borrowing money, putting us into a deep, deep hole in order to supposedly fix it. The same idiots that got us into it, are in charge of the solution?? 

As entrepreneurs, now is the time to help as many people as possible in our Short Sale businesses, and of course to make a huge amount of $$$ too!! No not as greedy investors, but as a matter of survival if the S*%@t hits the fan like I suspect it will in the years to come as the economy continues to unravel........

Negotiating and the HUD

Hey guys, just a few things I have experienced here recently with Short Sale negotiation and getting things approved.

First off, no matter who you get to do your negotiations it will pay to know the HUD-1 and what fees & commissions will and will not be excepted by the lender. First of all I encourage everyone to watch the HUD video from Josh, he does a great job explaining it, and is very knowledgeable. Josh likes to load up the HUD with as many fees as possible, which in one respect makes sense. After all, if you don't ask you don't receive, right? But I am starting to think otherwise, lemme explain:

One of the deals I am working on is with Wells Fargo (1st) and Ocwen (2nd). The Wells Fargo negotiator has completely removed all  my negotiating fees I put under the 1300's on the HUD. This is the first time I've had this happen, out of at least 15 payoff approvals so far.

Then just today I was on the phone with a different deal for Bank of America (a fannie mae backed loan) the negotiator also denied me my negotiating fees. What the heck is going on here lately??

My personal opinion is that the banks are getting their feet back under them with the bailouts and time gone by since this crisis begun, now they are seemingly not as disorganized or desperate. I believe this continuing saga has many more bumps in the road for them and our economy, but that is a whole separate blog entry.

Getting back to the first deal here; the negotiator removed all my fees + the water hold (which goes on line 508, and is usually $300 to $500) this is an Old School Title co. policy because for some reason the water utility has the same priority as the property taxes to be paid before the property can be transferred to the buyer. 

Basically the negotiator said that if it is not a realtor commission or not A CURRENT BILL that needs to be paid, it will not be excepted. And she was only allowing 4% for the realtor commissions because there's only one agent, that's still not bad though. Some lenders only allow 3% for one agent. This is where I will always start with 6% on my initial offer.

The other deal I mentioned with Bank of America gave me some insight on what lenders may except for fees without question (at least for now).

I started whining about not allowing for negotiating fees for me. You know; how am I gonna pay my heating bill, the kids won't have a Christmas this year, etc.... She wouldn't buy it! But then she came back with "are there any seller concessions, you can have up to 3% seller concessions."

Seller Concessions! This may be the answer to the fee problem. Seller concessions can go on line 507. They reduce the amount of net to the lender, and the overall amount needed to close the A to B transaction. Money in our pocket!

So the Wells Fargo deal; the negotiator took all of the extra fees I loaded onto the HUD and added them to the banks NET amount. Instantly she gave the bank a $10,000 raise, and sent me the approval accordingly. This makes it harder for me to counter, and apparently as long as it does not increase the gross offer, they will try and increase their net anyway they can.

Think about it this way, if there is NO room on the HUD for the lender to move stuff around, they have to come back to you in order to counter, and they cannot just write themselves in a raise.

I spoke with a title co. agent and he confirmed what I am talking about here; that it's not a good idea to screw around with loading up the HUD with too many things. The HUD should be CLEAN and SIMPLE, this also increases the likely hood of lenders wanting to work our deals instead of the next guys.

Hope this helps everyone....

New Twist on Short Sales for RE Investors

Food for Thought....

I attended an REI Club meeting this evening (busy day today) for the first time to get a sense of the turnout, local investor interests, networking, etc. Something I should be doing more of. Anyway, one of the guest speakers was a very experienced and successful real estate investor who was talking about foreclosures and how she makes a huge profit by helping people in default save their house with a short sale. SAVE their house? How could this be?

We walked through an example and it turns out she figured out a very interesting and positive spin on how to work with homeowners in default and lenders with non-performing loans. It's a bit complicated, but here's an example:

Adam Homeowner has a $300K first loan and a $200k second loan and is falling behind on his payments. His house is currently worth $500k meaning he has zero equity. Enter Bob Investor. Bob negotiates a short sale with the bank on the owner's behalf and is able to knock the first down to $250K and the second down to $20K (total of $270K). He then gets a hard-money loan at 65% LTV, meaning he gets a loan for 65% of the current market value ($500K) = $325K. He uses $270K of these funds to purchase the house from the bank (effectively stopping the foreclosure process) and holds the extra $55K in reserve funds (aka cash back at closing). Joe then puts the property in a land trust.

Here's where the story gets interesting. Joe then signs a contract with Adam Homeowner (original homeowner) giving Adam the option to purchase the house back from Joe in 6 months for $450K (10% below market value). Adam has to go find a place to live for 6 months, but then has the opportunity to get his house back with some built-in equity.

In the meantime, Joe finds a tenant-buyer to sign a 6-month lease option contract with the following terms: $20K down, $2000/mo. rent (20% below market rent as incentive) and the "second position" option to purchase the house in 6-months for $450K (the same price as Adam). Read again.....the "second position" option to purchase the house behind Adam. Why would a tenant-buyer agree to being in the second position? Because he gets to live in a house for 20% below market rent and the real possibility that Adam may not be able to come up with the money in 6 months.

After 6 months, Joe Investor sells the house for $450K to either Adam or the tenant buyer. Here's what the numbers look like:

• Joe Investor is able to purchase a $500k house for $270K from the bank thereby creating $230k in equity
• He borrows $325K in hard money ($270K to purchase house, $15K in points, $22K in carrying costs for 6 months = total of $307K) with leaves him an $18k cushion for unknowns.
• He receives $12K in rent ($2K x 6 months) from the tenant-buyer
• After 6 months, whether he sells to Adam Homeowner or the tenant-buyer he nets: $450K purchase price - $325 loan = $125K. Then add $18K unused loan + $12k rent = $155K
• If neither Adam or the tenant-buyer exercise their option to purchase the house, Joe nets the same amount less realtor commissions to sell the house. Of course, he could also sell it for a higher price.
  

Not bad, eh? I wonder how lenders look at this situation. The homeowner gets to walk away from their debt yet is able to move back in with new financing within 6 months. However, the bank does get rid of a non-performing loan. Hmmm...The RE investor who uses this method was very knowledgable of California law and insists this is a legal, healthy and effective way to help owners save their homes. She runs a program called www.millionaireacademy.com (cheesy website) and is heralded by many real estate investors in my area.

I personally am a big fan of the goodwill that's created in this situation, if it's legally sound. I'm curious of everyone's thoughts. Please post them on this blog. Thanks.

Jordan

2nd Meeting Comments

Thanks again to everyone who is contributing on the calls and this blog. Right now it looks like 5-7 people are contributing, but I think it benefits all of us to have up to 10 people on our calls so feel free to invite another investor to join if you think it would be helpful to the group.

Last night I put together a flyer to hand out to realtors at a short sale training seminar I attended this morning. While I only got a few responses (I had to hand them out discretely), the realtors I talked to seemed to totally get it.......like it was a no-brainer....."Why wouldn't I work with an investor to do my short sales?" Anyway, I'll let you know if I get any calls. My guess is that it might take awhile since most realtors in the room were just opening their minds to short sales.

I've attached an image of the flyer to this post and would appreciate any comments. Still a work in progress, but I'm going to be putting something like this up on my website as well.

To Everyone's Success,

Jordan