The freeze on foreclosure sales and evictions has now been frozen until the end of January, according to a statement issued January 8 by Fannie Mae and Freddie Mac.
In an effort to help people avoid losing their homes, Fannie and Freddie began taking part in the Streamlined Modification Program, which allows borrowers to lower their interest rates, extend the life of the loan, or temporarily defer payments on the principal.
Previous announcements had delayed evictions on single-family homes until after the holidays.
The program extends only to those borrowers who use the property as their primary residence, and who have not filed for bankruptcy. To qualify, borrowers must have fallen seriously behind on their mortgage payments – missing 3 or more payments.
Another requirement is proof that the borrower has contacted their lender to try to reach an agreement on modifying the loan. This contact must have been made at least 10 days prior to filing for help under the Streamlined Modification Program.
Citibank has also agreed to a program that would allow judges to reduce mortgage debt for people filing for bankruptcy.
The IRS is also stepping up to the plate to assist.
Since many consumers in trouble with home mortgage payments have also fallen behind on income tax payments, many of the homes in question carry IRS tax liens. Over 600,000 such tax liens are filed each year.
The IRS has vowed to accelerate requests by homeowners to make a federal tax lien secondary to lender liens when a homeowner is refinancing or restructuring a mortgage. By law, tax liens are always take precedence over any other liens.
In the case of a home being sold for less than the value of the mortgage, the IRS will now move the lien to a different property, enabling the transaction to close.
This type of transaction, known as a Short Sale, used to carry severe tax consequences. The balance of the loan that was “forgiven” in order to complete the sale was treated as income for tax purposes.
Now, Under the Mortgage Forgiveness Debt Relief Act of 2007, up to $2 million of the cancelled debt on a principal mortgage is now tax free. This relief applies only to a principal residence, not to second homes or rental income property.
Marte Cliff
