The Dark Side of Bank of America’s Mortgage-Principal Forgiveness Program
March 25, 2010 by Heather Culp
Filed under Bankruptcy, Debt Settlement, Featured Articles, Recent News
What a great news day for Bank of America when it announced it would offer mortgage-principal forgiveness worth about $3 billion to 45,000 borrowers. The jury is (literally) out on whether it will be an equally good day for homeowners who can’t pay their debts.
Why it’s too soon for troubled homeowners to rejoice
When people can’t make their mortgage PAYMENT a reduction in principal doesn’t do them any good. I see nothing in this program about reduction in monthly payments.
Bank of America has a poor track record following through with promises. Last month the bank was sued in federal court by 10 troubled borrowers who were offered a loan modification and promised written agreements would arrive by mail “within weeks,” according to court documents filed by lawyers from the Legal Aid Society of Southwest Ohio. According to the Charlotte Business Journal, ”No one has received the documents or had their mortgage payments reduced, the filing says. They have called to follow up and received no help. One woman has received notice the bank has begun foreclosure proceedings on her home.”
Perhaps most important for homeowners considering ANY negotiation with creditors is the matter of taxes. My law partner, Rick Mitchell, and I have written about debt forgiveness income extensively. Here it is in the simplest of terms.
Whether debt forgiveness income is triggered is a legal and accounting question that depends completely on the facts of the case.
Even if there is no debt forgiveness income resulting from a mortgage modification, and thus no tax consequence, 95%+ of our clients who cannot pay their mortgage as it becomes due have substantial other debts that they also cannot pay as they become due. This may be tens of thousands of dollars in credit card debt; medical debt; tax debt; business debt; or other debt.
If mortgage modification will still leave you with debts that you are unable to pay, then mortgage modification is not the answer to all of your problems.
If you cannot pay your mortgage, you probably can’t fully pay your other debts. Bankruptcy may or may not be the best solution. Only a consultation with a qualified advisor will answer that question.
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