Improvements to Foreclosure Phantom Tax Law

What I'm NOT Happy about is, that little sneaky END RUN to up the capital gains tax on second home owners..

Are they always looking to raise TAXES!... give a little but (with baby boomers about to spend, sell etc.) make sure to TAX a little harder and TAKE a little MORE!!!!

Let's not gloat over a little tax help for those losing their homes.... (they may be in the rental market for awhile)... if it also makes vacation homes, etc.  look more like a great expense in a declining or flat market. 

With property taxes (and insurance in coastal markets)... going up.. adding additional taxes to sell (And buyers do buy as investments).. Any increase in tax on the sale... will only make stocks, other investments look the better..

I don't need to remind anyone how much of the market in 05, 06 was vacation, investment, second homes..

Let's see, mortgage requirements tightening, those losing homes likely many out of market, and the feds raising the capital gains tax on selling 2nd homes....  

Is that going to be such a  big  blessing?     Where is NAR's political arm on this one?

Writing off loan forgiveness is one thing..   Why making it harder on the real estate industry by raising taxes on another part of it- when many are striving to get it into stronger sales territory- doesn't look like the best approach..

But what does anyone else think?

Advise your clients of the change in how their second home might be affected if they intended to make it a principal one:  (note, this alone est. to raise taxes by over $2 billion in the first 10 years alone!- so no loss in tax income by the 'forgiveness') In the longer term- ISN'T THIS A TAX INCREASE? A NICE SIZED ONE!

Read the summary for yourself

http://216.109.125.130/search/cache?ei=UTF-8&p=H.+R.+3648+mortgage+relief&fr=slv8-fp&u=waysandmeans.house.gov/media/pdf/110/Markup%2520Summary4.pdf&w=h+r+3648+mortgage+relief&d=HN_M1OdmPkes&icp=1&.intl=us

 read this summary about if not used all 5 years prior to the sale:

http://216.109.125.130/search/cache?ei=UTF-8&p=H.+R.+3648+mortgage+relief&fr=slv8-fp&u=www.cbo.gov/ftpdocs/86xx/doc8667/hr3648.pdf&w=h+r+3648+mortgage+relief&d=M5aCaOdmPj7E&icp=1&.intl=us

 Now how about you or your mom and dad that converts a second home and for whatever reason needs to sell it prior?

TO ANSWER THE QUESTION ABOVE: WHERE'S THE NAR?

 http://www.realtor.org/press_room/news_releases/2007/passage_mortgage_cancellation_tax_relief.html

Hint: they 'applaud'   but how will the public respond when they find that 2nd home  used as their primary just became taxable?  How many  won't be buying second homes until decades later then? 

Let's think this one out a little more, this tax is likely to hang around for long after the mortgage situation is dealt with in the next couple of years..

Pattie,

that was just the house ways and means summary-  the full and finial bill will likely be even more "interesting" remember the Senate version will have to be passed (if not already) and often times is slightly different,  Then BEHIND CLOSED DOORS NEGOTIATORS WORK OUT THE FINAL BILL!   HOW DO YOU LIKE THE PROCESS....

I don't know if I did any better being concise in tying these posts together on my blog or not... but may try latter...

The way I'm reading the summary it appears, if you have a second or investment home..and convert into a private principal residence- then you will not be able to sell it tax-free without living in it for a full FIVE YEARS!   even though in the summary there no mention of change otherwise..  So, if I buy another house, I've only got to live in it two years to sell as principal home tax free!    Treating those who buy ahead of time differently than those who wait and sell and then buy!

(now the specifics on pre 2008 purchases being excluded or usage prior just counting- I assume will be in the full & final wording). And how fair is this if this applies to current second home/ investment buyers (as it looks like it does, if not current use as a principal) to those owners?  Will prospective owners decide to wait even longer- wondering if the rules could change yet again?

My concern is, with  a flat market, it'll make even more sense for future retirees to put off further purchases (those with either cash or very good credit).. knowing that the increased capital gains from a early sale (before FIVE years) & move could really cost them.. (somebody's paying that $2 Billion plus in next decade alone)... who knows, they may soon discover they don't like the area, the house, etc. or illness, change in family.. on & on.... LOTS happens in older ages during FIVE years..

Also have concern, how many looking at this law, and the rents and expenses of holding, may now decide to just dump the ones they have now.(BEFORE THE CAPITAL GAINS RATES GO UP!!!)... and NOT BUY another home into after retirement and they know for sure especially if that principal purchase is still only requiring TWO years to TAX FREE resale!!!

DIFFERENT TREATMENTS TO VARIOUS TAXPAYERS BASICALLY DOING THE SAME THING!

Will this add investment/vacation homes to the subprime foreclosure ones onto the market in the short run... while raising taxes on many second home conversions as the same time reducing the number buying seconds if any principal usage possible later?

Sorry if my quick comments are almost as hard to follow as the gov't legaleze-should try to rewrite short & simple to follow blog addition perhaps.  This extra taxation of a major sector of the current real estate market will have an impact....and looks like baby boomers are in the line of sight...

Hi Patti and welcome!

This is good news and nice to see that there is hope for the many homeowners facing this dilemma.

Your Info and the comments that followed are all good information!  Lets wait and see what happens next.

Take care!

RJH

Discussion~ House of Representatives 3609 Emergency Home Ownership and Mortage Equity Protection Act

In summary, from what I gleaned, the act will enable the bankruptcy courts to "MODIFY" the mortgage debt on PRIMARY residences. For example if the homeowner/borrower files for Chapter 13, under the 3609 bill, it is proposed that a judge can reduce the principal down to match the current market value, as well as "Modify" the interest rate downward as well, while allowing the ‘write down of debt' to become unsecured debt, which in turn is merely written off.

It seems like the bill is well intentioned, but this excessive regulation could cause further negative effects on real estate values.

Thoughts?  How do you feel about the Word "MODIFY"?

http://www.govtrack.us/congress/billtext.xpd?bill=h110-3609

H.R. 3609: Emergency Home Ownership and Mortgage Equity Protection Act of 2007

HR 3609 IH

110th CONGRESS

H. R. 3609

To amend title 11 of the United States Code with respect to modification of certain mortgages on principal residences, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

September 20, 2007

Mr. MILLER of North Carolina (for himself, Ms. LINDA T. SANCHEZ of California, Mr. FRANK of Massachusetts, Mrs. MALONEY of New York, and Mr. WATT) introduced the following bill; which was referred to the Committee on the Judiciary

HB BILL

To amend title 11 of the United States Code with respect to modification of certain mortgages on principal residences, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Emergency Home Ownership and Mortgage Equity Protection Act of 2007'.

SEC. 2. DETERMINATION OF SECURED STATUS.

Section 506(b) of title 11, the United States Code, is amended by adding at the end the following:

`While a case is pending, no fee, costs, or charges may be added to a debt that is provided for in a chapter 13 plan and is secured by the debtor's principal residence unless the holder of the secured claim gives timely notice of such fee, costs, or charge to the debtor and to the trustee.'.

SEC. 3. LIMITATION OF 1978 EXEMPTION THAT PREVENTS FEDERAL BANKRUPTCY COURTS FROM MAKING MODIFICATIONS TO THE TERMS OF A MORTGAGE ON A DEBTOR'S PRINCIPAL RESIDENCE.

Section 1322(b)(2) of title 11, United States Code, is amended by striking `, other than a claim secured only by a security interest in real property that is the debtor's principal residence,'.

SEC. 4. MODIFICATION OF CLAIMS SECURED BY DEBTOR'S PRINCIPAL RESIDENCE.

(a) Contents of Plan- Section 1322(b) of title 11, the United States Code, is amended--

(1) in paragraph (10) by striking `and' at the end,

(2) by redesignating paragraph (11) as paragraph (12), and

(3) by inserting after paragraph (10) the following:

`(11) provide for payment of allowed claims secured by the debtor's principal residence consistent with section 1325(a)(5), over a period exceeding the period permitted under section 1322(d); and'.

(b) Confirmation of Plan- Section 1325(b)(5) of title 11, the United States Code, is amended by inserting `except as otherwise provided in section 1322(b),' after `(5)'.

SEC. 5. ELIMINATION OF CREDIT COUNSELING REQUIREMENT FOR CHAPTER 13 DEBTORS FACING FORECLOSURE.

Section 109(h) of title 11, United States Code, is amended by adding at the end the following:

`(5) The requirements of paragraph (1) shall not apply with respect to a debtor in a case under chapter 13 who submits to the court a certification that the holder of a claim secured by the debtor's principal residence has initiated a judicial or non-judicial foreclosure on the debtor's principal residence.'.

SEC. 6. CONFIRMATION OF PLAN.

Section 1325(a) of title 11, the United States Code, is amended--

(1) in paragraph (8) by striking `and' at the end,

(2) in paragraph (9) by striking the period at the end and inserting `; and', and

(3) by inserting after paragraph (9) the following:

`(10) notwithstanding paragraph (5)(B)(i)(I), the holder of a claim that is paid pursuant to section 1322(b)(11) shall retain the lien securing such claim until payment of such claim.'.

SEC. 7. DISCHARGE.

Section 1328 of title 11, the United States Code, is amended--

(1) in subsection (a)--

(A) by inserting `(other than payments to holders of allowed claims provided for under section 1322(b)(11)' after `paid' the 1st place it appears, and

(B) in paragraph (1) by inserting `or 1322(b)(11)' after `1322(b)(5)', and

(2) in subsection (c)(1) by inserting `or 1322(b)(11)' after `1322(b)(5)'.