The Jack Clark Group's Blog

SEBASTIAN BEACH: FORT LAUDERDALE, FL

Sometimes Florida gets a bad rap in the summer months. I know, I know Florida is HOT! Having grown up in Northern California and spending most of my adult life in New York City, I know what a HOT summer feels like. The best thing about our steamy weather is that it usually ends with a nice big tropical thundershower, cooling things immeasurably.

Generally, people feel we do not have enough variation seasonally. While that may be somewhat true, we have seasons, you just have to look a little harder for them. In late spring, early summer our flowering trees come into full bloom. Varieties like Frangipani, (Plumeria or Lei Flower) Royal Poinciana and Jacaranda (to name a few), bring a brilliant, bold collection of color to our tropical cityscape. Just drive through such neighborhoods as Victoria Park, Rio Vista or Coral Ridge, you will get the idea.

The beach is beautiful during the summer months. It’s cooler, always a little breezy and unbelievably warm water temperatures lure us to frolic like kids again in the Atlantic Ocean. Above is a picture that conjures the whole image of what the Fort Lauderdale lifestyle is all about. Relaxed, clean and beautiful. There are many exquisite condominiums and single-family homes within walking distance to this beach.

If you are interested in getting FREE, no obligation information about Fort Lauderdale: please call Jack Clark, Broker Associate or Kenneth Averett, Realtor Associate today at 954-489-3155 or 954-489-3108.

Jack Clark, Broker Associate and Kenneth Averett, Realtor Associate - 

THE JACK CLARK GROUP~ Balistreri Realty will be having a "catered affair" at La Rive condominiums in Fort Lauderdale, Florida. (715 Bayshore Drive).

Please join us for a fantastic lunch catered by SHARON. As always, Sharon whips up a delicious lunch for everyone. We are expecting a nice crowd!

Please come join us on July 16th, 2008.

Jack Clark has been involved in the Real Estate business since 1998. Starting his career in The Fire Island Pines, NY and ending up here in Fort Lauderdale in 2000. He started his career with Balistreri Realty and one year later was named "the rookie of the year". Every year since, Jack has been among the "top producers" company wide. Known for his deep commitment to the changing business and pure integrity, Jack is among the "elite" members of Fort Lauderdale's Real Estate community. Invited into "The Master Broker's Forum" (MBF) in 2004, Jack has participated in many local events that have been sponsered by the forum.

Jack has always been dedicated to continuing education. He has earned his Broker Associate license, Mortgage Broker's license, and currently keeps a active New York State Real Estate license. Among his other designations: ABR (Accredited Buyer's Representitive), e-PRO (Technology Certification Program), SRES (Senior's Real Estate Specialist).

If you have a question about Real Estate, big or small, please do not hesitate to call: 954-489-3155.

Jack and I are back to work after four days, at a great tropical resort not to far from Fort Lauderdale, but a world away. We are rested and ready to get back to work. La Rive Condominium, Fort Lauderdale showings scheduled for next week should keep us busy. Call Jack R. Clark, Broker Associate or Kenneth Averett, Realtor Associate - La Rive Condominium - Fort Lauderdale specialists for all your La Rive Condominium needs.

Great value in unit 704 & PH -04. These are the units to watch.

06-14-08

Getting Loans Approved – Easier Said Than Done

One of the points that I make during my teaching assignments is the delay being experienced in the getting loans approved once the buyer has made on offer. I thought that it would be worth a review of the different types of issues being faced depending on the circumstances of the property.

The few conventional loans that we have seen generally have faced appraisal issues resulting from the Fannie Mae, Freddie Mac and mortgage insurance company changes in implementing their “declining market” policies. Lenders have not consistently implemented these new rules. That coupled with reduced staffs as well as a lesser number of loan programs offered, have added confusion and delays to the process of getting loans through underwriting and approved. As we have previously written, a minimum 60 to 90 day sales contract should be the norm. Refinances of existing loans are facing similar issues.

Short sales face a different set of issues. The extended times in getting short sales to closure are directly tied to the difficulty lenders have in determining who the owner of the property is. The fact that mortgages are generally “pooled and securitized” makes it very difficult in determining the actual owner of the note and getting their approval to changes in the note. Basically, the mortgage servicing system for packaging and selling notes was not setup to deal with these problems. No one anticipated the unraveling of the system. And, with foreclosures increasing in the near future, this problem is going to get more complex.

The preponderance of loans being processed today and for the foreseeable future is FHA loans. FHA, as well as VA loans, does not have the restrictions that the Fannie loans do. However, they have other requirements that you need to be aware of to minimize delays in getting your loans processed.

Jason Kotar, President

Kotar & Associates

Diversity Lending Group, Inc.

VA Loans Revisited

With all of the changes and restrictions that have been introduced by Fannie Mae, Freddie Mac and the Mortgage Insurance companies, the one type of loan program that has not been affected is VA loans. As a matter of fact, VA loans now, with few exceptions, are THE 100 percent financing option available for purchasing a home.

Over the past few years, the proliferation of loan programs available often negated the value of a VA loan. The days of “liar loans” are over. Buyer required documentation of income and assets, increased focus on credit scores and declining market policies implemented by Fannie and Freddie have brought VA loans back into vogue. The VA loan program has stayed the course with its loan requirements. Let’s review some of them.

First, eligibility is generally limited to active and retired military personnel, as well as those who served in the National Guard or Reserves. There are other differences from traditional loan programs. The veteran must plan on occupying the home. The types of properties are limited to certain types: one to four family units; condominiums; town houses; and certain manufactured homes. Full documentation is required on all loans. All income must be proven with W-2’s or, if self employed, with tax returns. Employment records must be verified. Simply put, the VA wants to know that the loan that they are guaranteeing has a higher probability of being repaid. There are two other key differences between conventional loans and VA loans; a Certificate of Eligibility and a VA assigned appraisal. Basically, the VA wants to insure that the loan applicant meets their criteria for being considered for a loan and that the appraisal will fairly reflect its reasonable market value.

There are numerous advantages for a veteran to have a VA loan. With few exceptions, no down payment will be required. In addition, no mortgage insurance premiums will be levied. The buyer has a right to prepay without penalties or to assume an existing mortgage. Seller concessions of up to 4 percent are allowed. Loan amounts are allowed up to $417,000 with high cost areas like Alaska, Hawaii, etc. allowed to $625,500. The applicant is only required to prove assets needed for closing. For disabled veterans, property taxes may be reduced as well as VA funding fees.

The VA does not specifically look at an applicants credit score. They do take a hard look at the last two years of payment history. Any judgments and tax liens must be paid as well as any accounts out for collection. Bankruptcies have to be two years out of discharge. The VA does require a “funding fee” of 2 to 3 percent to be charged for VA loans but, this amount may be rolled into the loan.

One final point, be careful of a VA loan applicant attempting to purchase a foreclosed (short sale) home owned by a Lender. The VA will not approve any repairs to a home prior to the sale to be paid for by the veteran.

I have attempted to cover the main features of the VA loan program. While there are significant differences from traditional loans, the elapsed time to get loans approved and closed, are comparable. The key is to work with mortgage professionals who understand the requirements. With some obvious benefits to your client, ask if they are a veteran during your initial conversation. It may make the difference in their qualifying for a mortgage.

Jason Kotar, President

Kotar & Associates

Diversity Lending Group, Inc.

Loan forgiveness
After the Short Sale: Taxing What Isn't There

Too often, real estate practitioners are unaware of the tax liabilities arising from the cancellation of debt and fail to advise their clients accordingly.

BY LANCE CHURCHILL

You’ve just spent several stressful weeks helping your beleaguered seller negotiate a short sale. You’ve helped demonstrate to the lender that the home’s price has fallen and that to close the deal with the new buyer, the lender will have to forgive $10,000 of the seller’s outstanding mortgage loan not covered by the sale proceeds. But you did it, and now everyone is happy. The buyer gets a home, the lender avoids a messy foreclosure, and the seller walks away with no further financial burdens. Well, not quite.

Whenever real estate is sold, whether in a standard transaction, a short sale or a foreclosure auction, there are potential tax consequences for the seller. In this little scenario, the seller may still owe taxes to Uncle Sam — both in the form of capital gains on the home and on the unpaid portion of the mortgage. Yet, too often, real estate practitioners are unaware of the tax liabilities arising from the cancellation of debt and fail to advise their clients accordingly. Don’t make that mistake with your clients.

How Debt Forgiveness Works

With a short sale, the lender has three possible ways to handle the deficiency balance, which is the portion of the mortgage debt not covered by the sale of the home. First, the lender can attempt to collect the deficiency balance from the seller after the property has closed. Second, the lender may require the seller to sign an unsecured promissory note for the deficiency balance as a condition of agreeing to the short sale. If the new note is for less than the balance of the original debt, the difference would be considered canceled, or forgiven, debt. Third, the lender may agree to cancel the entire deficiency balance.

On the surface, option three would be seem to be the best alternative for a seller. However, the IRS considers any canceled mortgage debt ordinary income. This means that the amount forgiven is taxed at the same rate — somewhere between 15 percent and 30 percent — as the sellers’ salaries. In addition, because the IRS requires the lender to file a 1099-C form stating the amount of the canceled debt, Uncle Sam will have a record of the exact amount of the debt that was cancelled. A seller will also receive a copy of the 1099-C to use in filing income taxes. The seller’s home state would also consider the cancelled debt as ordinary income.

4 Exceptions to the Rule

The IRS does recognize four situations in which cancellation of debt will not result in tax liability for the seller. A seller may avoid tax liability:

• When the borrower receives a bankruptcy discharge and the deficiency was included in the bankruptcy
• When the borrower is insolvent at the time of the cancellation of the debt. Insolvency would occur when a borrower’s liabilities exceed assets. Note that seller would have to prove this insolvency to the IRS when filing a tax return.
• When the debt was secured by a nonrecourse loan. Under a nonrecourse loan, the lender does not have the legal right to collect a deficiency judgment from any assets of the debtor not pledged to secure the loan. While most home mortgages are do not fall into this category, purchase money loans on a person’s residence are nonrecourse in some states.
• When the tax liability from the cancellation of debt on an investment property can be offset against other business liabilities and expenses. This exception does not apply to properties occupied as a residence by the mortgagor.

In many short sales, a seller would be able to qualify under the first two of these exemptions, especially since it was almost certainly necessary to show financial hardship in order to convince the lender to agree to a short sale. However, it is the seller’s responsibility to notify the IRS why the amount in the 1099-C should not be counted as ordinary income. Otherwise, the IRS will consider the forgiven debt as income and penalize the seller for unpaid taxes.

What to Tell Clients

To ensure that your sellers don’t run afoul of the IRS and blame you, you should notify all sellers in writing that they should seek professional tax advice regarding the possible tax consequences of selling their home.

While you certainly don’t want to give specific tax advice, you should also alert short sellers to the basic facts about the tax consequences of short sales. With the current foreclosure crisis in this country, many, including NAR, are working to reverse this law. However, until that time, real estate sales associates must be aware of the potential tax issues for a seller in a short sale.

Editor’s note: The NATIONAL ASSOCIATION OF REALTORS® has long worked to change the tax laws and eliminate this “phantom tax” on income. Currently NAR is supporting the passage of S. 1394, the Mortgage Cancellation Tax Relief Act, which would repeal the law that requires home owners to pay taxes on forgiven debt for their principal residents as part of a short sale or foreclosure. Learn more about this topic at REALTOR.org.