Frequently Asked Questions

  • 1. Can I be on the title of a home if I am not on the loan?

    The answer to this might depend on what state you are in. In Florida, if you are a spouse, you will still be required to have your name on the deed, even if you are not co-signing the mortgage.

  • 2. What is a Deed in Lieu of Foreclosure?

    A Deed in Lieu of Foreclosure (DLF) is a deed instrument in which a borrower conveys all interest in a real property to the lender to satisfy a loan that is in default and avoid foreclosure proceedings.

    The advantage for the lender is the cost of acquisition is less than a foreclosure and title is gained faster. The advantage for the borrower is he avoids a foreclosure and potential deficiency judgment.

    A DLF offers an option without a foreclosure, instead of always looking at a short sale, which requires a property to have a buyer.

    In today's tough market with adjustable rate mortgages failing in record numbers, this is an additional service and solution we can offer homeowners who have nothing else they can do.

    A DLF is specifically designed to allow a homeowner to give clear title back to a lender. This is allowed by a lender if a homeowner cannot afford to go forward with the payment of their mortgage. This is not done automatically by just signing a document or giving the keys back to the lender. Proof must be given to the lender that a homeowner cannot afford their home.

    A DLF can be a Win/Win situation for both the lender and the homeowner. A lender spends many thousands of dollars to obtain a foreclosure; such as title reports, advertising, legal fees, sheriff fees, and the list goes on and on. If the property does not sell at a foreclosure option, the property must be assigned to a Realtor to sell and the fees just keep adding up, along with the fact that the lender is not receiving any monies during this time.

    Should the lender (actually the investor) decide to accept a DLF, they may be able to save a great deal of these costs, thus being able to have a clear title at a much earlier stage in the process.

    Obviously, someone who has a sale date a week away cannot save the lender all of these fees. It is doubtful at this point in time that the lender would agree to this type of solution unless the homeowner has a redemption period. A redemption period allows a homeowner to stay in their home for a period of time after a foreclosure. Every state has different rules, and it is only a short list of states that allow redemption.

    A homeowner can also benefit greatly from a DLF. If a DLF is accepted by the lender and clear title is achieved the lender is not able to sue the homeowner for any fee or deficiency they may not collect from the homeowner. Technically speaking this means that if a homeowner owes more on a home than a lender is able to obtain in a foreclosure sale, they can sue the homeowner for the difference.

    In a lot of states, when a Deficiency Judgment is allowed, the lender may sue the homeowner for this loss of funds. Sometimes a lender does not sue, but there is a "1099 with DIL foreclosure" which is an IRS form showing a capital gain on the property. Even though the homeowner does not gain any money, they did not pay the debt thus gaining from the lenders loss.

    In case a DLF is signed, there are still ramifications to a homeowners credit report but it is not near as devastating as a foreclosure. Of course, the homeowner will be required to move out of their home.

    Many homeowners who have been foreclosed upon are finding it near impossible to find another place to live. Property managers are not allowing people to rent from them because of the foreclosure on their credit report. Some people will rent, but require six months rent as a down payment, again making it very difficult for a family to find a place to live.

    If you do a DLF, your credit can drop substantially. It looks like a foreclosure on your credit report. That said, you can negotiate to improve your credit score with a DLF. You can raise your FICO score with a DLF by getting the lender to report your situation as PAID - SETTLED instead of foreclosure.

    NOTE: On December 20, 2007, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which will help Americans avoid foreclosure by protecting families from higher taxes typically assessed from the forgiveness of indebtedness. This Act will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed.

    BENEFIT: This Act will increase the incentive for borrowers and lenders to work together to refinance loans and allow American families to secure lower mortgage payments without facing higher taxes.

    CAVEAT: Income from Discharge of Indebtedness on Principal Residence

    This provision is effective Jan. 1, 2007, through Dec. 31, 2009. Under this provision, which adds new IRC section 108(a)(1)(E), the discharge of qualified principal residence indebtedness is excluded from gross income. For purposes of the exclusion, qualified principal residence indebtedness is acquisition indebtedness (to buy, build or improve the residence) up to $2 million ($1 million for Married Filing Separately). The home must be owned and used as a principal residence (within the meaning of section 121). The basis of the home must be reduced (but not below zero) by any debt forgiveness excluded under this provision.

    If only a portion of the loan discharged is qualified indebtedness, the exclusion applies only to the amount of debt discharged that exceeds the amount of the loan that exceeds the non-qualified indebtedness.

    For example, assume that a taxpayer has a $500,000 loan outstanding on his principal residence, of which $80,000 is equity debt. If $100,000 of the loan amount is discharged, only $20,000 ($100,000 discharged debt - $80,000 equity debt) of the debt discharge qualifies for the exclusion under the new provision.

    This provision does not apply to discharge of indebtedness on account of services performed for the lender. Also, an insolvent taxpayer must use the principal residence exclusion instead of the insolvency exception, unless the taxpayer makes an election to apply the insolvency exception instead of the exclusion provision.

  • 3. What has been done to help with the Mortgage Crisis?

    On December 20, 2007, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which will help Americans avoid foreclosure by protecting families from higher taxes typically assessed from the forgiveness of indebtedness. This Act will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed.

    BENEFIT: This Act will increase the incentive for borrowers and lenders to work together to refinance loans and allow American families to secure lower mortgage payments without facing higher taxes.

    CAVEAT: Income from Discharge of Indebtedness on Principal Residence

    This provision is effective Jan. 1, 2007, through Dec. 31, 2009. Under this provision, which adds new IRC section 108(a)(1)(E), the discharge of qualified principal residence indebtedness is excluded from gross income. For purposes of the exclusion, qualified principal residence indebtedness is acquisition indebtedness (to buy, build or improve the residence) up to $2 million ($1 million for Married Filing Separately). The home must be owned and used as a principal residence (within the meaning of section 121). The basis of the home must be reduced (but not below zero) by any debt forgiveness excluded under this provision.

    If only a portion of the loan discharged is qualified indebtedness, the exclusion applies only to the amount of debt discharged that exceeds the amount of the loan that exceeds the non-qualified indebtedness.

    For example, assume that a taxpayer has a $500,000 loan outstanding on his principal residence, of which $80,000 is equity debt. If $100,000 of the loan amount is discharged, only $20,000 ($100,000 discharged debt - $80,000 equity debt) of the debt discharge qualifies for the exclusion under the new provision.

    This provision does not apply to discharge of indebtedness on account of services performed for the lender. Also, an insolvent taxpayer must use the principal residence exclusion instead of the insolvency exception, unless the taxpayer makes an election to apply the insolvency exception instead of the exclusion provision.