California Short Sellers No Longer Need To Worry About Phantom Income
With the surging San Francisco and Bay Area real estate market, shorts sales and foreclosures have seen a steep decline. Even so, they still exist in San Francisco, San Mateo County as well as neighboring counties and cities.
Thanks to California Senator Barbara Boxer who pushed this issue with the IRS and got this letter as clarification about the Mortgage Debt Forgiveness Act.
“The IRS has clarified in a letter that California’s troubled homeowners who sell their homes in a short sale are not subject to federal income tax liability on “phantom income” they never received.”
Homeowners in California involved in short sales have been concerned with “phantom income”which refers to the amount of debt that is forgiven when a lender is willing to accept less than the full amount owed (as in a short sale). If you owed $500,000 on your mortgage, and the lender allowed a short sale for $450,000, you would have “received” $50,000 in phantom income.
With so many issues nipping at the heels of still underwater homeowners at least the fact that Uncle Sam and his California cousin will not have their hands out at the end of any short sale transaction ready to collect phantom income will make things slightly easier for still distressed property owners.
With the San Francisco real estate market continuing to climb, we see more San Francisco Real Estate Graffiti (see photo). We took this photo at 1155 Page St., a former SFUSD school site which will be leased to the private French American International School, which will operate a preschool and kindergarten facility there. The building sat vacant for six years. According to reports, the private school has agreed to pay nominal rent for 20 years and to invest about $5 million to rehabilitate the site. It is not more condos but what do you think of what will soon stand there?
We’re talking about an earthquake. Besides humans needing to be prepared so to do buildings especially in San Francisco. With that in mind San Francisco presents Earthquake Retrofit Fair today (January 28, 2014) 3 PM – 7 PM at the Bill Graham Civic Auditorium.
Questions about retrofitting your property? Have to comply with the new Mandatory Soft Story Ordinance?
Need to select a design professional, lenders, or contractor?
Are you a property owner looking to make your building safer?
WHAT TYPES OF BUILDINGS?
Wood frame construction (Type V), and
Application of permit for original construction was prior to January 1, 1978, and
Five or more residential units, and
Two or more stories over a basement or underfloor area that has any portion extending above grade, and
A soft story condition that has not been seismically strengthened to the standards set forth in the ordinance.
All San Francisco buildings that are wood-framed, permitted for construction prior to 1978, contain five or more residential dwelling units and are three or more stories or two stories over a basement or underfloor area that have any portion extending above grade, and have not yet been seismically strengthened.
REFERENCES AND REFERRALS – ENGINEERS AND CONTRACTORS
We will be at the event but if you are not able to attend then contact us and we can refer qualified engineers.
Consumers here in California get an early 2014 present with a new law that prohibits a debt buyer from bringing suit on a claim that is barred by the statute of limitations (Civil Code § 1788.56).
The new law which takes effect January 1, 2014 changes the burden of proof to the creditor. Up until now, a creditor was free to sue on a debt that was older than the statute of limitations. The burden was on the person sued to claim the protection of the statute.
Too often, the debtor didn’t know that and the collector got a judgment on debt that should have been unenforceable.
The law contains many other benefits which you can read about at Cathy Moran’s blog:
Luxury homes continue to foreclose at a record rate.
Even though pundits say that the economy continues to gain more traction and that the worst of the real estate crisis may be over, distressed properties continue to pop up in the Bay Area.
Inventory continues to be in short supply and experts say that we have 4-5 years (we’ve heard up to 10-12 years) left of REOs coming on the market. Unlike the past years, the upcoming REOs tend to skew toward the high end. Homes valued in the $1.5 million-plus range continue to climb in the foreclosure scene. For a couple of examples, a $2.5 million home recently foreclosed in Cow Hollow and likewise for a $1.8 million home in Hillsborough.
Folks over at RealtyTrac state that foreclosure activity on homes in the $5 million-plus value range jumped 61 percent from the same time period in 2012. During the real estate meltdown, high end homes certainly did see their share of REO casualties but banks often held off foreclosing because of the high losses. Instead the banks worked toward loan modifications, forbearances and short sales.
Now with values on the rise, many luxury homes have fallen into the foreclosure track. In the past, banks often hesitated at foreclosing due to possible high losses. Now, banks may take more chances to foreclose on the high ticket homes. With increased profits, banks with defaulting loans seem more willing to roll the dice on the luxury inventory. Such actions may end up signifying snake eyes for distressed high end homeowners.
With most of the San Francisco focus on real estate maps that show various home prices and where the most and least expensive houses and condos can be found, we decided to post a map with a little cultural humor.
This map originally pictured on the Bold Italic, the “bro-ster” map, part of Movoto’s collection, displays where to find what type of San Franciscan by neighborhood.
Why do one escrow when you can do two? With prices continuing to climb, people find creative ways to structure escrows and in some instances that means doing a double escrow. What is a double escrow and why do it?
A double escrow is having two escrows at the same time. Why would someone do a double escrow? Dual escrows typically occur during a hot market when someone can profit by buying and selling a property at the same time.
Many escrow officers will advise or even refuse to conduct the transaction if all of the sales information has not been disclosed to all parties. Experienced and ethical escrow officers tell stories of one party not fully disclosing info to one of the other parties.
Oftentimes the lack of info involves elder abuse (e.g. someone buying a senior’s home for below market value then reselling it for above market value) or other predatory tactics. A good escrow officer will insist to talk with a seller before conducting the double escrow. Oftentimes buyers will hide some fact from the sellers which can cause serious issues down the line.
Predatory Dual Escrows?
For a double escrow to occur there needs to be something that signifies a rise in sales price (e.g. upgrades, repairs, or a lease option/right of first refusal). It can’t be just one party taking advantage of another party. There needs to be some reason for the change in value. For this reason, doing a double escrow for an REO or short sale would not be allowed or would be considered fraudulent. During short sales and REO sales, the selling bank considers the selling price to be at or near fair market value so conducting a dual escrow and reselling at a significantly higher price would be tantamount to fraud.
Like any other real estate transaction, unusual structuring of a deal can benefit all parties. The rare instances for the proper use of a dual escrow can be a useful tool but those who use the tactic can end up getting themselves and other parties in something more painful than hot water.