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Tax Issue Affecting SHORT SALES

January 29th, 2010 12:53 PM

Attorney General Opinion
RE: Tax Issue Affecting SHORT SALES

Late Wednesday, Maryland Attorney General, Doug Gansler released his opinion as to whether or not a local jurisdiction can collect transfer and recordation tax on forgiven debt in a short sale transaction (see 1/22/2010 Legislative Alert for background).

Read the Attorney General opinion here >>

Before more than 200 REALTORS^® in attendance at MAR's Legislative Day, Mr. Gansler explained his Assistant AG's position that this practice is inconsistent with Maryland law. Specifically the Attorney General of Maryland opinion is as follows, "Counties do not have the authority to include debt forgiven by the seller's lender in calculating consideration on which the recordation tax will be calculated."

MAR's Vice President of Legal Affairs, Chuck Kasky is backing the position, "This is the definitive statement on the law as of today. Attorney General Gansler spoke to REALTORS^® last night and was very clear that the definition of "consideration" is a matter of state law and until a court says otherwise, a county cannot tax excess debt in a short sale."

The Attorney General opinion does reference that the practice of collecting on forgiven outstanding debt is not specifically prohibited in Maryland law. As such, PGCAR is partnering with MAR, GCAAR and AACAR in promoting legislation in Annapolis to prohibit taxing outstanding debt. At the present time there are several State Senators and Delegates ready to move legislation through the General Assembly. At such time when it becomes necessary we may issue a REALTORS^® Call-To-Action urging members to contact their political representatives on the issue.

Posted by Philip DeLizio on January 29th, 2010 12:53 PMPost a Comment (0)

Standardized Short Sale Process Will Benefit All Parties

January 27th, 2010 9:08 AM

Standardized Short Sale Process Will Benefit All Parties

by Bob Hunt

Two years ago the National Association of Realtors® formed a task force to address the vexing issue of short sales. A multitude of members had complained of lengthy and often incomprehensible processes that – although they varied in detail from lender to lender – all seemed to share the characteristics of being inefficient and irrational. Upon completing its studies the task force issued recommendations that the short sale process be standardized among lenders, that common forms be used, and that fixed time frames be adopted for various phases of the short sale process.

Fast forward to November 30, 2009 when the Treasury Department announced the Home Affordable Foreclosure Alternatives (HAFA), a program that features – you guessed it – standardized short sale procedures, common forms, and fixed time frames. The program is directed to lenders and servicers participating in the Home Affordable Modification Program (HAMP). It applies to non Freddie Mac or Fannie Mae loans. It covers liens on a borrower's principal residence up to an amount of $729,750 (higher if the property is 2 – 4 units).

HAFA is meant to help borrowers who either do not qualify for a HAMP loan modification or who have been unable to keep up their payments under such a plan. A major time-saving feature of the HAFA program is that the financial information already gathered in the loan modification application will be used to determine eligibility for the short sale program.

Prior to approving a borrower to participate in a HAFA short sale the servicer must determine the minimum acceptable net proceeds that the investor will accept. Each servicer must develop a written policy, consistent with investor guidelines, for making that determination. Then, once a borrower has been approved for the short sale program, the net requirement may not be increased for at least 120 days.

A borrower's approval is expressed in a standardized Short Sale Agreement (SSA). The SSA must be good for at least 120 days. No foreclosure may take place while the agreement is in effect. The SSA requires that the property be listed and actively marketed with a "licensed real estate professional who is regularly doing business in the community where the property is located."

Within three business days of an executed purchase agreement, the borrower is to submit a Request for Approval of Short Sale (RASS), which is also a standard form. Within ten days of receipt of a completed RASS, the servicer must indicate approval or disapproval. The approval cannot be contingent on a lowering of the real estate commission that had been agreed to. Also, the approval cannot require a closing in less than 45 days. Again, no foreclosure may take place during the period approved for closing.

One of the common hang-ups in short sales is the matter of junior liens. HAFA takes this into account, although perhaps not to a degree than junior lien holders might wish. The servicer may "authorize the settlement agent to allow up to an aggregate of $3,000 of the gross sale proceeds as payment(s) to subordinate mortgage/lien holder(s) in exchange for a lien release and full release of borrower liability." Each lien holder may be paid up to 3% of their unpaid balance, but the aggregate of such payments may not exceed $3,000. They are paid up to 3% in order of their priority.

HAFA has financial incentives for all parties. The borrower receives a $1,500 relocation allowance, paid at closing. The servicer receives $1,000 for administrative costs. The investor will be paid one dollar for every three that had been paid to junior lien holders. If $3,000 had been paid to juniors, $1,000 would be paid to the investor.

The HAFA program will not apply to all loans, but it will cover a lot of them. Hopefully, it will bring a little more order and sanity to the process.

Published: January 26, 2010

Posted by Philip DeLizio on January 27th, 2010 9:08 AMPost a Comment (0)

5 Worst Home Updates

January 15th, 2010 9:10 PM

5 Worst Home Updates

Before you splurge on that pricey remodeling project, beware: It may not pay you back when it's time to sell.

By Kara Wahlgren, FrontDoor.com | Published: 2/02/2009

Considering all the blood, sweat and tears (not to mention money) it takes to make your dream renovation a reality, you'd expect to be handsomely rewarded with a boost in your home's value. Unfortunately, not every remodeling project will bring a handsome return on investment -- and some might even repel future buyers. You might want to think twice about springing for these so-called upgrades.

Over-the-top improvements.
When it comes to renovations, bigger isn't always better. While bringing your post-war bathroom into the 21st century will increase your home's market value, installing a steam shower and carved marble tub probably won't pay off. Before your minor upgrade turns into a home-improvement bender, ask yourself whether potential buyers in your area are likely to pony up for posh upgrades. "People should be careful about over-improving for their neighborhood," advises Stephanie Singer, a spokesperson for the National Association of Realtors. "If you're in a neighborhood with traditional kitchens, and you put in a Viking stove and granite countertops, that's fine. But keep in mind that buyers probably aren't going to value that to the extent that you do." To get the best return on your investment, scour local listings to see what's standard in your area, and then bring your decor up to speed -- but don't leave the Joneses in the dust.

Home office overhauls.
If you work from home, a designated workspace is a must-have (and a potential tax deduction). But according to a report from Remodeling magazine, overhauling your office won't pay off when you sell your home -- especially if you borrow usable space from a bedroom, living room or garage. Treat yourself to that mahogany desk and built-in bookcase if you'd like, but keep in mind that you'll only earn back about 50 percent of the job cost.

Swimming pools.
Is there anything better than lounging by the pool with a book in one hand and a margarita in the other? Well, it depends on who you ask. "Some people see a swimming pool as a major enhancement. Others might see it as a major headache," Singer says. Your backyard oasis could actually deter those buyers who don't want to deal with skimming, filtering, PH-balancing, heating, repairing and winterizing this high-maintenance amenity. Unless you live in a Southern state where pools are the norm, don't expect to recoup the money -- anywhere from $10,000 to $50,000 -- that you've spent on the big dig.

New roofing.
Cedar shakes, clay tile or architectural shingles can instantly transform your house, but they probably won't have the same effect on your sale price. After all, buyers think of a roof as a bare necessity -- not a luxury that will inspire them to shell out extra cash. Still, don't put off a much-needed roof repair just because you're worried about the return on investment. If buyers notice a leaky roof or cracked shingles during their home inspection, they're likely to demand a concession for the repairs -- so you may as well fix it now and enjoy it 'til you sell.

Specialized spaces.
Maybe your recent trip to Tuscany inspired you to convert your basement into a wine cellar. Or you've always dreamed of replacing your boring front door with a working drawbridge. Or your kids convinced you to install a fireman's pole between floors. Whatever your pet project may be, don't expect every potential buyer to share your enthusiasm. "There's a limited audience for that kind of thing," Singer explains. "People just don't see the utility." Quirky renovations can personalize your home (and maybe earn you some bragging rights!) but buyers probably won't be willing to pay a premium for them.

Of course, even if a project won't drive up your home's resale value, that doesn't mean it's a waste of money. "Remodeling a home is a personal decision anyway, so sometimes there are projects you just want to do for yourself," Singer says. "You do have to live in the home; you're not always thinking about resale. Is it a worthwhile project for you? Is it going to increase your enjoyment of the house?" If you're not planning to sell anytime soon, and a new koi pond just screams "home sweet home" to you, go ahead and break out the toolbox.

Posted by Philip DeLizio on January 15th, 2010 9:10 PMPost a Comment (0)

First Time Buyer's Credit

January 11th, 2010 8:11 PM

As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed new legislation that:

Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.
Expands the credit to grant a $6,500 credit to current home owners purchasing a new or existing home between November 6, 2009 and April 30, 2010.

Here is more information about how the Extended Home Buyer Tax Credit can help prospective home buyers become part of the American dream.

Who Qualifies for the Extended Credit?

First-time home buyers who purchase homes between November 6, 2009 and April 30, 2010.
Current home owners purchasing a home between November 6, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.

To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

Which Properties Are Eligible?

The Extended Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

How Much Is Available?

The maximum allowable credit for first-time home buyers is $8,000.

The maximum allowable credit for current homeowners is $6,500.

How is a Buyer's Credit Amount Determined?

Each home buyer’s tax credit is determined by tow additional factors:

The price of the home.
The buyer's income.

Price

Under the Extended Home Buyer Tax Credit, credit may only be awarded on homes purchased for $800,000 or less.

Buyer Income

Under the Extended Home Buyer Tax Credit, which is effective on November 6, 2009, single buyers with incomes up to $125,000 and married couples with incomes up to $225,000—may receive the maximum tax credit.

If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?

Yes, some buyers may still be eligible for the credit.

The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $145,000 for singles and over $245,000 for couples are not eligible for the credit.

Can a Buyer Still Qualify If He/She Closes After April 30, 2010?

Under the Extended Home Buyer Tax Credit, as long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.

Will the Tax Credit Need to Be Repaid?

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.

Posted by Philip DeLizio on January 11th, 2010 8:11 PMPost a Comment (0)