Mortgage Loans, Rates, Home Buying, Selling, Foreclosures » investors

Foreclosure Discount Gets Bigger & Bigger

Peter G. Miller — Fri, 26 Aug 2011 12:08:56 +0000

Buy low and sell high is a traditional real estate investing strategy and with good reason: Unlike the stock market you can’t sell homes short and make a dime.

Thus it makes considerable sense to buy property at the lowest possible price and that brings us to RealtyTrac’s foreclosure report for the second quarter:

“The average sales price for homes in foreclosure or bank owned was 32 percent below the average sales price of homes not in foreclosure,” said RealyTrac.

A year ago, in the second quarter of 2010, the company reported that the foreclosure discount was 26 percent.

You can also see something else: The percent of all sales which are distressed has risen from 24 percent last year to 31 percent in the second quarter of 2011.

These numbers are hard to ignore. They tell us that massive numbers of homes facing foreclosure or which have been foreclosed remain available at discount.

National Association of Realtors

The National Association of Realtors reported for July that by its measure “distressed homes — foreclosures and short sales typically sold at deep discounts — accounted for 29 percent of sales in July, compared with 30 percent in June and 32 percent in July 2010.”

Okay, so how much is a “deep discount.” According to NAR spokesman Walter Molony a typical distressed sale price is roughly 20 percent lower than the price for a home which is not facing foreclosure or was not lender-owned.

The enormous gulf between distressed homes and the rest of the housing stock raises several questions:

First, why buy a home at a retail price when discounts are widely and plainly available? The answer may well be that it’s often difficult and time-consuming to deal with lenders. That said, a 32-percent discount is quite a reward for patience and persistence.

Second, where is the mortgage money? Rates have recently been at a 50-year low, something which should encourage borrowing and yet large numbers of distressed homes are bought for cash — NAR says cash purchases in July accounted for 29 percent of all existing home sales.

It’s obvious that lenders are awash in both cash and real estate — otherwise rates would be higher and distressed sales would be a smaller percent of the market. If lenders want to get rid of the shadow inventory which threatens their stability and holds down home prices nationwide it’s clear that they need to readily finance the purchase of distressed homes to investors and home buyers with 10 percent down, a verified income and an ongoing pulse.

Foreclosure Discount Gets Bigger & Bigger is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: cash, deep discount, discount, distressed, foreclosure, investors, mortgage rates, National Association of Realtors, RealtyTrac, shadow inventory, short sale

Japanese Nuclear Meltdown Could Impact US Home Prices

Peter G. Miller — Thu, 17 Mar 2011 16:22:34 +0000

The key to real estate values has always been location, but now the term “location” may be impacted by your home’s distance from the nearest nuclear reactor.

The scenes from Japan are grim and the debate over how far is safe from the six troubled Fukushima nuclear reactors is unsettling. Is the right distance from the facilities 13 miles, or 20 miles or 50 miles? Or maybe 200 miles?

The answer is uncertain in part because as this is written the situation continues to unfold. We are not yet at a point where the run-away reactions have been stopped or contained so it’s not possible to say with confidence how far is far enough.

The question of miles is also important from a real estate perspective. Imagine that mortgage investors suddenly have less interest in buying loans for properties within a given distance to a nuclear plant. Imagine that home buyers decide that when it comes to location, further is better when talking about nuclear sites. In either case large numbers of American homes would be devalued.

Given that the US has 104 nuclear facilities, including 23 similar in design to the Japanese units, are worries about nukes, meltdowns and miles reasonable?

To start, it’s important to say that nuclear plants differ. Most nuclear facilities in the US are simply not on coastal waters and thus could never get hit with a tsunami. Also, within the lower 48 states the largest earthquake recorded after 1700 was estimated to be a 7.9 on the Richter scale, far less powerful than the 9.0 quake which hit Japan. Lastly, US facilities are required to have massive containment structures, something which was crucial in the Three Mile Island incident — and something absent at Chernobyl.

Three Mile Island

In 1979 there was a meltdown at Three Mile Island near Middletown, PA. Here, according to the Nuclear Regulatory Commission, “was the most serious in U.S. commercial nuclear power plant operating history, even though it led to no deaths or injuries to plant workers or members of the nearby community.”

So what happened?

“Because adequate cooling was not available,” says the NRC, “the nuclear fuel overheated to the point at which the zirconium cladding (the long metal tubes which hold the nuclear fuel pellets) ruptured and the fuel pellets began to melt. It was later found that about one-half of the core melted during the early stages of the accident. Although the TMI-2 plant suffered a severe core meltdown, the most dangerous kind of nuclear power accident, it did not produce the worst-case consequences that reactor experts had long feared. In a worst-case accident, the melting of nuclear fuel would lead to a breach of the walls of the containment building and release massive quantities of radiation to the environment. But this did not occur as a result of the three Mile Island accident.”

In the end, the troubled Three Mile Island facility was simply closed. The government reports that “today, the TMI‑2 reactor is permanently shut down and defueled, with the reactor coolant system drained, the radioactive water decontaminated and evaporated, radioactive waste shipped off‑site to an appropriate disposal site, reactor fuel and core debris shipped off‑site to a Department of Energy facility, and the remainder of the site being monitored. In 2001, FirstEnergy acquired TMI-2 from GPU. FirstEnergy has contracted the monitoring of TMI-2 to Exelon, the current owner and operator of TMI-1. The companies plan to keep the TMI-2 facility in long‑term, monitored storage until the operating license for the TMI‑1 plant expires, at which time both plants will be decommissioned.”

Chernobyl

In 1986 a reactor at the Chernobyl facility in the Ukraine blew up. The result was the mass evacuation of hundreds of thousands of people, at least several thousand deaths, the widespread dispersion of radioactive dust and the creation of a 19-mile exclusion zone around the facility.

Notably lacking from the Chernobyl facility was the type of containment structure associated with US nuclear plants, a difference seen at Three Mile Island.

Stigmatized Property

In real estate there’s a concept called stigmatized housing. These are properties which have generally been devalued because while they are in normal physical condition they make people uncomfortable. Such properties might include homes which have been the scene of a murder or suicide, or which are allegedly inhabited by ghosts.

The rules regarding what must or must not be disclosed regarding stigmatized housing vary by state. In one state you may have to tell prospective buyers that a murder took place on the property, in another disclosure may be required but only for a given number of years and while in a third state there may be no disclosure requirement.

Moreover, “stigmatized” may not mean less value. Some people, after all, like ghosts.

Public Choices

Having seen what happened at Fukushima will some people now consciously elect to locate far from nuclear plants? Sure. But the real question is different: Will large numbers of people choose to avoid real estate anywhere close to nuclear facilities?

If the answer is “yes” then we could see a drop in home values for properties near nuclear facilities, however “near” is defined. The catch is that we don’t know the answer. No doubt, as long as the events in Japan dominate news coverage, more and more people will want to stay away from nuclear facilities. We also don’t know what the public will regard as far enough away to be secure, whether the right number will be five miles, 50 miles or more.

In practice it may be difficult to move away from nuclear power. We have nuclear generating facilities that are clustered around major population centers and job hubs. The result is that many homes will continue to be powered with nuclear energy — energy generated not far away.

Japanese Nuclear Meltdown Could Impact US Home Prices is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: earthquakes, Fukushima, insurers, investors, Japan, Japanese, loan, mortgage, nuclear, Nuclear Regulatory Commission, plant, power, Three Mile Island

Are FHA mortgage loans freely assumable?

Peter G. Miller — Mon, 24 Jan 2011 05:28:14 +0000

In tough times is it true that FHA loans are assumable?

You see spread across the Internet a resounding “yes” when the question of FHA mortgages and assumptions is raised.

Unfortunately, a flat “yes” is not the whole story. FHA loans are not freely assumable; that is, a buyer cannot take over an existing mortgage without lender permission. Instead, the FHA — like everyone else — only offers qualified assumptions. That means you can assume a loan but only if you’re qualified. Who determine if you’re qualified? The lender working from FHA standards.

The quickie answer from HUD is this:

“You can assume an existing FHA-insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is streamlined and less expensive compared to that for a new loan. Also, assuming a loan can often result in a lower interest rate. The application process consists basically of a credit check and no property appraisal is required. And you must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new one.”

Translation: Nope, FHA loans are not freely assumable. New borrowers need to be checked for creditworthiness and even among creditworthy borrowers not all will qualify.

What HUD Really Says

The reality is that assuming an FHA loan is not just a “yes” or “no” deal. HUD has 12 pages of assumption regulations and there’s lots of fine print.

For instance:

Mortgages originated before December 1, 1986, generally contain no restrictions on assumptions. Such loans are now more than two decades old, so it’s likely that few if any remain outstanding.
Mortgages originated on or after December 15, 1989 also contain restrictions on assumptions when the assumptor will not occupy the home as a principal residence.
The new borrower must be creditworthy according to current HUD standards.
The new borrower must qualify for financing even when taking title to the property “subject to” the mortgage without assuming personal liability for the debt.
Lenders must not approve an assumption unless the property is a primary or secondary residence or a secondary.
Under the Cranston-Gonzalez National Affordable Housing Act Of 1990, HUD cannot insure a mortgage for a secondary residence and prohibits the assumption of an FHA mortgage made after January 27, 1991 on property intended for use as a secondary residence except for certain hardship exceptions.
Each mortgage must contain a due-on-sale clause permitting acceleration. If a sale or other transfer
occurs without mortgagee approval the lender must demand immediate and full repayment of the loan.
A.The lender must release the seller from the liability of repaying the mortgage if there has been a satisfactory creditworthiness check for the new borrower and the prospective purchaser assumes personal liability to repay the loan.

For additional details and the latest updates, please speak with FHA lenders and local real estate brokers.

Are FHA mortgage loans freely assumable? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: assumability, assume, assumption, clause, due-on-sale, FHA, freely, HUD, investors, qualified, subject to

Mortgage Modification or Refinance — What’s The Difference?

Peter G. Miller — Tue, 25 May 2010 13:08:31 +0000

Is it better to modify a mortgage or to refinance? While both result in new loan terms, the two choices are very different.

When you refinance a mortgage you replace an existing loan with a new one. There’s no need to negotiate with the old lender because his mortgage claim will be extinguished. However, borrowers with toxic loans need to see if a refinance will set off claims for a huge prepayment penalty at closing, perhaps an amount equal to mortgage interest for six months.

Mortgage Modifications

Mortgage modifications come in several forms. First, we have loans which automatically self-modify — that’s the nature of an adjustable-rate mortgage (ARM).

Next we have mortgages where the lender voluntarily agrees to modify loan terms. Given that a mortgage is a contract such voluntary modifications are rare. Voluntary modifications might include changes in rates and terms, and also assumptions where one borrower takes over the debt of another with permission of the lender.

Tough Times

Because of the foreclosure meltdown we now have government-organized modifications under the Making Home Affordable program. In basic terms such modifications are open to those facing foreclosure or who have lost so much equity that financing to a new and lower rate is now possible outside the program.

Owners Versus Investors

When principal balances are reduced it’s possible for investors to face federal taxes on the unpaid balance, money that’s regarded imputed income. For example, if a $100,000 mortgage is settled for $75,000 then the unpaid $25,000 has traditionally be considered taxable income under federal rules. However, if the loan being modified is for a personal residence, then under Mortgage Forgiveness Debt Relief Act of 2007 the amount forgiven is generally not be taxed by the federal government. For specifics, please speak with a tax professional and be sure to ask about both federal and state policies.

Mortgage Modification or Refinance — What’s The Difference? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: adjustable rate mortgage, ARM, assumptions, equity, foreclosure, imputed, income, investors, loan, modify, mortgage, owners, penalty, prepayment, principal residence, refinance, toxic

Should We Dump Real Estate Investors?

Peter G. Miller — Mon, 30 Nov 2009 12:43:45 +0000

When it comes to bailing out giant banks, huge companies and massive stock brokerages there’s no shortage of government interest and activity. After all, it’s in our national interest to protect investors — unless, of course, they’re folks who merely bought a house or two.

The investor double standard is hardly hidden. It appears everywhere and is never challenged, as if real estate investors are somehow disposable players in the foreclosure mess.

Alan S. Blinder, a professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve, could not be more clear: He suggests that the government should develop a federal program to buy out mortgages from lenders, just as it did during the Depression — to “refinance only owner-occupied residences. Speculators can fend for themselves — or go into default.” (See: From the New Deal, a Way Out of a Mess,, The New York Times, Feb. 23, 2008)

Our Secretary of the Treasury, Henry Paulson, says “as our economy works through this difficult period, we will look for additional opportunities to try to avoid preventable foreclosures. However, none of these efforts are a silver bullet that will undo the excesses of the past years, nor are they designed to bail out real estate speculators or those who committed fraud during the mortgage process. These efforts are to help American families who both want to and can, through a loan modification or re-financing, stay in their homes.”

Introducing the Hope Now program in August 2007, President Bush said “we’ve got a role, the government has got a role to play — but it is limited. A federal bailout of lenders would only encourage a recurrence of the problem. it’s not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford.”

Why is someone who invests in real estate a “speculator” while corporations that lose billions of dollars hedging mortgage-based securities can count on the Federal Reserve to reduce short-term interest rates to bail them out?

The idea that we can pick and choose among borrowers with toxic loans produces several false notions.

Misconception #1: If we only make owner-occupants whole then local real estate markets will recover. This is untrue. Why? Because investor properties lost to foreclosure will continue to flood the market, driving down all home values.

Misconception #2: it’s not a public policy problem if large numbers of real estate investors fail, they should have known better. This also is untrue. Why? Because when buyers look at recent home sales they do not distinguish between homes sold by owners and homes sold by investors, they merely look at sale prices.

Misconception #3: Real estate investors who fail are universally frauds and thieves. Mr. Paulson equates real estate investors with those who commit fraud, an outrageous comparison. When Mr. Paulson worked on Wall Street and earned millions of dollars, did he once say that those who invested in stocks and bonds were also swindlers?

Who Is A Real Estate Investor?

Economists believe there are four basic sources of wealth: land, labor, capital and entrepreneurial ability. there’s no shortage of seminars, books and tapes which explain in glowing detail how you too can become rich with real estate, even if you lack experience, cash or credit. While program developers always have success stories to share, they never say what percentage of their readers, attendees or listeners actually become rich. The reason, of course, is that the real money is not in real estate, it’s in seminars, books and tapes.

But get-rich-quick plans aside, real estate has been a major source of personal wealth for many people. Long-term holders of real estate have commonly benefited from property prices which have increased faster over time than the rate of inflation, thus creating increased buying power and real wealth. According to the National Association of Realtors, the median price of an existing home rose from $124,800 in 1998 to $201,100 as of January 2008.

it’s not just individuals who benefit from real estate investing, it’s also local communities.

Why Investors Count

The Census Bureau says that in the third quarter of 2009 there were 130.3 million housing units in the U.S. These units can be divided into two categories, the 75.2 million that were owner-occupied and the 52.8 million that were not. In latter group we have second homes and investment property.

Imagine the cost of housing if we discouraged real estate investment. Does anyone seriously think that the government would — or could — step in to create the housing stock required to replace millions of investor-owner units?

The value and importance of investment real estate is obvious and overt: In many communities there’s a homestead deduction for owner-occupants but not for identical properties owned by investors. In other words, investors commonly pay higher tax rates than homeowners for properties that are exactly alike. Does it make sense to drive away those additional tax dollars by discouraging investment?

Lenders, of course, gleefully finance investor properties with higher rates and tougher qualification standards than they require from owner-occupants. They would not make such loans if they produced ongoing losses, and they surely would not originate such mortgages without proper underwriting and appraisals.

Government policies encourage the purchase of investment real estate by allowing investors to depreciate property over time; engage in tax-deferred exchanges; and deduct mortgage interest, property taxes, insurance and repairs. In many cases small investors can write off paper losses against ordinary income.

Given the enormous fall in home sales, would it not be smart to encourage investors to enter the marketplace, absorb inventory and increase the number of buyers looking for properties? Alternatively, if unit sales continue to plummet, does anyone doubt that home values will follow?

“The exclusion of investors from government programs needs to be reconsidered,” says Jim Saccacio, Chairman and CEO at RealtyTrac.com, the leading online marketplace for foreclosure properties. “Saving investors from foreclosure would keep additional properties off the market, thus reducing inventories and perhaps returning home values to normal more quickly than would otherwise be possible. In addition, we should encourage investors to enter the marketplace to absorb as much inventory as possible. By increasing the pool of potential buyers there would be less pressure to reduce home prices.”

_________________________________

Published originally by RealtyTrac.com in 2008 and posted with permission.

Should We Dump Real Estate Investors? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: Bush, investors, Paulson, policy, real estate, taxes

A Basic Guide To Real Estate, Mortgages & Taxes

Peter G. Miller — Wed, 11 Nov 2009 04:33:00 +0000

Let’s be honest: April 15th is a day of reckoning, the moment when we find out what we really owe for taxes. In households nationwide wallets are drained and many who were rich on the 14th are greatly impoverished by the 16th.

But for those with real estate the load is made lighter by tax rules which encourage the ownership of homes and investment property. Such rules are not only good for homeowners, they’re also good for the country: About 20 percent of all economic activity nationwide is related to real estate, so policies which encourage real estate activity help everyone.

It seems that almost every year changes to the tax code require the production of new forms and a re-education process. That said, the real estate basics remain in place and they’re good news for buyers, sellers, borrowers and owners.

Mortgage interest is generally deductible.

The IRS says there are three categories of deductible home mortgage interest:

Mortgages you took out on or before October 13, 1987 (called grandfathered debt).
Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2005 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).
Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2005 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2).

Substantial profits can be sheltered when a prime residence is sold.

When a prime residence is sold, up to $500,000 in profits can be sheltered from federal taxes if married, $250,000 if single, providing the home has been used as a prime residence for two of the past five years. Generally this deduction cannot be used more than once every two years, according to the IRS.

There are also provisions which may be helpful to individuals who must sell a prime residence in less than two years. Under the 2004

safe harbor rules, individuals may be able to get some capital gains relief under certain circumstances, such as being forced to move because a job has been relocated at least 50 miles or a home that must be sold because of multiple births resulting from the same pregnancy.

Also, individuals in the Armed Forces and the Foreign Service may be entitled to special consideration under the Military Family Tax Relief Act of 2003 (MFTRA). For instance, you may have longer to take a capital gains deduction or to amend a tax return. There are other provisions under MFTRA that also may be helpful, so check with a tax professional for specifics.

Lastly, please see the information below regarding the new tax credit of up to $6,500 which is available to certain owners who obtain a contract to buy their current residence before April 30, 2010 and close before June 30, 2010.

Points may be deducible by both buyers and sellers.

Picture a situation where a home is sold for $500,000 and the owner — to help close the sale — offers to pay 1 point for the buyer. If the property was financed with a $350,000 mortgage, a point would be worth $3,500. According to the IRS, “the seller cannot deduct these fees as interest. But they are a selling expense that reduces the amount realized by the seller.”

Interestingly, in this situation the buyer can also deduct the points when the home is sold.

“The buyer,” says the IRS, “reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them.”

In effect, the seller gets to write-off the $3,500 cost by reducing any profit from the sale. The buyer essentially lowers the purchase price of the property when the home is sold at some point in the future — thus increasing the size of any profit. However, since up to $500,000 in sale profits may be untaxed, most buyers will effectively never pay a tax on the seller’s contribution for points.

If a prime residence is refinanced then the deal with points is different: The expense of a point must deducted over the life of the loan. If the home is sold before the loan term ends, then any cost not deducted for points can be used to reduce owner’s profit from the sale.

Home offices may be deductible.

If a portion of your home is used regularly and exclusively as your principal place of business or for the convenience of your employer it may be possible to write off a portion of such costs as mortgage interest, property taxes and utilities. There are a number of tests which must be met to take this deduction, see IRS Publication 587, Business Use of Your Home for details.

In some cases there may be tax advantages associated with not deducting your home office in the year or two before you move. Speak with a tax professional for specifics.

Mortgage insurance premiums may be deductible.

Mortgage insurance premiums should be deductible. The catch? Not all premiums are deductible by all borrowers. In general, the rules look like this:

The deduction applies to loans made after January 1st, 2007.
The deduction applies to both private mortgage insurance (MI) as well as mortgage insurance through the Federal Housing Administration (FHA), the Veterans Department (VA) and the Rural Housing Administration.
The deduction applies to acquisition indebtedness, meaning debt used to acquire a home.
If you refinance remaining “acquisition indebtedness” then you can write off mortgage insurance on the new debt.
You can take the deduction if you’re married, file jointly and have a gross adjusted income of $100,000 or less. If you’re single or married and filing separately the income limit is $50,000.
The deduction phases out once income limits are passed. For married couples, the deduction is reduced by 10 percent for each $1,000 in income over $100,000. This means there is no deduction for incomes above $110,000. For singles and those married and filing separately, the deduction is reduced by 10 percent for each $500 in additional income — this means there is no deduction above $55,000.
The mortgage premium write-off begins January 1, 2007 and is scheduled to end December 31st, 2010. However, the program is likely to be extended.
Speak with a tax professional for specifics.

Natural Disasters

The Katrina Emergency Tax Relief Act of 2005 provides extensive tax benefits and assistance to those who were victims of hurricanes Katrina, Rita and Wilma. For details, go to the IRS Katrina relief page or call 1-866-562-5227.

If you have been in a natural disaster — a flood, hurricane, tornado, etc., contact your local congressional office to see if special tax help is available. Links to congressional offices can be found by pressing here.

Mortgage Forgiveness Act

Traditionally if you do not pay a mortgage in full any money not paid is regarded as “imputed” income — income which is taxable. However, with the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a bill sponsored by Rep. Charles Rangel (D-NY), if you can negotiate a partial pay-off with a lender, the amount forgiven will not be taxed by the federal government.

This legislation makes sense because people who have lost their homes, been foreclosed or gone bankrupt have no money to pay. However, the maximum write-off is limited to forgiveness worth no more than $2 million (not a problem for most folks) and — more importantly — the rule applies only to a principal residence.

Some questions to ask: When does this law end? Are home equity loans covered? What about state rules?

$8,000 Tax Credit For First Time Buyers Extended Until April 30, 2010

Under the FHA reform package passed by the Congress during the summer of 2008, first-time home buyers could be entitled to a tax credit equal to 10 percent of the purchase price of the residence. This credit is limited to $7,500 for married couples and single taxpayers but can be no more than $3,750 for married individuals filing separately.

Since most homes are valued at more than $75,000 the credit will likely be used up with the purchase of a home or condo. The property must be occupied after April 9, 2008 but before July 1, 2009 to qualify. Also, a “first-time” buyer is defined as someone who has not held title to real estate for at least three years. The credit phases out for married couples earning above $150,000 a year and for singles earning more than $75,000.

The catch.

The $7,500 is a credit against taxes due to Uncle Sam. If you owe $10,000 to the IRS you can deduct up to $7,500. But, when you sell the property the $7,500 must be repaid over 15 years — that’s just $500 a year at some point in the future.

Okay, it’s really a $7,500 loan — without interest and when you really need it.

2009 First-Time Homebuyer Credit (Part 1)

In 2009 the deal changed. Under the American Recovery and Reinvestment Act of 2009 the credit amount was raised to $8,000 and NO repayment is required if a first-time homebuyer purchases a residence before December 1, 2009. There is still an income phase out and buyers must own their homes for at least three years.

2009 First-Time Homebuyer Credit (Part 2)

In November 2009 the deadline for the first-time homebuyer credit was extended under the Worker, Homeownership, and Business Assistance Act of 2009 from December 1, 2009 to include contracts made before April 30, 2010 and closed before June 30th.

Also, the income cap to get the full credit was raised from $75,000 if single or $150,000 if married to $125,000 for singles and $225,000 for joint filers. Above the $125,000/$225,000 levels the credit phases out to nothing at $145,000 for singles and $245,000 for couples.

New Credit for Existing Home Sellers

The November 2009 legislation also created a new tax credit for existing home sellers. In basic terms, if you have owned your home for five consecutive years out of the last eight you can get a tax credit for as much as $6,500. The contract to sell your replacement residence must be signed before April 30, 2010 and the deal must be closed before June 30, 2010.

For specifics regarding the November 2009 changes, speak with a tax professional and get a copy of IRS Form 5405. Also, see the IRS first-time homebuyer site for details regarding the new legislation.

Investment real estate can generate substantial write-offs.

If you own rental property you must seek a fair market rental for your property. You may generally deduct mortgage interest, property taxes, repair costs, management by an outside party, depreciation, advertising, insurance, utilities, legal services and other expenses.

It’s possible with rental properties to have both a positive cashflow and a loss for tax purposes. However, the ability to use real estate losses to reduce overall taxes may be phased out as income rises above $100,000.

If a rental involves relatives special rules and restrictions may apply. Check with a tax pro for details.

A 1031 exchange may allow investors to defer all capital gains taxes.

With a 1031 transaction, investment property is exchanged for “like” real estate. The basic requirements are that within 45 days after the “relinquished” property has been sold, a “replacement” property must be identified. The identified replacement property must then be acquired within 180 days after the sale of the relinquished property.

What’s important about a 1031 exchange is that the capital gains tax on the relinquished property is deferred — but it does not disappear. What really happens is that the basis for the new property (the “replacement property”) is reduced by the adjusted value of the “relinquished property” (the old property).

A 1031 exchange is complex and requires the services of a “qualified intermediary.” Among other tasks, a qualified intermediary holds the money from the sale of the relinquished property and applies it to the purchase of the replacement real estate. This must be done because under the rules for 1031 exchanges, the seller of a relinquished property cannot touch money from the sale — it must be held by the qualified intermediary.

Accounting for a 1031 exchange is also complex. Essentially there is a need to figure out the sale value of the relinquished property, add back depreciation and account for financing. Ed Horan, a well-known exchange authority and the author of How To Do a Like Kind Exchange of Real Estate, has posted a free 13-page exchanging guide with an accounting worksheet that’s well worth reviewing before meeting with a tax pro.

Death of a Spouse

The capital gains write-off for the sale of a home is $500,000 if married and $250,000 if single. But what happens if a spouse dies?

For years the rule has been that if the couple’s home was not sold by December 31, 2007 then the surviving spouse would be treated as a single home seller. In other words, the maximum write-off would go from $500,000 to $250,000.

There is a certain logic to this approach — and also a certain cruelty. If a spouse dies on November 30th the surviving spouse would have about four weeks to sell the home. This hardly seems right but now the rule has been changed.

Under new legislation passed by Congress, after December 31, 2007 surviving spouses will now have two years from the date of passing to sell the property and still qualify for the $500,000 write-off.

Gifts

For 2009 you can give someone as much as $13,000 per year, tax free. This is up from $12,000 in 2008. For gift information from the IRS, press here.

Sources and Publications

You can be certain that the information presented here is not a substitute for professional advice. As always with taxes, nothing is ever simple or easy. Speak with a qualified tax professional for specific advice — an enrolled agent, a CPA or an attorney who specializes in tax issues.

Also, the IRS itself has excellent information at its website, www.irs.gov, by phone at 1-800-829-1040 and with specialized publications such as those below:

A Basic Guide To Real Estate, Mortgages & Taxes is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Mortgage News: Investors Have Rights Too

Peter G. Miller — Thu, 20 Aug 2009 13:04:01 +0000

What rights do mortgage investors have when loan servicers want to change loan terms? That is the essential issue in this case which pits Greenwich Financial Services Distressed Mortgage Fund 3, LLC against Countrywide Financial Corporation, now a part of Bank of America.

Does the safe harbor provision created by Congress last March for mortgage servicers allow servicers to change the terms of loans owned by investors without the approval and authority of investors — even when it means that investor returns will fall and that asset values will decline? According to United States District Judge Richard J. Holwell, the answer is no — meaning the investors now have the right to take Countrywide to court.

A major issue here concerns potent conflicts of interest. For instance, if a mortgage servicer is a big bank can it modify loans owned by investors — but not loans that it owns?

Greenwich is headed by William Frey, perhaps the country’s best advocate of mortgage investor rights. In conversations with me, Frey has pointed out that protecting investor rights is important as a matter of law even if such rights may not be politically popular.

Moreover, Frey notes that mortgage “investors” are often insurance companies and pension funds which actually benefit average citizens such as retirees, state workers and other groups. Cutting mortgage rates or reducing the value of mortgage securities can impact individuals across the country who depend on such money for their retirement and lifestyle.

Incidentally, Greenwich is a securities broker-dealer and not a hedge fund.

Greenwich Financial Decision

Mortgage News: Investors Have Rights Too is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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2009 Real Estate, Mortgages & Taxes

Peter G. Miller — Wed, 11 Mar 2009 06:18:25 +0000

Mortgage interest is generally deductible.

The IRS says there are three categories of deductible home mortgage interest:

Mortgages you took out on or before October 13, 1987 (called grandfathered debt).
Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2005 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).
Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2005 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2).

Substantial profits can be sheltered when a prime residence is sold.

There are also provisions which may be helpful to individuals who must sell a prime residence in less than two years. Under the 2004
safe harbor rules, individuals may be able to get some capital gains relief under certain circumstances, such as being forced to move because a job has been relocated at least 50 miles or a home that must be sold because of multiple births resulting from the same pregnancy.

Points may be deducible by both buyers and sellers.

Interestingly, in this situation the buyer can also deduct the points when the home is sold.

“The buyer,” says the IRS, “reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them.”

Home offices may be deductible.

In some cases there may be tax advantages associated with not deducting your home office in the year or two before you move. Speak with a tax professional for specifics.

Mortgage insurance premiums may be deductible.

Mortgage insurance premiums should be deductible. The catch? Not all premiums are deductible by all borrowers. In general, the rules look like this:

The deduction applies to loans made after January 1st, 2007.
The deduction applies to both private mortgage insurance (MI) as well as mortgage insurance through the Federal Housing Administration (FHA), the Veterans Department (VA) and the Rural Housing Administration.
The deduction applies to acquisition indebtedness, meaning debt used to acquire a home.
If you refinance remaining “acquisition indebtedness” then you can write off mortgage insurance on the new debt.
You can take the deduction if you’re married, file jointly and have a gross adjusted income of $100,000 or less. If you’re single or married and filing separately the income limit is $50,000.
The deduction phases out once income limits are passed. For married couples, the deduction is reduced by 10 percent for each $1,000 in income over $100,000. This means there is no deduction for incomes above $110,000. For singles and those married and filing separately, the deduction is reduced by 10 percent for each $500 in additional income — this means there is no deduction above $55,000.
The mortgage premium write-off begins January 1, 2007 and is scheduled to end December 31st, 2010. However, the program is likely to be extended.
Speak with a tax professional for specifics.

Natural Disasters

Mortgage Forgiveness Act

Some questions to ask: When does this law end? Are home equity loans covered? What about state rules?

$8,000 Tax Credit For First Time Buyers

Under the FHA reform package passed by the Congress during the summer of 2008, first-time home buyers may be entitled to a tax credit equal to 10 percent of the purchase price of the residence. This credit is limited to $7,500 for married couples and single taxpayers but can be no more than $3,750 for married individuals filing separately.

The catch.

Okay, it’s really a $7,500 loan — without interest and when you really need it.

For specifics, speak with a tax professional before you go house hunting.

Investment real estate can generate substantial write-offs.

If a rental involves relatives special rules and restrictions may apply. Check with a tax pro for details.

A 1031 exchange may allow investors to defer all capital gains taxes.

Death of a Spouse

The capital gains write-off for the sale of a home is $500,000 if married and $250,000 if single. But what happens if a spouse dies?

Under new legislation passed by Congress, after December 31, 2007 surviving spouses will now have two years from the date of passing to sell the property and still qualify for the $500,000 write-off.

Gifts

For 2009 you can give someone as much as $13,000 per year, tax free. This is up from $12,000 in 2008. For gift information from the IRS, press here.

Sources and Publications

Also, the IRS itself has excellent information at its website, www.irs.gov, by phone at 1-800-829-1040 and with specialized publications such as those below:

2009 Real Estate, Mortgages & Taxes is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Can You Profit From The Real Estate Meltdown?

Peter G. Miller — Sat, 20 Sep 2008 21:07:33 +0000

Hardly a week goes by without the announcement that some major bank has just succeeded in raising billions of dollars in new capital from hedge funds or overseas investors. Given the huge sums being invested in U.S. banks you have to wonder what they’re doing with such new dollars. One good use might be to make loans for American homeowners who want to buy property or take out home equity lines of credit.

That, however, does not seem to be the case. Lender after lender is cutting back. Today we have lenders who are requiring more money down in distressed areas, slashing access to existing home equity lines of credit, dropping subprime and Alt-A loans and inventing new fees for the few loans they actually originate.

You’re now going to hear a lot of pleas to loosen credit standards. Easy money, it will be said, is the sure way to boost home sales. Such arguments sound great and used to make a lot of sense except for one problem: Loose credit standards — coupled with docile federal regulation that failed the public — played a central role in creating the mortgage meltdown.

Until four or five years ago, whoever heard of the widespread use of stated-income loan applications? Does anyone think that reduced underwriting standards make loans less risky or that interest-only mortgages or option ARMs are really good for many borrowers?

In the same way that yesterday is not coming back, neither are the lending standards that were in place between 2002 and 2007. Instead we are about to see something new: lenders who lend less, builders who build smaller and borrowers who want less debt.

Some will see these shifts as frightening because the old order is about the change, but the better strategy is to see that a new reality is dawning — one with fresh opportunities for income and profits.

————————
Published originally by Realty Times on April 30, 2008 and posted with permission.

Can You Profit From The Real Estate Meltdown? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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What Is FHA 203(k) Financing For Investors?

Peter G. Miller — Fri, 29 Aug 2008 03:07:22 +0000

In October, 1996, HUD placed a moratorium on investor (non-owner occupant) participation in the 203(k) Rehabilitation Mortgage Program.

“This moratorium,” said HUD, “will allow the Department to consult with the industry and affected communities to explore legislative and policy reforms that will result in a program which will provide the neighborhood rehabilitation benefits of the investor program without the abuse and risk to the insurance fund.”

As of the start of 2011 that moratorium remains in effect and HUD, presumably, is still consulting.

What Is FHA 203(k) Financing For Investors? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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