WASHINGTON — With the Obama administration and private lenders now actively considering mortgage principal-reduction programs to help financially distressed homeowners, the Internal Revenue Service has issued a new advisory to taxpayers who receive — or seek to receive — such assistance if it’s offered.
The IRS gets involved in mortgage principal write-downs because the federal tax code generally treats any forgiveness of debt by a creditor in excess of $600 as ordinary taxable income to the recipient.
However, under legislation that took effect in 2007, certain home mortgage debt cancellations — such as through loan modifications, short sales or foreclosures — may be exempted from tax treatment as income.
Sheila C. Bair, chairman of the Federal Deposit Insurance Corp., recently confirmed that her agency is working on a new program to expand the use of principal mortgage reductions to keep underwater borrowers out of foreclosure. Major banks and mortgage companies have preferred monthly payment reductions and other loan modification techniques over cuts of principal balances, but a handful have made limited use of the concept.
One of the largest servicers of subprime home loans, Ocwen Financial Services of West Palm Beach, Fla., has strongly advocated principal reductions to keep people out of foreclosure, and claimed broad success with them. Ron Faris, president of Ocwen, testified to a congressional subcommittee earlier this month that borrowers with negative equity are as much as twice as likely to re-default after a standard, payment-reduction loan modification than those who receive partial forgiveness on their principal debt.
But what are the tax implications when your lender essentially says: OK, we recognize you’re underwater, maybe you’re thinking about walking away, and we’re going to write off some of what you owe to keep you in the house? IRS guidance issued March 4 spelled out step by step how financially troubled and underwater borrowers can qualify for tax relief when a lender agrees to lower their debt.
The 7th Annual SOHO Historic Home Tour is next Sunday, March 21st. Enjoy a self-guided tour of six Arts & Crafts homes, designed by Irving J. Gill, William S. Hebbard, Frank Mead and Richard Requa between 1904 and 1913. My Mom is going to be here next weekend, and I’m hoping to take the whole family!
“I was 17 and in high school,” Cunning said, and at one point, Eleanor turned to her and since she had no children, remarked, “Someday it’ll be yours.”
Today, that simple promise has turned into a potentially million-dollar makeover to restore what is believed to be San Diego’s first Prairie-style residence, designed by one of its premier early architects, Irving J. Gill, a student of Frank Lloyd Wright. It’s also noteworthy as one of the few homes of the period that used lower-cost single-wall construction and for being part of a clustered housing arrangement around a common courtyard.
But for now, the house hidden behind a gate and a line of tall trees is a drafty, grimy mishmash of old and older design styles and awkward spaces not ready for 21st-century living.
“It’s a little embarrassing to have a house that is a treasure that’s in this condition,” she said.
Even in its unreconstructed state, the 4,000-square-foot-house will make a star turn, open to the public for the first time next Sunday, as the Save Our Heritage Organisation offers a self-guided tour of this storied avenue near Upas Street at the northwest edge of Balboa Park.
This is where San Diego’s merchant prince, George W. Marston, built his house in 1905 and other relatives and friends erected their own homes, many designed by Gill, whose reputation has grown over the decades as a pioneer in the less-is-more Modernist movement. SOHO operates Marston’s residence, also on the tour, as a house museum.
“It’s a street where some of the most famous families lived,” said SOHO Executive Director Bruce Coons. “It has some of the best architecture of the period and of course by one of the greatest architects. It’s one of the streets that is the least changed, and the houses are very much the way they have been.”
When Cliff Hanna and his wife, Lana Le, bought a dream lot overlooking Torrey Pines State Reserve, they hired an architect to design a dream home to match.
The trouble was that the price tag came out at $2 million.
“The cost was way too much to build,” Hanna said. “We couldn’t afford it.”
So the couple turned to Hanna’s father, Charles Hanna, a civil engineer who recommended a cheaper construction method: modular housing.
This week, the results of that detour from standard, site-building construction will arrive. A caravan of flatbed trucks will deliver four modules built in Boise, Idaho. A crane will place them on a concrete foundation, constructed over the past six months, in a matter of hours.
Then, over the next three months, Lusk Custom Design & Construction will complete a connecting structure and install the appliances, fixtures and flooring. The Hannas hope to move in by early summer.
Total projected cost: $1,017,000. Time from start to finish: nine months.
Compare that with the 12 months or more it takes to build a comparable custom home and it’s easy to see why modular might be the wave of the future as the U.S. home-building industry shakes off the recession.
With 140 empty shops in the borough, council bosses think they have come up with a unique way of ensuring shopping areas remain as vibrant as possible.
The first empty shop unit to be given a makeover with a “flat pack” shop front is in Whitley Bay.
North Tyneside Council said the move was cost-effective and would help to attract new investment.
The council said the fake shop in Whitley Bay – which alone has 49 empty units – has been welcomed by traders and shoppers.
‘Attractive to shoppers’
Judith Wallace, North Tyneside Council’s deputy mayor said: “The economic climate has forced many businesses to bring down the shutters.
“We need to ensure that the remaining businesses continue to survive and that means ensuring our high streets look attractive to both shoppers and potential business investors.
“This is a simple and cost-effective approach that keeps the retail unit available for potential new uses and in the meantime also contributes to the street scene.”
Empty shops in Wallsend and North Shields are now being earmarked for similar treatment, which costs about £1,500 a time.
The government-funded project involves colourful graphic designs featuring a range of different shop types, which are either taped inside the windows or screwed to the fascia so they can be removed and reused as required.
Karen Goldfinch, chair of Whitley Bay Chamber of Trade, said: “It’s an excellent way of promoting how a unit can be used, perhaps inspiring new businesses to come into the town.”
Just the fact that so many more higher-end sales are closing these days is noteworthy, the NSD County Coastal sales of detached $1,000,000+ homes have increased 55% on a year-over-year comparison (and if you take out La Jolla, the others increased a total of 79%!)
Let’s chart the $1,000,000-plus market. Here are the number of active and pending detached listings, the 2009 and 2010 closed sales between Jan. 1 and March 10th, and the number of trustee sales YTD of SFRs that have a Foreclosureradar value of at least $1,000,000:
It looks like servicers are coasting into the HAFA/short-sale era, which officially begins April 5th. Here are the foreclosure stats from the last 12 weeks:
My guess? The HAFA package will encourage borrowers to pick a lane – either loan modification or short-sale. But there are probably enough strategic defaulters to keep it busy down at the court house steps, but so far there have been very few quality properties at attractive opening bids. I’m checking the list everyday, and I haven’t gone down to the ‘steps once this year!
