How To Get Your Good Ideas Heard…Or is it even a good idea???

Commentary from Amber:

As a woman with too many ideas to keep track of, I found this very interesting as a way to evaluate which ones I should execute and which ones I should toss.  From one dreamer to another… It never stops. 

How To Get Your Good Ideas Heard

After spending the last week or more in meetings, I heard a lot of ideas. Most of them were pretty good. But they didn’t all get the same amount of air time.

Why not?

 Adapt Your Thoughts and Ideas

The senior people in each meeting wanted to hear “new stuff.” They also have “bigger picture” responsibilities, more demands on their time, and a long-term view of their respective companies. That makes their mental filters subject to some very specific criteria.

As I watched the thumbs up/(silent) thumbs down process, I thought: “What am I learning from this that could be universally transferable?”

Here are four questions to ask yourself before offering the next big idea:

1. Will this idea make other people successful?

Really. If it’s not going to do that, you’ve got what might be a good idea for you or you and your immediate work group.

2. Is my presentation as brief as possible because I have thoroughly edited my thoughts?

Figure out what is important to those in the room and what isn’t. Everything isn’t important to them. And if they do start asking questions it means they care enough to engage you. That’s an indicator of interest, even if the questions sound critical They are evaluating. And they aren’t worried about the time because you’ve given them something worthwhile to ponder.

3. Do I have objective criteria for success?

Even if your idea is a creative one, take time to link it to something that can be measured. If not, it will appear fuzzy to many. The more concrete you can be, the clearer the picture you are able to paint.

4. How do I feel about the idea?

Yeah, I know it’s yours. But make sure that you feel confident about it as well as committing to the work that would ensue. Ideas are sold on confidence and emotion supported up by reasonable facts. Pay attention to your gut.

BY: Steve Roesler, Principal & Founder

 

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It’s All About Your Team

As an active, full-time investor for over five years, I’ve found that I get so much more accomplished by having a great team around me.   Your team should consist of the following: a good title and escrow company, a seasoned mortgage broker, several hard money lenders, and private investor all should fill out your dream team.   The most important and I believe the key to helping you capture more deals by helping you find, buy, and sell is to have a PHENOMENAL realtor on your side.  

A good realtor can make or break you and can help you get things done so much faster and smoother.  The problem is that there are so many “wanna be’s” and finding one who is experienced and thinks outside the box can be a process.  I have literally worked with hundreds of realtors all across the country on deals for myself, other investors, and the ever increasing wave of short sales and foreclosures that are consuming so many markets, and I can count on my two hands the ones who have their stuff together and who I would work with again.  Fortunate for me, one of those realtors has fallen into my lap here in the Austin market.

Now how do you find one?  Well, they need to be motivated, experienced, an outside the box thinker, and willing to work for you.  You should also incorporate them into your business and be willing to share in the glory by rewarding them for a job well done.  I know that there are some “gurus” out there preaching that you don’t need a realtor to buy or sell your home and they are correct, but narrow minded.  These are the same guys that talk about outsourcing and making more by doing less.  Realtors do so much by helping you find deals, pull comps, listings, showings, and selling the property.  I don’t know about you, but I value my time and most of the previous items take a lot of time and that’s time that I could be out finding other deals.

It’s good to have a bulldog on your team, especially if you are dealing with short sales and foreclosures in your investing.  Luckily, my realtor has negotiated several hundred short sales all across the country.  I’ve even seen her and her team go above and beyond the normal scope of negotiation on several occurances to save a deal.  When you can get the head of loss mitigation for a bank one day and then get the loss mitigators to call him the next morning at HOME at 7:30 am to help get a foreclosure auction stopped.  Now that is dedication to getting the job done!  She also helps me get my rentals occupied by taking calls and helping me find other renters without asking for anything in return because she knows that she is part of my TEAM.  Of course I’m sending her referrals left and right and promoting her business just as much as mine.  

I believe that’s the key in any successful business or personal relationship.  You have to have to want your teammates to be successful and surround yourself with like minded people.  You can’t be looking to cut your realtor’s commission to save a few bucks or use another title company because they promise to reduce their fees.  In this day and age, it all comes down to getting deals closed and being loyal.  Even though it might cost you a bit more, you will make up for it by having a vested, dedicated team that will bend over backwards to close your deal and help you make more money in the long run. 

Let me give you an example.   In the ABOUT link on the home page, we write about the story of a short sale listing that I initially called upon.  Well, follow up is a very key and important characteristic in real estate.  While we are not even close to being perfect at it sometimes.  It’s been a year since that fateful phone call to Amberina and she’s had that short sale listing with the bank since.  She recieved a call this last week stating that they have accepted my offer (which was a back up offer that was submitted after a higher offer fell out), but it looks like we will be buying that property.   She has also helped me get a second property approved on a short sale that went to foreclosure.  Instead of giving up on the deal, she was able to get the bank to have her become the listing agent and was able to get the offer that I submitted on the short sale accepted as an REO offer.  Most realtors would have given up on both deals with the first or second no.  She didn’t and that’s why I will be closing two deals where others wouldn’t.  Your realtor is the most important team member!  She is a HUGE part of my business and I’m glad to call her partner!

  

 

Homebuyer Tax Credit Changes – NAR Issue Brief

 

Which banks are selling defaulted paper aka “notes” right now?

Of course this list changes almost on a daily basis along with the bank guidelines on how they will including individuals, pools, regions, price points, etc.  And I might ADD that it’s imperative to have a track record with their internal department heads close the deal.  That’s where “Amber and Scott” come in! 

American Bank of Texas
Arrowhead Bank
BAC Home Loan
Banco Popular
Chase Home Finance
Countrywide
Everhome Mtg
Flagstar Bank
HSBC Bank USA
Indymac
Lehman Holding
LaSalle Bank
Litton Loan Servicing
Midfirst Bank
National City
Nationstar Mortgage
PHH Mtg Corp
Saxon Mtg
Suntrust Mortgage
Wachovia
Wells Fargo Bank
Wells Fargo Financial

 

When is the best time to target homeowners for short sales and note leads?

We had an investor inquire about when was the best time to approach homeowners facing financial difficulties to see about working with them to help solve their “hiccup” by listing their home for short sale.

Stage 1 Delinquency on Mortgage:

This is where the homeowner starts to be late on their mortgage payments.  You can purchase lists from credit bureaus of 30, 60,90 day lates and start targeting them with marketing.  What is the upside? Less competition from other agents and investors because you obtain the client info early before the Notice of Default (NOD) or Liz Pendence is filed with the county and others have access.

The downside?  It’s almost to early in the process.  They have more time to think about short sale and consider mortgage mod.  Once a note goes 90 days late, it becomes a lot easier to negotiate on the purchase of the note with a bigger discount.  While there is less competition, the homeowners often have their head stuck in the sand and refrain from doing anything for the most part.  It would be good to talk to them first and start a relationship with them.  Because in phase 2, they will feel a sense of urgency.  This is my second favorite stage for short sale listings.                     

Stage 2 NOD/Derogatory filing with County – Filed within 90-180 days of first delinquent payment in most states with County Recorder’s Office

Upside: Client is more desperate therefore realistic and likely to agree to short sale listing.  Downside: we are not getting them as early in the process, we may be competing with more realtors and we have less time to close the short sale.  Obviously there is more competition, but if you can target them in stage one and follow back up after the NOD/Liz Pendence is filed, you can often capture a nice percentage.  At this stage the note should be discounted around 70% or greater depending on how long it takes to foreclose.  This is where the majority of business takes place because the homeowner is now getting proded constantly by the bank with letters and calls.  This is my favorite phase for short sale listings due to the fact that homeowners know that they must act now or face loosing their home.

Stage 3 Auction/ Tustee Sale Date filing with County

Upside: Client is even more desperate in this stage than Stage 2 therefore realistic and likely to agree to short sale listing.  Downside: We are not getting them late in the process and either may be competing with more realtors or have very little time to close the short sale.

With the foreclosures taking place the first Tuesday of every month here in Texas (and filings must be filed at least 21 days prior to the auction) this does produce a much higher “call to action” amongst the clients.  Depending on the state’s foreclosure laws (months to foreclose), if you are able to get the auction delayed through a short sale, TRS (temporary restraining order) or BK filing, this can add a minimum of 3 more months to the process which can often motivate the bank to sell the notes with steaper discounts.  The positive side is that as long as OTC can get a signed offer, Authorization form, and a estimated HUD-1 to the bank several days before the auction, most banks will delay the auction to negotiate the short sale as they don’t want to take the property back (which automatically provides more time to buy the note).  I’ve gotten foreclosures saved minutes before auction on the courthouse steps.  This can be done, but it is stressful and time consuming for all parties involved to get that extension.

 

Text message marketing for REALTORS and investors – Get your property sold faster and for more money, AND find buyers and investors for other properties

We are living proof that it does.  This is a service that we offer to our clients as part of the “list to close” package.  Our goal is to make Realtors and Investors more efficient and productive!

Features of text message marketing service- BENEFITS TO THE SELLER

•1)    They get more exposure to the home because Realtor/Investor is getting the leads to at least walk through the house.  We all know that the more people that see the house, the faster they will sell the house and the more they will get for it. 

•2)    They get a Realtor/Investor with a leg up on technology, the best.  Prospective buyers are actually tracked where they couldn’t possibly be with flyers that are grabbed with no phone call to the listing agent.  The Realtor /Investor can use in conjunction with the flyer by putting text instructions on the flyer if the seller insists on paper fliers as well. 

•3)    The homeowner and the Realtor/Investor can even add the text instructions to their email signature all other personal info to get more hits.

   Instant property Information and pictures
sent to Your buyer’s cell phone!
**Call capture technology**

The Powerful Little Lead-Boosting Tool I Bet Nobody Has Ever Told You About

What kind of tool am I talking about?

It’s a tool that will allow you to never again wonder how to get all the leads you need (and get them in the least expensive way possible)…track every penny spent on advertising…warm up your prospects before you even talk to them…and even allow you to make an immediate profit in less than 30 days.

You might even work less. A lot less. Live a balanced life and have a successful real estate career.

The Secret to Positioning Yourself in the High Income Zone

After working with agents for nearly ten years, I’ve found that most agents do work hard. They work very hard-in fact, too hard.

But rarely do agents position themselves to be in the ‘high-income zone.’ Winners stay ahead of their competitors. Listings are competitive. Sellers want to know what you can do to sell their home faster than the other real estate agents. When a new listing tool is available for your seller’s property the sellers want it. Staying ahead of your competition is the key to success!

How do you do that?

By using technology that reaches prospects FIRST-before your competition. Then, once you’ve reached them, use a little clever psychology to compel those prospects to respond.

In the process two things happen.

First, by reaching the prospect first, you gain a 3 out of 4 advantage over your competition automatically. See, according to a recent NAR survey, 74% of prospects do business with the first agent who contacts them. So it’s a clear advantage for you to be the first agent a prospect talks to…agreed?

Then second, it completely eliminates any Do-Not-Call list issues. When a prospect calls you, you can call them back as many times as you like within the next 90 days, regardless of whether they’re on the national Do-Not-Call list or not.

So you kill two birds with one stone. It’s a powerful one-two punch.

What’s the key to delivering that one-two punch?

ANSWER: By shifting all of your marketing to “Instant property information and property pictures” offer. (This is the psychological part.) Instant home information and pictures of property delivered to their cell phone. This is also stored on the cell phone, with your contact information.

  

Features of text messaging service for listings- BENEFITS TO THE REALTOR

Where else can you invest 10-15 hours and earn $4,000 to $6,000 or more?

A recent study showed the average listing took just over 10 hours of actual time spent with client from point of contact to closing-for buyers it was a little over 15 hours.

Work smarter not harder.

So many real estate agents market for sale by owners and spend THOUSANDS on print advertising. The industry is overwhelmed with competition duplicating efforts. Every minute you spend “prospecting” you could be making three to five times as much money with about 1/100th the stress! Prospecting is the biggest, most painful, least profitable, burn-yourself-out task each of you have done! That’s why there are so many real estate casualties. The turn-over rate for new agents in real estate is over 50% per year! Work smarter not harder. No more getting phone calls from your seller asking where their flyers went, who called on their house, and when you’re coming out to refill l the boxes! And the Realtor is “going green”! 

Stay ahead of your competitors. Chances are if you are reading this your competition is too. Get to the buyers first with instant text messaging. You will get a copy of the cell phone caller id and they will receive a description of the property, pictures and your contact information.

Sell More Homes Faster

Can you imagine how many buyers will want more property information and to see more pictures as they flip through a local real-estate magazine?

•1.  Sign up and register your property listings online.

•2.  Type in up to 160 characters description of your property.

•3.  Upload your pictures ( not all carriers will support pictures)

•4.  Add the Text code to your listing sign and on your print advertising too. Now you will receive email notifications of the caller id of each text sent to an interested homebuyer.

Now the buyer may access listings the same way they do on the broker’s website or MLS, but now the home buyer is mobile. Buyers can drive neighborhoods and shop for homes from their car or while they stand in front of any home for sale.

Don’t forget the value of using text messging service with your print advertisements too.

Buyers send a text message to text messaging service with a property code. Within seconds, the search results are sent to the consumer’s cell phone along with the property details including address, price, beds and baths.

Now you can…Convert More Leads with legitimate phone numbers!

 

 

How The Heck Do I Evaluate a Note?

Buying paper (or in this day and age defaulted paper) has its own sets of rules which is similar to but different when it comes to evaluating property.  Obviously, when you are looking at buying a property as an investment you have to know and evaluate what the property is worth and how that compares to what you can buy it for and how that determines your exit strategy to get rid of it.  Your exit strategies as an investor can be a multitude of ways that will sometimes change depending on your market, purchase price, and financing.   You can either sell the property conventionally, sell it with owner financing, lease option it, rent it, or wholesale it out to another investor.  I preach over and over to my investment students and clients that they need to have their exit strategies in mind before they ever make an offer on a piece of real estate and the same goes for purchasing defaulted paper.

The #1  cardinal rule for buying paper is that you never want to buy a note on a property that you don’t ever want to end up owning!  When you buy the note, your not technically buying the property, your buying the debt and controlling the property and any equity by holding the mortgage.  You only want to buy first liens on real estate as this gives you the key to the city when it comes to foreclosing, short sales, or taking the property back.  You should always determine the value of the property and how that compares to the face value of the note (or what is currently owed on the note).   How do you determine value?  Get your realtor to pull recent comparables on the property.  Don’t rely on Zillow, tax values, or the homeowner’s opinion of the property.  Often times the bank or lender will give you a BPO (Broker Price Opinion) of what they determine value of the property to be.  This is often way off as well.  There is nothing better for value than getting comps because not only will they give you a market value of the property, but it will also show you days on market, what’s moving, and if your paying to much or getting a bargain. 

The second rule is to look at the note itself.  Is it current? Is it in default? If it is in default, how many months is the homeowner behind?  What’s the interest rate?  What’s owed?  These are all viable questions to consider.  If the note is current, you have to expect that the bank is looking to get top dollar (95% or greater of what ever the balance is) unless values in the market have fallen dramatically like they have in Michigan and Florida to name a few.  If the note is in default, the more months that the home owner is behind on, the less valuable that recievable or note becomes.  Let me give you an example.

If the homewner is consistently late but doesn’t fall over 30 days past due, this discounts the note down to 95-90%.  Once they become one to two months behind, this drops the value down to 75-80%.  Beyond three months and the value drops dramatically!  This is why banks WILL sell their defaulted notes.  They would rather get something now for their paper instead of foreclosing and having to try and sell the property to a new buyer.  Banks are in the business of lending and not owning real estate and each bad loan costs the bank 8-10 times that amount in new loans and lending capabilities.  Banks hate owning properties with a passion and that is why they would rather sell a note off at a discount, write off the loss now, instead of having it drag on an unknown amount of months by foreclosing, fixing up the property if needed, listing the property, and waiting for a buyer. 

Once you’ve determined the value of the note based on its default status (don’t get me wrong in that can sometimes be a guessing game and there is no hard or fast rule), you will want to look at the interest rate of the note.  This kind of plays into your note exit strategy (which is a bit different than just buying the property) and if you are planning on foreclosing or trying to work out an agreement with the home owner by offering to modify the loan.  If you do plan on keeping the home owner in the property and reducing their payment, interest rate, and/or principle (and I caution you against doing this!) you will want to determine what your yield will be.  Sounds like its time for another example.

Let’s say that a homeowner owes $100,000 and has a 30 year loan at 8% interest.  The monthly principle and interest payment is $733.76 a month.  For argument sake, the homeowner can’t continue to make these payments (maybe they’ve lost a job, got sick or were just irresponsible) so they stop and the note goes into default.  Several months goes by and the bank agrees to sell you the investor the note at $50,000.  This doesn’t mean that the homeowner doesn’t still owe $100,000 (plus late fees, back payments, attorney fees, etc), it just means you bought the debt at 50%.  In this example, let’s say you’ve contacted the homeowner and found that while they couldn’t afford the $733 a month, they can now comfortably afford $500 a month.  So you adjust the loan payment to $500, effectively reducing their rate on what they owe to 4.39%!  What homeowner wouldn’t be happy with this!  While this sounds great for the homeowner, it gets even better for you, the investor.  Now while you bought debt at half off, you are now recieving payments of $500 a month on a note that you only paid $50,000 for.  If you calculate this for yield to you, this equals a 11.63% rate of return on what you paid for the note!  Now if the homeowner continues to pay on the note and then refinances you out in 24 months, your yield grows to an amazing 44% over that two year span and would be over 88% if the homeowner could qualify for a refinance in 12 months!  Do your eyes light up like mine do!  (If you are looking to learn more about how the heck I calculated these figures, email me and I will send you a financial calculator manual)

Now that strategy only works if you keep them in the property.  Unfortunately, most people just refuse or can’t make a decent payment and have given up and are ready to walk away.   This is where knowing your area, or rule #3 comes into play.  As most realtors will say about a piece of property, it’s all about location, location, location!  What you offer up for a note also has to do with location, location, location!  If the property is in a strong market like Texas, you have to expect to pay a higher price like 60-70% of the note or value of the property (whichever is less) because the bank realizes that’s what the market will yield.  If you are in a market like Detroit, the banks are happy at getting pennies on the dollar for the notes.  If the property is located in a bad side of town, expect to pay less than if it is in a hot selling area.  These items are why it’s so important to have a quality realtor on your team pulling comps and giving you a run down on your market.  If you don’t, you run the risk of buying yourself a bad note and a bad investment.

While I mentioned that you should only be buying first liens, it is important to know what kind of junior liens are also on the property.  If there is a second lien in place, you probably won’t want to take the property back from the homeowner with a deed in lieu as this doesn’t wipe out those junior liens.  You would either want to foreclose or suggest the homeowner sell the property on a short sale.  Second lien holders are often happy getting 10% or less of their loan amount in a short sale as they realize it is up to the senior lien holder (hopefully that’s you) to determine what the second will get.  If you do buy a first lien with junior liens, and you have a ready and willing buyer lined up to accept your short sale offer, give the second lien holder a competitive offer to speed the closing process of the short sale up faster.  In real estate, the longer you own the property or have your money out, the less yield you can expect.  The idea is to get in and get out.  Hogs get slaughtered and pigs stay lean so don’t be to greedy. The last thing you want is your buyer walking out on your short sale offer and have to spend more time marketing the property for sale. 

If you are unable to short sale the property as the lien holder and have to foreclose or deed in lieu, make sure you have one or multiple exit strategies (like we discussed earlier) ready to roll.  I often recommend fire selling the property to another investor for cash and moving on to the next deal.  If you are trying to sell a $100,000 property to an end buyer at $90,000 and it takes you six months to do this, when you could have wholesaled it at $75,000 in 30 days, and then done three other deals in the time it took you to do one deal, what makes more sense!  $25,000 in 30 days on your $50,000 investment yields you a 6,000% annual rate of return when holding out for more money only makes you 160% annual return.  Numbers don’t lie!

So in retrospect, I hope that this is clearer than mud in how you should evaluate buying a note on a piece of property.  What you can do with it or what you should offer for it is truly fuzzy math until you have an acceptable offer that the bank is willing to work with.  Remember the first rule, though!  Never buy a note on a property you don’t want to end up owning because that property just might end up owning you!  Happy Hunting!

 

ACTUAL VERBIAGE FOR The Mortgage Forgiveness Debt Relief Act and Debt Cancellation GOOD 2007-2012

http://www.irs.gov/individuals/article/0,,id=179414,00.html

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17. The following are the most commonly asked questions and answers about The Mortgage Forgiveness Debt Relief Act and debt cancellation: What is Cancellation of Debt? If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt. Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you. Is Cancellation of Debt income always taxable? Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve: Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners. Bankruptcy: Debts discharged through bankruptcy are not considered taxable income. Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income. Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences. These exceptions are discussed in detail in Publication 4681. What is the Mortgage Forgiveness Debt Relief Act of 2007? The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence. What does exclusion of income mean? Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts? No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing separately. Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home? Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681. How long is this special relief in effect? It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012. Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income? The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681. If the forgiven debt is excluded from income, do I have to report it on my tax return? Yes. The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return. Do I have to complete the entire Form 982? No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return. Where can I get this form? If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery. How do I know or find out how much debt was forgiven? Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.  Can I exclude debt forgiven on my second home, credit card or car loans? Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details. If part of the forgiven debt doesn’t qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision? Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent.  You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples. I lost money on the foreclosure of my home. Can I claim a loss on my tax return? No.  Losses from the sale or foreclosure of personal property are not deductible.  If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt? Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case.  An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster area.  See Form 982 for details. If the remaining balance owed on my mortgage loan that I was personally liable for was canceled after my foreclosure, may I still exclude the canceled debt from income under the qualified principal residence exclusion, even though I no longer own my residence?  Yes, as long as the canceled debt was qualified principal residence indebtedness. See Example 2 on page 13 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Will I receive notification of cancellation of debt from my lender? Yes. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more. The amount cancelled will be in box 2 of the form. What if I disagree with the amount in box 2? Contact your lender to work out any discrepancies and have the lender issue a corrected Form 1099-C. How do I report the forgiveness of debt that is excluded from gross income? (1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line 2.  Any remaining canceled debt must be included as income on your tax return. (2) File Form 982 with your tax return. My student loan was cancelled; will this result in taxable income? In some cases, yes. Your student loan cancellation will not result in taxable income if you agreed to a loan provision requiring you to work in a certain profession for a specified period of time, and you fulfilled this obligation. Are there other conditions I should know about to exclude the cancellation of student debt? Yes, your student loan must have been made by: (a) the federal government, or a state or local government or subdivision; (b) a tax-exempt public benefit corporation which has control of a state, county or municipal hospital where the employees are considered public employees; or (c) a school which has a program to encourage students to work in underserved occupations or areas, and has an agreement with one of the above to fund the program, under the direction of a governmental unit or a charitable or educational organization. Can I exclude cancellation of credit card debt? In some cases, yes. Nonbusiness credit card debt cancellation can be excluded from income if the cancellation occurred in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See the examples in Publication 4681. How do I know if I was insolvent? You are insolvent when your total debts exceed the total fair market value of all of your assets.  Assets include everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other investments, or your pension and other retirement accounts. How should I report the information and items needed to prove insolvency? Use Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to exclude canceled debt from income to the extent you were insolvent immediately before the cancellation.  You were insolvent to the extent that your liabilities exceeded the fair market value of your assets immediately before the cancellation. To claim this exclusion, you must attach Form 982 to your federal income tax return.  Check box 1b on Form 982, and, on line 2, include the smaller of the amount of the debt canceled or the amount by which you were insolvent immediately prior to the cancellation.  You must also reduce your tax attributes in Part II of Form 982. My car was repossessed and I received a 1099-C; can I exclude this amount on my tax return? Only if the cancellation happened in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See Publication 4681 for examples. Are there any publications I can read for more information? Yes. (1) Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) is new and addresses in a single document the tax consequences of cancellation of debt issues. (2) See the IRS news release IR-2008-17 with additional questions and answers on IRS.gov.

Page Last Reviewed or Updated: May 19, 2009

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Buying the Note/Short Paper from a WELL KNOWN banking institution

From our database of secondary market contacts, we were able to communicate with the Defaulted Note Manager.  We inquired about what protocol works best with their lending guidelines.  The result was that they prefer “one-offs”, which means purchasing ONLY individual notes, not pools.  Outlined procedures included submitting a spreadsheet (or tape as they say it) with loan number, property address, borrower name, and offer price for their review.  Something else that they require before discussing each specific case is a nondisclosure/noncompete.  All of the above is quite status quo.  Once they accept the offer, they will send us a contract for the note purchase, along with an updated title policy, electronic and hard copy of the actual note, payment history, notes about the file, etc.  At that point, we review what they have submitted to our team, Open to Close, we sign off and schedule a wire transfer of funds.  According to this institution, this whole process takes up 3 weeks.  This bank notifies the homeowner in writing that the note has been sold and that future payments are to be made to the new note holder.  The banking institution handles the recording details and the specific assignment of collateral.  And, we are now the “bank”!