Oh boy! This is a fun one. I am writing about this because it has finally reared its ugly head in our office this week.
I'm not going to go into length about what procuring cause is or who is right or wrong, but I am going to give buyers out there some advice. If you want information about procuring cause, Google it, there are boat loads of information about it online.
Here are my tips:
1. Hire a buyer agent. And I mean hire them, not just sign the MA agency disclosure. This is done by signing a contract that outlines how the agent will be compensated, what their duties to the buyer are and how long the contract is good for. There may be some other stuff too that varies from brokerage to brokerage. The old adage 'you get what you pay for' holds true for agency.
Ethical buyer agents hired under contract are loyal to you, because you are loyal to them. Period!
2. If you don't want to hire an agent exclusively and want to make an offer on a property, do it with the agent that showed you the property and gave you the information. This would eliminate most procuring cause situations, and save everyone some heartache.
3. If you are using another agent, let any and all other agents you encounter know that you are using another agent and sign in with their name at open houses.
I give you this advice from the perspective of being a buyer's agent. I first cut my teeth in the real estate industry by working for the largest exclusive buyer agency in Massachusetts back in the early 2000's. Because buyer agency was pretty new at the time, most didn't understand it, and even now some still don't. I spent quite a bit of time explaining it to folks then and it seems there is still some education needed out there.
Friday, February 22, 2008
Wednesday, February 20, 2008
Q&A from IRS.gov -Foreclosures and Debt Forgiveness
Lots of questions from homeowners are pouring in about short sales and foreclosures. Here are some answers straight from the horses mouth, the IRS.
Questions and Answers on Home Foreclosure and Debt Cancellation
Update Feb. 4, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
This provision applies to debt forgiven in 2007, 2008 or 2009. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The amount excluded reduces the taxpayer’s cost basis in the home. More information on claiming this exclusion will be available soon.
The questions and answers, below, are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007.
1. What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.
2. Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Certain farm debts:If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences, as discussed in Question 3 below.
3. I lost my home through foreclosure. Are there tax consequences?
There are two possible consequences you must consider:
Taxable cancellation of debt income.(Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans.)
A reportable gain from the disposition of the home (because foreclosures are treated like sales for tax purposes).(Note: Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income.)
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___________2. Enter the fair market value of the property from Form 1099-C, box 7. ___________3. Subtract line 2 from line 1.If less than zero, enter zero.___________
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure ________5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ____________6. Subtract line 5 from line 4. If less than zero, enter zero.
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
4. I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.
5. Can you provide examples?
A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.
The borrower figures income from the foreclosure as follows:
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___$220,000__2. Enter the fair market value of the property from Form 1099-C, box 7. ___$200,000__3. Subtract line 2 from line 1.If less than zero, enter zero.___$20,000__
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure. __$200,000__5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ___$170,000__6. Subtract line 5 from line 4.If less than zero, enter zero.___$30,000__
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000 minus $170,000), because they owned and lived in their home as a principal residence for at least two years. Ordinarily, the borrower would also have taxable debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the borrower’s liabilities exceed assets by $20,000 ($250,000 minus $230,000) there is no tax on the canceled debt.
Other examples can be found in IRS Publication 544, Sales and Other Dispositions of Assets, under the section “Foreclosures and Repossessions”.
6. I don’t agree with the information on the Form 1099-C. What should I do?
Contact the lender. The lender should issue a corrected form if the information is determined to be incorrect. Retain all records related to the purchase of your home and all related debt.
7. I received a notice from the IRS on this. What should I do?
The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.
8. Where else can I go to get tax help?
If you are having difficulty resolving a tax problem (such as one involving an IRS bill, letter or notice) through normal IRS channels, the Taxpayer Advocate Service may be able to help. For more information, you can also call the TAS toll-free case intake line at 1-877-777-4778, TTY/TDD 1-800-829-4059.
In some cases, you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC). LITCs are independent organizations that represent low income taxpayers in tax disputes with the IRS. Find information on an LITCs in your area.
Questions and Answers on Home Foreclosure and Debt Cancellation
Update Feb. 4, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
This provision applies to debt forgiven in 2007, 2008 or 2009. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The amount excluded reduces the taxpayer’s cost basis in the home. More information on claiming this exclusion will be available soon.
The questions and answers, below, are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007.
1. What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.
2. Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Certain farm debts:If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences, as discussed in Question 3 below.
3. I lost my home through foreclosure. Are there tax consequences?
There are two possible consequences you must consider:
Taxable cancellation of debt income.(Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans.)
A reportable gain from the disposition of the home (because foreclosures are treated like sales for tax purposes).(Note: Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income.)
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___________2. Enter the fair market value of the property from Form 1099-C, box 7. ___________3. Subtract line 2 from line 1.If less than zero, enter zero.___________
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure ________5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ____________6. Subtract line 5 from line 4. If less than zero, enter zero.
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
4. I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.
5. Can you provide examples?
A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.
The borrower figures income from the foreclosure as follows:
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___$220,000__2. Enter the fair market value of the property from Form 1099-C, box 7. ___$200,000__3. Subtract line 2 from line 1.If less than zero, enter zero.___$20,000__
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure. __$200,000__5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ___$170,000__6. Subtract line 5 from line 4.If less than zero, enter zero.___$30,000__
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000 minus $170,000), because they owned and lived in their home as a principal residence for at least two years. Ordinarily, the borrower would also have taxable debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the borrower’s liabilities exceed assets by $20,000 ($250,000 minus $230,000) there is no tax on the canceled debt.
Other examples can be found in IRS Publication 544, Sales and Other Dispositions of Assets, under the section “Foreclosures and Repossessions”.
6. I don’t agree with the information on the Form 1099-C. What should I do?
Contact the lender. The lender should issue a corrected form if the information is determined to be incorrect. Retain all records related to the purchase of your home and all related debt.
7. I received a notice from the IRS on this. What should I do?
The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.
8. Where else can I go to get tax help?
If you are having difficulty resolving a tax problem (such as one involving an IRS bill, letter or notice) through normal IRS channels, the Taxpayer Advocate Service may be able to help. For more information, you can also call the TAS toll-free case intake line at 1-877-777-4778, TTY/TDD 1-800-829-4059.
In some cases, you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC). LITCs are independent organizations that represent low income taxpayers in tax disputes with the IRS. Find information on an LITCs in your area.
Tuesday, February 19, 2008
Busy, busy, busy
So I think the spring market is here. I was wondering when we would see it pick up and I think the past two weeks have been indicators for us that it is here. We have had two properties receive multiple offers and buyers are starting to come out of the woodwork. So much so, I think this might be the end of my mini ski-trips. Just when I bit the bullet and purchased new skis so I wouldn't have to deal with renting. There's always next winter.
We also have had several sellers come to us for market evaluations and listings, hoping to get their place sold during the peak of the market. I do think that this sping will be different than the previous 7 or 8 springs, in that there is much more inventory on the market and very little of it is inspiring. Developments have slowed way down and nicer units are being held onto by owners hoping to ride out this down cycle of the market. This is leaving less desirable units on the market with languishing market times and reducing prices. The one caveat to that is spectacular properties that are head and shoulders above their competition are selling. They are selling fast and usually with multiple offers. The point I guess I'm trying to make is, as a buyer, if you come across a property that is better than the others in the same price range, I would seriously consider an offer.
Again, as most who know me, my favortie saying is "It's all about price." Anything, given the right price will sell. That is a very large reason why I love real estate. It is one of the purest forms of market economics.
We also have had several sellers come to us for market evaluations and listings, hoping to get their place sold during the peak of the market. I do think that this sping will be different than the previous 7 or 8 springs, in that there is much more inventory on the market and very little of it is inspiring. Developments have slowed way down and nicer units are being held onto by owners hoping to ride out this down cycle of the market. This is leaving less desirable units on the market with languishing market times and reducing prices. The one caveat to that is spectacular properties that are head and shoulders above their competition are selling. They are selling fast and usually with multiple offers. The point I guess I'm trying to make is, as a buyer, if you come across a property that is better than the others in the same price range, I would seriously consider an offer.
Again, as most who know me, my favortie saying is "It's all about price." Anything, given the right price will sell. That is a very large reason why I love real estate. It is one of the purest forms of market economics.
Friday, February 15, 2008
Market Snapshot - Dorchester Condos
Here are some telling market statistics in the condo market. I compared what many consider the height of the market with today. I'll let you make your own conclusion regarding where the market is going. One thing to note is that if you are selling, you best be sure your condo is the best condo in its price range. There is a lot of competition out there…
2/15/2005 | 2/15/2008 | ||||
Price Range | Number of listings | Avg. Days | vs. today | Number of listings | Avg. Days |
Under $50,000 | - | - | - | - | |
$50,000 - $99,999 | - | - | 9 | 208 | |
$100,000 - $149,999 | 4 | 121 | 22 | 102 | |
$150,000 - $199,999 | 21 | 76 | 78 | 139 | |
$200,000 - $249,999 | 31 | 70 | 71 | 98 | |
$250,000 - $299,999 | 59 | 107 | 69 | 124 | |
$300,000 - $349,999 | 30 | 86 | 44 | 145 | |
$350,000 - $399,999 | 19 | 89 | 21 | 152 | |
$400,000 - $449,999 | 5 | 61 | 8 | 226 | |
$450,000 - $499,999 | - | - | 8 | 136 | |
$500,000 - $599,999 | - | - | 2 | 68 | |
$600,000 - $699,999 | - | - | 3 | 95 | |
$700,000 - $799,999 | - | - | 1 | 135 | |
$800,000 - $899,999 | - | - | - | - | |
$900,000 - $999,999 | - | - | - | - | |
$1,000,000 - $1,499,999 | - | - | - | - | |
$1,500,000 - $1,999,999 | - | - | - | - | |
$2,000,000 - $2,499,999 | - | - | - | - | |
$2,500,000 - $2,999,999 | - | - | - | - | |
$3,000,000 - $3,999,999 | - | - | - | - | |
$4,000,000 - $4,999,999 | - | - | - | - | |
$5,000,000 - $9,999,999 | - | - | - | - | |
Over $10,000,000 | - | - | - | - | |
Total Properties | 169 | Avg. 90 | 336 | Avg. 129 | |
Lowest Price: | $130,000 | Lowest Price: | $57,500 | ||
Median Price: | $269,995 | Median Price: | $239,900 | ||
Highest Price: | $449,000 | Highest Price: | $739,000 | ||
Average Price: | $277,755 | Average Price: | $256,041 | ||
Total Market Volume: | $46,940,695 | Total Market Volume: | $86,286,004 | ||
Tuesday, February 5, 2008
Thank you
Just a quick thanks to those at the polling stations today. I voted at Dorchester House this afternoon and I just wanted to say thank you to the election volunteers and workers that spent the day doing a pretty mindless task with enthusiasm.
Thanks!
Thanks!
The Monday after...
Ok, our Pats didn't do so well on Sunday and the mood in Boston pretty much matches our weather; cold, grey and rainy. What I also noticed is that we hit a new low on our website. We had the fewest amount of hits to our site since we started tracking. I am guessing that most were nursing hangovers and trying to forget the loss.
And now that it is Tuesday, there is a new 'Super' event to watch. I will be voting later on today at Dorcheser House and I'm sure I won't be able to escape the punditry on TV tonight. Hopefully, this will take the sting away from Sunday.
Go Vote!!!!!
And now that it is Tuesday, there is a new 'Super' event to watch. I will be voting later on today at Dorcheser House and I'm sure I won't be able to escape the punditry on TV tonight. Hopefully, this will take the sting away from Sunday.
Go Vote!!!!!
Sunday, February 3, 2008
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