My Latest Blog

8 Tips to Take Advantage of the Home Buyer Tax Credit before Time Runs Out

RISMEDIA, March 27, 2010—RE/MAX 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 RE/MAX Northern Illinois 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 RE/MAX Select in 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 RE/MAX Suburban in 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 RE/MAX Center in 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 RE/MAX Properties in 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, according to Dan Bundy of RE/MAX Center.

However, “the more contingencies you have in a contract, the greater the risk that it won’t close,” said Bundy. 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 of RE/MAX Suburban. “Waiting for lender approval could leave you without a binding contract on April 30.”

RISMEDIA, March 24, 2010—(MCT)—For thousands of people, 2009 was a pretty rough year. But now that it’s tax time, there may be some breaks available for those who lost a job, looked for one, were overwhelmed by debt or had to take a pay cut.

Some of these are one-time-only offerings. Others may apply only because your situation got so much worse, but that shouldn’t stop you from pursuing them. Here’s what to consider.

-Did you collect jobless benefits during 2009?

The American Recovery and Reinvestment Act of 2009 offered a bit of a tax break to jobless people for last year only. On 2009 returns, taxpayers can exclude up to $2,400 of unemployment compensation from taxable income.

Normally, all money received through unemployment compensation would be taxable, said Luis D. Garcia, a spokesman for the IRS in Detroit. Look for a Form 1099-G, Certain Government Payments, to show the total unemployment compensation paid to you in 2009.

If both a husband and a wife received unemployment compensation during 2009, each would be able to exclude up to $2,400 in benefits from taxable income, according to Mark Luscombe, principal analyst for CCH, a Wolters Kluwer business.

Report unemployment benefits that exceed the $2,400 limit—or $4,800 if both spouses were out of work and collecting—on Line 19 of the first page of the 1040.

- Did you hunt for a job during the year?

Take a close look at whether you could deduct some of the expenses involved, such as long-distance calls or unreimbursed travel. If you qualify, the deductions could apply even if you didn’t get hired.

Not everyone will get this break. You cannot, for example, deduct job-hunting expenses if you’re looking for your first job out of school or if you are looking for a job in a different line of work.

Other hurdles must be crossed, too. Bob Scharin, senior tax analyst for the Tax & Accounting business of Thomson Reuters, said you’d have to itemize deductions and see whether you have enough miscellaneous expenses to take one for job-hunting deduction. Those miscellaneous expenses would have to be greater than 2% of your adjusted gross income (AGI). (Your AGI is found on line 37 of the regular 1040 form).

If your adjusted gross income was $50,000 for 2009, then you’d need more than $1,000 in miscellaneous expenses to be able to take any miscellaneous deductions on Schedule A.

Luscombe said job-hunting expenses can include resume printing, postage, faxes, long-distance calls and unreimbursed travel, including air, taxi and rail as well as mileage and tolls, and lodging for out-of-town interview trips.

- Did you work through a credit mess and have debt forgiven?

While it’s a relief to see credit card debt or other loans forgiven, it’s a shock at tax time to learn that generally any amount of debt that is settled for less than the amount owed is subject to taxes. Your lender would send you Form 1099-C, Cancellation of Debt, to show you what to report on your tax return.

“Many people are surprised when they get the Form 1099-Cs in the mail, and the IRS indicates that many more 1099-Cs are being sent out,” Luscombe said. A taxpayer should receive a 1099-C if $600 or more of debt is forgiven by a federal agency, financial institution or credit union. Not all canceled debt will trigger taxable income. There are exceptions for such things as insolvency or bankruptcy—and foreclosure.

The Mortgage Forgiveness Debt Relief Act of 2007 allows taxpayers to generally exclude income from the discharge of debt on their principal residence or mortgage restructuring. This won’t help if your mortgage debt involved a second home or vacation home.

- Did your paycheck get smaller?

Nobody is celebrating a wage cut, fewer hours or several months without work. But if last year was particularly rough, you might qualify for the Earned Income Tax Credit. You must have some income from wages or a job for 2009 and earn less than set income limits.

For example, your adjusted gross income would need to be less than $40,463 if you’re married, filing a joint return and have one child who would qualify under the credit. The maximum earned income credit is $3,043 if you have one qualifying child.

The income limit is $48,279 if married and filing a joint return and if you have three or more qualifying children. The maximum credit is $5,657 for three or more children.

- Did your income drop so much that you now qualify for some breaks that couldn’t work for you last year?

Scharin noted families that had college tuition bills in 2009 could benefit on their tax return this year from certain education credits that are not allowed once you hit certain higher-income levels.

The American Opportunity Tax Credit—formerly called the Hope Credit—offers up to $2,500 for qualified tuition and fees paid for each eligible student in the first four years of college. The American Opportunity Tax Credit cannot be used, though, if your modified adjusted gross income hits $90,000 or $180,000 on a joint return.

“Just because you weren’t eligible in the past doesn’t mean you’re not eligible now,” Scharin said. “Don’t assume because the line was blank last year you should leave it blank this year.”

(c) 2010, Detroit Free Press.

Distributed by McClatchy-Tribune Information Services.

RISMEDIA, March 24, 2010—Buying a home is one of the biggest decisions an individual can make. So it’s understandable that one considering a home purchase may take their time to avoid rushing into such a large financial commitment. However, several factors might leave prospective home buyers who don’t purchase a property now wishing they had taken action sooner.

“Current market conditions have created a perfect storm of sorts that has made it an ideal time to purchase for first-time and trade-up buyers alike,” said James M. Weichert, president and founder of Weichert, Realtors. “Those who have the means and the desire to buy now but don’t, aren’t likely to see such a great opportunity again anytime soon.”

Specifically, Weichert offered three reasons why those who aren’t under contract to purchase a new home by April 30, 2010 might regret it.

1. They won’t receive a sizeable amount of money from Uncle Sam.

For the past two years, the federal government has offered a home buyer tax credit to help stimulate the economy. But that financial incentive is set to expire soon. First-time buyers who aren’t under contract to purchase a home by April 30, 2010 will leave the $8,000 that is available to them through the tax credit on the table. Meanwhile, repeat buyers will miss out on the opportunity to collect up to $6,500 from the government.

2. They might not lock-in on the historically-low interest rates.

Thanks to measures taken by the Federal Reserve including the purchasing of mortgage-backed securities, interest rates have remained historically-low for several years. With the economy beginning to show signs of recovery, it is widely believed that the government will soon put an end to these stimulus efforts.

If that happens, many economists believe we will begin to see a sharp increase in interest rates which could result in a much higher monthly payment for those who wait. For example, an interest rate increase of 1% on a 30-year fixed mortgage of $300,000 could cost a buyer $188 more a month or $67,000 more over the span of the entire loan.

3. They might miss out on record home price affordability.

Home price affordability is at its most optimal level in decades. As a result, those who wait to buy will likely pay more for the home they purchase than what that same home would cost right now. In fact, home prices have already begun to rise slightly in some markets. Instead of getting a better bargain, waiting to buy a home might net buyers a higher purchase price, less appreciation and less house for their buck.

“There is no time to waste for anyone who wants to take advantage of this great buying opportunity. Particularly for those who have a home to sell first,” added Weichert. “If you are prone to saying ‘what if’ and wondering what could have been, you will thank yourself down the road for buying now.”

For more information, visit www.weichert.com.

Spring for a Bathroom Makeover

Potential buyers may walk away if bathrooms are outdated and unappealing. Here are some low-cost ways to give the facilities a facelift:

• Scrub-a-dub-dub. Give everything, including drawers and cabinets, a deep cleaning.

• Paint the walls. Remove aging wallpaper and paint the space with a bright semi-gloss shade made for use in the bathroom.

• Replace aging fixtures. Put a tub liner over the old tub and update sinks, toilets, and faucets.

• Accessorize. Buy fresh, new linens, rugs, and shower curtains.

Source: News Mark Inc., Jenna Shields (03/22/2010

RISMEDIA, March 25, 2010—I can still remember my first cell phone. The Motorola StarTAC. Upon its release in 1996, it was the world’s smallest and lightest mobile phone, weighing in at 3.1 ounces, and it allowed you to make calls with a sense of class and style like never before. But that’s pretty much all it did—make phone calls. Since then, our cellular telephones have evolved into rich, mobile devices with a seemingly endless array of uses. And yes, they still allow us to make phone calls from wherever we are.

But the interesting thing is people are making fewer and fewer calls. Since 2008, U.S. subscribers are sending more text messages than they are making phone calls on a monthly basis. We are witnessing a shift in the way people communicate, right before our very eyes.

This communication shift was first seen in the dawn of the Internet revolution. Applications like AOL and Prodigy allowed you to instant message or chat with friends, strangers—even people in other parts of the world—right on your computer screen. As the dot.com bubble burst and these applications quickly became obsolete due to advances in Internet technology, one surviving feature remained: instant messaging.

Today, the text message has become the instant message for your mobile device. While it may have been slow to catch on, by June 2000, U.S. subscribers were sending an average of 12.2 million messages per month. Even though Nokia reported that text messaging had addictive tendencies in its 2001 Global Messaging Survey, no one could have predicted that only four years later—by June 2005—U.S. subscribers would be sending an average of 7.2 billion messages a month. Nor could they have predicted the exponential growth this phenomenon would see, increasing 1,877% in volume in just four years to an average of 135.2 billion messages per month (June 2009). As mobile subscribers (270 million) have now surpassed Internet subscribers (232 million), it’s clear that the text message has become the preferred method of communication for the majority.

And why wouldn’t it be? It’s quick, it’s easy, and it goes directly to the device that never leaves your side (thanks, belt clip). Text messaging is the most immediate way to send and receive information and has the lowest barrier to entry.

There is no better proof of this than the recent donations that have been made via text to help the victims of Haiti’s earthquake. Just one day after the massive quake, musician Wyclef Jean’s grass roots campaign generated over $400,000 (in $5 increments equating to over 80,000 texts!) in donations by asking people to text the word “Yele” to 501501. The Red Cross raised over $22 million and the Mobile Giving Foundation reported total donations via text in excess of $27 million. That’s only seven days after the quake. Telethon who?

Not long ago, pundits referred to the mobile phone as the “third screen,” with television being the first and the computer being the second. Today, however, the mobile device is quickly becoming the first screen, due to its increasingly intimate relationship with users and its constant presence right on your hip. Furthermore, when people are motivated to help, to win, to join or to buy, the quickest and most efficient way to facilitate those actions is through text message.

Text messaging enables motivated parties to act on impulse and strike while the iron’s hot. Businesses across all verticals are finding ways to capitalize on this evolution in consumer behavior. If fans can text a vote for their favorite reality show contestant, text for coupons while standing in line at the store and text an instant donation to someone in need, just imagine what texting can do for the real estate business. It’s time for our industry to catch the wave.

Seth Kaplan is president of Mobile Real Estate ID. For more information, visit www.mobilerealestateid.com.

RISMEDIA, March 27, 2010—(MCT)—Homeowners defaulting on mortgages today may be surprised to learn years from now that they still owe thousands of dollars—and a collection agency is coming after them to get it.

That’s because lenders have been quietly selling second mortgages and home equity lines left unpaid after foreclosures and short sales. The buyers: collection agencies, which in some states have years to make a claim. If they win court judgments, these collectors could have years to pursue borrowers with repayment plans, and even garnish their wages, said Scott CoBen, a Sacramento bankruptcy attorney.

“The only relief a consumer will have is entering into a debt negotiating plan or filing for bankruptcy,” said Sylvia Alayon, a vice president with the New York-based Consumer Mortgage Audit Center. The firm provides mortgage analysis to lenders, advocacy groups and attorneys.

The phenomenon suggests an ominous, looming echo of today’s real estate meltdown. As debt collectors surely seek at least partial repayment of millions of dollars in unpaid home loans, some say renewed financial stresses on tens of thousands of local consumers could dampen economic recovery.

“I think there will be a lot of unhappy people when it hits,” said CoBen. “We saw this in the ’90s. This is not really new. Just when you think you’re back on your feet, you’re making money and the economy’s good, they hit you with this.”

Alayon said most people are so stressed out and exhausted by trying to save their homes today that they are unaware they could face another hit later. And many who are losing homes don’t get the advice necessary to prevent future fallout, say nonprofit loan counselors.

“You’ve got tens of thousands of people in California who have this hanging over their heads who don’t even know it,” said Scott Thompson, principal at for-profit Mortgage Resolution Services in Carmichael, Calif. He fears a new wave of bankruptcies might flatten people just starting to recover from losing their homes.

“So many of these are people with 750 or 800 credit scores who made a bad decision,” said Thompson. “Or they’re people who suffered income cuts. These are people, in terms of the economy, whom we need to participate.”

But an entire industry is gearing up to buy their debt at deep discounts and collect what they can, Alayon said. “It’s a big business and investors are coming out of the woodwork. It’s a very lucrative business,” she said. Real estate insiders and financial players know it as “scratch and dent.”

Regionally, no one knows for sure how much unpaid debt is on the line. CoBen said people who used their borrowings for a traditional loan on a house in which they lived generally have little to worry about. But borrowers may be vulnerable in years ahead—generally, those who defaulted not only on their first mortgage but also on a home equity loan or second mortgage.

In California, banks can’t collect from borrowers for primary, so-called “first-lien,” loans that go unpaid. When a house is foreclosed or sold through a short sale, the lender of the first loan gets the house back or the proceeds from another buyer.

But banks also made thousands of “second-lien” loans, including those used to finance 20% down payments during the housing boom. A separate category of “seconds” includes home equity loans and home equity lines of credit. Nationally, about 3.4% of those loans are currently delinquent, according to Foresight.

Owners are generally, but not always, on the hook for the second loans left over from a foreclosure or short sale. Most investor mortgages, too, leave the borrower liable for potential unpaid debt. In many short sales, experienced real estate agents or attorneys can negotiate away debt obligations for the second-lien loan. But many inexperienced borrowers don’t know that, and sign final-hour agreements giving lenders the right to pursue them later.

“Seek advice,” counseled Doug Robinson, spokesman for national nonprofit mortgage counselor NeighborWorks America. He said nonprofit counselors can help. “Often when you work with a real estate agent, they’re not really equipped to handle the repercussions. They’re set up to make the sale,” he said.

Government forces are already moving to limit potential damage to millions now struggling with home loans. A new Obama administration short sale program aims to prevent banks that hold second-lien loans from pursuing collections from homeowners after the short sale. It goes into effect April 5, 2010 and works this way: Sellers will receive notice that their servicer has steered part of the sales proceeds to secondary lien holders “in exchange for release and full satisfaction of their liens.” This release would apply only to short sales done through the administration’s Home Affordable Foreclosure Alternatives program.

In California, Democratic state Sen. Ellen Corbett recently introduced SB 1178, which would expand California’s protections for some people who refinance and take on a second mortgage.

People who refinance, but use the funds to improve their homes or to stay in their homes with a better interest rate, would be protected. Lenders could not seek court judgments to collect from these borrowers in the event of foreclosure or short sales.

“If you refinance a property and aren’t using the money for personal reasons, you shouldn’t lose your personal protections,” said California Association of Realtors lobbyist Alex Creel. He said the idea has been around for years but has become more urgent as thousands lose income and fall into mortgage trouble. The bill would apply to all foreclosures or short sales that occur after it becomes law. It doesn’t matter when the loan was made, Creel said. SB 1178 is still in the early stages of consideration. It must clear both houses of the Legislature and be signed by Gov. Arnold Schwarzenegger by Sept. 30 in order to take effect.

(c) 2010, The Sacramento Bee (Sacramento, Calif.).

New Foreclosure Prevention Plan Announced

President Obama is announcing an expansion of foreclosure-prevent tactics, including a plan to reduce principal balances and special aid for unemployed borrowers.

The bulk of the responsibility for carrying out the new program will be assigned to the Federal Housing Administration, which will insure lenders against part of the losses.

The plan asks banks to write down loan balances to less than the value of the home. If there is both a first and second mortgage, the combined total would have to be no more than 115 percent of the home’s value.

The Treasury would pay part of unemployed homeowners’ loans for three months while they job hunt.

Source: The Wall Street Journal, Nick Timiraos and James R. Hagerty (03/25/2010)