Will judges soon have input in the solving of the economic crisis? Some hope so. As previously discussed in these pages, moves are under way to allow Bankruptcy Court judges to "cram-down" first mortgages.
Legislation to do just that has stalled in the House and the Senate for the past two years because of opposition by Republicans and the lending industry. Has the foreclosure landscape — by 2012, one in every nine homeowners will have lost homes to foreclosure, according to a Credit Suisse Securities analysis — changed sufficiently to break the back of this determined opposition?
Says Ellen Harnick, senior policy counsel at the Center for Responsible Lending,
"I am encouraged." "I think there is a strong sense across the board that this is needed, but industry opposition has really been the issue. It's surprising because the current situation might have made you think opposition either would have gone away quietly or failed to matter significantly."
But David Kittle, chairman of the board of the Mortgage Bankers Association, said
"cramdown" (reducing the creditor's secured claim to the current value of the property) makes no sense in any shape or form.
"We've defeated it twice," he said. "We acknowledge the environment and landscape have changed, but there is nothing good about filing for bankruptcy. Our Congress should not be in the business of encouraging people to go into bankruptcy."
There are arguments on both sides of the cram-down issue. To read the full article go here.
Vested Title Inc. 648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306 Tel 201-656-9220 - Fax 201-656-4506 E-mail vti@vested.com - www.vested.com
While the subject of tax-related reporting requirements is generally beyond the scope of title coverage, we have received several inquiries concerning Bulk Sales and the provisions of N.J.S.A. 54:50-38 as amended. Here’s summary of the topic that we hope you will find informative.
The bulk sale of certain assets is subject to taxation under the Sales and Use Tax Act, N.J.S.A. 54:32B-1 et seq. Accordingly, the statutory scheme imposed a notice requirement in connection with such sales. Practitioners who routinely handle the sale of businesses are familiar with the need for the preparation of a so-called “bulk sale notice.”
In 2007 the Legislature enacted P. L. 2007, c.100, §5, (eff. June 28, 2007 and operative Aug. 1, 2007). This section, which has been codified as N.J.S.A. 54:50-38, expands the bulk sale requirements as follows:
Whenever a person shall make a sale, transfer, or assignment in bulk of any part or the whole of the person’s business assets, otherwise than in the ordinary course of business, the purchaser ... shall, at least ten (10) days before taking possession of the subject of the sale ... notify the Director [of the Division of Taxation]. ... Within 10 days of receiving such notice, the Director shall notify the purchaser ... that a possible claim for State taxes exists ... . [Emphases added.]
The statute goes on to state that if the purchaser fails to give notice to the State, the amount of unpaid taxes becomes a lien on the proceeds of sale payable to the seller. Furthermore, the purchaser shall be personally liable for the payment of the taxes due to the State. See also N.J.S.A. 54:49-1 (entitled “Tax a debt and a lien...”).
Does the sale of real estate fall within the scope of the foregoing statute? This past summer the Treasury Department, Division of Taxation, published a Technical Bulletin regarding this subject. TB-60 (7-3-08). The bulletin notes that the term business assets includes realty, but only “if the primary use of the realty is to support a business on its premises”. [Emphases added.]
What does the last phrase mean? Some attorneys have advised that notice of the proposed sale of all non-single family real estate must be given to the Division of Taxation. That notice would be given via form C-9600, Notification of Sale, Transfer, or Assignment in Bulk that must be submitted 10 days “before taking possession of, or paying for, the property.” The form must be submitted by registered mail, but” certified mail or overnight delivery is also acceptable.” Responsibility for compliance lies with the purchaser (or his or her attorney). And in the event of non-compliance, a personal penalty is imposed on the purchaser (rather than a lien on the realty).
So just what transactions ARE covered by the new notice requirement? Is the conservative approach mentioned earlier warranted? In short, yes!
In response to an inquiry we made to the Division of Taxation as to the applicability of the notice provisions, by letter dated February 19, 2009 the Division responded,
"The general rule applied to real estate transfers should be: If the realty is not the primary residence of the seller, the transfer should be reported by the transferee or their representative to the Division of Taxation as per the TB-60. Since there may be some exception so this general rule, it is best to file form C-9600 and discuss the specific facts and circumstances with a representative of the Bulk Sale Section.”
The telephone number for the Bulk Sale Section is 609-292-6604. Keep it handy.
Realty Times contributor Kenneth R. Harney outlines the stimulus plan as it affects lenders and borrowers. The 3 key points
1. 3 to 4 million borrowers whose loans are owned by Fannie Mae or Freddie Mac will be eligible for rapid refinancings if equity is inadequate under normal guidelines. "Many of these owners will get new fixed, long-term rates in the low five percent range, improving their chances of staying out of default and foreclosure."
2. "An aggressive $75 billion outreach effort to keep millions of debt-laden, seriously delinquent owners out of foreclosure." Participating lenders and servicers will receive co-payments from the government that will reduce the monthly maximum housing expense from 38 % to 31 %.
3. Fannie Mae and Freddie Mac "will each receive $200 billion of additional injections of capital from the government, and the Treasury will continue to purchase their mortgage backed securities to keep interest rates low for all borrowers."
Says Harney,
It will be weeks and months before we begin to see just how effective the Obama housing relief effort is in stabilizing prices and preventing foreclosures.
Vested Title Inc. 648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306 Tel 201-656-9220 - Fax 201-656-4506 E-mail vti@vested.com - www.vested.com
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One of the proposals before Congress is to allow Bankruptcy Court judges to "cram down" first mortgages on residential real estate. Some believe this is good for the nation, others do not.
Today's Wall Street Journal features an op-ed by Todd J. Zywicki, "Don't Let Judges Tear Up Mortgage Contracts." Allowing a cram down "would be a profound mistake," he writes.
Mortgage modification provides a windfall for some homeowners but "the ripple effects could further roil America's consumer credit markets."
"In the first place, mortgage costs will rise."
"Allowing mortgage modification in bankruptcy also could unleash a torrent of bankruptcies." "A surge in new bankruptcy filings, brought about by a judge's power to modify mortgages, could destabilize the market for all other types of consumer credit."
"There are other problems. A bankruptcy judge's power to reset interest rates and strip down principal to the value of the property sets up a dynamic that will fail to help many needy homeowners, and also reward bankruptcy abuse.
"Consider that the pending legislation requires the judge to set the interest rate at the prime rate plus "a reasonable premium for risk." Question: What is a reasonable risk premium for an already risky sub-prime borrower who has filed for bankruptcy and is getting the equivalent of a new loan with nothing down?"
We would have to agree that Mr. Zywicki's thoughts make sense. Are we willing to throw more homeowners into bankruptcy in order to test the waters of a mortgage cram down?
If it were a movie, it would be called "Revenge of the Tax Code." The complex income tax, which has bedeviled average Americans for years, is biting back at the elite who helped create it. Tom Daschle, former chief lawmaker in the Senate, withdrew his Cabinet nomination because of an "unintentional" $128,000 tax mistake. Rep. Charles Rangel, chief tax-writer in the House, is also entangled in a tax scandal, as is Tim Geithner, the Treasury secretary, and Nancy Killefer, another high-ranking nominee who has withdrawn.
"What is going on here?", Edwards asks. Mainly, it's the complexity of the tax code that causes good people to blunder into a tax morass and calculating folk to walk away from tax obligations.
The solution? "The solution to all these problems -- from the Enron debacle to Obama's tax-troubled nominees -- is to reform the tax code. With a simple and consistent base, taxpayers would know what they owe, and the IRS could easily enforce it. That is the promise of the "flat tax," which would tax all income once and create a level playing field with no tax-free loopholes," Edwards writes.
Has the time for a serious discussion of the flat tax come? We'll see. Read the full report here.
Vested Title Inc., 648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306 Tel 201-656-9220. Fax 201-656-4506 E-mail vti@vested.com - www.vested.com
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