In addition to the suspension of required minimum distributions (RMDs) for 2020 available to retirement account owners as a result of the federal CARES Act that we discussed in our last post, this COVID-19 relief legislation also provided some additional relief efforts to help retirement account owners. First, retirement plan owners who were directly affected by the COVID-19 pandemic may take an IRA distribution this year of up to $100,000 and spread the income tax on that distribution out over 3 years (2020, 2021 and 2022). Also, if you are under 59.5 years of age and impacted by the COVID-19 pandemic, you can avoid the 10% penalty on early withdrawals. These relief provisions have created some interesting, albeit aggressive tax planning opportunities with IRAs. One possible, but aggressive strategy, is for an IRA owner to do a Roth IRA conversion and spread the income tax cost of the converted amount (up to $100,000) over 3 years. Another aggressive strategy is for an IRA owner directly impacted by the COVID-19 pandemic to make a deductible IRA contribution in 2020, then take a taxable distribution from the IRA this year. The deduction for the contribution is taken in 2020, but the taxes on the distribution can be spread out over 3 years. Although these strategies appear to comply with the CARES Act provisions, whether or not Congress intended to allow such strategies as part of this COVID-19 relief legislation has been a matter of some debate, and future IRS guidance on these strategies may be forthcoming. To learn more on how the CARES Act may impact your estate and retirement plan planning, please contact us today.
Did you know that the federal CARES Act that became law earlier this year as part of the federal government’s COVID-19 relief efforts included a number of short-term changes designed to enhance the durability of retirement plan savings as well as emergency provisions to ease COVID-19 related hardships. Specifically, the CARES Act suspended all required minimum distributions (RMDs) for 2020 (you can still take them if you want to or need to but are not required to take your RMD in 2020). As RMDs are based on retirement account values as of the end of the prior year, this relief provision may be helpful to those with retirement plans who have other sufficient sources of income and do not need to take RMDs and who may want to give their retirement plan funds time to recover from the current market volatility. This suspension of RMDs for 2020 may also create opportunities for those considering converting their traditional IRA to a Roth IRA. If you already took out an RMD for 2020, you may be able to return the RMD to your plan or other retirement plan, but under current IRS guidance you must act by August 31, 2020. We will cover additional CARES Act provisions impacting retirement plans in future posts. To learn more on how the CARES ACT may impact your estate and retirement plan planning, please contact us today.
Did you know that the federal SECURE Act that became last at the end of last year dramatically changed the estate planning landscape for retirement plans? Except for a few categories of beneficiaries (such as a surviving spouse), the traditional life expectancy payout method that involved annual required minimum distributions (RMDs) to defer income taxes has been eliminated and replaced by a 10-year post-death payout period for most retirement plan benefits. This also impacts any retirement plans that use trusts (i.e. for minor children) as beneficiaries. To learn more on how the federal SECURE ACT may impact your estate and retirement plan planning, please contact us today at 215-572-8111.
Stern & Eisenberg Webinar: CEMA – A Cost Effective Refinance Option in New York & Real Estate Market post COVID-19
Margaret Cascino, Esquire, our Managing Attorney in New York, and Zachary Champion, Esquire, our Regional Managing Attorney for REO/Retail Closings hosted this in-depth webinar on June 17th, 2020 discussing how homeowners with equity in their property are taking advantage of today’s low interest rates. What is a CEMA? Why use one? What is the process? What are the possible issues/delays? What are our COVID-19 Precautions?
On June 23, 2020, the IRS released Notice 2020-51, which provides guidance relating to the waiver of 2020 required minimum distributions (RMDs) enacted as part of the federal CARES Act COVID-19 relief legislation.
Specifically, Notice 2020-51, allows for a rollover or repayment of an RMD taken in 2020 until August 31, 2020, effectively extending the traditional 60-day rollover rule for RMDs taken earlier in the year. Those plan owners who took RMDs this year thinking they were required to, but do not need the funds, have the opportunity to return those funds to their IRA or a rollover IRA. Consult with your plan custodian or financial advisor for more information. To learn more on the importance of estate planning in the age of COVID-19, please contact us today.
This S&E webinar broke down the requirements of the South Carolina Supreme Court Administrative Order 2011-05-02-01, commonly referred to as Foreclosure Intervention. S&E’s South Carolina Attorney Priti Patel discussed the objectives of and identified the most common challenges behind Foreclosure Intervention. Concluding the webinar was an engaging Q&A with Patel and attendees to answer questions addressing one of the biggest hurdles of the foreclosure process in South Carolina. A recording, as well as the presentation materials, is available below.
City of Baltimore Hacking Vulnerability Precludes City from Issuing Lien Certificates
The City of Baltimore has reported that its computer systems are undergoing a “ransomware” attack. As a result of the issue, the City is unable to generate lien certificates attesting as to the outstanding amounts due to it for utility services for any given property within the City limits – information that is generally required in order to safely finalize the deed recording process. While the City has not precluded deed recordings, any deed recording is subject to the risk that there may be a utility lien(s) on the property, which would then become the financial obligation of the recipient of the property.
Given the probability of risk associated with recording deeds absent knowledge of the sum of a utility lien, if any, we recommend that deed recordings be limited to priority files, high value loans, or GSE files where waiting may be too costly, and only if you are willing to accept the risk. Otherwise, we suggest that you cease deed recordings until the City’s computer issues have been fully remediated. We will advise you as soon as the City alerts the public that the issue has been fixed.
That being said, until the issue is fixed, if you accept the risk that liens may be existing on the property that you take by deed, which cannot be confirmed until some time after recording the deed, we will assist you with having the deed recorded.
Questions about this S&E Client Alert?
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Good Faith, Bad Faith, and No Faith:
The Interplay Of Loss Mitigation During Bankruptcy
Now Featuring: Webinar Question & Answers
An inter-jurisdictional look at Loss Mitigation and the Bankruptcy Process. The webinar will examine the pros and cons of Court-Appointed and Non-Court-Appointed Loss Mitigation Programs with a focus on how courts look at the actions of the Parties in determining whether each is acting in good faith or bad faith during the loss mitigation process. The program will examine case law, and what steps are needed by servicers to satisfy varying Court’s loss mitigation requirements. Topics will include disclosures by servicers/investors as to “down payments” and other investor guidelines, “dual-tracking,” and effects on confirmation. A Q&A with presenters will conclude the presentation.
Question: Should borrowers make post-petition payments until the review is completed?
Answer: The answer will very by Jurisdiction, as some loss mitigation rules and procedures will require payments, and some will not.
Question: How are Creditor’s handling District/Judges where payments are not required to be made during the LM.
Answer: In situations where the LM is taking a significant amount of time to complete and Creditor is not receiving payments, I typically suggest a request be made at the Loss Mitigation status conference for adequate protection payments pending the Loss Mitigation Period. It is also possible to file a limited objection at the outset to Debtor’s Request to Enter into Loss Mitigation seeking adequate protection payments pending the loss mitigation, provided there is adequate basis for the request. Some arguments that may have success are that the Debtor has had multiple reviews for loss mitigation in recent past; Debtor has filed previous bankruptcies which were dismissed recently; Debtor’s loan is significantly past due, etc.
Question: A loan modification escrow analysis may have an effective date of next month. Can the creditor file this payment change? Specifically, if the required 21 days prior notice deadline has passed, is there an exception?
Answer: If the 21 days deadline has not passed, then I would suggest filing the payment change. This provides notice of the new escrow amount, in the event that the borrower does not accept the modification or it is not approved by the Court. If the 21 days deadline has passed, Creditors/Debtors will request Court approval of the final loan modification and the Court/Trustee will be notified of the new escrow payment amount. Once the court approves the Mod, an Amended Proof of Claim will need to be filed by the Creditor and will include the new escrow payment amount similar to a NOPC. I would suggest discussing the new escrow amount with Debtor’s attorney as soon as possible in the process or with modification offer.
Question: Do we need Court approval before completing a modification in a Chapter 13.
Answer: In general, yes. Most jurisdictions will require Court authorization or approval of a final modification, or any stipulation, agreement, resolution agreed to during the Loss Mitigation Period. Most jurisdictions will in the least require Court approval of Modifications even if Debtor and Creditor are not within the Loss Mitigation Program.
Question: Do we need Court approval in an active Chapter 7.
Answer: This question is more challenging to answer without more facts of the case; however, my rule of thumb is if Debtor has not received discharge in the Chapter 7, then I would suggest filing a Motion to Approve. In jurisdictions that do not provide for a loss mitigation program in a chapter 7, I would be less inclined to advise for filing a motion to approve. Of course, the safest route is to still request the Court’s approval.
Question: In a conduit case, a chapter 13 Trustee is not making payments according to the Trial Plan Agreement and Investor Guidelines. Is the Creditor required to advise the Trustee to the frequency?
Answer: Usually in conduit jurisdictions, the Court requires a motion to approve trial modification, and this will provide notice to the Trustee for making the correct payment amounts. With regard to trial payment due date, unfortunately, a Creditor does not have the ability to compel a Trustee to disburse payments on a specific date during the month. Normally, a trustee will disburse payments in batch at the end of the month. In WDPA, the trustee’s office will disburse the monthly payments around the 23-25th of the month. It also may be possible for a trustee to disburse an amount that is less than the amount due under the trial. In districts with trustee conduit, I generally advise to keep the trial plan open until completion and then confirm that the total amount due at the end of the trial was received. If no payment is received from the trustee, and the trial modification was approved by the Court, I would advise to file a request for termination for breaking the trial agreement. If trustee does not disburse a payment at all, typically there will be other issues like the Debtor is not making payments to the trustee, and the Trustee will file a cert of default/motion to dismiss case.
Question: In the DMM portal for an MMM ordered mod – If the borrower was denied a few times for exceeding mods – do we have to accept and open the loan in the portal and then advise or reject it and let them know that they will be denied again because they exceeding the number of mods they’re allowed to have?
Answer: Ideally, Creditor should object to the entry of the loss mitigation if it is aware of any reason that the borrower would be automatically denied for a loan modification. If the Court’s Loss Mit Order requiring DMM portal was already entered then yes, you have to accept the DMM Portal submission and advise through this channel of communication. However, after the Order is entered, if Creditor becomes aware of any reason that the borrower will be automatically denied for a loan modification, Creditor should relay this information to the Debtor’s Attorney and the Court, through a status report, or request for termination immediately upon that determination. If the Creditor knowingly allows the debtor to submit documentation and proceed in loss mitigation for several months only to be automatically denied, Creditor runs the risk of the Court finding them to be acting in bad faith.
Question: In relation to the Single Point of Contact with delegated authority…is there any exceptions when you must obtain approval through the GSE website. For example, the case decision must be sent to WP2 for Freddie Mac and SMDU for Fannie Mae?
Answer: There is no case on point to this question and jurisdictions rules and procedures regarding SPOC’s are typically broad. For example, the Southern District of New York rules requires that “Creditor shall provide written notice to the Debtor, identifying the name, address and direct telephone number of the contact person who has full settlement authority.” What the Court essentially is looking for is having open, direct, transparent, and efficient communication. In situations where the court found bad faith for failing to designate a single point of contact there were additional facts that made the failure egregious, i.e., importantly, debtor was harmed by the failure, there was unreasonable delay in providing a determination, debtor received contradictory information or responses, etc. To completely avoid any issues, be sure to state in the affidavit designating your single point of contact, that final approval is received through the appropriate GSE website.
Question: Are you recommending to your clients to incorporate requirement into a Trial Plan or Mod that it is “contingent” on Debtor/Debtor’s counsel filing a motion and getting court approval of the Mod.
Answer: I would recommend that our clients include in the trial terms all the requirements that must be met in order to be offered a Final Modification. This can include a multitude of requirements such as Borrower is responsible for obtaining final mod Court approval. This could also include subordination or assumption requirements. If you are unsure for any reason whether additional terms are unreasonable or the Court would look at it unfavorably, please be sure to consult with your counsel. I recommend that the investor’s Trial Mod template is as thorough on requirements and consistent as possible.
Question: If debtor is making payments to the “Trustee” during LM period and then is denied, how do you get the money out of the trustee coffers or get it “vested” so that it does not go back to the debtor when they let the bk die at the end of the road in LM.
Answer: Our office recently came across this issue, and we had success through reasonable negotiations with the Debtor’s Representative. In our case, Debtor was denied for a loan modification after being in the loss mitigation program for several months. Debtor was making payments to Trustee on prepetition arrears but not directly to the Creditor for post-petition payments. After discussing with the Debtor Attorney that we would be filing a motion for relief once the LM was terminated, Debtor threatened to dismiss the case and thereby regain the payments made to the trustee. Debtor’s representative eventually agreed to resolve the loss mitigation by filing a motion to disburse trustee funds to creditor to cure the post-petition delinquency and amend plan to cover all pre-petition arrears. This prevented the case from being dismissed. It also saved both parties fees and costs associated with the case being refiled and Creditor seeking a Motion for Relief (or in Rem relief) that would be litigated in the future case. This tactic may not work for all cases, but by working with your counsel you may be able to come up with outside of the box resolutions to make sure that you are getting paid.
Question: In a conduit plan case, should creditors object preemptively to debtor counsel attorney fees in excess of a particular amount when they respond requesting LM as a MFR defense. There is typically money in the trustee coffers and when the Loss Mit ends in impasse the money to cure the post-petition default then all drains out and goes to debtor’s counsel.
Answer: If the request for LM is brought up at hearing, I would notice the court with an objection and request additional time to respond to the Debtor’s request for loss mitigation. If the request is filed as a response and defense to MFR, I would try to work with the Debtor’s attorney for an Agreed Order. You could request that Debtor place the fees associated with Creditor’s loss mitigation as priority in the plan to ensure Creditor also is paid for their loss mitigation efforts. Also, in most conduit jurisdictions the Trustee will disburse the adequate protection payments as proscribed in the LM Order, so it likely would be better to allow Debtor to resolve the MFR through agreed order whereby Debtor applies into the loss mitigation program, but under terms more favorable to Creditor. The agreed order would control the LM timeline and could be more strict than the standard loss mit order. It could also allow Creditor to require adequate protection payments in an amount up to the full monthly payment amount if desired. Typically, in these agreed orders, it is noted that there is still X.XX amount due post-petition and that it will become due within 14 days of termination of LM if Debtor does not successfully obtain a loan modification.
Question: Depending on the investor, modifications are sometimes removed from the waterfall. CFPB requires that we review all packages received. How does it work when we already know the file will be denied for a modification, but we are required to collect documents in order to review, just to deny it.
Answer: Courts expect that Creditor will either object or provide notice to Debtor at the outset if the Mod will automatically be denied for any reason. This in the least provides the opportunity to Debtor to decide whether to continue to pursue loss mitigation and/or other home retention options that Creditor may have available through the investor’s loss mitigation waterfall. If Debtor still wishes to apply for loss mitigation review Creditor should proceed as if it is a normal review and feel secure that it will not be held as participating in bad faith when the Debtor is ultimately denied for a loan modification. Onus is on the Debtor at that point. The important take away from the webinar is to make sure that whatever your investor guidelines are, that they are clear, procedurally explanative, consistent, and in writing. The judge may request the guidelines be available for inspection if it is contested, or the judge may require testimony from a person with settlement authority that a modification is not available.
On November 9, 2017 Stern & Eisenberg bankruptcy counsel William (Bill) Miller and Chief Compliance Officer Jackie McNally hosted a client training webinar for mortgage servicing clients. Servicing clients joined Bill as he walked through forthcoming bankruptcy rules changes, procedural updates for firms and mortgage servicers, and prepped clients on what to expect when rules took effect on December 1, 2017. Clients may contact the Stern & Eisenberg Value Department for a complimentary copy of the presentation materials and a recording of the live webinar with client Q&A.
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