Are you one of the “lucky” ones?
Bank of America announced late Friday that it is in the process of mailing roughly 150,000 letters to distressed homeowners, offering to pay off their second mortgages as part of the national foreclosure settlement.
Before this announcement, they had been lacking in the assistance department and getting bad press because of it.
The Charlotte-based bank said it began mailing the letters back in July, and will continue to inform pre-qualified homeowners throughout the year.
The program is opt-out, meaning the borrower’s second mortgage will be fully paid off, or “extinguished,” unless the customer contacts the bank within 30 days of receiving the letter to decline the offer.
By paying off the second mortgages of struggling borrowers, Bank of America said its goal is to put homeowners in better equity positions in the hopes they’ll get back on their feet.
In other words, if they can remove the burden of a big second mortgage and push the borrower’s loan-to-value ratio below 100%, homeowners might change their tune and ride out the storm, especially with the prospect of rising home prices on the horizon.
Who Qualifies for Relief?
First and foremost, you must have a second mortgage. That’s a big no-brainer.
On top of that, the mortgage must be owned and serviced by Bank of America, though it technically doesn’t matter who owns the first mortgage.
Bank of America only seems to be offering this assistance to those behind on their mortgage payments, namely second mortgages.
However, there may be cases where borrowers are current on their second mortgages and delinquent on the first, probably because payments on the former are more manageable.
At the moment, only those who receive the letters are eligible, so calling the bank probably won’t get you very far.
But you can still contact the bank to see if you’re eligible for other relief, such as a loan modification via their proprietary program.
What Are the Implications?
Well, because the entire second mortgage is being paid and closed, it will no longer get in the way of any foreclosure proceedings.
So there is a dark side to this potentially, assuming the borrower is in the process of foreclosure and the second mortgage was complicating an otherwise streamlined process.
Bank of America explicitly mentions that the elimination of a second mortgage won’t necessarily stop foreclosure proceedings tied to the first mortgage.
At the same time, the lack of a second mortgage means it won’t stand in the way of a possible loan modification or a short sale, so it goes both ways.
Still, most second mortgages are going for pennies on the dollar in short sale transactions, and with that opt-out business, you have to wonder.
When it comes to credit scores, Bank of America will report the account as paid and closed, meaning it shouldn’t hurt (or necessarily help) the consumer in any way.
This also means Bank of America won’t come after the homeowner for a deficiency judgment, though the forgiveness of debt could trigger a tax liability if an exception isn’t granted.
Ally/GMAC, Chase, Citi, and Wells Fargo are the other lenders involved in the 49-state settlement announced back in February, which doesn’t include Oklahoma.
How do I know if I qualify?
Mitch, Give the bank a call if you haven’t received a letter and believe you might be eligible.
I received a letter from Bank of America forgiving my second mortgage of approximately $17,000.00. I have always made my payments on both my first and second mortgages. The payments on my second are $171.00/month.
In February 2013, it will be two years since my Chapter 7 bankruptcy was discharged. I’m finally getting back on my feet. I can afford the $171.00 a month to pay back the second mortgage. However, there is no way I can pay the taxes on $17,000.00. (Because I took out the second in hopes of getting myself out of debt, I do not qualify for any exception for paying income taxes on the forgiven mortgage.) Even payments over 12 (or 24 months, if the IRS might agree to it) are outside my ability at this point.
I’m finally at a place where I may be able to get heat back in my house after 2 winters with no heat – but there’s no way I’ll be able to afford it if I have to make payments to the IRS on the $17,000.00.
Should I opt out of B of A’s offer? Also, would owing the IRS the money (instead of B of A) impact my credit score?
Thank you very much for any help you can give me.
Ask BofA what their policy is when it comes to forgiving the debt to ensure it qualifies under the Mortgage Debt Relief Act of 2007.
And consult with a CPA to see what the implications are for your unique tax situation. Obviously if it costs you more in tax liability then it won’t be the best move, especially if you plan to stay in the house and can make the second mortgage payment. But you’ve got to do the math and get info straight from the bank.
Is Suntrust offering any similar remedies?
I received a letter from suntrust stating they were forgiving my second
My first is with them as well and after mediation l have been current for 4 years
I have not paid on the second since 2009. Is the for real? My home is still underwater. Is the letter real?
No idea, you’ll have to call Suntrust to verify.
Got refi forgivness from BOA then got a letter from some company that said they had $450000000 to help people like me with taxes. Can’t find letter and wondering if you had any idea who this company is. I will have to pay about $5000 in federal taxes.
I thought there was some mention of it on the U.S. Department of Justice website…maybe search that site for Bofa stuff. Sorry I can’t remember exactly.
I think I refused the BofA 2nd forgiveness letter back in 2012 while filing for chapter 7 Bk. We were going to walk away from the house because we financially strapped. Didn’t have the money to pay for the taxes anyway. Original Countrywide loans 10 years interest only on first and second mortgage. Bk discharged in 2012. We continued to pay the mortgage and got a call from quickin loan in 2013 and refinanced the first only. They would not touch the second. Our 2nd bumbs up from $360 to $840 a month in 09/2017. We owe $85,000 on the 2nd. No equity in the house. Can’t refinance or get a mod. Have money now to pay the taxes. Need help. Can’t get any help from BofA to locate letter. BofA is a collection service on my second. Make payments on time and get no credit through the 3 credit agency because the account is reported Bk. Any advice would help.