Helen Oliveri

Congress continues to make changes in the tax code in response to the housing crisis. A key change helps millions of homesellers who owe more on their mortgages than their dwellings are worth. These sellers have negative equity — a condition known colloquially as being upside down or underwater. Legislation that went on the books at the start of 2007 significantly benefits some upside downers and does absolutely nothing for others.

This is how the break works. Suppose Sela Sellers disposes of her residence in a lender-okayed short sale that erases the unpaid part of her mortgage. Or suppose the lending company forecloses on the dwelling, subsequently sells it and cancels a portion of her debt. Generally, the tax code calls for Sela to report partially or entirely forgiven amounts on her 1040 form. Not any more. The Mortgage Forgiveness Debt Relief Act of 2007 includes a provision that allows homesellers like Sela to exclude as much as $2,000,000 of canceled debt.

Sela excludes (sidesteps) taxes only if she satisfies two stipulations. First, the security for her mortgage is her principal residence, meaning the place she ordinarily lives most of the year. Second, she incurs the debt to buy, build or substantially improve her principal residence. There is no relief for Sela’s home equity loans or cash-out refinancings, except to the extent that she uses the proceeds to make improvements. Other fine print prohibits relief if her lenders forgive debts on vacation homes and other second homes or rental properties.

Long-standing rules generally require debtors to report all forgiven debts on their 1040 forms, just the same as income from salaries or investments. The Internal Revenue Service taxes forgiven amounts at the rates for ordinary income from sources like salaries. Some forgiven debts sidestep taxes. The law specifies several carefully hedged exceptions. They include bankruptcies and insolvencies.

The exception introduced in 2007 benefits people whose debts are reduced or cancelled in arrangements that are known as loan modifications, foreclosures, deeds in lieu of foreclosure and short sales. This last category is the term for an owner who -- with lender approval -- sells for a net sales price (gross sales price minus legal fees, broker’s commission and other costs) that is insufficient to cover all of the outstanding debt.

In tax lingo, the exclusion is for income from the discharge of QPRI, short for qualified principal residence indebtedness. This means mortgages taken out by owners to buy, build, or substantially improve their principal residences. And the residences are the securities for the debts.

There also is an exclusion for debt reduced through mortgage restructuring, as well as for debt used to refinance QPRI. Here, there is relief, but only up to the amount of the old mortgage principal, just before the refinancing.

Another constraint is that the exclusion does not help homeowners who took advantage of the run up in real estate prices to do "cash-out" refinancing, in which they did not use the funds for renovations of their primary residences. Instead, they used the funds to pay off credit card debts, tuition charges, medical expenses, or certain other expenditures.

J. Block

Technological advances have improved our professional and personal lives in many ways.

We are able to get more done, in less time, with more cost effectiveness and efficiencies. Technology is impacting the construction industry, as well, as a new report from McGraw-Hill Construction shows. In its latest SmartMarket Report, "The Business Value of BIM: Getting Building Information Modeling (BIM) to the Bottom Line," nearly half of respondents (49%) report that they are using BIM tools -- a 75 percent increase over the 28 percent BIM adoption rate measured in 2007.

“Those companies that are embracing BIM most aggressively are reaping real and measurable business benefits for their firms -- increased productivity, profitability and prestige," said Norbert W. Young, Jr., President, McGraw-Hill Construction. "As with the entire portfolio of McGraw-Hill Construction products and services, this report serves the industry's need for reliable and timely information. We are pleased to be able to provide this report with measurable statistics and meaningful analyses on the Business Value of BIM to the construction community, and trust that it will further enable experts and newcomers alike to grow their businesses."

BIM offers a new way of creating and leveraging digital models for the design, construction and operation of projects, and it is revolutionizing the way firms communicate, solve problems and achieve better outcomes. BIM is spreading quickly throughout the design and construction industry, and there is a growing interest both in quantifying that growth and in defining the business benefits of this new approach to project delivery.

“BIM leaders are quickly outdistancing their competition, and those who aren't preparing for this inevitable industry-wide transformation are going to struggle when the economy revitalizes," said Stephen Jones, Senior Director, McGraw-Hill Construction, and one of the authors of the Business Value of BIM Report. "More and more, owners are demanding the benefits of BIM on their projects. This is our future." Based on research with thousands of industry professionals, the 2009 Business Value of BIM Report shows that: -- The U.S. West Coast leads BIM adoption with a 56 percent rate, far ahead of the Northeast (38%). Canada closely resembles the North American average at 48 percent.

* Current BIM users of all skill levels expect to double their application of it on projects over the next two years.

* 42% of BIM users consider themselves experts or advanced – three times the amount in 2007.

* Those with higher BIM-skill levels report over twice the ROI of beginners.

* Users who formally measure the benefits of BIM see greater ROI.

* Experienced users are leveraging their BIM capabilities to win new work over their competitors, and rate this as among the greatest current benefits of BIM.

BIM remains a 'game changer,'" said Jay Bhatt, Senior Vice President, Autodesk Architecture, Engineering and Construction Solutions. "We are ecstatic that BIM adoption has increased so dramatically since last year. This is a true indication that BIM is being adopted by owners, architects, engineers and construction professionals throughout the industry. We expect BIM to continue to grow more prominent in the coming months and years." Technology is changing our world forever. The construction industry should be eager to help advance its business practices and it appears BIM is the first in what promises to be may ways to make this happen.

P. Mosca

Capitol Hill housing and mortgage lobbyists were buzzing last week about an aggressive new legislative proposal that could put tens of thousands of financially-stressed home owners into loan modifications, even if their lenders and loan servicers had to be dragged kicking and yelling to the negotiating table.

Under the new bill, which was sponsored by four Democratic senators active in housing issues, all lenders and servicers operating in the U.S. would be prohibited from foreclosing on home owners unless they had discussed reasonable modification options with the borrowers.

Lenders who didn't comply would be hit by stiff fines and other legal penalties.

Even more significant -- all lenders would be required to perform what the bill calls a “net present value” test for every seriously delinquent borrower -- that is, a financial analysis weighing the financial benefits of a modification of loan terms, compared with those of a foreclosure.

If the net present value of a modification exceeded that of a foreclosure, lenders would be required by federal law do so.

For borrowers unable to handle the payments offered under a modification plan, the bill would create a multi-billion national fund for states to make loans or grants to prevent foreclosures.

The bill, called the Preserving Homes and Communities Act, was authored by Rhode Island Senator Jack Reed, a senior banking committee member. It's co-sponsors include Illinois Senator Dick Durbin, Jeff Merkey of Oregon and Sheldon Whitehouse of Rhode Island.

The senators said they plan to push the legislation hard because they're frustrated by the slow pace of loan modifications in the face of record numbers of foreclosures this year.

“Voluntary efforts to keep families in their homes have failed,” said Durbin. “This bill will force lenders to modify qualified mortgages” rather than letting them move quickly to foreclosure, which destroys households and neighborhoods.

The mortgage payment assistance program created by the bill would provide money to state housing agencies to set up revolving funds to assist people who've lost income in the recession and now face the imminent loss of their house.

Federal and state funds could provide gap financing to get people past their problems -- or outright grants -- to help them avoid foreclosure.

The bill would also fund state and local programs that create “mandatory mediation” requirements. Lenders would have to allow mediation efforts between themselves and their borrowers before filing foreclosures against home owners.

Though certain to be opposed by banking and mortgage lending groups, the new proposal could get serious traction in the Senate, and is virtually certain to get strongly support in the heavily Democratic House.

K. Harney

Heating and cooling for an average home account for 50 percent to 70 percent of a homeowner's energy usage. If your home isn't adequately insulated that can mean added costs that deplete your wallet each month.

The Energy Efficient Codes Coalition (EECC) strives to achieve an initial 30 percent boost in the energy efficiency of the 2009 International Energy Conservation Code (IECC) over its 2006 counterpart. The EECC writes on its Web site, "Because homes and other buildings are the largest sectors for US energy and electricity consumption, using 40 percent of US energy and 71 percent of its electricity, respectively and, at 37 percent, the largest single source of American's greenhouse gas emissions, they represent the nation's last great frontier of wasted energy.

The move toward building more energy-efficient homes is increasing. According to the 2006 McGraw-Hill Construction Residential Green Building SmartMarket Report, by 2010 green homes will make up 10 percent of new home construction; that's up from just 2 percent in 2005.

Actor Brad Pitt has given his time and energy to bring awareness to the energy-efficiency movement by taking ownership of efforts that build green homes through his foundation. In the aftermath of Katrina the community of homes being built under the "Make It Right New Orleans" housing charity is considered "the largest and greenest community of single-family homes in the world", according to U.S. Green Building Council President, CEO & Founding Chair, Rick Fedrizzi. Four years after the devastating hurricane struck, green houses are rising from the wreckage. So far there are only about 15 homes completed in the Lower 9th Ward, but Pitt says that there will be 150 by the end of 2010. He claims that the families living in these homes are paying significantly reduced electrical and utility bills.

But energy-efficient homes still remain the exception. There are approximately 45 million homes in the U.S. that lack the proper levels of Insulation.

That causes not only higher household utility expenses but also more health hazards. According to the Harvard University School of Public Health, thermal insulation not only helps with energy efficiency but also contributes dramatically to public health. Studies show that increasing insulation reduces energy usage and emissions which result in fewer deaths and instances of respiratory and cardiovascular ailments that are often associated with air pollution.

Experts say that homes under 10-years old could be lacking the proper amount of insulation. Taking steps to adequately insulate your home can help your current financial picture (federal tax credits and incentives may apply). Increased insulation can also be considered a very valuable benefit when it comes time to sell. If you've already upgraded your insulation and are listing your home on the market, it's a good idea to make that known in marketing materials. Insulation is a hidden advantage. It's not as easy as showing off a newly remodeled kitchen, however, it can be a big influencer for buyers—especially if you educate them about the upgrades that you've made and how that transfers to savings for them once they're living in the home.

P. Chongchua

If the Obama administration's proposed Consumer Financial Protection Agency passes into law, that agency would oversee many consumer financial products, including the title insurance, which is now largely state regulated.

But consumers don't have to wait for the political infighting to subside before they get good service for a decent price.

Understanding the process can shave hundreds of dollars off the price and protect you from abuse.

Here's a brief primer on title and escrow services.

• Title companies are hired, in part, to issue title insurance protection for home buyers and lenders. Lenders require the service to protect them against loss resulting from claims by others against your new home.

The title company investigates the title to make sure it is clear of any encumbrances, such as liens or judgments, forgeries or fraud and any other title anomalies and then issues a policy to protect you from any claims that turn up later. Because title searches are conducted each time the home changes hands or, perhaps, during a refinancing, the searches rarely turn up title claims, but you have to pay for the search.

• Escrow services provide a neutral third party, through which is funneled the paperwork, money, transaction instructions and other details of a home purchase or mortgage refinance. The companies hold onto, and then exchange, disburse and transfer deeds, other documents and monies related to the transaction.

In some areas, escrow attorneys provide the escrow service. In other areas, combined title and escrow companies do the work. In most cases, title and escrow services are purchased as a package.

Local custom dictates who -- the buyer or the seller -- pays for what, or the costs can be negotiable between the buyer and seller.

All the expenses associated with title and escrow costs from tiny recording fees to title insurance premiums can add up to thousands of dollars, and those fees can vary widely from one company to another.

What many real estate consumers overlook is that they can also negotiate with the title and escrow companies and shop around for the best deal.

B. Perkins