Bankruptcy can save the house from foreclosure

By Les Christie, staff writer NEW YORK (CNNMoney.com) --

Slick TV commercials and online ads tell delinquent borrowers that they can save their homes by filing for personal bankruptcy.

But is it true -- or just too good to be true?

True!

Bankruptcy can bring foreclosure proceedings to a halt, end harassment from debt collectors, and give borrowers time to make up missed payments and reorganize their finances. In some cases, bankruptcy can also help mortgage borrowers save their homes permanently.
It's not, however, going to help every troubled homeowner. If, for example, the homeowner's biggest problem is not enough money, bankruptcy is not going to solve that.
"It's the best tool there is for people behind in payments but who have ongoing income," according to Binghamton, N.Y., attorney Peter Orville, "those who had been making payments and who could be making payments again."

Halting the process

The first thing a bankruptcy filing accomplishes is to stop the foreclosure process. Lenders can't foreclose or even try to collect debt until permitted to do so by the court.
But first, you have to decide what type of bankruptcy to file for. There are, basically, two types to choose from: Chapter 7 and Chapter 13.
A Chapter 7 bankruptcy delays foreclosure. but eventually it usually results in the liquidation of most assets, according to attorney Stephen Elias, author of "The Foreclosure Survival Guide." Borrowers almost always lose their homes in a Chapter 7.
Some bankruptcy attorneys, like New York-based David Pankin, prefer Chapter 7 because it gets rid of all unsecured debt, leaving only secured debt, such as mortgages, exempt. In this scenario, borrowers still owe their mortgage payments but they can likely afford to make them because all the other debts have been discharged.
But for most experts, Chapter 13 is usually more effective at helping people keep their homes. It gives them time to repair their finances, usually three to five years, during which the court agrees to an income-based budget with monthly payments made to trustees.
The trustees pay the bills, first paying off the secured debt. After that, the trustee pays off unsecured debt, starting with back income taxes.
Next in line comes unsecured debt like credit cards and medical bills. By then, there's usually little cash left and these bills are paid at less than the full rate, often as little as five cents on the dollar.
Borrowers, if they kept up on their payments, can emerge from bankruptcy with their homes still in their possessions.
One thing courts cannot do is "cram down" loan balances on primary residences. That is, reduce mortgage debt to what the home is worth. Neither can they lower interest rates, in most cases, nor lengthen the term of the loans.
They can, however, "strip off" second mortgages, like home equity loans or lines of credit, when home values fall below the first mortgage balances, according to Elias.
"This allows the judge to get rid of the second mortgage," he said. "If there's not enough equity to secure the second, it becomes unsecured debt."
That can be a huge advantage for borrowers. Homeowners may have, for example, a $200,000 first mortgage balance and another $50,000 on a home equity loan. If the home value has dropped to less than $200,000, the judge could rule that all $50,000 of the second is unsecured. Then, it can be paid off at the same pennies-on-the dollar as other unsecured debt.
But there are other downsides. Bankruptcy can lop as much as 240 points off credit scores. And bankruptcies can remain on credit reports for 10 years, said Pamela Simmons, a California real estate attorney, while all other black marks disappear after seven years or less.

Fending off deficiencies

There is also a potential tax advantage to filing for bankruptcy rather than going to foreclosure, according to Simmons. When a home is repossessed and the lender forgives the portion of the mortgage balance above its market value, a tax liability can be triggered. Any difference between what people borrow and what they repay is considered income.
Congress is temporarily allowing that unpaid debt to be forgiven -- but only for money specifically spent on the home purchase or on home improvement.

Foreclosed? Here comes the tax man

Millions of people, however, refinanced mortgages or took out home equity loans and used the money to fund vacations, pay college tuition, buy cars or boats or simply to live the good life. That money is taxable.
Simmons had a recent client who was allowing his lender to foreclose on him and called her about the timing, asking whether he had to vacate by the day of the auction.
In passing, she asked him how much he owed on the house. He said he bought it for a million but had taken out another $2 million, most of which had not been spent on the house. When she told him he would owe taxes on it both to Uncle Sam and the State of California, he was dismayed
She rushed him into her office and they did the paperwork so he could file for bankruptcy.
"If they discharge that deficiency in bankruptcy, you don't owe tax on it," said Simmons.

More Than 500,000 Trial Loan Modifications Canceled

More than 40 percent of the trial loan modifications started under HAMP were canceled as of the end of last month, but permanent mods totaled nearly 400,000, according to the latest Treasury report.
Of the 1,282,912 trials started, 520,814 have been canceled, 364,077 are active, 389,198 are permanent, and the remaining 8,823 were permanent but subsequently canceled.
The most common causes of trial cancellations included missing documentation, trial plan default, and ineligibility due to debt-to-income ratios already being below 31 percent.
Most who were canceled were put in an alternative modification.
Bank of America now leads all servicers with 72,232 permanent modifications, followed by Chase with 54,722 and Wells Fargo with 44,628.
However, smaller loan servicers have been converting a larger share of their eligible 60+ day delinquent borrowers, thanks in part to the use of verified documentation.
Performance of Permanent Modifications
Delinquency data included in the latest report revealed that 4.1 percent of the 126,527 loan mods made permanent in the first quarter of 2010 were already 60+ days late.
Another 1.3 percent are 90+ days late.
The numbers are 5.4 percent and 1.5 percent for mods completed in the fourth quarter of 2009, and 10.5 percent and 4.4 percent for the third quarter of 2009, respectively.
While it’s too early to really tell, the re-default numbers look lower than those tied to other modification programs.

MIT: Foreclosure Reduces Value of a House by 27%

A foreclosure reduces the value of a home by 27 percent on average, according to a MIT study titled “Forced Sales and House Prices,” which examined 1.8 million home sales in Massachusetts from 1987 to 2009.Researchers weren’t surprised to find that foreclosures were selling for a discount, but were shocked at how large it was.Other types of “forced sales” lowered home prices by much smaller amounts – when a house was sold after the death of the owner, the price only dropped about five to seven percent.And when a homeowner declared bankruptcy, the home price fell just three percent on average.They believe the gap in home price reductions has to do with the tendency of foreclosed properties to fall into disrepair.You know, the homes with overgrown weeds and brown lawns accompanied by foreclosure notices in windows.The brains behind the study found that those same properties also lower the values of homes in the surrounding area, but not by much.If a property is located within 250 feet of a foreclosed home, you can expect the value of the home to fall by just one percent on average.

90 Percent of Homeowners Don't Regret Decision

90 Percent of Homeowners Don’t Regret Decision
12Jul10

An overwhelming 90 percent of homeowners don’t regret buying their homes, according to a new survey from consumer finance site Bankrate.com.A “mere” nine percent said they do regret the decision, though with default rates in the teens, it kind of makes you wonder if it’s not more.Among those who do regret buying property, the most common complaint was the inability to ditch, along with trouble making mortgage payments each month.“It’s surprising – and reassuring – to hear 90 percent of homeowners say they don’t regret the purchase of their current homes,” said Greg McBride, CFA, senior financial analyst for Bankrate.com, in a press release.Of course, 25 percent of Black homeowners said they regretted buying their homes, with respondents mostly saying they couldn’t afford payments.This group was also the most likely to hold adjustable-rate mortgages and option arms.Better Mortgage AwarenessOnly eight percent of all those those surveyed didn’t know what type of mortgage they had, compared to 26 percent two years – so I guess that’s the silver lining to this ongoing mortgage crisis.Fixed-rate mortgages continue to surge in popularity, with 79 percent of respondents saying they have one on their home.The poll of 1,001 randomly selected adults was conducted by Princeton Survey Research between June 24-27.

Biggest Defaulters on Mortgages Are the Rich

By DAVID STREITFELD
Published: July 8, 2010

LOS ALTOS, Calif. — No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley. Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.
Five properties here in Los Altos were scheduled for foreclosure auctions in a recent issue of The Los Altos Town Crier, the weekly newspaper where local legal notices are posted. Four have unpaid mortgage debt of more than $1 million, with the highest amount $2.8 million.

Not so long ago, said Chris Redden, the paper’s advertising services director, “it was a surprise if we had one foreclosure a month.”

The sheriff in Cook County, Ill., is increasingly in demand to evict foreclosed owners in the upscale suburbs to the north and west of Chicago — like Wilmette, La Grange and Glencoe. The occupants are always gone by the time a deputy gets there, a spokesman said, but just barely.
In Las Vegas, Ken Lowman, a longtime agent for luxury properties, said four of the 11 sales he brokered in June were distressed properties.

“I’ve never seen the wealthy hit like this before,” Mr. Lowman said. “They made their plans based on the best of all possible scenarios — that their incomes would continue to grow, that real estate would never drop. Not many had a plan B.”

The defaulting owners, he said, often remain as long as they can. “They’re in denial,” he said.
Here in Los Altos, where the median home price of $1.5 million makes it one of the most exclusive towns in the country, several houses scheduled for auction were still occupied this week. The people who answered the door were reluctant to explain their circumstances in any detail.

At one house, where the lender was owed $1.3 million, there was a couch out front wrapped in plastic. A woman said she and her husband had lost their jobs and were moving in with relatives. At another house, the family said they were renters. A third family, whose mortgage is $1.6 million, said they would be moving this weekend.

At a vacant house with a pool, where the lender was seeking $1.27 million, a raft and a water gun lay abandoned on the entryway floor.

Lenders are fearful that many of the 11 million or so homeowners who owe more than their house is worth will walk away from them, especially if the real estate market begins to weaken again. The so-called strategic defaults have become a matter of intense debate in recent months.
Fannie Mae and Freddie Mac, the two quasi-governmental mortgage finance companies that own most of the mortgages in America with a value of less than $500,000, are alternately pleading with distressed homeowners not to be bad citizens and brandishing a stick at them.

In a recent column on Freddie Mac’s Web site, the company’s executive vice president, Don Bisenius, acknowledged that walking away “might well be a good decision for certain borrowers” but argues that those who do it are trashing their communities.

The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.

The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.

“Those with high net worth have other resources to lean on if they get in trouble,” said Mr. Khater, the analyst. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.”

Willingly, but not necessarily publicly. The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006.

“I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”

The rich and successful often come naturally to this sort of attitude, said Brent T. White, a law professor at the University of Arizona who has studied strategic defaults.

“They may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest,” Mr. White said.

The CoreLogic data measures serious delinquencies, which means the borrower has missed at least three payments in a row. At that point, lenders traditionally file a notice of default and the house enters the official foreclosure process.

In the current environment, however, notices of default are down for all types of loans as lenders work with owners in various modification programs. Even so, owners in some of the more expensive neighborhoods in and around San Francisco are beginning to head for the exit, according to data compiled by MDA DataQuick.

In Los Altos, Los Altos Hills and the most expensive neighborhood in adjoining Mountain View, defaults in the first five months of this year edged up to 16, from 15 in the same period in 2009 and four in 2008.

The East Bay suburb of Orinda had eight notices of default for million-dollar properties, up from five in the same period last year. On Nob Hill in San Francisco, there were four, up from one. The Marina neighborhood had four, up from two.

The vast majority of owners in these upscale communities are still paying the mortgage, of course. But they appear to be cutting back in other ways. The once-thriving Los Altos downtown is pocked with more than a dozen empty storefronts in a six-block stretch.

But this is still Silicon Valley, where failure can always be considered a prelude to success.

In the middle of a workday, one troubled homeowner here leaned over his laptop at the kitchen table, trying to maneuver his way out from under his debt and figure out the next big thing.

His five-bedroom house, drained of hundreds of thousands of dollars of equity over the last 13 years, is scheduled for auction July 20. Nine months ago, after his latest business (he has had several) failed in what he called “the global meltdown,” the man, a technology entrepreneur, said he quit making his $9,000 monthly payments.

“I’m going to be downsizing,” he said.

The man spoke on the condition of anonymity because, he said, he did not want his current problems to interfere with his coming reinvention. “I’m a businessman,” he explained. “I have to be upbeat.”

Housing Supply Metrics

by CalculatedRisk on 6/27/2010 08:13:00 PM
http://www.calculatedriskblog.com/2010/06/housing-supply-metrics.html

Here is a table of various housing supply measures (just putting this in one place with links to the source data).

Note: here is the Weekly Summary and a Look Ahead. It will be a busy week!

Housing Supply Overview:

Total delinquent loans (1) 7.3 million
Seriously delinquent loans (1,2) 5.0 million
Total REO Inventory (3) 0.5 million
Fannie, Freddie, FHA REO (4) 210 thousand
Homeowners with Negative Equity (5) 11.2 million
Homeowner vacancy rate (6) 2.6%
Rental vacancy rate (6) 10.6%
Excess Vacant Units (6,7) 1.7 million
Existing Home Inventory (8) 3.89 million
Existing Home Months of Supply (8) 8.3 months
New Home Inventory (9) 213 thousand
New Home Months of Supply (9) 8.5 months

1 Source: estimate based on the Mortgage Bankers Association’s (MBA) Q1 2010 National Delinquency Survey. "MBA’s National Delinquency Survey covers about 44.4 million first lien mortgages on one-to four-unit residential properties ... The NDS is estimated to cover around 85 percent of the outstanding first-lien mortgages in the country."

2 This is based on the MBA's estimate of loans 90+ days delinquent or in the foreclosure process.

3 Source: Radarlogic and Barclays as of Feb 2010.

4 Source: Fannie Mae, Freddie Mac and FHA. Fannie, Freddie, FHA REO Inventory Surges 22% in Q1 2010

5 Source: CoreLogic Q1 2010 Negative Equity Report

6 Source: Census Bureau Residential Vacancies and Homeownership in the First Quarter 2010

7 CR calculation.

8 Source: National Association of Realtors

9 Source: Census Bureau New Residential sales

Time is running out to qualify for California's first-time home-buyer tax credit.

Kathleen Pender, Chronicle Staff Writer
Friday, June 18, 2010

The state Franchise Tax Board has received applications claiming about 80 percent of the funds allocated for the credit. Although it's hard to predict, tax board spokeswoman Denise Azimi says the credit could be gone within a few weeks.

In March, the Legislature approved $100 million in state tax credits for first-time home buyers who purchase a new or existing home in California. To qualify, the buyer must close escrow after May 1 and before the $100 million runs out.

The credit is 5 percent of the purchase price or $10,000, whichever is less, spread over three years. To make full use of the credit, the buyer would have to owe at least $3,333 in California income taxes in each of those three years.

Because many first-time buyers won't owe that much tax and lose part of their credit, lawmakers allowed the tax board to reduce the $100 million pot by only 57 percent of the credit claimed by each buyer. If a buyer requested a $10,000 credit, the pot would shrink by only $5,700.

As of Tuesday, the tax board had received more than 15,000 applications claiming more than $78 million in post-reduction credits. Because many applications are duplicates or invalid, the board said it plans to accept at least 28,000 applications to make sure the full $100 million is awarded.

The board, which has been posting weekly updates on its Web site ( www.ftb.ca.gov) showing how much money remains, will announce the cutoff date at least 24 hours in advance so people can fax their documentation. The credit will be allocated on a first-come, first-served basis, according to the time and date stamp on the fax. The board warns that submission before the cutoff does not guarantee a credit; it will stop allocating credits once the $100 million is gone.

A first-time buyer is someone who did not own a principal residence for the preceding three years. The buyer must reside in the home for at least two years immediately following the purchase date.

At the same time it approved the first-time home buyer credit, the Legislature approved a separate tax credit for people who already own a principal residence who purchase a newly constructed (but not an existing) home. This credit is also worth up to $10,000, spread over three years. Because more repeat buyers will be able to take full advantage of the credit, this $100 million pot will be reduced by 70 percent of the tax credit allocated to each buyer.

This program also has $100 million in credits available, but the money is not close to running out. Buyers can reserve a credit by entering into a binding contract between May 1 and Dec. 31 and closing before Aug. 1, 2011.

OPEN HOUSE

Complete Property Services is hosting an open house at 12736 N Bend Court, Rancho Cucamonga CA 91739

Schedule is as followed:
2010.6.26 2PM ~ 5PM (SATURDAY)
2010.6.27 2PM ~ 5PM (SUNDAY)



View Larger Map

The top 10 most desired home features and the percentage of respondents who ranked the feature as high priority

Source: ZipRealty.

1. 86.8% - Garage or parking space.
2. 78.9% - Master suite.
3. 72% - Ample storage space.
4. 66.5% - Large or walk-in closets.
5. 66.4% - Guest bedroom.
6. 64.3% - Outdoor entertainment area.
7. 60.6% - Gourmet or updated kitchen.
8. 55.8% - Breakfast room or eat-in kitchen.
9. 43.2% - Large yard:
10. 40.8% - Wood floors: 40.8 percent.

Wasn't commercial real estate supposed to crash?

By Heidi N. Moore, contributorJune 8, 2010: 6:12 AM E

FORTUNE -- During the long years of the financial crisis, the American economy has been like a retelling of the Somerset Maugham story "Appointment in Samarra," in which a man unsuccessfully runs from city to city in attempts to avoid a run-in with Death -- who, of course, is one step ahead of him. Similarly, investors have now spent years dodging disaster in one area of the markets, only to find their investments coming to a bad end elsewhere.

Oddly, however, there is one sector that has been outrunning the reaper since 2007, and it's the last place you'd expect to have survived so long: commercial real estate. For much of 2008 and 2009 CRE was awash in red ink, and yet it hangs on. Richard LeFrak, chairman of the LeFrak Organization, said at the Milken Institute Global Conference in April, "The failure that we were all anticipating in the commercial real estate market, it kind of didn't happen. We blinked, it went away.

The only question now is how long it can keep up the sprint while the ghosts of boom-time leverage haunt the sector, and $1.4 trillion in loan maturities loom three years over the horizon.

To crash or not to crash: which side is right?

There is a sharp disagreement among experts in how things will play out. Some predict foreclosures, loan defaults and a national crisis of disastrous proportions. In that corner is Elizabeth Warren's Congressional Oversight Panel, which flatly predicted this year that commercial real estate loans are heading for a crash that will bring down small banks, destroy small-business lending and create "a downward spiral of economic contraction," in her ominous words.

On the other side, investors in commercial properties and buyers of commercial mortgage-backed securities believe that the commercial real estate market will continue to suffer until it hits a bottom, but it will never crash in the way that the residential market collapsed. They believe that commercial real estate will be an example of how a market can take the hits and keep on ticking, that not every spot of trouble results in a crisis, that an industry can actually, somehow, stop a crisis if it acts early enough and has enough support.

Peter Roberts, Chief Executive Officer of the Americas for property giant Jones Lang LaSalle (JLL), put it this way: "We're not going to see a 'crash'. We're going to see a long work-through." Roberts believes commercial property values are in the process of bottoming out and will get to the ground floor by early 2011.

He credits the government's support programs in capital markets with reversing the psychology of nervous markets in 2009: "The powers that be are very focused in making sure that we don't have a crash in the real estate market. That has infused the mindset of investors."

The Hilton Maneuver

Investors are making the most of their good luck while they can. There have already been deals of several different varieties that show us their plan for addressing the problem of high-water mark commercial mortgages coming due.

Of them, there's no better example of temporarily sidestepping the debt monster than Blackstone Group's clutch move with Hilton Hotels. The PE firm's $26 billion buyout of Hilton in 2007 -- with $20 billion of outstanding debt due by 2013 -- is a prime example of the sweaty palms that high leverage deals can cause even savvy investors.
But in April, Blackstone (BX) bought back $1.8 billion of Hilton's debt and restructured another $2.1 billion to turn it into preferred equity. Blackstone also pushed off the maturities of the remaining $16 billion until 2015, buying itself two whole years of breathing room. Hilton is still debt-laden, but it's not dead -- and hedge-fund investors speak approvingly of Blackstone's decisions to face its problems early.

The deal has kicked off a quiet trend of what one real-estate investor at a hedge fund calls "mini-Hiltons" -- a pending wave of real estate investors seeking to buy back and restructure their own debt to stay alive until the recovery.

In another pattern, auctions for distressed assets are becoming more and more competitive, giving troubled assets quick homes. One of the most notable was the acquisition of Corus Bankshare's $4.5 billion real estate portfolio, sold for a mere 60 cents on the dollar in an FDIC auction to a group of real estate investors and hedge funds including Barry Sternlicht of Starwood, TPG Capital, WLR LeFrak and Perry Capital. The FDIC kept the majority of the portfolio, but gave the buyers zero-percent financing -- a sweet deal for any investor.

Unhinged loans

Since properties have become so hard to buy, many investors have turned with voraciousness to the bundles of securitized loans known as commercial mortgage-backed securities, or CMBS. If anything in commercial real estate stands ready for a reckoning, it is these securities.

Despite CMBS hurtling toward higher default rates, however, investors who have faith in them are practicing some serious compartmentalization. They say that there are only some CMBS -- and some tranches of CMBS -- that will be hurt. They believe that the highest-rated tranches, rated triple-A, are in no danger.

They also say that CMBS could never create as much havoc as their residential cousins because of their structure: they are made of whole loans that haven't been chopped up as much in the Wall Street sausage factory, and are based on stronger assets.

The tranches most likely to be hurt, of course, are those with the worst ratings - the triple Bs. These were the biggest victims of lax underwriting standards. According to Commercial Mortgage Alert, the boom years of 2005 through 2007 saw a total of $602 billion in CMBS issuance. (The CMBS written during those three years, by the way, account for a whopping 49% of all CMBS written over the past 20 years.) Those are likely to be the problematic securities. The CMBS written before and after don't have as much leverage put on them, say investors.

CMBS, however, accounts for only about 20% of the total loan market, according to Jones Lang LaSalle's Roberts. The bigger danger to the capital markets -- and to banks -- are speculative commercial loans, like those in construction and land loans. Those aren't backed by firm assets and are a key part of the reason that many smaller banks have failed in recent years. It is these loans, in particular, that worry Warren and others, and could yet bring a reckoning to CRE.

There is a lot riding on the outcome of commercial real estate's do-it-yourself salvation. If the sector can escape the same kind of crash that took down residential real estate, then we have a case study in how investors and government can prevent a crash before it happens. If it doesn't work, however, the economy could be hit again at a moment when it is least able to bear the punch.

How Dangerous is Buying a Foreclosure?

June 7th, 2010, 6:00 am • posted by Marilyn Kalfus, real estate reporter

http://mortgage.freedomblogging.com/2010/06/07/how-dangerous-is-buying-a-foreclosure/32309/

Here’s more from a recent survey by Trulia.com and RealtyTrac on how people view buying a foreclosure.

I think some of the confusion stems from the fact that the term foreclosure is used in different ways. When some people say foreclosure they mean a home in default on the loan and going through the foreclosure process but not yet sold at auction or reverted to the lender. Others mean a home that has already been foreclosed and now is owned by the bank.

At any rate, the 2 Websites have come up with what they’re calling the Top 10 Myths about buying foreclosures, along with their reality checks:

1. Foreclosures need a huge amount of work.
Reality check: “Although stories of foreclosures missing plumbing and every electrical fixture are very memorable, many foreclosed homes need only the (relatively inexpensive) cosmetics that many new homeowners want to customize no matter what kind of home they’re buying: paint, carpet, etc.

2. Foreclosures sell at massive discounts compared to other homes. 36% expected to receive a bargain basement discount of 50% or more.
Reality check: “While foreclosures might be discounted massively from what the former owner paid or owed, their discounts are much more modest when compared to their value on today’s market and the prices of similar homes.”

3. Buying a foreclosure is risky.
Reality check: “Yes – buying a foreclosure at the auction on the county courthouse steps can have risks, including the risk the new owner will take on the former’s owner’s liens and other loans. But most buyers looking for foreclosures are looking at bank-owned properties, which are listed on the open market with other, ‘regular’ homes. Buying these homes is really no more risky than buying a non-foreclosed home.”

4. You can’t get inspections on the property when you buy a foreclosed home.
Reality check: “County auction foreclosures don’t often offer the ability for buyers to have the homes inspected. But virtually all bank-owned properties for sale on the open market not only allow, but encourage buyers to obtain every inspection they deem necessary. This is because almost every bank sells their foreclosed homes as-is, and they want to avoid later liability. It’s in everyone’s best interests to make sure that the buyer has full information about the property’s condition before they close the deal.”

5. There are hidden costs to watch out for when buying a foreclosed home. 68% of respondents who felt there is a negative stigma to buying a foreclosure worried about the danger of hidden costs.
Reality check: “At some foreclosure auctions, there are buyer’s premiums and other hefty fees that can really add up and take a chunk out of the effective savings the buyer stood to realize. However, when you buy a bank-owned property that is listed for sale with a real estate agent, the closing costs are the same as they would be if you bought a non-foreclosed home. Overdue property taxes, HOA dues and other bills left behind by the defaulting homeowner are cleared by the bank that owns a foreclosed home before it is sold on the market, though these items should be watched out for if you buy a home at the county foreclosure auction.”

6. Foreclosures are more likely to lose their value than “regular” homes. Some 35% of respondents believing there are downsides to buying a foreclosure expressed this concern.
Reality check: ”In fact, because foreclosures often offer a discount from the home’s current market value, they may offer some degree of insulation from further depreciation. Whether a home loses its value or not has to do with the dynamics of the local market, including the area’s supply of homes, demand for homes, interest rates and the health of the employment market – not with whether the home was or was not a foreclosure at the time it was purchased.”

7. Most foreclosures happen when homeowners just walk away. Among homeowners with a mortgage, just 1% said walking away from their home would be their first choice if they were unable to pay the loan. 59% of mortgage-holders said they wouldn’t walk away no matter how upside down they were.
Reality check: “Most foreclosures happen when the owners lose their jobs or their mortgage adjusts to the point where they absolutely cannot pay the mortgage, no matter how hard they try. Voluntary walk-away’s are simply not as popular as many people think.”

8. When you buy a foreclosure, you should lowball the bank – they are desperate to get these homes off their books.
Reality check: “Stories about in the press abound about the large numbers of foreclosed homes the banks have on their books. We’ve all heard the adage that banks have no interest in owning these properties. But the real deal is that they’re simply not desperate enough to give these places away. Also, the banks mostly service the defaulted loans – they don’t own them. Various groups of investors do, and they hold the banks accountable to selling the bank-owned property at as high a price as possible, helping them cut their losses. Many banks won’t even consider lowball offers.”

9. You need to be able to pay in cash in order to buy a foreclosure.
Reality check: “Again, if you buy a foreclosed home on the county courthouse steps, you might need to bring a cashier’s check and be ready to pay for the place on the spot. By contrast, bank-owned homes are bought through a more normal real estate transaction, which means buyers can obtain a mortgage to finance the home just like they would if the home weren’t a foreclosure. It is true, though, that in some markets, banks prefer offers from cash buyers, but this tends to be in situations where the property’s condition is pretty dire, and the bank knows this may make it hard for a buyer to obtain financing.”

10. It’s easier to buy a foreclosure with bad credit if you get a mortgage with the same bank that owns the property.
Reality check: “Think about it: why would the bank want to end up with the same property as a foreclosure, again? In reality, many banks do offer incentives like lower fees or closing cost credits for buyers who use their bank for their mortgage. But the buyers must meet the same credit, income and other qualification standards as anyone else would to seal the deal.”

6 Biggest Mistakes Homebuyers Make

Article From CNN
http://money.cnn.com/galleries/2010/autos/1004/gallery.Costly_homebuying_mistakes/index.html

1. Not knowing your credit score

If you're even toying with the idea of buying a home, you must find out exactly what your FICO score is. If you find it is less than ideal, wage a systematic campaign to raise it. Too many borrowers ignore this step and get surprised when they get interest rate quotes. Once you've pored over your credit history and corrected any errors, your next step is to pay down revolving debt balances to no more than 30% usage. That will help raise your score significantly.

Why does it matter?

The lower your score, the higher your costs of borrowing. Fannie Mae and Freddie Mac, for example, charge higher up-front fees to borrowers with credit scores below 740.

For a buyer with a credit score between 680 and 700, the fee comes to 1.5% of the mortgage principal. On a $200,000 mortgage, that adds up to $3,000. Someone with a 740 score pays nothing.

Lower-score borrowers also get saddled with higher interest rates, about 0.4 percentage point more for the below 700 borrower. That costs an extra $62 a month -- $744 a year -- on a $200,000, 30-year, fixed rate loan.

2. Buying a car before a house

Anytime consumers open new credit accounts -- credit card, auto loan, etc. -- their FICO score could drop, according to Craig Watts, a spokesman for Fair Isaac, the creator of FICO scores."Hence the admonition to not open other new accounts while your mortgage application is in process," he said.

A big purchase would use up a considerable proportion of a borrower's total credit limit, which results in a drop in the score. Lenders often continue to check credit scores in the weeks before closing.

"The lender will likely slam on the brakes if the applicant's credit scores have suddenly dropped below the minimum required for the requested loan rate," Watts said.

3. Skimping on home inspection

Buying a pig in a poke can cost buyers big bucks -- just when they can least afford it. So It's vital to find all the costly flaws before you buy. Many homes on the market today are distressed properties -- foreclosures and short sales -- and that only increases the importance of good inspections, according to David Tamny, president of the American Society of Home Inspectors.

"The owners usually didn't have the money to keep up these homes," he said. "There's a lot of deferred maintenance."

A home inspection can find problems with the foundation, electrical, plumbing, roof, attic insulation, and heating and air conditioning. In some states, separate licensed inspectors offer mold or termite inspections.

Often homebuyers, who may be strapped for cash, stint on inspections and look for the cheapest way to go. That can lead to disaster.

4. No lawyer ( No escrow )

Nearly everyone involved in a real estate transaction -- the seller, the buyer's real estate agent, the seller's agent and the mortgage broker -- has a vested interest in getting the deal done because they only get paid when the house is sold. So they may push a deal even if it's not in the best interest of the buyer.

One of the best defenses against making am expensive purchase you'll regret is to hire a real estate attorney -- even in cities where it's not standard practice. These professionals charge flat fees and their advice is objective. It's nice to have someone on your side.

5. No contingencies

When signing a sales contract, buyers usually have to put up 1% to 3% in "earnest money," which they don't get back if they pull out of the deal except under certain conditions spelled out in the contract. Sellers try to limit the grounds for canceling, and inexperienced buyers may sign contracts that don't include common exceptions, such as uncovering major problems during the home inspection, failing to obtain financing and failure of the house to appraise.

Failure to obtain financing is common these days because lenders have become very picky; underwriting is very strict.

Even if your mortgage company is still willing to finance your purchase, the house itself may be worth less than you've contracted to pay for it, and the lender will pull its approval.

With residential real estate markets still slow, sellers usually accept contingency clauses, but if they resist, it may be better to rethink the deal. Losing a deposit of $2,000 to $6,000 on a $200,000 home hurts.

6. Not budgeting for insurance

Don't underestimate insurance costs and fail to budget for them.

Many homebuyers don't understand just what is -- and what is not -- covered. Standard policies pay for theft and wind, fire, lightning, hail and explosion damage. Not covered is flooding, earthquake damage or problems caused by neglect of routine maintenance, according to Jeanne Salvatore, spokeswoman for the Insurance Information Institute, an industry-sponsored educational group.

"The most important thing is before you buy a home, find out what it will cost to insure it," she said. "Insurance needs to be calculated into the cost of owning a home. Unlike a mortgage, which you can pay off, you'll be responsible for the insurance costs forever."

For flood insurance, most buyers use the National Flood Insurance Program. Earthquake coverage may be available through a state authority or some private companies.

Depending on location, flood insurance can run into a lot of money. The cost of $250,000 worth of government flood coverage on the building and $100,000 of its contents can go as high as $5,714 in high-risk, coastal areas.

How Foreclosure Impacts Your Credit Score

By Les Christie, staff writerApril 22, 2010: 4:44 PM ET
NEW YORK (CNNMoney.com)

http://money.cnn.com/2010/04/22/real_estate/foreclosure_credit_score/index.htm

If you're delinquent on your mortgage, your credit score will suffer. Everyone knows that. The question is, by how much?

Until recently, those answers were hard to come by. Credit bureaus were uncommunicative about expressing, in points, just how much impact different foreclosure types of mortgage delinquencies have on scores.

Recently, Fair Isaac, which developed FICO scores, pulled back the curtain a bit, revealing some estimates of point-score declines following mortgage delinquency problems.

Here are the average hit your credit will take:
30 days late: 40 - 110 points
90 days late: 70 - 135 points
Foreclosure, short sale or deed-in-lieu: 85 - 160
Bankruptcy: 130 - 240

To come to these figures, Fair Isaac created two hypothetical consumers, one who starts out with a fair-to-middling score of 680 and the other with a very good one of 780. (FICO scores range from 300 to 850.)

The hypothetical person with the 780 FICO has 10 credit accounts versus six for the 580, plus a longer credit history, lower utilization of total credit limit and no missed payments on any account. The other consumer has two slightly damaged accounts. Neither have any accounts in collection or adverse public records.

See the chart above to see how each scenario affected each borrower.
Notice that for both borrowers a single one-time black mark results in steep drops, but it is when they fall further behind that things get really harsh, according to Craig Watts, a spokesman for Fair Isaac.

"The lending industry tends to regard an account differently when it has become 90 or more days late," he said, "The likelihood that consumers will resume paying their overdue obligations drops off significantly after the delinquencies have reached 90 days."

One reason credit companies were so closed-mouthed is that they often can't definitively state how much each delinquencies will affect scores because there are too many variables.

Some borrowers will fall much more steeply than others for the same payment problem, according to Maxine Sweet, vice president for public education at Experian, one of the nation's main credit bureaus.

"If you picture someone who has just one mortgage and one other credit account versus a mature credit user like me with 15 accounts, if they miss one payment that would impact their scores a lot more," she said. "For me, one missed payment would just be a blip."

The point loss also depends on the borrower's starting point: People with very high credit scores have more to lose than low-score borrowers; the impact of a single blemish on an 800 score is more than on a 500.

Of course, it just gets worse when you face foreclosure.

Mortgage borrowers can lose their homes three basic ways: a foreclosure; a short sale, where the home is sold for less than than is owed and the bank (generally) forgives the difference; or a deed-in-lieu, in which the borrower gives back the property and the bank again forgives any unpaid balance.

Sweet said credit bureaus generally slash scores equally for those three resolutions to someone losing their home. The important factor, she said, is that "it's reported that you paid less on a settled account."

Some borrowers may think that because they never missed a payment, they can "walk away" from their homes with relatively little impact on scores. Not true. "When a deed-in-lieu or short sale is reported as a partial payment, it's treated as a serious delinquency," Watts said, "just like a foreclosure."

Even if borrowers made payments faithfully for years before short selling or doing a deed-in-lieu, their credit score will still take a hit. The total decline will run about 85 points for the 680 score borrower to as much as 160 for the 780 score.
Mortgage debt, combined with other financial problems, can send borrowers into bankruptcy, the worst thing that can happen to your credit score.

The effects are long-lasting, according to Sweet. In a Chapter 13 bankruptcy, which involves partial repayment over several years, the stain will take seven years to remove. A Chapter 7 bankruptcy, which involves liquidation, takes 10 years to get over.

It's gonna cost you

Absorbing a big credit-score hit can make many transactions more costly. It's not just paying more for credit card debt and auto loans, insurance can cost more as well.

The average savings for someone with a good versus mediocre credit score is about $115 a year for auto insurance and $60 for home, according to Loretta Sorters, of
the Insurance Information Institute.

A low credit score can even make it harder to rent a home because landlords often use credit scores to weed out prospective renters.

Despite the problems a poor credit score can cause, Experian's Sweet recommends that people who are in financial dead ends, like totally unaffordable mortgages, it's better to recognize that and cut your losses quickly; don't prolong the problem.

"You need to do what you need to do to get your finances back in order," she said. "Don't worry about your credit score."

More U.S. residents on the move

46% of movers cite desire to own home, live in better neighborhood
By Inman News, Wednesday, May 12, 2010.
Inman News

The percentage of U.S. residents who moved between 2008 and 2009 jumped to 12.5 percent (37.1 million people), according to a report by the U.S. Census Bureau. That increase comes after a record-low move rate between 2007 and 2008: 11.9 percent, or 35.2 million people.

The bureau's data comes from the 2009 Current Population Survey conducted between February and April every year at about 100,000 U.S. addresses. It includes residents who are at least 1 year old.

Renters were far more likely to move in 2009 than homeowners (29.2 percent vs. 5.2 percent). At the same time, movers seemed to shun main cities within metropolitan areas, which lost a net 2.1 million movers, while the suburbs gained a net 2.4 million movers.

"Most often, people cited housing-related reasons as their main reason for moving," the report said.

"About 17 million movers (45.9 percent) said they wanted to own a home or live in a better neighborhood.

Other reasons for moving included family concerns (26.3 percent), employment needs (17.9 percent) and other (9.8 percent)."

Poverty and unemployment were also factors in the move rate.

More than a fifth (20.9 percent) of those unemployed had moved in the past year compared with 12.5 percent of employed persons, the report said.

People with incomes below the poverty line were also more likely to have moved in the past year than those with incomes between 100 and 149 percent of the poverty line (23.6 percent vs. 17.5 percent), the report said.

Non-Hispanic whites had the lowest move rate (10.7 percent), followed by Asians (13.8 percent) and Hispanics (15.8 percent), while blacks had the highest rate (16.7 percent), the report said.

More than two-thirds of movers (67.3 percent) stayed within the same county, rising to 2.4 million movers from 2.1 million the year before. The next-highest share of movers (17.2 percent) relocated to a different county in the same state. The remainder either moved from a different state (12.6 percent) or moved to the U.S. from another country (2.9 percent), the report said.Regionally, only the West saw a significant increase in its move rate, to 14.8 percent from 13.2 percent the year before -- the highest rate among the four U.S. regions. The Northeast saw the smallest share of its population relocate (8.1 percent), followed by the Midwest (11.6 percent) and then the South (13.7 percent), the report said.

California Median Home Price Over Time

Following Message Is From Irene Kiang

Now this is a fascinating chart because it shows how big the bubble got during the boom. The fact of the matter is, the median family income in California still can’t afford the median priced home. However, much of the data is distorted because the mix of sales. That is, many of the homes that sold over the last year happened at the lower end of the market thus misrepresenting the median price. So although the median price is down, it is a reflection of the massive amount of foreclosure resales. In the mid to upper tier of the market prices remain stubborn on the downside.

That will change as more and more shadow inventory makes its way to market in 2010. There is simply no other way around it. Many of the Alt-A loans, those made to “better income” borrowers occurred in more expensive areas. When these hit recast dates, a new inventory surge will hit the market and a simple rule of economics will play out. That is, more supply equals lower prices. There is no way around this fact.

California Commercial Mortgage Delinquencies Drop in Q110

Article by JON PRIOR

Monday, April 26th, 2010, 2:09 pm

In California, the delinquency rate of commercial mortgages fell to 0.63% in Q110, a 34-basis point (bp) drop from 0.97% at the end of 2009, according to the California Mortgage Bankers Association (CMBA).

On a dollar basis, the delinquent rate reached 0.63%, which translates to a 0.29% delinquent rate on a loan-volume basis. Of the more than 6,400 commercial loans surveyed by the CMBA, 19 loans totaling $344.6m were more than 90 days delinquent. The survey included 16 mortgage banking firms and $54.7bn in commercial and multi-family loans.

Fifteen of the delinquent loans, worth $317.6m, were still three or more payments behind while four reached foreclosure. The largest delinquent loan was a $16.1m retail property in Riverside County.

Retail was the second worst performing category with $19.4m of loans more than 90 days late. Leading the way were office properties. More than $306m of those loans fell into delinquency, or 3% of the surveyed portfolio.

Ten of the 16 participating companies reported no delinquent loans.

“It is encouraging to see the delinquency rate fall, and it reinforces the overall strength of the portfolio,” said Peter Ulrich, commercial real estate consultant for the CMBA. “While the commercial/multifamily real estate sector is not out of the woods yet, the fact that over 99% of loans in a $50bn-plus portfolio are still performing well is a sign that the fundamental underwriting and subsequent servicing of these loans is excellent.”

While there might be more optimism on the default side of the commercial space, the national Mortgage Bankers Association (MBA) reported worse news on the origination side.

The volume of commercial and multifamily mortgages originated in 2009 declined 46% from a year earlier, to $82.3bn of loans, according to the MBA.

The state of the commercial market varies from analyst to analyst. According to Cushman & Wakefield, the market is in better shape than many anticipated given the largest employment declines in more than 70 years, but regional markets with the highest job losses, and the related overabundance of commercial properties vacant as businesses fail, will take longer to dig out of the recession.

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Southern California apartment rents are expected to keep falling

A study shows the average cost dropping as much as 3.5% in L.A. County this year, 2.4% in Orange County and less than 1% in San Bernardino and Riverside counties but inching up in San Diego County.

Apartment rents are expected to fall as much as 3.5% in Los Angeles County this year, according to a study released Wednesday, as landlords compete for tenants in a market battered by stubborn joblessness and saturated with freshly constructed housing units.

For apartment dwellers, falling rents have been the housing bust's thin silver lining: During the boom, rents had climbed in tandem with housing prices.

Southern California's high number of foreclosures and the rampant overbuilding during the housing bubble has resulted in a glut of rentals as demand has slackened with high unemployment, according to the Casden Real Estate Economics Forecast.

Meantime, many struggling young adults have moved back in with their parents, and older people who have lost their homes have started living with relatives, according to a separate study for the Mortgage Bankers Assn.

That study -- by Gary Painter, a professor in USC's School of Policy, Planning and Development -- found that a net 1.2 million American households disappeared from 2005 to 2008.

While rents are likely to fall 3.5% in Los Angeles County and 2.4% in Orange County, those declines are expected to be more moderate than in 2009. Rents should fall less than 1% in Riverside and San Bernardino counties but inch up less than 1% in San Diego County, according to the Lusk Center study.

"The take-away is that the economy is showing some small signs of improvement. All markets are going to perform better than the previous year, but for some that still means a decline," said Tracey Seslen, a professor at the USC Lusk Center for Real Estate who co-wrote the Casden study. "L.A. is going to perform the worst."

In Los Angeles County, the average monthly rent fell to $1,488 at the end of 2009, a 5.8% decline from a year earlier.

More than 5,700 apartment units were completed in the county in 2009, about 42% of the new supply for the region last year. This year, 4,805 units are scheduled to be built, representing more than half of new construction in Southern California.

Property owners are feeling the pinch.

"It is a way more competitive marketplace now, where before at the high end you could still rent an apartment quickly," said Mark Howell, who owns the historic La Fontaine building in West Hollywood as well as several smaller rental properties in West Hollywood and Beachwood Canyon.

"You really have to sit on that apartment to get that tenant, so you will often wait two or three months to get what the apartment is worth. You really have to lower the rents," he said.

Howell estimates the income from his buildings has fallen 2% to 3% since 2007. While rents at La Fontaine and other high-end properties have held up, he said he has had to lower his price on units in another building, to $2,200 from $2,500 for a two-bedroom apartment, for example, or to $1,550 from $1,700 for a one-bedroom. His portfolio hasn't declined more because he has brought other units up to market value as tenants have left, he said. Nevertheless, 2009 was intimidating, he said."

Everywhere you would go in West Hollywood you would see a 'for rent' sign," he said. "It was scary."

The average Orange County apartment rented for $1,464 in 2009, a 4.4% decline from 2008, as the fallout from the subprime mortgage crisis took its toll.

Jessica Nicole Filicko, 30, said she was renting a condominium in Fullerton last year for $1,100 a month when it was foreclosed on by the lender. While the experience was stressful, she said, the lender ultimately paid her $3,500 to vacate the property, and she found a comparable unit in the same complex for $995.

"It definitely is a noticeable change," she said. "I do see a little bit more of my income, and I don't have to live paycheck to paycheck. If something were to happen, there is that cushion, which is a little less stressful."

The average rent in the Inland Empire -- San Bernardino and Riverside counties -- fell 3.8% to $1,024 in 2009 from the year before.

Seslen of USC said that, while investors have poured money into the region snapping up foreclosed properties, they are not putting many on the market as rentals but are rather holding on to them.

"Their holding costs are relatively small compared to your average Joe," she said. "So they may find that it is worthwhile to keep the home unrented until they decide the time is right to resell."

San Diego County's average monthly rent had the smallest decline in the region, 1.3% to $1,323 at the end of 2009 compared with a year earlier.

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Riverside had nation's highest percentage of distressed home sales in January

April 8, 2010 11:49 am

The city of Riverside had the nation’s highest percentage of distressed home sales in January, surpassing even Las Vegas and underscoring the deep difficulties facing the Inland Empire’s housing market this year, according to a report released Thursday.

The report by the Santa Ana research firm FirstAmerican CoreLogic factors in the number of short sales (in which a lender agrees to sell a property for a value that is less than the outstanding mortgage) with the number of foreclosure properties sold by lenders.

Banks and other lenders are increasingly turning to short sales as a way of dealing with defaulting borrowers, as these kinds of transactions tend to save lenders money over foreclosures, though they still make up a small share of the market. The average price for a foreclosed property sold in January was $141,900, compared with $215,300 for a home sold through a short sale, according to the report.Out of the nation’s largest 25 housing markets, Riverside topped the list with 62% of the homes sold in January being either foreclosure sales or short sales. Las Vegas was second at 59%, and Sacramento third at 58%.

Nationwide, short sales accounted for 8% of all sales in January, up from 7% in December and 5% in January 2009. During the 12 months ended in January, there were 974,000 distressed sales: 740,000 were foreclosure sales and 234,000 were short sales.

San Diego's short-sale share was 19% in January, making it the highest-ranked short-sale market, followed by Sacramento with 18% and Oakland at 16%.

Distressed sales in January were at their highest level since April 2009, accounting for 29% of all U.S. sales in January, according to the report. Distressed sales hit their peak in January 2009, when they accounted for 32% of all sales nationally, then fell through the summer but began to rise again through the second half of 2009.

Foreclosed? Here comes the tax man

By Les Christie, staff writer April 8, 2010: 10:21 AM ET NEW YORK (CNNMoney.com) --

Did you lose your house to foreclosure this year? Did your lender forgive some of your mortgage debt because you sold it for less than it was worth? If so, you could be facing a big tax hit. It is IRS policy to tax forgiven debt you are personally responsible for as if it is income. Say, for example, your credit card company settled a $10,000 debt for 50 cents on the dollar. You'd have a debt forgiveness of $5,000, which the IRS would count as income, just like your wages.The same policy held true for most mortgage debt until 2007, when Congress passed the Mortgage Forgiveness Debt Act. That ended the liability for many homeowners -- but not all.In general, if you lose your home to foreclosure or short sale, where you sell your home for less than you owe, the IRS won't add insult to injury by counting the difference as income. At least until 2012.There are four major exceptions to the rule:1. You did a cash-out refinance and splurged.Many homeowners took cash out when they refinanced their homes and used the extra dough to pay for new cars, boats or vacations. Say you did that and then got into trouble, losing the house through a foreclosure or short sale. Even if your lender waived the remaining debt, the IRS will treat as income the portion of the forgiven debt that you took out as cash and spent. Only the funds used to actually improve your home won't be taxed. Yes, even if you spent the money on paying off your student loans or credit cards. The IRS' reasoning is that only the money spent on home improvement actually added to your home's value. And that, presumably, diminished the difference between what you owed on your mortgage and the value of your home when it was foreclosed. Beware: Some lenders made refinancing offers contingent on homeowners paying off credit card debt, according to Kent Anderson, a Eugene, Ore.-based attorney and tax expert. If you took one of those deals, the refinance money will be reported to the IRS and you will owe taxes on it. 2. You have a home-equity line of credit.During the boom years, many homeowners tapped soaring home equity to make all sorts of consumer purchases. But the same rules that apply to refinancings also apply to home-equity loans: The IRS will only forgive the tax liability if the loan money was spent improving your home. And, tax experts advise, you'll need to show receipts to prove you did. 3. You lost your vacation home or investment property.So the market tanked and you lost your vacation home. Unfortunately, if you didn't use it as your primary residence for at least two of the previous five years, you're going to pay the tax man.More common, however, may be the case of investment properties gone sour. During the housing boom, buying homes for investment purposes soared, accounting for 28% of all sales during 2005, according to the National Association of Realtors. (Vacation homes made up 12%.) And many of these purchases were made with little down payment.When the bust hit, second home prices cratered. The median price paid for investment properties fell 43% to $105,000 in 2009, from $183,500 in 2005, according to NAR. For vacation homes, the median price paid dropped 17% to $169,000. If an investor bought a property in 2005 at the median price and sold it in 2009, he could have run up $75,000 or so in forgiven debt. If the investor is in the 25% income tax bracket, that would add nearly $19,000 to their tax liability. Ouch!4. You owned a multi-million-dollar home.It may be hard for Americans struggling in this weak economy to sympathize with anyone wealthy enough, at one time, to afford a multi-million-dollar home. But owners losing one could be on the hook for a huge tax bill. Only the first $2 million in forgiven debt will be voided under the relief act; all the overage is taxable as income. So, say, for example, you're Scarlett Johansson. You paid $7 million for your Hollywood Hills villa in 2007. (With a 100% mortgage; this is hypothetical, remember.) But now, you have it on the market for $4.59 million. Say you can't unload it, your movies tank and you have to a short sale. (Hey, it happened to Nicholas Cage; he went into foreclosure.) If you sell it for $4 million, leaving a $3 million balance, the IRS would forgive the first $2 million. But the remaining million? You better hope you have a good accountant and a lot of deductions.The good news? Even if you fall under any of these four scenarios, you may have a way out, according to Anderson. "If the taxpayer was insolvent at the time of the foreclosure, the forgiven debt can be excluded for tax purposes," he said. "It can also be discharged in a bankruptcy and approved by court order."

And then there is CaliforniaWhile most states follow the IRS lead and don't tax most forgiven mortgage debt, California still makes you pay. The state legislature hopes to change that before April 15, but right now California taxpayers are legally liable for paying state income taxes on forgiven mortgage debt.The state, which has endured some of the worst price declines and foreclosure rates in the nation, did follow the federal lead when it passed the original debt forgiveness bill, but the state only authorized the relief for the 2007 and 2008 tax years. There have been successive legislative efforts to extend relief through 2009, but none have succeeded.One attempt at passing an omnibus "conformity" bill resulted in a veto by Gov. Schwarzenegger for reasons having nothing to do with mortgage debt forgiveness. The governor objected to a different provision covering erroneous tax reporting by businesses.Confusion and anxiety is running high, according to Rocky Rushing, chief of staff for democratic state Sen. Ron Calderon, who is spearheading new legislation. His office has fielded many calls from unhappy taxpayers.