What Happens To My Credit Scores If My Loan Payments Are Late?

Ever wonder just how much of a hit your credit score would take if you went into foreclosure, did a short-sale, etc.? Fair Isaac, the developer of the software which calculates credit scores, has always been very secretive about its scoring matrix. But today they released a chart to try and explain how mortgage delinquencies effect credit scores.

Fair Isaac created two hypothetical borrowers. The first had a starting credit score of 680, the second had a score of 780 (scores range from 300 to 850).

Borrower number 1, the one with the 680 score, had 6 credit accounts, while borrow number 2 had 10. The consumer with the 780 score had no missed payments other than the mortgage; the 680 example had two late payments before they failed to pay the mortgage.

After a mortgage delinquency, the two scores would look like this:

• After 30-day delinquency, 680 score drops to 620 to 640; 780 score declines to 670 to 690.

• After 90-day delinquency, 680 score falls to 595 to 610; 780 score goes to 645 to 665.

• After foreclosure, short sale, or deed-in-lieu, 680 goes to 575 to 595 and 780 drops to 620 to 640.

• After bankruptcy, 680 drops to 530 to 550; 780 declines to 540 to 560.

Vets Get One Year Tax Credit Extension

As part of the Economic Stimulus Package, the federal government is encouraging renters to become homeowners by offering a tax credit. This credit requires that the buyer enter into a contract by April 30, 2010, and close the escrow by June 30, 2010.

However, members of the Military, the Foreign Service, and employees of the intelligence community have an extra year, through to buy a principal residence in the U.S. and claim the federal tax credit.

Here is what the IRS states on their website:

Members of the military and certain other federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the credit. Thus, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2011. If a binding contract is entered into by that date, the taxpayer has until June 30, 2011, to close on the purchase. Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and, if married, the individual’s spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.

No More California State Tax On Forgiven Debt

From The California Association of Realtors

Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification. Enacted into law yesterday, Senate Bill 401 generally aligns California's tax treatment of mortgage debt relief income with federal law. For debt forgiven on a loan secured by a "qualified principal residence," borrowers will now be exempt from both federal and state income tax consequences. The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.

"Qualified principal residence" indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence. It includes both first and second trust deeds. It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.

The tax breaks apply to debts discharged from 2009 through 2012. Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment.

Taxpayers who do not qualify for the above exemptions (e.g., second home or rental property) may nevertheless be exempt under other provisions. Most notably, taxpayers who are bankrupt are exempt from debt relief income tax. Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent their current liabilities exceed current assets.

For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board's Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service's Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage. The full text of Senate Bill 401 is available at www.leginfo.ca.gov.

Beware of Phoney Landlords

You're surfing Craigslist or the local paper looking for a rental. You come across a great place - nice location, spacious, and cheap rent.

Remember the old adage: "If it sounds too good, it probably is".

One result of the rise in foreclosures is that there has been an increase in the number of vacant homes. Owned by banks, many are ignored for months while the bank grinds through the processing of these properties. Meanwhile, scam artists have swooped in to take advantage of the vacancies.

Posing as the owner, they advertise the homes for rent, sign leases with prospective tenants, take the deposit, and disappear before the real owner shows up.

"With a lot of foreclosures, the property sits empty for a long period of time," said Assemblywoman Fiona Ma, D-San Francisco. "What we're finding is that scam artists will come in, change the locks and advertise on Craigslist at a very enticing price. They tell people, if you want to get this deal you need to come back soon with cash for the deposit. People give them the money, sign a lease, get keys and a couple of days later the legitimate owner (an agent for the bank) comes and says, 'What are you doing here?' Then they're out whatever cash they've laid out."

Currently, impersonating a landlord is a misdemeanor in California. But Ma is co-sponsoring a bill that would make this felony grand theft in her state. "We want to change it to a felony for a first offense, punishable by a maximum of one year in state prison or a $10,000 fine," she said. "Buyer beware: If it seems too good to be true, maybe it's not true. If you've been scammed, you should report it to the police."

The number of landlord impersonations have risen significantly over the past year, but true numbers are hard to estimate since many victims do not report the crime. Even when reported, most victims don't get restitution. They've handed over cash to "rent" the place, so tracing the "landlord" becomes difficult.

If you are a victim of this crime, report it. But the best way to not get duped is to be careful before you turn over your money. If possible, check county records to see who is the legal owner of the property. Many counties have this information on line.

And remember, if it sounds too good, it probably is.