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    Archive for May, 2007

    Housing buyers await tax rollback
    05 11th, 2007

    By Paul Owers
    South Florida Sun-Sentinel         Real estate agents across South Florida kept pointing to this week, hoping state legislators would revive the housing market with a bold plan to fix the property tax crunch.  But now that legislators have pushed off the tax talk until June, dispirited agents say they have little hope of salvaging the spring selling season as they face at least another month of soft sales.As home values soared during the five-year housing boom, so did taxes, which get reassessed every time a property sells. Many residents say they’re trapped, unable to buy larger or smaller homes because their tax bills would double or triple.  Some people are stuck renting or are fed up and leaving Florida for cheaper states.

    In addition, winter residents aren’t buying as many homes here because their property taxes aren’t capped at 3 percent like homesteaded property owners.  Legislators are considering proposals that would give snowbirds the same tax breaks as year-round residents.

    A tax rollback could give homeowners relief this year. But other potential solutions, such as doubling of the homestead exemption to $50,000, would require voter approval and take longer to implement.

    And there’s no guarantee that the changes legislators settle on will help the real estate market in a meaningful way. One proposal to roll back taxes to 2005 levels was criticized for not giving homeowners enough savings.

    Following the housing boom of 2000 to 2005, existing home sales have plummeted in South Florida, while prices have been flat or falling since last summer.

    Year-over-year sales dropped 22 percent in Palm Beach County in March and 25 percent in Broward. Palm Beach County’s median price of $375,100 was down $18,600 from a year ago, while Broward’s median of $372,400 increased just $4,300.

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    Lowering Capital Gains Tax Liability
    05 6th, 2007

    BY PATRICK M. MORAN

    There are strategies you can help sellers employ to mitigate their tax liability. Let’s begin by considering how capital gains are calculated. The capital gain on the sale of a home is defined as the amount realized on the sale minus the cost basis. The amount realized is the sales price minus selling costs. Selling costs include real estate commissions, legal fees, title and escrow fees, advertising, money spent to fix up the property just before sale, loan charges paid by the seller (such as loan placement fees or points), and real estate excise taxes. To calculate cost basis:

    1. Start with the purchase price paid for the home.
    2. Add these adjustments: 

    • Costs associated with the original purchase of the property. These include abstract fees, recording fees, survey fees, title and escrow fees, attorney fees, real estate taxes owed, and inspection costs—but not points.
    • Costs associated with major improvements to the property. Major improvements are those that add to the value of your home, prolong its useful life, or adapt it to new uses. Finishing an unfinished basement, putting in new plumbing or wiring, or putting on a new roof would qualify. An addition, such as a deck, a sunroom, or a garage, is also an improvement. This category doesn’t include the cost of routine maintenance or repairs.
       

    3. Subtract decreases, such as

    • The gain postponed from the sale of a previous home (before May 7, 1997). - Deductible casualty losses, such as those caused by natural disasters.
    • Depreciation allowed or allowable if the home was used for business or rental purposes.
       

    The resulting amount is the adjusted cost basis. Subtract the adjusted cost basis from the adjusted selling price (selling price minus selling expenses) to arrive at total capital gains.  Home owners should keep careful records to prove a home’s adjusted cost basis for tax purposes. Information to keep could include proof of purchase price and purchase expenses, receipts for improvements that affect the home’s basis, and any work sheets used to calculate the adjusted basis of a previous home that was sold.

    Exceptions
    Under certain circumstances, taxpayers may qualify for a hardship exception to help them lower their capital gains taxes, even if they haven’t met the two-year time requirement. Under the right conditions, hardships include a change of employment, health problems, and military service, according to the tax code. Military personnel who are required to live in government quarters or who are stationed at least 50 miles from their primary residence may have up to 10 years to meet the two-year residency requirement. The hardship exception also applies to unforeseen circumstances, such as natural disasters and acts of war.

    The favorable treatment of capital gains can be a good reason to invest in real estate. It can also be a motivation to sell and move on before the gain exceeds the allowable deduction. Whatever they do, however, your clients should seek the advice of a tax adviser before making any tax-related decisions about their home.

    Moran is a tax lawyer who provides advice to real estate salespeople and others in the real estate industry at Peterson Russell Kelly LLC in Bellevue, Wash. You can contact him at 425/462-4700 or pmoran@prklaw.com.

    Courtney Silverman is a Realtor with The Keyes Company / Realtors in Weston FL.  Her team looks forward to being of service to you. 
     

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    What is a Short Sale?
    05 4th, 2007
     

     A short sale is simply negotiating with a lender to accept an amount that is less than the total amount due on a property. 

     

    It matters little whether the borrower has marginal equity, owes the same amount the house is worth, or is upside down (meaning they owe more than the house is worth).  The answer is they may all be good candidates but a hardship situation must exist. In addition, the property does not need to be in foreclosure to be a short sale. This will depend on the bank.  Some banks will only negotiate a Short Sale when the borrower is in default. Some will only open the lines of communication when their attorney is involved. The real answer is - it depends. We have found lenders are more willing to discuss the borrower’s situation sooner than ever before. 

     

    Why would a bank entertain a Short Sale?
    Mortgage is in arrears or in foreclosure and the homeowner has experienced a hardship Property is in poor condition New homes in the area are selling faster than existing ones Area or neighborhood has depreciated in value Increasing lender default rates resulting in excessive REO inventory Inadequate property value due to negative amortization loan, interest only mortgage, etc. Insufficient proceeds to cover pre-payment penalty, real estate commission, taxes, etc.  

    When the borrower qualified for the mortgage initially, they had to cooperate with the lender. At that time, the borrower provided all the documents (bank statements, pay stubs, tax returns, etc.) and disclosures/forms the lender required to approve their loan. In order to negotiate a short sale package with a lender, we have to prove to the lender that the borrower no longer qualifies for the mortgage and that a tremendous hardship exists. It’s almost like qualifying for the original mortgage but in reverse.

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    Ask These 7 Key Questions To Avoid Buying A Bad Condo
    05 3rd, 2007

    1. WHAT IS THE FINANCIAL CONDITION OF THE CONDO ASSOCIATION? If you are considering purchase of a brand-new condo, to attract buyers the developer has probably set the monthly condo fees very low.  Watch out for inadequate allocations for replacement reserves which are sure to increase in future years as the building ages and needs repairs.If you are considering buying an older condo, study the replacement reserves. Depending on the building’s age and anticipated replacements, such as a new roof every 15 to 20 years, if reserves are inadequate a large special assessment might be levied on each owner when an unexpected cost arises, such as a hurricane or leaky windows.   There is no minimum replacement reserve guideline, but two standards are (a) at least $2,000 to $3,000 per unit, and/or (b) 25 percent of the annual gross income for the homeowner’s association should be in the reserve account.

    Inquire if there are any major replacements anticipated in the next 12 months and if there will be a special assessment. Always review the board of director’s meeting minutes for the last six months to determine what issues are being discussed.

    2. HOW DO THE MONTHLY FEES COMPARE WITH COMPARABLE NEARBY CONDO COMPLEXES? The answer is important not only to your wallet, but when considering when you go to sell the condo. When the condo fees are very high compared to the competition, that holds down the market value of condos in that complex.  Be sure to inquire what services are included, such as central heat and air conditioning.

    3. IS THE CONDO ASSOCIATION PROFESSIONALLY MANAGED? Unless it is a small condo building of five units or less, professional management is a good sign. The cost usually pays for itself because an experienced condo manager knows where to get repair discounts that often “save” the equivalent of the professional manager’s fee.

    A related question to ask is how long the professional manager has been managing the complex. The right answer is: the longer, the better. That indicates the condo owners are satisfied.

    4. HOW GOOD IS THE SOUNDPROOFING?  Because poor soundproofing is the number one complaint of condo owners (especially for buildings converted from apartments), when you focus on buying a specific unit, it pays to test the soundproofing.

    This can easily be done by asking the upstairs, downstairs, and adjacent neighbors to turn on their TVs and stereos to normal levels and see if you can hear them in the unit. Also, check for upstairs noisy floors, especially in wood construction buildings if the upstairs neighbors don’t have carpets with heavy padding.

    5. WHAT IS THE PERCENTAGE OF RENTERS? Mortgage lenders know the risk of foreclosure default in condo complexes with more than 20 percent to 30 percent renters is very high. Many lenders either refuse to finance units in such complexes, or they charge above-normal interest rates.

    The reasons are absentee landlords often have little interest in properly maintaining the condo complex and their renters aren’t as considerate as owner-occupants. The result can be declining maintenance quality. Condo complexes with anti-renter rules are considered very desirable for owner-occupants and often bring premium resale prices.

    6. HAS THE CONDO UNIT BEEN PROFESSIONALLY INSPECTED AND DID THE SELLER PROVIDE A SELLER’S DISCLOSURE? Sellers are required to disclose know defects. Smart buyers carefully study these written disclosure forms before making purchase offers. Always hire a professional inspection of the unit after the offer is accepted.  This is a contingency (approval clause) in your purchase contract.  The buyer should always accompany the inspector to discuss any undisclosed defects discovered. Courtney Silverman has inspectors she can recommend to you that are very thorough.

    7. ASK CURRENT RESIDENTS, “WHAT DO YOU LIKE BEST AND LEAST LIVING HERE?” Or you might prefer to ask, “Would you buy a condo here again?”  Most condo owner-occupants are friendly and willing to share their good and bad experiences. Be sure to talk with several residents just to be sure you aren’t talking with a professional complainer. Just to verify your soundproofing test of the unit you are considering for purchase, casually ask, “How is the soundproofing here?”

    CONDO ADVANTAGES. The many reasons for buying a condo instead of a house include (1) usually less expensive than buying a similarly sized single-family house; (2) exterior maintenance is the responsibility of the condo homeowner’s association; (3) the security of leaving your condo for an extended period without worry (called “lock and leave”); (4) homeowner tax benefits similar to houses; (5) pride of ownership from being an owner rather than a renter; and (6) potential resale profit as the condo appreciates in market value. However, local supply and demand greatly affects this last potential advantage.CONDO DISADVANTAGES. Depending on your viewpoint, potential condo disadvantages might include (1) being subject to the rules of the condo homeowner’s association; (2) unexpected increases in monthly fees and special assessments for maintenance costs; (3) policies and rules you don’t like — such as no pets or no rentals; (4) poor-quality maintenance or management which affect enjoyment and resale values; (5) poor soundproofing (the number one complaint of condo owners); (6) lack of freedom to do as you wish, such as have noisy parties; and (7) neighbors you don’t like or who don’t like you.

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    In Cooling Market, Sellers Turn To Patron Saint
    05 2nd, 2007

     ORLANDO, FL (MCT) - As the real-estate market softens, some people are turning to faith - and a shovel - to sell their stagnant properties.  According to tradition, burying a statue of St. Joseph in the lawn - and praying to the patron saint of house sellers - will help a real-estate deal.And with sales of existing single-family homes falling significantly in Central Florida and much of the country, it’s a tradition that appeals to sellers such as Tricia Caldiero.  Caldiero’s three-bedroom Deltona home, priced at $219,000, has been on the market for more than nine months.  “Nothing is happening. And I am desperate,” Caldiero said. “I thought it would sell, piece of cake.”  Caldiero, who recently adopted a baby and moved back to New York, is juggling two mortgages.

    So she begged her real-estate agent to submerge the tiny St. Joseph statue in the lawn. Another is buried at Caldiero’s New York home.  “Whichever (house) sells first, I’m just going to live in the other one,” she said. “It’s in God’s hands now.”

    While home sales are slow, the sale of St. Joseph statues is anything but sluggish.

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    Don’t get caught at the closing table without a mortgage!
    05 1st, 2007

    Pre-approval letters previously received from mortgage brokers may not be worth the paper they’re written on, as the wholesale lender who may have approved the scenario is either no longer in business or tightening its guidelines. Many sub-prime lenders are closing their doors with little or no warning. A new website has been found that may help you in identifying whether a lender will be able to fund your closing. The website which contains a list of sup-prime lenders in financial trouble is http://mortgageimplode.com. 

    Buyers will have to come up with higher down payments, especially if their credit is shaky. The conventional wisdom that the freefall that took place in the previous weeks in wholesale mortgage stocks was isolated to sub-prime lenders and will likely not reverberate throughout the capital markets is wrong.  This meltdown will likely have serious repercussions through the real estate industry. There are now over 50 lenders in serious trouble or out of business, and nearly all the remaining lenders are or will be tightening their credit guidelines, making it much harder for consumers, even ones with good credit to purchase or refinance homes.

    Additionally, in Florida a title agent may not disburse funds unless the funds are “collected funds.” See Section 69O-186.008(1), Florida Administrative Code. Generally, under the Code, “collected funds” means funds deposited finally settled and credited to the title insurance agent’s escrow account. Collected funds are funds that are “made by a bank check, cashier’s check, official check, treasurer’s check, or other such official instrument issued by a bank, savings and loan association, or credit union when the instrument is drawn by the bank on itself, or on another bank whether or not the check is “payable through” or “payable at” a bank and the title agent has reasonable and prudent grounds to believe the instrument will clear and constitute collected funds within a reasonable period of time.” The key factor is that the title agent must have “reasonable and prudent grounds to believe the instrument will clear and constitute collected funds within a reasonable period of time.” While one would normally believe a cashier’s check would constitute collected funds that may not always be the case. Checking the above website regularly may help to determine the financial stability of the lender’s check.

    Below are some of the lenders who have closed their doors, are expected to stop funding loans or are experiencing difficulties:
     1. Accredited Home. Panic selling analysts are fearful about liquidity and have downgraded rating from “hold” to “sell”; $100 million drop in annual net income expected; missed earnings filing deadline with the SEC.
     2. Acoustic Home Loans. A harbinger of the broader meltdown, Acoustic Home Loans ceased accepting new loan submissions last year; buybacks were a major factor in collapse, according to Business Week.
     3. Aegis Funding. Sub-prime unit has closed and a consolidated operation is reportedly handling prime, slimmed down sub-prime and expanded Alt-A offerings.
     4. Alliance Home Funding. Closed. Parent has folded mortgage brokerage into bank and “taken pre-tax charge of $680000 and an after-tax charge of $449000 to wind down the Alliance Home Funding operation,” according to fourth-quarter earning statement.
     5. Ameriquest. Parent ACC Holdings had to beg Mass. Gov. Deval Patrick, former director, to help get them a life-sustaining line of credit from Citigroup to avoid shutting down. They’ve shut most of their offices, laid off 3,800 people, and have settled with 30 state attorney generals for $325 million over predatory lending practices.
     6. Ameritrust Mortgage Company.  Shutdown, according to email to brokers: “Effective Monday, March 05, 2007 the sub-prime wholesale division of Ameritrust Mortgage Company is no longer in operation. Due to market conditions, our warehouse provider, Washington Mutual, ceased funding for sub-prime loans.”
     7. Argent. Owned by ACC Holdings but may be acquired by Citigroup as part of a deal for working capital and a credit line for ACC if it falters.
     8. Axis Mortgage & Investments. Parent Biltmore Bank of Arizona closed this wholesale subsidiary in November 2006 due to “current lending environment and current conditions of the real estate market.”
     9. Bay Capital/Clear Choice Financial. Press release on January 12, 2007: “Clear Choice has…announced that it is insolvent and in default on numerous obligations…. officially closed the mortgage lending offices of its wholly owned subsidiary, Bay Capital”
     10. Central Pacific Mortgage. Shuttered its door because it was apparently unable to make February’s last payroll, mostly due to rising buyback costs.
     11. Coast Financial Holdings. Distressed because of developers unable to complete construction has put $110 million in loans in jeopardy for loans for 480+ homeowners.
     12. Coastal Capital. Shut down; owner & president indicted in Duke Cunningham scandal.
     13. Concorde Acceptance. Closed as of January 31st, 2007.
     14. Countrywide. Stock in a freefall after announcing that close to 20% of its sub-prime loans are in default. Insiders sold $600 million worth of stock. Reportedly in talks over a merger or alliance with Bank of America.
     15. DeepGreen Financial. Closed as of January 31, 2007 by parent Lightyear Financial, a private equity firm.
     16. DomesticBank. Stopped wholesale operations on 3-2-06, according to their website.
     17. Doral Financial Corp. Has agreed to pay a penalty to settle fraud charges with the U.S. Securities and Exchange Commission for a close to 1 billion overstatement in earnings. On March 2nd, 2007, said it will post losses for 2006 and warned on of a cash crunch if it is not able to refinance $625 million in debt.
     18. Eagle First Mortgage. AZ regulators shut them down citing illegal lending practices. Has until 3-14-07 to wind up operations.
     19. Encore Credit/ECC Capital. Was supposed to be sold to Bear Stearns for $26 million; ECC wound up paying Stearns $7 million to take it off their hands.
     20. EquiBanc. Closed by parent Wachovia after “intensive strategic review.”
     21. Fieldstone. Closed 6 operation centers; had to restructure lines of credit; bought by C-Bass (MGIC & Radian Group) after losing more than 70 percent of its value.
     22. First Franklin. Acquired by Merrill Lynch from National City
     23. Franklin Financial. Apparently has shutdown its wholesale operation as of 5pm 2-28-07; retail may be still alive
     24. Fremont General. FIL (Fremont Investment and Loan, its sub-prime subsidiary) has been ordered to cease-and-desist by the FDIC
     25. FundingAmerica. Closed as of January 19, 2007, little information available on their website.
     26. GMAC. Major layoffs in ResCap; looming writedowns for sub-prime loan portfolio; may take a large ($1 Billion) hit to cover bad loans made by ResCap.
     27. Harbourton Mortgage Investment Corp. Closed as of December 20, 2006, according to company press release “HMIC was forced to take these actions when it was unable to satisfactorily resolve mortgage repurchase claims.”
     28. Home 123 Corp. A subsidiary of New Century, two dozen offices shuttered and 200 jobs cut as of January 17, 2007.
     29. Ivanhoe Mortgage. Unable to fund operations due to a shortage of cash, according to CEO John Cassel
     30. Lender’s Direct Capital Corporation. Closed wholesale operations due to “lack of demand” effective 2-8-07.
     31. Mandalay Mortgage. Notified its brokers that it has exited the nonprime wholesale mortgage business. A message on its Web site said no new loans will be funded after Jan. 31, 2007.
     32. Merit Financial. Shut down because of “rising interest rates”. State regulators investigating.
     33. Meritage Mortgage. Business shut down by parent NetBank. Staff acquired by LIME Financial.
     34. Millennium Bankshares. Winding down all mortgage lending activity by the end of 2006 to “avoid the risks normally associated with mortgage banking activities,” according to press release.
     35. MLN (Mortgage Lenders Network). Has filed for Chapter 11, issued a cease and desist order Jan. 24 by Connecticut banking officials.
     36. NetBank Inc. Laid off the remaining portion of its staff in December after shutting down its sub-prime subsidiary Meritage.
     37. New Century. Stopped funding; in breach of debt covenants and trying desperately to get waivers; restating ‘06 earnings downwards; 10 class-action shareholder lawsuits; may be in “death spiral”, according to analysts.
     38. Novastar. Seriously impaired; likely no dividends in 2007, no taxable income through 2011; many shareholder lawsuits.
     39. Option One. Owner H&R Block has publicly announced it will be sold by end of March 2007.
     40. Origen Wholesale Lending. This modular home lender is transferring its wholesale operations to its correspondent partners.
     41. OwnIt. Ceased operations in December 5th 2006. Filed bankruptcy December 28th.
     42. Popular Financial Holdings. Parent shutting it down and completely exiting wholesale sub-prime to “focus on profitable businesses”.
     43. Preferred Advantage. Closed completely when parent National City sold First Franklin.
     44. ResMAE. Filed Chapter 11 bankruptcy; assets purchased by Citadel Investment Group; being hounded by Merrill Lynch for more than $300 million in bad loans.
     45. ResCap. Laying off about 1,000 people; may force former parent GM to take a $950 million hit due to “loan loss provisions”, according to terms of its sale to Cerberus Capital, says Marketwatch.
     46. Rose Mortgage. Posted on its website: “EFFECTIVE IMMEDIATELY ROSE MORTGAGE CORPORATION IS CLOSED.”
     47. Sebring Capital Partners. Shut its doors as of December 5th, 2006 due to rising defaults, according to company employee quoted by the Denver Post.
     48. SecuredFunding. Ceased funding “based upon market conditions and limited product availability”, according to website.
     49. Silver State Mortgage. Per their website, shut down nationwide wholesale operations as of February 14, 2007.
     50. Summit Mortgage. “Came to terms with a difficult business model in an unforgiving economy.”
     51. Trojan Lending. “Effective as of the opening of business on Monday March 5, 2007, Trojan Lending has ceased its wholesale mortgage operations and will no longer be underwriting or funding wholesale mortgages nationwide.”

    I am happy to provide referrals for lenders that close. Call Courtney Silverman 954-389-3459

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