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Local News for Minneapolis – St Paul

How the Mortgage Debt Cancellation Relief Act Effects You

After much anticipation and a full year of home owners facing foreclosure sweating it out, H.R. 3648 – Public Law 110-142 was finally signed into law December 20, 2007.

One of the pitfalls of a short sale or foreclosure is that any debt amount forgiven or discharged by the lender is recognized as taxable income by the IRS, and then taxed at ordinary income rates for the home owner, even though no actual cash changes hands. The taxation of “fake” money was just another kick in the pants to homeowners who just lost their home to foreclosure, only to find a huge tax bill in the mail that most could not afford to pay. The Act was given a boost of support with the number of foreclosures and the mortgage/financial crisis, not to mention the decreasing home values happening across the country.

So now, with the passage of the H.R. 3648, individuals who are relieved of their obligation to pay some portion of a mortgage debt on a principal residence between January 1, 2007 and December 31, 2009 will not be required to pay income tax on any amount that is forgiven.

Here are some details that might apply to you:

  • No Income Limitation: All borrowers receive the relief, no matter what their income.
  • Dollar Limitation: No more than $2 million of mortgage debt is eligible for the exclusion ($1 million of debt for a married filing separately return).
  • Relief applies only to an individuals principal residence and the forgiven mortgage debt must have been secured by that residence.
  • No relief is available for cash-outs, whether the cash-out takes the form of a refinanced first mortgage, a second mortgage, home equity line of credit or similar arrangement.
  • Eligible debt is what is called “acquisition indebtedness.” This is debt used to acquire, construct or rehabilitate a residence.
    1) Refinanced debt qualifies, so long as the debt does not exceed the original amount of the debt. (Same rule as Mortgage Interest Deduction)
    2) Home equity debt (or second mortgages) qualifies if the funds were used to improve the home. (Borrower must have adequate records, as under current law.)
    3) See cash-outs, above. No amount of a cash-out may be treated as acquisition debt.

Here are a few points of clarification as supplied by the Minnesota Association of Realtors:

  • Refinanced Mortgages: The relief does apply to refinanced debt in some circumstances. The rules seek to assure that any debt eligible for the relief is directly related to the acquisition or improvement (such as rehabilitation, expansion, renovation, reconstruction) of the principal residence. Debt used for furnishings (i.e., any movable property) in the home is not eligible for the relief. When the proceeds of any refinanced debt is used for any purpose other than acquisition or improvement, those proceeds are not eligible for the relief.
  • Principal Residence: A principal residence is defined in the same manner as the rules that apply to the capital gains exclusion on the sale of a principal residence. An individual may not have more than one principal residence at any given time.
  • Second Homes: As a general matter, the relief does not apply to any debt forgiveness on any mortgage for any second home of the taxpayer. However, if a taxpayer uses a residence (other than his principal residence) solely as an income-producing rental property, already-existing relief provisions might apply, depending on the taxpayer’s situation. if the second home property was acquired as a speculative investment (such as for resale rather than rental), relief provisions are unlikely to be available. In all events an individual who is in a short sale, foreclosure, workout or similar situation on a residence (including condos) other than his principal residence should consult a tax adviser to determine what, if any, relief provisions might be available.

Some other points of interest that are tacked on to the Mortgage Debt Cancellation Relief Act are the following:

Mortgage Insurance Premiums: The deduction for mortgage insurance premiums is extended through tax year 2010. Income limitations on the deduction will continue to apply.

Surviving Spouses/$500,000 Exclusion: In some circumstances, a surviving spouse is denied eligibility for the full $500,000 exclusion on the sale of his/her principal residence. This most frequently occurs when the residence is not held in joint ownership at the time the spouse who is not on the title dies. In that case, the deceased spouse had no ownership interest, so there is no basis step-up on that half of the property. the surviving spouse is thus eligible only for an exclusion of $250,000. (Had the home been sold during the deceased spouse’s lifetime, the full $500,000 exclusion would have applied, so long as they filed a joint return.) Challenges for the surviving spouse are compounded when this circumstance occurs late in the year. The surviving spouse is often unable to sell the property within the same year that the spouse died. This legislation provides that a surviving spouse may claim the full $500,000 exclusion not only in the year of the deceased spouse’s death, but also during the two years after the spouse’s death.

Second Homes Converted to Principal Residence: The original House-passed version of this legislation included a provision that would have limited the application of the $250,000/$500,000 exclusion when a second home is converted to a principal residence and later sold. Thankfully, this change was not included in the final legislation that the President signed, as it would have hurt those that own second homes with huge capital gain taxes.

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Why City Councils Should Stick to Business

Yesterday I sat down to read the paper, something I have not been able to do for well over a week. I never expected to get emotional right off the bat, and when I say emotional, I mean the exact opposite of crying.

When I came across an article about the Minneapolis City Council and their recent resolution regarding local foreclosures, I actually had to walk away from the paper before I crumpled it up and threw it into the trash. Since it was buried on page six of the Pioneer Press, many have most likely missed it.

The non-binding resolution passed by the Minneapolis City Council is calling for lenders to stop foreclosures for the next three months. Apparently the city council thinks that the “pressure” they are putting on local lenders by passing resolutions like this will make banks stop causing families to lose their homes. The only problem with their thinking is that banks make loans, and the common motto told to buyers upon signing a mortgage is if “you don’t pay, you don’t stay”. Further, the last time I checked, families lose their homes because they break the agreement they signed with the lender and stop paying their mortgage.

Don’t think the council came up with the idea themselves. The group, ACORN (Association of Community Organizations for Reform Now), pushed for the vote and is thinking about getting the Saint Paul City Council to pass a similar resolution:

“the 25 largest subprime mortgage lenders agree to a three-month suspension of foreclosures of owner occupied properties in the city” and further asks lenders “to make every effort during suspension period to help customers avoid foreclosure and remain in their homes”.

They also want those facing foreclosure to get their rates reset or modified to allow them to afford the loan. The council further said,

“Tough times require real solutions, not rhetoric…I hope everybody feels good about hitting banks over the head with a stick, because that’s what we’re doing”.

I have a question, why should we feel good about giving it to the banks? You know, I would really like to borrow their stick and hit them over the heads with it and ask, “What are you thinking?”. The Minneapolis City Council should not be wasting their time coming up with useless resolutions like this one. The “symbolic” gesture won’t do any real good, but the time wasted cannot be given back to topics that might actually help local homeowners, like, hmmm….lowering property taxes.

The fact is, when buyers sign the note on their new house, they make an agreement with the lender, stating they will make monthly payments and pay back the loan. It is their responsibility as home owners to make sure they understand what they are signing. I have sympathy for those facing foreclosure because my family almost went through it. But I was raised to take responsibility for your actions, even for those that stink, and the thought of the government coming in and bailing out people facing foreclosure, or worse, forcing lenders to fore go foreclosures, is a little scary to me. When did it become public policy to bail out anyone that makes a bad decision?

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Good News for 2008 Taxes in Twin Cities

The provision that allowed Hennepin and Ramsey counties to collect additional State Deed Tax and Mortgage Registration Tax expired on January 1, 2008. There was a provision to continue the increased rates proposed last year which was vetoed by Governor Tim Pawlenty.

The result: Hennepin and Ramsey counties are now in sync with the rest of Minnesota counties in charging $3.30/1,000 for State Deed Tax and $2.30/1,000 for Mortgage Registration Tax.

With the slow down in the market that is sure to continue into 2008, this is welcome news for home owners in the process of selling their Minneapolis home this year.

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What Do Real Estate Agents Make? Hmmm….

I am an avid reader. Currently I am reading three books, one about Mao, one about going good to great, and the last about walking in the woods. Sprinkle in the magazines I subscribe to and I have reading material strategically placed around the home, for what ever mood I am in. Needless to say that Barnes and Noble is one of my current homes away from home (but also because my kids love going there).

So when I spied this month’s cover of Minnesota Monthly, I couldn’t resist snatching it up for a good read. The featured article is titled, “Who Makes What…Does your paycheck measure up?” Of course, being ever the inquiring mind, I just had to look and see what people make because, face it, asking about someones income is still taboo and not good etiquette.

Here are some interesting wages:
  • The Governor makes $120,000, just about as much as the Senior Curator of the Walker Art Center

  • For around $ 1 Million, you could either be the anchor of WCCO or the Gopher football coach

  • At $60,000, choices range between a registered nurse, a religious executive director, or a high-end stripper

  • The golden bar for most of us is to reach the $100,000 mark. So if this is your goal, consider these professions: Secretary of State, President of a University, professional flutist, law associate, or a morning TV host

The article took up twelve pages, which I looked through about ten times, but I couldn’t find anything about real estate agents. I mean they had income stats for surveyors, architects, roofers, landscapers and plenty of people involved in real estate, but they left all of us out, the ones that actually facilitate the transaction to closing.

I guess we just don’t cut the mustard when it comes to fancy magazine articles because we just don’t earn that much, on average, to make our profession exciting. It’s not like we are Johan Santana who rakes in $13 Million a year. Most of us are just normal people trying to make a living. Secretly I think that there isn’t any negative spin to attach to our profession so most “journalists” won’t bring us up because we are no longer news worthy. But deep down I hope they were thinking about us. Maybe they were kind enough to lump is in with “Market-Research Analysts”. One can hope!

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Even Expensive Homes Can Go Back to the Bank

The buzz words of 2007 are most likely going to be “bank owned”, “foreclosure”, and “short sale”. As you can imagine, there are thousands on the market right now that are trying to compete with each other, and sadly, no one is buying.

So imagine how difficult it is going to be to sell a Million dollar home that has gone to the bank. The property is automatically stigmatized by the words “bank owned” and any potential buyer of a high-end home is going to want a nice discount to purchase it.

According to the Regional Multiple Listing Service, there are five homes currently for sale,
priced above a million dollars, owned by the bank or subject to bank approval.

  1. The most expensive is priced just under $3 Million in Edina. The original 1972 home was torn down in 2000 and a huge mega-mansion was built in it’s place in 2003. The home is a prime example of “just because you build it, doesn’t mean they will come“. The “estate” has been on the market for the last four years, originally priced at $6 Million. That’s a pretty hefty price tag, even in Edina. It is a beautiful home, but it has never been lived in and I doubt it will sell any where near it’s current asking price.

  2. A home in Mahtomedi listed for $1.1 Million was just built in 2006, having replaced a tiny home that was torn down.

  3. A beautiful Craftsman inspired home is for sale in Inver Grove Heights. Bought just a year ago for $1.4 Million, the current price is at $1.3 Million. Sadly, the price will have to come down a little more to attract a buyer to that area.

  4. The Wayzata address keeps one listing high at $1.5 Million, but the home was built in 1989 and needs some updating. I hate to say it but the indigo blue kitchen cabinets are going to be a hard sell in the price range. It also doesn’t look good to have been on the market for a full year with a price reduction of $800,000. I think this home will have to come down even more, especially with the bank being involved.

  5. Lastly, the one that might be the hardest to attract a buyer, is a modern designed contemporary home in Medina. Modern doesn’t do too well in rural Minnesota. It (modern design) has a better chance in downtown Minneapolis. I hate to say it, but it is just plain ugly. Minnesotans that live on lakes and acreage, tend to lean more towards traditional and Craftsman styled homes. This one, priced at $1.3 Million, is going to be a very hard sell.

So there you have it, even Million dollar homes can have a tough or tougher time selling than other homes. Many times, an expensive home has been built in an area that doesn’t support that type of home. Finding the right buyer becomes even more difficult because most will see that they can buy in a more affluent neighborhood for the same price. It will be interesting to see what happens to these homes. Since the banks are involved, I am sure price reductions will be few and far between, and the homes will just start to rot from neglect. That is the one big down side of banks getting involved in real estate.

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Minneapolis Neighborhood Ranks as "Blue Chip"

Even though areas of the Twin Cities are a little sluggish, a Minneapolis neighborhood ranked as one of the hot “Blue Chip” areas in the nation for postive growth since 1990. The Cedar Lake Road and Theodore Wirth Parkway neighborhood ranks up with Boston, San Francisco, Miami, etc with above average growth.

Median Home Sale Price: $305,290

Price Growth Since 1990: 197%

According to the Wall Street Journal, “the Twin Cities have some of the more stable prices in the country, and properties are very affordable to the local population. The only drawback–if you can call it one–is that prices don’t often soar upward. That’s not the case in this Minneapolis neighborhood, where there’s been very strong price growth since 1990, yet prices are still quite affordable.”
Read the full article…

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Cast Your Vote to Get St Paul on the Map

St Paul has the chance to win the opportunity for HGTV to come to town and help three local improvement projects take flight through their new television program Change the World. Start at Home. Nine cities across the country are competing for life-transforming assistance – and viewers will decide through voting. Votes can be cast through December 21 at their website.

Click here to VOTE SAINT PAUL

According to the Historic Saint Paul website :

The Saint Paul projects feature a mix of historic preservation, community, education, and environmental improvement, including:

  • Helping a deserving family with an unfinished home renovation. After her husband passed away 18 months ago, Kris Nelson’s dreams of restoring their three-story Victorian era home were put on hold. She and her two sons hope to be able to complete their home with a help from HGTV, Rebuilding Together and the National Trust for Historic Preservation;
  • Transforming the grounds of the Wilder Recreation Center/City Academy. The WPA building was designed by Saint Paul City Architect Clarence (“Cap”) Wigington, the country’s first African American municipal architect. School administrators at City Academy building teach their students the importance of giving back to the community through volunteering and caring for the environment. Without a much-needed facelift, the growth of the school and neighboring community center is stunted by space and environmental limitations;
  • Restoring and interpreting the ecological and cultural resources in the Bruce Vento Nature Sanctuary, a Mississippi River area open space just east of downtown Saint Paul that includes remnants of our industrial and indigenous history. Though the park has come a long way since its days as a contaminated rail yard, there is still much to be done and it remains a work in progress.

So make sure to cast your vote for local historic preservation by visiting HGTV and casting your vote. You can vote once a day!

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Get Your Luxury Discount This Weekend

In case you haven’t heard, there is a major home auction happening this weekend at the Minneapolis Convention Center. Local lenders are now owners of a mass quantities of Twin Cities homes and need to get rid of them. The solution is to hold one of the largest auctions in recent history, about 325 homes spreading across the region.

The auction is the perfect place to get a good deal on the home. Only problem is that “Buyer Beware” is the phrase of the day, so you will have to do inspections and walk-throughs on your own, before you bid.

If you are looking for a luxury home, then you are in luck. Just out of Stillwater, northeast of the Twin Cities, is an elegant home sitting on 11 acres that could have your name all over it. The home, pictured above, was built in 2003, has over 7000 square feet, and is valued around $1.5 Million. Your starting price…$729,000!

With over 3500 foreclosures in Hennepin County alone this year, and 8000 in the surrounding six counties, banks hope the auction will help them unload these unwanted liabilities. Everything from single family to multi family is available at the event, so make sure to check it out this weekend. I haven’t decided if I am going to attend yet, as I am sure it will be a zoo.

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The Clock is Ticking

Time is almost up for Minneapolis home owners to pay their final property tax bill this year. Tomorrow is October 15th and is the last day that you can pay. Don’t forget! The last thing you need is the govenment knocking on your door with a notice saying they are putting a lien on your home.

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The Hardest Decision You Will Ever Make

…is picking out the perfect pumpkin to carve for Halloween.

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