Eisrael Gomez Realtor - Monterey County Blog

Sorry it's been so long since I have posted here!  I usually post via facebook.  user:  Eisrael Gomez

Here is an interesting article I saw in the Fresno Bee. Just confirms once again.  Always speak with both your attorney and CPA before proceeding with a short sale.  Enjoy!

SACRAMENTO -- Accountants say rising numbers of California taxpayers who did short sales or received loan modifications in 2009 now fear they will be walloped anew by a cash-starved state government intent on taxing their forgiven debt.

It's impossible to ease the fears or specifically answer many questions, these accountants say.

"We've had quite a few clients fall into that category," said Jennifer Neronde, office manager at Rocklin-based Cramer and Associates CPA.

Uncertainty reigns with less than six weeks before the April 15 filing deadline because the forgiven debt question has gotten caught up in a larger tussle over business taxes between the Legislature and Gov. Arnold Schwarzenegger.

It's headed for a Capitol showdown this week.

Monday, the Assembly is scheduled to vote on SB32 X8, a bill by Sen. Lois Wolk, D-Davis, that would ban the state from taxing mortgage debt forgiven in 2009.

But Schwarzenegger is threatening to veto the bill over an obscure clause opposed by business groups. That clause establishes new tax penalties on firms that file unfounded claims for refunds.

Business associations believe it will unfairly punish them for tax withholding decisions they claim are difficult to calculate. The clause, along with forgiven mortgage debt, is among dozens in the bill to align California's tax codes with federal codes.

The governor wants the business penalty provisions stripped from the bill, said his spokesman Mike Naple.

"The governor would prefer that the provision be taken out of the bill and addressed in separate legislation," Naple said.

The state gave homeowners who occupied their homes a pass on forgiven mortgage debt in 2007 and 2008.

The federal government, meanwhile, has backed off on taxing forgiven mortgage debt through the end of 2012.

In the past, both branches of government treated forgiven debt as taxable income.

In a short sale, for instance, a lender might accept a sales price of $200,000 on a home where it's owed $325,000. The $125,000 left unpaid is classified as forgiven debt, which used to qualify as new taxable income.

The Bush administration, backed by the real estate industry, blocked the IRS from taxing forgiven debt in 2007.

It's a temporary measure to encourage borrowers to call lenders and negotiate alternatives to foreclosure.

In many cases, borrowers try short sales after they fail to get loan modifications, say real estate agents like Larry Henderson, of Prudential Norcal Realty in Carmichael. He said he gets frequent questions about the complicated tax implications of short sales.

"I make it clear to my clients they should talk with a lawyer or a CPA," he said.

"I've made over a dozen offers and I still don't have a home!" 

Comments like this are becoming very commonplace among many Monterey County Buyers.  Investors, first time buyers and other bargain hunters are putting pressure on moderately priced homes in Monterey County.  Here are few suggestions that I hope help:

1)  If you have an FHA, VA or USDA loan, consider increasing your down payment amount.  Many of these 0 down or 3.5% down offers are passed up for buyers with larger downpayments.  If there's a resonable cash offer on the table you may be sunk, but it doesn't hurt trying especially if you are offering asking or above.

2)  Check your deposit amount.  Is your deposit amount reasonable?  Try at least 1 to 5% of the purchase price. 

3)  Are you asking for repairs?  If it's a foreclosure or short sale, it is unlikely there will be any repairs other than the ones already completed (if any) by the seller. 

4) Inspections & Reports.  You can ask for them, but only the ones required by law will most likely be completed by the seller.

5) Contingency removal periods.  Are you still asking for the traditional 17 days from years ago.  Change that to 7 or 10 days as most appraisals and inspections can be completed well within that time frame.

6) Sales price?  Make your offer a current market price offer.   Just because a property is listed above or below market value does not mean it will sell for that.  Be sure to do your homework and offer as close to the fair market as possible.  We do have properties in the last 30 days closing 5 to 10% above asking in some areas so check with your attorney and or your Realtor when making this or any decision regarding real estate.

These are just a few tips and I hope they help. If you have others, I would love to hear them! Feel free to call with any questions. Now, go buy a home today!

Eisrael Gomez

(831) 809-8266

courtesy of THE WALL STREET JOURNAL

WWW.WSJ.COM

By Nick Timiraos

Why are so many homeowners underwater on their mortgages?

In crafting programs to prevent foreclosures, policymakers have assumed that the primary reason homeowners owe more on their home than it is worth is that they bought at the top of the market. In other words, they’ve lost equity primarily through forces beyond their control.

A new study challenges this premise and finds that excessive borrowing may have played as great a role.

Michael LaCour-Little, a finance professor at California State University at Fullerton, looked at 4,000 foreclosures in Southern California from 2006-08. He found that, at least in Southern California, borrowers who defaulted on their mortgages didn’t purchase their homes at the top of the market. Instead, the average acquisition was made in 2002 and many homes lost to foreclosure were bought in the 1990s. More than half of all borrowers who lost their homes had already refinanced at least once, and four out of five had a second mortgage.

The original loan-to-value ratio for these borrowers stood at a reasonable 84%, but second and third liens left homeowners with a combined loan-to-value ratio of about 150% by the time of the foreclosure sale date.

Borrowers, meanwhile, took out around $2 billion in equity from their homes, or nearly eight times the $262 million that they put into their homes. Lenders lost around four times as much as borrowers, seeing $1 billion in losses.

“[W]hile house price declines were important in explaining the incidence of negative equity, its magnitude was more strongly influenced by increased debt usage,” writes Mr. LaCour-Little. “Hence, borrower behavior, rather than housing market forces, is the predominant factor affecting outcomes.”

If other housing markets across the country offer similar findings, then the study argues that current “policies aimed at protecting homeowners from foreclosure are misguided” because lenders, and not borrowers, have born the lion’s share of economic losses.

Borrowers that bought homes without ever putting any or little equity in their homes could have seen huge returns on investment simply by extracting cash through refinancing. “Why such borrowers should enjoy any special government benefits such as waiver of the income taxation on debt forgiveness or subsidized loan modifications to reduce their borrowing costs is at best unclear,” the authors write.

The average length of unemployment is higher than it's been since government began tracking the data in 1948.

By MORTIMER ZUCKERMAN

The recent unemployment numbers have undermined confidence that we might be nearing the bottom of the recession. What we can see on the surface is disconcerting enough, but the inside numbers are just as bad.

The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

Here are 10 reasons we are in even more trouble than the 9.5% unemployment rate indicates:

David Klein

- June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.

- More companies are asking employees to take unpaid leave. These people don't count on the unemployment roll.

- No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn't searched for work in the four weeks preceding the survey.

- The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

- The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

- The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.

- The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.

- The goods producing sector is losing the most jobs -- 223,000 in the last report alone.

- The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.

Job losses may last well into 2010 to hit an unemployment peak close to 11%. That unemployment rate may be sustained for an extended period.

Can we find comfort in the fact that employment has long been considered a lagging indicator? It is conventionally seen as having limited predictive power since employment reflects decisions taken earlier in the business cycle. But today is different. Unemployment has doubled to 9.5% from 4.8% in only 16 months, a rate so fast it may influence future economic behavior and outlook.

How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent? For a start, too much of the money went to transfer payments such as Medicaid, jobless benefits and the like that do nothing for jobs and growth. The spending that creates new jobs is new spending, particularly on infrastructure. It amounts to less than 10% of the stimulus package today.

About 40% of U.S. workers believe the recession will continue for another full year, and their pessimism is justified. As paychecks shrink and disappear, consumers are more hesitant to spend and won't lead the economy out of the doldrums quickly enough.

It may have made him unpopular in parts of the Obama administration, but Vice President Joe Biden was right when he said a week ago that the administration misread how bad the economy was and how effective the stimulus would be. It was supposed to be about jobs but it wasn't. The Recovery Act was a single piece of legislation but it included thousands of funding schemes for tens of thousands of projects, and those programs are stuck in the bureaucracy as the government releases the funds with typical inefficiency.

Another $150 billion, which was allocated to state coffers to continue programs like Medicaid, did not add new jobs; hundreds of billions were set aside for tax cuts and for new benefits for the poor and the unemployed, and they did not add new jobs. Now state budgets are drowning in red ink as jobless claims and Medicaid bills climb.

Next year state budgets will have depleted their initial rescue dollars. Absent another rescue plan, they will have no choice but to slash spending, raise taxes, or both. State and local governments, representing about 15% of the economy, are beginning the worst contraction in postwar history amid a deficit of $166 billion for fiscal 2010, according to the Center on Budget and Policy Priorities, and a gap of $350 billion in fiscal 2011.

Households overburdened with historic levels of debt will also be saving more. The savings rate has already jumped to almost 7% of after-tax income from 0% in 2007, and it is still going up. Every dollar of saving comes out of consumption. Since consumer spending is the economy's main driver, we are going to have a weak consumer sector and many businesses simply won't have the means or the need to hire employees. After the 1990-91 recessions, consumers went out and bought houses, cars and other expensive goods. This time, the combination of a weak job picture and a severe credit crunch means that people won't be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so. The paycheck has returned as the primary source of spending.

This process is nowhere near complete and, until it is, the economy will barely grow if it does at all, and it may well oscillate between sluggish growth and modest decline for the next several years until the rebalancing of excessive debt has been completed. Until then, the economy will be deprived of adequate profits and cash flow, and businesses will not start to hire nor race to make capital expenditures when they have vast idle capacity.

No wonder poll after poll shows a steady erosion of confidence in the stimulus. So what kind of second-act stimulus should we look for? Something that might have a real multiplier effect, not a congressional wish list of pet programs. It is critical that the Obama administration not play politics with the issue. The time to get ready for a serious infrastructure program is now. It's a shame Washington didn't get it right the first time.

Mr. Zuckerman is chairman and editor in chief of U.S. News & World Report.

Again buyer's be patient!  We will be seeing more homes soon. -eisrael gomez