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Tom Stachler,ABR,CDPE - Group One Realty Team

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HOPE...a New Federal Program for Home Owners with Troubled Morgages

by Group One Realty Team - Real Estate One
HOPE for Homeowners, a federal program to allow the replacement of up to $300 billion in underwater U.S. mortgages with federally backed FHA financing, began accepting applications under a legislatively authorized expansion.
 
To qualify, borrowers must be spending more than 31 percent of their income on mortgage payments. Loans made this year are excluded, except for those completed on Jan 1. Borrowers must have made six months of payments on their loans.
 
Lenders must agree to participate and erase 10 percent of the Home's current value before the government will guarantee the mortgage. A concern among lenders is that investors in mortgage securities must take an immediate loss and can't recoup their lost money if home prices turn upward again.
 
The program is a "helpful step forward" in stabilizing the housing market and will help keep many families in their homes but it is not a cure-all, said Steve Preston, secretary of the U.S. Department of Housing and Urban Development, which administers the program.
 
Troubled borrowers should contact their lenders.

If you need help getting your property listed and sold, go to this link to get started.

15 Things You Need to Know About the Panic of 2008

by Group One Realty Team - Real Estate One

A crash course in why it happened, how it's strangling the nation's finances and how it might work itself out.
 
1. It all began with cheap money. To prop up ailing economies early in this decade, central banks in the U.S. and Japan kept interest rates unusually low, which encouraged
speculation. In the U.S., the Federal Reserve lowered the federal funds rate -- the rate that
banks charge each other for overnight loans and a barometer for the cost of borrowing
money on a short-term basis -- from 6.5% in 2000 to 1% by mid 2003. Cheap money
quickly ignited a sharp rise in Home values in virtually every corner of the country.


2. Financial magicians made subprime loans golden. Banks and mortgage companies fed speculation in home prices by offering cheap credit to all comers, including those who would not normally qualify. What to do with these subprime loans? Package them with thousands of high-grade loans to sell to investors. To make the subprime loans attractive, underwriters bought insurance policies guaranteeing that the loans would be repaid. With insurance on the loans, credit-rating agencies stamped such paper as triple-A-rated debt.


3. The global economy became infected with poisoned debt. The loans came to investors as collateralized-debt obligations, or CDOs. A CDO is a huge package of loans sold in assorted segments -- known as tranches -- with varying interest rates and levels of risk. Buried inside the least-risky tranches were those subprime mortgages masquerading as trip e-A-rated debt because of their insurance policies. Companies that wrote the insurance policies on these mortgages assumed that default levels would be minuscule.


4. So much for those assumptions. Home prices tipped downward, setting off a chain reaction. All bubbles eventually burst. The Fed began raising short-term interest rates in 2003, eventually boosting the federal funds rate to 5.25% by the summer of 2006. As a result, adjustable-rate mortgages (particularly the subprime variety) began to reset at far higher interest rates, and in July 2006 the rise in home prices abruptly stopped. In fact, home values began a descent that continues to this day, in many communities averaging a loss of 15% to 30%. As borrowers realized their homes were worth less than the amount they owed on their mortgages, the default rate shot up.

 

5. Rating agencies lowered their assessment of those supposedly triple-A subprime loans to junk levels. The investment and commercial banks, pension funds, and other institutions that had bought the supposedly safe, triple-A-rated CDO tranches woke up to find their investments tainted by those poisonous subprime loans, which began to default at alarming rates. Holders of these CDOs found it all but impossible to know what they were really worth. And when they tried to sell them, there were few buyers -- the  beginning of a seize-up of U.S. debt markets.


6. A wave of write-downs on the value of those loan packages commenced. Financial accounting standards require banks and investment companies to "mark to market" the value of their assets each day. If it's impossible to value a security because there is no market for it, too bad -- make a smart guess. Starting in
2007, one financial institution after another announced a series of quarterly write-downs of hard-to-value and unsalable CDOs that turned into a financial tidal wave.


7. Financial institutions were revealed as vastly undercapitalized. As the quality of their debt portfolios deteriorated, investment banks wrote off billions of dollars of bad assets each quarter, causing their reserves to shrivel. Commercial banks are leveraged with perhaps ten times as much in assets as capital. But some investment banks leveraged themselves more than 30 to 1, to the point that should anything go seriously wrong with those assets, their businesses could fail. The same held true of Fannie Mae and Freddie Mac, which own or guarantee more than $5 trillion in mortgage debt.


8. A cloud of suspicion and distrust enveloped financial markets. Surprised by these developments, investors large and small realized that stocks of supposedly stable financial institutions were in fact ticking time bombs and began selling their shares. Banks, which routinely lend each other money overnight, curtailed those loans because they began to lose faith in the value of the collateral the borrowing banks were offering.


9. The gathering storm set off a sickening wave of failures. One of the first banks to fail was California's IndyMac, which was a leader in subprime lending. Countrywide, the biggest mortgage lender, sold itself to Bank of America to avoid insolvency. This spring, Bear Stearns, the most overextended of the investment banks, failed, and the government arranged a forced marriage with JPMorgan Chase. Then in September, to avert a collapse of Fannie Mae and Freddie Mac, the government seized control of them by putting them in a conservatorship that made Uncle Sam the explicit guarantor of mortgages they  owned or insured.


10. Lending of all sorts started to freeze up. First to coagulate, last winter, was the market for auction-rate securities. These are long-term debt securities whose interest rates are regularly reset, so that they behave more like short-term notes. With no buyers, investors in these notes were stuck. By September, even overnight loans among banks had dried up. And despite hundreds of billions of dollars in cash that central banks around the world pumped into banks' coffers, few banks put that money to work for fear it would be
needed to shore up their own finances. Recently, investors began withdrawing tens of billions of dollars from supposedly supersafe money-market funds, which invest in, among other things, short-term corporate debt.


11. And government could not steady the boat. Nothing that Washington tried -- lowering interest rates, flooding the economy with gazillions of dollars to keep the financial community afloat, rescuing Fannie Mae and Freddie Mac -- instilled confidence in financial institutions. When Lehman Brothers Holdings declared bankruptcy on September 15, fellow investment bank Merrill Lynch sold itself to Bank of America to avoid being next to topple. That was followed by the government's rushed takeover of American International Group, the world's largest insurer, whose forays into insuring the repayment of billions of dollars in debt had drained its capital. Then the last two independent investment banks, Goldman Sachs and Morgan Stanley, found their own survival cast into doubt by plunging share prices.

 

12. Word of a rescue plan to take bad assets off the hands of financial companies is encouraging investors. The Bush administration's proposal, being crafted with congressional leaders, would create a federal agency to take hundreds of billions of dollars in "bad assets" off the balance sheets of financial institutions, for a price. Eventually, those assets that recover their value would be sold back into public markets. Conceivably, the ultimate cost to the government of this plan may not be that great. Word of this plan fueled huge rallies in the U.S. stock market on September 18 and 19.


13. Also helpful: Stable home prices are on the horizon. Throughout 2008, the year-over-year decline in home sales has been slowing, indicating that activity in the housing market could soon pick up. Meanwhile, the inventory of unsold homes has almost quit growing, and the months' supply of unsold homes is one-third of what it was at the start of the year. This matters, because only when prices stabilize will the wave of foreclosures crest and the extent of bad debt poisoning the balance sheets of financial institutions be known.


14. But the economy will suffer aftershocks for years. That's because banks have already lost $1 trillion to bad debt during this crisis, and some experts expect the losses to end up being twice that amount. Less capital means less money to lend and far stricter limits on credit to borrowers. Years could pass before banks can rebuild their capital to the levels that existed before this crisis. The shocks already felt could cause the economy to fall into recession; it's too soon to tell.


15. Don't lose hope. A financial panic causes people to lose their ability to reason. But just because a panic can end in utter economic disaster doesn't mean that it will. Just as banker J. Pierpont Morgan could quell the Panic of 1907 by walking onto the floor of the New York Stock Exchange and Buying bank stocks, so too could decisive government action contain the Panic of 2008. You may not know the outcome of this drama for weeks or months to come. Until you do, I’m guessing the best course of action might be ... to do nothing.

Or you might consider investing in Real Estate.  You already know that value has reached bottom so its a good time to buy.  AND no matter what, you still have something more than worthless paper should any of these companies we have invested in go belly up.  Stop by this link to get started with quick inventory search just to see whats out there for investment or new home.

NEW FIRST TIME HOME BUYER TAX CREDIT

by Group One Realty Team - Real Estate One

 ECONOMIC RECOVERY ACT OF 2008

 

FEATURE

 

H.R. 3221

Housing and Economic Recovery Act of 2008

 

 

Amount of Credit

 

Ten percent of cost of Home, not to exceed

$7500  Click Here for more info

 

 

Eligible Property

 

Any single-family residence (including condos, co-ops) that will be used as a principal residence.

 

 

Refundable

 

Yes.  Reduces income tax liability for the year of purchase.  Claimed on tax return for that tax year.

 

 

Income Limit

 

Yes.   Full amount of credit available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return).  Phases out above those caps ($95,000 and $170,000, respectively).

 

 

First-time Homebuyer Only

 

Yes.   Purchaser (and purchaser’s spouse) may not have owned a principal residence in 3 years previous to purchase. 

 

Recapture

 

Yes.  Portion (6.67 % of credit) to be repaid each year for 15 years.  If home sold before 15 years, then remainder of credit recaptured on sale.

 

 

Impact on District of Columbia Homebuyer Credit

 

DC credit not available if purchaser uses this credit.

 

 

Effective Date

 

Purchases on or after April 9, 2008

 

 

Termination

 

July 1, 2009

 

Interaction with Alternative Minimum Tax

Can be used against AMT, so credit will not throw individual into AMT.  


This credit is in effect now.  Get started looking at home.  Click here for direct MLS access for the Ann Arbor and surrounding areas.

HR 3221, the Housing and Economic Recovery Act of 2008

by Group One Realty Team - Real Estate One
Summary

(as of 7/24/08)

 

H.R. 3221, the “Housing and Economic Recovery Act of 2008,” passed the house on July 23rd by a vote of 272-152.  The Senate must now approve the language adopted by the House.  The Senate is expected to approve the bill on Friday, July 25th or Saturday, July 26th.   The President has said he will sign the bill.  It includes:

 

·         GSE Reform – including a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median Home price, capped at $625,500.  The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).

 

·         FHA Reform – including permanent FHA loan limits at the greater of $271,050 or 115% of local area median Home Price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).

 

·         Homebuyer Tax Credit - a $7500 tax credit that would be would be available for any qualified purchase between April 8, 2008 and June 30, 2009.  The credit is repayable over 15 years (making it, in effect, an interest free loan).

 

·         FHA foreclosure rescue – development of a refinance program for homebuyers with problematic subprime loans.  Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value.  Borrowers would have to share 50% of all future appreciation with FHA.  The loan limit for this program is $550,440 nationwide.  Program is effective on October 1, 2008.

 

·         Seller-funded downpayment assistance programs – codifies existing FHA proposal to prohibit the use of downpayment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by nonprofits funded by other sources, churches, employers, or family members.  This prohibition does not go into effect until October 1, 2008.

 

·         VA loan limits – temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

 

·         Risk-based pricing – puts a moratorium on FHA using risk-based pricing for one year.  This provision does will be effective from October 1, 2008 through September 30, 2009.

 

·         GSE Stabilization – includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

 

·         Mortgage Revenue Bond Authority – authorizes $10 billion in mortgage revenue bonds for refinancing subprime mortgages.

 

·         National Affordable Housing Trust Fund – Develops a Trust Fund funded by a percentage of profits from the GSEs.  In its first years, the Trust Fund would cover costs of any defaulted loans in FHA foreclosure program.  In out years, the Trust Fund would be used for the development of affordable housing.

 

·         CDBG Funding – Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes.

 

·         LIHTC – Modernizes the Low Income Housing Tax Credit program to make it more efficient.

·         Loan Originator Requirements – Strengthens the existing state-run nationwide mortgage originator licensing and registration system (and requires a parallel HUD system for states that fail to participate).  Federal bank regulators will establish a parallel registration system for FDIC-insured banks.  The purpose is to prevent fraud and require minimum licensing and education requirements.  The bill exempts those who only perform real estate brokerage activities and are licensed or registered by a state, unless they are compensated by a lender, mortgage broker, or other loan originator.


Click here for a copy of the bill lanuage.

Time to look for Property. Seller paid concessions run out on FHA loans Oct 1, 2008!.  Click here to get started with direct MLS Access for the Ann Arbor Michigan Area.

Selling your home? You may not have to pay the transfer tax

by Group One Realty Team - Real Estate One
There is a little know law that exempts a seller from having to pay the normal transfer tax (approx $8.50 per 1K of sale price) at closing if your tax assessment is less at the time of sale than when you purchased the property.

MCL 207.526 (t) provides an exemption from State Transfer Tax for the following written instruments:
A written instrument conveying an interest in homestead property for which a homestead exemption is claimed under either the school code of 1976, Act No. 451 of the Public Acts of 1976, being sections 380.1 to 380.1852 of the Michigan Compiled Laws or the state education tax act, Act No. 331 of the Public Acts of 1993, being sections 211.901 to 211.906 of the Michigan Complied Laws, if the state equalized valuation of that homestead property is equal to or lesser than the state equalized valuation on the date of purchase or on the date of acquisition by the seller or transferor for the same interest in property. If after an exemption is claimed under this subsection, the sale or transfer of homestead property is found by the treasurer to be a value other than the true cash value, then a penalty equal to 20% of the tax shall be assessed in addition to the tax due under this act to the seller or transferor.

Attorney General Mike Cox issued an important opinion this week clarifying the proper application of an obscure exemption contained in the Michigan Transfer Tax Act. The opinion, arising out of a request from Representative Martin Griffin (D-Jackson), should afford certain Home sellers immediate financial relief as Michigan’s real estate market continues its road to recovery.

Exemption “t”, as designated in the Michigan Transfer Tax Act, sets forth that a seller may seek an exemption from paying the state transfer tax if the following criteria are met:

  1. The property must have been occupied as a principle residence, classified as homestead property;
  2. The property’s State Equalized Value (“SEV”) for the calendar year in which the transfer is made must be less than or equal to the property’s SEV for the calendar year in which the transferor acquired the property; and
  3. The property cannot be transferred for consideration exceeding its true cash value for the year of the transfer.

With property values and corresponding SEV declining due to the struggling economy, home owners and real estate agents first took notice of the exemption’s possible applicability under the state transfer tax. However, absent an official interpretation, there was little awareness of its proper application.

The opinion from the Attorney General uses examples to show how the application would apply. One example illustrating application provides:

If the SEV of the principle residence when acquired in 2006 is $74,000.00 and the SEV when transferred in 2008 is $72,000.00 then criteria one and two above are satisfied. You can establish the true cash value by doubling the SEV at the time of transfer. In this case the true cash value is $144,000. If the sale price in 2008 is $140,000.00 then the sale does not exceed its true cash value. All three criteria are satisfied and the exemption would apply.

The Attorney General’s opinion provides immediate relief to home sellers already faced with the reality of declining value on their single greatest asset. The opinion also provides a uniform reading of the exemption that is necessary to provide consistent application among the various Registers of Deeds across the state as they are already receiving filings for the exemption.

Sellers should be cautioned that a request for the exemption that fails to meet all three criteria could bring a penalty equal to 20% of the tax assessed in addition to the tax due. Additionally, no similar exemption exists in the County Real Estate Transfer Tax Act.

Appealing Property Taxes

by Group One Realty Team - Real Estate One

A Nutshell Lesson for Your 10 Minute Presentation

 

 

With our Michigan economy and money supply tight, many people are looking for financial relief. Our 2008 tax assessments have arrived and while they have provided a reprieve for many, some tax payers are scratching their heads wondering, “They say my value dropped, so how can it be that my taxes have again gone up?”

This year, the assessors and Boards of Review have been swarmed by upset tax payers looking to land one of the few available appeal appointments in the next few weeks. Some cities have limited appeal hearings to 10 minutes. My purpose in writing this is twofold: first, to help those who have a case, prepare it; second, to help those who don’t, understand why they don’t so that they don’t waste their time trying.

 

There is one and only one question that typically matters with a Board of Review… do the SEV(State Equalized Value) or Taxable Value exceed 50% of the market value of the property? Things that are irrelevant and not actionable by the Board of Review include: taxes going up while values are dropping; and the fact that subject property taxes are higher than taxes of neighbors, the fact that a property owner feels her taxes are excessive. Even if the taxpayer is right, it doesn’t matter. What does matter for Board of Review purposes and for a decision that will affect this year’s taxes is that the taxpayer shows their new Taxable value is greater than 50% of the market value of their Home as of the December 31st of the prior year.

 

Since 1994 Michigan property taxes have had 3 values:

            SEV = assessor’s estimate of 50% of the market value of your home.

            Capped Value=  the 1994 SEV (or the SEV from the year following the most recent transfer of ownership) plus annual adjustments for cost of living (CPI, not to exceed 5% in any year).

            Taxable Value= the lesser of the SEV or Capped and the factor that is multiplied times the city’s tax rate to determine property taxes.

 

In the late ‘90’s we had a little tortoise and the hare action as property values and SEVs were shooting up and Capped/Taxables were plodding along behind.  We’re seeing situations today where the tortoise has gotten close or even passed the hare. We rarely saw Capped values exceed SEVs. We are starting to see that now, with declining property values pulling down SEVs and cost of living increases lifting Capped values. It is especially common where there was a recent sale and “uncapping” followed by a reduction in the SEV by the Assessor.

 

SEVs are adjusted by our Assessors, while our Caps are statutorily adjusted according to the Consumer Price Index (2.3% for 2008 and roughly 2-3% in recent past years).

 

 

Back to appeals

While there may be a reason we may want to reduce our SEV (i.e. in anticipation of an upcoming sale), for most taxpayers, the number of most significance is the Taxable value. The other numbers may or may not mean anything to us, but our Taxable Value is the factor that the Assessor multiplies times our tax rate to determine our property taxes. To lower my 2008 taxes, I need to demonstrate to the Assessor and Board of Review that my Taxable Value exceeds 50% of the market value of my home as it sat on December 31, 2007. Be focused. For practical purposes, Nothing Else Matters!  I recommend you get a formal appraisal dated 12/31/07 that  you can use for the board of review and later if needed for the State Tax Tribunal appeal. It makes a presentation much easier and credible. contact me if you need a referral for an appraiser providing a discount.

 

It doesn’t matter that I think my taxes are too high. It doesn’t matter that I pay more than my neighbor whose house is 75% larger. It doesn’t matter that my taxes went up while my value (even according to the Assessor) dropped. Basically the only way I can get my Taxable Value and/or SEV reduced is to demonstrate to the Assessor and Board of Review that my Taxable Value or SEV exceeded 50% of the market value of my home as of December 31, 2007. Again the number of most significance for a reduction of this year’s taxes is  Taxable Value. Unless I can persuade the Board of Review that my Taxable Value exceeds 50% of the market value of my home, I won’t save anything on my 2008 taxes.

 

Assembling and presenting your case.

As the tax payer, it is my responsibility to collect the materials and present a case (in about 5 minutes) that will convince the Board of Review that my Taxable Value and/or SEV exceed 50% of the market value of your home. Some people choose to pull together recent sold information on their own. Some hire appraisers. Many who have existing relationships with good real estate professionals call on them for help.

 

Keep it clear and simple.

Walk in the door with a positive attitude. Be nice. Today you are a salesperson making a sales presentation. Your job is to make it easy for the Board of Review to see and agree with your point. You only have about 5 minutes to present and a few minutes to answer questions. Focus on Value. If you are bringing comparables or other visuals, make copies so each member of the Board of Review has a copy. Keep it simple and tight. Be logical, reasonable and friendly (you are asking the same of the Board members).

 

If you recently purchased your home and your SEV/Taxable are higher than they should be, it is important that you appeal your assessment in the year following your purchase. By doing so, you preserve what might be the most compelling piece of evidence you have in establishing its market value… the selling price of your home. By doing so in the year following your purchase you will also establish a new starting benchmark which may affect and reduce taxes this year and all future years you live in the home.

 

The purchase price of a home is not conclusive in itself. We need to establish: that the home was on the open market for a period of time; that the transaction was an arms-length transaction; that the sale price is the best indication of market value as of the date of the sale; and that due to market conditions, the value of the property as of December 31st in the preceding year had not increased since the sale.

 

Results from Your Hearing

Appealing taxpayers typically don’t receive an answer while at the Board of Review hearing. Different Boards may work in different ways, but most often, taxpayers present their case and leave. Board members then review and discuss the evidence behind closed doors and make a decision that is then sent to the taxpayer via mail which arrives a few weeks later with directions for appealing the Board of Review decision.

 

As a community service, I have posted other articels and information under the tax category heading and would suggest that you review them. There are some helpful materials to help you understand this confusing subject.

 

There has never been a time when homeowners were more in need of professional help from a REALTOR®.  Please feel free to contact me any time at 734-996-0000 or tom@re4sale.net

Mortgage Payment Problems: Have an Adjustable Rate Mortgage Interest Rate Increase

by Group One Realty Team - Real Estate One
Many consumers with nontraditional and other new types of mortgages with lower initial payments are now facing significant increases in their monthly payments — called "payment shock."

The brochure download below explains the types of mortgages that are placing families at risk, provides suggestions for getting help by talking to a Tom Stachler with Real Estate One and reputable counseling persons or organizations, and urges borrowers to work with experts and their lender as soon as possible. The brochure lists some of the ways lenders may be willing to help borrowers avoid foreclosure.

Produced jointly by NAR, the Center for Responsible Lending, and NeighborWorks® America, this 5-panel brochure allows us to help consumers take early action to protect their homes whenever possible.

Need Help with determining your Property Value?  Click on this link to get a valuation report on your property emailed to you containing sold and active (comps) property pricing, marketing tips and more.

Download Learn How to Avoid Foreclosure and Keep Your Home (PDF: 1.7MB

Download brochure text (PDF: 71KB)

Feds Announce Initiatve That Would Put Some Foreclosures on Hold for 30 Days

by Group One Realty Team - Real Estate One
WASHINGTON (AP) -- Homeowners threatened with foreclosure would in some instances get a 30-day reprieve under an initiative the Bush administration announced Tuesday.

Dubbed "Project Lifeline," the program will be available to people who have taken out all types of mortgages, not just the high-cost subprime loans that have been the focus of previous relief efforts.

The program was put together by six of the nation's largest financial institutions, which service almost 50 percent of the nation's mortgages.

These lenders say they will contact homeowners who are 90 or more days overdue on their monthly mortgage payments. The homeowners will be given the opportunity to put the foreclosure process on pause for 30 days while the lenders try to work out a way to make the mortgage more affordable to homeowners.

"Project Lifeline is a valuable response, literally a lifeline, for people on the brink of the final steps in foreclosure," Housing and Urban Development Secretary Alphonso Jackson said at a joint news conference with Treasury Secretary Henry Paulson.

He said the goal was to provide a temporary pause in the foreclosure process "long enough to find a way out" by letting homeowners and lenders negotiate a more affordable mortgage.

Paulson said the new effort was just one of a number of approaches the administration was pursuing with the mortgage industry to deal with the country's worst housing slump in more than two decades.

In December, President Bush announced a deal brokered with the mortgage industry that will freeze certain subprime loans -- those offered to borrowers with weak credit histories -- for five years if the borrowers cannot afford the higher monthly payments as those mortgages reset after being at lower introductory rates.

"As our economy works through this difficult period, we will look for additional opportunities to try to avoid preventable foreclosures," Paulson said. "However, none of these efforts are a silver bullet that will undo the excesses of the past years, nor are they designed to bail out real estate speculators or those who committed fraud during the mortgage process."

In coming days, lenders will begin sending letters to homeowners who might qualify for the new program. Homeowners won't qualify if they have entered bankruptcy, if they already have a foreclosure date within 30 days, or if the Home loan was taken out to cover an investment property or a vacation home.

The Mortgage Bankers Association reported that at least 1.3 million home mortgage loans were either seriously delinquent or in foreclosure at the end of the July-September quarter.

Private economists are forecasting that the number of foreclosures could soar to 1 million this year and next, about double the 2007 rate.

Officials did not have an estimate of how many people might be helped by the new "Project Lifeline" program.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., said the finance industry and the administration were falling further and further behind in dealing with the growing crisis.

"This plan, while a step in the right direction, will not stem the tide of the millions of foreclosures we are facing in the coming months," Dodd said in a statement. His committee will hold a hearing on the housing crisis on Thursday with testimony from Paulson and Federal Reserve Chairman Ben Bernanke.

The six participating banks are Bank of America Corp., Citigroup Inc. Countrywide Financial Corp., J.P. Morgan Chase and Co., Washington Mutual Inc. and Wells Fargo & Co.

They are all members of the Hope Now Alliance, an industry group that is trying to coordinate a response to the mortgage crisis. Officials urged homeowners to call the group's toll free hot line number at 1-888-995-HOPE for assistance.

AP Business Writer Marcy Gordon contributed to this report.

Take Advantage of Huge Incentives when you Purchase a HUD home with FHA Financing!

by Group One Realty Team - Real Estate One

The Department of Housing and Urban Development and the Federal Housing Administration (FHA) announce new sales incentives on HUD Homes being bought as primary residences in Michigan.

 

     1.) $100 Down Payment!

            Purchase a HUD Home with FHA-insured financing and put ONLY $100 down!

     2.) Sales Allowance!

            Purchasers using FHA financing will receive $2,500 at closing to use on repairs, closing costs, or to lower their mortgage amount.  Not using FHA financing? You will still receive $1,000 to assist in paying closing costs!

     3.) Available Statewide!

            This offer does not have restricted areas!  All homes, in Michigan, being purchased as Owner Occupied homes are eligible for these special incentives!

 

**Benefits of FHA Financing**

            Flexible Underwriting.

            No minimum credit scores.

            Competitive, often lower, interest rates.

            Government Insured.

MORTGAGE DEBT CANCELLATION RELIEF/ HOME SALE ESTATE ISSUES

by Group One Realty Team - Real Estate One

H.R. 3648 – Public Law 110-142  Signed December 20, 2007

 

Summary:  There have been some changes affecting Home tax credits for persons either involved in a short sale or foreclosure and also for persons who have lost a spouse.  Generally, individuals who are relieved of their obligation to pay some portion of a mortgage debt on a principal residence between January 1, 2007 and December 31, 2009 will not be required to pay income tax on any amount that is forgiven.

 

Background:  A fundamental principle of the income tax is that a taxpayer must recognize income and pay tax any time a debt of the taxpayer is forgiven or discharged.  Exceptions are provided in several circumstances, including bankruptcy, insolvency (as defined by state law) and for some investment real estate.  Until this new rule was enacted, however, no exception applied to any amount debt forgiven on a mortgage for a taxpayer’s principal residence. Thus, until now, when some portion of a mortgage debt was forgiven, that amount has been treated as taxable income and the borrower has been taxed at ordinary income rates on the forgiven amount, even though there is no cash.

 

The newly-enacted relief for mortgage debt forgiveness is Congress’s response to the problems generated by the subprime crisis, short sales, rising foreclosure rates and price corrections in some markets.  Thus, when a lender forgives some portion of a borrower’s mortgage debt in a short sale, a foreclosure, a workout with the lender or some similar circumstance, the borrower will not be required to recognize income or pay tax on the forgiven amount. This relief applies to debts forgiven between January 1, 2007 and December 31, 2009.

 

Provisions: General

 

-          No income limitation: All borrowers receive the relief, no matter what their income.

-          Dollar limitation: No more than $2 millions of mortgage debt is eligible for the exclusion ($1 million of debt for a married filing separately return).

-          Relief applies only to an individual’s principal residence.

-          The forgiven mortgage debt must have been secured by that residence.

-          No relief is available for cash-outs, whether the cash-out takes the form of a refinanced first mortgage, second mortgage, home equity line of credit or similar arrangement.

-          Eligible debt is what is called “acquisition indebtedness.”  This is debt used to acquire, construct or rehabilitate a residence.

- Refinanced debt qualifies, so long as the debt does not exceed the original amount of the debt. (Same rule as Mortgage Interest Deduction)

- Home equity debt (or second mortgages) qualifies if the funds were used to improve the home.  (Borrower must have adequate records, as under current law.)

- See cash-outs, above. No amount of a cash out may be treated as acquisition debt.

 

Additional Information:

 

Refinanced Mortgages:  The relief does apply to refinanced debt in some circumstances.  The rules seek to assure that any debt eligible for the relief is directly related to the acquisition or improvement (such as rehabilitation, expansion, renovation, reconstruction) of the principal residence.  Debt used for furnishings (i.e., any movable property) in the home is not eligible for the relief.  When the proceeds of any refinanced debt is used for any purpose other than acquisition or improvement, those proceeds are not eligible for the relief.

 

Principal Residence:  A principal residence is defined in the same manner as the rules that apply to the capital gains exclusion on the sale of a principal residence.  An individual may not have more than one principal residence at any given time.

 

Second Homes:  As a general matter, the relief does not apply to any debt forgiveness on any mortgage for any second home of the taxpayer.  However, if a taxpayer uses a residence (other than his principal residence) solely as an income producing rental property, already existing relief provisions might apply, depending on the taxpayer’s situation.  If the second home property was acquired as a speculative investment (such as for resale rather than rental), relief provisions are unlikely to be available.

 

In all events an individual who is in a short sale, foreclosure, workout or similar situation on a residence (including condos) other than his principal residence should consult a tax adviser to determine what, if any, relief provisions might be available.

 

Other Provisions in H.R. 3648

 

Mortgage Insurance Premiums:  The deduction for mortgage insurance premiums is extended through tax year 2010. Income limitations on the deduction will continue to apply.

 

Surviving Spouses/$500,000 Exclusion:  In some circumstances, a surviving spouse is denied eligibility for the full $500,000 exclusion on the sale of his/her principal residence. This most frequently occurs when the residence is not held in joint ownership at the time the spouse who is not on the title dies.  In that case, the deceased spouse had no ownership interest, so there is no basis step-up on that half of the property. The surviving spouse is thus eligible only for an exclusion of $250,000. (Had the home been sold during the deceased spouse’s lifetime, the full $500,000 exclusion would have applied, so long as they filed a joint return.)

 

Challenges for the surviving spouse are compounded when this circumstance occurs late in the year. The surviving spouse is often unable to sell the property within the same year that the spouse died. This legislation provides that a surviving spouse may claim the full $500,000 exclusion not only in the year of the deceased spouse’s death, but also during the two years after the spouse’s death.

 

Second Homes Converted to Principal Residence:  The original house-passed version of this legislation included a provision that would have limited the application of the $250,000/$500,000 exclusion when a second home is converted to a principal residence and later sold. This change was not included in the final legislation that the President signed. 

 

 

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Tom Stachler
Real Estate One, Group One Realty Team
555 Briarwood Circle
Ann Arbor MI 48108
Direct: (734) 996-0000
Fax: (734) 661-0102