Beware of Foreclosure Assistance Letters

by Rodney Forbes on May 6, 2009

This video presents the worst case scenario for homeowners in distress. They fall behind on payments and become victims of “foreclosure rescue” rip off artists.

Hopefully things will work out alright for this couple. It stands as a lesson for others in the same situation. If you or someone you know is in this situation, look for licensed and professional help, either from a Realtor, CPA or attorney.

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See…I told you so!

by Rodney Forbes on May 5, 2009

The national news finally seems to be catching on to what I’ve been saying for the past several months. The south Florida real estate market has been quietly making progress to recovery, even as the national press predicted gloom and doom ahead.

Pending home sales rose in March for the second consecutive month and are up year over year. The Pending Home Sales Index from the National Association of Realtors showed a 3.2% gain to 84.6 from February, when it was 82. The index stands 1.6% higher than a year ago.

Pending home sales rose in March for the second consecutive month and are up year over year. The Pending Home Sales Index from the National Association of Realtors showed a 3.2% gain to 84.6 from February, when it was 82. The index stands 1.6% higher than a year ago.

The market in Florida seems to be leading the recovery in real estate, just as it did on the way down.

If you are interested in buying or selling a home in the Palm Beach County area, specifically Palm Beach Gardens, Jupiter and West Palm Beach, please visit my Forbes Realty website. For frequently updated information on foreclosures, short sales, real estate news and market conditions visit my South Florida Real Estate Report blog. There are many free reports as well as free access to MLS listed properties. You can also call 561-337-4810.

 

Rodney Forbes is a licensed Realtor®, certified short sale/REO specialist and broker for Forbes Realty of South Florida Inc.

Source: CNNMoney.com

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Warren Buffett bullish on real estate?

by Rodney Forbes on May 5, 2009

In the following excerpt from the Wall Street Journal, Warren Buffett is making comments on the current real estate market at the annual convention for Berkshire Hathaway. It’s a welcome relief that even the world’s most successful investor sees light at the end of the tunnel for the real state market.

In the last few months you’ve seen a real pickup in activity although at much lower prices,” Mr. Buffett said, citing data from Berkshire’s real-estate brokerage business, HomeServices of America Inc., which is one of the largest in the U.S.

In California, medium and lower-price homes — under $750,000 — have been selling more, though there hasn’t been a bounce back in sale prices, Mr. Buffett said. “We see something close to stability at these much-reduced prices in the medium to lower part of the market.

If you are interested in buying or selling a home in the Palm Beach County area, specifically Palm Beach Gardens, Jupiter and West Palm Beach, please visit my Forbes Realty website. For frequently updated information on foreclosures, short sales, real estate news and market conditions visit my South Florida Real Estate Report blog. There are many free reports as well as free access to MLS listed properties. You can also call 561-337-4810.

 

Rodney Forbes is a licensed Realtor®, certified short sale/REO specialist and broker for Forbes Realty of South Florida Inc.

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Florida Real Estate: Back to the Future

by Rodney Forbes on May 2, 2009

James L Butkiewicz

James L Butkiewicz

At the dawn of the 20th century, fewer than half of all households in the United States owned their own home. Fueled by rapid income growth during the 1920s, home ownership increased to 47.8% in 1930 from 46.5% in 1900 but then declined to 43.6% in 1940.

An obstacle to homeownership at that time was the extant system of mortgage finance. Mortgage loans were supplied by mortgage bankers and savings and loan companies. Mortgage bankers financed their loans by selling bonds, generally to insurance companies, but also sold mortgage participation bonds to individuals during the 1920s. Savings and loans’ deposits were used almost exclusively to make mortgage loans.

First mortgages were typically short-term loans of often three to five years and for no more than 50% of the value of the property. Interest rates were variable, and only interest was paid during the term of the loan; there was no amortization. A balloon repayment of the principal or refinancing was required when the loan matured. Many borrowers obtained second and even third mortgages to finance their housing purchases.

A housing boom during the 1920s was accompanied by rapid appreciation of house prices. However, the subsequent housing and economic bust created problems for homeowners. Loss of employment made refinancing mortgages difficult. House price deflation forced foreclosures, primarily by the issuers of second and third mortgages who saw the value of their liens eroded by deflation.

Reform of mortgage finance and ending the loss of homes were the intended results of numerous legislative acts during the 1930s. A significant reform was the 1933 creation of the Home Owners Loan Corporation. This agency forestalled foreclosures for middle- and lower-income homeowners. The HOLC was financed by the sale of government-guaranteed bonds. It acquired mortgages that were in default and converted them to long-term, generally 20-year, loans with monthly payments of interest and principal at fixed rates of interest.

Although it stopped lending in 1935, the institution of the long-term, fully amortized, fixed-interest-rate mortgage dramatically altered mortgage finance, significantly contributing to the growth in homeownership following World War II.

The creation of the Federal Housing Administration in 1934 was intended to make the government’s mortgages marketable. The FHA insured the long-term, fixed-rate mortgages to facilitate the flow of funds into mortgage finance. The FHA initially insured mortgages up to 80% of the property value, a much higher loan-to-value ratio than previously allowed for first mortgages.

However, financial institutions were not aggressive purchasers of FHA-insured mortgages, so the Federal National Mortgage Association was formed in 1938 to create a market for FHA and later Veteran Administration mortgages.

Creation of the Federal Savings and Loan Insurance Corporation in 1934, insuring deposits in savings and loan companies, benefited mortgage finance since deposits in savings and loans, the primary mortgage lenders, were fully guaranteed by the federal government.

Another 1930s regulation was Regulation Q. First applicable to commercial banks, this regulation prohibited the payment of interest on checking deposits and capped the rates of interest payable on savings deposits and certificates. This regulation was extended to savings and loans and savings banks in 1966. However, these thrift institutions were provided a competitive advantage by being allowed to pay one-quarter percent more (25 basis points) on savings instruments than commercial banks.

Deposit insurance and interest rate regulations allowed savings institutions to make mortgage loans at relatively low rates of interest, thereby subsidizing homeownership. However, the competitive benefits of regulation Q were quickly undermined by rising inflation, weakening the finances of savings institutions and eventually resulting in the savings and loan crisis.

The 1930s reforms of mortgage finance resulted in an increase of homeownership to 63% of households by 1970. Subsequent innovations, such as securitization, further increased the homeownership rate to 66% by 2000. However, more recent financial innovations, which increased homeownership to 69% of households in 2005, revived past practices and created new ones that recreated the instability in mortgage finance that existed prior to the 1930s reforms. These include increased reliance on adjustable rate mortgages, interest-only loans and even negative amortization loans. Payments for this last loan type do not cover monthly interest charges, so principal increases monthly, requiring refinancing when certain loan-to-value limits are attained, and thereby increasing monthly payments on the new, higher-valued loan.

Historically, the housing cycle is a primary component of any business cycle, with the current crisis being one of the worst cases. Past reforms of mortgage finance generally sought to increase homeownership and stabilize the housing cycle, and with it the business cycle. However, recent practice has undermined many of these reforms. Certainly new financial reforms and regulations are forthcoming. The objectives should be making homeownership feasible for those who can afford it and to stabilize the housing market to minimize economic fluctuations.

James L. Butkiewicz is a professor of economics at the University of Delaware, where he specializes in the Great Depression.

Source: timandjulieharris.com

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More biotech jobs moving to Palm Beach Gardens

by Rodney Forbes on May 1, 2009

The following article shows the benefits to the local economy of having the Scripps Florida facility. My guess is more biotech firms will continue to relocate to Palm Beach Gardens. This is great news for the county and the real estate market as well.

Palm Beach Gardens is getting a new bioscience company that is expected to bring 35 jobs with average salaries of $62,000 a year.

Leinco Technologies, which develops and manufacturers life science products for pharmaceutical companies and research institutions, is relocating from St. Louis, Mo.

The company expects to have 15 jobs in the first year, add eight jobs in the second and an additional 12 in year three.

Jupiter and Palm Beach Gardens will each loan Leinco $350,000 for its capital investment and relocation. The economic impact of the move is projected to be $64.8 million over three years, according to the Business Development Board of Palm Beach County, which helped facilitate the move.

Leinco is making the move to Palm Beach Gardens because of the budding opportunities with Scripps Research Institute and the Max Planck Institute.

“We want to be part of the biotech cluster that’s here,” company founder and President Patrick Leinert said.

Kelly Smallridge, president and CEO of the Business Development Board, welcomed the move.

“It is the largest for-profit private bioscience organization we’ve recruited to the area since Scripps,” she noted.

Source: South Florida Business Journals

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Palm Beach the New Las Vegas..Not Yet

by Rodney Forbes on May 1, 2009

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I enjoyed this article excerpt from the Palm Beach Post. For years the gaming dollars have been going south of Palm Beach County. Maybe the politicians have finally realized we can keep the revenue in the county.

It’s too bad there has to be so much political posturing and games being played (no pun intended) about the “social costs” of bringing gaming to Palm Beach County. If people want to gamble, they’ll go wherever they can. We might as well keep the jobs here.

Palm Beach County leaders and activists weighed revenues, jobs, social costs and political prospects today as they pondered the possibility of a countywide referendum on expanded gambling.

The idea of a referendum emerged Wednesday as Florida legislators tried to reach agreement on new gambling rules for the state.

Kennel Club President Pat Rooney Jr. said he’s confident a gambling referendum will pass if supporters can demonstrate that a large portion of the revenue will stay in Palm Beach County.

House and Senate negotiators are trying to strike a gaming deal with the Seminole Tribe of Florida and accommodate the state’s horse and dog tracks and other pari-mutuels that compete with Indian establishments for gambling business.

One proposal would allow slot machines at the Palm Beach Kennel Club in West Palm Beach if county voters approve.

Voters will need to know exactly what type of games would be allowed and how money would be divided between the state and county before they can make a decision, said county Democratic Party Chairman Mark Alan Siegel.

“Unless you know the details very, very well, it’s impossible to say anything about it. And that’s typical of gambling measures anywhere,” said Siegel.

State Rep. Joseph Abruzzo, D-Wellington, one of the House gambling conferees, agreed that where the revenues go is critical.

“If it’s on the ballot and it’s going toward education, I think it would have a greater chance than if it’s going toward the general budget,” Abruzzo said.

Maybe one day we could be smart enough to realize people would rather travel to Florida rather than the middle of the desert in Las Vegas. You can figure the rest out for yourself.

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Flash! First Time Home Buyers Get $8000 Today

by Rodney Forbes on April 30, 2009

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The following article from the Wall Street Journal has me scratching my head. By now, most people know about the $8,000 first time home buyer tax credit (contact me to see if you may qualify). What shocked me is that evidently the IRS is allowing people to claim the tax credit, yes $8,000 in your pocket…not a deduction, on your 2008 tax return.

The tax credit is for purchases between Jan 1, 2009 and Dec 1, 2009. Most people had assumed you had to wait until you filed a tax return next year to claim the credit. Evidently, if you have already filed your taxes for 2008, you can file an amended return and get the tax credit NOW!

Read the article below for more information. Be sure to check with a CPA knowledgeable of the law before proceeding. But this could be great news for people who have moved ahead in the uncertain market and purchased this year.

The Internal Revenue Service has now made it absolutely clear. Taxpayers can’t claim the $8,000 refundable tax credit for first-time home buyers until after they close on their homes. A buyer can’t claim the credit first, and then use the $8,000 check from the government as a down payment.

Some tax practitioners and commentators–as well as some in the real estate industry–had argued otherwise. They pointed out that a taxpayer can claim a deduction for an individual retirement account before actually making the contribution, so long as the contribution is made by April 15, the year following the one the deduction is for. But the IRS’ position, expressed in a series of questions and answers it issued earlier this month, shouldn’t have come as a surprise. The language of the law clearly required a purchase to have taken place before a taxpayer claimed the credit, and IRS Form 5405, used to claim the credit, has a line requiring a taxpayer to enter the date of the home purchase.

While you can’t claim a credit before you close on a house, you can get your money from the government fairly quickly. In earlier guidance, the IRS indicated that taxpayers who buy a credit-eligible home in 2009 may claim the credit on their 2008 returns. If you’ve already filed your 2008 return, once you’ve closed on your first house, you can file an amended return claiming the refundable credit. (Refundable means that you can get the whole $8,000 even if the federal income tax you paid was less than that.)

While the IRS has now stated specifically that the credit cannot be claimed in anticipation of a purchase, it remains unclear what the penalty would be for a taxpayer who claims the credit before being legally entitled to claim it and then closes on a home, making him eligible. For a tax practitioner, however, assisting a taxpayer in claiming a credit on a return before he was entitled to it could result in preparer penalties.

The size of the credit and the confusion surrounding it make it likely that the IRS will be looking at credit claims closely. In a recent report, the Treasury Inspector General for Tax Administration estimated that 7% of those who had claimed the credit so far might not be eligible because “they may have had ownership in a personal residence within the last three years.” (The term “first-time home buyer,” for purposes of the credit, includes someone who has not owned a home within the past three years.) The TIGTA report also noted the IRS is implementing a system to identify the date of a home purchase–crucial to processing claims because of the way the credit has evolved.

The credit was created by the Housing Assistance Act of 2008, enacted July 30, 2008. Originally, it equaled 10% of the purchase price of a home acquired on or after April 9, 2008, and before July 1, 2009, up to a maximum of $7,500. But the initial credit had a big catch: It had to be paid back to the government over a 15-year period, starting in the second year after the purchase. In effect, the credit was an interest-free loan from the government.

The American Recovery and Reinvestment Act–the $787 billion stimulus Congress passed in February–made the credit considerably more generous, but only for houses purchased between Jan. 1, 2009, and Nov. 30, 2009. In addition to raising the dollar cap on the credit to $8,000, the law eliminated the obligation to repay the credit, provided that the home continues as the taxpayer’s principal residence for at least three years.

If you got an extension for filing your 2008 taxes in anticipation of buying a home and claiming the credit, you must file by Oct. 15, 2009. If you haven’t closed on your new home by then, you’ll have to file without claiming the credit. If you do complete your purchase before Dec. 1, you can then file an amended return. You also have the option of claiming the credit on your 2009 return–meaning if you anticipate claiming the credit, you may want to reduce your 2009 withholding tax.

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Home Short Sale Consequences…and Relief

by Rodney Forbes on April 30, 2009

Short sales in real estate today make up about 30-40% of home sales in south Florida. Everyone hears about them, but not too many people know the potential tax consequences of the short sale itself.

The following article gives some good examples of the potential tax consequences of selling your home using a short sale. The important thing to get from this article is to make sure that if you have to do a short sale make sure you have a knowledgeable real estate professional and a good tax attorney to guide you.

It’s not so unusual these days to have mortgage debt that exceeds the current value of your principal residence. If you hang on to the property long enough, you have a reasonably good chance of riding out the storm with little or no harm done. On the other hand, if you have to sell now, you face what’s called a “short sale” — which means selling for a net sales price (after subtracting commissions and other closing costs) that’s less than the outstanding mortgage debt.

What are the tax consequences of a short sale? The easiest way to explain it is with some examples.

Tax gain on a short sale. Say you paid $200,000 years ago for a principal residence that you could now sell for a net sales price of $300,000. Unfortunately, you also have $350,000 of first and second mortgages against the property because you took out a big home-equity loan a couple of years ago at the top of the market when the home was worth $500,000.

Believe it or not, you’ll have a $100,000 gain for tax purposes if you sell. Why? Because the net sales price exceeds the tax basis of the home: $300,000 sales price minus $200,000 basis equals a $100,000 gain. (Your tax basis equals what you paid for the property plus the cost of any improvements made over the years, minus any past depreciation writeoffs if you rented the property out or used part of it for deductible business purposes.)

While it doesn’t seem fair that you could have a $100,000 tax gain from a sale that leaves you $50,000 in the red with your mortgage lenders, that’s the way the law works. Mortgage debts don’t enter into the gain-on-sale calculation.

Now for the good news: You’ll probably be able to exclude the $100,000 gain for federal income-tax purposes, thanks to the federal home-sale-gain exclusion break. If so, you won’t have to report the $100,000 gain on your Form 1040. You may or may not qualify for the same favorable treatment on your state income-tax return.

Tax loss on short sale. Of course, you can also have a short sale where the net sales price is less than your tax basis in the property.

Say you paid $415,000 for a principal residence that you could now sell for a net sales price of $300,000. You also have $350,000 of first and second mortgages against the property. For tax purposes, you’ll have a $115,000 loss if you sell because the sales price is lower than your tax basis in the home: $300,000 sales price minus $415,000 basis equals a $115,000 loss.

Will the IRS let you claim a writeoff for that loss? Nope. You can only claim a federal income tax loss on investment or business property. A loss on a personal residence is considered a nondeductible personal expense. Most states follow the same principle.

Excess debt. In both the preceding examples, the mortgage debt exceeded the net sales price by $50,000. If the lender won’t let you off the hook for any of that excess, you’ll have to figure out a way to pay it, and you won’t get any tax break for doing so.

If you’re more fortunate, the lender will forgive some or all of the excess $50,000. To the extent debt is forgiven, you have so-called debt-discharge income, or DDI. The general rule is that DDI is taxable income. For the year that DDI occurs, the lender should report the amount to you (and to the IRS) on Form 1099-C. Happily enough, there are some taxpayer-friendly exceptions to the general rule that DDI is taxable. Here they are:

Up to $2 million of DDI from mortgage debt that was originally taken out to acquire, build or improve the borrower’s principal residence is tax-free (you must reduce the basis of the residence by the tax-free amount). This super-favorable rule is not available for DDI from debt that was not used to acquire, build or improve the principal residence, such as DDI from a home-equity loan used for other purposes.

If the borrower is in bankruptcy proceedings when the DDI occurs, the DDI is tax-free.

If the borrower is insolvent (that is, has debts in excess of assets), the DDI is tax-free as long as the borrower is still insolvent after the DDI occurs. If the DDI causes the borrower to become solvent, part of the DDI will be taxable (to the extent it causes solvency). The rest will be tax-free.

To the extent DDI consists of unpaid mortgage interest that was added to the loan principal and then forgiven, the forgiven interest that could have been deducted (had it been paid) is tax-free.

If the DDI is from seller-financed mortgage debt owed to the previous owner of the property, it’s tax-free. However, the basis of the property must be reduced by the tax-free DDI amount.

The important thing to understand is that a real-estate short sale can potentially result in a taxable gain and/or taxable DDI. Thankfully, you can probably exclude the gain from taxation under the federal home-sale-gain exclusion deal, and you might be able to exclude some or all of the DDI, too, under the favorable exceptions explained above.

Souce: Wall Street Journal

If you are interested in buying or selling a home in the Palm Beach County area, specifically Palm Beach Gardens, Jupiter and West Palm Beach, please visit my Forbes Realty website. For frequently updated information on foreclosures, short sales, real estate news and market conditions visit my South Florida Real Estate Report blog. There are many free reports as well as free access to MLS listed properties.

Rodney Forbes is a licensed Realtor®, certified short sale/REO specialist and broker for Forbes Realty of South Florida Inc.

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Worst is over for real estate?

by Rodney Forbes on April 30, 2009

After deteriorating relentlessly for nearly three years, the much-watched S&P/Case-Shiller Index showed a brief glimmer that plummeting home prices are at least slowing their fall.

Prices are still plunging: Home prices in 20 major cities across the country have fallen 18.6% between February of this year and last, according to the index released Tuesday. That painful drop, however, is an improvement from January, when prices fell an unprecedented 19%.

“This is the first month since October 2007 where the 10- and 20-city composites did not post a record annual decline,” says David Blitzer, the Chairman of the Index Committee at Standard & Poor’s, in a statement with the release. “We will certainly need a few more months of data before we can determine if home prices are finally turning around,” he cautioned.

The Palm Beach County area was one of the first areas of the country to see dramatic drops in real estate prices, starting in 2007. According to many it may also be the first scene of a real estate recovery.

The Case-Shiller Index paints a particularly brutal portrait of the housing bubble in American cities. All 20 cities in the index have seen home prices decline by more than 10% since their bubbles burst. In Phoenix, a market particularly flooded with foreclosures, home prices have fallen 51% since June 2006.

Six other American cities have seen declines of more than 40% since their peaks: Detroit, Las Vegas, Los Angeles, Miami, San Francisco and San Diego.

Home prices are still falling in every city tracked by the index. But in 16 of the index’s 20 cities, home prices are no longer falling as quickly. Historical data from the Case-Shiller Index show home prices beginning to charge up a mountain in the mid ’90s; by 2004, home prices were posting record improvements, with the 10-city index showing annual price increases of 20%.

Then, in 2004, the size of the increase began to slow (in mathematical terms, the second derivative became negative). By 2006, prices were falling, and by 2007, the fall accelerated to the highest rates the 20-year-old index had ever recorded.

It is at least a glimmer of good news for the battered housing market, even if it does not mean price recovery has begun. The plummeting housing market is a key barrier to economic recovery.

Falling home prices have decimated consumer confidence. Economist Robert Shiller of Yale University, one of the designers of the Case-Shiller Index, told Forbes earlier this month that, despite tentative evidence that confidence is stabilizing, “I do think it is too soon to draw any conclusions that confidence has bottomed out, especially since home price indices have been continuing to fall, and if this continues it will continue to damage balance sheets.” Not knowing when home prices would stop falling has hindered banks in pricing mortgage-related assets.

The housing report is also good news for the “stress tests” the Federal Reserve is administering to the country’s 19 biggest banks to determine how well they can weather a deep recession. The tests evaluated whether or not the banks could survive a 22% annual decrease in home prices.

Many economists feared this assumption was not pessimistic enough–that banks could survive the stress test, but still perish when the economy proved even worse. Today’s index provided a glimmer of hope that the economy could at least outperform the adverse stress test.

Source: TimandJulieHarris.com

If you are interested in buying or selling a home in the Palm Beach County area, specifically Palm Beach Gardens, Jupiter and West Palm Beach, please visit my Forbes Realty website. For frequently updated information on foreclosures, short sales, real estate news and market conditions visit my South Florida Real Estate Report blog. There are many free reports as well as free access to MLS listed properties. Call me directly at 561-337-4810

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Slowing recession good for real estate market

by Rodney Forbes on April 30, 2009

The Federal Reserve on Wednesday said it see signs the recession may be easing, but warned that the economy is likely to remain weak.

Against that backdrop, Fed Chairman Ben Bernanke and his colleagues left a key interest rate at a record low of between zero and 0.25 percent, and decided against taking any new steps to shore up the economy.

Keeping interest rates low will be crucial to the continuing improvement in the Florida real estate market.

Aggressive action already taken – including a $1.2 trillion effort last month – should gradually help bolster economic activity, the Fed said. It did, however, leave the door open to future action if needed.

Fed policymakers offered a less dour assessment of the economy than the one provided at its previous meeting in mid-March.

“The economy has continued to contract, though the pace of contraction appears to be somewhat slower,” the Fed said. The worst of the recession – in terms of lost economic activity – could be past.

Source: Forbes

If you are interested in buying or selling a home in the Palm Beach County area, specifically Palm Beach Gardens, Jupiter and West Palm Beach, please visit my Forbes Realty website. For frequently updated information on foreclosures, short sales, real estate news and market conditions visit my South Florida Real Estate Report blog. There are many free reports as well as free access to MLS listed properties. Call me directly at 561-337-4810

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