Tax Reprieve for some California Short Sales in 2014

California short sale sellers have been awaiting news on whether or not the state tax board would follow the federal tax guidelines with respect to debt forgiveness. In fact, when the tax Act was extended, Californians were told that any forthcoming decision at the state level would be retroactive. In an attempt to clarify state tax policy on debt forgiveness, politicians created Senate Bill 30, but it has not yet passed. As such, any Californians who participated in a short sale or deed-in-lieu of foreclosure in 2013 still did not know about their own state tax liability—until recently.

Thanks to a letter from Senator Barbara Boxer to the IRS, Californians now have that clarification. In November, Senator Boxer received the following IRS response clarifying that California families who have lost their homes in a short sale will not be subjected to a tax penalty for debt forgiven after the federal law prohibiting such penalties expires at the end of this year, and the Franchise Tax Board has agreed with those clarifications.

Enacted in July of 2011, California has an anti-deficiency law that protects homeowners from lenders attempting to collect additional assets in the case of a closed short sale transaction. But until Senator Boxer wrote her letter, the IRS had not clarified how this might play out in California. Like many Californians, Senator Boxer noted that with the end of the Mortgage Debt Relief Act of 2007 just around the corner, “…distressed borrowers may face the unfortunate incentive to go to foreclosure rather than seek a short sale in order to avoid a large tax bill.”

The IRS reply included excellent news for California homeowners, clarifying that these families will not face burdensome tax penalties as a result of participating in a short sale—specifically because of the state anti-deficiency statutes. With approximately 55,000 anticipated short sales in 2014 in the state of California, this is good news for those distressed borrowers still on the fence about selling as a short sale.

Californians might not want to do jump for joy just yet. Reilly states, “there are situations where this rule might work against the taxpayer, particularly those who borrowed against property after it appreciated.” He goes on to outline a few of those situations and points out that some of the various exceptions to recognizing debt discharge (including insolvency) will no longer be available remedies.

IRSResponse.nonrecourse 2014

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FHA Trims Waiting Period for Borrowers Who Experienced Foreclosure

 

The Federal Housing Administration (FHA) is allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to reenter the market in as little as 12 months, according to a mortgage letter released Friday.

 

Borrowers who experienced a foreclosure must wait at least three years before getting a chance to get approved for an FHA loan, but with the new guideline, certain borrowers who lost their home as a result of an economic hardship may be considered even earlier.

 

For borrowers who went through a recession-related financial event, FHA stated it realizes “their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”

 

In order to be eligible for the more lenient approval process, provided documents must show “certain credit impairments” were from loss of employment or loss of income that was beyond the borrower’s control. The lender also needs to verify the income loss was at least 20 percent for a period lasting for at least six months.

 

Additionally, borrowers must demonstrate they have fully recovered from the event that caused the hardship and complete housing counseling.

 

According to the letter, recovery from an economic event involves reestablishing “satisfactory credit” for at least 12 months. Criteria for satisfactory credit include 12 months of good payment history on payments such as a mortgage, rent, or credit account.

 

The new guidance is for case numbers assigned on or after August 15, 2013, and is effective through September 30

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HUD-Owned Homes Expected to Increase

The following article appeared in REALTOR Magazine on April 30, 2013:

HUD-Owned Homes Expected to Surge

Daily Real Estate News | Tuesday, April 30, 2013

The U.S. Department of Housing and Urban Development is reportedly going to be releasing more of its homes to the market, which could be welcome news to buyers who have faced slim pickings in for-sale inventories.

Over the next two years, experts predict that HUD homes on the market will increase significantly as lenders work through the backlogs of foreclosures and foreclosure reviews.

“The inventory is there, [it’s] just not being released during the banks/servicers review of the loan/mortgage documents,” says Nat Genis, a HUD listing broker in Riverside County, Calif., which is already seeing an increase in HUD-owned homes.

“HUD homes are back,” Genis told HousingWire. “FHA financing went away with the ‘creative’ financing of the 80/20 loans, and now with the increase of FHA financing, these government-backed loans guarantee that if the borrower defaults, HUD will pay off the mortgage, obtain the deed, and re-sell the home.”

HUD-owned homes can be appealing because of the discounted sales price, even though they can be in poor condition often times, HousingWire reports.

HUD had 39,442 homes in its REO inventory nationwide as of Feb. 28, 2013—with 20,536 of those having pending contracts on them, according to HUD.

SOURCE: Housingwire (04/29/13)

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February 2013 Homes Prices Up 22.6% in One Year

Due to the low inventory of homes available, home buyers are willing to spend more on a home, that is if they can find one to buy.   The  Sacramento area’s resale home inventory is still very low.  This time last year there were 1,766 homes sold in February 2012 compared to 1,566 sold in February, 2013.  This is an 11.3% drop in sold homes.   This has caused the rapid increase in home prices.  Sacramento’s median price for February 2013 is $192,500, Placer County $298,500, El Dorado County $283,250 and Yolo County $250,000.  New home sales are also on the increase with 104 closings in Sacramento, 86 in Placer and 14 in Yolo County in the month of February.

 

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Is Cash still King??

We are in the middle of a crazy real estate market the Greater Sacramento area.  First time home buyers are being outbid by Cash Investors and Cash Buyers.    It is not uncommon to write over 10 offers for a first time home buyer in this market and sometimes still not get a home.  FHA home buyers are constantly being out bid due to the fact that they don’t have the necessary funds to pay more than the appraised value of the home and conventional buyers and cash buyers are purchasing the homes.

With this recent lack of inventory, the cash buyers are now being outbid by other cash buyers and we have seen homes selling for $20,000 over the list price.   Everyone is scrambling to find the deals only to find out that ship may have already sailed.

With spring a few month’s away and home prices on the increase, we should see more inventory coming on the market and some sellers with enough equity to move up in the market (an area we haven’t seen for many years).

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Sacramento Homes Prices on the Rise

Sacramento is suffering from lack of inventory for sale.  Due to the lack of available homes, the home prices in December, 2012 are on the rise.

Figures released by DataQuick show that the median home prices in Sacramento County rose 18% in December compared to December, 2011 from $155,000 to $183,000.

 

 

 

 

 

 

 

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Fiscal Cliff and Real Estate

Late in the evening of Tuesday, January 1st Congress reached a settlement in the “fiscal cliff” negotiations, and President Obama signed the legislation January 2nd.  As a result, the Mortgage Forgiveness Debt Relief Act was extended another year.  The measure will continue to exempt from taxation mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale, loan modification (including principal reduction), or foreclosure.
The same provision also expired in California, but Senator Ron Calderon (D-Montebello) introduced SB 30, which would waive the potential tax bill for Californians for all of 2013.  C.A.R. already signed on as the bill’s sponsor, and the two hope to fast track the bill through the Legislature.

Also under the fiscal cliff agreement, the so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers.  These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000.  The thresholds have been increased and are indexed for inflation so will rise over time.  Under the formula, filers gradually lose the value of their total itemized deductions up to a total of a 20 percent deduction.  The reinstitution of these limits has far less impact on the mortgage interest deduction (MID) than a hard dollar deduction cap, percentage deduction cap, or reduction of the amount of MID that can be claimed.

Capital gains rates on the sale of principal residences will remain unchanged and continues to exclude the first $250,000 for single taxpayers and $500,000 for married couples.

REALTORS® should encourage their clients to consult with their own tax advisers about their own individual tax situation.

Information provided by Sacramento Association of Realtors.

 

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Home Equity back on the Rise

Sacramento area homes on the increase, don’t miss this great article:
sacbee.com
Sacramento’s uptick in housing aids underwater owners

Published Saturday, Nov. 24, 2012

After the housing bubble burst, tens of thousands of people across the Sacramento region were trapped in homes worth less than they owed, with experts predicting it could be many years before they recovered their lost equity.

In the past six months, however, rising prices have substantially reduced negative equity in the region, real estate tracking firm Zillow said in a recent report.

Today, nearly 5,000 underwater homeowners are nearing the point where their home values exceed their loan balances.

If prices continue to rise next year, as Zillow and others predict, an increasing number of area residents will be able to sell their homes without harming their credit scores through short sales, in which lenders take less than what is owed.

Some have already taken advantage of their newfound freedom.

“It was a miracle from God,” said Leisha Aitken, who cleared her loan, paid her real estate agent and walked away with money to rent an apartment after she sold her 2,100-square-foot home in Folsom’s Empire Ranch in September.

Aitken, a pharmacist, found herself out of work earlier this year and struggled with her $2,800 monthly mortgage payment. She was sure she would have to do a short sale and put a major strike on her credit rating.

Then she met with agent Gillian Long, of Intero Real Estate Services’ Folsom Lake office. The two decided to test the fast-changing market and push the asking price above $400,000 – enough to pay off Aitken’s $373,000 loan balance and cover commissions and moving expenses. The house sold quickly for $400,000, or about $191 a square foot, higher than comparable sales in recent months.

“Gillian said if I had called her a couple of months earlier, I would have had to do a short sale,” said Aitken, who has a new job and is hoping to buy a condominium. “It was a good feeling to sell that house and get out. I never want another mortgage payment like that again.”

A major factor in Aitken’s favor was that she never sank too far underwater on her home loan. Even at the bottom of the market in January she owed only about 10 percent more than her home was worth. Thousands of others are in similar situations.

Almost half of area homeowners – nearly 168,000 households – remain upside-down on their mortgages to varying degrees. The total amount of negative equity in the Sacramento region is nearly $17 billion, according to Zillow.

Some homeowners are much closer to breaking the surface than others. About 53,000 homeowners across the region are underwater by 20 percent or less, Zillow estimates. About 9,000 owe less than 10 percent more than their homes are worth. And about half that number, 4,770, owe less than 5 percent more than their homes’ value.

That last group is “extremely close to being in positive equity territory,” said Zillow spokeswoman Camille Salama.

The Seattle-based firm, among the more conservative of forecasters, predicts home prices in the Sacramento region will increase by about 6 percent through the third quarter of 2013.

“As home values continue to rise in the Sacramento area there will be homeowners who will switch from being underwater to above water,” said Svenja Gudell, Zillow senior economist.

When that happens, she said, a larger number of traditional home sales could come on the market.

In recent years, foreclosures and short sales have made up the bulk of the market, and investors have been the major buyers. Having families buy and sell homes in the traditional manner would help restore a sense of normalcy to the market, she said.

And those who have positive equity will start spending again on home upgrades, she said. “It has to do with confidence and seeing return on investment,” she said.

Economist Jeffrey Michael, director of the University of the Pacific’s Business Forecasting Center in Stockton, said he agrees that “the prospect of those folks (who are only slightly underwater) getting above water in the next year or two is pretty good.” But he said he was skeptical they would help drive the housing market with new purchases.

Those who are newly above water will “be able to sell their house,” he said, but they “won’t have a ton of equity.” Only those who can bring other sources of cash to the table can buy another house, he said.

Local real estate professionals take a more optimistic view.

Pat Shea, president of Lyon Real Estate in Sacramento, said he thinks there is pent-up demand from people who have been in their homes for years and need more room to accommodate growing families or less room because their children have grown up.

Many will be eager to sell, and even if they can manage only a small down payment, will look to take advantage of today’s low prices and interest rates.

“You know there are some people itching to move up, down or sideways,” he said. “When they can do it, they will.”

© Copyright The Sacramento Bee. All rights reserved.

 

6W24ABOVEWATER_Jump

 

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Who said Real Estate isn’t a good investment?

Sacramento‘s Real Estate Market has been one of the Nation’s worst hit areas with Foreclosures and Short Sales.   It appears that the bottom of the market came and went overnight and home prices are on the increase again.   In the event you missed this article in the Sacramento Bee check it out on who’s buying up a lot of the local Real Estate.

Article:

BIG INVESTMENT FIRM BUYS HUNDREDS OF HOUSES IN SACRAMENTO AREA

 

 

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When will home prices begin to increase?

Nationwide, the US housing market remains deep in the doldrums and economists expect prices to fall another 5% to 10% in many places. 

When the rebound arrives, desirable zip codes will see price jumps first.  Real estate is always local.  

Here are a few things to start watching in your neighborhood: 

How fast are homes selling?  It is a good sign when price drops slowly down, inventory levels are actually a better gauge of where your market is headed.  Ask a Realtor to tell you the number of listings now on the market in your area and the number of homes sold over the past year.  An example would be that there are 100 listings and there were 240 sales last year, or an average of 20 per month.  That equals a five-month supply, which is considered stable.  More than six months and it’s a buyer’s market; less than three and sellers probably have the upper hand. 

Compare your neighborhood’s price-to-rent ratio with what it was before the housing boom.  Calculate the price-to-rent ratio, or the price of a home divided by one year’s rent on a comparable one.  In general, it’s cheaper to buy when the price-to-rent ratio is below 15. 

A decrease in foreclosure filing is often an encouraging sign but not always the case depending on the processing delays in foreclosures.   Distressed owners tend to fall behind on lawn cutting and house painting long before a foreclosure.  If you see several places in disrepair, don’t expect your home value to rise soon. 

If you area is a prime location.  As buyers return, they naturally grab places with short commutes and better schools and amenities which will help increase the sales price.

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