San Diego Short Sale and Foreclosed Homes

 
 
Thousands of Californians whose homes were foreclosed on or sold at a loss would get tax relief under a measure approved Thursday by the state Legislature.

The bill would waive state taxes on mortgage debt that has been forgiven in a foreclosure or short sale. It is expected to affect about 34,000 taxpayers.

Gov. Arnold Schwarzenegger said he would sign the measure, which would also provide about $60 million in tax credits to green-energy companies, when it reached his desk. Californians can already claim the tax breaks on federal returns. Lawmakers passed the measure in time for people to take advantage of it by the April 15 deadline for filing tax returns.

"The mortgage-debt tax relief provision in this bill will provide financial shelter for tens of thousands of Californians who have lost their hopes and dreams in the housing market crash, and it's about time we gave these folks a helping hand," said state Sen. Ron Calderon (D-Montebello).

The short-sale provision would mean about $34 million less in tax revenue for the state over three years, according to the Franchise Tax Board.

The "green" credits are a response to the federal American Recovery and Reinvestment Act, which provides grants to firms for power plants that produce renewable energy. The federal government does not tax the grant money. Under the bill approved Thursday, California would provide similar relief.

Other parts of the measure, SB 401 by Sen. Lois Wolk (D-Davis), were called tax increases by Republicans. Even though they supported the tax-relief element, several GOP members of the Senate and Assembly voted against the bill, which was opposed by the Howard Jarvis Taxpayers Assn.

The Republicans objected to a provision that would reduce deductions for charitable gifts, and to changes that would allow the state to tax more income earned by minor dependents.

The changes would also make it harder to qualify a home as a principal residence for purposes of escaping capital gains taxes when the property is sold, and some penalties and interest charges to corporations would be increased, according to Therese M. Twomey, a principal consultant for the Senate Republican Policy Office.

These changes would bring in more than $10 million in new revenue over five years, Twomey said.

"It's an issue of fairness," said Sen. George Runner (R-Lancaster). "You are giving money to one group of people and taking it away from another group of people."

With the plunge in the real estate market, many Californians have found themselves owing much more on their mortgages than their homes are worth. Some have been foreclosed upon or asked their lender to approve a short sale, in which a home is sold for less than the debt, some of which is waived.

The amount waived has been considered taxable income under California law. The measure passed Thursday would eliminate that tax when a bank agrees to accept less than what is owed on a home.

The governor vetoed a similar bill last month because it included a provision, since removed, that would have increased penalties against businesses and wealthy individuals who abuse tax credits.

Business groups including the California Chamber of Commerce and Western States Petroleum Assn. complained that the provision would have made businesses reluctant to claim the tax breaks for fear of making a costly error. The businesses also said California's tax penalties were already tougher than those in other states.

Wolk said the penalties would not have applied to honest mistakes.

The new measure would lift a great burden from the shoulders of Valarie Wood and her husband, who were facing a $10,000 state tax bill on debt that was forgiven in a short sale of their property in Ventura.

The 10-acre property, which included an avocado grove, had plummeted in value far below what they owed.

Health problems and a "mortgage gone awry" forced the couple to renegotiate their loan with their bank, which agreed to waive about $300,000 of debt on the house and property, Wood said.

"We've lost our dream home. We are in our 60s, and it was going to be our retirement," she said, her voice choking with emotion. "This bill is crucial for people like us. We are extremely relieved."

Schwarzenegger said during a news conference Thursday that he wants to give homeowners and businesses "the relief they need."

"We want to be helpful in every way we can, so we will sign it," he said.
Add Comment
 
 
By Dawn Wotapka

While analysts debate whether or not the housing market has bottomed, building stocks seem to be signaling that another drop in activity is on the way. (We’re not saying double-dip, but we kinda just did.)

The decline follows builder Meritage Homes Corp., which said Tuesday that the home-buyer tax credit didn’t jump-start sales as much as hoped, while Credit Suisse downgraded a trio of companies.

Credit Suisse lowered its ratings on KB Home and NVR to neutral from outperform, and cut PulteGroup, the nation’s largest builder, to underperform from neutral. “We think that much of the ’spring trade’ has played out and we expect a slowing in housing demand after the April 30th expiration of the home buyer tax credit,” analyst Daniel Oppenheim wrote in a note to clients.

Industry watchers have long warned that the tax credit, offering first-time purchasers up to $8,000 and move-up buyers $6,500, has pulled demand forward and the market will soften once it ends.

However, it’s unclear how many buyers even acted. Steven Hilton, Meritage’s chief executive, said the spring selling season started off better than last year, but it “didn’t appear to positively impact our sales in the first quarter as much as we’d hoped.” Abnormally wet and cold winter weather, he said, took a toll on sales and closings.

Even so, Scottsdale, Ariz.-based Meritage still expects to be profitable for the year.

It expects to report $201 million in closing revenue on 808 homes at an average price of $248,000 for the first quarter. The cancellation rate was 18%, as fewer buyers abandon signed contracts. That compares with $231 million, 932 homes and the same average price a year earlier. The cancellation rate then was 26%.

Meritage builds homes in six states, including Nevada, California and Florida, which were battered by the housing downturn. It also has a big presence in Texas, which hasn’t been as hard hit.

As of Tuesday afternoon, KB Home leads the sector with a 2.83% decline, while Meritage and Pulte each down more than 2%. NVR showing a 1.52% loss.

Add Comment
 
 
By Dawn Wotapka

Today’s data from the National Association of Realtors sure makes it seem like housing has hit the much-awaited bottom: Pending-home sales showed a surprising gain of 8.2% in February, as buyers responded to improved weather and the federal home-buyer tax credit.

Sales of homes entered into contract jumped by the largest margin in more than eight years, Weiss Research notes, with broad-based regional strength.

The excitement is understandable. Housing has been so bad for so long that it’s easy to get giddy over a great statistic. But, while this is good news, proceed with caution.

Much of the bump comes from the federal tax credit, which expires at the end of the month. “Cheap homes and cheap financing are gradually bringing out buyers,” Mike Larson, real estate and interest rate analyst at Weiss Research, wrote in a client note.

While there might be strong data in future weeks, industry experts have long said that softness could follow once the incentive - essentially free money - to buy is taken away. (Few expect the credit to be extended.)  “Activity likely picked up further in March, and we expect buyers to act with even more urgency in April, although this brief surge will likely be followed by a lull in activity similar to the drop-off in late fall/winter,” noted Credit Suisse builder analyst Dan Oppenheim.


And, we’ve warned about other headwinds: Foreclosures remain a stubborn issue that drag down neighborhood values. The amount of shadow inventory, homes that haven’t made it to the market, remains anyone’s guess. Lenders remain strict, making buyers jump through hoops to secure a mortgage. This all comes as the Fed has stopped buying up mortgages, which some fear could result in higher interest rates that cut into affordability.

“I don’t expect a vigorous market resurgence or a sharp, new rise in home prices. Foreclosure inventory will continue to be doled out into the market over the next year or two, taking some vigor out of this recovery,” Mr. Larson said. “But it will be a recovery nonetheless, one warmly welcomed by battered home sellers, banks, and home builders.”

Indeed, investors in home builders look to be giddy Monday: Standard Pacific is up 6.03%, while Beazer has gained 4.38%.  No major public builder is in negative territory.

Add Comment
 
 

If EVER there was a reason to get off the fence and BUY YOUR HOUSE in California, this is it. We're talking a once in a lifetime, 24 karat golden opportunity to have the government subsidize your home purchase for up to $18000 in tax credits.

But the window of opportunity is EVER so brief if you are going to attempt to double dip and get both the state and the federal tax credits.

Here's how the double dip works: The federal home buyer tax credit for first time buyers states you must be in contract to buy your house by April 30th and close before June 30th to be eligible for the credit.

But a newly enacted California stimulus for home buyers actually OVERLAPS the federal first time home buyer tax credit!

You can also receive $10,000 in tax credits as a first time buyer, from the State of California for transactions that CLOSE after May 1.

 If you have followed me so far (and there are 18,000 reasons to pay attention and follow) you have probably figured this out:

  1. By being in a RATIFIED CONTRACT before April 30, you can qualify for the $8000 first time homebuyer tax credit from the Federal government (as long as it closes by June 30)
  2. By CLOSING that RATIFIED CONTRACT after May 1, you can qualify for the $10,000 first time homebuyer tax credit from the State of California.
ADVICE:

Already in contract and set to close at the end of April? A delay of close until May 3 will not endear you to your Realtor or to your seller, but could qualify you for $10,000 in tax goodies (May 1 and 2 are a weekend).

If you are NOT already in a contract, you are going to need to contact a mortgage professional and get thoroughly pre-approved NOW. Make sure closing the loan before June 30th will be possible based on your situation. (60 days is NOT unreasonable for most loans).

Once preapproved, seek out a great Realtor who knows the ropes, will work FAST, and will work as a team with your chosen mortgage professsional.

Disclaimers: As a mortgage professional, I am not qualified to give tax advice. Please consult your tax advisor. Be aware there are income limitations on the federal tax return, and there could be other factors that limit your ability to receive the tax credits.

Add Comment
 
 
Californians have a brief window of opportunity to receive up to $18,000 in combined federal and state homebuyer tax credits.  To take advantage of both tax credits, a first-time homebuyer must enter into a purchase contract for a principal residence before May 1, 2010, and close escrow between May 1, 2010 and June 30, 2010, inclusive.  Buyers who are not first-time homebuyers may use the same timeframes to receive up to $16,500 in combined tax credits if they are long-time residents of their existing homes as permitted under federal law, and they purchase properties that have never been previously occupied as provided under California law.

Under the federal law slated to soon expire, a first-time homebuyer may receive up to $8,000 in tax credits, and a long-time resident may receive up to $6,500, for certain purchase contracts entered into by April 30, 2010 that close escrow by June 30, 2010.  Additionally, under a newly enacted California law, a homebuyer may receive up to $10,000 in tax credits as a first-time homebuyer or buyer of a property that has never been occupied.  The new California law applies to certain purchases that close escrow on or after May 1, 2010 (see Cal. Rev. & Tax Code section 17059.1(a)(4)).  California law generally allows buyers of never-occupied properties to reserve their credits before closing escrow, but buyers seeking to combine the federal and state tax credits will not be able to satisfy the timing requirements for such reservations (see Cal. Rev. & Tax Code section 17059.1(c)(1)(A)).  Other terms and restrictions apply to both tax credits.

Important Update (04/01/10): The 2010 New Home Credit and First-Time Buyer Credit begins May 1, 2010.The New Home / First-Time Buyer Credits are available only for purchases that close escrow on or after May 1, 2010. 

Applying for the 2010 New Home/First Time Buyer tax credits:  Applications must be submitted after escrow closes. The new application will be available by May 1, 2010.  We will deny the application if the 2009 form is used or if we receive the 2010 application before May 1, 2010.

Check this page often. We will add updates as they become available.

General Information: These tax credits are available for taxpayers who purchase a qualified principal residence on or after May 1, 2010, and before January 1, 2011. Additionally, these tax credits are available for taxpayers who purchase a qualified principal residence on or after December 31, 2010, and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010.  The purchase date is defined as the date escrow closes.

These tax credits are limited to the lesser of 5 percent of the purchase price or $10,000 for a qualified principal residence. Taxpayers must apply the total tax credit in equal amounts over 3 successive tax years (maximum of $3,333 per year) beginning with the tax year in which the home is purchased. The tax credits cannot reduce regular tax below tentative minimum tax (TMT). The tax credits are nonrefundable and unused credits cannot be carried over.

The total amount of allocated tax credit for all taxpayers may not exceed $100 million for the New Home Credit and $100 million for the First-Time Buyer Credit. However, since many taxpayers will not be able to utilize the entire tax credit, the legislation specifies that the $100 million cap for the New Home Credit will be reduced by 70 percent of the tax credit allocated to each buyer and the $100 million cap for the First-Time Buyer Credit will be reduced by 57 percent of the tax credit allocated to each buyer. We will allocate the tax credits on a first-come, first-served basis. 

Only one tax credit is allowed per taxpayer. If a taxpayer qualifies for both tax credits, the law specifies that we will allocate the amount under the New Home Credit.

Taxpayers will not be eligible for either tax credit if any of the following apply:
  • The taxpayer was allowed a 2009 New Home Credit.
  • The taxpayer is under 18 years old. (A taxpayer who is married as of the date of purchase will be considered to be 18 if the spouse/registered domestic partner (RDP) of the taxpayer is 18 or older on the date of purchase.)
  • The taxpayer or the taxpayer’s spouse/RDP is related to the seller.
  • The taxpayer qualifies as a dependent of any other taxpayer for the tax year of the purchase.
New Home Credit:  A qualified principal residence, for purposes of the New Home Credit, must:
  • Be a single family residence, either detached or attached.
  • Have never been occupied. Sellers must certify that the home has never been occupied in order for a taxpayer to receive an allocation of the credit.
  • Be eligible for the California property tax homeowner’s exemption.
  • Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.
Tax credit allocation:
  • A Certificate of Allocation will not be issued if:
  • The seller does not certify the home has never been occupied.
  • We do not receive the application and a copy of the properly executed settlement statement within 2 weeks (14 calendar days) after the close of escrow.
  • We receive the application or reservation request after the total tax credits available have been allocated.
  • FTB's determination may not be protested or appealed.
First-Time Buyer Credit:  A qualified principal residence, for purposes of the First-Time Buyer Credit, must:
  • Be a single family residence, either detached or attached.
  • Be eligible for the California property tax homeowner’s exemption.
  • Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.
A first-time buyer is any individual (and the individual’s spouse/RDP, if married) who did not have an ownership interest in a principal residence during the preceding 3 year period ending on the date of the purchase of the qualified principal residence.

Tax credit allocation:
  • A Certificate of Allocation will not be issued if:
  • We do not receive the application and a copy of the properly executed settlement statement within 2 weeks (14 calendar days) after the close of escrow.
  • We receive the application after the total tax credits available have been allocated.
  • FTB's determination may not be protested or appealed.
Applications: We will accept applications beginning May 1, 2010. Do not use the 2009 application. We will post more information by May 1, 2010.

Reservations: Taxpayers who qualify for the New Home Credit may, but are not required to, reserve a tax credit prior to the close of escrow. Reservations will become important as we near the $100 million cap for homes that may not close escrow before the cap is reached. To reserve a tax credit, the taxpayer and seller need to complete, sign, and submit to us a reservation request to certify that they have entered into an enforceable contract on or after May 1, 2010, and on or before December 31, 2010. A copy of the signed contract must be included with the reservation request. We will post the reservation form and details about the process by May 1, 2010.

If you are only applying for the First-Time Buyer Credit, you will not be able to reserve the tax credit before escrow closes.

Claiming the tax credit:
  • The taxpayer must receive a Certificate of Allocation from us to claim the tax credit on their California personal income tax return. The Certificate of Allocation will state the maximum amount the taxpayer can claim listed by tax year.
  • The taxpayer should refer to the 2010 New Home / First-Time Buyer Credit Publication for instructions on claiming the tax credit (the publication will be available by December, 2010).
  • Special rules apply to married/RDP taxpayers filing separately, in which case each spouse/RDP is entitled to one-half of the tax credit, even if their ownership percentages are not equal. For 2 or more taxpayers who are not married/RDP, the tax credit amount will have already been allocated to each taxpayer occupying the residence on their respective tax credit allocation letter.
  • If the available tax credit exceeds the current year net tax, the unused tax credit may not be carried over to the following tax year.
  • The tax credit may not reduce regular tax below TMT.
  • The tax credit is not refundable.
  • Any disallowance of the tax credit may not be protested or appealed.
Add Comment
 
 
Picture
As the April 15 deadline to file 2009 federal tax returns approaches, the National Association of Home Builders (NAHB) is providing answers to some of the questions home buyers are most frequently asking about the home buyer tax credit.

“NAHB’s website that provides information about the home buyer tax credit, www.FederalHousingTaxCredit.com, has received more than 8 million visits,” said NAHB Chairman Bob Jones, a builder and developer in Bloomfield Hills, Mich. “We are doing everything we can to make sure home buyers are informed about this outstanding opportunity to benefit from buying a home before it expires April 30.”

Some of the more commonly-asked questions, and the answers, include:

1. How does a home buyer claim the tax credit?

The credit is claimed when the home buyer files or amends their federal income taxes. For qualifying homes purchased in 2009 or 2010, the taxpayer must complete IRS Form 5405 and attach a copy of the settlement statement. In most cases, the settlement statement is a properly executed Form HUD-1.

In circumstances where a HUD-1 is not provided, such as purchasing a mobile home or a newly constructed home, the IRS will accept an executed retail sales contract (mobile homes) or a copy of the certificate of occupancy (new homes).

2. Does the home buyer have to sell their current home in order to qualify for the $6,500 repeat home buyer tax credit?

A home buyer does not need to sell their current home in order to be eligible for the repeat buyer credit. They can continue to own both homes, and rent or use their former home for something else, as long as it no longer serves as their principal residence. The taxpayer is required to use the new home as their principal residence, and live in it for at least 36 months, or they will have to repay the credit.

3. Do married couples both have to meet the eligibility requirements in order to claim the credit, even if they file taxes separately?

Both spouses must fully meet all the eligibility requirements for either the $8,000 first-time home buyer tax credit or the $6,500 repeat buyer tax credit, regardless of if they file joint or separate tax returns. However, if an unmarried couple purchases a home and only one person qualifies, the eligible person may claim the full credit.

4. Do all home purchases need to be completed by April 30, 2010, in order to be eligible for the credit?

There are two exceptions to the April 30 deadline. If the buyer enters into a binding contract by the deadline, they have until June 30, 2010, to complete the purchase. The deadline has been extended a year, to April 30, 2011, for members of the uniformed services, Foreign Service or employees of the intelligence community who have been on qualified extended duty outside the United States for at least 90 days between January 1, 2009, and April 30, 2010.

Add Comment
 
 
Picture
RISMEDIA, March 27, 2010— Agents report that the home buyer tax credit currently can deliver meaningful savings, but only for those who, at a minimum, have a binding contract to purchase a home in place on April 30, 2010. With that deadline bearing down, potential buyers who want to capture the tax credit had better get serious about home shopping.

“It is certainly possible to find a great home and get it under contract in a month or less, but doing it requires intense focus on the part of both the buyer and the buyer’s real estate agent,” said Jim Merrion, regional director of the real estate network.

Two versions of the tax credit are still being offered: a maximum credit of $8,000 for first-time buyers (and those who last owned a home 3 or more years ago), as well as a $6,500 credit for current homeowners. Either way, the credit applies only to the purchase of a new principal residence costing $800,000 or less, and there are income restrictions and other limitations, including a requirement to close the sale before July 1.

How can buyers eager to capture the tax credit streamline their home shopping?
Here are some suggestions:
1. Get to Know Your Market: Buyers can do that using Internet sites that permit you to see the homes currently on the market, and by finding a good real estate agent who is ready to expedite the shopping process. “A capable agent can guide buyers through the home search process and save them a lot of time,” contends Debbie Laskowski of Chicago. “New listings can be emailed to buyers as they are posted, and buyers should stay on top of the market on a daily basis, seeing what properties are coming onto the market and which ones have sold.”

2. Line Up Your Financing: Talk to a reputable lender right away and go through the pre-approval process. That will tell buyers quickly how much they can borrow. At today’s extremely low interest rates, that amount may be more than many buyers imagined. But either way, the process will help buyers determine how much they are willing and able to spend on the home.

3. Start Narrowing Your Search: With a large inventory of homes to choose from in the current market, buyers won’t have time to look at everything in their price range. By establishing specific criteria of the home they want, buyers can screen out homes that won’t fit their needs. “If you can give your real estate agent answers to two questions: Where do you want to live, and how much can you invest, you should be well on your way to a successful home search,” said Merl Carberry of Arlington Heights, Ill.

“When it comes to geography, buyers should factor in their daily commute. Few of us want to be more than 45 minutes from work. If buyers need access to public transit, then that also shapes their choice, and if they have children, schools are going to be a factor. Ideally, you can narrow you search to one or two communities rather quickly.”

4.Separate Needs from Wants: Buyers can look at fewer homes if they can tell their agent what features the home they buy must have and what features would be nice but aren’t required. “When it comes to must haves, start with the basics,” recommends Dan Bundy of Grayslake, Ill. “How many bedrooms are needed? Is a separate home office essential or just desirable? Do you require a basement? Will a two-car garage be sufficient, or do you need something larger? And don’t forget to consider the type of home. Are you interested only in a traditional two-story single-family detached dwelling, or would a ranch plan work just as well? And what about a townhouse?”

5. Consider Condition: In today’s market, many of the best values are foreclosed homes that aren’t in perfect condition. Buyers should decide up front if they are willing to tackle a home that needs work, and if so, how much.

“Buyers often have a hard time articulating what they will accept when it comes to condition,” explained Jim Hannigan of Western Springs, Ill. “That’s why it is important for a buyer to get out and walk through some properties with their agent as soon as possible. Buyers’ reactions give an agent the clearest picture of their priorities.”

6. Keep Things in Perspective: As nice as it may be to get the tax credit, don’t let the desire to do so completely control your home search. “Some buyers are quick decision makers, and others aren’t,” noted Debbie Laskowski. “If you like to mull over important decisions, take the time you need. The tax credit is a great incentive, but an $8,000 credit equals just 2.5% of the price of a $320,000 home. Buying the wrong home can end up costing you a lot more.”

7. Leave Time to Handle Standard Contingencies: The typical purchase contract may have several contingency clauses, for such things as a home inspection, attorney’s approval, obtaining financing and even the sale of the buyer’s current residence. Fortunately, standard contingencies in a contract won’t prevent it from qualifying for the tax credit.

However, “the more contingencies you have in a contract, the greater the risk that it won’t close”. For example, if an issue arises in the home inspection, and it can’t be resolved, the buyer may want to find another house, but doing that after April 30 will mean losing the tax credit. Allowing time to work through the contingencies before the deadline reduces that risk.

8. Be Careful of Short Sales: If the home you want to buy is offered as a short sale, qualifying for the tax credit may become more difficult. “Short sales require that purchase offers be approved by both the seller and the sellers’ lender, and lenders often are slow about responding,” said Merl Carberry. “Waiting for lender approval could leave you without a binding contract on April 30.”
Add Comment