foreclosure
Understanding foreclosure time lines and how it affects short sales
0The basics are this: at 31 days at 5pm is 30 days late; at 61 days NOI (notice of intent); at 91 days NOD/Lis Pendens (depending on the state; NOD = notice of default).
In most states you have a 6 month or longer foreclosure time line. This means it takes 6 missed payments or more before a lender can foreclose and then an additional 30-60 days before the occupants are evicted. (eviction can be longer in the case of a valid lease).
In a short sale context it is important to keep an eye on the foreclosure time line: if 5 payments have been missed then it is logical to assume NOD (notice of default) has been filed. It also means that possibly a NOTS (notice of trustee sale) has been filed or soon will be filed.
The sale date is an important date to keep in the back of your mind, especially if no offer has come in after a while on the market. Trustee sale can be postponed close to trustee sale but that’s going to depend on the offer that is being submitted (influencing the numbers on the HUD), the submission itself, wether loan mod was being pursued, etc.
This is where the short sale agent and the seller need to stay realistic. It is still possible to get a deal done at this late hour, but chances go down as the sale date is approached. That doesn’t mean that postponement shouldn’t be aggressively pursued of course. Short sale is still the better option for the bank if the numbers indicate so.
Taxable Gain on Cancellation of Debt from Loan Modification, Short Sale, Deed in Lieu or Foreclosure
0In a loan modification, short sale, foreclosure or deed in lieu of foreclosure, the owner can receive “capital gain or loss” as in any other sale of real property. The owner will be subject to capital gains taxation on the “forgiveness of debt” or “cancellation of debt” but can also receive a credit for a capital loss (only on investment properties).
Taxable ordinary income is triggered by the lender’s forgiveness of debt of $600 or more. The lender is required to issue a 1099-C (“c” for cancelled debt) but it is the individual’s responsibility to recognize a capital gain.
Please consult with a CPA because each situation is going to be different.
How long does a foreclosure have to be listed on a credit report?
0As you read the law below (FCRA) you can see that it allows the creditor to report the derogatory item for no longer than 7 Years. This means they can report this derogatory item for 7 years- but not one day more. They can delete it prior to that time period referenced if you can get them to delete it. The bureaus will not delete items for you. But the creditor will!
From the Fair Credit Reporting Act:
605. Requirements relating to information contained in consumer reports [15 U.S.C. §1681c] (a) Information excluded from consumer reports. Except as authorized under subsection (b) of this section, no consumer reporting agency may make any consumer report containing any of the following items of information: (1) Cases under title 11 [United States Code] or under the Bankruptcy Act that, from the date of entry of the order for relief or the date of adjudication, as the case may be, antedate the report by more than 10 years. (2) Civil suits, civil judgments, and records of arrest that from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period. (3) Paid tax liens which, from date of payment, antedate the report by more than seven years. (4) Accounts placed for collection or charged to profit and loss which antedate the report by more than seven years. (5) Any other adverse item of information, other than records of convictions of crimes which antedates the report by more than seven years. (c) Running of Reporting Period (1) In general. The 7-year period referred to in paragraphs (4) and (6) of subsection (a) shall begin, with respect to any delinquent account that is placed for collection (internally or by referral to a third party, whichever is earlier), charged to profit and loss, or subjected to any similar action, upon the expiration of the 180-day period beginning on the date of the commencement of the delinquency which immediately preceded the collection activity, charge to profit and loss, or similar action.