Rick Schuster

“In general, homeowners believe the government will extend this tax provision,” says San Diego Realtor Joy Bender. “However, as evidenced by the First Time Homebuyer Credit expiration in 2010, you can’t always count on the government to bail you out.”

The government generally considers forgiven debt to be income. If a seller has signed legal loan papers to take out a $200,000 mortgage and the lender accepts $100,000 in a short sale, for example, the seller received the equivalent of $100,000 in free money by government estimates. As a result, the IRS taxes it. For tax year 2012, however, the government still forgives the debt; in 2013, it might not.

The tax amount can be significant. On a debt of $100,000, a short-sale seller in the 25 percent tax bracket could end up owing $25,000 in income taxes.

Since short sales can take months and even fall through, homeowners considering a short sale may want to start the process sooner rather than later.

© 2012 Florida Realtors®

Reprinted with permission. Florida Realtors®. All rights reserved.

For those of you who do not live in Florida, the State has a government run homeowner's insurance program for properties which do not meet the insurability requirements from mainstream property insurance companies. Citizens Property Insurance Corporation is often referred to as "the insurer of last resort". It's who a homeowner goes to when they can't get coverage elsewhere. At the Citizens website it explains that "Citizens is a not-for-profit, tax-exempt government corporation whose public purpose is to provide insurance protection to Florida property owners throughout the state. The corporation insures hundreds of thousands of homes, businesses and condominiums whose owners otherwise might not be able to find coverage."

What happens, however, if Citizens won't insure a property?

My brother-in-law is in the process of buying his first home. Everything is in place except for the homeowner's insurance. The home he is purchasing was constructed in 1981. The home inspector verbally indicated that the remaining life of the roof is 5-8 years. In the inspection report, however, the inspector indicates that the roof must be replaced within 1 year. Citizens policy is that if a home is older than 25 years, and if the roof is constructed with shingles, then a qualified inspector must indicate that the remaining useful life of the the roof is no less than 3 years. While this situation will not be an issue with my brother-in-law, it got me thinking that this could be a huge issue for other's.

Take, for instance, a homeowner who is Selling and does not have the funds to bring a property up to an insurance company's standards. The Buyer certainly is not going to put any money into a property prior to purchasing. The one who stands to potentially lose is the bank because the home may need to foreclose or short sell. While this is an extreme example as there are renovation loans and/or FHA 203K rehab loans, the potential remains that a policy won't be written and, accordingly, the house won't sell.

Here's another potential hurdle --- the insurance company (not just Citizens) may write the policy only to cancel it within 90 days because it did not meet their initial underwriting guidelines. At that point the homeowner will need to make the necessary improvements or face the sometimes exorbitant costs of forced placed insurance! WHAT? They can cancel immediately after they write the policy? This seems a little unfair to the consumer. A mortgage company must underwrite a mortgage prior to issuing a loan, why shouldn't an insurance company be required to underwrite a policy prior to a home purchase.

It seems like the State of Florida has some work to do when it comes to insuring certain homes in the state.

It's no secret that property values have decreased substantially over the past 4 years. Over that same period of time, so have the values that the taxing authority in Palm Beach County, Florida uses to calculate our yearly property tax. What happens, however, if you feel that you are being taxed at an unfair amount and that the calculation for property taxes is based on an unrealistic market value? Did you know that you can file and appeal with the county? Here's how:

1. The first step is to contact the Palm Beach County Property Appraiser's Office.
2. If you are dissatisfied with your communication with their office, you can appeal the taxable value of your home to the Value Adjustment Board via the filing of a petition.

The value adjustment board is an independent body consisting of two Palm Beach County Commissioners, one School Board member and two members at large who are appointed by the County Commission and the School Board.

NOTE: There is a deadline to file your petition. The deadline can be found on the Notice of Proposed Taxes, which is mailed in August to Palm Beach County property owners.

If you would like to "read up" on the Uniform Policies and Procedures for the Value Adjustment Board, you may do so by following this link.

Did you know that Wells Fargo has a Renovation Financing division? Well, aparently they do. I recently had the opportunity to sit down with their "go to" Loan Officer covering Palm Beach County -- his name is Robert Zuckerman.

Background
When someone purchases a home, often times the Buyer's lender will not consider financing the property if it is in disrepair. For instance, if the property needs a roof, kitchen, certain appliances and etc., the lender may balk at financing the project. While the FHA has the "203K" program which is an excellent product for certain renovation type purchaes, it has its limitations.

Wells Fargo's Program(s)
While Mr. Zuckerman could find you an FHA 203K Loan, the real benefit to the Wells Fargo product is that you could obtain 80% financing for a property that is in dire need of renovation. For instance, Mr. Zuckerman explained to me that he was recently able to provide an 80% Loan to Value mortgage to a Buyer who was purchasing a house with no kitchen (literally), no water heater and "challenged" air conditioning. The loan took around 2 months to close and the Buyer has since moved in and begun the process of renovating his new home. All this is being done WITHOUT monthly mortgage insurance!

So, if you know of anyone who may be looking for a renovation mortgage, who is not considering the FHA 203K loan, Mr. Zuckerman may be a good contact for you.

Over the past several months, there have been some very attractive properties for sale in the South Florida area.

Here's a few that I have recently been working on:

Property 1
Duplex Located in Delray Beach, FL
Estimated Value: $120,000
Offer: $64,000
Gross Income from Rents: $1,450 per month ($17,400 per year)
Type of Financing: Cash Buyer
Type of Sale: Short Sale which was approved and closed within 90-120 Days
Gross Cash on Cash Return: 27%
This home, a few years ago, had a mortgage in excess of $200,000
Condition of Home: No initial work on property required

Property 2
Single Family Home Located in Delray Beach, FL
Estimated Value: $60,000
Offer: $35,000
Gross Income from Rents: $800 per month ($9,600 per year)
Type of Financing: Cash Buyer
Type of Sale: Short Sale which has been approved (within 45-60 Days)
Gross Cash on Cash Return: 27%
Condition of Home: Property could use cosmetic upgrades but it's not "required"

Property 3 (available)
Single Family Home
Estimated Value: $124,000
Current Gross Income from Rents: $1350 per month ($16,200 per year)
Type of Financing: This property may be able to be financed
Type of Sale: This is a short sale with has been previously approved by the Seller's Lender
Projected Gross Cash on Cash Return: 13%
Condition of Property: Property could use cosmetic upgrades but it's not "required"

Propery 4 (available)
Single Family Home
Estimated Value: $175,000
Price: $170,000
This home has been pre-approved via a cooperative short sale from Bank of America. It is located in Wellington, FL. This home is located on a corner lot, has a small pool, 3 bedrooms, 2 baths and has a nice sized yard. You may be able to rent this unit out and return around 10% (gross). This home needs some cosmetic upgrades.

Prices, in some areas, continue to fall. Please contact me, or your local Realtor/Realtor of choice, if you should have any questions regarding the home sale process.