The measure, which is expected to be signed by Gov. Arnold Schwarzenegger, would waive state taxes on mortgage debt that has been forgiven in a foreclosure or short sale.
Thousands of Californians whose homes were foreclosed on or sold at a loss would get tax relief under a measure approved Thursday by the state Legislature.
The bill would waive state taxes on mortgage debt that has been forgiven in a foreclosure or short sale. It is expected to affect about 34,000 taxpayers.
Gov. Arnold Schwarzenegger said he would sign the measure, which would also provide about $60 million in tax credits to green-energy companies, when it reached his desk. Californians can already claim the tax breaks on federal returns. Lawmakers passed the measure in time for people to take advantage of it by the April 15 deadline for filing tax returns.
“The mortgage-debt tax relief provision in this bill will provide financial shelter for tens of thousands of Californians who have lost their hopes and dreams in the housing market crash, and it’s about time we gave these folks a helping hand,” said state Sen. Ron Calderon (D-Montebello).
The short-sale provision would mean about $34 million less in tax revenue for the state over three years, according to the Franchise Tax Board.
The “green” credits are a response to the federal American Recovery and Reinvestment Act, which provides grants to firms for power plants that produce renewable energy. The federal government does not tax the grant money. Under the bill approved Thursday, California would provide similar relief.
Other parts of the measure, SB 401 by Sen. Lois Wolk (D-Davis), were called tax increases by Republicans. Even though they supported the tax-relief element, several GOP members of the Senate and Assembly voted against the bill, which was opposed by the Howard Jarvis Taxpayers Assn.
The Republicans objected to a provision that would reduce deductions for charitable gifts, and to changes that would allow the state to tax more income earned by minor dependents.
The changes would also make it harder to qualify a home as a principal residence for purposes of escaping capital gains taxes when the property is sold, and some penalties and interest charges to corporations would be increased, according to Therese M. Twomey, a principal consultant for the Senate Republican Policy Office.
These changes would bring in more than $10 million in new revenue over five years, Twomey said.
“It’s an issue of fairness,” said Sen. George Runner (R-Lancaster). “You are giving money to one group of people and taking it away from another group of people.”
With the plunge in the real estate market, many Californians have found themselves owing much more on their mortgages than their homes are worth. Some have been foreclosed upon or asked their lender to approve a short sale, in which a home is sold for less than the debt, some of which is waived.
The amount waived has been considered taxable income under California law. The measure passed Thursday would eliminate that tax when a bank agrees to accept less than what is owed on a home. The governor vetoed a similar bill last month because it included a provision, since removed, that would have increased penalties against businesses and wealthy individuals who abuse tax credits.
Nicolas Cage is leaving Bel-Air. And not by choice. The fate of the sprawling Tudor mansion owned by the actor, who won an Oscar for his role in “Leaving Las Vegas,” was decided Wednesday far from the baronial estate. It was up for auction Wednesday morning — along with a handful of other foreclosed properties — on the steps of the county courthouse in Pomona.
After a rapid-fire spiel by the auctioneer, the bidding was opened at $10.4 million, far less than the $35 million that Cage had tried unsuccessfully to sell the house for.
To put it mildly, the house, though impressive, was not to everyone’s taste. Real estate agent Bret Parsons, who toured it most recently in October, described the interiors as “fascinating and bizarre.” “The design was ‘frat house bordello,’ ” Parsons said. “There must have been 300 comic book covers elaborately framed and hanging on the walls.” Model train sets on raised tracks a couple feet below the ceiling circled the inside of the breakfast room and two bedrooms.
There were also no takers in the courthouse sale, and in less than a minute the auction closed, with ownership reverting to the foreclosing lender — just one of six holding a total of $18 million in loans on the property.
The pattern of repeated borrowing against equity is familiar to Bob Baker, sales manager of County Records Research, a Huntington Beach-based company that supplies information about foreclosure properties. “This is a microcosm of what’s going on in our state,” Baker said. “We’ve seen as many as 13 loans on a house.” When people keep borrowing, he said, it has “a snowball effect.” The final loans often are taken out to meet expenses, he said. “It’s a survival tactic.”
This is not the only property lost to foreclosure by Cage, who was ranked last year by Forbes as the fifth-highest-paid actor in the U.S. with earnings of $40 million. Cage’s publicist said the actor could not be reached for comment.
In October, Cage sued his former business manager, Samuel J. Levin.
The complaint, filed in Los Angeles County Superior Court, accused Levin of having “lined his pockets with several million dollars in business management fees while leading Cage down a path toward financial ruin.”
Levin filed his own countersuit, describing Cage as setting off “on a spending binge of epic proportions” and states that by July 2008 Cage owned “15 palatial homes around the world,” four yachts, an island in the Bahamas, a private Gulfstream jet and millions in art and jewelry.
The Bel-Air manse, at 11,817 square feet, has a central tower, custom wine cellar, 35-seat home theater, six bedrooms, nine bathrooms and an Olympic-size pool.
Borrowing against it included a first mortgage of $425,000 in 2005 and, in 2007, a second of $10.35 million and a third of $5.5 million.
The fourth, fifth and sixth loans, totaling $2.1 million, all came in 2008.
The courthouse event practically eliminated the lenders’ chances to collect on the last four loans because they’re no longer secured by the real estate.
Besides the fraud and deceit, I have a new story every day about how listing agents are undermining their own sales, to the detriment of their clients, the sellers – and usually caused by incompetance or inexperience. Some deals still close, with all parties bitter and pointing fingers, but others never happen.
Take the case where we made an offer that was about 4% below list price on a CV house, priced in the $800,000s. The listing agent waged her entire case on one sold comp, when there were several others that supported our price. Proud as she was, her counter came back at $4,000 below the list price, and we walked. Why? Listing agents who had two sales last year, and are mis-reading the market that badly aren’t open to being wrong about price – and sure enough, two months later the listing is still active, and no price reduction. My buyers will be closing escrow in the first week of May instead, getting a bigger, better house with state cheese on top.
If you are selling your house, select your listing agent very carefully – check their sales history so you know they can close a deal!
I forgot to mention on the video that the second house on Oak (the one who wanted $1.3 million in 2005) was a foreclosure when they bought it in 1994. Sales prioce was $177,000.
Here’s are the first quarter YOY stats for detached homes in the Carlsbad to Carmel Valley region:
NSDCC
2009
2010
Sales
299
435
$$/sf
$349/sf
$356/sf
DOM
76
75
Here are the monthly sales since January, 2008:
Even with the 45% year-over-year increase in sales for the first quarter, there doesn’t appear to be much pressure on pricing – here is the breakdown by quartile:
There is some extra noise in the higher-end market, probably due more to the specific location and condition of the homes selling each month, than to a trend trying to break out. You can see in the previous two years that there was some price enthusiasm in early spring, but this year we didn’t see as much drop-off around the holidays. Buyers remain picky, but with a limited inventory, how long will the patience hold out?
Reno attorney and real estate investor William Thornton has filed a complaint with the Nevada Real Estate Division against local real estate figures Karen Greathouse and Nancy Fennell of Dickson Realty.
Thornton accused Greathouse of conducting a “pocket listing,” which he wrote means that “the agent fails to advertise the property in order to avoid sharing the commission with another agent (by representing both the buyer and seller) or only to share the commission with agents with whom they have a special relationship.” At issue is the sale in August of a home at 2550 Lakeridge Shores East in Reno, a lakefront property that had been foreclosed, acquired by Bank of America, and sold for less than the $807,500 BOA paid for it. It was assessed at $753,515.
The $371,000 listing on the house appeared just before the close of business on Aug. 16. Reno resident George Ritter offered that amount on Aug. 17, later increased to $455,000 before the house was sold. Thornton offered $400,000 on Aug. 18 and $500,000 on Aug. 20. In a sale that took many weeks to close, the property was sold for a reported $371,250 to a firm called 7 Figures LLC and was later put back on the market at $699,000 with Greathouse as agent.
In October, Greathouse responded to Thornton’s charges by saying that her selling to him “would have been bank fraud, as well, because … Mr. Thornton’s wife is a blood relative of John Cavanaugh.” In his complaint, Thornton argues that limitation applies only to short sales, which the Lakeridge home was not.
For those who are outside of the earthquake zone and wondered what it was like, here’s a youtube shot today in Brawley, about 50 miles north of the epicenter:
The foreclosure activity around Carmel Valley, Del Mar, and Solana Beach has been sluggish, to say the least. The numbers of SFRs on the auction lists are low, and they’re filled with loan modders and current short sellers. With only a handful getting foreclosed each month, the overall inventory of attractively-priced quality homes is discouraging.
Here’s a brief youtube tour – the first house is scheduled for trustee sale on April 23, with an opening bid of $1,327,500, and the other one on the same street had an opening bid of $1,257,031. The other four bank-owned homes had opening bids of $967,816 (on Winstanley), $835,000, $610,000 (on Barbara), and $1,900,000:
Timothy Geithner is a Sniveling Scamster
Whew. That was fast. It didn’t take long for Wall Street to figure out how to game Obama’s new mortgage modification program, did it? The plan was hyped as help for “struggling homeowners”, but it turns out, it’s just another stealth bailout for pudgy bank-execs. It’s funny, the program hasn’t even kicked in yet and, already, bigtime speculators are riffling through their filing cabinets looking any garbage paper they can find to dump on Uncle Sam. Take a look at this on today’s Bloomberg report:
“Subprime-mortgage securities are rising at an accelerating pace as the U.S. begins to encourage reductions to homeowners’ balances, which may lead to fewer foreclosures and a quicker end to the housing slump….Senior-ranked bonds tied to borrowers with poor credit will mostly benefit after the Treasury Department said for the first time it would seek to cut the size of mortgages, reducing the likelihood that loan modifications will fail, according to JPMorgan Chase & Co., Morgan Stanley and Barclays Plc. (Bloomberg)
What does it mean? It means that Obama’s mortgage modification extravaganza has touched-off a gold rush in toxic paper. Subprime securitizations, which had been worth next to nothing, are now the hottest trade on Wall Street. It’s a subprime bonanza! The investment sharpies are scarfing up all the crummy MBS they can get their hands on, because they know they can trade it in for Triple A FHA-backed loans when the program get’s going. It’s another swindle cooked up by Treasury Secretary Timothy Geithner to keep the brokerage clan in the clover. Here’s how a Wall Street veteran explained it to me:
“It looks like the investors in securitizations will be swapping underwater real estate for govt-insured paper… I think the scam here is just to provide some cover so the hedge funds and other high net worth individuals can trade their low grade paper for Triple AAA mortgages insured by the FHA at the taxpayer expense.”
That’s it, in a nutshell. The faux-foreclosure prevention program has nothing to do with helping homeowners. That’s just diversionary gibberish to confuse the public. The real objective is to create a government landfill (aka–FHA) where the banks and other financial institutions can dump their toxic MBS-sludge and walk away with gov-backed loans. Get a load of this:
(Bloomberg) — The Federal Reserve’s completion this week of its program to buy $1.25 trillion in mortgage bonds probably won’t mean significantly higher U.S. home loan rates as investors return to the market, replacing the Fed…
What we are seeing is an effective handoff occurring between the Fed and industry buyers such as banks and pension funds,” said Christopher Sebald, chief investment officer for Advantus Capital Management in St. Paul, Minnesota…
Advantus is purchasing mortgage bonds after the Fed’s program drained supply in the $5.4 trillion market.” (Bloomberg)
Of course, they’re “purchasing mortgage bonds”, because the government is going to insure them. It’s a “no brainer”. And don’t you love that expression, “a handoff”, because that’s exactly what it is. The government hasn’t stopped pumping liquidity into the system; they’ve just found another entry-point where they can push it in. Here’s how it works: The new program offers incentives to banks and other deep-pocketed investors (in mortgage-backed securities) to slash the principal on underwater mortgages which keeps people from strategic default or foreclosure. Sounds good, right? But here’s the catch: When the mortgage is refinanced, it’s converted into a FHA-backed loan which provides an explicit gov-guarantee. So, for a slight loss on the face-value of the MBS, the investors (ie–investment banks, hedgies, etc) are able to resuscitate their moribund securitizations (MBS) and reap hefty gains. It’s like taking Fido’s steaming pile on the front lawn and turning it into the Hope Diamond. Abracadabra!
