As short sales, loan forgiveness, and foreclosures proliferate, many former homeowners are finding themselves with a huge tax bill. Any amount of your loan the is forgiven is subject to taxes as if it were income.
In California, there is now some relief. Gov. Schwarzenegger signed SB 401 into law last Monday which modifies California law to match the tax treatment of forgiven debt with that of the federal government, recently changed through the federal Mortgage Forgiveness Debt Relief Act, which forgives this “phantom” income up to certain amounts. The new California law retroactively applies to such income back to the beginning of 2009.
The limits are complicated and not easily described. For more detail, read the text of SB 401 (California) or the text of the Mortgage Forgiveness Debt Relief Act (IRS).
Chase is notorious for doing things that HUGELY affects its customers and never actually telling them. For example, changing minimum payments, interest rates, or available credit which customers only find about if they happen to notice the changes on their bill.
Chase is also notorious for foreclosing on properties such that the homeowners only find out about it when someone knocks on their door to take possession of the property.
Well, if CA bill 1275 is passed, they would be required to communicate their customers in the following ways:
- Mail borrowers a notice informing them of their foreclosure-related rights and foreclosure avoidance options that may be available to them.
- Mail borrowers an application for a loan modification or other alternative to foreclosure.
- Evaluate borrowers who submit a written request for a loan modification or other alternative to foreclosure for that modification or other alternative.
- Mail borrowers who have been denied a loan modification or other alternative to foreclosure a detailed denial explanation letter explaining the reasons for their denial.
Presumably, if the bank fails to properly communicate these things, homeowners will have some recourse to go after them in case of foreclosure.
Furthermore, the bill contains provisions that would allow homeowners to get foreclosure sales reversed if they are due to servicer errors. There is presently no recourse for this.
All I can say about this story is, this sounds REALLY BAD, even for Chase.
We were in the middle of a loan mod when we got the foreclosure notice stapled on our home…we called Chase they said to ignore it and we continued with the loan mod. Then a Real Estate agent told me our home WAS sold the end of July 2009. We then again called Chase and they told us that our loan mod was done and we were fine and if it was sold it would be re instated…once again we believed them. Our loan mod documents showed up via Fed ex in August 2009 and we have made our payments until April of 2010 when we were served an Eviction notice by a bank who bought it back in July of 2009!!…Now we had to hire an attorney since Chase was collecting our money and billing us and on paper the house isn’t theirs…it belongs to Federal Home Bank… so now what??? The attorney got the eviction stopped for now but Chase won’t respond to his letters…we still are living here but Chase isn’t getting anymore of our money untill I know where it is going.
It looks like Chase has graduated from petty crimes against its customers to pulling off some serious fraud. Could a big sophisticated bank like Chase really be this inept, or are they seriously getting into simply defrauding people?
David reports:
we received a Loan Modification Agreement from chase dated June 10, 2010. the property is 4 rental units, and payments are current. we DID NOT request a Loan Modification. this came FedEx with a cover letter urging us to hurry up and return the signed agreement by 6/24/2010.
we have been ‘pre-qualified’ for a ‘special program’. monthly payment remains essentially the same, mortgage balance to be reduced by $110,481 (from $330,481) to $220,000, term to be reduced by 119 months, and the current adjustable rate (3.03%) to become fixed @ 5%.
there may be tax consequences! on the reduced principal, and this could have an undesirable on our credit rating.
what is chase up to? we smell a rat!
This seems way too generous for Chase to offer to someone that isn’t behind on their mortgage payments and has NOT requested a loan modification. Are they soliciting this to get them to sign up for a trial modification with lower payments, then deny them, demand a baloon payment, and foreclose? Could Chase really be THAT predatory?
I’m a little confused about who they actually settled with, but a couple recently settled a lawsuit originally filed against Washington Mutual in 2008, before WaMu’s seizure and sale to Chase.
What is interesting though is the description of how they were treated by WaMu:
Lori Pestana contacted Washington Mutual, based on its public statements that the bank was interested in assisting distressed borrowers through its Homeowners Assistance Program. The lawsuit states that a company representative told her that to qualify, the couple had to be 50 days delinquent. So, she said, they didn’t pay.
When the Collections Department contacted her in the first week of September 2007, the agent explained that they would need to fill out a form for the program and return it. Lori Pestana offered to mail partial payments, but she was told that would disqualify her from the program.
Instead, on June 30, 2008, the couple were served with a summons and complaint by the Federal National Mortgage Association seeking to evict them.
Sounds familiar, right? This is exactly the kind of thing that Chase is accused of doing, telling homeowners to stop paying their mortgage and then foreclosing on them. Seems like this behavior isn’t new with Chase after all.
If you are a homeowner with a Chase loan and are pursuing a short sale, there is a trap Chase might set that you should look out for. One conscientious real estate agent writes about this in her blog:
After waiting 5 months for approval, my sellers finally received approval from Chase on both a first and second hard-money loan. However, those approval letters contained verbiage that allowed Chase to pursue the sellers for a deficiency. That was unacceptable to the sellers. So, I went back to Chase and requested revised approvals without the deficiency language.
Looks like Chase will try to slip this past unsuspecting homeowners, who are just glad to finally get a short-sale approval. But, if you press them, looks like they will remove the deficiency language.
Low and behold, I received the revised approval letters from Chase yesterday with the deficiency language removed! The letters say: “The amount paid to Chase is for the release of Chase’s security interest, and we will waive the remaining deficiency balance of $XXX,XXX.”
And, her perspective on Chase as a party to a short sale in general is notable:
Some agents don’t want to work with Chase because Chase can take too long to process its short sales.
Chase was a no-show for Atlanta’s Save The Dream event designed to help homeowners avoid foreclosure, even though every other major bank attended the event.
You’ve worked hard, dealt with Chase’s many hoops, and got a short-sale approved. Then a small hitch appears and the sales is delayed by a few days. Too bad says Chase, you have to start all over again.
Foreclosure, Legal & regulatory, Loan modification | admin June 27, 2010 | 
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