HAPPY NEW YEAR!

 

Theme for 2008. Accept it, or join the foreclosure line!

Some Relief for Those Less Fortunate

 

The National Association of Realtors® thanked President George W. Bush for signing the Mortgage Forgiveness Debt Relief Act into law. The president offered a Christmas present to many people who have suffered the agony and humiliation of losing their home due to a short sale, foreclosure, deed in lieu of foreclosure or any similar arrangement that relieves the borrower of the obligation to pay some portion of their debt.

“NAR has been advocating for such a change to the IRS tax code for nearly 10 years. We have always believed that it is clearly an issue of fairness and of not kicking people when they are down. By making the forgiven debt taxable income, individuals in already unfortunate situations most likely faced IRS actions because they did not have the money to pay the additional taxes. This legislation will relieve that additional burden and may also encourage families to work with their lender to negotiate terms, knowing they will now not be subject to an IRS bill.

“Today’s bill (Dec. 20, 2007)will ensure that any debt forgiven on a mortgage secured for a principal residence will not be taxed. This is very significant legislation. This may also mean that some day in the future these families can once again achieve the dream of homeownership.”

 

Some background on the issue:

Realtors® Urge President To Sign Tax Relief Bill Quickly To Ease Foreclosure Burdens

WASHINGTON, December 18, 2007 -

Many families and individuals are one step closer to seeing tax relief, thanks to the passage of the Mortgage Cancellation Tax Relief Act by the U.S. Senate and House of Representatives, according to the National Association of Realtors®. Since the early 1990s, NAR has advocated repealing the current law that forces individuals to pay an income tax when they have had a loan forgiven in either a foreclosure, a sale in a market where prices are declining or because the lender grants new mortgage terms.

“In sending this bill to the president, Congress made a good decision today that will affect many Americans who find themselves in a truly bad situation,” said NAR President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif. “As the leading advocate for housing issues, NAR believes that changing the IRS code is an issue of fundamental fairness. It will relieve a tax burden at a time when an individual or family has experienced a true economic loss arising from the sale or loss of their home. These people are already in financial distress and are most likely unable to pay additional taxes.”

NAR is committed to continuing efforts to make the horror of losing a home less burdensome for families. “This is not only about the subprime turmoil we are currently experiencing. This is about families where job loss, divorce, health issues, a drop in the value of the home or other unfortunate circumstances have caused them to lose their home or have to sell that home for less than the amount owed. Clearly, it is unfair to tax people on a phantom income when they most likely have no cash with which to pay the tax,” said Gaylord.

The current tax code requires a lender who forgives debt to provide a Form 1099 to the IRS stating the amount the borrower has been forgiven. This disclosure applies whether it is a short sale, foreclosure, deed in lieu of foreclosure or any similar arrangement that relieves the borrower of the obligation to pay some portion of their debt. If the property is sold at foreclosure or is sold for less then was borrowed, that difference is considered income and is subject to the tax.

The Mortgage Cancellation Tax Relief Act would ensure that any debt forgiven on any mortgage debt secured by a principal residence will not be taxed. The legislation includes a provision to safeguard against abuses. The provision, similar to one that already exists for commercial real estate owners, would treat commercial and residential property equally.

“Realtors® are about building communities, not just selling homes. We must work together to prevent the dream of homeownership from becoming a nightmare,” said Gaylord. “This is just one step that will help families get on with their lives and begin rebuilding their economic security. As the president has been a proponent for this change, we hope he will quickly sign this bill into law.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.
                                                    # # #

Clean contracts may be a thing of the past

We (real estate agents) often talk about the merits of a clean contract. A clean contract, or an offer to purchase is simple and straight forward - one that's not complicated by lots of contingencies.

In a tight market, those with hang ups (contingencies) loose to the quickest and cleanest offer. In a soft market, contingencies become more prevalent and important because, let's face it, the reason the market is soft is because there is an unbalance in the supply and demand, and therefore, must proceed with caution.

A contingency in a real estate purchase is something that must be satisfied in order for the sale to go through. Contingencies protect buyers and sellers, but they also provide opportunities for real estate transactions to fall apart.

For example, the buyers may need to sell another property to come up with enough cash for the down payment. If  their property sells, the deal goes forward. If it doesn't, the deal more than likely will fall through. Other common contingencies are for inspections, for financing, and for approval by other parties (like attorneys or accountants).

Less-common contingencies are sometimes more difficult to satisfy. Perhaps the buyers only want to buy a property if they can modify it, or use it, for a specific purpose-more common in commercial real estate. For example, they might need city approval to run a day-care center.

Given the emotional of home buying and selling, most buyers and sellers prefer the cleanest contract possible.

In today's soft market, being able to offer a clean contract may give you an advantage when negotiating with the sellers. In other words, the more contingencies there are, the more opportunities there are  for something to go wrong.

In my opinion, the most important contingency in a real estate contract is for financing. If you write an offer without a financing contingency, you may risk losing your deposit money if you can't get the loan.

You should also have a contingency for inspections- a time frame from the effective date and set parameters.

To make a clean offer, get your financing in order and take care of as many contingencies as possible before you start negotiating.

For professional advise on all aspects of buying or selling Real Estate, please contact me Richard Recuset at-786-287-9272 -email: BailOutCentral@yahoo.com
The Recuset Group

Mortgage Insurance premium is deductible

 

A break for borrowers (the few that qualify) paying a m0nthly mortgage insurance premium. President George W. Bush signed shortly before the close of 2006.

Some of the provisions:

One Year Term. The deductible applies only to Mortgage Insurance policies issued in 2007 for homes purchased in 2007. It doesn't apply to premium payments for policies issued before 2007.

Applicability. The deduction applies to private Mortgage Insurance, and to FHA, VA, and Rural Housing Service premiums as well. The mortgage insurance premium amount is to be treated as mortgage interest.

Income Eligibility. The new deduction is available only to individuals or families with less than $100,000 adjusted gross income (AGI) on a joint or single tax return ($50,000 for married filing separately).

Premium prepayment. Individuals who claim the deduction are not permitted to prepay premiums that are otherwise due after 2007. The provision expires for any premium payment that's paid or that accrues after Dec. 31, 2007.

Mortgage Prepayment. If a mortgage (other than a VA, FHA, or RHS mortgage) is prepaid during 2007, the unamortized premium balance on that mortgage isn't deductible. (The unamortized premium balance is the amount of premium that would have been paid in a particular year if the payments had extended throughout that year.)

Notification. The home owner is supposed to receive a statement from either the  lender or the mortgage insurance provider stating the proper amount of the mortgage insurance deduction. That information will also be provided to the IRS.

Given it's one-year authorization and limited applicability, it's not known when or if the IRS will provide additional guidance for the deduction. How'd yah like them apples!

For professional advise on all aspects of buying or selling Real Estate, please contact me Richard Recuset at-786-287-9272 -email: BailOutCentral@yahoo.com
The Recuset Group

Choosing a Mortgage

Technorati Tags: Mortgage

You can free up cash for other things- this being the holiday season and all, by lowering your housing debt.

Lately I've noticed that I get more quires on mortgages than on real estate property it's self. It's not surprising, since a lot of people fell for the easy lending practices (creative loans with hooks) mortgage brokerages and direct lenders dished out. And since most homeowners cant move the house now- literally or figuratively, they can more than likely move the paper around-literally. After all, your mortgage commands attention since the average homeowner owes $115,200 , a small fortune.

There are other things that you can do besides refinancing, since most don't have that option because rates are still low or not lower enough to justify refinancing.

Here are three other options that make sense today.

Cancel PMI 

If you put down less than 20% , you're probably paying mortgage insurance, unless maybe you got a piggy back loan- two loans (20/80) to avoid PMI.

The extra cost-$16 to $50 a month for every $100,000 of debt-it may not seem like much but it adds up throughout the life of the loan. Your lender must automatically cancel your PMI if you took your mortgage out after July 1998, once you've paid off 22% of the loan. But as long as you've paid the loan in time for the last two years, you can ask that PMI be discontinued when your equity reaches 20%. You'll have to spend about $300-$400 for an appraisal to prove that your gains and principle payments add up to 20%. Just a months of PMI savings could cover the cost.

Prepay

Prepaying your mortgage (or any debt) is economically the same as earning a return equal to the interest rate on the loan. However, recent low mortgage rates- you could be paying less than 6% on a 30 year loan- don't outstrip what stocks have returned historically. For someone with poor funded retirement and a lot of home equity may be to take on more debt. If your planning on selling that 5 bedroom behemoth when you retire, you could take money out of your home with a cash-out refi and invest it. Not a bad move if you've enjoyed big gains in your home's value and can get more bang for your buck.

Refi The Expensive Heloc

About four years ago, the minimum monthly payment on a $100,000 line of credit was just $333. But now that the prime rate (which is the rate most HELOCs are pegged to) had doubled to 8%, the minimum is $666.

If you can't pay off the HELOC, you may be able to convert it to a conventional loan or refinance it and your mortgage into a single fixed- rate loan-if that is you can find a rate that beats what you are paying for both loans and saves you enough to cover refi costs.

You'll need to calculate your blended interest rate. Let's say you have a 6.5% mortgage with a $200,000 balance and a 10.5% HELOC with a $100,000 balance. You're blended rate is 7.8% - a rate you can still beat today.

 The rate you need  to beat:

To figure out whether it would pay to refinance your mortgage and HELOC with one loan, you need to calculate a blended interest rate for your total housing debt. If the result is higher than what you could get on a new fixed-rate mortgage, go for it.

                    

 (Mortgage Rate   x  Mortgage  Balance-total debt)

                                              +

    (Heloc Rate       x   Heloc  Balance-total debt)

                                    =

                      Blend Interest Rate

For professional advise on all aspects of buying or selling Real Estate, please contact me Richard Recuset at-786-287-9272 -email:   BailOutCentral@yahoo.com
The Recuset Group