Clearing up confusion regarding tax credits

Tax credit resources

To read more about the tax credit and find other materials, visit floridarealtors.org here.

TAMPA, Fla. – Jan. 26, 2010 – Federal tax credits for homebuyers have certainly boosted the Tampa Bay area real estate market.

The incentives have prompted nervous buyers to get off the fence, and that has helped the area shed thousands of homes from the region’s inventory of unsold properties.

But as these buyers prepare to cash in on their purchases by filing their tax returns, many are finding they may not qualify after all or don’t know how to file.

“There’s a lot of confusion,” said Greg Armstrong, a Coldwell Banker broker in Pasco County. “It’s so complex that if you’re not living it every day, like a CPA, you’re not in a position to direct someone.”

Even if the case seems straightforward, Armstrong encourages clients to seek guidance from an accountant.

There have been so many changes to the credit that IRS spokesman Michael Dobzinski had to consult his notes often to answer questions. Here are some helpful things the IRS wants you to know about the credits.

• The credits are available only to buyers purchasing primary residences. The IRS defines this has the residence where you spend most of your time.

• There are two credits available. One is for first-time buyers, or those who have not owned a home in the past three years. The maximum for this credit is $8,000 and, unlike a previous credit, this one does not have to be paid back. It applies to purchases made this year between Jan. 1 and April 30.

• The government broadened the credit in November to include some buyers who already own houses. Those buyers are eligible for a credit worth up to $6,500 for purchases made between Nov. 7 and April 30. In order to qualify, the buyer must have owned a primary residence for at least five consecutive years out of the past eight years. This credit also does not need to be paid back.

• There are income and price requirements. If the home was purchased after Nov. 6, it can cost no more than $800,000. Also, if purchased after that date, individuals cannot earn more than $125,000 and married couples filing jointly cannot earn more than $225,000.

• You don’t have to wait until 2010 to claim your credit, even if you buy this year. Purchase a home before the April 30 deadline and the credit can be claimed on this year’s taxes.

• If you’re claiming the credit, a paper filing is necessary. Only taxpayers not claiming the credit can file electronically. Dobzinski said buyers can still use electronic forms, but must print them out and mail them in, along with form 5405.

• Unlike last year, buyers claiming the credit must prove they are eligible. This is because some people filed for the credit last year, even though they had not purchased a home. You’ll need to send the HUD settlement statement along with the tax form. If you’re claiming the longtime owner credit, also include proof, such as copies of mortgage interest statements, property tax records or homeowner’s insurance records.

• Keep in mind that the credit is for your primary home. If you decide to rent or sell the home within three years, the credit must be repaid.

• Buyers claiming the credit will have to wait longer than usual to get the credit because of the need to file by paper. Expect to wait four to eight weeks, instead of the typical two weeks when filing electronically.

Copyright © 2010 Tampa Tribune, Fla., Shannon Behnken. Distributed by McClatchy-Tribune Information Services.

FHA Seasoning Rules Lifted! Great News For Investors!

HUD TAKES ACTION TO SPEED RESALE OF FORECLOSED PROPERTIES TO NEW OWNERS
Measure to help bring stability to home values and accelerate sale of vacant properties

WASHINGTON - In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration commitment to addressing foreclosure. Just yesterday, Secretary Donovan announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes.

"As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers," said Donovan. "FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization."

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

"This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed," Donovan said.

In today's market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

"FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties," said FHA Commissioner David H. Stevens. "This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity."

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
• In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions.
• The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD's website.

Fannie, Freddie Suspend Foreclosures

WASHINGTON (AP) – Dec. 18, 2009 – Mortgage finance companies Fannie Mae and Freddie Mac are suspending foreclosures and evictions for about two weeks in a temporary break for borrowers during the holiday season.

The suspension, announced Thursday by the government-controlled companies, runs from Saturday through Jan. 3. “No family should have to face the prospect of being evicted during the holiday season,” Michael Williams, Fannie Mae's chief executive, said in a statement.

Earlier Thursday, Citigroup Inc. announced a 30-day suspension of foreclosures and evictions, affecting about 4,000 borrowers. Fannie and Freddie did not estimate how many homeowners would get this grace period.

Last winter, most major lenders suspended foreclosures while the Obama administration developed its $75 billion loan modification program. But foreclosures picked up again after those suspensions lifted.

RESPA 2010 Rules, Changes to HUD-1 & GFE

This week I attended a training seminar held by SAR to learn the changes on the new HUD-1 (Settlement Statement) and GFE (Good Faith Estimate) RESPA 2010 Rules. This new form will go into effect January 1, 2010.

This is the most far reaching change that RESPA has initiated in many years. It's purpose is to protect consumers (borrowers) from surprises at the closing table, lower consumer costs, and making shopping for a loan easier. The 2 forms will have to match and must be no more than 10% above the final aggregate amount of certain sections.

The new HUD-1 is a three pages and have new rules about what goes where. The best one I see is no longer seeing various line items for title charges including wire fees, document storage and other "junk fees". Title companies will have to charge you one flat fee that will include everything.

I am so glad to have attended this presentation to better serve my clients in the confusing times ahead. Here is a link to the new form if you are interested in seeing it. This is far reaching and will change the way different service providers work together.

• New HUD-1
• New GFE
• Frequently Asked Questions

If you are confused about all this, rest assured I got you covered. Call me.

Dill

The Drawbacks to Buying Foreclosures

Price-conscious home buyers are lured by the low prices advertised for properties in foreclosure. They hope to show up at the auction and win the lowest bid. However, many of these homes are not available for inspection prior to purchase. Is it smart to buy a home that you cannot inspect? Could be if the price was low enough to compensate you for the amount of work that might be required to bring the condition of the home to market standards.

Before you rush forward to buy a foreclosure, stop to think about some of the drawbacks and repercussions if you can't get in the house to inspect the interior.

Who Is Living at the Property?

If the property is occupied, the successful bidder is typically responsible for removing the occupants, who may not be the previous owners. They could be relatives or friends of the owners, renters or squatters. You might have to evict them.

• If you are unfamiliar with eviction processes, you should hire a lawyer to handle it for you.


• Be aware that tenants who are sued for eviction sometimes retaliate.


• A better solution might be to pay or bribe the occupants to leave.
  (In the business we call this "Cash For Keys")

Non-Owner Occupied Homes

Here's an example, a house, was rented to a dubious couple: a former convict recently released on parole and his partner with sketchy credit, who flinched at loud noises like a domestic abuse victim.

The seller, unaware that his deed of trust contained an "assignment of rents" -- meaning the lender had a right to collect the rent if the owner did not make his payments -- stopped paying on his piggyback loans and didn't much care who he rented to as long as they paid him. Fully intending to pocket the rents and forget about his mortgage loans, the seller listed the rental for sale. His agent made an initial attempt to gain access to the home. The ex-con, a neo-Nazi with a shaved head, massive tattoos and holding back a barking pit bull, peeked through the door and then slammed it in the agent's face.

Soon as the For Sale sign was planted in the lawn, the tenants stopped paying rent. Neither the lender nor the seller could collect any money from the tenants. The agent could not show the property. This was an ugly situation. The lender (who held both the first and the second loan) filed for foreclosure and vowed to file a deficiency judgment against the seller, which junior lenders can do in California if the loans were not purchase money.

Condition of Foreclosed Homes

Because these homes are purchased "as is" from the lender or HUD, there is no guarantee of condition. Sometimes it is possible to inspect these homes prior to making an offer but sometimes, as in the above example of the home, access is not granted.

When sellers realize they are about to lose their homes through foreclosure, it's not uncommon for them to stop caring about the home.

• If something breaks or malfunctions, they aren't going to fix it.


• If they are angry or desperate enough, it's possible they might actually destroy the house. An effective way to flood the home is to turn on all the water faucets, plug the drains and leave. Others smash out walls, then pull out the copper pipes and wiring to sell as scrap metal. Owners will also sell the appliances and kitchen cabinets.


• Some horrible-excuse-for-human beings even leave animals behind, locked inside without food or water.

Buying foreclosures is not for the faint of heart. It's best handled by the pros and is not recommended for first-time home buyers. I don't care what seminar you attended -- if it's not giving you this information, it's not preparing you for reality.

Leaving Home Loans Behind - To Pay or Not To Pay?

SAN DIEGO – Oct. 13, 2009 – Scott Conroy pays the mortgage every month on his one-bedroom condo in San Diego, even though it’s worth 33 percent less than what he owes, and it may take more than a decade to break even.

Homeowners like Mr. Conroy who can afford their monthly payments are weighing whether to sell and pay the difference, stick it out until housing prices recover, or walk away.

In the United States, 26 percent of borrowers owe more than their home is worth, said Karen Weaver, global head of securitization research for New York-based Deutsche Bank Securities Inc. In parts of California, Florida and Nevada, it’s as high as 75 percent.

So-called strategic defaults, in which homeowners stop paying their mortgages while remaining current on other debts, rose 128 percent to 588,000 last year, according to Experian PLC, a Dublin-based credit-checking company, and Oliver Wyman, a New York-based consulting firm. Two-thirds of those who walked away defaulted on their primary residences.

“You’re looking at an extremely long horizon in order to see a return of home values to where they were at their peak,” said Stan Humphries, chief economist for Zillow.com, the Seattle-based real estate data service. “It could be 15 to 20 years in some markets.”

Strategic defaulters represent about 4 percent of all homeowners underwater. That trickle could become a flood as the likelihood recedes that home prices will soon return to their peak values, said Rick Sharga, senior vice president of Irvine, Calif.-based RealtyTrac Inc., an online seller of real estate data.

In San Diego, where Mr. Conroy lives, home values are down about 40 percent since March 2006 when he bought his place, according to the S&P/Case-Shiller Index of 20 U.S. metropolitan areas. Prices have rebounded for three consecutive months, returning to the October 2002 level, before the start of the housing boom. Nationwide, home values are what they were in September 2003, according to the Case-Shiller index as of July.

“You have to ask yourself: Are you just renting the home from the bank?” said Michael Joe, a foreclosure expert at the Legal Aid Center of Southern Nevada. “Would it be cheaper to walk away and rent across the street?”

Mr. Conroy, 32, and his wife purchased their home for $385,000 in March 2006, a month before marrying. The property was reassessed this summer for $250,000. The couple is trying to save, he said, knowing they may have to move to a bigger place within 18 months to start a family.

“We’ve given up on this dream of having equity in our home,” Mr. Conroy said. “We don’t expect to walk away with cash in hand, we expect to pay.”

State laws

More homeowners may opt to take a hit to their credit score rather than come up with cash to cover the loss, especially in California and the nine other U.S. states where the legal repercussions of foreclosures are less than other parts of the country, said Mr. Sharga.

Ten states are so-called nonrecourse, prohibiting deficiency judgments after most home foreclosures: Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon and Washington, according to the National Consumer Law Center, based in Boston. The bank can repossess your home in those states, not other assets, to settle the debt.

In California, a second-mortgage holder may try to pursue a delinquent borrower to repay through litigation, said Rick Brooks, a financial adviser with the San Diego-based wealth advisory firm Blankinship & Foster LLC. Banks generally prefer not to sue because it can easily cost $60,000 or more, said Debra Guzov, co-founder of the law firm Guzov Ofsink LLC, based in New York.

Banks may be more willing to accept foreclosure alternatives, such as a short sale or deed-in-lieu of foreclosure, in states where a lender can’t sue for personal assets, said Brad Geisen, chief executive officer of Foreclosure.com, based in Boca Raton, Fla.

In a short sale, the borrower finds a buyer for the home at an acceptable price and the bank agrees to forgive the difference, said Greg McBride, senior financial analyst with North Palm Beach, Fla.-based Bankrate.com. In a deed-in-lieu of foreclosure, the bank sells the home after a similar debt negotiation.

Tax break

A 2007 law exempts from tax up to $2 million of debt forgiven in a foreclosure or similar proceeding for a primary residence, according to Internal Revenue Service spokesman Eric Smith. The tax break extends to 2012.

The lender’s willingness to negotiate varies and depends on the loan balance, condition of the property, location and resale opportunities, said Alberta Hultman, chief executive officer of USFN, an association of U.S. mortgage banking attorneys based in Tustin, Calif.

Short sales or deeds-in-lieu of foreclosures are considered the same as a foreclosure on your credit score, said Craig Watts, spokesman for Minneapolis-based FICO Corp., owner of the credit-scoring formula most widely used by U.S. lenders.

A foreclosure remains on a credit report for seven years. Credit scores can begin to rebound in as little as 2 years if bills are paid on time, according to FICO.

“You really want to think through the inability to borrow and higher rates that you’ll pay,” Christopher Van Slyke, a partner at Trovena LLC, a wealth management firm based in La Jolla, Calif., said of walking away.

“If you don’t have the gun to your head, then stay right where you are,” said Cheryl Morhauser, a financial adviser based in Nevada City, Calif., whose clients’ average net worth is $1.5 million to $3 million.

Jennifer Albaugh, 34, plans to keep her Las Vegas home, where prices have dropped 49 percent since she bought it in December 2004, according to the S&P/Case-Shiller index.

Ms. Albaugh, who owns a fabric store, might have sold her 3,000-square-foot house for as much as $550,000 four years ago, she said. Today she owes more than $300,000 on her mortgage and says her house isn’t worth even close to that. She and her husband are still looking to buy a bigger home for their two kids, especially while rates are low, and might turn their current home into a vacation rental, she said.

“Walking out of your house to get a better deal down the street is just not the right thing to do,” she said. “It hurts everybody.”

Social Stigma

Morality and social stigmas play an important role in whether someone who can afford the payments will walk away, said Paola Sapienza, professor of finance at Northwestern University’s business school, in a July study on strategic defaults. Eighty-one percent of 1,646 homeowners interviewed think it is morally wrong, the study found.

“If you know someone who’s done it, you’re way more likely to do it,” Ms. Sapienza said. “That’s the scariest part, is that there might be some contagion part of this.”

Ms. Albaugh and Mr. Conroy, the San Diego homeowner, said they’re frustrated by the lack of help for homeowners like them who keep paying.

“It seems like the banks are more willing to work with people who aren’t making their payments rather than people who are,” Mr. Conroy said.

Copyright © 2009 The Washington Times; Margaret Collins, Bloomberg News. Distributed by McClatchy-Tribune Information Services.

Real estate flippers back in South Florida, but this time they could help

MIAMI – Oct. 8, 2009 – The flippers are back.

Bolstered by swelling foreclosures and bottomed-out prices, investors are returning to the South Florida real estate market, snapping up distressed homes with cash payments for either a quick turnaround or a short-term rent-then-sell investment.

Unlike the speculative flippers during the boom – scourges who unnaturally jacked up prices, spawned reality TV shows and led to the economic crumble – today’s flippers are erudite capitalists who could usher in positive change by buying dilapidated and abandoned homes, patching them up and selling them for a market-bearable price, experts say.

The downside: These cash-in-hand guys are competing with regular folks looking for deals and struggling to find loans.

But Realtors say this whole foreclosure flip phenomenon is not for the faint of heart.

It takes legwork. Homes may carry large HOA or tax liens. Many are stripped of appliances, toilets, countertops – everything but the drywall, and sometimes even that has been plundered.

“Without a doubt, people with opportunistic profit motivations are reentering to purchase properties,” said market analyst Jack McCabe of McCabe Research and Consulting in Deerfield Beach. “But this isn’t the group of cocktail sippers who were bragging years ago about buying and flipping. These are real investors.”

Jupiter-based Pudlit Joint Venture incorporated as a limited liability partnership in mid-June and began paying cash for Costco-style home buys.

In August and September, Pudlit purchased 42 Palm Beach County homes, according to the property appraiser’s office. The group’s buys vary from Lake Worth’s D Street to Wellington’s opulent Olympia.

Realtor Robert Littman, who represents Pudlit, said the company is made up of a “couple” of investors who are willing to do the job that banks aren’t – cleaning, re-roofing and replacing air condensers that disappear into the night.

Littman has sold eight homes.

“This is a very difficult job,” Littman said. “You could go down to the courthouse and look at hundreds of properties and then only buy two.”

Foreclosures in Palm Beach County grew substantially in August, with 4,150 receiving a foreclosure filing, a 110 percent increase from the same time the previous year.

St. Lucie County had 1,649 filings in August, up 57 percent from a year ago. Martin County, with 248 foreclosures, was up 8 percent from August 2008.

Curtis Lowe, president of the Realtors Association of St. Lucie, said he’s also seen an increase in investment buys on the Treasure Coast. He had a client “more than happy” to pay the asking price on a flipped home because it was move-in ready.

Another wave of foreclosures is expected to hit Florida in 2010 as unemployed workers struggle with payments.

University of Florida economics Professor David Denslow said out-of-state investors will likely follow.

Actually, they’re already here.

Calabasas, Calif.-based group LE 1 LLC is an investment fund run by real estate investor Paul Elis, who is tiptoeing into the Palm Beach County market.

With a local partner, he paid $125,000 in cash for a four-bedroom home in West Palm Beach in May. Newly remodeled, it’s now on the market for $244,900.

But with few offers, Elis, who says he’s been flipping homes for profit for 40 years, is considering renting the home for a year or two before he sells.

“I know Palm Beach will be potentially rewarding,” Elis said. “This business is not about getting lucky with markets, it’s about skill and technical competence.”

Slowing down the flippers – and that’s not necessarily a bad thing – is the fact that buyers may have trouble getting Federal Housing Administration loans if the home has changed hands within the past 90 days.

To move the glut of houses on the market, the FHA has relaxed its 90-day rule for buyers using federal Neighborhood Stabilization Program Grants, but the policy still aims to prevent the predatory turnarounds and sky-high price increases that made “flip” a four-letter word.

Even today, Elis and his sort are called “vultures” for picking at the bones of the real estate market.

“Some people think of them that way,” said John Thomas, Palm Beach County director of residential appraisal services. “But someone has to clean up this mess.”

Copyright © 2009 The Palm Beach Post, Fla. Distributed by McClatchy-Tribune Information Services.