Real Estate Information Archive

On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. It allows taxpayers who had all or part of the loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from California gross income.

 The new law applies to discharges of qualified principal residence indebtedness on or after January 1, 2009, and before January 1, 2013. California law conforms, with modifications, to federal mortgage forgiveness debt relief for discharges that occurred in tax years 2007 through December 31, 2012. The amount of qualifying indebtedness is less than the federal amount and California imposes a state-only limitation on the total amount of relief excluded from gross income.

The following summarizes the differences between the federal and California provisions. Federal provision applies to discharges occurring in 2007 through 2012, and:

• Limits the amount of qualified principal residence indebtedness to $2,000,000 for taxpayers who file as married filing jointly, single, head of household, or widow/widower, and to $1,000,000 for taxpayers who file as married filing separately.
• Does not limit the debt relief amount; it only limits the indebtedness amount used to calculate the debt relief amount.

The Mortgage Debt Relief Act of 2007 generally allows homeowners to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. In addition, there are not any 1099-C tax consequences for state & federal.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments on the IRS website.

/kh

As a homeowner there may be circumstances that come up where you need additional funds to remodel or make repairs to your home, or you might need some money to cover an emergency expense. A home equity loan is a great way to access the equity in your home and provide you with the extra funds you may need. Another benefit that many homeowners don't know, is that there are also some tax benefits in doing so as well.

There are two basic types of home equity loans.  One type is a traditional loan where you borrow the whole amount of the loan, then pay it back with specified monthly payments over a specified term.  The second type is a Home Equity Line of Credit (HELOC) where you obtain a fixed line of credit based on the equity of your house.   Typically with this type of loan you only pay interest on the amount that you borrow, and your monthly payments may vary also.

The interest is deducible up to the purchase price of the house plus any improvements.  Many people mistakenly think that all real estate related interest is deductible.  Several years ago the held true but tax reform has since been passed. However, for most people the tax deductions are still substantial, but you may want to consult a tax professional to determine how much you can deduct in your specific case.

However, even if the interest is not deductible, the savings associated with the lower interest rates charged on a home equity loan, will still be beneficial to pay off other higher interest credit cards or other loans.

It is important however to do the math and be responsible when considering these types of loans. Many homeowners found themselves in trouble when they borrowed against the equity in their home and then when housing values declined, they owed more than the house was worth.

/kh

A new bill signed by California Gov. Arnold Schwarzenegger hopes to help sell California's vacant homes as well as give new construction a boost by extending a $10,000 state tax credit for first-time homebuyers.

This new bill provides a state tax credit to first-time homebuyers who buy new or existing homes from May 1 until the end of 2010. Homebuyers can claim 5 percent of the purchase price against their California taxes, or up to $10,000.

This new bill makes another $100 million available for buyers of new homes and $100 million for those who buy existing homes. According to the Franchise Tax Board, the state allocated that credit to 10,569 applicants after receiving more than 12,000 applications.

The governor indicated that the expanded tax credit will help cities and counties get more properties back on the tax roll and put more people to work.

The Governor also vetoed a tax bill that would have provided relief to those who had mortgage debt forgiven in 2009. The governor said in his veto message that he could not support the bill because lawmakers inserted a tax penalty opposed by businesses. He asked the Legislature to send him a bill dealing solely with mortgage debt forgiveness so he can sign it.

We are proud and excited to announce that we recently attended the 5 Star Institute seminar and have obtained our certification. We are 2 out of about 600 Realtors nationwide who are the 1st to get certified through the 5 STAR INSTITUTE as short sale specialist. This certification through 5 Star is the #1 certification a realtor can get.

Homeowners are looking for alternatives to foreclosure, and short sales are becoming increasingly popular. As a short sale specialist, we are qualified and prepared to get the job done! Below are some of the qualifications our certifications have benefited us.

•We understand when a short sale is the best option
•We can recognize the steps in the process and develop a short sale package
•Discern what is and is not a hardship
•Negotiate with lenders
•Comply with Home Affordable Foreclosure Alternative (HAFA) rules
•Limit your risk

A recent article in the New York Times shed light on a new program offered an effort to end the foreclosure crisis. The Obama administration has been trying to keep defaulting owners in their homes and now has a program to help homeowners. This program will allow owners to sell their home for less than they owe.

There is no argument that many homeowners are in trouble. In fact more than five million households are behind on their mortgages and risk foreclosure. The government's $75 billion mortgage modification plan has helped only a small slice of them.

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

This program will begin to take effect on April 5, and could encourage hundreds of thousands of homeowners in trouble who have not found help thru the loan modification program or thru other programs. In addition, this program will also be a benefit for communities, as it will mean fewer empty foreclosed houses waiting to be sold by banks. 

The mission of the Chino Hills State Park Interpretive Association is to enhance public awareness of the importance of maintaining and restoring the unique natural habitat within Chino Hills State Park, through interpretive and educational activities.

Their goals and objectives are education and outreach in the community and to publish literature about Chino Hills State Park, its natural resources, activities and trails. They assist in providing continuing education for the public, park volunteers and staff and on the importance of this natural area.

With the help of State Park personnel, the Chino Hills State Park Interpretive Association (CHSPIA) was reformed last year. CHSPIA’s new board consists predominantly of long-time volunteers with diverse interests, including restoration, horseback riding, mountain biking, hiking and resource conservation.

CHSPIA is a non-profit volunteer based organization that assists the California Department of Parks and Recreation in maintaining and restoring Chino Hills State Park. Through interpretive programs and volunteer support designed to enhance visitor experiences, CHSPIA fosters appreciation and the enlightened use of the State Park. All funds raised go directly to CHSPIA to support our interpretive activities, events and other park programs that may not otherwise receive. 

Every lender will have slightly different policies or rules about who qualifies for a short sale. Below are some typical requirements that need to be met to qualify for a short sale.

•The Home's Market Value Has Dropped. 
Comparable sales must substantiate that the home is worth less than the unpaid balance due the lender. Prepayment penalties can be included in this balance.

•The Mortgage is in or Near Default Status.
Today's lenders now understand that many factors contribute to a potential default,especially in today's market. They are willing to look at options to avoid any future losses. 

• There Are No Assets. The seller will need to prove that they have no assets that can be used to pay the lender the difference. Lenders typically ask for financial statements, income tax returns and other financial documents to support the sellers claim.

•The Seller Qualifies For A Hardship.
The seller must submit a letter of hardship that explains why they cannot pay the difference due upon sale. Typically this letter will include why they has or will stop making the monthly payments.

It is important to keep in mind what constitutes a hardship. Below are some typical situations that are typically considered hardships.

1.Unemployment
2.Divorce
3.Medical emergency / sudden illness
4.Bankruptcy
5.Death

If these requirements are met, most lenders will agree to a short sale. With a short sale, both sellers and lenders do not stand to gain any profit from this transaction and most short sales are completed during the pre-foreclosure stage in order for the lender to avoid incurring further foreclosure costs.

Foreclosures and short sales are on the rise in this difficult real estate market. But all of these changes can leave neighbors wondering, “What about the value of my home?” Owners of surrounding homes are concerned that a foreclosure might affect the market value of their home.

It is important to know that appraisals include comparable sales, plus foreclosures. Property appraisals are based on three approaches:

•Cost approach. This is the value to build the home, plus the value of the land.

•Income approach. This is rarely used for single family homes and is used to compare multiple units, based on capitalization rates.

•Market value approach. This type of appraisal compares the subject property to three comparable sales in the neighborhood.

If two comparable sales are regular transactions and one is a foreclosure or short sale, will the appraiser use that distressed sale as a comparable property?  These are considered sales at market value, offered for sale by a willing seller and purchased by an able and willing buyer, with neither party under duress. Banks and mortgage companies are currently being very conservative in their lending practices, including the amount of money they are willing to lend on a property. They look very closely at the appraised value given a property, sometimes asking for a second appraisal in order to feel comfortable about the value given. And, they require that all sales in the area be included in the determination of value.

The good news is that after experiencing a large inventory of unsold homes many areas are beginning to see prices are beginning to rise. Buyers are taking advantage of the large variety of affordable homes, government tax breaks, and low interest rates and we are starting to see some stabilizing of home prices.

In the current real estate market we are in, foreclosures and short sales are common place these days. However, there are some misconceptions and myths to short sales that are simply not true. Below are some of the top misconceptions about a short sale and the clarification.

1. Short sales can take up to a year to close. This is simply not true. It can take 7-10 days for the lender to acknowledge receipt of the complete short sale package, which consists of personal seller documents and related real estate items, including the buyer's short sale offer. Once a negotiator is assigned it can take an additional 30 to 45 days for a BPO or appraisal. After this has been completed usually another 2 to 3 weeks for management / investor review and short sale approval.
2. If you purchase a short sale, you will end up paying too much.  Some listing agents may set a short sale below market value, this is a tactic used to attract multiple offers. Remember that a listed price on a short sale is fabricated, because you won't know how much a bank will accept until the offer is submitted. However, most banks will consider a price at a minimum of 90% of market value.
3. Lenders of a short sale wont accept a discounted payoff. Many sellers are often surprised to learn that in markets where prices have fallen over a 5-year-period, a home might be worth 50% or less of its original value when the seller bought it. Lender know about these declining markets and will do their own research about value and typically come to the same conclusion. The value of the home is not based on the amount of the mortgage; it's based on recent comparable sales.
4. Short Sale Sellers Must Be in Default Before the Bank Will Approve a Short Sale. The lender will approve a short sale based on the seller's hardship and the value of the home. Many sellers may struggle to make the monthly mortgage payment, but have not fallen behind in their payments. It is true that sellers in default receive immediate attention, but a seller can also pay a mortgage payment on time each and every month and still qualify for a short sale.

The sluggish economy has caused many homeowners who have fallen on hard times to be loose their homes. Foreclosures have increased drastically this last few years and many homeowners are struggling to find answers as to what to do next. It is important to know that as a homeowner, you do have options.

In the event that you find yourself struggling to make your mortgage payments, and you fear foreclosure may be in your future, the National Foundation for Credit Counseling (NFCC) has suggested a few possible alternatives. These options to fend off foreclosure include:

• Repayment Plan
• Reinstatement
• Forbearance
• Loan Modification
• Short Sale

It is important to kmow that everyone's situation is different and not all of these options will work for everyone. Contact me to discuss your options!