Archive April 2010
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Fannie Offers Spur to Avoid Foreclosure
Fannie Mae will make it easier for some struggling homeowners to buy houses in the future if they avoid foreclosure in the present.
Under rules released this month that will take effect in July, some troubled borrowers who give up their homes by voluntarily transferring ownership through a "deed in lieu of foreclosure" or by completing a short sale, where a home is sold for less than the amount owed, will be eligible in two years to apply for a new mortgage backed by Fannie.
Currently, borrowers who complete a deed-in-lieu of foreclosure must wait four years before they can take out a loan that Fannie is willing to purchase.
Details of California's $10,000 Tax Credit
Governor Arnold Schwarzenegger recently signed legislation offering up to a $10,000 tax credit for purchase of a home.
This comes on top of a soon-to-expire federal tax credit of $8,000 for first-time buyers and $6,500 for repeat buyers under a plan approved by the Obama Administration, which also was designed to bolster the economic recovery by fueling home sales, typically one of the most important sectors of the economy in any recovery.
California’s previous home buyer tax credit program was so successful that it ran out of tax credits by the end of June 2009, eight months before it was set to expire and just as the housing market appeared to be turning the corner.
Unlike last year’s legislation, this year’s Homebuyer Tax Credit recently signed into law adds a tax credit for the purchase of an existing home by a first-time home buyer.
Be sure to consult a Realtor and a tax specialist to ensure all of the benefits of the state and federal credits are fully captured. For detailed information regarding the California credits go online to the Franchise Tax Board’s website at ftb.ca.gov. Check the FTB’s website regularly as updates will be added as they become available.
Some of the most important details of this once-in-a-lifetime opportunity for prospective home buyers include:
The 2010 New Home Credit and First-Time Buyer Credit begins May 1, 2010.
• The New Home/First-Time Buyer Credits are available only for purchases that close escrow on or after May 1.
• The home must be the buyer’s principal residence for at least two years after the date of purchase.
• Applications must be submitted after escrow closes. The new application will be available by May 1. (The FTB will deny the application if the 2009 form is used or if the 2010 application is received by the FTB before May 1, 2010.)
General Information: These tax credits are available for taxpayers who purchase a qualified principal residence on or after May 1 and before January 1, 2011. Additionally, the New Home Credit is available for taxpayers who purchase a qualified principal residence on or after Dec. 31, 2010, and before Aug. 1, 2011, so long as an enforceable contract is executed on or before Dec. 31, 2010. The purchase date is defined as the date escrow closes.
• The tax credits are limited to the lesser of 5 percent of the purchase price or $10,000 for a qualified principal residence.
• Taxpayers must apply the total tax credit in equal amounts over three successive tax years (maximum of $3,333 per year) beginning with the tax year in which the home is purchased. The tax credits are nonrefundable and unused credits cannot be carried over.
• The total amount of allocated tax credit for all taxpayers may not exceed $100 million for the New Home Credit and $100 million for the First-Time Buyer Credit.
• The FTB will allocate the tax credits on a first-come, first-served basis. Only one tax credit is allowed per taxpayer.
Taxpayers will not be eligible for either tax credit if any of the following apply:
• The taxpayer was allowed a 2009 New Home Credit.
• The taxpayer is under 18 years old. (A taxpayer who is married as of the date of purchase will be considered to be 18 if the spouse/registered domestic partner of the taxpayer is 18 or older on the date of purchase.)
• The taxpayer or the taxpayer’s spouse or registered domestic partner is related to the seller.
• The taxpayer qualifies as a dependent of any other tax-payer for the tax year of the purchase.
Additional information will be presented in coming weeks on this page. For all full details and the most recent updates, be sure to visit the Franchise Tax Board’s website at ftb.ca.gov.
Tight Inventory Slows Santa Clarita Valley Home Sales
A tight inventory restricted home sales throughout the Santa Clarita Valley during February while the median price of homes sold was up slightly to $410,000, the Southland Regional Association of Realtors® reported.
A total of 140 single-family homes and 55 condominiums changed owners last month. The single-family total was down 16.2 percent from a year ago while condo sales increased 22.2 percent as buyers scrambled to purchase any available entry- level property.
"February typically is a slow month for sales, but the strict qualifying standards for securing a home loan combined with the low number of homes listed for sale were drags on activity," said Andrew Walter, president of the Association’s Santa Clarita Valley Division. "The really good news is that we’ve seen a steady increase in move- up buyers over the past few months."
Walter and Jim Link, the Association’s chief executive officer, praised the State Legislature for passing and Governor Arnold Schwarzenegger for signing into law on Thursday a measure that offers a $10,000 tax credit to California home buyers.
"The federal tax credit of $8,000 for first-time buyers and $6,500 for repeat buyers has been a tremendous boon for home sales, but those are set to expire in coming months," Walter said. "California’s $10,000 tax credit comes at the perfect time. It will go a long way to reassure sellers and buyers that the housing market is stable."
Walter and Link agreed that reports from Realtors indicate there are many more buyers seeking a home to purchase than there are properties listed for sale.
"There’s intense competition for any property under $500,000," Link said. "Competition has grown more fierce as the inventory dries up."
The Association reported a total of 891 active listings at the end of February. That number was down 30.6 percent from a year ago and represents a 4.6-month supply at the current pace of sales. A balanced market emerges with a 5- to 6-month inventory. A year-ago February the Association reported a 6.1-month inventory.
Both executives urged lenders to act faster when it comes to approving short sales.
"The inconsistencies from lender to lender plus the extensive delays in closing short sales drag sales down further and leaves dozens of prospective buyers in limbo," Link said. "Short sales need to be approved in under 90 days, but now many are taking much longer."
Link and Walter also agreed that the market won’t return to normal until all distressed properties move through the system and traditional home sellers return in greater numbers.
"Foreclosure and especially short sale listings still predominate, " Link said, "while listings from traditional sellers typically appear only if the owner has to sell. That’s slowly changing as owners gain more confidence in the strength of the market."
The median price of the 140 single-family homes that changed owners last month was $410,000, up 0.5 percent from a year ago and 2.5 percent higher than this January. The median has been steadily rising almost every month since the low point of $385,000, which came in December 2008.
The condominium median resale price of $250,000 rose 11.1 percent above a year ago and increased 6.4 percent from January. It too has been moving higher nearly every month since its low point of $199,500 in March 2009.
Pending escrows - a measure of future resale activity - rose 19.3 percent compared to a year ago with 377 open escrows.
California won't tax forgiven home debt
Gov. Arnold Schwarzenegger signed legislation Monday to spare thousands of Californians big tax bills on mortgage debt forgiven in 2009.
The bill, signed days before Thursday's tax filing deadline, will eliminate state taxes on forgiven mortgage debt from 2009 through the end of 2012. The U.S. government has already done the same.
"We're elated because we were waiting to send in our statements," said Daniel Diaz of Whittier. He had forgiven mortgage debt from selling his house in a short sale last year. "Obviously, its a big relief, and finally, something good coming out of Sacramento."
State lawmakers had approved the bill on Thursday.
The signing Monday means many affected Californians won't have to file extensions for their tax returns this week.
The bill, SB 401, by Sen. Lois Wolk, D-Davis, relieves state tax obligations on many people struggling after foreclosures, short sales and loan modifications.
It bans state taxes on up to $500,000 in forgiven mortgage debt, and also prevents the state from taxing federal stimulus funds as additional business income when steered to renewable energy firms.
In a statement Monday, Schwarzenegger said, "It is important that we continue to provide all possible assistance to homeowners who were negatively impacted by the mortgage crisis … and protect them from thousands of dollars in unfair taxes."
Wolk said those affected "can now rest a little easier, knowing they won't be hit with a large state tax bill after already being forced to sell their home at a huge loss."
Mortgage debt is typically considered forgiven by lenders – and eligible for taxation as extra income – during a foreclosure or a short sale. In short sales, lenders accept a price below what's owed to avoid higher costs of foreclosing. The difference is the forgiven debt.
The state Franchise Tax Board estimates about 100,000 Californians will be spared from $34 million in state taxes through 2012 as a result of the new law.
The tax relief plan applies only to people who lost homes in which they lived. Investors are not affected and still owe, says the FTB. State officials say qualified taxpayers don't have to do anything to get the tax break. Those who qualify for federal relief will automatically get the state relief.
