Brian Leavitt, REALTOR®

The Top 10 myths and misunderstandings about refinancing in today’s market..

1. It is just too hard to get a loan. The fact is for some time lending guidelines
   were just too easy. Today's guidelines have moved to a place that really does make sense. Qualified borrowers are finding the process to be reasonable and streamlined. The restrictions that have been put in to place are good for borrowers and for the banks making the loans.
2. I'm waiting for rates to go down. Right now rates are the lowest that they have
   ever been. Although it is possible rates could go down more it is unlikely. The Federal Reserve has indicated that they will be holding rates down for a period of time in order to help stimulate the economy but today's low rates are not going to last forever.
3. Since home values have dropped my loan would be above 80% so I would have mortgage insurance. Many borrowers qualify under the new HARP refinance program. Under HARP guidelines if you do not have mortgage insurance now you would not have it with the new loan. With rates now under 4% it is an amazing time to refi.
4. My credit score is just too low. Your credit score is not the only criteria
   the lender looks at. Often there are compensating factors that can mitigate a low score. For owner occupied homes refinances are available with scores as low as 620.
5. A refinance is just not worth the expense. Maybe true, maybe not. It is a simple calculation to determine the “recapture” time for the refinance. If your payment
   goes down $200 per month and the cost is $2,000 then $2,000 (cost) divided by
   $200 (monthly savings) equals ten months for recapture. If you plan on owning the home more than 10 months then it makes sense. Right now Northstone Mortgage is closing refinance loans with costs averaging in the range of $2,000 including all closing costs. *
6. My debt to income ratio is too high so I think it is likely I won’t qualify. Again
   this is a case by case decision taking into account multiple factors. I am seeing some high debt to income ratio loans get approved but when it makes sense. For example a borrower who is current on all of their obligations and having their monthly housing expense reduced is a “makes sense” loan with a high probability of getting approved.
7. I was on unemployment so my income was interrupted so I don’t think I can qualify. If you are back to work in the same line of work this is easily covered by a simple letter of explanation and a verification of employment from your present employer indicating that continued employment is likely.
8. I don’t want to start over with my loan. Good point. Rates are so low that we are moving many borrowers from 30 year loans to 10 or 15 year loans often without a significant increase in payment. We also offer 20 year loans. Paying your loan off quickly is one of the smartest money moves you can make. Call me anytime for more details on this one including a simple step by step plan to do it.
9. As soon as values come up I am selling so I don’t want to spend the money on a loan that I am paying off soon. Again, good point, however if you are waiting for values to rise it could be a long wait. Goldman Sachs released a report recently indicating that they do not believe we will see house values return to 2006 levels before 2023… that’s not a typo. It goes straight to the recapture question discussed in myth 5 above.
10. I have a second mortgage that I want to keep. I have been told that if I refinance I will have to pay it off and close the account. This one is sometimes true but usually not. Most of the time we can do what is called subordination. The way loans work is that when you close the loan you sign a promissory note which is your promise to pay the loan back and you also sign a deed of trust which is a document that is a lien on your home securing the promissory note. Each deed of trust is in lien priority based upon when it is recorded. When you pay off your existing first mortgage your second mortgage would then become the first lien UNLESS we ask the second lien holder to allow the new mortgage to be in first lien position or “subordinate” to the new first loan.

These are questions and concerns that I have been hearing from borrowers I have been recently serving. If you have questions about your specific situation please let me know. I am pleased to help any way I can. Usually the only way to learn if a refinance is a good idea is for us to “run the numbers.” There is no charge for this service.

*These fees are based on zero point loans with the lender paying the loan origination fee. Call for a free quote based upon your specific needs and situation.

Brian Leavitt

Northstone Mortgage

MLO#114864

Realty Times - Real Estate Outlook: Pending Sales Decline

One of the most frustrating things I am seeing in the market right now is the difficulty in obtaining jumbo financing. With loan limits decreased to $506,000 in King County many home buyers as well as people wanting to refinance to today's low rates are struggling.

Why the declines at all? "America’s monetary policy is contradictory and confusing, where some consumers with the best financial capacity and top-notch credit scores pay higher mortgage interest rates,” Yun said. “The Federal Reserve evidently has been attempting to lower mortgage rates, yet more consumers are faced with taking out jumbo loans that carry higher interest rates.”

Yun noted the need for higher loan limits.

via realtytimes.com

“Wise Buyers” Taking Advantage of Chance to Get Stellar Homes

KIRKLAND, WA, October 5, 2010 – Home sales remained subpar around most of Washington during September, but directors from Northwest Multiple Listing Service say they are encouraged by some positive signs.  

“It’s a slow recovery, but it’s trending in the right direction,” said Joe Spencer, president and COO of John L. Scott Real Estate and a member of the NWMLS board of directors.

Among positive indicators the directors cited were pending sales (“starting to show signs of life”), month’s supply of inventory (pointing toward a more balanced market), stabilizing prices (with more homes being priced competitively), the market adjusting to no more tax credits, and strong sales of “specialty homes.”

Northwest MLS members reported 5,741 pending sales during September across the 21 counties in its service area.  That’s a drop from August (down 4.9 percent) and from the same month a year ago (a decline of 24.3 percent), but an improvement on the total number of mutually accepted offers for May, June and July. 

MLS director Pat Grimm, managing broker at Windermere RE/Capitol Hill in Seattle, reports an upsurge in people looking at properties, particularly move-up buyers. He attributes some of that activity to homes “finally being priced competitively.”   The new pool of potential buyers are “getting their feet wet, but they’re taking their time before they jump in,” he commented.

Prospective buyers have plenty of choices across the price spectrum.  MLS members added 9,038 new listings to inventory during September, bringing the total selection to 42,153 active listings.

Spencer, of John L. Scott Real Estate, said he is encouraged by the month’s supply of inventory at the end of September. “The three-county area of King, Snohomish, and Pierce are reporting about six months of inventory, which is a positive indicator based on the last 30 years of market data.” Historically, the MLS director noted, this points to a more balanced market and stabilizing home prices. “That’s not to say we should expect prices to increase right away, but it’s a positive sign nonetheless, especially when you consider that the national supply of inventory is more than 11 months,” Spencer stated.

“There are many very wise buyers taking advantage of what may be a once-in-a-lifetime opportunity,” said Mike Skahen, whose real estate career spans nearly 30 years.  “We haven’t seen a summer like this in home sales since 1982 when interest rates were hovering around 16 percent,” he observed.

Skahen, the owner and designated broker at Lake & Company Real Estate in Seattle and a member of the NWMLS board of directors, said the buyers they’re seeing have good jobs with Google and Amazon. “They realize they have the chance to get stellar homes in great locations at 25 percent off what they were selling for three years ago and at interest rates approaching 4 percent.  I doubt you’ll see a market and selection better than right now,” he commented.

Skahen said his office just had a $600,000 Green Lake mid-century home sell with four competing offers, and his company was one of three brokerages that presented offers on a $770,000 Ravenna listing, but they were outbid.

“Buyers are snapping up homes in all price ranges that are well located, in good condition, and that are priced fairly,” Skahen reported.

NWMLS members reported 3,997 closed sales during September, down from the same month a year ago, when members notched 5,132 completed transactions.  Year-to-date, the volume is up about 9.8 percent from the first nine months of 2009 (40,318 closings through Sept. 2010 versus 36,714 closed sales through Sept. 2009).

Last month’s closed sales of single family homes and condominiums (combined) had a median price of $257,600.  That’s down about 5.6 percent from the year-ago price (area-wide) of $273,000.  Ten of the 21 counties served by NWMLS reported year-over-year price increases.

“The types of homes that are selling particularly well are specialty homes-- homes that have a unique mix of character and amenities.  It can be a waterfront estate or a Craftsman cottage, but there are qualities about the home that really make it stand out. Those homes are one of a kind and they're never bought on price alone,” said OB Jacobi, general manager of Windermere Real Estate Company.     

“Crazy requirements” are impeding the pace of sales, according to NWMLS director Dick Beeson, broker/owner of Windermere Commencement Associates in Tacoma.  “Agents are finding it’s much more difficult to navigate the closing process than ever before.  If it’s not the conditions of an inspection report, it’s the appraisal coming in off sale price or lenders reviewing and re-reviewing the buyer’s qualifications or buyers rethinking whether or not to buy,” he explained.

Looking ahead, Beeson expects the balance of the year to be “somewhat fickle,” in part because of upcoming elections and lingering uncertainty around the slow pace of the recovery.

“Sellers know they must position themselves better than their competition on all levels – price, condition, terms,” Beeson stated, while noting buyers who procrastinate risk losing purchasing power because of anticipated increases in interest rates. 

“Interest rates below 5 percent are an extraordinary event, and buyers need to take advantage of them,” Beeson emphasized.  A 1 percent increase in the interest rate on a $300,000 mortgage increases the monthly payment by $183, he explained, adding experts expect rate hikes. “It’s not if, it’s when,” he contended.

Northwest Multiple Listing Service, owned by its member brokers, is the largest full-service MLS in the Northwest. Its membership includes more than 24,000 brokers and agents. The organization, based in Kirkland, currently serves 21 counties in Western and Central Washington. 

Statistical Summary by Counties: Market Activity Summary - September 2010

Sept 2010 Single Family Homes + Condos	LISTINGS		PENDING SALES	CLOSED SALES
	New Listings	Total Active	#Pending Sales	# Closings	Average Price	Median Price
King	3789	13,922	2187	1467	$431,968	$349,950
Snohomish	1404	5768	895	615	$296,319	$261,353
Pierce	1355	6108	985	628	$247,080	$220,250
Kitsap	357	1904	283	213	$289,336	$240,000
Mason	115	859	58	53	$215,773	$185,000
Skagit	198	1271	113	87	$237,583	$215,000
GraysHarbor	133	1032	80	52	$152,287	$120,250
Lewis	110	873	65	34	$198,451	$170,450
Cowlitz	125	681	69	62	$170,926	$153,500
Grant	91	674	53	47	$171,691	$165,000
Thurston	432	1932	319	247	$260,034	$233,000
San Juan	30	499	17	13	$520,225	$420,000
Island	138	1081	100	74	$305,948	$254,089
Kittitas	72	577	60	48	$302,325	$233,500
Jefferson	52	613	31	25	$291,275	$240,000
Okanogan	38	452	21	16	$179,589	$171,500
Whatcom	360	2027	256	173	$294,613	$239,900
Clark	46	296	30	42	$246,186	$217,450
Pacific	40	460	38	21	$120,615	$95,000
Ferry	5	57	3	4	$107,500	$115,000
Clallam	67	508	31	35	$231,994	$226,000
Others	81	559	47	41	$226,459	$190,000
MLS TOTAL	9,038	42,153	5,741	3,997	$324,779	$257,600

4-County Puget Sound Region Pending Sales (SFH + Condo combined)
(Totals include King, Snohomish, Pierce & Kitsap counties)

	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
2000	3706	4778	5903	5116	5490	5079	4928	5432	4569	4675	4126	3166
2001	4334	5056	5722	5399	5631	5568	5434	5544	4040	4387	4155	3430
2002	4293	4735	5569	5436	6131	5212	5525	6215	5394	5777	4966	4153
2003	4746	5290	6889	6837	7148	7202	7673	7135	6698	6552	4904	4454
2004	4521	6284	8073	7910	7888	8186	7583	7464	6984	6761	6228	5195
2005	5426	6833	8801	8420	8610	8896	8207	8784	7561	7157	6188	4837
2006	5275	6032	8174	7651	8411	8094	7121	7692	6216	6403	5292	4346
2007	4869	6239	7192	6974	7311	6876	6371	5580	4153	4447	3896	2975
2008	3291	4167	4520	4624	4526	4765	4580	4584	4445	3346	2841	2432
2009	3250	3407	4262	5372	5498	5963	5551	5764	5825	5702	3829	3440
2010	4381	5211	6821	7368	4058	4239	4306	4520	4350

__________
Copyright © 2010
ALL RIGHTS RESERVED
This material may not be published, broadcast, rewritten or redistributed without prior permission.

Reprinted with permission of NWMLS

Bye Bye Bank of America Wholesale Lending

 

Bank of America announced today that it plans to exit the wholesale mortgage lending business.  They state that as part of their “customer driven” business model they have decided to focus on opportunities to “deepen our relationships with existing Bank of America customers" and to offer responsible and competitive mortgage products to new customers.  “By responsibly exiting our relatively low market share" (22%) “in the highly diversified wholesale mortgage market.  We can redirect critical operational resources to enhance capabilities for consumers to purchase or refinance homes” 

So let me get this straight, they think that by limiting distribution of their mortgage products they can somehow help consumers?  It seems to me that by limiting access to product they are directly opposing what is in the best interest of consumers. 

We have seen this before.  In Washington Mutual's “glory days", that is the years before the whole mortgage meltdown, we watched Washington Mutual move in and out of wholesale lending time and time again.  Interestingly enough their most profitable years coincided with the years that the majority of the loans they originated were through their wholesale lending relationships.  We certainly wish Bank of America best success in this endeavor, after all it is a free country so why not put the squeeze on consumers if you can.  Brokers, do not worry, they will be back.  In the meantime, Bank of America is not the only game town

This blog was written by Brian Leavitt, Designated Broker of Northstone Real Estate Inc, and Northstone Mortgage.

Brian serves clients within the Northwest Multiple Listing Service. And specializes in residential re sale homes, condo’s and land, and is uniquely qualified as a short sale negotiator holding both real estate and mortgage licenses.

You can contact Brian directly by phone at 800-806-3145 or by email at brian@northstone.net.  Click here to view his client newsletter.

Brian is licensed with the Washington State Department of Licensing and the Washington State Department of Financial Institutions License number MLO-114864 and is a member of the Seattle King County Association of Realtors and Northwest Multiple Listing Service.

Listening to silence

It just occurred to me that I am not hearing the same thing day in and day out about the real estate crash.  It's been pretty quiet and I think, at least in this market, the crash has come to a stop, no more grinding crunch and tinkling glass, just silence.  Popping my head up and taking a look around I am seeing a lot of pending sales posted.  Just a few weeks ago buyers could take their sweet time looking and looking at homes with  a reasonably safe expectation that the home they loved yesterday will still be there tomorrow.  Not so today.  The good homes are selling fast.  It will be very interesting to see the April numbers but maybe, just maybe we are at the bottom at least in the Puget Sound. 

If you have been waiting for the bottom you won't really know for sure until the bottom is past and prices are heading up so if you have been waiting I suggest that you consider hopping off the fence and getting in the market.  Rates are still around 4.5% on the 30 year fixed and low down payment loans are available.  If you are a first time buyer don't forget about the $8,000 tax credit.  Just remember, they may never be a better time to buy.

by Brian Leavitt Northstone Real Estate, Inc.

Brian Leavitt is a Licensed Real Estate Broker and a Licensed Mortgage Broker representing  Northstone Real Estate Inc and Northstone Mortgage.

Brian Serves clients within the Northwest Multiple Listing Service.

You can contact Brian directly by phone at 425-837-4700 or toll free at 800-806-3145 or by email at broker@northstone.net

Click here to see Brian's client newsletter.

Brian is licensed by the Washington State Department of Licensing and the Washington State Department of Financial Institutions License number 510-MB-19802 and is a memberr of the Seattle King County Association of Realtors and Northwest Multiple Listing Service.

Check your data before going out on a limb

A report this week issued by an Eastside Housing Coalition stated:

"I recently discovered that of the 114 houses on the market in Sammamish, 111 are in foreclosure.  The houses in foreclosure are nearly 1% of the entire Sammamish housing stock.  I don't have the statistics for Issaquah or other neighboring communities, but I do know there are a lot of people out of work who are running through their savings and starting to feel desperate."  The context of this statement is that if no intervention is available many of these families could end up homeless.  Problem is that the data is in error.  Foreclosure is a problem but not at the level reported.  As of this writing the numbers in Sammamish are as follows:

According to King County records there are 12,720 residential properties in the city of Sammamish.  As of 3/23/2009 433 are presently for sale or in escrow.  Of these 16 are bank owned which means they were acquired by the bank in a foreclosure sale or were transferred by the owner instead of a foreclosure.  There are 42 properties that have a notice of pending foreclosure filed with King County records against them.  This means that .00330% of the housing stock is in foreclosure.  .0969% of the homes for sale are in foreclosure.

I am not sure where the data was generated in the statement from the housing coalition but it is always wise to check your sources.  We all agree that foreclosure is a significant problem but it is not as large a problem as many people think.  In negotiating a short sale for a client this morning I was pleased to learn that the bank I am dealing with has created a division entirely devoted to negotiating alternative options for borrowers to avoid foreclosure.  The bank representative said that they are actively pursuing options to help people stay in their homes.  If that is not an option they will work with the borrower to assist in a transition to helm them into alternative housing.  If you are concerned about losing your home or if you know someone who is let us know.  We can help.  Refer to last weeks article regarding who is authorized by the Department of Financial Intuitions to assist in loan modifications and short sales in Washington.

by Brian Leavitt Northstone Real Estate, Inc.

Brian Leavitt is a Licensed Real Estate Broker and a Licensed Mortgage Broker representing  Northstone Real Estate Inc and Northstone Mortgage.

Brian Serves clients within the Northwest Multiple Listing Service.

You can contact Brian directly by phone at 425-837-4700 or toll free at 800-806-3145 or by email at broker@northstone.net

Click here to see Brian's client newsletter.

Brian is licensed by the Washington State Department of Licensing and the Washington State Department of Financial Institutions License number 510-MB-19802 and is a memberr of the Seattle King County Association of Realtors and Northwest Multiple Listing Service.

Understanding The Credit Crisis

The link below is to an article that is the best explanation of the credit crisis that I have seen thus far.  In a word it is an essay, including all associated charts and graphs, on greed and the downfall of the economic system.

An Overview of the Housing/Credit Crisis And Why There Is More Pain to Come

 Here is the table of contents:

1. Overview of the Great Mortgage Bubble Page 3

2. Causes of the Great Mortgage Bubble Page 11

3. Consequences of the Bursting of the Great Mortgage Bubble Page 18

4. The Outlook for Home Prices is Grim Page 28

5. Economic Weakness Creates an Additional Headwind for Home PricesPage 43

6. There Are Only a Few Bits of Good News Page 51

7. What Does the Future Hold? Page 57

8. A Primer on Option ARMs Page 61

9. A Primer on HELOCs and Closed-End Seconds Page 68

10. A Closer Look at Mortgage Loans That Were Securitized:

Quantity and Quality Page 73

11. A Closer Look at Mortgage Loans That Were Securitized: Defaults Page 86

12. Where Did the Securitized Mortgages End Up?

A Primer on ABSs and CDOs Page 106

13. The Opportunity in Distressed Debt Page 115

Brian Leavitt Northstone Real Estate, Inc.

Brian Leavitt is a Licensed Real Estate Broker and a Licensed Mortgage Broker representing  Northstone Real Estate Inc and Northstone Mortgage.

Brian Serves clients within the Northwest Multiple Listing Service.

You can contact Brian directly by phone at 425-837-4700 or toll free at 800-806-3145 or by email at broker@northstone.net

Click here to see Brian's client newsletter.

Brian is licensed by the Washington State Department of Licensing and the Washington State Department of Financial Institutions License number 510-MB-19802 and is a memberr of the Seattle King County Association of Realtors and Northwest Multiple Listing Service.

Mortgage Debt Relief Act of 2007

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

Publication 4681

, Canceled Debts, Foreclosures,

Repossessions, and Abandonments. Also see IRS news release

IR-2008-17

.

The following are the most commonly asked questions and answers about The Mortgage Forgiveness Debt Relief Act

and debt cancellation:

What is Cancellation of Debt?

If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their

principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with

a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible

for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to

services performed for the lender or any other reason not directly related to a decline in the home’s value or the

taxpayer’s financial condition.

More information, including detailed examples can be found in

If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to

include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the

money you were not required to include the loan proceeds in income because you had an obligation to repay the

lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable

as income because you no longer have an obligation to repay the lender. The lender is usually required to report the

amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is

unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable

income to you.

Is Cancellation of Debt income always taxable?

Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable

involve:

Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of

2007 and applies to most homeowners.

Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.

Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable

to you. You are insolvent when your total debts are more than the fair market value of your total assets.

Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the

prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending,

your cancelled debt is generally not considered taxable income.

Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to

repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in

case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation

of debt income. However, it may result in other tax consequences.

These exceptions are discussed in detail in Publication 4681.

What is the Mortgage Forgiveness Debt Relief Act of 2007?

The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release

IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the

mortgage, or foreclosure on your principal residence.

What does exclusion of income mean?

Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable.

But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence

from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a

foreclosure, qualifies for the relief.

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?

No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal

residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is

known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal

residence indebtedness is $2 million or $1 million if married filing

separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?

Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old

mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see

Publication 4681.

How long is this special relief in effect?

It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.

Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from

income?

There is no dollar limit if the principal balance of the loan was less than $2 million ($1 million if married filing separately

for the tax year) at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the

detailed example in Publication 4681.

If the forgiven debt is excluded from income, do I have to report it on my tax return?

Form 982

and this form must be attached to your tax return.

Do I have to complete the entire Form 982?

Yes. The amount of debt forgiven must be reported on

No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used

for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If

you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the

result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of

your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence

indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.

Where can I get this form?

If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at

IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery.

How do I know or find out how much debt was forgiven?

Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or

cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box

2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.

Can I exclude debt forgiven on my second home, credit card or car loans?

Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt

incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details.

If part of the forgiven debt doesn't qualify for exclusion from income under this provision, is it possible that it

may qualify for exclusion under a different provision?

Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven

debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total

assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding

or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify

for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions

and includes examples.

I lost money on the foreclosure of my home. Can I claim a loss on my tax return?

No. Losses from the sale or foreclosure of personal property are not deductible.

If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt?

Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have

cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally

issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude

part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately

before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the

cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster

area. See Form 982 for details.

If the remaining balance owed on my mortgage loan that I was personally liable for was canceled after my

foreclosure, may I still exclude the canceled debt from income under the qualified principal residence

exclusion, even though I no longer own my residence?

Yes, as long as the canceled debt was qualified principal residence indebtedness. See Example 2 on page 13 of

Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

Will I receive notification of cancellation of debt from my lender?

Yes. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more.

The amount cancelled will be in box 2 of the form.

What if I disagree with the amount in box 2?

Contact your lender to work out any discrepancies and have the lender issue a corrected Form 1099-C.

How do I report the forgiveness of debt that is excluded from gross income?

(1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness

(and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter the amount of the

discharged debt excluded from gross income on line 2. Any remaining canceled debt must be included as income on

your tax return.

(2) File Form 982 with your tax return.

My student loan was cancelled; will this result in taxable income?

In some cases, yes. Your student loan cancellation will not result in taxable income if you agreed to a loan provision

requiring you to work in a certain profession for a specified period of time, and you fulfilled this obligation.

Are there other conditions I should know about to exclude the cancellation of student debt?

Yes, your student loan must have been made by:

(a) the federal government, or a state or local government or subdivision;

(b) a tax-exempt public benefit corporation which has control of a state, county or municipal hospital where the

employees are considered public employees; or

(c) a school which has a program to encourage students to work in underserved occupations or areas, and has an

agreement with one of the above to fund the program, under the direction of a governmental unit or a charitable or

educational organization.

Can I exclude cancellation of credit card debt?

In some cases, yes. Nonbusiness credit card debt cancellation can be excluded from income if the cancellation

occurred in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See the

examples in Publication 4681.

How do I know if I was insolvent?

You are insolvent when your total debts exceed the total fair market value of all of your assets. Assets include

everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other investments, or

your pension and other retirement accounts.

How should I report the information and items needed to prove insolvency?

Use Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to

exclude canceled debt from income to the extent you were insolvent immediately before the cancellation. You were

insolvent to the extent that your liabilities exceeded the fair market value of your assets immediately before the

cancellation.

To claim this exclusion, you must attach Form 982 to your federal income tax return. Check box 1b on Form 982, and,

on line 2, include the smaller of the amount of the debt canceled or the amount by which you were insolvent

immediately prior to the cancellation. You must also reduce your tax attributes in Part II of Form 982.

My car was repossessed and I received a 1099-C; can I exclude this amount on my tax return?

Only if the cancellation happened in a title 11 bankruptcy case, or to the extent you were insolvent just before the

cancellation. See Publication 4681 for examples.

Are there any publications I can read for more information?

Publication 4681

, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) is new and

addresses in a single document the tax consequences of cancellation of debt issues.

(2) See the IRS news release

IR-2008-17

with additional questions and answers on IRS.gov.

Page Last Reviewed or Updated: January 12, 2009

Yes.

(1)

Housing Rescue Plan Details

The Obama administration today spelled out details of a plan that would pay lenders to refinance or lower monthly payments on mortgages for homeowners who qualify.  This program is designed to help up to 9 million homeowners stay in their homes.  The plan is in response to the slump in home prices that began in 2007 and has led to massive foreclosures nationwide and is the root of the worst economic crisis since the Great Depression.

MSNBC reports that Treasury Secretary Timothy Geithner says.  "It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets."  Geithner provided many details of the plan which was originally announced on February 18.  For borrowers who qualify, their interest rates could drop as low as 2% or their loan could be extended for as much as 40 years.  The lender has the option to forebear principle for borrowers whose homes are worth less than their loan amounts.  The program aims to reduce monthly payments to no more than 31% of the borrower's gross monthly income.  In order to qualify for financial incentives of as much as $4500 to modify a loan, mortgage servicers will have to agree to follow strict guidelines established by the Treasury Department, according to MSNBC.  Other details include guidelines that only allow borrowers to have their loans modified once and the program only applies to first lien loans made on January 1, 2009 or earlier.  Some of the details are still in the process of being ironed out and treasury officials indicate that the program will only be available to responsible homeowners who did not buy more home than they can afford. 

As final program details are announced, we will be posting them here.  If you or someone you know is in need of loan modification, or is considering selling their property, especially in a short sale situation, please contact us, we can help.

The Market is What?

Showing homes this weekend I was somewhat surprised when my client asked me "what really is wrong with the market"? After a long thought I told him, perception. This is a difficult time for many people but people are still moving. They are still buying and selling homes. They are still investing in real estate. They still get married and divorced, they are transferred, their families get bigger and they get smaller. People still move. For this client it's a great time to buy. There are some excellent values available and interest rates remain below 5%. There is some concern that we don't know how low home prices will go, but in the meantime people still need a roof over their heads. The stimulus package includes an excellent opportunity for first time buyers with the $8,000 tax credit. The problem with waiting until the bottom of the market is that no one really knows where it is. We will only discover the bottom once the opportunity has passed. So there is no time like the present.

Choose to focus on the positive. One of my mentors once told me "you are six inches away from success" meaning that the six inches that separate your ears is really about your mental attitude. A positive mental attitude leads to enthusiasm and enthusiasm sells. I am not for a minute suggesting that we should be "whistling in the dark", pretending that there are no challenges or problems in this market. What I am saying is that if you want to sell property talk to people that are interested in buying and selling property and tell them the benefits of the market we are in so that they have options. Don't just give in to the media who would like us all to believe that the end of the world is at hand. It's not, at least not for a while. In the meantime, what are we doing to make our clients lives better? What we doing to address our clients' needs? Trust me, they can get all the negative attitude they want just by turning on the news. As for me, I choose to be a positive influence and help my clients find the benefits and succeed in achieving their goals and aspirations..