Foreclosure

By Steven A Leahy

When a person borrows money to buy a home, the loan is memorialized with 2 documents, a promissory note and a mortgage. The promissory note is a written promise to repay the money borrowed to purchase the home. The promissory note spells out the amount of the loan, the interest rate charged, the term of the loan (number of years), and how to define a default.

The mortgage is the document that provides security for the loan detailed in the promissory note. The mortgage details the property used as collateral for the promise to pay including, the property address, property identification number and legal description. The mortgage is recorded in the county where the property is located. If the borrower defaults on the promise to pay, the property detailed in the mortgage may be sold to cover the debt in a process known as foreclosure.

Foreclosure is the process necessary for a mortgage lender (i.e. mortgagee) to take possession of a property because the borrower (i.e. mortgagor, homeowner) defaults on a contractual obligation to the mortgage lender, usually a default in payments. Mortgage foreclosures are governed by State law. Generally, there are two kinds of mortgage foreclosures – judicial and non judicial. Twenty-two states use primarily judicial foreclosures – Twenty-eight, non-judicial foreclosures. Several states actually provide both ways to foreclose on a mortgage loan.

In non-judicial states, the mortgage company does not file an action in court. Rather, the mortgage company simply sends a notice to the homeowner and, in most non-judicial states, records a Notice of Default with the county. Once a prescribed time elapses without cure, a Notice of Sale is mailed to the homeowner and the date and time of such sale is published in local newspapers and recorded with the County. The homeowner may object to the foreclosure with appropriate court action. Without an objection, the property is sold to the highest bidder at a public auction.

For a judicial foreclosure, the mortgage company must file a mortgage foreclosure complaint with the court in the county where the property is located, and go through litigation in order to receive permission from the court to conduct a public sale. State law governs the foreclosure process and procedures.

State law also governs whether a mortgage loan is a recourse or non-recourse loan. If the public sale of the property does not generate enough money to pay off the borrower’s obligation to the mortgage company, the remaining balance is defined as a deficiency. If the sale generates more than the borrower’s obligation, a surplus is created and the surplus is paid to the borrower. Recourse loans allow the mortgage company to hold the homeowner (borrower) personally liable should the sale result in a deficiency. Non-recourse loans do not allow the mortgage companies to hold the homeowner (borrower) responsible. The debt is forgiven, and the homeowner is protected.

Often non-judicial foreclosures are also non-recourse. Non-judicial foreclosures usually occur fairly quickly and judicial foreclosures can take many months. It appears that in return for a quick foreclosure process, states protect the homeowner from a deficiency. Conversely, judicial foreclosures may take many months, but homeowners may be held liable for a deficiency.

Illinois allows only judicial foreclosures and allows recourse against the borrower. In Illinois, a mortgage lender must file a law suit against the homeowner (borrower), and complete the litigation process as laid out in the Illinois Mortgage Foreclosure Law (IMFL) 735 ILCS 5/15-1101 et seq. (2013).

If you are facing foreclosure, there are options. Which option is right for you depends on your specific circumstances. Never hire a firm to help you with a foreclosure unless the firm can help with all your options, foreclosure defense, deed-in-lieu of foreclosure, short-sales, deficiency protection and bankruptcy. Before you do anything, you should give me a call. We can discuss your all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

IRS – Bankruptcy Chapter 13

By Steven A. Leahy

There are six things you can do if you owe the IRS money. First, you can simply write the IRS a check for the full amount. For many, that is simply not a realistic option. Often, if the tax obligation is not too significant, borrowing money from another source (friends, family, bank loan, credit cards, etc.) may be a less costly alternative than an installment agreement with the IRS. Second, you can enter into an Installment Agreement; pay the IRS over time. Third, you can obtain an Offer-in-Compromise: A lump sum settlement for less than the tax owed. Fourth, you can be declared Currently Not Collectible; pay the IRS nothing (for a period of time). Fifth, you can file for protection under the bankruptcy code. And the last option – you can do nothing, and let the IRS do what they will to you, your family and your assets.

This article addresses the fifth option – Bankruptcy. The Bankruptcy Code is found in United States Code: Title 11. Think of the Bankruptcy Code as a book, and like other books, it is divided into chapters. That’s why you hear so much about Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13, or Chapter 15. Each chapter has a different remedy for a different situation. Chapter 7 is titled “Liquidation,” Chapter 9 “Adjustment of Debts of a Municipality,” Chapter 11 “Reorganization,” Chapter 12 “Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income,” Chapter 13 “Adjustment of Debts of an Individual with Regular Income,” and Chapter 15 “Ancillary and Other Cross-Border Cases.” Generally, individual taxpayers rely on Chapter 7, Chapter 11 or Chapter 13.

This article will focus on the second kind of bankruptcy available for individual taxpayers, IRS Bankruptcy Chapter 13 “Adjustment of Debts of an Individual with Regular Income.” People who file bankruptcy are referred to as “Debtors.”

Chapter 7 is not available to some Debtors. If a Debtors’ monthly gross income is greater than the average income of the average family of the same size, it is presumed abusive to allow a Chapter 7 discharge to Debtors. Many over the mean debtors can overcome the presumption of abuse. But others cannot, making Chapter 7 discharge of their debts unavailable. Chapter 13 and Chapter 11 are available to over the mean Debtors.

Under Chapter 13 the debtor proposes a plan to repay creditors over a period of time – up to 60 months. Generally, Chapter 13 is used by people who are behind in some payments and are trying to protect their assets – a home, a car, etc. Chapter 13 allows debtors to repay arrears over a period of time.

For example, a family may find themselves several months behind on their mortgage payments, due to a temporary job lay-off. Once the lay-off is over, the debtor can return to paying their regular monthly mortgage payments. But, because they are behind in payments, the mortgage company will not accept regular monthly payments unless the family can bring their mortgage account current. Chapter 13 will allow that family to pay the arrears over 60 months and require the mortgage company to accept the regular monthly payments while they are in Chapter 13. In this way the family can avoid foreclosure of their home.

But Chapter 13 can also be used to stop IRS collection actions against a taxpayer – even if the underlying tax is not dischargeable. If the IRS has placed a wage garnishment against a taxpayer – and missing a pay check will have dire consequences (e.g. eviction) – the best option may include filing Chapter 13 to stop the wage garnishment. Under Chapter 13 the taxpayer can set up a payment plan for the portion of the IRS debt that is not dischargeable and discharging some, or all, of the dischargeable tax debt.

Tax issues in bankruptcy are complicated. This is just a general overview. If you owe the IRS and are unable to pay the full tax obligation immediately, bankruptcy may be your best option. Never hire a firm to help you with your IRS problem unless the firm is experienced in helping taxpayers use the bankruptcy code to protect them from the IRS. Before you do anything, you should give me a call. We can discuss your all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

IRS Offer In Compromise

By Steven A. Leahy

There are six things you can do if you owe the IRS money. First, you can simply write the IRS a check for the full amount. For many, that is simply not a realistic option. Often, if the tax obligation is not too significant, borrowing money from another source (friends, family, bank loan, credit cards, etc.) may be a less costly alternative than an installment agreement with the IRS. Second, you can enter into an Installment Agreement; pay the IRS over time. Third, you can obtain an Offer-in-Compromise: A lump sum settlement for less than the tax owed. Fourth, you can be declared Currently Not Collectible; pay the IRS nothing (for a period of time). Fifth, you can file for protection under the bankruptcy code; Chapter 7, Chapter 13 or Chapter 11. And the last option – you can do nothing, and let the IRS do what they will to you, your family and your assets.

This article addresses the third option – IRS Offer in Compromise (OIC). An OIC permits a taxpayer to settle their tax debt for less than the full amount owed. The good news is, in May 2012 the IRS revamped the process with its “Fresh Start” initiative, making it easier for taxpayers to take advantage of an OIC.

The first requirement for an IRS Offer In Compromise, as in all IRS payment programs, is compliance. The taxpayer must have filed all tax returns, made all required estimated tax payments for the current year and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees. The taxpayer must remain in compliance during consideration and, should the OIC be accepted, after approval.

There are three grounds the IRS may use to accept an OIC: Doubt to liability (a genuine dispute as to the existence or amount of the correct tax debt under the law), Doubt to collection (taxpayer’s assets and income are less than the full amount of the tax liability), and effective tax administration (payment of the IRS liability would create an economic hardship or would be unfair and inequitable because of exceptional circumstances). Most OICs are granted as to doubt to collection. An OIC can be paid in two different ways – Lump Sum (paid in 5 or fewer installments) or a Periodic Payment offer (paid in 6 to 24 installments).

A successful OIC must offer an amount equal to, or greater than, what the IRS determines is a reasonable collection potential. The reasonable collection potential is the amount the IRS determines the taxpayer has the ability to pay. The IRS will evaluate the taxpayer’s ability to pay, income, expenses, and equity in assets to make that determination. How that information is presented may be the deciding factor.

Before the Fresh Start Initiative, the IRS calculated the reasonable collection potential by looking at the taxpayer’s disposable income – actual income less “allowable expenses” (not the taxpayer’s actual expenses) multiplied by 60 (number of months for 5 years), plus “net realizable equity” of the taxpayer’s assets. For example, a taxpayer with a monthly income of $5000.00 and allowable expenses of $3000.00, with zero assets, may get an OIC approved for $120,000.00 (60 x $2000.00) – no matter what they owed the IRS. Not really an attractive option.

Under the Fresh Start Initiative, the IRS has allowed more flexibility in “allowable expenses” and the multiple has been reduced from 60 to 12 (if the OIC will be paid in a Lump Sum) or 24 (if the OIC will be paid in a Periodic Period). Let’s assume the new flexibility reduces our example’s disposable income to $1000.00 – the new OIC that may be accepted would be $12,000.00 if paid in a Lump Sum or $24,000.00 if paid in a Periodic Plan. Quite a contrast from the pre-initiative number of $120,000.00!

So, if you owe the IRS and are unable to pay the full tax obligation immediately, you may be eligible to pay the IRS less, much less, than you owe. Before you do anything, you should give me a call. We can discuss your all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.