Dear Candy: We have heard that under the new health care bill -  all real
estate transactions are now subject to a 3.8% Sales Tax?  The bulk of these
new taxes don’t kick in until 2013 (presumably after Obama’s re-election).
You can thank Nancy, Harry and Barack and your local Democrat Congressman
for this one.  If you sell your $400,000 home, there will be a $15,200 tax.
This bill is set to screw the retiring generation who often downsize their
homes. Not true, I hope.

I am no fan of the new health care legislation, and I know it’s a mighty complicated piece of work. But let’s get the truth. I checked with Snopes.com, for clarification. The answer is no, sort of. The new health care law imposes a 3.8% Medicare tax on investment income starting in 2013. That’s for high-income individuals, defined as those earning together $250k-ish or more per year. As far as the origins of this rumor, it apparently started with Paul Guppy of the Washington Policy Center who said this was, in effect, a 3.8% sales tax on all real estate sales. It’s not.

But it could be, on some. If you make any money when you sell your home, you will have to pay the 3.8% tax if you are considered to be rich — that is, you earn (combined) more than that $250,000 income. Let’s say a couple who earns more than $250,000 per year sells their $2 million dollar home to downsize. They make a $750,000 profit on the sale. They will have to pay that extra tax of 3.8% on $250,000 — that’s $750,000 minus the $500,000 capital gains tax threshold. The tax they pay would be $9,500.

That’s $9,500 they would not have paid prior to the legislation.

Now my wheels are spinning. Government tax policies always affect real estate — remember tax law changes in the 1980s? Obviously I am not a CPA, so any out there please chime in because I wonder — will this still happen if you invest all your equity in another residence — or two homes? (I am under the impression that as long as you keep investing your equity gains in real estate, you can avoid capital gains taxes? No?)  Maybe the “rich” will be buying downtown condos by the boatloads.

Or is it too early to tell?

Because I am wondering if this will produce mass sales hysteria before 2013, with tons of empty nester homes hitting the market? And you know what that means.

Of course, if you earn less than $250,000 a year, why worry? Let’s just sock it to the rich!

“Last week, my daughter was in a class for mortgage licensing. A man asked the teacher if past items on your record would inhibit you from receiving your license. When asked what item he was referring to, he admitted to robbing a bank – but did his time. Btw, he’s been originating loans for 3 years. The teacher told him to rob another bank, cause he wouldn’t be able to originate any longer! He got up and walked out.”

Know why Rodney is fighting for this? Because he has seen more than 100,000 personal credit reports and tells me that folks can have near-perfect credit, pay their bills on time, but that medical collection debt just keeps hanging on like clay mud and kills people’s chances of obtaining a mortgage even after it has been paid!

He’s also lucky enough to have a radio show on KRLD every Saturday morning at 11:00 a.m. And guess who he has invited to be on his show, Saving Your Financial Life,  THIS SATURDAY AT 11:00 A.M? DallasDirt. That’s right, Rodney and I are going to talk down and dirty about real estate in this town. And mortgages. I’ll kind of interview him, he’ll interview me. Tune in — I know it’s Saturday, but we house junkies can learn some pretty important things from Mr. Rodney Anderson.

And that, as we saw earlier this week, is leaving a lot of SELLERS hanging.

The home mortgage deduction worked just fine until the advent of a lot of things like adjustable rate mortgages,  creative financial types selling and securitizing loans, and the U.S. government silently approving loans to folks who couldn’t afford them. In other words, it worked for the last 60 years.

Let’s look at our neighbor to the north, Canada, where mortgage interest is not deductible. I was shocked to learn that home ownership rates in Canada are actually higher than in the USA — 69% there to our 67.2%, this without a tax advantage to home ownership.

But maybe it’s not the mortgage deduction that helped Canada remain the only industrialized country in the world that has survived the last two years of financial and economic stress without a single bank failure. Maybe it’s their banking structure. What do they do to survive the recent worldwide slowdown, and even the Great Depression, without a single bank failure, and what can the United States learn from Canada about sound banking?

There are many differences. Canadians hold a fixed rate for five years, then re-negotiate the loan. Canadian banks don’t sell off mortgages, mortgage insurance is more common up there than down here, and all Canadian mortgages are “full recourse” — that is, lender can go after personal assets in case of a default. There are higher pre-payment penalties which discourages lot of re-financing, and instead of encouraging home ownership for low income households, Canada provides public funding for low-rental housing.

But I still think we need our mortgage tax deduction. It is woven into the fabric of this country, and the housing market is one of our biggest indicators of economic health. Forget the old line that as GM goes, so goes the U.S.A;  replace it with as housing goes, so goes the U.S. economy.  If housing falls into the crapper at all levels, we all suffer just as we have been the last few years.  Building homes creates jobs, as does buying, selling, maintaining, decorating,  re-decorating, moving.  You really want to mess with that just as we may be seeing the light of day out of the worst recession since the Great Depression? That first-time homebuyers credit was one of the smartest things this administration has done to pull us out of the hole. It targeted a group of buyers who may have otherwise clung to renting. It moved them into new homes, where they set up housekeeping. Another bright idea: HUD relaxing the 90 day moratorium on flipping investment properties.

Chris, focus: if we eliminate the mortgage tax deduction, who in the beejesus is going to take those foreclosed homes, fix them up and flip them to the new home buyers? A new report out yesterday by George Roddy of Foresclosure Listing Service says that investors bought up 250 Dallas-area homes during the first quarter of  2010 for 56 cents on the dollar. (Investor buy ups represented more than six percent of the market.) Clearly, one man’s loss is another man’s gain.

“Despite the downturn in the economy, there are many households out there that have stashed some money away or have good credit.  For these families, it is an ideal time to be shopping for a home to live in or for an investment piece of real estate,” says Roddy.’”

I guess, Chris,  you were in Pampers in the 1980′s.

Then there’s this thing called pride in ownership, which comes when you have a little patch of grass to garden, a room of your own. Study after study shows that people who lease do not take care of the property as much as they would if they owned it. Studies also show children raised in homes their parents own actually score higher on exams.

Besides, have you noticed that if you want to motivate Americans to do just about anything, offer a tax credit?

Confusing.

Hmm. Maybe the best buyer’s season is yet to come.

Now when I read the story, I too had my doubts, for this reason: if the reports CoreLogic used included HELOCS — home equity lines of credit — why would 30% of Dallas mortgages be underwater? In Texas we are limited to 80% loan to value home equity ratios. That would mean that if someone maxed out their HELOC in Texas, they’d have to have lost 20% of the value of their BRAND NEW 100% FINANCED home and then some to be underwater. Or maybe they’d be flat. Whatever, I thought, as I usually do, who am I to question the brainpower and computers of these geniuses in California? God, we are all so bad!

Well, Gwen questioned them. She did what I should have done and picked up the phone and said, you know, this just doesn’t look right. Artkansas never had a housing bubble. Neither did Texas. She did some research on CoreLogic’s methodology and found out — hold the presses!!! — the company’s numbers may be biased on the HIGH SIDE . In other words, giving us facts that are worse than they really are.

Most of the mortgages used in the study are less than six years old — really? Did the whole world re-finance in the last six years? When she called CoreLogic, Gwen got them to admit actually 85% are less than six years old.

The study assumes that the borrower owes the balance of the mortgage when they took out the loan — in other words, it does not take into account monthly mortgage payments made against that balance. Why? Because of the way CoreLogic gets it’s information — it aggregates information from lenders, matching total mortgaged amounts in geographic chunks, like how much was loaned in a specific area or zip code. Then the computers whiz out numbers against property values. (Obviously I over-simplify.) They get this proprietary info from the lenders and use original loan amounts from public data records. But they base it on the original loan amount — they never get to come into our file cabinets and see how much money we’ve actually paid down on that mortgage or home equity LOC.

See where I’m going with this?

Gwen also found out the study includes the HELOCs but again, uses only the maximum credit figures since that is all the information that is available. So it looks like every one’s HELOC is at the max. Don’t know about you, but I have to pay down on mine every month and in fact, ours is almost paid off.

So if you are using figures that assume homeowners still owe every penny in debt they ever took out on a loan, figures that give no credit to what homeowners have in fact paid, then Gwen asks, maybe that study could over-estimate the number of folks whose mortgages are underwater.

“It’s biased to the high side,” says Gwen. “We need to be a little more skeptical of these studies.”

No kidding.

(Note: Thanks to Gwen Moritz for not only questioning the CoreLogic report but notifying the Alliance of Area Business Publishers of her query via email, which Glenn Hunter, editor of award-winning DCEO, then forwarded to me.)

Yesterday, she learned that all three mortgage checks had been cashed, her mortgage now pre-paid,  and her checking account severely overdrawn. Not only that, she was hit with $350 in bank fees. Her bank officer called her — (“I didn’t even know I had a bank officer,” says she) and said gosh, this is so weird, your account has never been overdrawn in 15 years!

I am researching her recourse on the bank’s actions. They have refunded half the fees. But they would not reverse the payments. My lawyer daughter tells me to always, always write your bank account number on the back of a check or else, if the bank credits it to another account accidentally, they may not be liable. But I wonder how far the instructions on a check go — future dating — and sticky notes? My son (financial advisor) says banks cannot cash checks bearing future dates. But for best results, I have advised getting that mortgage set up on an auto-draft because Texas is a non-judicial foreclosure state.

Which leads me to a theory — would love your opinion on this. When you pay a creditor on an auto-draft, you significantly decrease any collection expenses they may encounter. In fact, you all but eliminate them. I think that banks and mortgage companies should give us a discount if we sign up for auto-draft. Or at least go back to handing out free toaster ovens! Calling Sheila Bair…..

Even if your mortgage has been sold, sold again and re-packaged as a mortgage-backed security, your name is on the note and you are responsible for the monthly payments no matter who it was assigned to. Know those stacks of papers you sign at closing? One of those docs gives your lender the right to assign the loan — or sell it — to whoever wants to pay the big bucks buy it. Miss one payment, you’ll find yourself embroiled in a lot of explanation and eterna-holds. (Wachovia calls me if one of our mortgage payments is two days late!) Miss several and your home could end up being sold on the court-house steps. Texas is a non-judicial foreclosure state, which means nothing has to be shown to a judge prior to launching the foreclosure process. This is one reason why Texas bankruptcy attorneys are busier than sin these days, working Saturdays and going to court to help homeowners save their homes.

But I need reader’s help with this one: is the mortgage holder, in this case none other than our esteemed Wick Allison, required to mail the payment (or send electronically) to the last known servicing address? Isn’t the bank required to notify all mortgage holders when a new loan assignment has taken place and specify where payments are to be mailed? What, if any, are the penalties against the mortgage holder for not doing so?

I recall an article in either the New York Times or Wall Street Journal a few months’ back describing the confusion all these loan re-assignments have caused in the foreclosure process. Folks were getting to court and no one could locate the actual mortgage documents. I’m trying to find the article.

This is not new: the tradition at Romanian weddings was to pin money on the bride (a tradition I’d like to revive), that money going to help the couple buy their first home. There are also many ways parents can help their children buy a home without giving them a chunk of cash. For example, we let my daughter and her fiance live with us while they saved up for a down payment. You can also cover the cost of property improvements on the new home once they move in.

Call me Debbie Divorce Downer, but I am a member of the 50% divorce rate generation: what do you do if the marriage doesn’t last? Let’s say you “gift” Johnny and Susie $20,000 for a down payment on a cute M Streets cottage. They split after two years. Texas is a community property state, home is to be sold and equity split. My take: you have just gifted your son-in-law $10,000. Am I correct?

“If we missed out on the 4.5% refi rates, have we basically missed the boat?  What would make it worth it now to still refi?”

Good question, we’ll find an expert and try to get you some answers!

“From an office in the Washington suburbs, it played an integral, if unsung, role in the proliferation of mortgage-backed securities that fueled the housing boom. But with the collapse of the housing market, the name of MERS has been popping up on foreclosure notices and on court dockets across the country, raising many questions about the way this controversial but legal process obscures the tortuous paths of mortgage ownership.”

Another client paid a local “law firm” that advertises on a local Dallas radio station $3,000 to get his mortgage modified; the firms first piece of advice was to intentionally get behind on his mortgage. The mortgage company posted him for foreclosure, the modification people told him that they couldn’t help him. Now he now faces the prospect of losing his home if he does not pay three months of payments all at once, plus all of the bank’s legal fees related to the foreclosure, and he’s out the $3,000. What a scam.

Then there’s the “foreclosure rescue specialist” called North American Foreclosure, LLP.  Folks need to be careful, says Polk, a bankruptcy attorney and home foreclosure expert for 15 years.

“Sadly, a person will try whatever they have to in order to keep their home and a roof over their kid’s head.  And who can blame them?,” says Polk. “But a con artist can sense that kind of desperation.   The number of so-called “loan modification counselors” has quadrupled in the last 18 months as the hucksters have opened up shop.  These fly-by-night operators target desperate homeowners– the easiest mark, but also the least able to afford such a scam.”