The Intero Insider

Intero Insider: To Forgive Or Not To Forgive? That Is The Question.

By Gino Blefari | March 10th, 2010 0 Comments

Even in a “normal” year (when someone actually finds one of those, please tell me), I am bombarded each spring with questions about real estate transactions and their implications on Federal and State income taxes.

In a year in which we’re experiencing continued economic hardships, and since many of those hardships relate directly to home sales and foreclosures, I’m getting far more than usual.

Right out of the blocks, I tell them that I’m not a tax professional and that any questions that they have ought to be directed to their accountants and financial advisors. That said, I like to do all I can to help folks out, so I answer questions where I am able.

One of the most frequent questions I hear — and the one whose answer seems somewhat out of reach — pertains to short sales.

“I sold my house this year, but it was a short sale. Can the IRS or my state tax the forgiven debt?”

The answer is, “Yes. Yes, they can.” A better question is, “Will they?”

With regard to the Federal Government, the answer is “no”. In a move meant to encourage homeowners to work out alternatives to foreclosure, the Federal Government has placed a moratorium on the taxation of forgiven mortgage debt through 2012.

Many states have followed suit, but there are a great many who have not. One of the states in which the question has yet to be answered is California, a state that has been hit harder than most in this period of crisis, and also one whose economic woes far exceed that of any other.

While it may sound unfair, forgiven debt has always been treated as income and, until the Mortgage Forgiveness Debt Relief Act of 2007 was enacted, that income could (and would) be taxable.

At the time of this writing, Governor Schwarzenegger had not made a decision with regard to the state collecting taxes on forgiven debts, but in a state that is as cash-starved as California, there is a strong possibility that he’ll have no choice but to do so.

If you sold your home last year and that sale was a short sale, there are heady tax implications attached to it. It is imperative that you consult with your accountant or financial advisor, so that you can adequately prepare to meet the tax man, should he come a’calling.

Intero Insider: It’s almost April … Do You Know Where Your Tax Credit Is?

By Gino Blefari | February 23rd, 2010 0 Comments

Over the course of the last year or so, I’ve written a lot about the Homebuyer Tax Credit. There are some faint rumblings among lobbyists and in Congress about whether it’s going to be extended yet again (I’m betting that it won’t), but for those who are already eligible, how exactly to claim the credit isn’t exactly … straightforward.

For one thing, there are two different credits with which to be concerned: the original First-Time Homebuyer Tax Credit, and the extended Homebuyer Tax Credit. Each has different rules, each has its own set of quirks and foibles.

First, let’s recap who’s eligible to claim the credits in the first place.

If you purchased a home between January 1, 2009 and November 6, 2009, you may be eligible for the Homebuyer Tax Credit, as it originally stood.

To qualify, you (the buyer) must not have owned a home for three years prior to your purchase. Your new home must be your primary residence, meaning you can’t use it for a vacation home or an investment property — you actually have to live there. The maximum allowable credit is equal to 10% of the purchase price, up to $8,000. Single buyers with incomes up to $75,000 per year or married couples with incomes of up to $150,000 are eligible.

That’s pretty clear. When it comes to the extended tax credit, things are a bit hazier.

If you purchased (or if you intend to purchase) a home between November 7, 2009 and April 30, 2010, you may qualify for the extended Homebuyer Tax Credit.

If you are a first-time homebuyer (meaning that you hadn’t owned home for at least three years prior to your purchase) OR a current homeowner who had lived in a house as a primary residence for five years in a row out of the last eight, you may qualify.

For first-time homebuyers, the maximum allowable credit is $8000. For current homeowners, the maximum credit is $6,500. As with the original credit, the buyer’s eligibility depends on the price of the home (this may not exceed $800,000) and his income. For the extended credit, income levels were increased to $125,000 for single buyers and to $225,000 for married couples. Even if your income exceeds these levels, check with your tax professional to see if you might qualify for a portion of the credit.

As long as there is a contract to purchase in place prior to April 30, 2010, and so long as that transaction is closed before July 1, 2010, buyers can claim the credit on their 2009 income tax returns.

In all cases, buyers will need IRS Form 5405, as well as a fully-executed HUD-1 statement from the property closing.

As always, be sure to consult your tax professional for any questions that you may have on matters such as these. The tax credit won’t be around forever; be sure to take advantage if you’re able!

Intero Insider: Selling Short? Keep Track of Everything

By Gino Blefari | February 17th, 2010 0 Comments

It’s that time of year again. The Winter Holidays are behind us, we’ve cheered a new Super Bowl champion and exchanged boxes of chocolates for Valentine’s Day. That can only mean one thing: Tax Season is upon us.

When it comes to your home, there is plenty of documentation of which you need to keep track when it comes time to file your annual return. For those of you filing “standard” income tax returns, this is all fairly clear and straightforward.

With the current real estate climate, however, there are scores situations, like having lost a home to foreclosure, or staring personal bankruptcy in the face, in which many never thought they’d find themselves. Situations like these can make filing taxes a bit trickier.

There’s one circumstance in particular on which I’d like to focus today:

Short sales.

If you’ve gone through the short sale process (where you can no longer afford the payments on your home, but your lender allows you to sell the home at loss, rather than go through with foreclosure), then you know it’s long, it’s arduous, and it’s one in which things have the potential to be very murky.

When completing the reams and reams of paperwork required by your lender to complete the short sale process, it’s likely that you signed a promissory note, or other like document, granting the lender the right to take action against you to collect the deficient amount. This is pretty standard. It’s possible, though, that you also got a copy of a document with the heading 1099-C, which the lender has filed with the IRS, indicating that the unpaid portion of the loan has been canceled. This is a trigger for the IRS to assess taxes against the forgiven debt.

Wait. What?

“How is that possible?” you might ask. Good question. It doesn’t stand to reason that a lender can pursue you for unpaid debt and that the IRS can assess taxes, as well. Logic would dictate that one or the other is reasonable, but not both.

Keep copies of everything having to do with anything related to the transaction.

If you signed paperwork indicating that the lender can take collection action against you, but you’ve also received a 1099-C for the uncollected debt, you’ll have plenty of documented proof to show the IRS that you don’t owe taxes on that amount. Similarly, if there is nothing in your sale paperwork that gives the bank the right to collect the debt, nor is there any other reference to it, the 1099-C will serve as evidence should the bank, at some point, decide to take action against you.

They can’t have it both ways.

I’m not a tax professional. I’m not certified to give that sort of advice. But I can advise you to seek the counsel of a tax professional, so that negotiating the maze of tax ramifications that come with a short sale is made somewhat easier.

For additional information you can also download IRS Publication 4681 from the IRS website at www.IRS.gov

Intero Insider: A Delicate Balance

By Gino Blefari | February 10th, 2010 0 Comments

For the past two years or so, our nation’s economy has been floundering, doing all it could to get its head above water. The real estate industry has played — and continues to play — rather a large role in how the story pans out. But contributing to successes and failures in our own industry are untold numbers of mitigating factors, from fraudulent lending and sub-prime mortgages, to over-inflated sales prices, foreclosures, tax credits, and the some of the best sales prices in recent memory. When working together properly, these things can spur wonderful upward movement.

When something is knocked even slightly askew, however, that delicate balance can be thrown into a tailspin.

There has been great news of late, of course. Many neighborhoods across the nation have seen upticks in sales prices, many listings are, once again, seeing multiple offers, and interest rates are at astonishingly low levels.

Now, though, we are holding our collective breath, as several things that have helped spur the market along are poised to come to a halt.

First, the homebuyer tax credit. It’s been credited (no pun intended) with getting a lot of buyers into the market that wouldn’t have been otherwise. It was expanded in the Fall, but will expire this Spring.

Strike one.

Second, foreclosures. As we’ve reported already, the incidence of foreclosure continues to rise. Many homeowners in financial distress are simply making the decision to walk away from their homes, and their debts right along with them.

Strike two.

Third, we have another wrinkle. Those low interest rates that we just mentioned? They’re due in large part to Federal Reserve purchases of mortgage-backed securities. Thus far, the Fed’s purchases total almost $1.25 trillion dollars, but those purchases are due to stop near the end of March. This move will likely cause interest rates to turn upward. How much will they rise? That remains to be seen, but initial estimates have them climbing by more than a percentage point by year’s end.

Strike three.

These three factors coming together at roughly the same time could, potentially, throw the tenuous balance and modest signs of recovery we’ve seen thus far completely off kilter. The ever-changing conditions make the handling of a real estate transaction, whether for a buyer or a seller, all the more difficult. Intero’s real estate professionals stay up-to-date with the latest trends and will know which will affect you, and which won’t.

Negotiating the most important financial decisions of your life requires all of the information. Your Intero real estate professional has that information and will help you keep things in balance.

Intero Insider: Not Just One Bad Apple

By Gino Blefari | February 2nd, 2010 0 Comments

With the world all a-buzz (and rightfully so) about the state of the economy, the real estate market and the spectre of foreclosures circling around us, it’s not at all surprising that there are plenty of people lying in wait to take advantage of peoples’ insecurities. It’s a shame, to be sure, but nonetheless, inevitable.

In the State of California, it’s not going to be tolerated.

In the United States, there are record numbers of homes either in pre-foreclosure (meaning that the homeowners have defaulted on their mortgage, but have not yet been forced from the home) or in outright foreclosure. In California, the percentage of homes in foreclosure is among the highest in the nation.

For a great many people, the prospect of losing their homes is one of the most terrifying things imaginable. More than the fear of not having a roof over one’s head, there are hits that the process drives into one’s self worth. Sadly, there are unscrupulous sorts out there who prey upon these fears and who will stop at nothing to bilk frightened homeowners for all that they’re worth.

As someone who runs a business whose main goal is to put people in homes … and keep them there, the news of this marked increase in shady business dealings is more than a little bit distasteful.

In 2009, there was a 50% increase in license revocations — 672 in total — for those who had engaged in foreclosure rescue or loan modification scams. For the past two years, there had been, on average, 446 revocations.

Get the facts.

If you’re on shaky ground and are at risk of going into foreclosure, there are legitimate paths to getting help. Make sure that you know your rights, and that your lender has the credentials to back up what they’re promising.

Check the website for the California Department of Real Estate (DRE). Once there, you can check the status of anyone’s license — valid, suspended or just plain revoked — or if they are licensed at all.

If you think you’ve fallen victim to a scam, you should know your rights. If the person you believe to have defrauded you is a licensee in the State of California, you may be able to receive restitution, up to $50,000, from the DRE. If the accused is not a licensee, I’m sad to report that there may be little or no recourse.

If you have questions or concerns, please don’t hesitate to ask your Intero real estate professional. We’re here to help.

And if you’re one of those who’re trying to profit from people’s misfortunes? Consider yourself on notice. The State of California isn’t going to turn a blind eye.

Intero Insider: Is California Rebounding? Is It Really?

By Gino Blefari | January 27th, 2010 0 Comments

Last month, home sales in California were up almost 17% over November, and more than 10% over December 2008. This would indicate that progress is being made. Indeed, lots of people are predicting (as many do at the beginning of each year) that there will be a marked turnaround in market value and that things will do nothing but get rosier.

But there’s a problem that not a lot of people are talking about.

Raise your hand if you’ve heard of Strategic Mortgage Default.

No? Let’s talk about it.

Strategic Mortgage Default occurs when a homeowner, finding his home worth less than he owes on his mortgage, intentionally allows it to go into foreclosure. Let me repeat that: intentionally. Right or wrong, lots of people have done it. And many, many more are considering it. The thinking, typically, is that throwing good money after bad will just lead to … nothing. Many people believe that their homes will never again be worth what they paid for them. As such, they think, “Huh. No more property taxes, maintenance, insurance? That sounds good.”

In 2010, based on when many parts of California saw their real estate markets “top out”, many homeowners will have adjustments in their mortgages kick in. One saving grace here might be that interest rates are quite low, so payments mightn’t change all that much. But these adjustments, coupled with new taxes just passed in the state and the realization that their homes aren’t worth close to what they paid might be enough to have many people throwing in the proverbial towel.

While all of this might sound bleak, it would be naive to issue feel-good platitudes and not face the reality of the situation head-on. Strategic Mortgage Default will do its part to radically raise the number of bank-owned for sale in California. And there are lots already.

If you’re planning on selling your house this year, these homes — part of what we call “shadow inventory” — could play a big role in where you can, realistically, set your price. If you’re planning on buying, you’ll want to know how to position yourself to get the best price possible on your purchase.

Strategic Mortgage Default is going to be something you’ll hear more and more about in 2010. Like “short sale”, “REO”, and “foreclosure”, it’ll become part of the daily vernacular.

Pretending that the world is draped in sunshine and rainbows won’t solve anything. It might make people feel better for a while, but it won’t solve anything. Facing reality is the only thing that gets the job done. Your Intero Real Estate professional is ready to deal with reality. Let us know how we can help.

Intero Insider: What’s In Store In 2010?

By Gino Blefari | January 13th, 2010 0 Comments

After two solid years of unmitigated distress in the real estate market, 2009 gave us some positive signs that we’ve seen the worst of it and that, while it’ll be slow, recovery has started. It was the year in which prices seem to have hit bottom and began to stabilize.

But what’s coming in 2010?

One of the biggest stories of 2009 was the Federal home buyer’s tax credit. The credit likely spurred the real estate market along, as buyers were anxious to take advantage of it. But the credit’s been expanded, and it now has a benefit to current homebuyers, should they choose to move up to a higher-priced home. With many of those homes at prices that are, comparatively, very low, 2010 could be just the time to make the move.

2010 could well show marked improvements as people clamor to take advantage of the credit before it expires in the Spring. Though small increases have been seen in mortgage interest rates, they are still at historically low levels. There is wide speculation, however, that these rates are nearing their end. With heightened demand from buyers and housing inventory on the decline, 2010 could very well be THE time to buy.

There could be great news for sellers, as well. While it’s not likely that we’ll ever return to the feverish seller’s market of 2005 & 2006, increased buyer demand will likely help to ease the losses that many sellers have taken in the past couple of years. It’s probable that many neighborhoods will start to see some increases in their prices. These gains will be more reflective of actual worth — numbers based in reality — as opposed to the artificially-created sales figures of the early 2000s.

It’s important to note that, as a nation, we’re not out of the woods just yet. But the end of 2009 gave us many signs that its edge is near. At Intero, we look forward to making the journey toward recovery with you.

Happy New Year, and the best to you in 2010.

Intero Insider: Making Sense of Loan Modifications

By Gino Blefari | January 5th, 2010 0 Comments

Losing one’s home is a gut-wrenching experience. It’s something no one should have to go through. Now, sadly, many, many people are having to do just that. In many cases, however, there is another answer.

The Home Affordable Modification Program, or HAMP.

Part of the Federal Government’s economic stimulus plan, HAMP is an option that has yet to pick up a head of steam. It’s possible that it hasn’t gotten the necessary publicity, which is a shame, because keeping homeowners in their homes is vital not just to their well-being, but to the well-being of our economy.

Here’s how HAMP works:

Not a refinance, which replaces your loan with a brand-new mortgage, a loan modification happens when your lender reworks the terms of your existing loan. Generally speaking, this lowers payments and makes the home more affordable for you. Often, the lower payments are the result of a lower interest rate, an extension in the loan term, a reduction in principal, or any combination thereof.

If your home is your primary residence and the balance of your first mortgage is less than $729,750, then you may qualify for the program. Additionally, you’ll have to demonstrate that you’re facing hardships that are affecting your ability to make payments on your mortgage. From there, your lender will ask for documentation about your income, bank statements, as well as other financial data. You’ll also be asked to complete a Hardship Affidavit, in which you’ll describe extenuating circumstances with which you’re dealing.

“I’m doing just fine with my mortgage payments. Why is this important for me?”

Why? I’ll tell you why. The prospect of tens of thousands (yes, that many) homes suddenly appearing on the market is a pretty gruesome specter for our economy. Part of the problem of “shadow inventory” that we mentioned several weeks ago – a tidal wave of foreclosed homes entering the marketplace – would be a crushing blow to a real estate market that is only just showing signs of recovery.

Also, unoccupied homes are blights on communities. Too many can splinter a neighborhood, driving down everyone’s property values — not just those that are empty. And make no mistake: this isn’t just a problem of lower-income communities. No. Foreclosure is just as much of a problem in higher-end neighborhoods.

As Bloomberg reported late December – Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate. This brings the rate of default for these considerable loans up to a skyrocketing level of 12 percent as of September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages. This is quite a jump from the year prior where the rate for default on the $1 million dollar plus mortgages as only 4.7 percent.

So, take a look at HAMP. HAMP is offering distressed homeowners a second chance. A chance to keep a roof over their family’s head. A chance to keep the sense of pride instilled by owning your own home.

It’s not a cure-all. But it’s a place to start.

Closing The Door on 2009

By Gino Blefari | December 29th, 2009 0 Comments

The Holiday Season is approaching its end. Hopefully, you’ve been able to relax a bit and spend time with family, friends and the people whom you love most. The end of this season signals the rapidly-approaching end to yet another year. A year that most of us are more than ready to put behind us. We’re all looking forward to the promises of the new year. A fresh start. New possibilities. To 2010.

But let’s take a moment to reflect on the year that was 2009, and how it shaped us and our industry.

2009 was a year of change. A change in the way people shop for homes. A change in the way real estate professionals do business. A change in the way we look at things.

Certainly, the economy and its woes played a major role. While there are glimmers of light and signs of improvement on the horizon, rising unemployment (that will likely worsen a bit more before it gets better) and more stringent lending standards continued their stranglehold on the real estate industry.

Mortgage rates found themselves at all-time lows in 2009, but with underwriting restrictions and tightening standards, including tougher rules from places FHA, typically thought more “understanding”, very few people were able to qualify. With the Federal Government’s loan modification program, short sales and a flood of foreclosures with which to deal, banks are not likely to loosen these standards anytime soon.

Of course, the news wasn’t all bad.

With those foreclosures and short sales came some incredible opportunities for those looking to buy a home. For those with open minds and who were willing to exercise a little bit of patience, deals, the likes of which hadn’t been seen in decades, were ripe for the picking.

For those who were really lucky, those deals could be combined with what was (and will likely continue to be) one of the biggest stories in real estate: the Homebuyer Tax Credit. Recently expanded to include a far broader pool of buyers, the HBTC, in 2009, gave first-time homebuyers a credit of up to $8000 when they purchased a new home. For many, this credit was just the boost necessary to get them toward their share of the American Dream.

While 2009 saw nowhere near the panic and angst that riddled Wall Street and the entire real estate industry in 2008, it was a year of sobering news. A year of goodbyes to the old way of doing business. It was a year for real estate professionals to reevaluate their priorities. To rethink how they did things. It was a year of separating the wheat from the chaff, as many Realtors left the profession altogether. Those who dug in their heels, who opened their minds to new practices, who opted to help, rather than hinder, will rise to the top. They will reap the fruits of their labor.

As you’re making your resolutions for the New Year, think about where we’ve been. About how far we’ve come. Think about how you’ll do things differently. Think about the possibilities before you.

Yes, 2009 was a hard year. But remember our theme for 2009 – “Adversity is your asset. Things turn out BEST for those who make the BEST of how things turn out.”…AND WE DID! So rather than looking back at 2009 as just a “tough year” let’s make it a year in which we have learned. A year that strengthened our resolve, and our collective character. 2010 is OUR time, now let’s go out and TAKE IT!

Intero Insider: Sweeping Changes Coming to the HVCC

By Gino Blefari | December 23rd, 2009 0 Comments

While we’ve all been focused on the Homebuyer Tax Credit and the effect that foreclosures have had on the real estate market, Congress has been hard at work, trying to right some unintended wrongs.

For some time now, the home buying process, already strained by the desperate straits of our nation’s economy, has been made more difficult than necessary as a result of unofficial “rules” put in place by Fannie Mae & Freddie Mac. These “rules”, known as the Home Valuation Code of Conduct, were put in place to reduce abuse by appraisers, who’d been under pressure from lenders, real estate professionals, sellers … you name it, to make sure that a particular house appraised for a certain amount (whether that amount had any basis in reality or not).

But while paved with good intentions, the HVCC’s road was littered with potholes.

The HVCC put the onus on lenders to order appraisals. It also required that lenders stay out of the process; that they not exert any influence over the appraisal. This has led to the use of appraisal management companies, which, for lack of a better description, are like brokers for individual appraisers. The AMC (appraisal management companies) gets an order for an appraiser, then assigns someone to take care of the job. The big problems here are that, more often than not, appraisers are being assigned to value homes in communities and neighborhoods with which they are wholly unfamiliar. Also, the use of the management companies requires the splitting of appraisal fees, causing appraisers to cut their rates and putting many experienced appraisers out of business.

Complaints about the HVCC have run the gamut from inaccuracy in valuation, “lowball” appraisals, to inexperienced appraisers (not to mention a host of other complaints). As a result, many sales have been adversely affected.

It looks like that may be about to change.

The US House of Representatives has been hard at work on its financial and mortgage industry reform bill. It has voted to terminate use of the HVCC, pending the initiation of a new Consumer Financial Protection Agency. The House’s bill, now on its way to the Senate, requires the director of this agency to implement national sales rules and standards that will cover all transactions.

Once the new standards are in place, Fannie Mae & Freddie Mac will be barred from using their much-maligned rules.

How the Senate will handle the creation of this new agency (if it goes along with it at all) remains to be seen, but the House bill is a clear signal that the HVCC is all but dead in the water.

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