Common Myths about Foreclosure

Originally posted 2008-11-29 14:00:55. Republished by Blog Post Promoter

The myths that people believe will save their homes from foreclosure are:

• ignoring it
• investors
• listing with a realtor
• filing bankruptcy
• refinancing

Myth 1 Ignoring the problem

Ignoring the problem is definitely not the way to handle the dilemma of foreclosure.  Ignoring increases the chance of the homeowner getting thrown out with no place to go.  Believe it or not, the foreclosure may keep you from getting other housing, as well. Believe me, there are options.  

Myth 2  Investors

Relying on investors to bail the homeowner out is definitely not the answer either because some investors are asking the overburdened homeowner to sign over their deed.  With doing this, the homeowner not only lost the equity in his or her home, but this practice may cause the homeowner to be in more debt and in a worser situation than when he or she was before.  One option that is available through my company is assisting the homeowner with private money investors that will look out for your best interest and help you stay in your home.

Myth 3 Listing with a Realtor

Listing with a Realtor does not stop foreclosure.  Most Realtors do not want to list your home with the threat of foreclosure.  Most Realtors do not want to list the home because of the cost of advertising a home that may not sell for what you owe.  It takes a Realtor that is familar with handling this type of situation.  It also will take a homeowner who understand that the objective is to get them out from under the mortgage before the bank forecloses.  This means that the homeowner must open his or her mail from the lender, so that the Realtor would know how aggressive the marketing plan must be to get the home sold before the foreclosure.  The homeowner must also realize that he or she may not get a profit off of the sale of the home.  Profit loss or gain depends on how aggressive the lender is on the foreclosure of the property and this varies from lender to lender and state to state.

Myth 4 Filing Bankruptcy

Filing bankruptcy may not stop foreclosure because the homeowner must make the bankruptcy payment and the mortage payment.  If the homeowner does not keep up with the payment on the home.  The home can still be foreclosed on.  What the lender will do if a payment is missed is file a “Stay of Relief” to continue with the foreclosure?  This will cause the total arrearages to be due and the homeowner is still paying the bankruptcy payment if  he or she can afford to.  However, the reason for the bankruptcy may have been to save their home but because they missed a scheduled mortgage payment to the lender during the bankruptcy the homeowner may still being foreclosed on.  

Myth 5 Refinancing

Refinancing may be an options if the homeowner qualifies fo the loan; however, be aware that some loan officers may wait until the day before the sheriff’s sale to tell the homeowner that they could not refinance their loan.  

The goal of my company is to help you – the homeowner to stay in your home if possible and to stop or avoid the foreclosure. We will assess your situation, and give you the best advise for your situation.  Remember you are under no obligation.  I look forward to hearing from you.  I do hope this information was helpful.

Also visit www.taylorbrownrealestate.com

Indiana Purchase Agreement Made Easy

Indiana Property Tax Appeal for Porter County

Seniors Deadline Quickly Approaching

Originally posted 2008-12-15 05:07:16. Republished by Blog Post Promoter

December 31 is the deadline for qualified senior to file for two percent cap on his or her property taxes.   This credit is for seniors in Lake and Porter Counties in Indiana; however, the auditor’s offices in both counties are reporting low or limited interest by seniors.  I am sure this is because most seniors may not know about the need to apply for the credit. 

Under House Bill 1001, seniors will receive a tax credit if his or her adjusted gross income is no more than $30,000 or combined income of $40,000.  In addition, the gross assessed value of the home must be less than $160,000.

The Bill ensures that the qualified homeowner will not receive a property tax increase of more than two percent.  It is important to note that this credit is in addition to statewide property tax caps of 1.5 percent and 1 percent that is scheduled to take effect in 2009.

For example, if the assessed value is $100,000, the statewide cap for next year will result in a tax bill of $1,500.   The senior will enjoy a cap of two percent on his or her assessed value especially if the assessed value increases from one year to the next.

So seniors please apply if you qualify.

Real Estate Investor, Beware

Originally posted 2009-01-01 22:53:35. Republished by Blog Post Promoter

The IRS made changes to the tax that will affect 2007 tax returns if the investor claims a loss. In addition, just reporting a loss may cause your taxes to be audited.

The new law has to do with the real estate investor classification. The investor can be classified as a real estate professional. Under the new law, the investor qualifies as a professional, regardless if licensed real estate agent or broker by working at least 750 hours on real estate activities. The IRS considers real estate activities to be renting, leasing, converting, operating, developing, redeveloping, managing, constructing, and acquiring of real estate.

In addition, as a real estate investor you are limited on your deduction to your passive income in the amount of $25,000. That amount decreases as your passive income increases and tops $100,000. Still yet, the eligibility for the deduction disappears as your income goes over $150,000.

The reason this change came about was due to the increase in number of investors during the market “boom”.

The ramification of these modifications to the tax law hit the investor who works a full time W2 job the hardest. Remember, the losses can only be taken on passive income.

However, under that same law there are two classifications for passive losses. There is material participating passive loss and passive loss.

The material participating rule requires that the investor work on each property for 500 hours. The work can be any or all the qualifying activities listed above. The investor can also opt to combine all properties under one 500 hour block, but the election must be made at the beginning of the tax year.

Another tax law change is that in the designation of a limited partnership’s interest. The properties owned and/or held under this entity is no longer considered material participating, so are not eligible for the deduction if there is a loss.

It is important to note that no longer can research of potential properties that the investor is considering adding to his or her portfolio a valid passive activity.

Keeping accurate records is crucial. The investor needs to keep date, time, location, and activities and in some cases it may be helpful to have photos to show evidence.

The changes mention above came out in December of 2007 and are retroactive to 2007 and may be earlier tax returns. Have your accountant review your current and previous returns to make sure you are in compliance.

Related Real Estate Investing Articles

• Help Offered for Indirect Investors With Madoff (nytimes.com)
• House Flipping Makes a Comeback (online.wsj.com)
• Homebuyer Tax Credit Provides Incentives for Buyers Says Elika Associates (prweb.com)

$8000 Tax Credit For First Time Home Buyers Expires Soon

Originally posted 2009-07-22 15:37:01. Republished by Blog Post Promoter

Did you know that the $8000 tax credit expires 11/30/2009?  That means there are only 131 shopping days remaining.  The reason the number of days is significant is that the buyer do not have to pay the $8000 tax credit back to the government as long as the buyer resides in the home for 36 months after purchase.

This credit was part of the stimulus plan that President Obama signed into law. 

The credit, however, does not apply to everyone.  To qualify for the entire credit, your gross income must be less than $75,000 a year if you are a single home buyer and $150,000 if you are a married home buyer.    You can still get a partial credit if your gross income is greater than $75,000, but less than $95,000 as a single home buyer.  If you are married and your combined income is greater than $150,000, but less than $170,000, you can qualify for a partial credit, as well.  It is important to note, that in the case of a married couple both spouses’ homeownership history will be considered to determine eligible for the program. 

Unfortunately, the credit can not be used as a downpayment.  To qualify you must first purchase the home, then claim the credit using Form 5405 on your 2008 or 2009 tax return.

The tax credit, low interest rate, and lower than ever real estate prices should make homeownership a number one priority for anyone thinking of purchasing a home in 2009.

Give Serena a call at 219 803 4489 or email her at taylorbrownrealestate@yahoo.com to start building equity and create more tax write offs.

Do You Need to Do a Short Sale?

Originally posted 2008-11-30 08:01:08. Republished by Blog Post Promoter

It is very important to know if a short sale is the best answer for your situation.  A short sale becomes a viable option when you cannot get what you are owed on the property because of changes in the market.  You may be thinking why would the lender allow a short sale and why would the seller want to do a short sale?  Both answers to those questions depend on the market and economics.  Why economics, you say?

            Well, let’s examine.  If the homeowner has a mortgage and the pays off of the mortgage is $100,000, but in the present condition of the home; the home is only worth $87,900.   The homeowner still owes $12,100, true enough; however, if the homeowner allows the home to go into foreclosure, then they stand to lose more.  Why?  One reason is it will take 7 to 10 years to recover credit wise and/or financially from the credit damage of a foreclosure.  Another reason for the homeowner to consider a short sale over a foreclosure is the homeowner may not have a deficiency judgment or if they do have a deficiency judgment it will be less than what they would have if they allowed the home to go into foreclosure.  Still yet another reason to avoid foreclosure is the homeowner keeps their integrity and avoids the embarrassment of the public sale.  The best reason of all to avoid the foreclosure is the smaller tax liability on the homeowner.  With the latter statement being made the homeowner needs to consult a tax advisor about the tax liability if any from the short sale or foreclosure.  And remember, that if you are insolvent file form 982 with the IRS.

            In the above scenario, we discuss the homeowner has a deficiency of only $12,100 instead of $100,000 making a short sale a viable option for their situation.

            Let’s examine what would happen if the property went into foreclosure.   First, let’s examine the cost for the lender.  Once again, the home is worth $100,000, but the mortgage this time is $110,000.  It will take nine months to foreclose and resale a home.  There is a minimum cost in legal fees of $1,500, lost of interest to the lender of $4,500, not to mention the lost of taxes, insurance, maintenance, utilities of the property in the amount of $3,000, then the additional cost of the commission and closing costs of the sale nine months later of $8,000 for a total loss to the lender of $27,000.  The latter cost is call holding cost.  This cost is the amount that the lender has to pay out before it receives anything on the sale of the home after the foreclosure. 

            As you can see for the lender and homeowner a short sale is a better option. 

            During a short sale, the lender for the same home in the previous scenario gets a win scenario instead of a lose scenario.  Let’s examine.  The lender lists the home with an agent for $100,000 and sells the home for the same amount.  After commission and closing the lender is left with a gain of $92,000 to satisfy the mortgage whereas under a foreclosure they have nothing to satisfy the mortgage for nine months, and the lender has additional holding cost of $27,000.  The lender has another advantage by allowing the short sale they get their money sooner, and they only discount the mortgage by $18,000.  The homeowner once again wins as well because they can buy another home in as little as two years whereas with the foreclosure they will not be able to do anything for seven to ten years.

Record Keeping for Real Estate Investors

Originally posted 2008-12-18 02:22:43. Republished by Blog Post Promoter

An investor needs accurate records of his or her rental income and expenses to prepare the investor’s income tax return.

                The following items should be recorded to collect required income tax information for each individual property:

·         Rental Income/Capital Expenditures

·         Rental

·         Expense

·         Additional Information

·         Sale of Rental Property

On the rental income form, enter all rents received even advance rents.  However, security deposits are not classified as rent.  Once the deposit is converted into paid rent or damages then it is calculate as rental income.  If the tenant performs services or the tenant pays for repairs and the investor compensate him or her through reduced rent, include the value of these services as rental income.  In addition, the investor will be entitled to an equivalent deduction for the expenses.

                Upkeep and maintenance of the property are considered rental expenses.  In addition, the cost of labor paid to contractor to maintain the property for the investor is a rental expense, as well. The payment to the contractor is income for the contractor; therefore, as an employer the investor needs to collect the social security number of the contractor so that the investor can withhold and pay employment taxes for the contractor.  The contractor will need to fill out W2 form.      

                Another expense that the investor will have is travel.  Travel include going to the rental property to collect the rent and trips to deposit the rent into the bank.  For mileage, keep a log. 

                Capital expenditures are expenditures that improve the useful life of the rental property.  Purchase of furniture or appliances for the tenant’s use are capital expenditures, as well.  These items may have a useful life of over one year and need to be depreciated.  For example, the difference between repair and replacement of a roof determines whether the item is an expense or capital expenditure.  If shingles on a roof is replacement, but not the whole roof replaced then the work is a deductible expense; however, if the entire roof is replaced then it is a capital expenditure because it extended the useful life of the property.

                If the property is used for both personal and business use then expense will need to separate between personal and rental use.  The interest, taxes, insurance, and utilities are partially deductible expense. On the other hand, repairs to the rental property are fully deductible expenses.   To determine the investor’s personal expenses, a business use percentage will be determined and this amount will be applied to the partially deductible expense to calculate the personal expense.

                Accurate recordkeeping will help the investor ensure that him or her get credit for every deduction that the investor is entitled too.  It is also important to keep receipts and payment records of all items listed.  Lastly, keep all records and closing papers of rental properties bought and sold.

 

 

I am a first time home buyer. What next?

Originally posted 2008-11-29 14:02:54. Republished by Blog Post Promoter

As a first time home buyer, there are things that are important to your successful ownership of your first home. The most important things that will make you successful in home ownership understand your market, understanding your mortgage, and knowing what you can and cannot handle.

Why is understanding your market important? Understanding your market is important because it is important to understand your leverage. By leverage, I mean, knowing whether it is a buyer’s market or a seller’s market. Knowing the difference can mean money in your pocket or money left on the table. Let’s examine.

In a buyer’s market, the buyer must be aware that being in a buyer’s market doesn’t make the buyer’s job any easier. It just gives the buyer more flexibility. Remember in a buyer’s market, there may be several buyers for one property or only one buyer for a property. If there are no other buyers for a property by virtue of the length of time the property has been on the market then a low offer may come in to the seller. Sorry sellers. However, sellers that do not mean that you have to give your properties away, but it may mean that you may have to settle for less than you anticipated selling your home.

Another thing that makes a buyer’s market advantageous to the buyer and not to the seller is that there are a lot of homes to choice from that may meet the buyer’s criteria.

In a seller’s market, on the other hand, the seller has the upper hand. The seller can price their home significantly above market value and negotiate the purchase price to exact what the seller wants the purchase price to be. Sorry buyers. If the buyer really wants a home in a seller’s market, the buyer must succumb to the seller’s terms in order to get the home. As a matter of fact, in a seller’s market the inventory of homes for sale that may meet the buyer’s criteria are fewer.

Why do you need to know what you want in your home? It is important in a word to eliminate or limit competition. If the buyer knows what they desire in their new home sooner in the buying process they can narrow their search criteria and bid on the property of choice instead of witness the home being purchase by someone else. In addition, only you as the buyer know exact what features you want in your new home. You, as the buyer know if your family needs three or four bedrooms one or two bathrooms, but more importantly you know what you can afford.

Why am I talking about “what you can afford?” Well, the reason is that your pre-approval letter has a different meaning than you think. The pre-approval is determine by your income to debt ratio true enough; however, are you aware that all your debt is not considered?  What debt you ask?  The debt that I am referring to is the light bill, water bill, phone bill, grocery bill, cable bill, clothing bill, etc.  And that may be more depending on where you live.

Now the latter statements puts the pre-approval letter into a new prospect doesn’t it?  Don’t get discourage.  Just do your homework.  Buy where you are already comfortable and be patience.  With the present market being a buyer’s market, you will find a home that is in that comfortable range in no time. For instance, if you can enjoy life and drive the car you want, eat out when you want at $800.00 in rent, then look for a home where the mortgage payment with principal, interest, taxes, and homeowner’s insurance is at or near $800.00.

Next, you must determine what type of loan you have an adjustable rate, a fixed rate.  The difference is that the adjustable rate will do what adjust and a lot of time it is not down, but up.  If you choice the adjustable rate, find out what the maximum rate is and determine whether you can afford the adjustment.  The mortgage and your Realtor can show the difference in payment.

The fixed rate is just that fix.  The rate will stay the same for the life of the loan.

Lastly, know what you can handle includes not only the mortgage payment, but the now new responsible of maintenance of the property. Therefore, I recommend having an inspection of the home to make sure you did not bite off more than you want to chew. The home inspection will tell you the condition of the home to include the condition of the roof, the condition of the plumbing, condition of the electric, etc. With the home inspection, you will get a detail report of the condition of the home, and it may include all items that may need deferred maintenance. Deferred maintenance is important because those repairs can go before or after projected time range that the inspector gives, so it is important to be prepared financially. Because all repairs first time home buyer is on you not a landlord.

Do not get me wrong buying a home is a happy and great experience, but it can turn into disaster if you are not prepare, so I hope this helps.

What Does the Pre-approval Mean?

Originally posted 2008-11-29 11:04:02. Republished by Blog Post Promoter

As a buyer, you are excited because you have a pre-approval letter, but what does the letter mean?  The pre-approval letter is determined by looking at your income to debt ratio true enough; however, are you aware that all your debt is not concerned.  What debt you ask?  The light bill, water bill, phone bill, grocery bill, cable bill, clothing bill, etc. and those bills can be more depending on where you live.

Now that puts the pre-approval letter into a new prospect doesn’t it?  Don’t get discourage.  Just do your homework.  Buy where you are alright comfortable and be patience.  With this market being a buyer’s market, you will find a home that is your comfortable range.

Next, you must determine what type of loan you want an adjustable rate or a fixed rate.  The difference is that the adjustable rate will do just that adjust and a lot of time it is not down, but up.  If you choice the adjustable rate, find out what the maximum rate is and determine whether you can afford the adjustment.  The mortgage broker and/or your Realtor can show the difference in payment. 

The fixed rate is just that fix.  The rate will stay the same for the life of the loan.

Now, what can change besides your rate is the taxes and insurance. 

With the taxes, you can head off this change by filing for your homestead and mortgage exemptions.  By the way, these exemptions are only for your primary residence, the one you live in.  You can file for these exemptions within 30 to 45 days of closing that should be long enough for the title company to get the property in your name.

With the insurance, the premium that you pay when you purchased your home may change by renewal of the policy.  Therefore, three months prior to your renewal of the policy call your agent to see what your new premium will be.  Your renewal date will be the anniversary of the day you purchased the home.  If the premium goes up more than $100 dollars start shopping.  Now keep in mind your credit now influences your insurance premium and any claims that you may have filed the previous year.  Your present agent can make some adjustment to your present policy to decrease the premium and it may be worth asking for those adjustments before moving to another company.  The insurance agent can adjust your replacement cost.  What is replacement cost?  Replacement cost is the cost it will take to rebuild your home if it was completely destroyed.  The most that your premium can be adjusted is within 80% of the replacement cost.  For instance, if your replacement cost is $100,000, then the lowest you can adjust your replacement cost is $80,000.  The replacement cost adjustment must be able to pay off your present mortgage, and hopefully enough to build you another home but in most cases it will be enough to start. 

Please consider these facts when you are looking at your pre-approval letter and smiling ear to ear with joy.

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