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As of September 25, 2009, the Black & LoBello blog has moved to a new improved interactive site.  Please visit www.blacklobellolawblog.com to view our updated entries.

Tax Form 982

Homeowners whose mortgage debt is partly or entirely forgiven during the calendar years of 2007 through 2012 are able to claim tax relief by filling out the newly-revised Form 982, filing it with the Internal Revenue Service, and submitting it with their year-end federal tax returns. Normally, when a bank gives a homeowner debt forgiveness it results in taxable income. However, the Mortgage Forgiveness Debt Relief Act of 2007 allows taxpayers to exclude from their taxable income debt forgiven on their principal residence. A homeowner qualifies for this tax exclusion if the balance of their loan is $2 million or less, or $1 million for a married person filing a separate return.

The Tax Form 982 applies to debt reduced through mortgage restructuring, loan modifications, short sales, and foreclosures. Eligible homeowners need only fill out the Form 982 and receive a 1099-C from their lending institution. The debt forgiven by the lending institution must have originated to buy, build or improve the taxpayer’s principal residence and must have been secured by that residence. Debt associated with rental or investment properties, home equity lines of credit, business property, credit cards or car loans do not qualify for the new tax-relief provision.

A homeowner will encounter the Tax Form 982 upon the completion of a mortgage restructuring transaction. This would include but not limited to (1) a successful loan modification with principal reduction, (2) a completed short sale, and (3) a foreclosure sale with remaining deficiency.

If you would like additional information about the Tax Form 982 and its relation to your residential home visit the IRS’ website at www.irs.gov.

-James E. Herbe, Esq.

Legislative Update-New Business Laws in Nevada

Effective July 1, 2009

Registered Agent Resignation (Senate Bill 55)

Title 7 of the Nevada Revised Statutes (NRS) no longer requires a registered agent to provide the name and address of each entity noticed of a resignation. The Registered Agent will provide the Secretary of State with its RA resignation form, a written affidavit that includes the name of each entity from which it resigns but excludes the contact information of each entity.

Cancellation of Filing Prior to Process Completion (Senate Bill 55)

The Secretary of State may charge a cancellation fee of $50 on each unprcessed filing for which a customer wishes to cancel. 

Filing, Default and Revocation Notices (Senate Bill 55)

In an effort to further standardize notification processes, the Secretary of State will no longer provide a blank form with mailed notifications. Forms may be obtained by visiting their website at www.nvsos.gov. Electronic notification and delivery of lists due will still be available to those registered agents that have signed up to be commercial registered agents pursuant to NRS Chapter 77. 

Domestication of non-Nevada Entities (Senate Bill 55)

Non- Nevada entities desiring to domesticate under Nevada Law may do so using the provisions of NRS 92A.270. Previously these provisions only applied to non-U.S. entities, but may now be used for the domestication of non-Nevada entities both in and out of the United States. Forms will be updated and available at www.nvsos.gov.

Charging Order Changes (Senate Bill 55)

Changes were made to the charging order provisions regarding number of stockholder requirements and the rights of assignees and the preclusion of a judgment creditor from participating in the management of a corporation or becoming a director of a corporation. While this will have no effect on the Secretary of State’s filing processes, it does offer additional protection to the shareholders of a corporation.

 Effective October 1, 2009

Doing Business in Nevada without Proper Registration (Senate Bill 350)

Foreign and domestic business entities and those businesses purporting to do business in the state without filing organizational documents with the Secretary of State are subject to a fine of from $1,000 – $10,000. The Secretary of State now will contact the district attorney or the Attorney General to commence action to recover the fine.

“Restricted” designation for Limited Liability Companies and Limited Partnerships (Senate Bill 350)

Limited Liability Companies and Limited Partnerships may elect to be restricted. Designation requires certain conditions. Forms will be amended to include a place to designate the restriction and made available prior to October 1, 2009.

Payment & Issuance of State Business License Fee (Assembly Bill 146)

The State Business License applications, renewals and related fees will be collected and issued by the Secretary of State. Pursuant to AB 146 passed by the 2009 Nevada Legislature, the authority for the State Business License was transferred from the Department of Taxation to the Secretary of State. The due date of the application or renewal of the business license is based upon the due date of the initial or annual list, whichever is applicable, required to be filed with the Secretary of State. Business entities that are not required to file organizational documents or an initial or annual list of officers with the Secretary of State, such as sole proprietorships and general partnerships will also be required to file for the State Business License with the Secretary of State when they commence business in Nevada and renew every year by the end of the month in which the anniversary of their initial registration falls. The State Business License fee increased from $100 to $200 as of July 1, 2009, however, the Secretary of State collection is not effective until October 1, 2009. The Department of Taxation will handle any new license application or renewals of the State Business License through September 30, 2009

Distinct Nevada Laws Concerning Deeds of Trust & Foreclosure

Nevada requires that a deed of trust be used to secure a real estate loan.  Although commonly referred to as a mortgage, a deed of trust has significant differences from a mortgage.  In addition, states using deeds of trust differ among themselves in their requirements.

All mortgages are two-party instruments between the lender and the borrower.  Foreclosure of a mortgage requires the lender to file a complaint with the appropriate court and proceed through the judicial process. Anecdotal reports from mortgage states such as Ohio indicate that borrowers can delay these cases for years. The process is slow and expensive.

Deeds of trust are three-party instruments.  There is a beneficiary, who is the lender; a trustee who is a third party responsible for the foreclosure process including filing the Notice of Default and related documents; and the trustor who is the borrower.  A foreclosure of a deed of trust does not require that a court case be filed.  It is fast and inexpensive compared to a mortgage foreclosure.

In Nevada the foreclosure process begins with the filing of a notice of default by the trustee.  The borrower has 35 days from that date to bring the delinquent payments current together with the lender’s costs and fees.  Starting on the 36^th day, to prevent foreclosure the borrower must pay the entire principal balance owing together with interest and any additional amounts owing for fees and costs. 21 days prior to the trustee’s foreclosure sale the trustee must publish a notice of the sale once each week and also post the notice.   At the end of 111 days the property may be sold at the trustee’s sale.  The borrower has no right of redemption after the sale.

Nevada is a full recourse state until October 1, 2009.  This means that the foreclosing lender has six months to file a complaint against the borrower seeking the recovery of the deficiency after the sale.  After the six month period lapses the lender is barred from filing suit to recover the deficiency.  Full recourse means that the borrower is liable for the deficiency regardless of the purpose of the loan.  There is no exemption for loans used to purchase an owner occupied residence.

Effective October 1, 2009, Nevada becomes a limited recourse state similar to California.  Loans made after October 1, 2009; by a financial institution to a borrower who continuously occupies the property as a primary residence are nonrecourse.  This means that the lender may not pursue a foreclosed borrower to recover a deficiency.

Nevada recently joined the small number of states that entitle the borrower receiving a notice of default to request mandatory mediation with the lender.  This applies to all primary residences receiving a notice of default starting July 1, 2009.

-Robert B. Noggle, Esq.

Federal Programs for Homeowners

We have received a lot of questions regarding the federal plans to aid homeowners facing the threat of foreclosure.  The federal programs, called the Making Home Affordable Programs, are also nicknamed the “Obama Plans.”  There is a plan for Home Refinancing and another for Home Loan Modification.  Here are some facts to assist borrowers to make sense of the two programs. 

Home Affordable Refinance Program (“HARP”) 

• Fannie Mae and Freddie Mac loans only
• A borrower must be current in mortgage payments (not over 30 days delinquent)
• The amount owed on 1^st lien mortgage does not exceed 125% of current market value of the residential property
• The borrower must have a reasonable ability to pay the new mortgage payments; and
• The refinance improves the long-term affordability or stability of the home loan. 

FAQs: 

Q:  My house is worth less than I owe.  Do I qualify? 

A:  As long as the amount due on the first lien mortgage is less than 125% of the value of the property, borrowers may be eligible for HARP.  

Q:  What about my second mortgage?

A:  The second mortgage holder must agree to remain in a junior lien position, and the borrower must be able to pay the modified payments on the first mortgage.  

Q:  Will refinancing lower my payments? 

A:  Possibly.  The goal is to “improve the long-term affordability or stability of the loan.” 

• This may be accomplished by lowering an interest rate and reducing monthly payments.
• It may be accompanied by refinancing a borrower out of an Adjustable Rate Mortgage (“ARM”) or a balloon payment.  This may increase monthly payments in the short-term to avoid huge payments later.  This meets the goal of the program even though it would not result in a lower monthly payment at first. 

Q:  Will refinancing lower my principal amount?

A:  No.

Q:  Can I get cash out of the refinance to pay other debts?

A:  Not really.  The program allows a modest amount of cash up to $250 only. 

Home Affordable Modification Program (“HAMP”)

 This program is designed to encourage and motivate lenders to work with borrowers to modify their mortgage loans. 

Eligibility for HAMP: 

• A borrower must own a one to four unit home;
• Have an unpaid balance that is equal to or less than:
  • 1 unit:   $729,750
  • 2 units: $934,200
  • 3 units: $1,129,250
  • 4 units: $1,403,400
• The first lien mortgage must have originated on or before January 1, 2009;
• The monthly mortgage payment must be greater than 31% of the borrower’s monthly gross (pre-tax) income, (the monthly mortgage payment includes taxes, insurance and home owner’s association dues), and
• There must be a financial hardship that can be documented that makes the borrower unable to pay the mortgage.

 FAQs: 

Q:  Do I have to have missed a payment?

A:  No.  This program applies to borrowers who have missed a payment and those who have not, if the borrower is at risk of imminent default. 

Q:  What qualifies for a risk of imminent default?

A:  If a borrower faces a significant increase in the mortgage payment that they cannot afford, even with a steady income, they may be eligible. 

Q:  What qualifies as a hardship?

A:  Each case is different.  Circumstances of hardship may include a reduction of pay, loss of a job, having to care for a sick or injured relative, unexpected expenses like medical bills, inability to work for an extended period of time, and other “changed circumstances.” 

 Q:  Does this work on my investment properties that I rent out?

A:  No.  The program only covers the primary residence of the borrower. 

Q:  Is the government subsidizing my modification?

A:  Yes.  The Treasury Department is providing incentive payments to borrowers who make their monthly modified payments on time.  The incentive payments are applied directly to the loan balance.  These payments could lower the principal balance up to $5,000. 

Q:  The house across the street sold for 50% of mine.  Can I make a lender reduce my principal down to the current value of my house?

A:  No.  A lender may reduce principal but is not required to.  It is more likely that a lender will lower interest rates and extend the term of the loan. 

Other Programs

 Q:  Are there other programs?  How do I learn about them?

A:  Many lenders have their own programs for borrowers. You have to approach your bank to find specifics, and the programs are changed or modified often. 

Q: I don’t qualify for anything you’ve talked about.  Are there other things I can do?

A:  Yes. If you enter into a forbearance agreement with your lender, you will be allowed to skip payments for a certain amount of time but will have to pay extra later on to make up the missed payments.  A “short sale” is an agreement with your lender to sell the house for less than you owe on it.  And a deed-in-lieu of foreclosure is an agreement to basically give the house back to the lender.  Unfortunately, the latter two techniques will require a borrower to move out of the house to a more affordable residence.

- Carlos L. McDade, Esq.

Income Tax Considerations Involved in a Short Sale or Foreclosure

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 as income for tax purposes.  You should determine whether you will qualify for an exemption before your contemplated short sale or foreclosure closes.  You may become obligated to the IRS instead of your lender!

Consider this, when you initially borrow money you are not required to report the borrowed money as income because you had an obligation to repay the lender.  However, if all or a portion of that obligation is subsequently forgiven, the forgiven amount must generally be reported as income because you no longer have an obligation to repay the lender.  The lender will then, generally, be required to report the amount of the forgiven debt to the IRS (1099-C) and you, in turn, report the forgiven amount as income and pay the related tax.

However, and fortunately, income associated with the forgiveness of debt may be excluded as taxable income if it falls within an exemption created by the Mortgage Debt Relief Act of 2007.  The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see IRS 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.

The Act only applies to debt that was forgiven or cancelled in the calendar years of 2007 through 2012 and was used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes and 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 or respectively, filing separately.  See your tax professional with regard to further detail and reporting requirements.

-Tisha Black-Chernine, Esq.

New Nevada Laws Mandate Time for Recording a Deed After a Trustee’s Sale & Good Funds Law for Escrow

The Nevada legislature recently mandated that a trustee’s deed must be recorded within 30 days following the trustee’s foreclosure sale of a property.  In other words, the trustee may no longer allow the property to remain in the name of the foreclosed borrower indefinitely.  If the trustee is delivering the deed to the successful bidder, the deed must be delivered within 20 days from the date of the sale.  The successful bidder must then record within ten days from the date of the receipt of the deed.  

The new law means that real property transfer taxes will be paid in a timelier manner.  A successful bidder who fails to comply may be liable for actual damages, attorney’s fees and costs.  This law is effective July 1, 2009. 

Effective October 1, 2009, an escrow officer may not disburse funds the same day as a deposit unless the funds deposited are in one of the following forms: 

1. Cash
2. Electronic interbank transfer;
3. Any of the following IF they are drawn on a Nevada financial institution: cashier’s check, money order, certified check, cashier’s check; negotiable order of withdrawal (any one of which must be payable in Nevada);
4. Any depository check, including any cashier’s check or teller’s check,  that is governed by the federal Expedited Funds Availability Act;
5. Any other form that permits conversion of the deposit to cash on the same day it is made. 

Moral of the story:  plan ahead in order to comply with this requirement.

-Robert B. Noggle, Esq.

IRS Prosecutes First-Time Homebuyer Credit Cheats

The Internal Revenue Service announced on July 29, 2009, its first successful prosecution related to fraud involving the first-time homebuyer credit (FTHC).  On its website, the IRS warned taxpayers to beware of this type of scheme.

On Thursday, July 23, 2009, tax preparer James Otto Price III, from Jacksonville, Florida, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

The IRS is investigating dozens of cases of potential instances of fraud involving the credit.  How does it find these fraudulent returns?  The IRS has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.

“Taxpayers should be wary of anyone who promises to get them a big refund,” said Eileen Mayer, Chief, IRS Criminal Investigation.  Mayer publicly announced “We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction.”

Whether a taxpayer prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.

First-Time Homebuyer Credit

The IRS explains the proper use of the First-Time Homebuyer Credit on its website, www.irs.gov.  The FTHC was originally passed in 2008, and modified in 2009.  The law provides up to $8,000 for first-time homebuyers. The purchaser, however, must qualify as a first-time homebuyer, which for purposes of this credit means someone who has not owned a primary residence in the past three years. If the taxpayer is married, this requirement also applies to the taxpayer’s spouse. The home purchase must close before December 1, 2009, to qualify, and the credit may not be claimed on the purchaser’s tax return until after the taxpayer closes and has purchased the home.

Different rules apply for homes bought in 2008.

-Carlos L. McDade, Esq.

Woman Sued For $50,000 Over her Twittering

As new technologies are invented and used, the law must often play catch-up.  This is the case in Chicago, where a woman is being sued for complaining about her landlord to her Twitter audience.

Specifically, the Defendant Amanda wrote:

@JessB123 You should just come anyway.  Who said sleeping in a moldy apartment was bad for you?  Horizon realty thinks it’s okay.

Amanda may have thought she was just Tweeting to her 20 friends who were signed up with her.  However, her landlord Horizon Realty saw the complaint and filed one of their own in court, alleging she defamed them and asking for $50,000.00 in damages.

The Complaint states that “Twitter is a free social network on the internet at allows users to send and read messages; the messages are referred to as “Tweets.”  Tweets are posts of up to 140 characters and are displayed on the Tweet author’s profile page and delivered to the author’s followers.  A person with a Twitter account can make his or her profile page private or public.  If the account is public, anybody in the world can view the account holder’s Tweets.” 

Horizon Realty asserts that the “moldy” statement is false and defamatory and was published to the entire world, which fulfills the elements necessary to allege defamation.

The law is nowhere near settled on whether a Tweet constitutes a legal defamation.  A search revealed no legal precedent on the subject.  One sticky question is whether writing on Twitter constitutes “publishing.” Another question is whether a tweet is a form of private conversation between a select group, the equivalent of a spoken conversation that may be heard by third parties or a legal publication similar to taking out an advertisement in the newspaper or making a statement on TV.   Obviously, this case also raises the classic “truth is a defense” and “freedom of speech” defenses to lawsuits of this nature.  

Who knows how these legal battles will turn out?  There are no answers yet, but this case may be the first step in populating the “Twitter” portion of the case books.

If you want to comment on this article, you are now aware that you do so at your own risk!  Commentators beware!

-Carlos L. McDade, Esq.

Change to Nevada Law Prohibits Deficency Judgements

Nevada currently provides for the right of a foreclosing lender on real estate to pursue a deficiency judgment against the borrower on any type of property including a primary residence. Nevada is known as a full recourse state.  The law provides for a six month period following the trustee’s sale in which the lender may file an action against the borrower to recover amounts owing. 

Nevada becomes a nonrecourse state for new loans made starting October 1, 2009, for the purchase of residential property that is owner occupied.  Thus the lender may no longer pursue a deficiency judgment against the borrower on such property.  Although some may consider this the equivalent of sending life boats and vests to the Titanic days after the sinking, it is a significant development in Nevada real estate law. 

For the new law to apply the following requirements must be met: 

1. The  property is a single-family residence;
2. The loan was used to buy the property;
3. The borrower continuously occupied the property as a principal residence after the loan was made;
4. The original loan was not refinanced;
5. The loan was made by a financial institution.