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House Bill 1728

Friday, 12 June 2009 15:12

Calling all Investors…

Have you heard about House Bill 1728: Mortgage Reform and Anti-Predatory Lending Act? You need to pay attention to this as it does affect real estate investors and seller financing. Please send this to as many investors as you can. We must get the word out!

It is important to take the time to read the Bill in its entirety (http://m1e.net/c?58809746-84wrfBMr/5LXI%404322480-OK4OwkMt65QKk) and take action NOW if you do not agree with what congress is trying to do. It has passed the House and is now moving onto the Senate.

A quick summary:

The Bill covers several topics surrounding mortgages and specifies duty of care standards for originators of residential mortgages (this includes seller financing).

According to Congressional Research Service just some of the topics include-

·         Directs the federal banking agencies to prohibit or condition terms, acts, or practices relating to residential mortgage loans that are abusive, unfair, deceptive, predatory, inconsistent with reasonable underwriting standards, or not in the interest of the borrower.

·         Subjects a creditor to civil actions for rescission of a residential mortgage loan in the case of specified abuses. Limits the liability of good faith assignees or securitizes of a residential mortgage loan to loan rescission and certain other obligor costs.

·         Prohibits specified practices, including: (1) certain prepayment penalties; (2) single premium credit insurance; (3) mandatory arbitration (except for reverse mortgages); (4) mortgage loan provisions that waive a statutory cause of action by the consumer; and (5) mortgages with negative amortization.

What others are saying:

I have had several people tell me that it is not an issue as the bill is requiring owner financed deals fall within the definition “Truth in Lending” law. The bill also proposes “a person who sells a home is a ‘mortgage originator’ meaning they would need to be in compliance with RESPA. Also, for seller financing the buyer would need to be qualified, meaning you would need to check their credit, debt and income. If you are an upstanding investor then you should not be concerned with these requirements.”

Others are pointing out that the bill must be stopped as it states, “with respect to a residential mortgage loan, a person, state, or trust that provides mortgage financing for the sale of 1 property in any 36 month period, provided that such loan is fully amortizing, is to a sale for which the seller determine in good faith and documents that the buyer has a reasonable ability to repay the loan and has a fixed rate or an adjustable rate that is adjustable after 5 or more years, subject to reasonable annual and lifetime limitations on interest rate increases…”

A colleague of mine, Mike Morrongiello of Bay Area Wealth Builders wrote, “So what does it mean to be "subject to the law"? Well, at the very least, it means that you will have to comply with a long, confusing, and penalty-filled piece of national legislation. Here are the types of transactions that you would be restricted from doing more than once every 36 months:

·         Selling YOUR OWN HOME using a land contract or owner-held mortgage or Trust Deed so that you can get a quicker sale, higher sale price, or better rate of interest than is available in other investments

·         Carrying back owner-held second mortgages on investment properties that you sell

·         Doing any kind of installment sale on residential properties including homes, condos, mobile homes, and even raw land that is zoned residential”

Here are some sample letters that I found floating around.

IF YOU HAVE A REAL ESTATE LICENSE

Dear Senator [name];

                My name is XXXXXXXX XXXXXX and I am a life-long resident of XXXXXXX.

                I am writing you to encourage you to vote NO on HR 1728, the "Mortgage Reform and Anti-Predatory Lending Act".

                While many of the provisions of the act are positive steps toward mortgage reform, the inclusion of private owners in the act (see section 101(3)(e)) will enormously reduce the housing choice of Ohioans and the ability of home owners to sell properties in this already-slow market.

                As a real estate broker, I have seen several dozen cases in the  past year of home sellers and buyers coming to an agreement for an installment sale on a property that the owner desperately needed to sell (often to avoid foreclosure) and the buyer desperately wanted to buy, but could not raise the downpayment needed for conventional financing.

                In all cases, these sales turned out to be win-win deals for the buyer and seller; the seller was able to get rid of an unwanted property to a buyer who loved it, and the buyer was able to get his new home at an affordable payment and interest rates with none of the usual costs (points, application fees etc) inherent in more conventional mortgage transactions.

                In my state; XXXXXX, these transactions are already regulated by state law: a low maximum interest rate is already in place, and both the buyer and seller are protected by other regulations at the state level.

                In defense of private property rights, owners should be exempted from the burdensome and unnecessary rules that this law foists upon them. In its current form, it would all but shut off the "owner financing" market that is the only way that many sellers can sell and many buyers can buy right now.

PLEASE DO NOT LET THIS RESTRICTION ON PRIVATE PROPERTY RIGHTS PASS THE SENATE. It is unnecessary to stop private buyers and sellers from transacting business that is beneficial to both of them-they are not the problem that the bill seeks to solve. HR 1728 would be extremely harmful to thousands of your constituents.

It will exacerbate the problem OF foreclosure, as fewer sellers will be able to sell their homes to avoid it, and CAUSED BY foreclosure, as fewer buyers who have recently experienced foreclosure will be able to re-start the process of home ownership inexpensively and easily by negotiating owner financing.

Thank you for your consideration;

XXXXXXXXX

Licensed Real Estate Broker license #

Phone #

email

****************************************************************

IF YOU SELL HOUSES WITH OWNER FINANCING

Dear Senator [name];

                My name is XXXXX   XXXXX and I am a life-long resident of XXXXXXX.

                I am writing you to encourage you to vote NO on HR 1728, the "Mortgage Reform and Anti-Predatory Lending Act".

                While many of the provisions of the act are positive steps toward mortgage reform, the inclusion of private owners in the act (see section 101(3)(e)) will enormously reduce the housing choice of Ohioans and the ability of home owners to sell properties in this already-slow market.

                As a professional housing provider, I sell several houses each year to home buyers on installment sale [or, if you have not purchased a property, add here: "I had planned to sell several houses this year on installment sale]-a practice that would become impossible under this law in its current form.

I find that in today's slow market, the best way for me to help buyers who desperately want to become homeowners, but who cannot raise the downpayment or meet the other terms needed for conventional financing, is to allow them to make payments directly to me.

                These sales are win-win deals for both the buyer and myself; I am able to turn over homes that I've bought, renovated and rehabbed (often from foreclosures) to buyers who love and can afford them, and the buyer can get his new home at an affordable payment and interest rates with none of the usual costs (points, application fees etc) inherent in more conventional mortgage transactions.

                In my state; XXXXXXX, these transactions are already regulated by state law: a low maximum interest rate is already in place, and both the buyer and seller are protected by other regulations at the state level.

                Without the ability to sell homes in this way, I will no longer be able to invest in and renovate any of the tens of thousands of vacant, ugly houses placed on the market by the foreclosure crisis, and my small-but-beneficial business will literally be in ruins. Perhaps more importantly, the homeowner-buyers that I serve will be forced to rent rather than moving toward the American dream of home ownership.

In defense of private property rights, owners should be exempted from the burdensome and unnecessary rules that this law foists upon them. In its current form, it would all but shut off the "owner financing" market that is the only way that many sellers can sell and many buyers can buy right now.

PLEASE DO NOT LET THIS RESTRICTION ON PRIVATE PROPERTY RIGHTS PASS THE SENATE. It is unnecessary to stop private buyers and sellers from transacting business that is beneficial to both of them-they are not the problem that the bill seeks to solve. HR 1728 would be extremely harmful to thousands of your constituents.

It will exacerbate the problem OF foreclosure, as fewer sellers will be able to sell their homes to avoid it, and CAUSED BY foreclosure, as fewer buyers who have recently experienced foreclosure will be able to re-start the process of home ownership inexpensively and easily by negotiating owner financing.

Thank you for your consideration;

XXXXXXX

Company Name

Phone number

email

*************************************************************   

IF YOU BUY HOUSES WITH OWNER FINANCING

Dear Senator [name];

                My name is XXXXX XXXXX and I am a life-long resident of XXXXXXXX.

                I am writing you to encourage you to vote NO on HR 1728, the "Mortgage Reform and Anti-Predatory Lending Act".

                While many of the provisions of the act are positive steps toward mortgage reform, the inclusion of private owners in the act (see section 101(3)(e)) will enormously reduce the housing choice of the people of XXXXXX and the ability of home owners to sell properties in this already-slow market.

                In the past year, I have purchased and renovated several homes-made possible only  because the sellers of these homes were able to sell to me using owner financing in an unrestricted way.

                For many of these property owners, seller financing was the only way to unburden themselves of an unwanted property that, in some cases, was headed toward foreclosure before I purchased it.

                Without this ability, I can not continue to buy and renovate properties in the neighborhoods that so need me and my colleagues to invest our time, energy, and money in rehabbing properties.  Bank financing is not an option for these properties because of the condition; only financing carried by the sellers will suffice.

                Section 101(3)(e) would keep my sellers from utilizing this method of getting rid of unwanted properties in today's market, should they have more than 1 to sell.

In defense of private property rights, owners should be exempted from the burdensome and unnecessary rules that this law foists upon them. In its current form, it would all but shut off the "owner financing" market that is the only way that many sellers can sell and many buyers can buy right now.

PLEASE DO NOT LET THIS RESTRICTION ON PRIVATE PROPERTY RIGHTS PASS THE SENATE. It is unnecessary to stop private buyers and sellers from transacting business that is beneficial to both of them-they are not the problem that the bill seeks to solve. HR 1728 would be extremely harmful to thousands of your constituents.

It will exacerbate the problem OF foreclosure, as fewer sellers will be able to sell their homes to avoid it, and CAUSED BY foreclosure, as fewer buyers who have recently experienced foreclosure will be able to re-start the process of home ownership inexpensively and easily by negotiating owner financing.

Thank you for your consideration;

XXXXXXXX

Company Name

Phone number

email

**************************************************************

PLEASE TAKE A MOMENT AND READ THE BILL FOR YOURSELF AND DECIDE IF CONGRESS HAS GONE TO FAR.

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GO Zone Deadlines

Monday, 08 June 2009 10:58

GO ZONE EXTENSION and DEADLINES

"As you may already know, the IRS put an extension in place that extended the benefits of the GO Zone out until 2010.  The catch?  Well first of all, the extension ONLY extended the tax benefits of the GO Zone in certain areas.  In certain locations in Mississippi and Louisiana, you can still claim bonus depreciation benefits through 2010.

In Mississippi, the eligible counties are:

• Harrison County;
• River County;
• Hancock County;
• Stone County; and
• Jackson County.

For Louisiana, the list of parishes include:

• Orleans;
• Cameron;
• Plaquemines;
• Calcasieu;
• St. Bernard; and
• St. Tammany.

Note that in Alabama, the GO Zone bonus depreciation and GO Zone benefits are no longer available and already ended back in 2008.

CONFUSION AND CALRIFICATION

Ok, so here is where all the fun starts.  This is the point where I usually get asked “So, if the benefits are extended in (as an example) Gulfport Mississippi until 2010, I have plenty of time, right?”

In short…NO!  The reason for this answer lies in the depths and details of the IRS Code.  I’ll give you both the long and short versions. For those who can’t wait to read the long answer, I will give you the short version first.

THE SHORT VERSION

Basically (following the above example), as long as you put a new unit into rental service by the end of 2010 in Gulfport Mississippi then you will be able to claim GO Zone benefits.  HOWEVER, you will only be able to have the Bonus Depreciation on that portion of the structure that was completed ON OR BEFORE December 31st, 2009.  So if the new home construction was just started and only the foundation was completed by the end of 2009, you would only be able to use that portion of the structure (since you can not depreciate land) that was completed by the end of 2009 for your Bonus depreciation calculation.  In this example, you would only be able to count amount for the foundation in your bonus depreciation calculation.

So here’s an example.  Suppose that you are purchasing new home construction. Specifically, a brick exterior 3/2 1300 s.f. single family home in the Gulfport MS area for say $140,000.  In this example the land is estimated at $20,000.  The first thing that you want to do is calculate the max Bonus Depreciation which you do by first subtracting the value of the land and then take 50% of that. 

Purchase Price:           $140,000
Land:                           $20,000
Total Construction:       $120,000
Bonus Depreciation:   $60,000

If this home was purchased and completed before the end of 2009, then that is exactly what would be on the table; a $60,000 bonus depreciation.

If you did not know the “details of the IRS code” and purchased the same exact home in December (ASSUMING that you would be able to get the same price), then what you could get as a benefit depends on what is completed on the home.  Realistically, if you waited until early December to purchase, you would be lucky to have the foundation completed by the end of the year (given permitting, etc.).

 Completed Construction:  $12,000
 Bonus Depreciation:          $6,000

As you can see, a big difference in savings.

THE LONG VERSION

For those of you who still want proof that the GO Zone benefits are as described above, let’s look at the long version of the answer.  This requires that we dive into the source of the GO Zone benefits - the Internal Revenue Service.  The following link takes you to the IRS Notice 2007-36 entitled “GO Zone Bonus Depreciation Additional Guidance”

http://www.irs.gov/irb/2007-17_IRB/ar12.html

From the above source:

 “.02 Determination of Adjusted Basis Qualifying for the GO Zone Additional First Year Depreciation Deduction.

 (1) Property described in § 1400N(d)(6)(B)(ii)(I) and section 4.01(4)(a) of this notice.

 (a) In general. In the case of GO Zone extension property described in § 1400N(d)(6)(B)(ii)(I) and section 4.01(4)(a) of this notice (GO Zone extension real property), § 1400N(d)(6)(D) provides that the GO Zone additional first year depreciation deduction is available only for the adjusted basis of such property attributable to manufacture, construction, or production before January 1, 2010.”

WHAT THE SMART INVESTORS ARE DOING

Working with lots of real estate investors, I can see what the seasoned investors are doing:

1.  They are making sure that to maximize their GO Zone benefits and Bonus Depreciation that the homes will be completed before the end of 2009;
2.  They are also planning ahead of the “end of the year” rush (will be more so this year give the above time lines) and purchasing early while the quality “deals” are still available;
3.  Along the same lines, they realize what the builders know. That is that the end of the year will bring higher demands and this will facilitate higher prices to get the same tax benefits.  Thus, by purchasing early ahead of the crowds, they not only get a better selection of product to choose from, but also are purchasing at lower prices as well.

CONCLUSION

While the IRS has granted and extension of the GO Zone benefits, they have caused a bit of confusion as to the best way to maximize these benefits for real estate investors.  The bottom line is that if the construction portion of the home is completed by the end of 2009 you will be able to maximize your benefits.  For the smart investor who thinks ahead of the crowd, this means getting into contract early for new constriction to not only ensure completion on time, but also to ensure getting in at great pricing as well."

Information provided by Michael Zari of Investor Properties, LLC 2009

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Giving Back

Wednesday, 03 June 2009 09:00

I watched Oprah the other day, How to Help Those in Need Hero’s, and I connected to one of the stories. Our company purchases DEEP Discounted homes for our clients but I have never forgotten that these houses use to be "homes" for families. The story…A foundation, Foreclosure Angels Foundation, has been established to help those about to loose their home. I have just signed up to volunteer. I hope you can take a moment to go to the website and see if there is any way you can help or donate.

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Let us help you with your Loan Modifications

Wednesday, 13 May 2009 10:00

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Title Insurance and Your LLC

Friday, 08 May 2009 14:09

Title Insurance and your LLC.

"On February 10, 2009, in an alarming case entitled Patrick Man Kee Kwok, et al. v. Transnation Title Insurance Company, an order allowing a title insurance company to deny coverage was affirmed because the property owner, Mr. Kwok, did not obtain an endorsement to the insurance policy when he transferred real property from a limited liability company to his family trust."

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