In The News – June 2011

BORROWERS, LENDERS, AND PROCESSING PAYMENTS

            The Real Estate Settlement Procedures Act (RESPA) is a federal consumer protection law that regulates the real estate settlement process, including the servicing of loans and the assignment of those loans. RESPA places a number of duties on lenders and loan servicers, including requirements that borrowers be given notice by both a transferor and a transferee when their loan is transferred to a new lender or servicer, and that loan servicers respond promptly to borrowers’ written requests for information.

            It takes a qualified written request to trigger the loan servicer’s duties under RESPA to acknowledge and respond. RESPA defines a “qualified written request” as written correspondence from the borrower or his or her agent that requests information or states reasons for the borrower’s belief that the account is in error. To qualify, the written request must also include the name and account number of the borrower or must enable the servicer to identify the borrower.

            Within 60 days after receiving a qualified written request, the servicer must take one of three actions: (1) make appropriate corrections to the borrower’s account and notify the borrower in writing of the corrections; (2) investigate the borrower’s account and provide the borrower with a written clarification as to why the servicer believes the borrower’s account to be correct; or (3) investigate the borrower’s account and provide either the requested information or an explanation as to why the requested information is unavailable.

            In any event, the servicer must provide a name and telephone number of a representative of the servicer who can assist the borrower. During the 60‑day period, a servicer may not provide information regarding any overdue payment, owed by such borrower and relating to such period or qualified written request, to any consumer reporting agency.

            In the culmination of what the court described as “maddening troubles” that two borrowers, a husband and wife, encountered with two mortgage companies, a federal appellate court ruled that the borrowers’ claims under RESPA for damages could proceed to a trial on the merits. Two of the five different letters sent by the borrowers were ruled to be qualified written requests. As to both letters, the borrowers contended that one of the mortgage servicers violated RESPA by reporting their account as delinquent to credit bureaus within the 60‑day window after the letters were received. As to one of the letters, the servicer also was alleged to have failed to investigate properly or to take corrective action.

            The borrowers withstood an argument by the mortgage servicers that the borrowers had not done enough to raise triable issues on actual damages allegedly sustained as a result of the RESPA violations. It was for a jury to decide if they had, in fact, suffered the compensable losses they claimed, stemming from being denied home equity lines of credit and a small business loan, and from suffering emotional distress from the whole affair.

NEW GIFT TAX BREAK

            Having a net worth of $1 million, or maybe even $2 million, does not give you entry into such a small exceptional group as used to be the case. By some estimates, between 5 and 6 million American households have a net worth of at least $2 million. This means that currently there are considerably more people who should consider how best to shield their money from the IRS and pass it on to their heirs, assuming that is their wish. One such strategy that just became more attractive, due to new federal legislation, is the making of gifts during one’s lifetime.

            Among the significant pieces of the new federal tax law that was passed in December 2010 were very substantial, albeit temporary, increases in the lifetime gift tax exemptions for individuals and couples. For 2011 and 2012, these exemptions have increased five‑fold, from $1 million to $5 million for individuals, and from $2 million to $10 million for couples. There will be no gift tax imposed on gifts that do not exceed those totals. The same law reduces the tax rate for gifts above the exemptions to 35% from a scheduled rate of 55%, thus benefiting individuals wealthy enough to make gifts that exceed the exemption levels.

            Last year, Congress also raised the exemption for federal estate taxes to $5 million, and lowered the estate tax rate to 35%, also for a two‑year period, so that, taken together, the new federal estate and gift tax rates are more favorable for taxpayers than they have been for approximately 80 years.

            This is an area of the law for which sophisticated professional help is especially appropriate, but there are some general considerations to bear in mind when devising a plan for gift‑giving. For example, making a gift now, tax‑free, makes good sense, especially for assets that are appreciating rapidly, so that future appreciation can be shielded from taxes. It is conceivable that Congress in the future could “claw back” gifts that are greater than the exemption at the time the donor dies, but, even in that event, any income or appreciation occurring after the gift date should be tax-exempt.

            Other considerations for giving are more emotional than legal. Financial considerations aside, it may be a high priority for you to make sure that assets with sentimental value are preserved for future descendants, such as by putting them into a trust. Or gift‑giving decisions may entail weighing some remorse over parting with assets that took so long to acquire against the desire to improve the lot of those receiving the gifts. Of course, a contrarian view might see large gifts as mainly abdicating control and risking having everything squandered. In any case, if these considerations are all reconciled in favor of making major gifts, now may well be the time to take the plunge.

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