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It’s no secret that after the mortgage and real estate industry imploded a few years ago, the Federal government has been pulling out all the stops to try to prevent a full-scale implosion of our economy. Stimulus packages, taking over lenders and other big businesses, keeping rates low, etc.

One of the tools they implemented was for the Federal Reserve and the Treasury Department to buy large numbers of mortgages from lenders who make these mortgages. They did this because at one point lenders had effectively STOPPED making loans, because they couldn’t sell the loans off after they made them. This is the “liquidity crisis” that we kept hearing about. The plan did work well to get lenders lending again, but we all knew that at some point they would stop buying these loans. And without the government buying these mortgages, most “experts” felt that interest rates were sure to rise quite rapidly. Without their biggest customer, lenders would have to put mortgages on the books at much higher interest rates in order to entice other investors to buy them.

The government has been warning us for quite a while now that they would scale back on their purchases around March of 2010. Sure enough, rates did spike around March, but since then they have settled back down. According to BankRate.com, the average 30-year mortgage rate in February was about 5%. Then in March they were about 5.3%. As of now they’ve dropped back down to about 5.1%.

So with the “statistical recovery” we are all enjoying, it appears that there ARE other investors that stepped into the void when the government reduced the amount of mortgages they were buying. So lending is still occurring, and rates didn’t spike up to nose-bleed levels. So once again, the “experts” were wrong. And, yes, I was one of those that thought rates would spike. Couldn’t be happier that I was wrong!

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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A few weeks ago I told you about the new HAFA (Home Affordable Foreclosure Alternatives) program from the government that became effective 4/5/10. I was very excited about this program when it first came out because it could make short sales easier to get approved and close, which is critical in today’s real estate market. In summary, participating lenders have to give up the right to pursue the short sale seller after close of escrow, they will give them $3,000 in relocation assistance, and there are set deadlines for lenders to respond to offers. Plus there is a way for lenders to pre-approve short sales PRIOR to going on the market. All these are welcome, and desperately needed changes.

Well, here we are almost a month later, and the jury is still out on this program. The participating lenders have known this program was coming since last November, and they still seem to be quite clueless about it (in general). I spent several hours the other day with one of the BIG banks, because they told me I couldn’t submit my client’s short sale as a HAFA short sale because they already have an offer in place, and because they weren’t at least 60 days past due. I pointed out to them that nothing in the HAFA federal guidelines mentioned either of these two “requirements.” We went round and round about this, and then with her supervisor, who said they “didn’t have the federal regulations in front of them.” I told them I did have them in front of me, and offered to send them a copy. They declined my offer. So I hung up and called back, got someone else, who agreed with me and promptly submitted them as a HAFA short sale.

I am still optimistic that the HAFA program WILL be a major positive change for our industry, and needed relief for all the under-water homeowners in this area. It may just take a little while longer for the banks to get up to speed. For a short FAQ about the HAFA program and whether or not you may qualify, send me an email at Brian@SharpHomesOnline.com.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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I’ve written in this column before about the “phantom income” tax, which is tax due on forgiven debt. This can apply if you have a short sale, foreclosure, loan modification where principal was reduced, or many other situations where someone forgives part or all of your debt.

 As confusing as most people think the issue is, it’s actually even more confusing, because when we say “tax,” do we mean federal or state tax? That’s right, you have to worry about BOTH of them, and for a while this year, the federal and state tax laws on this issue were quite different. Even if you met an exemption from paying the federal tax, you may have been subject to state tax.

However, there is good news! A recent law that was just passed brings the California law mostly into line with the Federal law in regards to forgiven debt. This new law covers forgiven debt through 12/31/2012.

The main differences between the federal and state laws are around the amount of debt and tax relief. The federal limit on the amount of debt is $2,000,000 (filing jointly)/$1,000,000 (filing single) and they place no limit on the amount of debt relief. The state limit on the amount of debt is $800,000 (filing jointly)/$400,000 (filing single) and a limit on tax relief of up to $500,000 (filing jointly)/$250,000 (filing single).

Please note that this does NOT mean that all forgiven debt up to the limits are now non-taxable. You still have to meet the federal requirements of the Mortgage Forgiveness Debt Relief Act of 2007 (mostly that it was your residence and that you didn’t pull money out beyond what you owed at the time you bought it) and/or that you meet one of the exemptions (insolvent, bankruptcy, etc.). For specifics to your situation, please consult a tax expert.

If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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The banks, at the prodding of the government, have come out with multiple plans to modify mortgage payments over the past several years, but they’ve met with limited success. Many “experts” say that if they really want to head off the coming flood of foreclosures, what we need is across-the-board principal reductions in mortgages to the value of the home. [Yes, I realize this could be construed as “rewarding” someone who got into debt over their head, but that’s whole different discussion.] Seems like none of the big banks were ready to take that step as a general policy—until now!

Bank of America just announced a limited plan to consider writing down certain mortgages. If you have a BofA loan, don’t get too excited just yet, as there is a lot of fine print to qualify. BofA will be scouring their loans to see who might qualify, and they will be contacting those borrowers directly, so they’ve asked people not to call BofA and flood their phone lines.

Here are the details: The loan must have originated from Countrywide, and it is either a “sub-prime” loan, an “option adjustable-rate” loan, or a “prime” loan that has a fixed-rate for two years before adjusting significantly higher. The loan must be at least two months behind, and the loan balance must be at least 120% of the home’s value. There are also some complicated rules regarding if there is a 2^nd mortgage, and whether or not your 1^st mortgage is a “portfolio” loan. If approved, you have to keep your account current for the next 5 years, or the balance could go back up. Also, if you sell the home within 5 years, you’ll have to repay part of the forgiven balance.

They are just putting their toe into the water on this process. If it’s a success, they (and other banks) may expand it. However, if borrowers who are now current start defaulting in droves to try to qualify for the principal reduction program, look for them to shut the program down in a hurry!

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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There is a new California homebuyer tax credit that will go into effect on May 1, 2010, which is the day after the Federal tax credits expire. The credit is the lesser of 5% of the purchase price, or $10,000. This credit is redeemed in equal installments over three years. So if you qualify for a $9,000 credit, that will mean a $3,000 credit for each of the next three tax years. It applies to purchases where the transaction closes by December 31, 2010. The closing can stretch out as far as August 1, 2011 as long as you were in contract on or before December 31, 2010. You will have to live in the home for at least two years, or you have to repay the credit to the state. You also can’t use this credit to buy a home from a relative. The California government has set aside a maximum of $200 Million for this credit, so they will probably run out of money within a few months like what happened with the last credit. First-come, first-served, and if you are too late, no credit for you.

This credit is different from the last California tax credit in that it covers both brand-new AND resale homes. The last credit was JUST for brand-new homes only. For resale homes, the credit is for first-time buyers only, which is defined as someone who hasn’t owned a home during the last three years. For new homes, you don’t have to be a first-time buyer. You will be able to “reserve” a credit once you are in contract on a brand-new home. Once all the credits are reserved for the new homes, they will start a waiting list to reserve a credit.

KEY POINT – In order to qualify for this credit, you have to send some documents to the Franchise Tax Board within two weeks after the Close of Escrow. That would include a copy of the settlement statement and either a statement from the Seller that the home has never been occupied, or a statement from the Buyer that they are a first-time home buyer.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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We’ve all seen or heard of those homes where just before the foreclosure, all the appliances, fans, window coverings, doors, plumbing fixtures, etc. are removed. It is a common conversation we have in real estate nowadays (usually at an elevated tone of voice while standing in a driveway next to a truck full of appliances…).

Within most standard mortgage documents, there is a clause that is relevant to this situation. When you sign that legal document you are promising to keep the property in good condition, working order and repair, and not to remove, destroy or suffer the removal or destruction of any improvements or fixtures and not to commit or permit waste. So if your deed of trust has this language, you have a contractual obligation to your lender to NOT remove fixtures, and also to not allow the property to be damaged.

A “fixture” is something that is attached to the property, and is meant to go with the property. Personal property is everything else. That means your built-in stove and HVAC system are definitely fixtures that should stay, while your clothes and furniture are definitely personal property that you can take with you.

But will the lender really pursue the homeowner after the fact? It is possible they might. I sure wouldn’t want to be the “test case” where a lender hires the big-gun attorneys to make me an example to deter other homeowners from doing the same thing. In extreme cases, they may be able to pierce the anti-deficiency provisions of trustee sales and come after you for any deficiency, so this could get really ugly. Also, if the lender files a claim with your insurance company and they pay a claim based on your intentional destructive act, then your insurance company could also come after you. (Remember that your lender is already listed as a loss payee on your policy, so this is not some far-fetched idea.)

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). Please consult an attorney for specifics to your situation. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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There is a new government program that goes into effect April 5, 2010 called HAFA, which stands for Home Affordable Foreclosure Alternatives. This could either be sweeping change that completely revolutionizes the way that short sales are handled in a positive way, or it could be another well-intentioned government program that sounds good at first, but falls flat during implementation because of the fine print.

THE GOOD NEWS: HAFA tries to force lenders to consider a short sale before they can foreclose if your loan modification doesn’t work out. Lenders will have to let you know what amount they will take on a short sale PRIOR to you putting it on the market, what’s called a “pre-approved short sale.” They also can’t pursue you after the short sale for a deficiency. They will pay up to $3,000 to satisfy any junior liens, and they’ll even give you $1,500 relocation funds to help you move.

THE BAD NEWS: Not every loan qualifies for this, and not every lender is participating. The property must be your principal residence, only applies to first liens taken out on or before 1/1/09, must be delinquent or you are about to default, current balance must be equal to or less than $729,750, and your total mortgage payment must exceed 31% of your gross income. Even if your loan qualifies, it’s still up to your lender to decide if a short sale or a foreclosure is in their best interests, and what price they put on the short sale. And while you are in the HAFA program, you have to start making payments to your lender equal to 31% of your gross income. Another concern is that if the short sale isn’t successful, you may be agreeing to an automatic deed-in-lieu of foreclosure action. And lastly (and this could be the biggest glitch by far) if you have a 2^nd loan on your home, and they won’t accept the $3,000 and/or they won’t agree to give up the right to pursue you after the short sale, your HAFA short sale may fall apart. More info to follow…

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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I normally try to steer away from making predictions. Mostly because I hate being embarrassed when my predictions don’t come true. There is nothing like making a prediction based on fundamentally sound arguments and logic, only to have the results turn out completely different, based on some unseen event. Seems like we have a “once in a lifetime crisis” every few months.

Anyways, here is my prediction: We are going to see median prices go up over the next 18 months, and you will start seeing all kinds of banner headlines on the news talking about this. Now, before you start popping champagne bottles, let me explain how this may NOT mean that YOUR house will be worth more.

Changes in median prices do not necessarily reflect how the value of our homes have changed. They only reflect the value of WHAT HOMES SOLD during that time frame. I’ll give you a crazy example to help make sense of this conundrum. Let’s look at Ike Investor. He did very well in the boom times, and owns hundreds of rental properties of all types. In 2007, he rewards himself by buying a personal residence for $10 Million. Starting about 2008, he sees the writing on the wall, and starts selling all his larger single-family homes, but keeps his lower-end rentals. In 2009, he starts selling all his lower-end rentals. Then in 2010, he sells his personal residence for $5 Million, half of what it was worth just 3 years ago. So if you were to run the median prices on his sales, you would see huge median price drops from 2007 through 2009, but then a big rebound in 2010.

Our market is going through a similar cycle. When the crash first started, it hit the first-time homebuyers first, so they were the first foreclosures. At the same time, the upper-end home sales slowed considerably (so there were fewer closings). The next wave of foreclosures is expected to be the middle to upper-end homes as unemployment takes it’s toll and the ARM resets start hitting. So even though they will be selling for much less than what they were just a few years ago, on average they will be higher-priced homes than what sold the last year or two, so look for median prices to rise.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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First, let me disclose that I am not a tax expert, and that you should consult with a tax expert for specifics to your situation.

We’ve talked about “phantom income” before in this column. This is where the IRS may determine that you have taxable income because of a debt you owed that was forgiven. This may apply after a short sale, foreclosure, or even a loan modification if they reduce your principal balance. Most of my clients get pretty concerned about this issue until they find out that there is an exclusion if you are insolvent. Most people going through a short sale or foreclosure are insolvent, so that usually gets them off the hook for the 1099 problem.

I was listening to a mortgage radio talk show the other day, and the host was interviewing a tax expert on this topic. The expert went over the insolvency exclusion, and the host just wasn’t understanding the point. They kept asking about income, payments, option-ARM payments, modified trial payments, etc. to try to figure out insolvency. Finally the tax expert got a bit frustrated and said, “Stop talking about income and payments! Insolvency is about ASSETS and LIABILITIES only.” At that the host “got it.”

When you apply for a short sale or loan modification, your payments vs. your income will be part of the “hardship” you are claiming. When it comes to the 1099 issue, what’s important is your assets vs. liabilities. [See IRS publication 4681 for more info.]

Exception: I did hear one tax expert argue that you could have a case where someone’s liabilities do exceed their assets, but if they get a monstrous monthly income, from a trust fund, for example, that isn’t listed as an “asset” the IRS may not agree that they are truly insolvent.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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If you are one of the lucky ones that qualifies for one of the tax credits, congrats! But don’t get so caught up in the excitement and hustle and bustle of moving to forget to actually CLAIM the tax credit! It doesn’t automatically come to you, you have to ASK for it on your tax return. Here are some resources to help you claim the credit:

http://www.irs.gov/pub/irs-pdf/p4819.pdf - This is a summary document from the IRS that is surprisingly easy to understand, yet still chock-full of information about who qualifies for the various tax credits.

http://www.irs.gov/pub/irs-pdf/i5405.pdf - This is the form you will need to attach to your return to claim the credit. [Stop by my office at 320 Fairview Ave. in Brentwood to pick up copies of these forms if you prefer.]

Please note that the IRS still refers to the tax credits as the “First-Time Homebuyer Credit” even though within the document they give you the option to check the box stating that you are a “long-time resident” and not a first-time home buyer.

In addition to the form 5405, you will have to attach a copy of the settlement statement on the purchase from the title company. This is referred to as the “HUD” or “HUD-1.”

By the way, you claim the credit on line 67 of your line 1040. Again, they refer to the “First-Time homebuyer credit,” but that’s the right spot, even if you aren’t a first-time homebuyer.

Please consult a tax professional for specifics related to your situation. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty