Great News for People Who Did Short Sales in 2012 and 2013 in California!

Great News for People Who Did Short Sales in 2012 and 2013 in California!

Just got this great letter and had to pass it along!

December 4, 2013

Dear Robin,

The good news just keeps continuing.

As we anticipated, C.A.R. today received a letter from the California Franchise Tax Board (FTB), obtained by the State Board of Equalization, clarifying that California families who have lost their home in a short sale are not subject to state income tax liability on debt forgiveness “phantom income” they never received in a short sale.

Last month, in a letter to California Sen. Barbara Boxer, the Internal Revenue Service (IRS) recognized that the debt written off in a short sale does not constitute recourse debt under California law, and thus does not create so-called “cancellation of debt” income to the underwater home seller for federal income tax purposes. Following the IRS’s clarification, C.A.R. sought a similar ruling by the California FTB. Now with the FTB’s clarification, underwater home sellers also are assured that they are not subject to state income tax liability, rescuing tens of thousands of distressed home sellers from California tax liability for debt written off by lenders in short sales.

We are pleased with the recent clarifications issued by the IRS and the California Franchise Tax Board, which protect distressed homeowners from debt relief income tax associated with a short sale in California. We would like to thank Sen. Boxer and BOE member George Runner for their leadership in obtaining this guidance from the IRS and FTB. Distressed California homeowners can now avoid foreclosure or bankruptcy and can opt for a short sale instead, without incurring federal and state tax liability, even after the Mortgage Forgiveness Debt Relief Act of 2007 expires at the end of this year.

Sincerely,

Kevin Brown
2014 President
CALIFORNIA ASSOCIATION OF REALTORS®

Copyright © 2013 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.)

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Should I List My Home With an Agent or Sell it Myself as a For Sale By Owner (FSBO)?

Should I List My Home With an Agent or Sell it Myself as a For Sale By Owner (FSBO)?

Attention:  For Sale By Owners!  People Are Afraid To Buy From You!

Many homeowners believe that to maximize their profit on a home sale they should sell it themselves. They may even think that they have to sell the home themselves in order to avoid losing their home to foreclosure or short sale (if the latter is you, you may have options you are not aware of–contact me and I would be happy to discuss them with you).  At first glance, they feel selling a home is simple and why should they pay a broker fees for something they could do themselves?

However, in a previous poll of For Sale By Owner’s (FSBO’s),  close to half of the FSBO’s said that they would hire a professional next time they sold.  Thirty percent said they were unhappy with the results they achieved by choosing FSBO.  Why?

Many FSBO’s said that the time, paperwork and everyday responsibilities involved were not worth the amount of money they saved in commissions. For others, the financial savings were even more disappointing. By the time they figured the amount of fees paid to outside consultants, inspectors, appraisers, title lawyers, escrow and loan officers, marketing, advertising… they would have been better off having paid the broker’s fee which would have included many of these charges.

Selling a home requires an intimate understanding of the real estate market. If the property is priced too high, it will sit and develop a reputation for being a problem property. If the property is priced too low, you will cost yourself serious money. Some FSBO’s discovered that the lost money as a result of poor decisions outweighed the commission.

In addition, there are Many Reasons Why People Are Afraid To Buy From You as a FSBO!

Before you decide to sell FSBO, consider these questions and weigh the answers of assuming the responsibility versus employing a professional. A little time spent investigating up front will pay off tenfold in the end.

 

Questions To Consider:

 

Do I have the time, energy, know-how, and ability to devote a full forced effort to sell my home?

One of the keys to selling your home efficiently and profitably is complete accessibility. Many homes have sat on the market much longer than necessary because the owner was unwilling or unavailable to show the property. Realize that a certain amount of hours each day is necessary to sell your home. Listing with an agent allows your time to be freed up to do what you need to do and for your agent and others to show your home when a ready, willing and able buyer would like to see it, even when you are not home or available. The more exposure your home has, the more offers you will get and the more money you will likely receive for your home. Limiting showings will also limit the number of offers and the amount of money you will be able to get for your home. The cost of hiring an agent is often less than the amount of money you will lose by limiting the showings and offers by doing it yourself.

Am I prepared to deal with an onslaught of buyers who perceive FSBO’s as targets for low balling?

One of the challenges of selling a home is screening unqualified prospects and dealing with lowballers. It often goes unnoticed… how much time, effort and expertise it requires to spot these people quickly. Settling for a lowball bid is usually worse than paying broker commissions.

 

Am I offering financing options to the buyer? Am I prepared to answer questions about financing?

One of the keys to selling, whether it’s a home, a car… anything, is to have all the necessary information the prospective buyer needs and to offer them options. Think about the last time you purchased something of value, did you make a decision before you had all your ducks in a row? By offering financing options you give the home buyer the ability to work on their terms and open up the possibilities of selling your home quickly and more profitably. A professional real estate agent will have a complete team, from lenders to title reps for you to utilize…they’ll be at your disposal.

Do I fully understand the legal ramifications and necessary steps required in selling a home?

Many home sales have been lost due to incomplete paperwork, lack of inspections or not meeting your states disclosure laws. Are you completely informed of all the steps necessary to sell real estate? If not, a professional would be a wise choice.

 

Do I have the capability of handling the legal contracts, agreements and any disputes with buyers before or after the offer is presented?

Ask yourself if you are well versed in legalese and if you are prepared to handle disputes with buyers. To avoid any disputes it is wise to put all negotiations and agreements in writing. Many home sales have been lost due to misinterpretation of what was negotiated.

 

Have I contacted the necessary professionals… title, inspector (home and pest), attorney, and escrow company?

Are you familiar with top inspectors and escrow companies? Don’t randomly select inspectors, attorneys, and title reps. Like any profession there are inadequate individuals who will slow, delay and possibly even cost you the transaction.

 

Am I willing to work with Buyer’s who have a real estate agent?

Most serious and qualified buyers work with real estate agents. Those who don’t are usually investors and/or are looking to get a good deal on a home. Allowing real estate professionals to show your home to their buyers will allow you to maximize exposure of your home to more buyers and to buyers who are willing to pay fair market value and sometimes even a little more for a home.

Am I expecting a buyer to pay me top dollar for a home and pay their agent’s commission if they have an agent?

Some FSBO’s say they will allow buyers with agents to see their home and to submit offers. However, they expect the buyers to pay their agent’s commission and to do all the paperwork. Let’s take this in two parts: Commission and Paperwork.

Commission

If the goal is to get the highest price possible for your property, you cannot expect a buyer to pay you top dollar for a home and to pay a commission to their agent which is typically taken from the seller’s net proceeds from the sale price of the home. Expecting a buyer to pay top dollar for your home and pay commission is not reasonable when they can by a home comparable to yours for less money since paying the commission on top of the purchase price is not common practice and would in essence make them pay more for your home than it is worth. When looking at homes that are listed by agents, buyers know their offer price includes the commissions that will be paid by the seller. If a home is not listed by an agent, a buyer would expect to pay less for a home, not more which is what they would be doing if they paid listed home market value for the property and the commission. If buyers are to pay commission, then they would expect to pay  listed home market value minus commission amount for the property.

 

Paperwork

Aside from the Buyer writing the offer (which they typically need an agent to help them do unless they are very experienced buyers like investors) and responding to any counter offers, the required paperwork in a transaction is the seller’s responsibility to complete and obligation by law. There are certain disclosures that the sellers must complete and provide to a buyer before they can legally sell and transfer a property to a buyer. If the seller does not complete and provide the necessary disclosures, a buyer can later sue the seller for non-disclosure and other reasons. Having a agent on your listing side protects you as the seller to make sure all the required paperwork is complete and the agent’s Errors and Omissions Insurance helps to insure you will not be financially liable for items that were not disclosed due to the agent not providing the correct paperwork.

Buyers typically like to have their own agent involved so that they have the peace of mind that the contract will be written and negotiated as well as possible, that they are advised on the types of inspections it would be prudent to have for a property and also so that they are provided with all the necessary disclosures. Buyers typically want a seller to have a listing agent involved just in case there is a reason for a law suit in the future. Typically, an agent’s E&O insurance coverage is a lot higher than an individual seller’s bank account. What I mean by that is that if a buyer were to sue a seller, a seller does not have any insurance coverage for selling their home, so if something is done incorrectly or not disclosed, then the buyer really has a low likelihood of getting fully reimbursed for the issue directly from the seller. Typically, it is an agent’s E&O insurance that pays out claim settlements. Because of this and the reasons stated above, Many People Are Afraid To Buy From You!

If these questions raise some concerns you may want to speak with a professional. I sincerely hope these tips, information and ideas are of value to you. If there is any way I can be of service just let me know. I am a very experienced real estate Broker. I If you would like a FREE consultation, send me an email through this site or call me at: 925-577-8692. 

Your friend n Real Estate, Robin Watson-Bird

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It is Now Legal to Short Sale Your Home, Lease it Back, and then Buy it Later at Today’s Low Price!!

Ever since I have been helping homeowners short sale their properties since 2007, I have been asked two common questions:

 

1) Can I stay and lease back my house from the new owner?

2) Can I short sale the property to myself or buy it back later after I do a short sale?

 

Until recently, many banks would not allow a seller to remain in a property as a renter after they completed a short sale and none would allow an agreement that would arrange up front for the seller to potentially buy back the home at the cheaper price.

 

Now, those two things are legally possible if the seller/borrower qualifies and their bank agrees!

 

Making Home Affordable Program – Administrative Clarifications Supplemental Directive 11-02 March 30, 2011 Page 8 states the following:

 

Supplemental Directive 11-02 March 30, 2011 Page 8 states the following:

 

Sales to Non-Profit Housing Organizations

Section 7.3 of Chapter IV of the Handbook requires that a short sale be an arm’s length

transaction. This Supplemental Directive amends this restriction to allow servicers the discretion to approve sales to non-profit organizations with the stated purpose that the property will be rented or resold to the borrower, so long as all other HAFA program requirements are met.

 

Servicers offering programs of this type must include program descriptions and conditions in their HAFA Policy. Servicers must retain in the servicing system and/or mortgage file the evidence provided during the HAFA evaluation demonstrating that the organization was a nonprofit organization.

 

Under these circumstances, servicers must remove certain of the applicable “arm’s length

transaction” requirements from the SSA, the Request for Approval of Short Sale and the

Alternative RASS. These forms will be updated to reference these changes and will be available on www.HMPadmin.com.

 

Not All Agents Are Certified to Assist Homeowners With This Process!

 

In order to provide the service to homeowners, agents have to be certified with one or more of the approved NonProfit organizations. I am one of the very few agents in the East Bay, Tri-Valley area who are certified with one or more of the approved NonProfit Organizations to offer this program to homeowners. Fresh Start is one of those programs.

 

 

Like with any program, not every homeowner will qualify, but if you would like more information about the HAFA Short Sale Lease back Program and to see if you may qualify, feel free to give me a call at 925-577-8692, send me a message through this site.

 

My goal is to always help homeowners know what all their options are in order to avoid foreclosure so  they can make the best choice for their situation and family. I love helping people find a way to stay in their home when that is what they really want to do and I look forward to being able to help people do just that with this program!

Should I Short Sale My Underwater Home in the East Bay Area or Tri-Valley of California Now? Most Likely Yes. Do I have to Pay Taxes if I Short Sale My Home? Maybe.

Should I Short Sale My Underwater Home in theEastBayArea or Tri-Valley of California Now or Wait & Short Sale Later? Now is Most Likely Better for you.

Do I have to Pay Taxes if I Short Sale My Home? Maybe.

What is THE PRINCIPAL RESIDENCE EXCLUSION?

What is THE INSOLVENCY EXCLUSION?

It it important to know how the different federal and state laws may apply to you and how you can use them in your benefit to avoid paying taxes of the cancelled debt of your under water property. This document goes into detail of that by sharing notes on the subject from the 2012/2013 Fall Federal and California Tax Update Seminar Real Estate Spidell Publishing, Inc.® 7-16-7-19 ©2013

Please be aware that these notes were written for tax preparers so they do get a bit technical, but they do provide good examples to help with understanding. I would be review your situation with you from a layman’s perspective (I am not a rax professional) and I would be happy to refer you to my trusted tax advisor if you would like a profession consultation.

The Principal Residence Cancellation of Debt (COD) Exclusion Extended through 2013!!!!

The American Taxpayer Relief Act of 2012 extended the COD exclusion for principal residence

through 2013.

 

Californiafully conforms to the insolvency exclusion under IRC §108.California partially

conforms to the residency exclusion. Like federal law, California’s residency exclusion expired on

December 31, 2012.

 

The California Legislature must extend the residency exclusion or it will be unavailable in 2013.

 

If the exclusion is not extended, a taxpayer must look to insolvency to exclude COD income on a

principal residence.

 

 

THE PRINCIPAL RESIDENCE EXCLUSION

Under IRC §108(a)(1)(E) and (h), a taxpayer may exclude from income up to $2 million of COD

income from the discharge of qualified principal residence indebtedness on or afterJanuary 1, 2007,

and beforeJanuary 1, 2013. (IRC §108(a)(1)(E) and (h))

 

California conformity

California conforms, with these major exceptions:

Qualified principal residence indebtedness is limited to $800,000 ($400,000 formarried filing

separate) instead of the federal $2million ($1 million for married filing separate); and

The maximum COD income exclusion is further limited to $500,000 ($250,000 for

taxpayers married filing separately).

California’s principal residence exclusion also no longer applies to sales or exchanges on or

after January 1, 2013. (R&TC §17144.5)

 

THE INSOLVENCY EXCLUSION

If the qualified principal residence exclusion is not an option for some of your clients, you must

consider insolvency.California conforms to the insolvency provision, so this exclusion will apply for

federal and state purposes. (R&TC §17131)

A taxpayer may exclude from income a discharge of indebtedness that occurs while the taxpayer

is insolvent (but not involved in bankruptcy proceedings) up to the amount by which he or she is

insolvent. (IRC §108(a)(1)(B), (a)(2)(A), and (a)(3))

The term “insolvent” means that there is an excess of liabilities over the FMV of assets,

determined on the basis of the taxpayer’s assets and liabilities immediately before the discharge.

(IRC §108(d)(3)) See below for a discussion of the assets included in the insolvency calculation.

Liabilities include contingent liabilities or liabilities that the taxpayer has guaranteed if it is more

likely than not that the taxpayer will be called upon to pay them. (Merkel v. Comm. (1999) 192 F.2d

844) A taxpayer must be able to prove insolvency. (Rinehart v. Comm.,TCM 2002-71)

For many taxpayers, especially those who have frequently refinanced their residence, the

insolvency provisions will allow them to exclude most of their discharge.

The excluded amount is applied to reduce tax attributes in the order listed on Form 982,

Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment).

However, an insolvent taxpayer may elect to apply all or a portion of the excluded amount first to

reduce basis in depreciable assets or in real property held as inventory, rather than to reduce the tax

attributes.

For more information on the basis adjustments, see the instructions for Form 982.

Note: A taxpayer may use the insolvency exclusion even if the COD income forgiven exceeds the

amount of his or her tax attributes, or if he or she has no tax attributes. The amount of COD income

in excess of the amount by which the taxpayer is insolvent is treated like COD income of a wholly

solvent taxpayer and will generally be included in income. (IRC §§61(a)(12), 108(a)(3))

 

Example of excess COD income

Tina has $250,000 ofCODincome.

Tina is insolvent, but her liabilities only exceed her assets by $160,000. Tina will pay

tax on $90,000 of her COD income ($250,000COD- $160,000 of insolvency).

 

Example of insolvency

Garybought his house for $200,000. He refinanced the property several times, and

used the proceeds to send his kids to college, take vacations, purchase a boat, etc. The

value of the house had risen to $700,000, and the balance of his mortgage was $650,000.

All of the debt was recourse debt, and only $150,000 was acquisition indebtedness.

The home’s value has fallen to $500,000. He has other assets worth $50,000 and other

liabilities of $80,000.

Garyis insolvent to the extent of $180,000 (total assets = $550,000; total liabilities =

$730,000).

 

California conformity

Californiaconforms to the insolvency exclusion. (R&TC §17024.5)

 

Assets for purposes of the insolvency exclusion

The Code provides only for “assets.” Thus, a taxpayer must count cash, stocks and bonds, and

other business and investment assets, along with personal assets such as a personal residence, auto,

and household goods.

More controversial are exempt assets. Both theIRSand the Tax Court have previously held that

assets exempt from creditors’ claims are excluded when taking account of a taxpayer’s assets in determining insolvency. (Babin v. Comm., TCM 1992-673; Hunt v. Comm., TCM 1989-335; Estate of

Marcus v. Comm.,TCM 1975-9;PLR 9125010) However, these cases were decided under the judicial

insolvency exclusion that preceded the statutory exclusion.

More recently, both the Tax Court and theIRShave ruled the opposite way; that is, they have

ruled that assets exempt from creditors are counted, including pension assets. (Carlson v. Comm.

(2001) 116 TC 87;PLR199932013;TAM199935002; SCA 1998-039)

For purposes of valuing pension assets, defined contribution plans are valued as the FMV of the

participant’s account on the date of discharge.

Defined benefit plans are valued in one of two ways, depending on whether the participant has

started receiving benefits:

Has started to receive benefits: Actuarial present value of the payments to be made using

the interest rate and mortality tables at Treas. Regs. §20.2031-7; or

Has not started receiving benefits: Greater of the actuarial present value of the accrued

benefit payable at normal retirement age, or the amount of any single-sum distribution that

the participant could receive under the plan as of the discharge date.
Documentation is important

Taxpayers were denied an insolvency exclusion because they were unable to provide sufficient

evidence to support their insolvency calculation. (Shepherd v. Comm.,TCM 2012-212)

In 2008, the taxpayers came to a settlement agreement with their credit card company, and

$4,412 of their outstanding debt was cancelled. The taxpayers received a 1099-C listing the cancelled

debt. However, they did not claim the $4,412 as income on their return because they claimed they

were insolvent.

The IRS disagreed with the taxpayers’ insolvency calculation. Specifically, they questioned the

FMV used for two homes owned by the taxpayers, and the husband’s pension in theNew   Jersey

Public Employees Retirement System.

 

The value of the homes

To support the value of their beach house the taxpayers presented a settlement between them

and the city where the property is located, which established the value of the property for the 2010

year for property tax purposes. This evidence was problematic for two reasons:

1. The Tax Court has previously held that the value placed on property for purposes of local

taxation is not acceptable to determine FMV for income tax purposes (Pierce v. Comm. (1974)

61 TC 424); and

2. Taxpayers are required to demonstrate they are insolvent immediately before the debt is

cancelled. In this case, that was 2008, not 2010.

The Court noted that the taxpayers did not present evidence of comparable sales for the period

immediately before the debt cancellation, which would have been acceptable evidence.

To support the value of their principal residence, the taxpayers presented:

1. A letter datedMarch 29, 2011, fromChase Bank showing the value of the principal residence; and

2. A “2008 Final/2009 Preliminary Tax Bill.”

Again, a property tax valuation is not sufficient to support FMV for income tax purposes, and

the evidence must support value immediately prior to the cancellation.

The Court also stated that the letter from Chase Bank was not sufficient to establish value

because it did not describe the property or the method used to establish value.

 

The pension

Although the Court found that the taxpayers were not insolvent because of the lack of evidence

to support FMV of the two homes, they still addressed the issue of the husband’s pension.

They specifically noted that the taxpayers did not include the husband’s pension in their list of

assets, but did include a loan from the pension in their list of liabilities. The Court stated that for

consistency purposes, the taxpayer must either remove the loan as a liability or include the collateral

that secures the loan (the pension) as an asset. However, the Court also noted that “the portion of

the pension that could have been withdrawn as a loan is an asset for purposes of insolvency.”

 

I hope you found this information as useful as I did! If you would like to discuss your situation with me, I would be happy to prodvide you with a free, no obligation consultation. My direct number is 925-577-8692.

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California Short Sales Have to Be Non-Deficient

In case you did not hear the news over the summer, there is Great news for Livermore, Bay Area and California Homeowners who are underwater and need to short sale their home: Short Sales in California Now Have to Be Non-Deficient! In layman terms, the banks can no longer come after you for any additional funds once you closed an approved short sale in California.

There are now California two laws in place regarding short sales and how they have to be non-deficient in California now: SB 931 (has to do with the first liens having to be non-deficient) and SB 458 (as of July 15 of this year, second lien holders cannot pursue a deficiency after short sale either). Below I included the link to a video that one of my coaches did related to SB 931 to explain the law so you can check it out for yourself. If your loans are not original purchase money loans and your second is an equity line, I highly recommend that you confirm it with an attorney since refinanced loand and equity lines have historically been treated a little differently; hopefully, the new laws will take care of that!

He is the link to the video:
http://theshortsalegenius.com/what-is-sb-931-and-how-does-it-impact-second-liens-2nd-mortgages/2011/01/07/