Gov. Charlie Crist signed the budget bill (SB 2600) today that lays out how the state will spend its $65.6 billion in the fiscal year that starts July 1. Included is $30.1 million for the Florida Homebuyer Opportunity Program, which will help with downpayment assistance.
Beginning July 1, those who quality for the federal $8,000 first-time homebuyers tax credit will be able to apply for downpayment assistance before they close on the purchase of their home, and then repay the amount borrowed when they get their tax refund. The program will operate through local county housing administrators, though details are still being worked out.
Having approved a $66.5 billion state budget, the 2009 Florida Legislature adjourned minutes ago.
For the Florida real estate industry, the budget includes several gems. Perhaps the shiniest: $30.1 million for downpayment assistance programs. Beginning July 1, those who qualify for the federal first-time homebuyers tax credit will be able to apply for downpayment assistance in advance of closing, and then repay the amount borrowed when they get their tax refund.
"What an incredible opportunity for thousands of families," says Cynthia Shelton, 2009 FAR president. "The beauty of this program is that the state will be paid back and, conceivably, more potential homebuyers could take advantage prior to the Dec. 1 expiration of the $8,000 federal first time homebuyer tax credit."
The program will operate through local county housing administrators, though details are still being worked out. Keep reading FAR's EarlyBird e-news and checking the home page of floridarealtors.org for updates.
The state spending plan passed today also includes the following for real estate-related programs:
• Up to $400,000 to prevent, combat and publicize the dangers of unlicensed real estate activity in Florida.
• $540,000 to continue and complete a study to make recommendations on passive strategies on nitrogen reduction that complement the use of onsite wastewater treatment systems.
• $3 million in the Real Estate Trust Fund for the Education and Research Foundation.
• A reduction in the eviction filing fees from $265 to $180 - the only fee reduction in the 2009-10 budget and one with a negative fiscal impact of up to $36 million.
Even though the session was extended to today for the purpose of budget negotiations, all non-budget legislation was finalized last Friday. Here are the highlights reported previously:
• SJR 532, a constitutional amendment that will ask voters to limit increases in property tax assessments on all non-homestead properties to 5 percent annually. First-time homebuyers could benefit, too, with an additional homestead exemption up to $100,000.
• HB 521, a bill that puts the burden of proving that a property tax assessment is correct on the appraiser, not the property owner.
• In the area of property insurance, the Legislature capped rate increases at 10 percent per year for Citizens policyholders (HB 1495). The Legislature also repealed the requirement that, effective Jan. 1, 2010, sellers of property located in a wind-borne debris region, and which has an insured value on the structure of $500,000 or more, provide prospective buyers the structure's windstorm mitigation rating.
• The growth management bill (SB 360) FAR supported passed as a big package. It includes a provision to encourage urban infill by eliminating transportation concurrency, one that allows for expedited comprehensive plan reviews, and another that eliminates the development of regional impact process (DRIs) in urban areas. The bill also extends previously obtained permits and approvals by two years, creates a transition process for moving towards a mobility fee system, and streamlines and reduces inefficiency in the state's approach to growth management.
It’s a buyer’s market, but sellers can increase the chance of a sale in today’s climate by working with a Realtor and considering these eight things.
1. Don’t count on open houses to sell your home. According to the California Association of Realtors, less than 5 percent of buyers find their home at an open house. An open house should never be the center of a prospective real estate agent’s marketing plan.
2. Target your marketing. Know what buyers in your area look for and emphasize your home’s appeal accordingly. This includes everything from the description (whether you highlight transportation and parks, or restaurants and nightlife) and how you stage the home (whether the third bedroom becomes an office), to where you advertise the listing (a newspaper in addition to online).
3. Tour similar homes in the area to better understand the competition – what a home sold for 12 months ago, or even six months ago, may not be a good estimate for today.
4. Consider staging your home. Although not always necessary, staging can make a difference in how your house is viewed and compared to others.
5. Offer prospective buyers a neighbor “reference” list. Make a list of your best, most reliable neighbors, so that buyers can reach out to get a better feel for the area, the locals, and what makes the neighborhood a truly unique place to live.
6. Photos posted online should be taken on a sunny day with a wide-angle lens. Approximately one-third of buyers who responded to a recent survey said they would eliminate homes they saw online if they had too few or poor quality photos.
7. Consider a pre-inspection to give you a selling edge. Include information about any repair work you’ve completed since you bought the home. If you don’t market your improvements, you won’t get as much return for them.
8. Once your house is on the market, accept feedback and tweak as necessary.
Homeowners Take First-Ever Tax Deduction for Mortgage Insurance
March 27, 2008
Many qualified taxpayers are preparing to claim their first-ever tax deduction for mortgage insurance premiums on home loans that closed in 2007.
The tax deduction was first approved by Congress in late 2006 and applied to loans with mortgage insurance that closed in 2007. In an important move to further assist borrowers, Congress voted in December of last year to extend the mortgage insurance tax deduction through 2010. Extension of the tax deduction for mortgage insurance premiums was part of the Mortgage Forgiveness Debt Relief Act of 2007.
The deduction allows households with an adjusted gross income of $100,000 or less to deduct the full cost of their government or private mortgage insurance premiums on their federal tax returns. Families with incomes between $100,000 and $109,000 are eligible for a reduced deduction.
“For the first time, many low- and moderate-income families who purchased homes with private or government mortgage insurance, will be able to deduct those premiums when they file their 2007 federal tax returns next month,” says Kevin Schneider, president of the Mortgage Insurance Companies of America (MICA). “On average, this year’s tax break could be worth $350 per taxpayer – an annual deduction that qualified homeowners can take each year through 2010.”
“Like many other populations, our community relies on homeownership to build wealth. Government and privately insured mortgages help low- and moderate-income families gain a foothold in the housing market and realize their piece of the American Dream,” says Timothy Sandos, president and chief executive officer of the National Association of Hispanic Real Estate Professionals (NAHREP).
January 18, 2007 Selling one house and buying another is like putting yourself between a rock and a hard place. If you set both closings within the same basic time frame you run the risk of ending up with two mortgages or much worse. If you schedule them with sufficient time between to solve any closing problems you face the prospect of renting and moving twice. This is not a rare occurrence – the National Association of Realtors, or NAR, estimates 6.24 million homes were bought or sold during 2006, and unless you were a first-time buyer or kept your old house as an investment property, most of those transactions involved buying one house and selling another. But there are steps you can take to protect your best interests. Timing your closings The timing of your closings can be as critical as the cost of your new home or the interest rate on your mortgage. And each has advantages and disadvantages. 5 tips for successful closings 1. Specify contract terms. 2. Select date carefully. 3. Have a Plan B. 4. Be an early bird. 5. Line up your money. A dual real estate transaction means you have two choices: a simultaneous closing or a staggered closing. With a simultaneous closing, you set these two transactions as close together as possible, often on the same day – usually selling first and buying second. With a staggered closing, you build in some time between the two transactions – days, weeks, months or even more. First, the bad news With a staggered closing, you incur the cost of renting in the interim. You may have to find a place to store some of your belongings and deal with the hassle and added expense of moving twice. You’re losing the equity you could be building in a new home. And there’s the ever present danger you’ll fritter away the profits you’ve banked from the last sale before you can get into your next home. A simultaneous closing also has disadvantages. If something goes wrong in the first transaction, you could find yourself in big trouble. If the first closing fails and you don’t walk away with a big fat check, you may not be able to close on the house you’re buying. Which could mean you’re defaulting on that contract and could lose your earnest money deposit – often as much as 10 percent or 20 percent of the purchase price. If this happens at the last minute you, of course, have nowhere to live and have to immediately arrange to have all your possessions put in storage. Obviously this situation could lead to many other expenses and inconveniences. If you’re more fortunate, you could quickly arrange for an extra loan to enable you to close on the home you’re buying and to cover the period in which you own two homes – so-called “bridge” financing. At best, you would only have the burden of making two mortgage payments every month. Kristina Grebener has seen the problem from the inside. When she and her family planned to buy a bigger house in their same Madison, Wis., neighborhood, they didn’t anticipate any problems. The market was hot and properties were moving. They found the house they wanted, made an offer and set the closing date for late July, thinking they’d have sold their old house by the end of June. But in the interim, there was “a cooling in the market,” Grebener says. A lot of nearby homes went up for sale, and “the buyers weren’t there to support that,” she says. The family closed on the purchase in July as planned, using a home equity loan on their old house to make the downpayment on their new home. But they have yet to sell their first home or move. Counting the new mortgage payment, the home equity loan and double utilities, keeping the old house is costing the Grebeners an extra $2,600 each month. “Every month I make a mortgage payment is lost money,” she says. And while the family can afford it for now, it’s putting a dent in their budget – especially with kids just a few years away from college, she says. “It’s like a game of musical chairs,” Steven Rick, a senior economist at the Credit Union National Association, says about coordinating closings. “It’s a function of the housing market. Now that it’s unraveling, you definitely do not want to be buying a home without selling yours.” Ron Phipps, a broker with Phipps Realty in Warwick, R.I., agrees. “Very few people have the ability to own two properties with ease,” he says. “For some people, the closing date is as pivotal as the money.” So the goal is often to schedule the home sale first, then set the home purchase within the next 24 hours – often for later that same day. “Doing simultaneous closings is really the goal.” But finding a buyer to close on your home at the exact minute you find a home to buy yourself isn’t always easy. More often than not, you’ve found one without the other – and that can make setting the closing date a tricky proposition. “For real estate practitioners, this is always the hardest part of the transaction,” says Phipps. “Typically, you have to have the house you’re selling cleared out at closing.” But just as often, “you need money from the first house to close on the second house.” Just like staggered closings, simultaneous closings should be carefully planned. “It needs to be done with good advice and the best precautions,” says Dave Dalzell, a regional vice president of the NAR and the owner/broker of Abilene, Texas-based Dalzell Realtors. Another potential downside of a simultaneous closing: If the buyers know you’re in a time crunch, they can use it to squeeze you for extra considerations at the last minute – like getting you to pay for decorating upgrades or more of the sale costs. A Fort Lauderdale, Fla., couple told Bankrate they were “held-up” by the buyers of their home in this manner. “An inspection had showed a slight leak in a shower and so we had it repaired by a licensed plumber a few weeks before closing. To make sure it was done right, we had the entire shower removed, a new shower pan installed and the entire bathroom retiled. At the closing table, the buyer said he wouldn’t accept the repair because it had not been done by someone of his choosing and refused to close. This was the third delay in closing, and the buyer knew that we had to close on our new home that day or lose a $20,000 deposit. In the end, we had to give the buyer a $5,000 credit to get him to close. It was highway robbery.” It can wreak havoc if something goes wrong with the first part of the transaction,” says Phipps. And nine times out of 10, if something does go wrong it will be with the first sale, not the second, he says. The time constraints can also pressure you to gloss over closing details that may need further examination. This is one instance when it can really pay to have your own private closing attorney review the records ahead of time and either attend the closing with you or be available by phone to handle any last-minute questions or complications. Before you agree to a simultaneous closing, analyze your buyer. Some factors to consider: Who are the buyers? Are they financially sound? How stable are they? How firm is the offer? What are their repair requests? What is their personal situation? (Do they have to move to the area by a certain deadline or can they take some time?) Are they indecisive and undecided or do they really need the home? Do the old gut-check test, too. What do you really think of these people? Are they fiscally and emotionally sound? Are their requests reasonable? And are you getting a fairly consistent message from their camp or do their needs, demands and dates keep changing? Look at your side of the table, too. What are your resources and risks? Can you get interim financing if you need it? Exactly how much would it cost? Do you want to put your stuff in storage and rent for a month or two? How soon must you close or move? Dalzell remembers one friend (not a client) in another state who called for advice when his closing went awry. When the two of them put a pen to paper, Dalzell demonstrated that the man’s interim financing option would only add $500 to the cost of the deal. “That’s why you have to analyze all of it,” he says. Ask yourself: What’s the worst that can happen? And put a number on it. Then consider: What’s the best that can happen? And put an estimate on that. So which is safer – the simultaneous closing or a staggered version? “There’s a risk no matter what you do,” says Dalzell. “There’s no easy way to do it.” What you can do But there are some steps you can take. 1. Specify contract terms. First, if you have to sell a home to buy your next home, put that into your contract. That way, if your first closing doesn’t occur you will have the choice of whether you still want to close on the purchase. In a market dominated by sellers, this sort of contingency clause will rarely be accepted, but in a buyer’s market sellers will be more likely to accept this as a condition of sale. 2. Select date carefully. Next, put a little thought into the actual closing date. Sometimes, buyers or sellers want to close in a specific number of days and will pick a date without looking at a calendar – which can create confusion if it falls on a weekend, says Phipps. Instead, pull out the calendar. “Set it for a date you can make things happen,” says Phipps. In case you need some missing piece of paper or additional information, close on a weekday and don’t set it for the very end of the month. “The end of the month is crunch time for mortgage companies, title companies and escrow companies,” says Phipps. “Pick another day.” And set it for early in the day,” he says. “Don’t try to do simultaneous closings at 3 and 5 in the afternoon.” 3. Have a Plan B. If you schedule a simultaneous closing, have a backup plan for what you do if the first closing doesn’t go off as planned. 4. Be an early bird. The real secret of any closing – simultaneous or staggered – is to do as much as you can in advance. You don’t want everything being done in the last 24 hours,” says Dalzell. “You want to back things up as far as you can.” And that includes everything from repairs and final inspections, to reading the closing documents and negotiating moving dates. Many times a sale is contingent on a professional home inspection. Get that out of the way right after the offer is accepted. That way, if the inspector finds a problem, you have time to either fix it or rework the price well before you have to actually close. “It doesn’t make sense to create challenges close to the closing,” Phipps says. 5. Line up your money. At the same time, finalize the financing, says Phipps. Then, when those two steps are complete, do the title search.
A romantic relationship does not benefit from the same laws and regulations that protect married couples. Witness the condo dispute between Jennifer Aniston and Vince Vaughn in the newly released movie "The Break-up" -- both love the jointly owned condo, and neither one wants to leave.
Some 5.5 million unmarried couples dwell together, representing slightly more than 10 percent of all households. Married or not, couples are purchasing real estate and businesses together. And since it can be easier to get a divorce in this country than to resolve a property or business dispute, unmarried couples would be well-advised to sit down and circumspectly discuss all contingencies before making any big purchases.
It may not be the makings of a romantic comedy, but it could save a lot of tears later on.
"Talk now about how you are going to resolve disputes that may come up later," says Brent Rosenthal, a business and real estate attorney and partner at Buckingham Doolittle & Burroughs LLP in Columbus, Ohio. Rosenthal says that it's hard to get people to focus on this because they come in with stars in their eyes, thinking they will be together forever. He asks his clients to consider what they want to happen to each person's interests if the relationship ends or one party of the couple passes away.
"Treat it like a business arrangement, and enter into a written agreement that describes what will happen," he says. "Go under the assumption that people don't last forever."
There are benefits to hiring an uninvolved third party, such as a lawyer, to guide you through a property or business agreement, says Rosenthal. "I have no emotional stake in this at all, so I can sit back and look at it totally disassociated from the deal," he says.
Why do unmarried couples jump into purchasing a home or business together without doing preliminary homework? "Nothing gets taken care of when people are in love. It only gets taken care of when people are breaking apart," says Stacy D. Phillips, a founding partner of Phillips, Lerner, Lauzon & Jamra LLP, a family law firm in Los Angeles, and the author of "Divorce: It's All About Control: How To Win the Emotional, Psychological and Legal Wars."
"People don't want to deal with it," she says. "And sometimes, frankly, the person who wants to deal with it is the person who will be left out."
Protect your assets
"I think that most people who are part of an unmarried couple assume that the law is going to look at them in some special status, or a different status, and that's just not really true," says Beverly Pekala, principal of her own firm in Chicago. "Each state regulates (these situations) quite differently."
There is no asset protection during a breakup for unmarried couples who reside in one of the few states that recognize common-law marriages. The laws protect only legally married couples.
"The way we refer to it is community property law versus marital property law," says Pakala. "The divorce laws have all been codified by statute, so what started off 200 years ago as old English common law, which came over from England, has now been codified. In each of the 50 states, you have a statute regarding divorce, which the legislature of each state wrote, and it's either based in community property or it's based in marital property."
The outcome of asset distribution for married couples is pursuant to the divorce laws, whether it's marital property or community property. For unmarried couples, the outcome in community-property states and marital-property states is about the same.
Certified financial planner Debra Neiman, co-author of "Money Without Matrimony," suggests that unmarried couples go into a property or business purchase with a written agreement.
"You can call it a property agreement or a partnership agreement. It spells out who contributed what toward the purchase. Very often, one person has the capital, and the other has the brawn and contributed the sweat equity."
Prepare 'what-if' contingencies
The written agreement of a property purchase should contain provisions that address "what-if" contingencies. For example: If the relationship dissolves, Party A will have the right of first refusal to buy the house from Party B. Three appraisals of the property will be obtained, and the average will be used as the purchase price, says Neiman.
"Unmarried couples should have durable powers of attorney," she says. "Each one would have their own. They can name each other to make legal or financial decisions if something happens."
For example, if one party suffers a medical crisis and is unable to make business or financial decisions, the second party with a durable power of attorney could do so on the first party's behalf. Otherwise, the second party would have to go to court and ask for guardian status before proceeding.
A written agreement should be bulletproof, and it is a good idea to have it prepared by an attorney. "You don't want anyone to later say that they were forced to sign it," says Neiman. "Married couples have divorce court, rules and formulas. Unmarried couples do not. This is a way to set up your own rules from the get-go."
What if the relationship ends and neither party is willing to sell the property or business? That's a situation most couples would want to avoid.
"We encourage our clients to enter into a property management agreement, or a comprehensive cohabitation agreement," says Elizabeth T. Erhardt, partner at Sideman & Bancroft LLP in San Francisco. The parties are free to contract as they wish, as long as it's not for an illegal purpose, and the courts will enforce the agreement.
What's in a title?
Deciding how to title property can be complex, especially in an unmarried-couple relationship. It's wise to consult with a tax or legal professional before making a final decision, but there are some basics to consider.
If both parties contribute equally, they may choose to own the property jointly with rights of survivorship. A 50-50 split makes sense if there is an equal contribution to the property, but this isn't always the case.
"You have to think it through, because with joint (tenancy) and rights of survivorship, that deed says that if one party passes away, the property automatically goes to the other person," says Neiman. "State laws dictate property rights. Though some states may not call it 'joint tenants with rights of survivorship,' the law is based on the same assumption -- that upon death of one of the owners, the property passes to the other."
If the parties contributed unequally, they may want to hold the property as "tenants in common," where the percentage owned by each person is specified. If one party passes away, the person named in the will of the deceased will receive the remaining piece of the pie.
"A tenancy in common is an interest in land in which you have your own undivided interest," says Rosenthal. If the property is sold at a later date, each party will receive his or her percentage of the proceeds.
A downside risk to a tenancy in common is the chance of losing a share of the property in a dispute. If one party is sued, a court order could require the sale of the house, in which the party who is not sued will keep his or her share of the proceeds, and the creditor will be paid from the proceeds of the other party.
In the event of the death of one owner, it could be problematic if the deceased's share of the house is left to a relative who does not get along with the surviving party. In that event, the parties may not agree about what to do with the property. What if one person wants to sell the place and the other wants to keep it, but cannot afford to buy out the other?
Ideally, the parties involved will be able to work something out.
"Ordinarily, the only way out would be to file a suit for partition of the property, which is basically the sale and distribution of the proceeds of the property," says Rosenthal. The courts have discretion to work out an equitable resolution for both parties. A suit of partition takes time, and it is something that both parties may want to avoid.
Also, be concerned about title insurance. "You want to be sure that title insurance, as well as property insurance, specifically covers both individuals," says Erhardt.
William L. Abrams, a tax lawyer and partner at Abrams Garfinkel Margolis Bergson LLP in Los Angeles and New York, suggests that co-owners of property do not commingle personal assets. Keep only a minimal amount of funds in a joint account for the convenience of paying expenses related to the property, he says.
LLC for investment property, businesses
Unmarried couples may want to consider putting ownership of income property into a limited liability company. An LLC offers protection from liability. If one party gets personally sued, the property cannot be taken away. Rosenthal reports that in a dispute, the only thing a creditor could do is go after the interest of received distributions from the LLC if, and only if, the LLC declares a dividend.
In addition, each owner will receive his or her usual share of tax breaks, such as deductions for mortgage interest and real estate taxes, as well as capital gains exclusions. The LLC, as the owner of the property, receives the tax exemptions, but passes it through to its owners.
When couples come to Pekala and tell her that they want to go into business together, she asks them, "What's your idea? Let's talk about it." During this conversation, she often notices that one party starts talking, and the other doesn't agree with what is being said. "It's human nature that everybody has their own opinion, and everybody has their own assumptions about the best way to do something," she says.
"Whether you have a corporation, partnership or an LLC, there should be a written agreement. In the event of a corporation, it's called a shareholder agreement. Participants in a partnership may opt for a partnership agreement, although it is not legally required. There is a disadvantage to a partnership, namely, the risk of both parties losing their home and/or savings accounts if they are sued. Owners of a corporation or LLC do not carry this risk."
Pekala is also a fan of the LLC, which is the combination of a partnership and a corporation, though, she says, the S corporation is "very frequently used as the legal structure for unmarried couples who have a business." Both the S corporation and the LLC provide liability protection as well as tax advantages, she says. For both business structures, owners will avoid double taxation, which involves paying tax on corporate profits, then paying taxes on them again when the profits are distributed to the owners.
While making property-purchase or business-structure decisions can be complicated for everyone involved, laws are in place to protect married couples in the event of a split. Since unwed couples are more vulnerable, it behooves them to take measures to protect their own interests before getting entangled in financial or business ventures.