Green Tip of the Week

Check back often, as I will be posting new Green Tips weekly.

Here is your Green Tip for this Week…

Natural deterrents to ants include dry Cream of Wheat, which they cannot digest and is lethal to them, as well as powdered borax mixed with maple syrup (don’t use the latter if you have children or pets). If the aim simply is to deter, but not kill, then sprinkle the substances they don’t like to cross, such as ground black pepper, chalk, or cinnamon, near doors.

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No More State Tax on Forgiven Debt

NO MORE STATE TAX ON FORGIVEN DEBT

Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification.  Enacted into law yesterday, Senate Bill 401 generally aligns California’s tax treatment of mortgage debt relief income with federal law.  For debt forgiven on a loan secured by a “qualified principal residence,” borrowers will now be exempt from both federal and state income tax consequences.  The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.

“Qualified principal residence” indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence.  It includes both first and second trust deeds.  It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.

The tax breaks apply to debts 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 above exemptions (e.g., second home or rental property) may nevertheless be exempt under other provisions.  Most notably, taxpayers who are bankrupt are exempt from debt relief income tax.  Also, taxpayers who are insolvent are exempt 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.

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Home Buyer Tax Credit Update

$18,000 IN COMBINED HOMEBUYER TAX CREDITS FOR A LIMITED TIME

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 time frames 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.

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Market News in Real Estate

The Los Angeles Times Reports
Shopping for a loan? A good faith estimate will protect you.
Beginning Jan. 1, the Dept. of Housing and Urban Development (HUD) required lenders to issue Good Faith Estimates to protect consumers applying for mortgage loans. Some loan officers, however, sidestep the new requirement by giving their initial quotes on informal worksheets that carry no federal consumer protections. It is important that consumers understand the differences between the federally mandated good faith estimate form and a lender’s informal worksheet.

Keep this in mind. . .

• Last month, HUD told lenders and loan officers that under no circumstances can worksheet quotes be issued to a mortgage applicant in lieu of a good-faith-estimate form.Under the new law, once a mortgage applicant supplies the essential application information, including Social Security number, property address, and estimated value, among other data, lenders must issue a binding-cost good-faith estimate. Once this information is provided, lenders are required to issue the good faith estimate within three days of the application.
• Under the new law, once a mortgage applicant supplies the essential application information, including Social Security number, property address, and estimated value, among other data, lenders must issue a binding-cost good-faith estimate. Once this information is provided, lenders are required to issue the good faith estimate within three days of the application.

• Loan officers cannot refuse to provide a good faith estimate to an applicant who requests one, nor can they tell applicants that they must commit to moving forward with their mortgage company to obtain a mortgage prior to receiving a good faith estimate.

• Once an applicant has received a good faith estimate, they can take the form with them to comparison shop. The new form includes itemized boxes allowing mortgage applicants to compare quotes from up to four lenders, such as interest rates, loan fees, prepayment penalties, and total settlement expenses.

• The good faith estimate also ties upfront estimates to later charges at closing, and encourages borrowers to check line by line for any discrepancies. The form explains which fees come with zero tolerance for changes between upfront estimates and closing—generally the lender’s own fees and local transfer taxes—and which fees allow a 10 percent fluctuation for changes higher than the estimate, such as certain title and closing-related services.
• Some worksheets resemble good-faith estimates, but have titles such as “estimated settlement costs” at the top of the page. Others indicate on the bottom of the form that the worksheet is not a good faith estimate, so consumers should carefully review documents before making any decisions.

To read the full story, please click here

The Mercury News Reports
Refi program for underwater homeowners gets another year.
The government is giving homeowners another year to refinance their loans under a little-used program designed to help borrowers whose homes have plummeted in value.

To read the full story, please click here

Bloomberg News Reports
Home prices decline 1.2 percent, smallest drop in two years.
U.S. home prices fell 1.2 percent in the fourth quarter from a year earlier, the smallest loss in two years, as a federal tax credit for home buyers boosted demand.

To read the full story, please click here

The Wall Street Journal Reports
Bid to curb mortgage tax break falters.
The latest effort to scale back some tax deductions on mortgage interest, one of the nation’s most-enduring tax breaks, is finding little support in Congress.

To read the full story, please click here

The Los Angeles Times Reports
Many borrowers in default stay put as lenders delay evictions.
Despite being months behind, many strapped residents are hanging on to their homes, essentially living rent-free. Pressure on banks to modify loans and a glut of inventory are driving the trend.

To read the full story, please click here

The New York Times Reports
Another foreclosure alternative.
Homeowners on the verge of foreclosure will often seek a short sale as a graceful exit from an otherwise calamitous financial situation. Their homes are sold for less than the mortgage amount, and the remaining loan balance is usually forgiven by the lender.

To read the full story, please click here

The Washington Post Reports
Consumer optimism seen with January rise in spending.
Perhaps the lessons of the Great Recession are not so deep-seated after all. Consumers spent more and saved less in January, according to government data released Monday, a sign that Americans feel increasingly secure about their financial situation, economists said.

To read the full story, please click here

The Wall Street Journal Reports
Freddie Mac abandons ship on interest-only loans.
Freddie Mac said on Friday that it would stop buying and securitizing interest-only loans in September because those mortgages have performed so poorly.

To read the full story, please click here

The Mercury News Reports
Increasing numbers of Californians are suing lenders to avoid foreclosure.
In the last five years, the number of foreclosure lawsuits filed in federal courts in California has ballooned—like an exploding adjustable-rate mortgage—from only 29 statewide in 2005 to nearly 1,400 last year.

To read the full story, please click here

What you should know about the market. . .

• When house hunting, first-time buyers are advised to create long-term budgets to help estimate costs of homeownership. Items such as taxes, insurance, utilities, closing costs, appraisal fees, escrow fees, homeowner’s insurance fees, and moving costs should be included in the budget.

• A common mistake many home buyers make is being too close-minded while searching for a home. To avoid this, home buyers should sit down with their REALTOR® and create a needs/wants list. Thelist should include items that are must-haves or deal-breakers, as well as those that are not necessary, but would be nice to have in the home.

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Market News in Real Estate

The Los Angeles Times

IRS issues new guidelines on obtaining home buyer tax credits
The Internal Revenue Service (IRS) recently issued new guidelines and clarified documentation that taxpayers must submit to successfully obtain the federal tax credit for home buyers.

Keep this in mind:

• The federal tax credit for home buyers was extended and expanded late last year. Qualified first-time buyers may be eligible to receive a tax credit of up to $8,000 on homes purchased before April 30, 2010. Repeat buyers may be eligible for a tax credit of up to $6,500. Visit http://www.irs.gov/newsroom/article/0,,id=187935,00.html for more information about the federal tax credit for home buyers, including eligibility requirements.

• To receive the tax credit, home buyers must comply with the IRS’s documentation requirements, including a fully executed IRS Form 5405. On the form, which is available on the IRS’s Web site, taxpayers provide information supporting their claim of eligibility, such as income and home purchase date.

• The IRS also requires home buyers to submit a copy of the closing or settlement statement that proves the transaction took place. The IRS previously said that the statement should show “all parties’ names and signatures, property address, sales price, and date of purchase.” However, since closing or settlement statements vary by state, and in some cases the form does not include both the seller’s and buyer’s signatures, the IRS has revised this requirement. As long as the closing or settlement statement conforms to prevailing local practices, the IRS will accept it.

• One stipulation for repeat buyers is they must provide documentation they lived in their former property for a consecutive five years out of the previous eight years. Accepted documentation may include property tax records, hazard insurance records, or copies of annual mortgage interest statements filed with their federal taxes.

To read the full story, please click here

CNN Money

Housing help for unemployed, underwater borrowers
Under pressure to do more for troubled homeowners, President Obama is expected to announce a $1.5 billion program to help borrowers in five states hit hardest by the housing crisis.

To read the full story, please click here

The Los Angeles Times

High-end home sellers lower their sights
The housing slump is finally bringing down prices in the luxury property market.

To read the full story, please click here

The San Francisco Chronicle

More using program to prevent foreclosure
The number of mortgages with permanently lowered monthly payments under the Obama administration’s foreclosure prevention program increased dramatically in January.

To read the full story, please click here

Bloomberg News

High-scoring borrowers pay cards ahead of mortgages
Consumers with high credit scores are more likely to default on mortgages than credit-card loans, said FICO, maker of the scoring formula most widely used by U.S. lenders.

To read the full story, please click here

The Los Angeles Times

Jumbo mortgage market is beginning to thaw
The mortgage meltdown sent interest rates soaring and availability shrinking, but rates are declining and lenders are more wiling to make loans that top the limits for Freddie Mac, Fannie Mae, and the FHA.

To read the full story, please click here

The Sacramento Bee

Struggling homeowners warned against phony foreclosure ‘audits’
State officials warned struggling homeowners Monday about a new variation on loan-modification scams: “forensic loan audits.”

To read the full story, please click here

What you should know about the market. . .

• When beginning the house hunt, some buyers go in blindly, not knowing how much house they can afford. Without this knowledge, buyers may find themselves viewing houses that aren’t within their budget. To prevent buyers from spending time viewing homes they may not be able to afford, real estate experts advise home buyers get pre-approved by lenders before house hunting. By providing copies of a recent credit report, W-2s, pay stubs, and bank and brokerage statements to a lender, buyers will have a better idea of the price range they can afford.

• Many financial and real estate advisors also recommend home buyers create long-term budgets to help create guidelines for affordable mortgage payments and long-term homeownership costs. Most experts advise clients to devote no more than 30 percent of their monthly household income toward housing costs, which should include mortgage principal, interest, taxes, and insurance. There are numerous worksheets available online to help consumers calculate how their income, debts, and expenses may affect the amount they can afford each month for the next 15 to 30 years.

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