The San Diego Real Estate Insider Blog

Immediate tax relief in the form of tax refunds is available to victims of the wildfires in the seven Southern California Counties of San Diego, Santa Barbara, Ventura, Los Angeles, San Bernardino, Orange, and Riverside, The Franchise Tax Board (FTB) announced.

One of the relief measures put forth by the FTB allows fire victims to receive additional tax refunds this year if they report their disaster losses through amended 2006 returns ASAP.

"The victims of the Southern California fires need to know they can turn to the State for immediate help. By claiming a disaster loss on last year’s taxes, those who lost their homes or suffered property damages can get additional funds to help them through this tragedy,"said State Controller and FTB Chair John Chiang.

For those who lost tax records, copies of state tax returns can be requested by completing Form FTB 3516, Request for Copy of Tax Return. Make sure to write “Southern California Wildfires 2007” in red at the top of the form. There is no charge for copies of tax returns for victims of disasters.

Additional information about how California handles losses resulting from disasters can be found on FTB Pub. 1034, Disaster Loss, or visit the FTB website at www.ftb.ca.gov. The FTB toll free number is (800) 852-5711.

Feel free to search all San Diego homes for sale throughout the county.

Many San Diego County property owners who suffered damage from the fires that ravaged the County are eligible for property tax relief.  

California law, Revenue & Taxation Code Section 170, provides property tax relief for taxpayers whose property was damaged or destroyed as a result of the wild fires that engulfed San Diego County, by allowing the Assessor’s Office to temporarily reduce the assessed value of a property that was damaged or destroyed through no fault of the property owner. This relief is available to owners of real estate, business equipment and fixtures, and to owners of boats and aircraft. This program requires reassessment of the property to reflect its damaged condition, and the subsequent reduction or partial refund of the current year's taxes.

In order to qualify, the damage must be in excess of $10,000 in value, and a claim must be filed with the Assessor’s Office within 12 months from the date the damage occurred.

The current property taxes will be reduced for that portion of the property damaged or destroyed. This reduction will be from the date of the damage, and will remain in effect until the property is rebuilt or repaired.

Property owners will retain their previous taxable value if the house is rebuilt in a like or similar manner, regardless of the actual cost of construction. However, any new square footage or extras, such as additional baths, will be added to the base-year value at its full market value.

Tax relief is available for all taxable property, including boats, aircraft, and business personal property. Household furnishings are not assessed for property taxes and, therefore, do not qualify for property tax relief.

Mobile homes qualify for this property tax relief if the mobile home was assessed for property taxes and is not on State license fees.

Tax relief is available for avocado or citrus grove if the damage to the grove exceeds $10,000. The Assessor’s Office values the trees and irrigation system for property tax purposes. The fruit is not assessed for property tax purposes and does not qualify for property tax relief.

Applications can be obtained by calling the Assessor’s Office at (858) 505-6262 or by downloading the application by clicking here.

Feel free to search all San Diego homes for sale throughout the county.

Ken Lewis, CEO of Bank of America, the nation’s second-largest bank, announced on Friday that it will shut down its consumer real estate division and its wholesale lending unit, which offers residential mortgages through over 7,000 independent brokers, at the end of the year.  

The move signals a commitment to focus on direct-to-consumer lending through its banking centers and loan officers, said Floyd Robinson, Bank of America’s president of consumer real estate and insurance services. “While we are extremely proud of our strong track record in the wholesale business, we believe our long-term opportunity lies in maximizing our more competitive retail channels.”

In May, Bank of America introduced its national “no-fee” mortgage program, which eliminates the buyer, lender and third-party fees that can add several hundred to a few thousand dollars to the cost of buying a home. This loan product has created more than $50 billion in application volume in the past six months and has enabled Bank of America to “gain critical market share”, according to Robinson.

The numbers seem to bear him out. For the 3^rd quarter of this year, the nation’s largest retail saw an increase of 27 percent in first mortgages funded over the 3^rd quarter of 2006.

Despite the dramatic up tick in mortgage originations, Lewis was said to have been “pissed” at the disappointing drop in revenues for the quarter ending Sept. 30 and is pushing to double BofA’s current 5 percent market share of direct-to-consumer home loans in the next three years by focusing on the prime mortgage market, which are those loans offered only to borrowers with stellar credit scores, usually a FICO of 740 and above.

So what does this mean? Well, the lives of more than a few San Diego mortgage brokers just got a bit more difficult and 3,000 BofA jobs will be cut. It is all good for the consumer, though. Less fees and a lender aggressively looking for business should mean lower rates for the well qualified San Diego home buyer.

Feel free to search all San Diego homes for sale throughout the county.

Many San Diego homeowners considering a short sale or facing foreclosure got a bit of good news today with the U.S. House of Representatives passing H.R. 3648, The Mortgage Forgiveness Debt Relief Act of 2007. The bill addresses the forgiveness of acquisition debt, which is that debt used to purchase real estate that is used as a primary residence. This debt forgiveness due to a short sale or foreclosure would not be subject to taxation as earned income. The bill now goes to the Senate.

The bill saw a few modifications from it's original version approved by the House Ways and Means Committee.

UPDATE: 12/14/2007 - Senate passes H.R. 3648, The Mortgage Forgiveness Debt Relief Act of 2007.

UPDATE: President Bush signs The Mortgage Forgiveness Debt Relief Act of 2007.

Overview of debt forgiveness portion of bill: Short Sale and Phantom Tax Debt Relief Overview

Someone lit a fire under Rep. Charles "Charlie" Rangel, which is good news for the San Diego real estate market in general, and many homeowners trying to determine the lesser of two evils, foreclosure or a short sale and the tax liability which goes with it.

Earlier today, the House Ways and Means Committee, chaired by Rangel, unanimously approved H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007, which Rangel introduced yesterday. The bill "would amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income, and for other purposes".

From House Committee on Ways and Means: 

In addition to addressing the taxation of phantom income derived from a short sale or foreclosure, the bill extends the mortgage deductibility of private mortgage insurance premiums through 2014.  

The bill now goes to the full House for a vote.

UPDATE: House Passes Short Sale Related Mortgage Forgiveness Debt Relief

UPDATE: Senate Passes H.R. 3648 Providing Short Sale Tax Relief

UPDATE: President Bush signs HR 3648, The Mortgage Forgiveness Debt Relief Act of 2007.

Overview of debt forgiveness portion of bill: Short Sale and Phantom Tax Debt Relief Overview

The other day I wrote a post about a short sale as a viable solution. The subject has been bandied about as an alternate solution for a homeowner who may be faced with losing the home to foreclosure. It has become the agent listing tool de jour. However, it is complicated and there are tax and legal issues that go beyond the scope of what most agents are qualified to address with most potential short sale candidates.

I view myself as a problem solver, negotiator, and marketing expert, then as a real estate sales person. My logic is simple. I believe that when buying or selling real estate, you need access to as much factual information as possible in order to make an intelligent decision, or rather, the best decision possible for that particular situation. Given that mindset, I set out to provide an unbiased, intelligent overview of the issues surrounding short sales.

I did some homework and found an excellent piece written by the legal eagles at the California Association of Realtors (CAR). I prefaced the post with this:

"Like many things in life, simple definitions and answers for complicated issues and questions are not always the best. This is particularly true with issues that involve legal documents, monetary investments and the IRS. Therefore, instead of posturing with my own opinions, I have requested permission to reprint a legal article from the California Department of Real Estate (C.A.R.) that addresses many issues with regard to short sales, deficiency judgments, trustee sales, deed in lieu of foreclosure, and judicial vs non-judicial foreclosures."

I finally heard back from C.A.R. yesterday and they refused my request to republish the article.  To tell you the truth, I asked for permission because it was the right thing to do, but I fully expected it to only be a formality. I was given permission to link to the article, but the article is on a password protected part of the CAR.org site, so that was a rather pointless concession.

An attorney from C.A.R. did call me and offer an explanation. She said that C.A.R. didn't want non-Realtors to have the info, as it was intended to be a benefit for C.A.R. members. They expected that C.A.R. members would disseminate this info to the client directly. I disagree. I want to disseminate this information to those who need to determine whether or not they should call a real estate agent or a lawyer.

I was told that I could provide the document to those who ask, and I can summarize the points. I'm not an attorney, so I don't believe this accomplishes what I set out to do, which was to provide an unbiased overview based on the law. I decided to ask a real estate attorney to review the article and give his opinion and summary of C.A.R.'s article, to which he agreed. I will publish it soon.

NEWS FLASH FOR C.A.R.

Properly educating the public on subjects like these, including the gazillion licensed real estate agents in California, IS A MEMBER BENEFIT. You need to reconsider your position and publish for the consumer any information that will help guide them through the decision making process. Please don't depend on your membership to do this. They are not qualified to do so.

Rep. Charles "Charlie" Rangel , Democrat from New York and Chairman of the House Ways and Means Committee, today introduced  H.R. 3648 to amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income, and for other purposes.

Currently the tax code requires lenders to 1099 a borrower for any debt relief. The IRS then treats this as reported income subject to income tax. This is common with short sales where the lender agrees to take less than what is owed on the property because the sales price doesn't cover what is owed in addition to associated selling costs and any other liens, such as unpaid real estate property tax. The seller avoids foreclosure and an even worse hit to their credit, but now faces a tax bill.

Rep. Rangel refers to this as a "double whammy". His bill would eliminate this double whammy in certain circumstances.

The bill was referred to the House Ways and Means Committee for review.

UPDATE: House Passes Short Sale Related Mortgage Forgiveness Debt Relief

UPDATE: Senate Passes Mortgage Forgiveness Debt Relief Act of 2007

UPDATE: President Bush signs HR 3648, The Mortgage Forgiveness Debt Relief Act of 2007.

*Short Sale and Phantom Tax Debt Relief Overview - an overview of the debt forgiveness portion of the bill.

A frequently heard definition of a short sale goes something like this:

"A short sale occurs when the lender agrees to take less than the full amount required to pay off existing loans in full because the outstanding loan balance is greater than the proceeds realized from the sale of the property."

Like many things in life, simple definitions and answers for complicated issues and questions are not always the best. This is particularly true with issues that involve legal documents, monetary investments and the IRS. Therefore, instead of posturing with my own opinions, I have requested permission to reprint a legal article from the California Department of Real Estate (C.A.R.) that addresses many issues with regard to short sales, deficiency judgments, trustee sales, deed in lieu of foreclosure, and judicial vs non-judicial foreclosures.

In the meantime, I will post the questions addressed in the article.

I.  Lender's Options Upon Borrower’s Loan Default  

Q  1.  What options does a lender have on a debt secured by California real property if the borrower does not make the payments on the loan?

Loan Workout
Deed in Lieu of Foreclosure
Short Sale
Short Payoff
Q  2.  What other options may the lender consider instead of foreclosure when the borrower is delinquent?
Q  3.  What is a deficiency judgment?
Q  4.  Can a real estate lender obtain a deficiency judgment against a defaulting borrower following foreclosure?
Q  5.  Can a lender avoid the foreclosure process and just sue the borrower on the note (i.e., treat it as an unsecured note)?

Q  6.  Why would a lender agree to accept a short sale?

II.  Effect On Borrowers of Short Sales

Q  7.  Does a short sale adversely affect a defaulting borrower's credit rating?

The short answer to this is yes.

Q  8.  Suppose the borrower is late with his/her mortgage payments, causing the lender to begin the foreclosure process by filing a notice of default. Before the foreclosure sale occurs, the borrower pays the lender what is owed on the note. Could these activities appear on the borrower's credit report?

Q   9.  Is the method by which lenders report a short sale a negotiable item?

III.  Disclosure Requirements in Short Sales

Q   10.  Must a real estate transfer disclosure statement be given to a buyer in a short sale transaction?

Q   11.  Must other disclosures be given to a buyer (or seller) pursuant to a short sale?

Q  12.  Suppose a distressed seller enters into a contract to sell his/her home to a buyer pursuant to a short sale. Should the listing agent inform the lender if and when other offers are made on the property?

Q   13.  Should a listing agent working with a distressed seller attempt to negotiate a future listing agreement with the lender?

IV.  Other Issues

Q  14.  Are there any tax effects of a short sale?

Yes.

Q  15.  What is the process for applying for a short sale?

Q  16.  What documentation will a lender typically require?

Typically we lenders ask for the following:

• Hardship letter
• A fully executed purchase contract
• Transfer Disclosure Statement
• Proof of the buyer's ability to purchase the property, i.e., a completed loan application, pre-approval by another lender, or evidence of cash on hand (bank statement);
• Copy of tescrow instructions
• Preliminary title report
• Estimated net/closing statement certified by an escrow officer acceptable to the lender;
• Fully executed IRS Form 4506, "Request for Copy of Tax Form;"
• Tax returns for the last two years
• If employed, past two months pay stubs;
• P&L if self-employed
• The most bank statements going back at least three months

Tomorrow I'll have a follow up to this with answers, or at least legal opinions, that pertain to these questions.

I get asked all the time, "Bob, what advertising works best?"

Fsbo sellers want to know what works that doesn't cost anything, sellers want to know how their listings will be advertised regardless of effectiveness, agents want to know what they should stop wasting their money on, and brokers want to offload the entire issue on agents.

My answer is always the same, regardless of whether we're talking about the San Diego real estate market or Middle America.

"It depends".

It depends on the property, it depends on the price, and it depends on the condition. Some properties warrant just about everything. 

For instance: 

 
Listed for $75 million, "Portobello By The Sea", in Corona By The Sea, has been featured on Oprah. 

Ok, if you have one of the most expensive listings in the U.S., you pull out all the stops.  But what if we are talking about the lower end of the spectrum? How do you decide if photos are enough, or if a virtual tour is justified?

Once again the answer is "It depends".

If we are dealing with the average tract house that doesn't show well, pictures are often the best options. The goal is not to sell the home via the pictures, but pique enough of an interest or curiosity to get a potential buyer to take a first hand look. Sometimes a virtual tour shows to much, particularly if the property isn't likely to win the "Miss Photogenic" award, and can actually serve to eliminate potential buyers.   

However, there are exceptions to that rule. Sometimes the best way to create buzz is to go over the top, and Scottsdale Realtor Matt Pellerin showed me an example of real estate marketing that breaks the traditional rules, but does what is needed - create buzz and draw attention to a property that most real estate agents would find difficult to market.

Sometime a picture really is worth a thousand words. Take a look at Matt's nominee for best marketing of a Phoenix fixer.