by CRESTICO | Apr 13, 2010 | CRESTICO
California state income tax on forgiven debt resulting from a short sale, foreclosure, or loan modification will no longer be imposed on homeowners in California. Senate Bill 401 makes California’s tax treatment of mortgage debt relief income the same as federal law. Be advised, however, that only the debt stemming from the loan secured by a "qualified principal residence," will be exempt from both federal and state income tax consequences. While the federal exemption amount is up to $2 million, the California exemption is up to $800,000 and forgiven debt up to $500,000.
Now, I know you’re thinking … what is a "Qualified principal residence." This means that only the debt incurred in connection with acquiring, constructing, or substantially improving a principal residence is the subject of this legislation. Principal residences are where you actually reside, receive mail and inhabit for all intents and purposes. This new debt forgiveness exemption will include first and second trust deeds, as well as debt incurred in connection with a refinance loan to the extent that that fund from said loan were used to payoff a previous loan that would have also qualified under Senate Bill 401’s guidelines.
These "tax breaks" are applicable to debts that are discharged from 2009 through 2012. Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment. Taxpayers who do not qualify for the exemptions (for example, those homeowners with second or third homes and/or rental property or properties) may potentially also claim an exemption, through other provisions in the law, however.
A very important thing to note is that taxpayers who are bankrupt are exempt from debt relief income tax. This means, that they have no liability. Also, taxpayers who are insolvent and have no assets may also claim exemption from debt relief income tax to the extent their current liabilities exceed current assets.
For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board’s Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service’s Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage. The full text of Senate Bill 401 is available at www.leginfo.ca.gov. Also, remember to consult with an attorney before taking any steps that may impact your tax and/or legal liability.
by CRESTICO | Mar 11, 2010 | CRESTICO
In December, I wrote to you about the Home Affordable Foreclosure Alternatives ("HAFA") program under the Home Affordable Modification Program ("HAMP"). In March 2009, President Obama introduced the Home Affordable Modification Program in connection with his Making Home Affordable ("MHA") plan. These plans and programs represented the Obama Administration’s efforts to allow borrowers who are eligible (according a specific set of standards and guidelines) to avoid foreclosure by modifying their loans to a level that is affordable and sustainable for the long-term.
Now, I write to you again to bring you some more information about this program and the potential benefits and pitfalls of this new HAFA program set to roll out in April. HAFA intends to help the homeowners that HAMP could not. Basically, if you did not qualify for assistance under HAMP, you may now use HAFA to attempt to avoid foreclosure. How? Through a short sale or Deed-In-Lieu ("DIL") of foreclosure. Seems easy enough, right? Since you can no longer pay your mortgage, the government is now incentivizing it for a buyer to come along and make an offer on your house allowing you out of your mortgage obligations while still recovering some money for the bank that owns your house. The DIL basically allows you to present a Deed to the bank in lieu of foreclosure, that means, instead of the bank foreclosing, kind of like a surrender. Now, you still lose your home, but under these circumstances, your credit will be less adversely affected and you may remain eligible to potentially purchase another home. It has been reported that of the almost 1 million borrowers who were given HAMP assistance (essentially, loan modifications) only about 67,000 (about 6.5%) were provided with a permanent solution to their problem. So that means that about 93% of the people who received loan modifications are STILL struggling with their mortgages.
HAFA is seen as a potential solution to this problem. Read the next few paragraphs and decide for yourself.
Eligibility – the eligibility requirements for HAFA are extremely similar to HAMP in that the home must be a primary owner-occupied residence with the lien originating before 2009 provided that default is reasonably foreseeable and that the owed balance is not more than $729,750 (for single family residences). Additionally, the borrower’s total monthly payment must exceeds 31% of his/her gross income.
Proponents of the program are saying that it is intended to streamline the short sale process by creating an alternative situation for homeowners that HAMP could not help (even though, technically if you were not eligible for HAMP, you probably won’t be eligible for HAFA since the requirements for eligibility are substantially similar). Also, this program is meant to streamline the process of a short sale in that it hopes to use the documentation submitted under HAMP (again running into eligibility questions) and also hopes to create an environment where short sales will be pre-approved prior to listing the property for sale.
Now, there are some benefits, as I see them, in the HAFA program. One certain benefit is that HAFA works to ensure that the homeowner is fully released from liability from their first mortgage and sometimes even their second mortgage (depending on the acceptance of initiatives). Also, HAFA will aim to standardize the short sale process, which anyone who ever tries to work with the government knows is not a small task. The Federalist nature of our government creates a lack of uniformity by its nature.
Also, HAFA will provide monetary incentives like relocation assistance for the homeowner, recoupment of loan servicer costs, and up to a $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis; up to 3% of the unpaid principal balance of each subordinate loan).
However, as a homeowner considering assistance through this program, there are things you should know. First, the property that is being listed can not be listed or sold to anyone that the borrower has a personal or business relationship with. The new owner can not sell the home for at least 90 days, the surrendering homeowner will have to list the forgiven debt as INCOME on his/her tax return, and the loan servicer will report to the credit reporting agencies that the mortgage was settled for less than full payment, which will have a negative impact on the homeowner’s credit score.
All in all, make sure you consult with your tax and Real Estate professionals when considering any major decisions with regard to your home. We are professionals and take your needs into consideration and may be able to provide you with insight and information that is not readily available to you.
by CRESTICO | Nov 5, 2009 | CRESTICO
Recent Developments Regarding Conforming Loans
Media outlets are constantly reporting on the state of the economy, the housing crisis and mortgage defaults and delinquencies. Amidst these reports is the constant use of many terms the average American (homeowner or not) may not be too familiar with or even have a complete understanding of their definitions. One of these terms is "conforming loan." Now, we all know what a loan is; generally a borrowed sum of money that is to be repaid with interest to a lender. A conforming loan however, is a specific type of loan. Loans are classified as meeting and not-meeting GSE guidelines. GSEs, Government Sponsored Entities, are financial services corporations that have been formed by congress, the most popular of which are Fannie Mae and Freddie Mac. These GSEs set guidelines for the types of Loan Programs that are available to homeowners. Conforming loans meet these guidelines and, as a result, are part of the uniform mortgage documents and national standards that have been set for loans.
On October 30, 2009 President Obama signed a congressional resolution regarding conforming loans. This resolution basically allows the loan limit of $729,750 (the limit for high-cost areas, such as Southern California) to be extended into next year. This means that there is now a longer time period available for potential buyers to seek and gain approval for government loans to purchase their homes. Government loans offer advantages such as Lower Interest Rates, government guarantees and lower down payment requirements to homebuyers which make the purchase of a home a bit easier and more widely accessible. This extension is the result of a move by the government in 2008 Housing and Economic Recovery Act which was originally intended to be temporary. Homes are becoming increasingly affordable in the Southern California area, and this is one more step in that direction.
If you are considering buying a home or simply have questions regarding the process, a knowledgeable and qualified Real Estate agent is the best resource you can have to guide you in making your decisions. Real estate agents are on the cutting edge of breaking news and in the best position to explain your options and most beneficial decisions to you.
by CRESTICO | Oct 6, 2009 | CRESTICO
Is It A Good Time To Buy A Home? The simple answer is YES! It is still a good time to buy a home. With the help of the right agent, you can make this "good time" into a "great time" for you and your family. The news is full of stories about the housing crisis, homeowners losing their homes, and the overall bad state of the economy. Not all of this news, however, has to translate into dissuading you from buying a home. In fact, right now is a very good time, especially for some, to jump in and achieve the American dream of home ownership. As of late, the housing market is starting to look better. Read on for more information about why it is still a good time to buy a home.
First, the government is looking to help you. If you are a first time buyer (which, to the government, is defined as anyone who has not owned a home in the last three years), you are entitled to a maximum $8,000 tax credit. Additionally, Interest Rates are at all-time lows and the Federal government is taking steps to insure and make these loans available to more and more people.
Leverage. Leverage is defined basically as borrowing money to supplement existing funds for
investment. Imagine if you invested ten thousand dollars in stocks and those stocks earned ten percent, you would have earned one thousand dollars. But investing ten thousand dollars on a home, and having that home's value increase ten percent; effectively, you would have earned ten thousand dollars. Which sounds like a better investment to you?
Next, you have to live somewhere. And so does everyone else. According to nationwide statistics, approximately 800,000 new households are created each year in the United States alone. Each of these households will need housing, regardless of the state of the economy. This fact alone ENSURES the recovery of the housing market.
Cycles. The economy is a cycle, and like a cycle, what goes down must come back up. Once this happens, it will create INSTANT equity for you. That means you will have earned FREE money just by living in your home, which you are going to do regardless of where you live. Why not buy a home and earn free money in the process?
Mortgages. Many people think a mortgage is just like paying rent, right? WRONG! With the right fixed-rate mortgage, you are basically ensuring the same payment for thirty years. If you try to rent an apartment for thirty years, odds are that every year or so, your rent will be increased. That does not happen with mortgages.
Ownership. Owning a home is a GREAT accomplishment and it allows you to express yourself in the best way possible. You can decorate it any way you want, furnish it, paint it, and improve it and all the while you will be increasing its value and the value of your investment. Ownership also gives you and your family a sense of stability and a place to lay your roots.
These are only a FEW of the reasons why right now is a good time to buy a home. A qualified agent will be able to answer any questions you may have and also give you more reasons to consider investing in your next home!
by CRESTICO | Oct 5, 2009 | CRESTICO
The National Association of Realtors has a message it would like to get across and that message is that "America needs Fannie and Freddie." Who are these people that we have been hearing a lot about in the news lately? They are Fannie Mae and Freddie Mac.
According to Realtor Frances Martinez who was the speaker representative at a House Financial Services Subcommittee hearing on June 3, 2009, "Fannie Mae and Freddie Mac serve an important role in expanding homeownership and providing a solid foundation for our nation's housing financial system…Unlike private secondary market investors, Fannie and Freddie remain active in housing markets during downturns, using their federal ties to facilitate mortgage finance and support homeownership opportunities for all qualified borrowers."
Fannie and Freddie are government sponsored organizations that basically insure the success of our nation's housing system, the cornerstone of our economy. Fannie and Freddie work to make sure that all Americans have and will continue to have access to the fair and affordable mortgages. Just think, without Fannie and Freddie, when the market crashed, there would have been no alternative and all housing sales would have essentially come to a dead stop and this would have thrown our country into a deeper economic crisis.
All in all, Fannie and Freddie basically guarantee that there will be a secondary mortgage markets where people can safely and securely buy their homes and achieve the American dream. Getting a mortgage can be a scary thing. Thankfully, we have a country, a government and a system in place to make sure that the days of predatory lending and fraudulent behaviors in the lending industry are behind us.
