Houselogic.com

The National Association of REALTORS recently launched a new website, www.houselogic.com. The site is designed to help homeowners protect, maintain, and enhance the value of their home. The site, although still in beta form, had a soft launch at the NAR meetings in November. The hard launch will take place in February 2010 to consumers. I think you'll find once the site officially launches that it has some very useful and interesting tools available to you. You can check portions of it out now although it is in beta form.

Not only will the site provide homeowners with a simple resource to help manage their homes, the site will allow homeowners to speak together with REALTORS to federal legislators on public policy issues where homeowners and the real estate industry have a common interest. How cool is that!

Watch for details in the next few months!

Myths About Short Sales Part 2

This post is a continuation of my Short Sale Post from November 11th.

Separately, the seller may incur tax liability as a result of the short sale. The shorting lender will take the loss on the property and use it as a tax deduction. When this is done, they will issue the homeowner a 1099C. This stands for Cancellation of Debt. The seller must claim this loss on the next year's taxes as Ordinary Income. Yes, you heard me correct, Ordinary Income. For example, if the lender took a $100,000 loss on a property, it will look as though the seller made an additional $100,000 that year on their income tax. However, Mortgage Forgiveness Debt Relief Act of 2007 does relieve certain borrowers from this. First, it must be your principal residence. Sorry, investment properties do not qualify. Second, the debt must be "purchase money" or money that was reinvested into the house if a refinance took place. Third, if the seller is insolvent at the time the short sale occurred. When the 1099c is received, Form 982 must be filed in conjunction with it to qualify for this relief. Since I am not an accountant, I would always advise a seller to seek information about this from a tax professional. You can look up more details for yourself at www.irs.gov.

So hopefully, now you see these are two separate issues. Your seller may or may not be responsible for the deficiency of the loan, and may or may not also be responsible for the tax liability on that loss as well. Please, if you are in this situation, seek legal and tax advice immediately whenever entering into this type of transaction.

Myths about Short Sales

As a consumer, you should be aware of a few common myths about Short Sales. I see two common mistakes in the short sale process fairly consistently. I will cover the two mistakes in this post and then will address the tax liability portion in a subsequent post.

1. "The only way you can do a short sale is if you are delinquent on your payments. So, if you are current, please stop making payments."

Yikes! Are you cringing in your seat like I am? There are several issues lurking here. First, REALTORS are not Attorney's. This is legal advice. And the fact is YOU CAN perform a short sale when a borrower is current on their payments. The key component you need in a short sale situation is a hardship from the borrower. There can be several reasons for a hardship. Some examples are job transfers, death and loss of employment. A borrower should stay current, if they are able to. The shorting lender will make the determination based on their hardship, and future financial status. Staying current on the mortgage will not decrease your chances of the short sale getting accepted, in fact, it can tremendously help the borrower in the long run with less damage to their credit. Staying current can allow the borrower's credit to bounce back sooner rather than later.

So, the bottom line here is: Before you stop making your mortgage payments, consult an Attorney. The Attorney will advise the best course of action. And you can do a short sale if the seller is current.

2. "You will not be responsible for the deficiency (the amount that is owed verses what the lender receives in the short sale) on the short sale, because President Bush passed Mortgage Forgiveness Debt Relief Act of 2007."

Untrue, there are two separate issues here; it is often confused as one. First there is the deficiency. Second, there is the tax on the deficiency. We will cover one at a time.

The deficiency, again, is the amount that is owed verses what the lender receives in the short sale. The seller very well may be responsible for the difference in that debt. In general, there are three things that can happen with that deficiency. First, the lender will give what is called a Full Release, not to be confused with a Lien Release. A Full Release is the lender waiving their right to any further recourse to the amount that is owed. In this case, the seller is not responsible to pay back the difference.

Second, is a Lien Release, or what I like to call "leaving their options open". A Lien Release will allow the seller to sell the property because the lender will "release the lien", but does not release them from the liability of the deficiency. The lender may not specifically state what they are going to do about pursuing the borrower for that debt, but the lender has left the deficiency to be determined at a later date. This does not necessarily mean they will, but it means they can. Third, the lender may ask for a promissory note to be signed at closing, for the balance or for a portion of the balance. Upon payment of this promissory note, typically, the lender will then allow a Full Release to be given to the seller. In any case, always remember every lender is different. Even doing multiple short sales with the same lender can result in different scenarios. The loan is most likely serviced by that lender and owned by an investor. Each investor has a different set of guidelines the servicing lender needs to follow. So, shorting with the same lender may result in a different option for each seller. Please make sure the letter is shared with an Attorney. The seller's Attorney should review the results of the short sale approval and advise the seller on the pros and cons of the outcome.

The tax deficiency portion will be covered in a subsequent post.

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Psst...How to Turn that $6500 into $8000

Last Friday was a big day for what we call "move up" buyers.  Not only was the first-time homebuyer tax credit extended, but now many folks who already own a home are eligible for a $6500 tax credit too!  This is really big news for all you HGTV-watching, Realtor.com-surfing,fence-sitting homeowners out there.  (And I know you are out there!)  The tax credit means it just got a little easier for you to take advantage of low interest rates, nice inventory and make your desired move-up a reality too.

So let's just say you go ahead.  Here's the little secret I offer to make the most of that tax credit:  spend as much as you can of it on energy efficiency features for your new home.  You'll earn another tax credit for 30% of what you spend on materials.  The program caps at $5000.  At that top level you would qualify for another $1500 tax credit, bringing you up to $8000 in credits for your family! 

Why start with energy efficiency instead of new appliances or furniture?

• Energy efficiency saves you money...when done right you can save 10-30% on your gas and electric bills. A new couch won't love you back like that!  You can bank the savings to complete cosmetic upgrades down the road.
• Energy efficiency protects the long-term resale value of your home. When you go to eventually resell this home, buyers will be shopping based on features and utility bills. Why not lock in that value right away?
• Energy efficiency means you will enjoy your new home more with less drafts and hot or cool spots. From that sense, being comfortable might even be better than a shiny new flat-screen TV. 

Please check out my 5x10 Challenge program to learn more about the right way to plan an energy efficiency upgrade.  The "toolkit" page outlines the important steps.  You can sign up for my newsletter on the homepage to get free coaching and resources!

If you want the super-condensed, bare minimum, older home, Chicagoland quick answer here it is:  from your $6500 homebuyer credit be sure to budget about...

• $500 for an energy audit,
• $250 for do-it-yourself winterizing, and
• at least $1500 for attic insulation. 

You'll be amazing at the savings just by getting those immediate and important improvements done first.  Every house is different so that's why the energy auditor is important - he or she will be able to give you customized info on how you can save the most money specific to your new home.  And the tax credit requirements are very specific, so be sure to talk to a tax professional to find out which insulating and winterizing materials are covered.

28,413 - 9,100 - 1 Home at a time

Getting into a home is hard enough without the economy working against you.

For first time homebuyers, as well as for experienced homeowners, the process of buying a home is often confusing, overwhelming, and an emotional experience. While most homeowners know their Realtor is a professional, guided by a code of ethics and who brings the calmness of a professional to the transaction.

What most homebuyers and sellers don't know is that Realtors are advocating for homeowners during those years between the consumers first purchase and the first time they sell. Through all the transactions a Realtor nurtures, the one constant is a commitment to serving the best interests of home buyers and home sellers. 

Today, Realtors are celebrating the passage of the $8000 Homebuyer Tax Credit (HTC).  You might recall that the original HTC, passed with considerable Realtor support, is one of a few stimulus programs to actually demonstrate success in the marketplace.  Realtors constantly monitor the marketplace and look for trends.  When our National Association of Realtors looked at the seasonally adjusted home sales for the six months before the HTC, and the adjusted sales following the HTC in Illinois we find an increase of 9,100 sales. 

9,100 sales, nine thousand one hundred families who otherwise would not have purchased a home. 

One could argue that 9,100 sales are not very much.  However, let's talk about all the other services, products, and labor that happen every time a home sells. Each seller spends money getting his or her  home ready for sale.  Each buyer spends money making their house their own after the closing.

A 2007 Realtor Group commissioned an academic study to find out how much economic activity is generated by the average home sale. The idea here is that like a pebble tossed into a pond, the ripple effect from the original sale moves through the larger economy. Think of it this way, when you are getting ready to sell your home, do you fix that screen door, repaint the living room, and put a new front door lockset on. Do you spend some time "spiffing up" and staging your house so you can get top dollar for it? Of course you do.

By conservative estimate, the 9,100 sales from the HTC supported about 8,400 jobs. A study by RCF at the University of Illinois estimates that each home sale sparks $28,413 in direct expenses.  For our HTC group, that represents $258,558,300. in direct expenses in the local economy. I would give a very rough estimate that the total "ripple effect" of $633,467,835. (I am not an economist, if anyone out there can calculate economic impact, I would welcome the information)

So, what good is the $8000 HTC? Besides encouraging 9,100 families to invest in homeownership, thousands of dollars were spent stimulating the economy. Tradesmen in the construction, plumbing, electrical, and repair trades had 9,100 new clients. Retailers who sell furniture, appliances, house wares, and hardware stores sold products to 9,100 new clients. Moving companies and rent a truck places also had 9,100 new clients. Lenders, finance companies, title insurance companies, attorney's, clerks, and Realtors continued to work, support families and pay taxes. All this because 9,100 people made the choice to buy a home.

These 9,100 families were on the fence. They could have easily held back and continued to pay rent. The HTC helped them take the step to achieving the American dream, homeownership.

Realtors also understand that encouraging homeownership helps support home values, protecting the equity homebuyers have spent years building. Our Realtor Association helps screen legislation from one as big as the HTC to helping defeat transfer taxes that drive up the cost of homeownership.

If you would like more information about the housing market in your neighborhood, talk to a Realtor. Each neighborhood is different and homeownership is more affordable than ever.

President Obama expected to sign homebuyer tax credit bill!!!!!!!

President Obama is expected to sign the homebuyer tax credit bill today, November 6, 2009.  The bill was passed through the House of Representatives yesterday morning.

Congress approved the extension of the credit until April 30, 2010. The credit is equal to 10 percent of the home's purchase price or $8,000. The bill was also expanded to include homeowners who have owned their home 5 of the last 8 years. They may claim a credit of $6,500 if they sell that home and buy another.

This seller incentive may help those move-up buyers. Those seller-buyers are more likely to put the tax credit back into the economy by buying appliances, tvs, carpeting, etc.

Kudos go out to the Illinois members in the House of Representatives. There was 100% endorsement by our Congressmen and Congresswomen.