Your mortgage can disappear – sounds too good to be true, isn’t it? But, it can be true if you are lucky enough. If your lender is unable to find your mortgage paperwork, he will not be able to prove that he owns the mortgage on your property. Thus, the judge can erase the debt and you have a debt-free house.

On 9th October, 2009, in the Southern District of New York, such a ruling was given by the federal bankruptcy court. As per nytimes.com, a lender called PHH Mortgage could not prove that it holds the mortgage for a borrower’s property. As a result, the judge simply wiped out $461,263 mortgage debt on the borrower’s property. Yes, you’re correct in thinking - the mortgage debt disappeared due to a court order.

Why can’t the lenders confirm the mortgage? Well, the notes have gone missing as a lot of mortgage securitizations occurred during the housing boom. Banks loans were sold off to the investors but the notes were never properly recorded during the boom.

However, do you think it’s fair to erase the borrower’s debt completely? I don’t think so. It has to be accepted that the borrower owed to money to a lender. The court should rather come up with an alternative plan wherein the borrowers will have to make payments for a certain period of time to the court.  Meanwhile, the lender will get some more time to prove the ownership of the mortgage. If the lender can’t prove it after a certain period of time given by the court, the judge may erase the debt. This will help the court remain fair to both - the borrower and the lender. What do you say?

With many of the homeowners feeling the pinch of economic depression, loan modification has become one of the most sought-after options to avoid foreclosure. Recently there has been a forum discussion that focuses on an issue, where the lender charges off the second mortgage even after approving modification of the loan.

The poster received a verbal agreement from the second lender for a trial modification plan. He paid the first trial payment on time as per the agreement. But the next month when he pulled his credit report, he found the loan account has been charged off. On contacting the lender, the poster learned that the former had again reinstated the loan. The second lender then asked him to make the next trial payment by Oct. 27, 2009, else he would again charge off the debt.

Following are the questions the poster asked the community:

1.    Does he have any ground against the second mortgage company that charged off the loan even after approving a trial loan modification?

2.    If the lender charges off the debt after Oct. 27, 2009, can the poster still negotiate with the mortgage company for loan modification?

3.    In case the second lender forecloses on the property, will the first cancel negotiations for the modification?

Trial modification plan & mortgage charge-off

It seems the second mortgage company erroneously reported the debt to the bureaus as charged off. It could also be possible that they charged off the debt as they thought they could not recover the balance on the loan. Though the poster paid his first trial payment in good faith, he has no ground against the second lender as there is no written agreement for the loan modification. The second lender is not legally bound to offer modification as the verbal agreement is not legally valid. So, the lender reserves the right to charge off the debt to whoever they want.

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In order to have a smooth transition into retirement, you should start planning as early as possible. If you’re planning for your retirement, then it’s important to identify your retirement needs first. Once this is done, it would be easier for you to determine your retirement expenses and income.

As a first step to your retirement planning, you should start investing in the retirement plans offered by your employer. You can also start investing in IRAs. Estate planning is an important aspect which you should decide upon before you retire. Apart from this, allocation of assets in bonds, stocks and cash will also help you in getting a secured retirement income.

Here’s a checklist which can help you prepare yourself for this important financial goal in a better way:

• Accumulating emergency funds: It is essential to build up enough emergency savings which will help you in dealing with sudden monetary crisis after your retirement. Investing in insurance is also a good way to save yourself from unforeseen circumstances. You may even consider working part-time in your early retirement years in order to increase your savings.

• Social security income: You will have to apply for social security income 3 months before the date from which you want to collect the benefits. You can apply for the benefits as early as 61 years and 9 months of age. You may even collect your deceased spouse’s social security benefits at the age of 60. If you’re disabled, then you would be able to receive the benefits at the age of 50.

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Of late, I came across a query in the forums, where a husband sought suggestions from community members regarding collection of a second mortgage debt. His wife took this mortgage before their marriage, solely in her name. After her property was foreclosed, she was sent a 1099-A form and she thought the lender had canceled the debt. But she was surprised when she came to know 2 years later that the ‘canceled debt’ has actually been sent to collections!

Her husband asked a few queries, which are as follows:

(1) Can the second mortgage company send the debt to a collection agency 2 years after the property was foreclosed?
(2) Is he or his wife still liable for the second mortgage debt?
(3) Can the collection agency file lawsuit and garnish her wages to recover the debt?
(4) Can they come after his salary as they are now married even though the debt was incurred when she was still single?

It’s not surprising that a borrower’s debt has been sent to collections. Lenders often do that for accounting and other reasons, whenever they feel like they’ll not be able to collect the debt from the borrower. But what surprised our poster is the fact that the lender charged off the debt to the collection agency almost 2 years after they sent his wife a 1099-A form!

1099-A form and cancellation of debt

When someone receives a 1099-A form, it does not necessarily imply his/her debt has been cancelled. Lenders send a 1099-A form whenever they foreclose on a property abandoned by the borrower. It is often confused with a 1099-C form, which is sent to the borrower for cancellation of debt. Based on the information provided in the 1099-C form, the IRS levies taxes on the cancelled debt as they consider it the borrower’s income.

Collection after foreclosure on property

The lender can send the debt to collections even after 24 months have passed since they foreclosed on the property. The Statute of Limitation (SOL), as applicable in the state of Georgia for written contracts is 6 years from the date of last payment. Thus, the lenders can surely come after the wife till the debt account is past 6 years. The poster’s wife is definitely liable for the amount of the second mortgage, but the poster himself is not. He did not sign on the mortgage promissory note which is why he does not have any liability towards the loan in any way. This, I believe, answers the third and the fourth questions as well.

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According to National Consumer Law Center (NCLC), reverse mortgage would be the next sub-prime disaster. It has been noticed that the brokers are making mis-leading claims to the senior citizens in order to give them reverse mortgages. Also, the lenders who were responsible for the real estate boom and the resulting crisis from it are now targeting seniors for reverse home loan scams.

How do lenders scam seniors looking for reverse mortgage?

Some of the reverse mortgage lenders market their products as retirement income. Though the cross-selling has been banned by the Congress in 2008, yet the lenders have been selling annuities along with reverse home loans. Some of the brokers are even seeking higher fees which have led to long-term annuities. In my opinion, this is inappropriate for the seniors as it would tie up their retirement savings for years to come.

It is true that reverse mortgage plays an important role in order to help seniors get mortgage. But it’s important that there should be transparency so that consumers are protected. The government should not only enforce the rules regarding transparency but also ensure that the rules are being followed by the lenders.
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If you are among the lucky few to pay off your mortgage in full, you must be thinking -”What now? Will I be getting a letter stating that my loan has been paid in full? Will the lender hand over the title of the property to me? What would I get to prove that I’ve a free and clear property?” Read on to find the answers:

As you pay off the mortgage in full, your lender would give back the original mortgage and note to you. Along with it, you would receive a document called “Satisfaction of Mortgage”. It is a legal document which should be filed at your county recorder’s office.  This will help the title companies to verify that you own your place free-and-clear. Thus, they would issue a clear title when you’re planning to sell off the property. If you do not have a clear title, it would become difficult for you to sell off the property in the future.

There are some lenders who would record the “Satisfaction of Mortgage” on your behalf at the county recorder’s office. However, there are some who would want you to do it yourself. Thus, you’ll have to ensure that the document is recorded at the county recorder’s office. In some states, the homeowner needs to contact the registrar of deeds and get it recorded. This will make sure that you no longer have a mortgage lien against your property.

BTW, Congratulations! You’re a proud owner of a mortgage-free property

In the recent times, it has been noticed that the premiums for homeowners insurance are on the rise. Your premium may even rise if there has been a national disaster in your area. Even increase in crimes in your area can lead to a rise in your insurance premiums even though you haven’t made a claim. However, the best part is that, there are various ways to offset this rise and lower your premiums for homeowners insurance. Just have a look at some of those ways:

• Improve your credit score: Most of the insurance companies are using the information from your credit report to price your insurance policy. If you did not have a good credit score while applying for a homeowners insurance, make sure you take some steps to improve your credit score. You can negotiate your premiums with the insurance company as your credit score improves.

• Raise your deductibles for homeowners insurance: So, what are your homeowners deductibles like? Just note that most of the companies offer deductibles that range from $250 to $30,000. If you can raise your deductibles by $500 to $1,000, you may save up to 25% on your premiums. You can check out with your insurance agent about the different types of deductibles offered and accordingly chose one.

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With the collapse of Lehman Brothers about a year ago, we came face to face with the financial meltdown, which led to severe unemployment and depletion of retirement savings. Though the economy and the stock market have recovered to some extent, there are certain timeless lessons which the financial meltdown has given us. Let’s take a look at it:

• Living within your means: Unfortunately, most of us had forgotten this golden rule. We had started spending more than what we earn while the rule is just the opposite - spend less than you earn. It’s very important to save for the future. It is our savings which can help us in dealing with any financial crisis. So, once you get the next paycheck, make sure you keep aside a certain sum of money as your savings. Keeping an emergency fund is also a good option.

• Financial regulators cannot always help you: It was believed that financial regulators like Securities and Exchange Commission (SEC) and Federal Deposit Insurance Corporation (FDIC) would create a safe place for Americans so that they can save and borrow the money in order to buy a home. However, with time, mortgage and appraisal fraud became widespread. Moreover, they were ignored during the financial boom. No rules were enacted until the damage was fully done. Though rules have been enacted and government has offered bail-out to the banks, the foreclosure rates have still not come down. Now, the White House has proposed a number of financial regulations in order to help the common people.

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The extension period for tax filings would end on October 15th, 2009. Though a large number of people have filed their tax returns within April 15th, 2009, some of us would be filing within this extension period. Tax filings can be quite hectic and a small error will lead to the loss of your deductions or credit. So, what are the common mistakes you should avoid while filing tax returns? Just, check it out:

• Filing Status – Lots of people face problems due to the error in their filing status. You should check only one filing status on the tax return. Apart from this, you should check the appropriate exemption boxes.

• Triple direct deposit – Taxpayers can get their refund directly deposited into three accounts. It’s really a good way to save your refunded money. However, the more numbers you enter on a tax form, there are chances that you enter them in a wrong way. If you give a wrong account number, you would lose your refund money.

• Calculations – Take care when you calculate your taxes. Make sure that you double-check all figures on your return so that there are no mistakes when you calculate. Use a calculator and double check the numbers. You can even use a tax software program to file your tax return. This will help reduce your math errors.

• Tax Table – If you’re using the IRS tax tables, use the correct column for your filing status. If you are using the wrong tax table, you will face problems in the long run.

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Last month, Federal Trade Commission (FTC) filed a lawsuit against a Florida-based company, which had victimized more than 3,100 homeowners nationwide with their loan modification programs. The firm has been shut down for now and they have even agreed to pay off $4.1 million judgment. Also, they have agreed to work under the close monitoring by federal officials in future. Such loan modification scams have become popular these days as large number of borrowers are looking forward to modify their loans in order to save their houses. So, what are the signs one should watch out for in order to avoid these scams? Just have a look:

• Guarantee of loan modification: No company can guarantee you a success in preventing foreclosure as it would be totally the discretion of the lender whether or not he would consider your request. So, if a loan modification company guarantees you a success in preventing foreclosure without considering your financial situation or mortgage details, chances are that it might be a scam.

• Upfront fees: Check out for the upfront fees charged by the lender. Though, not all fees are illegal, still it’s better to not pay anyone who’s not a licensed law firm or attorney. There may be some loan modification companies who can charge you upfront fees without even explaining the program details. Avoid dealing with such companies as they could be scam artists.

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