In the last year in response to the rapidly growing foreclosure crisis in the United States many foreclosure prevention programs have been instituted which aim to prevent situations that would otherwise result in home foreclosure. Some of these programs include the Hope for Homeowners Act, Hope Now, and a recent effort by the FDIC and IndyMac. Recently the National Association of Consumer Bankruptcy Attorneys (NACBA) released a report based on findings primarily of Credit Suisse which projected that over 8 million foreclosures are expected in the U.S. in the next four years. This forecast exemplifies the need for the these types of programs. The only problem is that these programs have failed to yield the needed results and this failure has the NACBA pressing Congress and the new presidential administration to move for court administered loan modifications which promise to be more effective in remedying the current foreclosure crisis as opposed to these voluntary modification programs.

The main problem with all of the programs that have been instituted so far is that they are voluntary; the lenders must voluntarily agree to modify the existing mortgage loan when the lender usually has no financial incentive to do so. Secondly, the fact that most loans are securitized by bonds held by investors increases the difficulty of reaching a successful modification since several parties, which can be difficult to reach, must all agree to the modification. Additionally the mortgage servicer owes a duty to those investors to maximize their investment so modifying a loan often opens the mortgage servicer up to liability from the investors whereas simply foreclosing would be a safer option for the loan servicer. Additional roadblocks exist when a second or third mortgage is involved. All of these road blocks often lead to a gridlock in the voluntary loan modification programs prohibiting a successful foreclosure remedy.

The report issued by NACBA in December of 2008 states that less than ten percent of loan modifications through these programs actually result in a reduced principal balance of the loan and only about thirty five percent of the modifications actually reduce the monthly payment when in fact forty five percent of modifications have actually increased the homeowner's monthly payment. As NACBA urges, hopefully the upcoming Congress and presidential administration will to help institute a court administered modification process which will be effective in reaching the goals of remedying the foreclosure crisis.

Yesner & Boss, P.L. Has been a member of NACBA since 2007. We have also helped many homeowners through the maze of loan modifications, short sales, deeds in lieu of foreclosure, bankruptcy, and other loss mitigation options.

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The Document Stamp Dilemma On Short Sale Clarified (Update To Aug. 20, 2008 Blog)

As we had wrote in an August blog titled "The Document Stamp Dilemma On Short Sales," at the time there was emerging some controversy over what the amount of consideration was which document stamps should be based on for a deed when closing a home in a short sale situation. Document stamps according to Florida Statute sec. 201.02 are to be paid in the amount of seventy cents for every $100 dollars paid in the transfer of a home. The issue was whether that "amount paid" was the purchase price agreed upon between the seller and the buyer of the home or the amount of the outstanding loan which is higher than the agreed upon purchase price in a short sale. The reason for the latter thought is that consideration does not only include money paid, but also any amount of debt forgiven since the cancellation of debt is considered the equivalent of receiving cash and simultaneously paying off that amount of debt. So for example in a situation where a homeowner owns a home they purchased for $200,000 but now can only sell for $150,000 due to real estate market changes, if a bank were to agree to a short sale for $150,000 the consideration the homeowner receives is not only the $150,000 the new buyer will pay for the home but also the $50,000 representing the debt the bank is forgiving. The controversy essentially was whether the document stamps in a transfer such as this example should be based off $150,000 or $200,000.

The Florida Department of Revenue after recognizing this controversy addressed this issue finally in a letter to the Florida Association of Realtors (Technical Assistance Advisement No. 08B4-006). The Department held that in a situation like the example above, the "amount paid or given by the purchaser, or paid or given by another on behalf of the purchaser, for an interest in Florida real property is consideration and subject to tax." The Department further stated that in short sale transactions such as the example above "when the lender cancels indebtedness of the seller, that cancellation is not included in determining the amount of consideration subject to tax under Florida Statute sec. 201.02.

Now that the Florida Department of Revenue has clarified their position on this issue our earlier blog article refers to a situation that is no longer a dilemma. In fact it is clear now that in the above example posed the document stamps will be calculated based on the $150,000 purchase price which is agreed upon between the buyer and the seller and any cancellation of debt has no effect on the document stamp taxes imposed on the deed. Following the decision of the Department we will continue to collect only document stamp taxes based on this smaller amount when closing real estate transactions for our clients.

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