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New Home Buyer Tax Credit Law Explained

Matt — Thu, 16 Jul 2009 16:13:46 +0000

GUEST POST FROM MICKEY BROOKS-

Matt,

Thanks for letting me respond to this question for you and your blog readers.

First, the disclaimer – I am not a tax expert so the client should refer to a qualified accountant or CPA regarding their particular situation.

But, here is the exact text of an answer to the same question from the National Association of Home Builders. I had this at hand because I just got the same question from 2 of my clients yesterday. I discussed this with a couple of local CPA’s and they say the tax law specifically allows for the description of the use of the credit as described below. I am waiting for them to supply me the text of the tax code that addresses this.

Q – What is the definition of a first-time home buyer?
A – The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. So, it is very clear for married buyers.

For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit.

However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter, or an unmarried couple wishes to purchase a home together and one of them has owned a home in the past three years. In the unmarried couple’s case, the partner who has not owned a home in the last three years would file as a single taxpayer and have their partner allocate the credit to them.

Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

Best regards, and thanks for all you do…

Mickey Brooks
Mortgage Planner
JLB Mortgage Group
11769 Whisper Bay Ct
Carmel, IN 46033
317.218.0283 (Office)
317.218.0291 (Fax)
888.249.4003 (Toll Free)
mbrooks@jlbmortgagegroup.com
www.jlbmortgagegroup.com

Removing Liens From Real Estate

Matt — Tue, 19 May 2009 17:57:00 +0000

A Question From One of Matt’s Readers-

“I am a mortgage banker. I am doing a streamline refinance for a customer of mine. We are refinancing with the same investor he refinanced his loan with 2 years ago. Since then he has had a lien put on his property. he is making payments on this lien. What will the investor need to satisfy the transfer of title?”

Matt’s Answer-

I don’t have all the facts I might need, so I am going to make some assumptions. If my assumptions are wrong, let me know. I’ll change my answer, if the new facts make a difference.

I assume that the lien holder is not the investor. I am not sure what you mean by “What will the investor need to satisfy the transfer of title?” I assume that your questions concern how to complete the refinancing of this property, because the first financing obligation is now due and must be repaid.

If the investor holds a first mortgage and that mortgage is superior to the lien, I would simply extend the term (time period) and modify the provisions of the existing note or whatever other financing mechanism was used for the first financing. Read the mortgage, if it exists, to make sure that it contemplates loan extensions, renewals, etc. Make sure the mortgage is recorded. And make sure the mortgage has priority over the lien. These are things that will protect the investor, which should make the refinancing easier to complete.

If there is no mortgage and/or the lien has priority, I would need much more information to determine whether the lien poses a significant threat to the investor. If the investor is not comfortable with the risks the investor is taking in refinancing your client’s transaction/property, then you’ve not created a win-win scenario. By helping the investor, you’re helping your client. All good deals are win-win deals.

I only believe in win-win deals. If one party to an agreement or transactions is treated unfairly, then that is a bad deal. Lawyers are the only ones who get rich trying to resolve, correct, undo or fix bad deals. So, strive to create only win-win transactions and business relationships.

Finally, consult with a local attorney. I’ve discussed general concepts here that might be impacted by state or local law. I think you’re in Georgia. If you need help finding a good lawyer in Georgia, please let me know. I’ll try to help you with that.

I hope this helps. Thanks for the question.

Fannie Mae’s Home Path Program Permits Investment Real Estate Deals

Matt — Sat, 09 May 2009 14:12:00 +0000

There is still a way to purchase investment property, other than with cash, by buying subject to an existing mortgage, or via a land contract. I sat down with Mortgage Planner, Mickey Brooks, recently and learned about the Home Path mortgage program. Mickey is one of the best mortgage planners I have ever met. I am really impressed with Mickey’s command of mortgage programs and lending rules, and asked him for a guest blog. He sent me a summary of the Home Path program in the form a letter to his clients. I am posting Mickey’s letter here. Enjoy.

– Matthew A. Griffith, J.D.

Mickey Brooks, Mortgage Planner

JLB Mortgage Group

11769 Whisper Bay Court

Carmel, Indiana 46033

317.218.0283 (Office) 317.679.3501 (Cell)

mbrooks@jlbmortgagegroup.com

Saturday, May 02, 2009

“Dear Valued Partner,

As we enter 2009, the crisis in the financial markets seems to be the top story on every news channel. But many of the reporters and so-called pundits don’t understand what really happened, what’s happening today…and what may happen next.

That’s why I’m excited to tell you about a series of articles I’m creating to put an end to the confusion once and for all! In these easy-to-understand articles, with help from many resources, I explain in layman’s terms exactly what caused the current financial crisis, what the almost daily news reports really mean – and what to be watching for in the near future.

The content for these articles comes from various services that I have invested in to stay up to date and educated, in order to always best serve as your trusted advisor. It’s important to me to stay on the leading edge as a professional, and when I saw these resources, I wanted to make them available to you as well.

I’ll attach basic stories behind the crisis for your review, to help you better understand what happened, why, and where we’re going from here. The few minutes you spend reading them will open your eyes to what very few experts truly understand.

As your trusted advisor, I’m committed to doing whatever I can to help you understand what the current economic situation means for you going forward in 2009. Give me a call if you want to discuss strategies for strengthening your financial future in the weeks and months ahead.

Mickey Brooks

Fannie Mae HomePath Financing Program

Fannie Mae has just released a new program called HomePath^® to help consumers buy and finance many of their REO properties. All FNMA REO properties are not eligible for HomePath financing. Only those properties listed at the following web site www.homepath.com with the HomePath logo

qualify for this program.

Fannie Mae HomePath^® Mortgage Financing

The benefits include:

Low down payment and flexible mortgage terms (fixed-rate, adjustable-rate, or interest-only)

You may qualify even if your credit is less than perfect

Available to both owner occupiers and investors (Primary, Secondary, Investment)

Down payment (at least 3 percent) can be funded by your own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer (2% Seller Maximum)

No mortgage insurance

No appraisal fees

Also eligible for HomePath Renovation Mortgage (see details below) (Primary Residence Only)

HomePath^® Renovation Mortgage Financing

This special financing is available on Fannie Mae homes with the following logo:

Available only on homes you make your primary residence and offers these benefits:

Financing to fund both your purchase and light renovation.

Low down payment and flexible mortgage terms (fixed-rate or adjustable-rate).

Down payment (at least 3 percent) can be funded by your own savings; a gift; a grant; or a loan from a nonprofit, state or local government, or employer.

No mortgage insurance.

Renovation funds are borrowed as part of the purchase financing and held in escrow until the renovations are completed.

Renovation Costs limited to 20% of the “as repaired or completed” value or $30,000, whichever is less, and renovations must be completed within 3 months of closing.

About Fannie Mae Homes

· Why does Fannie Mae have properties for sale?

Fannie Mae works with all of its partners to help homeowners prevent and avoid foreclosure; however, sometimes it is unavoidable. When foreclosures occur on mortgages in which Fannie Mae is the investor, our goal is to sell properties in a timely manner in order to minimize the impact on the community.

· What kinds of properties are available in the Fannie Mae HomePath database?

Fannie Mae’s HomePath database includes only properties that are owned by Fannie Mae. There is a wide selection of homes, including single-family homes, condominiums, and town houses — located in a variety of neighborhoods. The number, types and the sales prices of the homes that are offered for sale may vary substantially. Many of these homes are relatively new; however, older homes are offered in some areas. Some homes may require repairs.

· How is buying a home owned or managed by Fannie Mae different from other home purchases?

Usually, when you buy a home, you deal with a seller who lives in the home. Fannie Mae has acquired these properties through foreclosure, deed in lieu of foreclosure, or forfeiture.

When buying a Fannie Mae-owned home, you should know the condition of the property, as explained in more detail below, the cost of any needed repairs, and the steps in the loan qualification and closing process before you enter into a purchase and sales agreement.

· Has Fannie Mae fixed everything in the house?

Fannie Mae may make some repairs to properties to increase their marketability; however, the buyer should be aware that other repairs may be needed. Fannie Mae sells each property “as is,” which means that the buyer accepts the property “as is.” Fannie Mae is not responsible for fixing any problems after settlement. Even if the house has fresh paint, brand new carpet, new appliances, perhaps even a new roof or siding, it doesn’t mean everything in the house is new, or even works. Fannie Mae does not warrant or guarantee any work that may have been done on the property, whether as part of its efforts to sell the home or pursuant to conditions in the purchase contract. Where a home warranty is available, you may wish to buy it at your own expense. You should also consider hiring a qualified professional to inspect the property, whether it has been repaired or not. Hiring a home inspector is a recommended practice, no matter what type of home you buy.

· What can you tell me about this house?

If Fannie Mae knows of any hazards on properties we own or market, we disclose this information through our real estate listing agents. However, we may not have been informed by the previous owner of all hazards. We encourage you to have the property inspected by a professional before you buy.

· What type of sales contract does Fannie Mae use?

Fannie Mae uses a state-specific real estate purchase contract and a real estate purchase addendum for our properties. If there is anything in the document you don’t understand or aren’t comfortable with, you may want to contact a real estate attorney, the real estate sales professional who has listed the property, or any real estate professional of your choice to review these documents with you.

· Do I have to use Fannie Mae’s selected title, settlement, or escrow companies?

No. You may designate the title, settlement, or escrow company of your choice, subject to the terms of the contract.

· Will Fannie Mae accept an offer contingent on the sale of my house?

No, Fannie Mae will not accept offers contingent on the sale of your current home. Other types of contingencies will be considered on a case-by-case basis.

· Why does Fannie Mae require a lender’s prequalification statement before negotiating a home purchase offer?

Fannie Mae wants to be sure that prospective buyers will be able to complete the sales transaction, including obtaining financing when needed. Prequalification allows you to see how much house you can afford and the mortgage amount you may be able to qualify for before you make an offer on a home. It also helps you focus on homes in an affordable price range. A loan prequalification doesn’t mean your loan is approved. You must apply for a loan separately, after you are prequalified and your purchase offer is accepted.

· Does Fannie Mae provide special financing?

Special financing is available on many properties through HomePath^® Mortgage and HomePath^® Renovation Mortgage.

· Can I buy a house directly from Fannie Mae without going through a real estate sales professional?

No. Fannie Mae depends on the expertise of local real estate sales professionals and accepts offers only through our real estate listing agents. You may work with any real estate sales professional to submit an offer to the real estate agent who has listed the property.

· What happens if Fannie Mae gets more than one offer?

All interested parties may be asked to submit their best offer in writing though the listing agent no later than a specified date and time. Fannie Mae may accept or provide a counteroffer that we determine to be in our best interest. Fannie Mae is not obligated to accept any offer submitted.

General Mortgage Lending Terms

There are many underwriting contingencies with these programs so please call me to work out the details that fit your financing needs. (Call Mickey for a current chart on lender terms.)

Real Estate “Flipping”- What happened to the “Simultaneous Closing?”

Matt — Fri, 27 Mar 2009 13:43:00 +0000

A Question from one of Matt’s readers-

“Matt-

I have a purchase agreement from a buyer and deposit on a house that I am buying as a short sale and selling to a rehabber. How can I close both transactions in one day? Do you know a title company in Lafayette, IN that would do it? What about a title company in Indianapolis that would do a double closing. Title seasoning should not be an issue on these deals since they are all cash. I am just finding that the title companies I contact say that their underwriters will not approve it because it is a “flip” which is illegal.

S.L.”

Matt’s Answer-

Back in the “good old days,” a real estate investor could find a great deal, lock up the deal with a contract, option or purchase agreement, and then “flip” the deal to another buyer. The investor was then rewarded for finding the good deal and for finding the buyer with a fee, charge, profits, etc. The nature of the investor’s reward depended on how the deal was purchased and then re-sold.

Often, the investor would assign her rights to purchase the property to her buyer. The investor would never take title to the property. There would be one closing- called a “simultaneous closing” or “double closing.” In other words, the investor’s assignment of the deal to the buyer, and the buyer’s ultimate purchase of the property would happen at one closing. Think of it as two deal closings in one. At the closing, the investor would be listed as a payee and would receive her assignment fee at that time.

What happened to the double closing?

We started hearing about mortgage fraud cases. There were so many cases of mortgage fraud over the past 10 years that there developed a presumption that “flips” were illegal. The rationale was that a property purchased on Day 1 for $100,000, for example, could not be “flipped” for $120,000 on Day 2, or Day 5 or even Day 90. The rationale was the property could not appreciate that quickly. Therefore, the final purchase price ($120,000 in our example) had to be fake, false and fabricated. There was no credit given to the investor for having negotiated a great purchase price and a better sales price. The presumption is that the second sales price had to be the product of a fraud on the mortgage company. Soon, title companies began refusing to hold “simultaneous closings” for fear of being accused of participating in mortgage fraud.

What if the ultimate buyer was not using mortgage loan funds to buy the property? What if the buyer were paying in cash? How could there be mortgage fraud on a flip, if there is no mortgage lender?

Sadly, state and federal prosecutors have scared appraisers and title companies to the extent that no title company will do a “simultaneous closing,” even if there is no mortgage lender involved! If any of my readers know of a title company that will still conduct simultaneous closings,” please let me know. Other readers are still looking to do simultaneous closings on cash-based flips.

It is true that mortgage fraud was and is a serious problem, although most of the really bad mortgage fraud practices seem to be happening less and less often. There’s more public awareness of mortgage fraud today, which has helped. More than 10 years ago, I started preaching about mortgage fraud. I remember announcing the formation of the Indiana Mortgage Fraud Task Force. I’ve lectured, written and begged investors to increase their awareness of mortgage fraud. Not only is it a crime, but the number of fraud cases has had a tremendous chilling effect of real estate investing. A few bad apples have screwed up simultaneous closings and flips for the rest of the real estate investing community. And that’s a bad thing for all of us, as flips served a legitimate purpose. Flips reward investors for finding good deals and matching buyers and sellers. As this is often work that realtors and brokers will not do, we should be encouraging, not prosecuting, investors for fair, honest and legitimate flips, even if they require a simultaneous closing to complete the transaction.

Years ago, I wrote a series of articles on mortgage fraud- “Mortgage Fraud- Just Say No!” If you’d like to learn more about mortgage fraud and how to avoid it, send me an email or comment. I’ll send you a copy of my articles on the topic.

One final thought. . . there is another type of flip. If you buy that property for $30,000 and add $20,000 of improvements, it is possible that the improvements raise the fair market value to $85,000, $90,000 or more. In that scenario, you should be able to sell the property for $90,000 or so, and not have to worry about mortgage fraud claims. Keep your receipts and photographs showing the before and after condition of the property and your improvements to it. You’ll have to prove the $20,000 of improvements, plus the increase in equity as a result of the improvements. Getting good appraisals and keeping lots of documentation are key to doing these “rehab flips.”

I was also asked recently about selling an LLC or corporation that owns a “flip house.” Selling real estate and selling an LLC or corporation are quite different. I’ll try to address that scenario in another blog post soon.