Louisville is a Top 10 Market for Real Estate Investors

Check out this article from the Wall Street Journal.

WSJ

Foreclosures Under Review

It seems some lenders have not necessarily been above board with their foreclosure processes.  Several revelations concerning these processes have come to light over the past couple weeks prompting the Office of the Comptroller of the Currency to order several large lenders to review their procedures.  Both GMAC and JP Morgan Chase have halted pending foreclosures, while the following lenders have been contacted and ordered to review their foreclosure procedures:  Bank of America, Citibank, HSBC, PNC Bank, US Bank and Wells Fargo.  Below is a link the an article providing discussing the situation in greater detail.

The Washington Post

Status Report

Currently, both the housing market and the economy as a whole are stuck in a rut.  Click on the link below for a detailed explanation of where we are currently on a national level.  Keep in mind, Bloomberg is a national publication and the Louisville area has seemed much more steady, not experiencing the deep troughs that has plagued the national market during the entire recession.

Bloomberg

Short Sale Process Getting Quicker

Check out this link:  American Land Title Association News

It appears that short sale approval turnaround time has shown a marked improvement recently.  A year ago the process was estimated to take, on average, at least three months.  The same process can now be completed in thirty days.  Some will argue that the time frame had nowhere to go but up, but for those of us still practicing in this market, this is very good news as it appears short sales are with us for the near future.

Rates Still Low

It has been a while since I've updated the blog and for that, I apologize. The good news is that the reason I've been unable to update is that it has turned into a fairly busy summer. Rates have remained low and we've seen an influx of refinance transactions. Sales transactions continue to remain steady as well. Please read the attached blurb from Realtor Magazine Daily...rates are still extremely low and hopefully will remain that way throughout the fall and winter.

Rates Remain Low

A Long, Slow Recovery

Included herein is a link to an article located at the International Business Times website. The content is basically that the recovery will not be a quick touch of the bottom and then an immediate rebound, but rather a prolonged trough. good news is that we have most likely hit bottom, but it may take a longer to get off the bottom than we first realized.

International Business Times

Short Sale Article in The Courier Journal

Attached hereto is an interesting article about short sale deals in our area. Notice that Mike Pitt is quoted within.

The Courier Journal

Indiana Good Funds Statute

The statute, Indiana Code 27-2-3.7, prohibits a closing agent from making disbursements from an escrow account in connection with a real estate transaction unless the funds received for the transaction are good funds. Funds received from any party to the transaction in an amount of $10,000 or more must be wired funds that are unconditionally held by and irrevocably credited to the closing agent's escrow account. Funds received from any party in an amount less than $10,000 may consist of other good funds as defined in the statute, including irrevocable wire, cashier's check, certified check, check drawn on the escrow account of another closing agent, check drawn on the trust account of a real estate broker licensed under Indiana Code 25-34.1, or a personal check not exceeding $500.

Tips For A Home Purchaser Using A Power of Attorney

It is entirely acceptable for a purchaser to use a power of attorney at the closing on the purchase of real estate. However, most lenders and title insurance companies have certain criteria they expect to be met when it comes to the content of the power of attorney document.

Listed below are a few of these:

The power of attorney document should be specific to the transaction. The POA should mention the real estate to be purchased. When mentioning the real estate, it is good form to include the legal description as well as the property address. Also, there should be a specific reference to the note and mortgage which are to executed at closing. This should include the name of the lender as well as the amount financed.

While it is acceptable for the POA to grant the power to execute certain general closing documents, it is a good idea that the POA specifically grant the power to execute the note, mortgage and deed as well as any documents which the lender feels need specific mention.

The POA should also be a durable one. This means it needs specific language that it will remain in effect despite the subsequent disability of the principal, the person granting the powers.

Finally, it is a good idea to have Pitt & Frank review any and all POA's prior to closing to insure their validity.

Here is a link to another CNN - Money article regarding March home sales. Existing Home Sales Soar in March.

Short Sale Article

Sorry this is not a very long post here, but please check out this link: CNN - Money. It is an excellent article on short sales.

$6,500.00 Tax Credit FAQ's

1. Who is eligible to claim the $6,500 tax credit?
   Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim this credit.
   
   
2. What is the definition of a move-up or repeat home buyer?
   The law defines a tax credit qualified move-up home buyer (“long-time resident”) as a person who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. That is, both spouses must qualify as long-time residents, with at least five years of principal residency for each. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.
   
   
3. How is the amount of the tax credit determined?
   The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.
   
   
4. Are there any income limits for claiming the tax credit?
   Yes. The income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) above those limits. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
   
   
5. What is “modified adjusted gross income”?
   Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and the first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.
   
   To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income.
   
   
6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
   Possibly. It depends on your income. Partial credits of less than $6,500 are available for some taxpayers whose MAGI exceeds the phaseout limits.
   
   
7. Can you give me an example of how the partial tax credit is determined?
   Just as an example, assume that a married couple has a modified adjusted gross income of $235,000. The applicable phaseout to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $6,500 by 0.5. The result is $3,250.
   
   Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $138,000. The buyer’s income exceeds $125,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $6,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,275.
   
   Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.
   
   
8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008? How is this different than the rules established in early 2009?
   The previous tax credits applied only to first-time home buyers and were for different amounts of money.
   
   
9. How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?
   You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). Please note that although the Form is titled “First-Time Homebuyer Credit,” this is the correct form for claiming both the $8,000 first-time homebuyer tax credit and $6,500 repeat buyer tax credit.
   
   No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and repeat home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase. In cases where a HUD-1 form is not used, such as for construction of some new homes, you should attach a copy of the certificate of occupancy in lieu of the HUD-1.
   
   Homebuyers should be sure to read the instructions for the revised IRS Form 5405 to be sure they meet the new program requirements.
   
   
10. What types of homes will qualify for the tax credit?
    Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.
    
    It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. Please consult with your tax advisor for more information.
    
    
11. I read that the tax credit is “refundable.” What does that mean?
    The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.
    
    For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $6,500 home buyer tax credit. As a result, the taxpayer would receive a check for $5,500 ($6,500 minus the $1,000 owed).
    
    
12. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
    Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be after November 6, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April 30, 2010).
    
    In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. To provide proof of purchase, homebuyers must attach a copy of the HUD-1 Form or certificate of occupancy to IRS Form 5405.
    
    
13. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
    Yes. The tax credit can be combined with an MRB home buyer program.
    
    
14. I am not a U.S. citizen. Can I claim the tax credit?
    Perhaps. Anyone who is not a nonresident alien (as defined by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. The IRS provides a definition of “nonresident alien” in IRS Publication 519.
    
    
15. Is a tax credit the same as a tax deduction?
    No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $6,500 in income taxes and who receives an $6,500 tax credit would owe nothing to the IRS.
    
    A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $6,500 in income taxes. If the taxpayer receives a $6,500 deduction, the taxpayer’s tax liability would be reduced by $975 (15 percent of $6,500), or lowered from $6,500 to $5,525.
    
    
16. Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return?
    Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.
    
    Buyers should adjust the withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.
    
    In addition, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community. To date, 18 state agencies have announced tax credit assistance programs, and more are expected to follow suit.
    
    
17. HUD allows “monetization” of the tax credit. What does that mean?
    It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.
    
    Under the guidelines announced by HUD, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.
    
    Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement.
    
    In addition, approved FHA lenders can purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.
    
    
    
18. If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return?
    Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year’s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.
    
    Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.
    
    
19. For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, depending on in which year my credit amount is the largest?
    Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.


20. How can two unmarried buyers allocate the tax credit if one qualifies for the $8,000 first-time home buyer tax credit and the other qualifies for the $6,500 repeat home buyer credit?
    The buyers can allocate the tax credit in any reasonable manner, provided neither claims a tax credit higher than the one they qualify for and the home purchase does not yield a total of more than $8,000 in tax credits. For example, the repeat home buyer could claim $6,500 and the first-time home buyer could claim $1,500. Alternatively, both buyers could claim a $4,000 tax credit.
21. Does a married couple qualify for any home buyer tax credit in the following situation? Spouse A has lived in and owned the same principal residence for at least five years. Spouse B has lived in and owned the same principal residence for less than five years.
    In this situation, the couple does not qualify for any home buyer tax credit. Because the couple is married, the law tests the ownership history of both spouses. Spouse A clearly does not qualify for the $8,000 first-time home buyer tax credit, so neither does Spouse B.
    
    Spouse A does appear to qualify for the $6,500 repeat buyer credit, but because Spouse B has not owned and lived in the same principal residence for at least five years, neither of them can claim the repeat home buyer tax credit.

Information Courtesy of federalhousingtaxcredit.com

Statutory Lien Priority in Kentucky With One Exception

When determining the priority of liens affecting real property, Kentucky is a race-notice state. KRS 382.280 is the controlling statute. It provides that: "all bona fide deeds of trusts or mortgages shall take effect in the order that they are legally acknowledged or proved AND lodged for record." (emphasis added). This statute provides for an orderly system that gives notice to those who seek to secure a subsequent interest in real property. It also provides for a sequential method for payment of debts.

However, there is an exception, the Doctrine of Equitable Subrogation. This doctrine is detailed in Kentucky Legal Systems Corp v. Dunn, 205 S.W.3d 235 (Ky. App. 2006). In the case, the Court held that a purchase money lien is superior to a prior judgment lien. It doesn't matter if the mortgagee had knowledge of the lien or failed to search for said lien. Id. at 237. The reasoning behind this holding is practical and fair. "Without this advance of money, the purchaser-mortgagor would never have received the property and the other claimants would never have had the opportunity to satisfy their claims from such a convenient source." Id., quoting Restatement (Third) of Property, Mortgages, Sec. 7.2 (1997).

Builder Confidence Going Up

The National Association of Home Builders/Wells Fargo index of builder confidence increased to 17 from 15 the previous month. Any confidence in the housing market shown by builders is a good thing. Builders have been hit especially hard in the last couple years and the mere fact that this index is increasing at this time of year should give all of us hope that this year will be a successful one. This information came from the Bloomberg article linked here: Bloomberg

Rates to Remain Low

There are have been many pundits that have worried about what direction the housing market will take when the Federal Reserve's $1.25 trillion purchases of mortgaged-backed securities ends. The Fed has propped up the market for a year or so now, but that program will end in March. Linked below is an article stating that all might not be lost. It looks as if there may be investors willing to jump in after all, which ultimately will keep consumer mortgage rates from jumping too much. Reuters

Decedent's Estates and the Sale of Real Property

We get many questions regarding the sale of real property that occurs after the title holder is deceased. For the most part, we have to follow the guidelines of our title insurance underwriters. These guidelines evolve from a combination of Kentucky case law and the KRS, as well as risk analysis and assessment. Included below is a simple outline that details the steps needed and action required when the title holder of real property is deceased.

I. Testate - Decedent had a Will. The Will must be probated.

A. If the Will contains specific power to sell real estate (the Will must specifically mention real estate), only the Executor or the Administrator With Will Annexed (W/W/A) is needed to convey the real estate and the proceeds check shall be payable to the estate.

B. If the Will does not give specific power to sell real estate, either:

i. A court order allowing the Executor or the Administrator W/W/A is needed. This is set out at KRS 389A; or

ii. The Executor/Administrator W/W/A can sign as well as all the heirs and their spouses with the proceeds check made payable to the estate. However, this option can only occur after the expiration of six (6) months from the appointment of the Executor/Administrator W/W/A. If the closing is to occur within the six (6) month period, the KRS 389A court order is needed.

II. Intestate - Decedent did not have a will.

A. If an estate is opened and administered:

i. The Administrator needs a KRS 389A court order allowing the estate to sell the real property, or

ii. The Administrator can sign as well as all the heirs and their spouses with the proceeds check made payable to the estate. However, this option can only occur after the expiration of six (6) months from the appointment of the Administrator. If the closing is to occur within the six (6) month period, the KRS 389A court order is needed.

B. If there is no probate:

i. Record an Affidavit of Descent, and

ii. All heirs named in Affidavit of Descent and their spouses muse sign the deed conveying the property.

iii. There is a two (2) year wait period from the date of death before this can occur (See KRS 396.011).

Remember, these are guidelines and there may be exceptions. If you need further information we are always available.

Existing Home Sales Fall in December

It seems the the extension of the $8,000.00 First Time Homebuyer's Credit caused December home sales to decrease at a considerable rate. There was a decrease of 16.7% from November; the largest in 40 years. This decrease hurt business for the month of December, but the extension of the credit time frame, as well as the addition of the $6,500.00 credit, will ultimately payoff in the late spring. It is a very good time to be in the market for a new home. See the link for more information: Washington Post Article

New IRS Form Available For 1st Time Home Buyer Credit

Form 5405 is now available from the IRS. The form must be filled out, signed and forwarded to the Internal Revenue Service to enable First Time Home Buyers to take the $8,00o tax credit for tax years 2008 or 2009. http://www.irs.gov/pub/irs-pdf/f5405.pdf