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MORTGAGE DEBT FORGIVENESS ACT

There is considerable confusion about the Mortgage Debt Forgiveness Act. I hear this from potential clients all the time, who hear it primarily from realtors who are doing short sales and telling them “don’t worry about the excess, the Mortgage Debt Forgicemenss Act means you don’t have any exposure”. NOT TRUE. The Mortgage Debt Forgiveness Act does not impact exposure for deficiency, and does not forgive any debt – its impact is only as to the tax consequences IF the creditor forgives any of the debt. Normally, to the extent this debt is forgiven, it is TAXABLE AS INCOME. The Mortgage Debt Forgiveness Act suspends the operation of the Tax Code provisions, as to qualified personal residences, but for a limited time due to sunset at the end of this year. Unless the deadline is extended, once it passes, any principal that is forgiven is again taxable as income, UNLESS the borrower is insolvent or the debt is discharged in bankruptcy or the loan is a non-recourse loan.

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

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FTC Shuts Down Forensic Audit Scam that claims: 95% of mortgages may be legally unenforceable.

Forensic Mortgage Loan Audit Scams: A New Twist on Foreclosure Rescue Fraud

At the request of the Federal Trade Commission, a U.S. district court has halted an operation that allegedly preyed on financially vulnerable homeowners, convincing them to pay $1,995 or more by holding out bogus promises that they could help them avoid foreclosure and renegotiate their mortgages.

The order issued by the court stops the allegedly illegal conduct, freezes the operation’s assets, and appoints a receiver to run the business while the FTC moves forward with the case.

According to the FTC complaint, the defendants behind the operation claimed on their website that…

“up to 95% of mortgages may be legally unenforceable due to defects like lost documents, improper notices, appraisal and/or predatory lending.”

Using this claim, several defendants, including Consumer Advocates Group Experts, LLC, virtually guaranteed that they could get mortgage modifications with reduced interest rates and lower monthly mortgage payments for consumers. The defendants offered to review consumers’ mortgage loan documents to determine whether their lenders complied with state and federal mortgage lending laws, and made allegedly false claims that the consumers could use the resulting “forensic audits” to avoid foreclosure and negotiate more favorable terms on their mortgages.

The complaint charges the defendants with violating the FTC Act and the Mortgage Assistance Relief Services Rule, known as the MARS Rule, by deceptively telling consumers that they could renegotiate mortgages, making payments substantially more affordable; that they could use the “forensic audits” to negotiate with lenders; and that if they failed to do these things, they would provide a refund.

The complaint also charges the defendants with other MARS Rule violations, including collecting fees for mortgage foreclosure rescue and loan modification services before homeowners accept a written offer from their lender or servicer, and failing to make required disclosures.

According to the FTC, the Los Angeles, California-based Consumer Advocates Group Experts, LLC, company owner Ryan Zimmerman, and several other companies he controlled charged from $1,995 to $2,590 for the “forensic audits,” assuring consumers in ads on their website www.consumer-advocates-group.com that, “After our examinations, lenders suddenly get religion and become much more cooperative in renegotiating.”

“An audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation.”

Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.”

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