Bay State Personal Bankruptcy Filings Drop 18 Percent In 2012

Chapter 13 Filings Also Decrease From Last Year

PROVIDED BY The Warren Group

Personal bankruptcy filings in Massachusetts decreased more than 18 percent in 2012 from a year earlier, according to a new report from The Warren Group, publisher of Banker & Tradesman.

There were 11,964 Chapter 7 bankruptcies filed in Massachusetts last year, down from 14,716 filed in 2011. Chapter 7 of the U.S. bankruptcy code is the most common option for individuals seeking debt relief, and accounted for more than 74 percent of Massachusetts' bankruptcy filings last year.

"The drop in bankruptcy filings is an encouraging sign; it indicates that consumers are more optimistic about their ability to pay off debt and clean up their financial situations," said The Warren Group CEO Timothy M. Warren Jr. "If the housing market - and overall economy - continues to improve, we are sure to see even better results in 2013."

People filing under Chapter 7 bankruptcy can eliminate most debt after non-exempt assets are used to pay off creditors. In contrast, Chapter 13 requires debtors to arrange for a three- or five-year debt-repayment plan.

Filings under Chapter 13 of the U.S. bankruptcy code dropped 17 percent to 3,991 in 2012, down from 4,813 in 2011.

Chapter 11 filings, which are used for business bankruptcies and restructuring, also declined in 2012. Filings decreased 29 percent to 152, down from 215 in 2011.

A total of 16,107 filers statewide sought protection under Chapter 7, Chapter 13 and Chapter 11 of the U.S. bankruptcy code in 2012, down from 19,744 in 2011.

Bankruptcy Definitions:
Chapter 7 bankruptcy, sometimes called a straight bankruptcy, is a liquidation proceeding. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts usually within four months. In the vast majority of cases the debtor has no assets that he would lose, so Chapter 7 will give that person a relatively quick "fresh start."
Chapter 13 bankruptcy is also known as a reorganization bankruptcy. Chapter 13 bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years. This type of bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also only an option for individuals who have predictable income and whose income is sufficient to pay their reasonable expenses with some amount left over to pay off their debts.
Chapter 11 bankruptcy is typically used for business bankruptcies and restructuring. It is not commonly used by individual consumers since it is far more complex and expensive to pursue. It allows businesses to reorganize themselves, giving them an opportunity to restructure debt and get out from under certain burdensome leases and contracts. Typically a business is allowed to continue to operate while it is in Chapter 11, although it does so under the supervision of the Bankruptcy Court and its appointees.

BofA enhances short sale incentive up to $30,000

BofA enhances short sale incentive up to $30,000

Did you get a “Golden Ticket” from Bank of America?

The nation’s largest mortgage servicer has officially released its Enhanced Relocation Assistance program in California, six months after it deemed a pilot run of the program in Florida a success.

Bank of America sent letters and overnight packages to some lucky homeowners last week, a windfall equivalent to receiving a mythical ticket to Willy Wonka’s Chocolate Factory. A client of Dream Big Real Estate received a notice that they qualify for the program, which will provide them up to $30,000 after they complete a short sale on their home.

“Bank of America is reviewing all current, in-process preapproved-price short sale agreements to determine who is eligible for this limited-time offer,” according to a statement from Bank of America. “Eligible homeowners actively participating in a preapproved-price short sale program (such as HAFA or Bank of America’s proprietary program) will receive a letter if they qualify for the additional relocation assistance.”

Here are some program details:

The enhanced program is only available for preapproved-price short sale programs, which are initiated without an offer from a buyer. Officials said it may be extended to other programs in the future.

The amount of the relocation incentive is based on the appraised value of the home. Payments made to the homeowner at the close of a short sale range from $2,500 to $30,000.

The incentive can be used to help pay off junior liens, including credit cards judgments, utility liens and tax liens.

The short sale must be initiated in 2012 and close by Sept. 26, 2013.

Homeowners will receive a 1099 form from Bank of America for the unpaid balance and the relocation incentive, and it should be included when they complete their next tax return. (Consult with your CPA or tax attorney to determine if you have a tax liability after a short sale.)

Unlike other high-dollar relocation-incentive programs, Bank of America’s enhanced program allows homeowners to raise their hands and volunteer. Want to know if you qualify for the Enhanced Relocation Assistance? Call our office today at 951-778-9700 and we’ll do the research for you.

OTHER BANK PROGRAMS

Bank of America isn’t the only institution offering relocation incentives after a short sale. Below are a few other programs:

HAFA PROGRAM: More than 20,000 short sales have been completed through the federal Home Affordable Foreclosure Alternatives program, which provides a $3,000 relocation incentive for the homeowner.

The U.S. Treasury version of the program this week increased the amount allowed to satisfy junior liens to $8,500, making the program a better alternative for California homeowners, who are more likely to have high-balance home-equity loans.

Many banks participate in this program, though not all homeowners fit the mold.

WACHOVIA: Wachovia Mortgage has been providing relocation incentives of $2,500 to $10,000 in a short sale for more than a year. The lender is well-known for its speedy response and no-nonsense negotiations.

CHASE BANK: This lender offers relocation incentives up to $45,000. Not all Chase loans qualify for the incentive — To find out if you have one of these loans, call us today at 951-778-9700.

CITIMORTGAGE: Citi says its average short sale incentive offer is $12,000 in cases where Citi owns the loan. The incentives are based on a variety of factors, including level of distress of the homeowner and loan characteristics.

WELLS FARGO: Wells also completed a trial program in Florida last year that offered $10,000 to $20,000 to a homeowner who completes a short sale or deed-in-lieu. The incentive is only available on first trust deeds that Wells itself owns, the lender said.

This is not a comprehensive list, but these are good examples of the programs available to homeowners who are in danger of losing a home to foreclosure.

Despite what you may have heard, banks prefer short sales over foreclosure or even loan modifications. Why? It’s all about the numbers.

Short sales net banks 12 percent to 25 percent more than they would gain from a foreclosure because of the time and expense to take back, repair, maintain, market and resell a property. And as many as half of loan modifications redefault within the first year, later turning into foreclosures and short sales.

Thus short sales continue to increase, especially in Southern California, as lenders streamline processes and create attractive offers to help distressed homeowners. A short sale allows a homeowner to avoid a financially devastating foreclosure, limit damage to their credit, and re-enter the housing market much more quickly as an able buyer — before home values again shoot through the roof.

More importantly, a short sale allows a homeowner to exit their house on their own terms, with dignity intact.

Want to know if you qualify for any of these programs? Call us today at 508-699-2500 Ext 11.

Fannie, Freddie Short Sales Hit Record High

A record number of Fannie Mae and Freddie Mac short sales were signed off on by loan servicers in the third quarter of 2012, according to a report from the mortgage giants' regulator, the Federal Housing Finance Agency (FHFA).

Short sales and deeds-in-lieu of foreclosure totaled 37,966 for the three months ending Sept. 30, 2012, up 4 percent from the previous quarter and 23 percent from a year ago. Fannie and Freddie implemented accelerated timelines in June 2012 for reviewing and approving short-sale transactions.

Fannie and Freddie short sales and deeds-in-lieu

Right-click graph to enlarge. Source: Federal Housing Finance Agency.

The mortgage giants' inventories of "real estate owned" (REO) homes also continued to decline, as Fannie and Freddie got rid of homes faster than they acquired them through foreclosures.

During the first nine months of the year, Fannie and Freddie acquired 197,507 homes through foreclosure, and sold 218,321 REOs and foreclosed homes.

Fannie and Freddie REO inventories (thousands of homes)

Right-click graph to enlarge. Source: Federal Housing Finance Agency.

All told, Fannie and Freddie had 158,138 homes in their REO inventories as of Sept. 30, 2012, down 13 percent from a year ago and a drop of nearly 36 percent from a Sept. 30, 2010, peak of 241,684.

Fannie and Freddie were placed under government control, or conservatorship, in September 2008. Since then, loan servicers working on their behalf have approved 2.1 million home retention actions, including 1.26 million permanent loan modifications.

During the same period, Fannie and Freddie acquired more than 1.1 million homes through foreclosure, and signed off on 413,436 short sales and deeds-in-lieu of foreclosure.

There have been about 4 million completed foreclosures nationwide since September 2008, according to data aggregator CoreLogic.

Of the 62,561 loan modifications completed in the third quarter, about 45 percent of borrowers saw their monthly payments decrease by more than 30 percent. More than a third of loan mods included principal forbearance. Less than 15 percent of loans modified in fourth-quarter 2011 had missed two or more payments as of Sept. 30, 2012, nine months after modification, the report said.

Since the beginning of the Obama administration's Home Affordable Modification Program (HAMP) in April 2009, just over 1 million borrowers have been offered a trial loan modification, and more than half had been granted a permanent modification. Of those, 21.2 percent had defaulted as of the third quarter. The vast majority of the remainder, 428,946 borrowers, were in active permanent modifications as of the third quarter.

Since October 2009, Fannie and Freddie have offered 564,822 non-HAMP permanent loan modifications. Non-HAMP modifications made up two-thirds of all permanent loan mods in the third quarter, the report said.

The share of mortgage loans 30-59 days delinquent rose slightly to 2.08 percent of all loans serviced in the third quarter, but the share of seriously delinquent loans fell slightly to 3.39 percent. Seriously delinquent loans are those that are 90 days or more delinquent or in the process of foreclosure. More than half of seriously delinquent borrowers had missed more than a year of mortgage payments as of the end of the third quarter, the report said.

Nearly 3 in 10 of these deeply delinquent borrowers are located in Florida.

Will Mortgage Rates Go Up Again Soon?

Mortgage interest rates are expected to rise this year, and the increase will likely curb refinancings and affect move-up home buyers.

The Mortgage Bankers Association projects the 30-year fixed rate to increase to an average of 4.1 percent in 2013 and 4.5 percent in 2014, up from 3.7 percent last quarter. The group's December forecast has the dollar value of refis dropping to $818 billion this year and $350 billion next year, from approximately $1.2 trillion in 2012.

Neither higher interest rates nor fewer refis are expected to have a significant impact on housing starts or home sales, however. "Interest rates are so low right now that a modest increase wouldn't have much effect on sales," according to Walter Molony of the National Association of REALTORS®.

What would be a game changer, he adds, is a loosening of credit standards — especially considering that so many borrowers still cannot qualify for financing. "A return to normal standards would boost sales 10 percent to 15 percent," Molony estimates.

Source: "Mortgage Rates About to Lift?" Investor's Business Daily (Jan. 4, 2013)

Rates Ring in the New Year Near Record Lows

Fixed-rate mortgages are averaging near record lows, keeping home buyer affordability high, Freddie Mac reports in its weekly mortgage market survey.

"Mortgage rates started the year near record lows, which should continue to aid the ongoing housing recovery,” says Frank Nothaft, Freddie Mac’s chief economist. 

Freddie Mac reports the following national averages with mortgage rates for the week ending Jan. 3: 

• 30-year fixed-rate mortgages: averaged 3.34 percent, with an average 0.7 point, dropping from last week’s 3.35 percent average. The record low for 30-year mortgages is 3.31 percent, which was set in November. A year ago, 30-year rates averaged 3.91 percent. 
• 15-year fixed-rate mortgages: averaged 2.64 percent, with an average 0.7 point, dropping from last week’s 2.65 percent average. The record low for 15-year mortgages is 2.63 percent, also set in November. Last year at this time, 15-year rates averaged 3.23 percent. 
• 5-year adjustable-rate mortgages: averaged 2.71 percent, with an average 0.6 point, rising from last week’s 2.70 percent average. Last year at this time, 5-year ARMs averaged 2.86 percent. 
• 1-year ARMs: averaged 2.57 percent, with an average 0.4 point, rising from last week’s 2.56 percent average. A year ago, 1-year ARMs averaged 2.80 percent. 

Source: Freddie Mac

How to Start the Bankruptcy Process

Initiation And Consultation

Take the Initiative

You have hit rock bottom. You cannot meet your monthly payment obligations and you are falling behind on your bills. You are starting to receive harassing phone calls threatening legal action. Even worse, you are in foreclosure, there is a lien on your bank account and/or your wages are being garnished. It is extremely important that you do not sit idle and bury your head in the sand.

I know it can be very difficult, but the first step is realizing that you have a financial problem that you cannot fix. It takes courage, but you must take action. Hopefully this is done early before things get out of control or before you liquidate exempt assets in an attempt to stay above water.

It is important that you consult with a bankruptcy lawyer before making any drastic financial decisions.

The Selection Process

So, while this is an extremely difficult time in your life and you don’t know where to turn, choosing the right bankruptcy lawyer could make all the difference.  Make sure you do your research, read their blog and meet for a free consultation.  Hire the lawyer you feel most comfortable with who respects you and your situation and treats you with the dignity that you deserve.

The Consultation

The initial consultation is perhaps the most important part of the bankruptcy process. It is the jumping off point to future financial freedom. So, if a lawyer does not offer an initial, free consultation, do not hire that lawyer. This initial consultation is an important meeting where you get to interview the lawyer and the lawyer gets to interview you. Invaluable information is passed back and forth at the initial consultation.

It is important to come prepared. Most lawyers will advise you on what needs to be brought to the initial consultation. Some will have you complete a pre-consultation intake form to provide them with necessary information. At a minimum, you should bring the following documents with you to the initial consultation:

• Copies of your previous two (2) filed Income Tax Returns;
• Copies of your pay advices (or proof of income) for the previous month;
• Copies of your monthly bills (utility bills, credit card statements, mortgage statements, etc.);
• Copies of bank statements for the previous two months; and
• Any other relevant documentation.

You should always come organized and as prepared as possible.

It is important to be completely honest, cooperative and share everything. Remember that the attorney/client privilege applies to the initial consultation so all communications with your potential lawyer will be protected. Speak freely and disclose everything as one tiny detail omitted could impact the outcome of your case.

As the debtor, you play an active role in your bankruptcy case and just as you rely on your lawyer, your lawyer relies on you to communicate all information in a truthful and forthcoming manner.

It is also important that you ask questions and get as much information as you can. You should leave the initial consultation with a solid understanding of the bankruptcy process and whether you will be filing Chapter 7 or Chapter 13.

Finally, you should leave the consultation with a clear picture of what your bankruptcy filing will cost you. Some lawyers still bill by the hour and this creates confusion and uncertainty. Most bankruptcy lawyers today utilize flat billing fees where you are billed a set fee for your entire case. This is a clean, concise and easily understood billing model.

Remember, initiate and take action before it is too late and make the most of your consultation as it is the first affirmative step to getting out of debt and achieving future financial freedom.

Mortgage Debt Tax Relief Extended

A tax break for forgiven mortgage debt that was set to expire Dec. 31 was extended by lawmakers when they dodged the “fiscal cliff” this week. 

The tax break, which has been extended to the end of 2013, allows home owners facing short sales, reduced loan principals, or foreclosures to avoid paying taxes on any debt still owed to the bank. Otherwise, the debt would have been taxed by the IRS as income. 

The tax break first took effect in 2007. 

Home owners had rushed to complete short sales before the end of the year out of fear that the tax break would not be extended.

In Florida, short sales have sold on average for about $103,000 less than what the home owner owed. As such, a typical home seller in that state in, say, the 25 percent tax bracket who completed a short sale in 2013 would have been faced with a $25,725 tax bill if the extension had expired. 

How Does the Fiscal Cliff Bill Affect You?

How Does the Fiscal Cliff Bill Affect You?

On Jan. 1 both the Senate and House passed H.R. 8 legislation to avert the “fiscal cliff.” The bill was signed into law by President Barack Obama on Jan. 2.

Below is a summary of real estate related provisions in the bill:

Real Estate Tax Extenders

• Mortgage Cancellation Relief is extended for one year to Jan. 1, 2014
• Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012
• 15-year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012
• 10 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012

Permanent Repeal of Pease Limitations for 99% of Taxpayers

Under the agreement so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers.  These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000.  These thresholds have been increased and are indexed for inflation and will rise over time.  Under the formula, the amount of adjusted gross income above the threshold is multiplied by three percent.  That amount is then used to reduce the total value of the filer’s itemized deductions.  The total amount of reduction cannot exceed 80 percent of the filer’s itemized deductions.

These limits were first enacted in 1990 (named for the Ohio Congressman Don Pease who came up with the idea) and continued throughout the Clinton years.  They were gradually phased out as a result of the 2001 tax cuts and were completely eliminated in 2010-2012.  Had we gone over the fiscal cliff, Pease limitations would have been reinstituted on all filers starting at $174,450 of adjusted gross income. 

Capital Gains

Capital Gains rate stays at 15 percent for those in the top rate of $400,000 (individual) and $450,000 (joint) return.  After that, any gains above those amounts will be taxed at 20 percent.  The $250,000/$500,000 exclusion for sale of principal residence remains in place.

Estate Tax

The first $5 million dollars in individual estates and $10 million for family estates are now exempted from the estate tax.  After that the rate will be 40 percent, up from 35 percent.  The exemption amounts are indexed for inflation.