Ido Stern Law Blog

Much of the public is under a misconception regarding the foreclosure process. They think that if they can no longer afford to make their mortgage payments, they can simply return the keys to the bank and shake hands. If only things were that simple. In almost every final judgment of foreclosure the judge gives the bank, as necessary, an entry of a deficiency judgment against the borrower. (Please See Fla. Stat. ch. 702.06) A deficiency judgment is a judgment lien borrower whose sale did not produce sufficient funds to pay the mortgage in full.

When a property is sold at the public foreclosure sale performed by the county, few people bid for the property because the winning bidder must pay the winning bid price in full by the end of the day. Therefore, very few properties are actually purchased at the public foreclosure sale and the lender almost always ends up with a deficiency judgment against the borrower. This can create a serious problem because as the borrower begins to rebuild his life, the bank can execute its judgment and perfect its lien in collecting the deficiency. The borrower must be proactive and protect himself and his future from this type of judgment.

Another potential pitfall for borrowers that have been involved in a foreclosure proceeding is the potential income tax burden on the discharge of the debt. When a borrower does not repay the loan to the lender, the lender is required to issue the borrower a Form 1099-C, Cancellation of Debt. This can be a nightmare for any borrower. However, recently the Federal Government has intervened and legislated The Mortgage Forgiveness Debt Relief Act of 2007. This act allows individuals to exclude from gross income any discharges of qualified principal residence indebtedness. This is great news for people involved in a foreclosure between 2006 and 2010 but most people do not know that the IRS requires Form 982 to be completed.

The two issues mentioned above are very serious and must be addressed by anyone involved in foreclosure proceedings. Even though the borrower does not intend to defend against the foreclosure claim, the borrower must be proactive and protect himself from these potential financial dangers.

--Ido Stern, JD

Labels: Foreclosure

One of the most powerful tools used by estate planning practitioners to combat the estate tax is the split-interest trust. These trusts make distributions to both charitable and non-charitable beneficiaries, while providing tax benefits to their donor. The split-interest trust comes in various forms:

1. The charitable remainder annuity trust
   
2. The charitable remainder unitrust,
   
3. The charitable lead trust, and
   
4. Pooled income funds.
   

The charitable remainder annuity trust distributes income to one or more non-charitable beneficiaries for a defined period of time, after which the remaining value of the trust is transferred to a charitable beneficiary.

The charitable remainder unitrust distributes a percentage of the fair market value to one or more non-charitable beneficiaries for a period of time after which the remaining value is transferred to a charitable beneficiary.

The charitable lead trust distributes a sequence of payments to a charitable beneficiary for a period of time, after which the remaining trust assets are transferred to a non-charitable beneficiary.

The pooled income funds are assets that are invested as a group and each donor receives income based on the ratio of his or her contribution to the total value of the investment pool. After the death of the donor, his or her prorated share of the investment pool is withdrawn and given to the charitable organization.

Each one of these split-interest trusts can be used to transfer wealth to the next generation, while at the same time creating a charitable deduction to the estate in the form of a charitable donation.

-- Ido Stern, JD

Labels: Estate Planning