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CA 95350 Via Certified Mail Re: Discussion on disposition of 933 Carolyn property
Dear Greg, I recently received notice from Melissa Chiangi, the PMZ real estate agent who listed the 933 Carolyn property, that she had received an offer of $400,000.00 for the Carolyn property. Shortly thereafter my attorney Yasmine Mehmet received a letter indicating the same from Mr. Goss accompanied by the written offer from Michael D. and Cindy B. Brunn. There are a number of factors to consider regarding the current status of the mortgage on the house, qualification status for short sale, possible tax liability ramifications and the current upward trend in Modesto property values. I am in favor of a resolution that represents the greatest risk mitigation to the community in regard to decreasing debt, avoiding unnecessary tax liability and maintaining asset value. In short, we must perform our fiduciary responsibility to the community. Our real estate agent, Melissa Chiangi, informs me in discussions regarding the most recent offer by the Brunns that opting for a short sale at the offered price may not represent the best financial decision for the community. Further, Ms Chiangi informs me that, in fact, a short sale has not been approved by either Ocwen Loan Servicing LLC, the current holders of the primary mortgage at approximately $490,000.00 nor by Bank of America who currently holds an approximately $190,000.00 second mortgage on the property. Apparently the Ocwen Loan Modification Packet that I forwarded to you in October of 2012 has not been completed and submitted to Ocwen Loan Servicing LLC in order to qualify for a short sale in addition to receiving consideration for a number of their other loan modification and assistance programs. In order to evaluate the current offer by the Brunns, I believe you and I need to determine with certainty the facts regarding a number interdependent issues to best determine whether we should short sell the house or work on a loan modification plan. Here are the primary issues I believe require definitive answers prior to making any decisions:
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significant tax liability to the community, to pursue the loan extinguishment. Since I have no ability to pay any tax on the loan extinguishment debt forgiveness, we are best served to work on the loan modification with Ocwen and restructure our debt with Ocwen. With the increasing property value trend in Modesto, we may realize a positive equity position on the 933 Carolyn property that would offset the tax liability of opting for the $190,000.00 loan extinguishment. That would leave us with just the $490,000.00 primary mortgage with Ocwen and the likelihood that the property is currently valued over $500,000.00 and trending upwards.
continuing upward trend of Modesto housing values. My advisers point out that we avoid the income tax on loan forgiveness for the primary Ocwen mortgage not covered by an artificially low offer ($400,000.00) and the equity in the house we realize from the loan restructure and loan extinguishment offsets the tax liability exposure on the Bank of America loan extinguishment. Short Sale & IRS Tax Lien on 933 Carolyn Given that there is no evidence that the Bowerman community qualifies for Tax Free Debt Forgiveness we must understand that the IRS Tax Lien should NOT be paid off through a short sale process. If an offer of $400,000.00 were accepted with the intent for the $160,000.00 IRS Tax Lien to paid from the $400,000.00 that would leave only $240,000.00 in purchase funds applied toward the $490,000.00 Ocwen primary mortgage. That would result in a difference of $250,000.00 considered as forgiven debt and that does not qualify for the tax free principle residence exemption. The community would therefore face income tax liability on $250,000.00. That means the Bowerman Community would be liable for approximately 33% income tax rate on paying $160,000.00 in income tax that would be phenomenally poor fiduciary management of the community. Taking advantage of the CEP Partnership 0% Hardship Loan Program or even an operating capital loan between 7% and 8% or even 12% to pay the taxes is much more prudent than paying the 33% income tax rate on paying the community income tax. There is no rational determination that includes paying the IRS Tax Lien off through a short sale when there is no qualification for tax free principle residence debt forgiveness. We would literally being throwing money way in the most ludicrous manner - paying 33% tax on the $160,000.00 that is paying an income tax debt. I suggest we schedule a meeting at the earliest possible time to go over whatever documentation you have that will help us determine the portion of the $490,000.00 Ocwen mortgage that may qualify for tax free debt forgiveness. I also urge you to complete and submit the Ocwen Loan Modification Application at the earliest possible moment so we can move forward rapidly with determining what options Ocwen can make available to us in regard to hardship, loan modification, short sale qualification and tax implications.
Best regards,
Karen L Bowerman
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