Great information for your clients from IRS.gov

IRS Tax Tip 2011-44, March 3, 2011

If you are a homeowner whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income.
Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.

2. The limit is $1 million for a married person filing a separate return.

3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

8. Debt forgiven on second homes, rental property, business property, credit cards or car loans do not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.

9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.

10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit http://www.irs.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.

You can also use the Interactive Tax Assistant available on the IRS website to determine if the cancellation of debt is taxable. The ITA tool is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions

Taxpayers may obtain copies of IRS publications and forms either by downloading them from http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

It’s the day before closing and your lender is scrambling to get your loan closed. Before closing, a lender is required to re verify the borrower’s employment with a phone call. This is done at the last minute just to make sure the borrower has not been laid off. Often times the borrower is upset when they realize that the lender is calling last minute to see if they work there. They wonder why the lender did not do this a month ago when they applied. The answer is the lender can not do this any earlier than a day or two before closing.

Another thing that is relatively recent in the lending world is what is known as a “soft credit” This is simply an update that is done to see if the borrower has incurred any additional debt before they buy a house. It is also a fraud prevention measure. Believe it or not, there have been cases of borrowers taking out multiple loans on the same property at the same time to pull cash out. The moral..Don’t make any credit purchases before your closing. Your lender will find out about it and this will cause your loan to have to be re underwritten. If you have borrowed too much, your loan approval will be withdrawn and you could lose your deposit on the house you are trying to buy.

Where is the money coming from? Why does the lender care where I get my money for the down payment? There are a couple of reasons why your lender will want know the source of any money that comes into your bank account. The lender will look at your bank statement to see that your pay is coming in on a regular basis, but they also want to know about any deposits over and above your regular pay. The lender wants to see that you have some “skin” in the game. If you have taken the time to save up your down payment you are (in the lender’s eyes)a much less riskier borrower. If on the other hand Mom and Dad are giving you the down payment, statistics say that you are in the higher risk category. That’s not to say that Mom and Dad can not give you the down payment, but it is just one of many factors that are considered when a borrower is evaluated. In addition the lender wants to be sure any money coming into your bank account is not borrowed and therefore creating additional debt. By the way, it’s OK to sell an asset that you own to get your down payment money but the lender will want proof that you owned the asset in the first place. So if you are going to sell your motorcycle or boat, save your old registration.

One last thing, the lending pendulum has swing from “any one breathing can get a loan” to “over documentation of all borrowers”. You loan officer likes this situation less than you do because he or she is dealing with on a daily basis. Try to understand that while it’s OK to ask why a certain piece of paper is needed, it is not your loan officer who makes these decisions. So don’t shoot the messenger. Your loan officer is asking for items that may seem trivial, but they are needed in today’s lending environment to get you to the closing table

If you are working with sellers doing a short sale be sure to check to see if the loan is an FHA insured one. Here is a run down of HUD SHORT SALE GUIDLINES !!

1. Seller must be delinquent 31 days or more at the time of sale.
2. Seller must list with an un-related Licensed Real Estate Broker.
3. Property must be actively marketed for at least four months.
4. Property must be owner occupied. ( There are a few exceptions.)
5. Seller must provide written proof of a decrease in income.
6. HUD will pay upto 1% of the buyer’s mortgage as part of closing costs if the new mortgage is also FHA.
7. HUD allows 6% Realtor commission.
8. HUD will not pay for Home Warranties, points or lender’s title insurance.
9. You must get approval to to participate in The HUD Pre-Forclosure Sale Program in advance.

HERE’S A LINK FOR MORE INFORMATION!!

http://www.hud.gov/offices/hsg/sfh/nsc/rep/pfsfact.pdf

I recently read a blog regarding negative statements that we, as sales people, say all the time but don’t realize what a negative effect it has when talking with prospects and clients and what they might be thinking when you utter these words…

“I can honestly say OR If I’m being honest with you…”
This phrase implies that you have not been honest before, but this time you’re being honest. Using these words do not build trust—so don’t EVER use this phrase, ever.

“What do we have to do to get you on the dotted line today?”
Shades of car salesmen type pressure tactics. Your clients will hesitate, tell you they’ll need to think about it, and never speak to you again. You’re better off asking if they have any additional questions or concerns before moving forward.

“I’ll try to find the answer”
Saying the word “try” does not build client confidence in you. It’s better to say, I’ll find the answer, I will let you know by tomorrow, even if I have not yet found the answer to your questions.

“It’s not my fault”
Even if it isn’t your fault, you are the only person they hired to help them thru the maze of buying or selling real estate—and they are blaming you! It’s better to apologize and talk about ways to fix the problem.

“What you need to do is…”
The client is thinking, “Who are YOU telling me what I need to do?” The better approach is to say, here are several options to consider, which one do you think will work for you?

One more thing, pay attention to what people say to you that makes you crazy—because if it upsets you, saying something like this to your clients will turn them off, too.

Fannie & Freddie Appraisal Quality Rating Codes Explained

On September 1, 2011, Fannie and Freddie are requiring appraisers to include a “Quality Rating Code” on all appraisal reports. Here’s what they mean for both existing and new construction.

Existing Property

C-1 – The entire structure is new, never been occupied and has no physical depreciation.

C-2 – Existing home, no deferred maintenance and requires no repairs. This rating is give if property is “almost” new or has been totally renovated.

C-3 – Existing home, well maintained but evidence of normal wear and tear.

C-4 – Existing home, minor deferred maintenance and requires only minimal repairs.

C-5 – Existing home, major deferred maintenance and in need of significant repairs but the home is still livable as a residence.

C-6 – Existing home, severe defects that affect safety, soundness and livability. If property receives this rating, it’s not eligible for conventional loan.

New Construction

Q-1 – Unique home individual designed by an architect for a specific user and details are exceptionally high quality.

Q-2 – Custom designed home built on individual property owner’s land or high-quality tract lots. Workmanship and materials are high quality.

Q-3 – Built from readily available blue prints in above-standard tract lots or individual’s land. Materials in home are up-graded from standard materials and workmanship exceeds standards.

Q-4 – Standard or modified blue prints. Materials, workmanship, finish work are stock builder grade and may have some upgrades.

Q-5 – Basic, standard quality, economy homes with limited interior design. Meets minimum building codes and inexpensive construction, stock materials and limited upgrades.

Q-6 – Low cost and may not be suitable to year-round use. Low quality and could be built by non-qualified builder with or without plans. May not be able to obtain a convention loan if receives this rating.

I just wanted you to know the new rating codes in case you need to explain it to your clients.
Call me if you have any questions.