REAL ESTATE LEGISLATION Category
Bill To Provide Borrowers Deficiency Liability Protections
INDUSTRY NEWS, REAL ESTATE LEGISLATION, SHASTA COUNTY, SHORT SALES, TIPS FOR SELLERS
Many homeowners are not aware of a loophole that allows banks to pursue certain borrowers for any cash loss they suffer as a result of a short sale or foreclosure. The existing law, which was passed in the 1930’s, protects homeowners from deficiency liability if the loan was used to purchase the home. The problem arises when the loan is refinanced. The protection does not apply to purchase money loans that are later refinanced, even if doing so allowed the borrower to benefitfrom a lower interest rate.
Senate Bill 1178, authored by Senator Ellen Corbett, does not protect borrowers that used cash-out refinances or equity lines to pay bills or buy cars, boats, RV’s or stock investments. Only borrowers that used cash generated from a refinance to improve their primary home would be protected by this bill if it passes. Most borrowers were unaware that a refinance caused a forfeiture of this liability protection. In legal terminology, purchase loans are non-recourse loans while refinanced loans are recourse loans.
Banks doing business in California understand that the property is the security for the loan, not the borrower. Purchasers that later refinanced had no idea they were losing this protection exposing themselves to personal liability and even new tax liability. Lenders can pursue the loss for up to ten years after a foreclosure or short sale. They can sell the accounts to aggressive collection agencies or bundle them as securities. This allows banks, which created this mess to begin with, to add insult to injury by chasing families that have already lost their home for money they don’t have.
Call your local State Senator and ask him or her to vote yes on SB 1178. In our area, call Senator Sam Aanestad at 530-225-3142.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL SALES EXPERIENCE
Safe Harbor Law Makes Vacation Home Purchase Attractive
INDUSTRY NEWS, REAL ESTATE LEGISLATION, TIPS FOR BUYERS, TIPS FOR SELLERS
The IRS has finally set ground rules for those that use a tax deferred 1031 exchange to purchase a vacation rental home that later becomes a primary or second residence. In the past, the IRS would penalize those that did this because it violated the tax deferment rules 1031 exchanges were designed to address. Many Americans found themselves with big tax bills when they exchanged their investment property for a vacation home which they later used as a primary or secondary residence.
Now the IRS has set rules for those that buy a vacation home using a 1031 exchange. The owner must use the home no more than two weeks a year and must rent the home out for at least two weeks a year for at least two years after purchase. After two years, the owner can convert the home to his or her second or primary residence while still avoiding the capital gains tax consequences provided by the exchange law. The owner must charge fair market rent, have a written lease for the rental period and it must be an arm’s length transaction- no renting to a family member.
Visiting the home to perform maintenance does not count toward the owner’s two-week time limit. The benefit here is someone with investment property such as income units, commercial buildings or land that has substantially increased in value can exchange it for a home they eventually want as a primary or secondary residence. Until now, selling one to buy the other would trigger a capital gains tax event or prevent the owner from using the home for personal use.
For specifics on this safe harbor provision in the tax code, contact Russell Marsan of IPX Exchanges at 800-406-1031. He can give you particulars on the tax law and assist as an exchange facilitator. I can assist you with the sale or purchase of the investment or vacation property.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL REAL ESTATE SALES EXPERIENCE
2010 Not A Good Year To Die
INDUSTRY NEWS, REAL ESTATE LEGISLATION, TIPS FOR SENIORS
Most are unaware of the capital gains and estate tax tax law changes for 2010. If you stand to inherit real estate from a family member, you may want to do everything possible to keep them alive until 2011! Why? Two changes are in effect for this year only which could have significant tax consequences for those that inherit real estate that has appreciated substantially.
The first change is there is no estate tax for those that die this year. However, there is also no stepped-up tax basis for real property transferred from one’s estate to their heirs. Confused? Perhaps an example will help:
Uncle Buck bought an investment property for $100,000 years ago but today he died and the current market value is $1,000,000. His heirs immediately sell the investment and pocket $1,000,000 (for the sake of this example there were no sale costs deducted from the gross sales price). No estate tax is due but the heirs will pay capital gains tax on the gain of $900,000 (The sales price minus the base purchase price of $100,000). If Uncle Buck had died in 2009, the basis value of the investment would have been “stepped-up” to current market value ($1,000,000). If the heirs sold the property today for $1,000,000, no estate tax or capital gains tax would be due.
Next year, the rule that allows a step-up in basis will once again apply and estate tax will only be due if the estate exceeds several million (the exact number has yet to be determined). Last year, the first $3.5 million was exempt from estate tax for a single person and $7 million for married couples. It’s expected the 2011 exemption limits will be similar to those that sunset-ed last year.
The bottom line is keep grandpa and grandma alive until next year when this lapse in favorable tax treatment is restored. This may not be something you can control, but seeking tax advice may be beneficial if you expect a big inheritance due to the untimely death of a wealthy friend or family member who has you in their will.
A tax deferred 1031 exchange may allow you to postpone or eliminate tax liability if you follow the law. Russell Marsan, certified exchange specialist for IPX, can answer any questions regarding these tax law changes at 800-406-1031.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL SALES EXPERIENCE
Efforts To Streamline Short Sale Process Underway
HOME LOANS, INDUSTRY NEWS, REAL ESTATE LEGISLATION, SHORT SALES, TIPS FOR SELLERS
Lenders, loan servicing companies and homeowners have been fighting over how to deal with mortgages that are underwater. According to a recent article in the New York Times “more than 5 million households are behind in their mortgages and risk foreclosure”. The Obama administration has targeted billions for loan modification programs that have helped very few.
A new program to be launched April 5 will attempt to help homeowners unload their homes using the short sale process. The program aims to streamline and standardize the process by establishing some ground rules for determining who gets how much. The benefits this program is intended to create include:
- More net proceeds to the investor doing a short sale than a foreclosure
- Set amount of cash for the loan servicer ($1,000)
- A predetermined amount for second lienholders, if any ($1,000)
- Less damage to the home owner’s credit rating
- Relocation money for the homeowner ($1,500)
- Assurance from lender the homeowner will not be sued for any dollar deficiency
- Fewer empty homes waiting to be foreclosed upon
Real estate agents would be used to establish the home’s current fair market value. This value estimate would not be shared with the homeowner but if an offer meets or exceeds the indicated value, the lender must accept the offer. Lenders want proof the homeowner has done everything possible to keep the home including trying to sell the home or utilized available savings to make payments.
Those of us that have handled short sales know how frustrating the process can be for homeowners, title companies, lenders and loan servicing companies. Some are easy to work with while others have made the process very difficult and time consuming. It’s not unusal to have the first couple of buyers fall by the wayside before the investor wakes up and agrees to a short sale. Any help by the federal government to regulate the process is welcomed by real estate professionals.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL REAL ESTATE SALES EXPERIENCE
Know An FHA Borrower Struggling With Mortgage Payments?
FHA LOANS, REAL ESTATE LEGISLATION, TIPS FOR SELLERS
President Obama signed into law a program to assist FHA borrowers experiencing financial hardship before they fall behind in payments. The Helping Families Save Their Home ACT of 2009 grants FHA broader authority to hopefully prevent FHA borrowers from slipping into foreclosure. Prior to this law taking effect, borrowers had to be behind in payments before seeking loss mitigation assistance. Late payments usually cause an immediate drop in credit scores which then can trigger credit card issuers to raise interest rates.
FHA sees this new program as a win-win for borrowers who get to keep their home and FHA protects their insurance fund from unnecessary losses. Here are some additional details:
- A borrower considered “facing imminent default” is one that is current on payments or less than 30 days late but has experienced a significant reduction in income or some other hardship that will prevent making future payments in a timely fashion
- Allows for a forbearance agreement to be created that allows the loan servicer to postpone, reduce or suspend payments due on a loan for a specific amount of time
- Allows qualified borrowers to reduce their payments permanently through an interest rate reduction or loan reamortization to an affordable level by using a portion of their insurance with a loan modification. Principal deferred becomes an interest free subordinate loan which is repaid once the first loan is paid off
The hardship must be documented by the borrower to the loan servicers satisfaction. The cause of hardship may include one or more of the following:
- Unemployment, reduced job hours, reduced pay, or a decline in business for self-employed would all be considered as reasons for loan modification. A scheduled temporary shutdown of the employer would not be reason enough to qualify for a loan modification
- Death in the family, permanent or short term disability or serious illness qualify as hardships
The loan servicer makes the final decision. If you know someone struggling to make house payments, ask them if they have an FHA loan. If so, direct them to HUD’s website or contact me for further information.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN A QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
Fine Points Of Homebuyer Tax Credit Discussed
INDUSTRY NEWS, REAL ESTATE LEGISLATION, TIPS FOR BUYERS, TIPS FOR SELLERS
An enrolled agent from Southern California once again spoke with local Realtors about the extension and expansion of the federal tax credit for homebuyers. Earl M. Salter, said this tax free credit not only applies to first-time buyers but homeowners who have owned and lived in their personal residence for 5 consecutive years during the last 8 years (Long-time Residents). First-time buyers and long-time homeowners must have a home under contract by June 1, 2010 and close escrow before August.
Additionally, the new law raises the income limits (Adjusted Gross Income or AGI) from $125,000 to $145,000 and for married couples filing jointly from $225,000 to $245,000. To qualify for the tax credit, long-time residents can buy the replacement property now and sell their current principal residence or keep it as a rental property. The credit is up to $8,000 for first-time buyers and $6,500 for married long-time residents or $3,250 for married filing separately.
Other important details include having to repay the credit if you sell within 3 years. The tax credit can be used immediately for closing costs if the loan is a government-backed loan such as FHA. Otherwise, the buyer can wait until filing their 2009 tax return for the credit. Ammending the 2008 return is another option but due to processing time, Earl said it’s better to wait and file for the credit with the 2009 return.
The bill, H.R. 3548, is called the Workers Homeownership and Business Assistance Act of 2009. More details of the bill will be released once the technical details are worked out and published by the federal government.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS REAL LIVING
CORNER OF COURT AND PLACER IN REDDING
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
California Real Estate Law Changes Highlighted
INDUSTRY NEWS, REAL ESTATE LEGISLATION, TIPS FOR BUYERS, TIPS FOR SELLERS
The first half of the 2-year legislative session is in the books and here is a summary of new laws that impact those
involved with real estate transactions:
- Buyers of REO’s (foreclosures) can choose the escrow or title company. Prior to October 11, 2009 REO lenders routinely dictated where the escrow would be handled. Breaking this new law can result in a fine equal to triple the charges the buyer incurred and if the real estate agent insisted on a particular company he or she shall be subject to disciplinary action against their real estate license. This law expires January 1, 2015.
- Agents or attorneys can no longer charge any upfront fees for loan modification services. The Department of Real Estate and State Bar Association have received numerous complaints from borrowers that have paid for assistance and received little if any help. This law is an attempt to put scam artists out of business. This law sunsets January 1, 2013.
- Real estate agents that originate mortgage loans must obtain a license endorsement beginning December 2010. To obtain an endorsement, agents must complete education, testing and reporting requirements.
- Mortgage Broker Activities redefined-Starting January 1, 2010, mortgage brokers will be deemed a fiduciary meaning they must put the interest of their client’s economic interest above their own. Real estate agents have had this fiduciary requirement for decades, now mortgage brokers will have the same duty.
- Appraisal Industry Oversight-The Home Valuation Code of Conduct (HVCC) prompted the requirement that someone oversee the appraisal management companies that have sprung up this year in response to this new code. The Office of Real Estate Appraisers will have regulatory oversight including registration, fingerprinting, and background checks. This law also better defines what conduct constitutes improper influence of the appraiser including threats to withhold compensation or deny future business or promise future referrals if the appraiser does what is asked.
- Mortgage fraud is now a state crime under California law. Violators are subject to 1-year prison term. Federal law adds a $1 million fine. Fraud is defined as making a material misrepresentation or omission during the loan process.
- Increase in Homestead Exemptions- Beginning in 2010, judgement creditors will be faced with additional protection of home owner’s equity to the tune of $75,000 for individuals and $100,000 for married couples and $175,000 for persons over 75 years of age. Homeowners must formerly file a Homestead Declaration to protect their equity from creditors.
- Landlords must give 60-day notice to terminate a month-to-month tenancy with a term greater than one year. 30-day notice will suffice for tenants that have rented for less than one year. The law was scheduled to sunset January 1,2010 but has been extended indefinitely.
Other new laws impact tenants of properties where the landlord has past due utility accounts, who can sell a mobile home in a park, swimming pool anti-entrapment devices, Mechanic’s Lien laws, low water-using plants, reverse mortgages, disposal of abandoned records that include personal information and plumbing fixture retrofits. Call me if you have any questions on these new laws.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
CORNER OF COURT AND PLACER IN REDDING
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
Upfront Loan Mod Fees Banned
INDUSTRY NEWS, REAL ESTATE LEGISLATION
Governor Schwarzenegger signed SB 94 into law a couple days ago which, among other things, prohibits anyone from taking an advance fee for promised loan modification services. Prior to this bill’s enactment, attorneys and some real estate agents could charge borrowers an upfront fee typically ranging from several hundred dollars to several thousand dollars for promised loan modification services.
The problem that unfolded when these individuals or companies offering assistance to distressed borrowers would collect a fee and do little or nothing leaving the client in a deeper financial hole than before. Rather than hire someone to negotiate a loan modification, borrowers should work directly with their lender to seek a rewrite of their loan terms. The modification typically involves converting an adjustable rate loan to a fixed rate, reducing the interest rate and/or extending the term which lowers the monthly payment. Borrowers should seek a reduction in principal if the property is worth less than what is owed. More lenders are willing to consider a reduction in principal in light of the fact many loan modifications are failing because borrowers still can not afford the revised payment.
In the event borrowers need assistance with a loan modification, they should seek out non-profit credit counselors or governement organizations set up to assist homeowners. HOPE NOW is one such organization. The bank bail out package includes incentives for lenders assisting borrowers seeking loan modifications. Now that banks have shored up their balance sheets, they should be more cooperative with borrowers seeking loan modifications involving loan balance reductions.
Call law enforcement if anyone asks for a fee upfront to assist you in a loan modification. The Department of Real estate is currently investigating more than 1300 complaints regarding loan modification fraud. Don’t pay anyone anything, it’s the law!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
CORNER OF COURT AND PLACER IN REDDING
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
Short Sellers Dealt A Blow
HOME LOANS, REAL ESTATE LEGISLATION
Senate Bill 306 will not require lenders to review or respond to short sale requests from sellers and their agents. This bill was allegedly mischaracterized by practitioners as much needed legislation requiring a 21-day turnaround for short sales approvals. This bill actually requires lenders to respond within 21 days with a payoff demand when requested.
What this law really does is require lenders to provide the loan payoff within 21 days on an approved short sale. My experience has been lenders ususally provide the demand within a day or two of short sale approval. Apparently there was no law specifying when a payoff must be provided. Non-short sale lenders are required to provide a payoff to an escrow company within 21 days of a request. This law extends that to short sales.
Practitioners such as myself would love a law requiring mortgage holders respond within a 3-week time period. Currently, 3 weeks is the quickest one can expect a bank to respond but 3 months is the more likely time frame. I’ve been told that asset management companies that handle negotiations on short sales for the bank are paid by the hour, so it is in their best interest to prolong the process to enhance their profits. Others speculate that banks may benefit more by foreclosing and writing off the loss than working in good faith with homeowners underwater on their mortgage.
Another provision of this bill allows escrow companies to close escrow even if the bank has not approved the final closing statement (Hud-1) as long as it is “not clearly contrary to the terms of a short sale agreement.” Typically, banks provide a payoff demand that signifies the short sale approval and a specified amount of time to close the transaction. The escrow holder is required to submit a closing statement a few days before closing for bank approval. Some banks apparently are slow to return the approved HUD-1 delaying the closing even if the net proceeds to the bank are in agreement with the original estimated closing statement. The new law takes effect January 1, 2010.
530-224-6767 or 530-941-7492
Not Sure You Are A First Time Homebuyer?
REAL ESTATE LEGISLATION, TIPS FOR BUYERS
Just Do It ..Now
Of course if you’ve never owned a home the answer is obvious …yes you are…
Haven’t owned a home in 3 years? ….yes you are
Renting with a good income? …yes you should …
In reality there is less than a week to be able to grab onto the Federal Credit….has to close escrow by Nov 30th to qualify …not be in escrow
Don’t wait too long ….
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Our Customer Satisfaction Rating, based on an independent survey, exceeds 97%. This is reflected in our 2008 "QUIE" Award recognizing the TOP 10 REAL ESTATE COMPANIES in NORTH AMERICA! REP/GMAC in #2.
