The interest rates charged on these mortgages are tied to an interest-rate index. If the interest rate index rises, the mortgage interest rate and the monthly payment go up. If the interest rate index falls, the mortgage interest rate and monthly payment go down.

Adjustable-Rate Mortgage (ARM) Disclosure:

This document describes the features of the adjustable-rate mortgage (ARM) program you are considering. It includes information about how your interest rates and payments are determined, how your interest rate can change, and how your monthly payment can change. The lender is required to provide this document to you when you hand in your application or before you pay a nonrefundable fee (whichever is earlier).

Amortization:

This term refers to the gradual paying down of a loan. For example, traditional mortgage terms require that each payment include, in addition to interest, part of the loan principal. That way, you continually lessen the amount you owe and extinguish the debt within a set period of time.

Annual Percentage Rate (APR):

The APR provides the true cost of a loan expressed as one number that enables you to compare all types of loans. The APR calculates the annual cost of the loan, taking into consideration points (loan origination fees), the interest rate, and other costs associated with getting the loan, including appraisal and credit report fees.

Conventional Mortgage:

Also called a fixed-rate mortgage or a traditional mortgage, the interest rate remains the same for the life of the loan. The loan term is typically 15 or 30 years.

Credit Report:

This is a report containing detailed information on your credit history. The report includes identifying information and details about your credit accounts, loans, bankruptcies, late payments, and recent credit inquiries. Prospective lenders will obtain these reports, with your permission, to evaluate your creditworthiness. Every year, you should order a free copy of your credit report and review it for accuracy.

Credit Score:

Your credit score is a measure of the risk you pose to someone who wants to lend you money. It is calculated using a standardized formula. There are many factors that could damage a credit score, including late payments and poor credit card use. Lenders may use your credit score to determine whether to give you a loan and what rate to charge. The better your credit score, the better the rate you can get on a loan.

Debt-to-Income Ratio (DTI):

This ratio represents your monthly fixed expenses divided by your gross monthly income (income before taxes and deductions). The lender uses this ratio to help determine how much it will lend you. If the percentage is greater than 36, the ratio could negatively impact your credit score because the lender considers you to have too much debt.

Good Faith Estimate (GFE):

In this document, the lender estimates the amount of or range of charges for the specific settlement services that you are likely to incur in connection with the loan closing. The lender is required to deliver or mail the GFE to you within three business days after receiving or preparing the loan application.

Initial Truth in Lending (TIL) Disclosure:

This document reflects the terms of the legal obligation between you and the lender. The lender is required to deliver or mail the TIL disclosure within three business days after receiving or preparing your loan application.

Interest-only Mortgage:

The borrower is required only to make interest payments for a specified number of years. When this initial period expires, the loan changes so the monthly payment includes principal and interest. At this point, the mortgage begins to fully amortize and monthly payments could increase significantly. The monthly principal payment could be greater than the conventional fixed-rate mortgage payment because there are fewer years to pay down the principal.

Loan-to-Value Ratio (LTV):

The ratio compares the value of the loan with the fair market value of the home. The lender uses it to determine if its potential losses (in the event that you do not pay) may be recouped by selling the house.

Minimum Monthly Payment (MMP):

This required payment typically covers only a portion of the interest and none of the principal.

Negative Amortization:

This can occur when you choose to make the minimum payments based on an offered “teaser” rate. The minimum monthly payment often does not cover the interest owed each month for a certain period of time. The interest that is not covered by these monthly payments becomes part of the principal. As a result, the balance of the loan increases and could eventually exceed what you intended to borrow in the first place.

Nontraditional Mortgages:

These products are more complex than traditional fixed-rate or adjustable-rate mortgages. They present greater risk of negative amortization and payment shock. Typically referred to as alternative or exotic, these products take many different forms. They include interest-only mortgages, payment-option ARMS, low-doc. and no-doc. loans, piggybacks (simultaneous second lien loans – loans that cover the down payment) and 40- or 50-year mortgages. Although these products may provide flexibility for some, for others they may simply lead to increased future payment obligations and possibly financial disaster.

Option-ARM:

This product typically offers the borrower three different monthly payment options: 1) payments of principal and interest, 2) interest-only payments, or 3) minimum monthly payments (”teaser” payment options that are less than interest-only payments). Choosing minimum monthly payments (MMPs) means the unpaid interest is added to your principal loan amount. To ensure that the loan is repaid within the agreed-upon time, these loans “recast” after a set number of years (usually three or five) or when negative amortization drives the loan amount to a certain level above the original loan amount. Monthly payments increase so that the loan fully amortizes.

Payment Shock:

Payment shock is a large and sudden increase in monthly payments. It occurs primarily in interest-only products and option-adjustable-rate mortgages (option-ARMs). Prepayment Penalty: The lender may charge a considerable fee if you pay off the loan early.

Private Mortgage Insurance (PMI):

PMI is required by lenders when a loan is originated and closed without a 20 percent down payment. This insurance protects the lender from default losses in the event a loan becomes delinquent. If you are approved for a mortgage that requires PMI, you still have to apply for PMI and you may not qualify. You can be approved for a mortgage and not qualify for PMI.

Reduced-Documentation Loan:

Commonly referred to as a low-doc. or no-doc. loan, this is a loan for which the lender sets reduced or minimal standards for documenting the borrower’s income and assets. For example, the borrower may state that her income is a certain amount, and the lender will accept that statement with little or no documentation. Low-doc. loans may charge a higher interest rate than traditional products.

Simultaneous Second-Lien Loan:

This product, also called a piggyback loan or soft second, provides an alternative to paying private mortgage insurance. (Lenders typically require PMI if your down payment is less than 20 percent of the purchase price.) The loan is originated simultaneously with the first-lien mortgage. There are many government programs offering these products to low- and moderate-income first-time homebuyers.

Be sure to compare the cost of this second mortgage with the cost of purchasing PMI. If you take a simultaneous second-lien loan in place of making a down payment, you reduce the equity you have in your home. Also, if your second-lien loan is a home equity line of credit (HELOC), you may be exposed to increasing interest rates and higher monthly payments.

Teaser Rates:

These are low rates that lenders offer to make mortgage products more attractive. When the “teaser-rate” period expires, the lender raises the interest rate for the remainder of the loan period. This new rate may be fixed or change periodically, depending upon the terms of your loan.

Article Source: http://www.bos.frb.org/consumer/knowbeforeyougo/mortgage/glossary/index.htm

The major cause of post-sale disputes and lawsuits involve defects and disclosure. Most disputes can be avoided if proper disclosures are made.

Learn the Law

The statutes governing seller disclosure obligations vary:

State Laws

Most states require some form of seller disclosure. The form of disclosure also varies: Some states require a seller to complete a questionnaire about their property’s condition; in other states, disclosures can be made verbally. In some states, seller disclosures are voluntary. The only sellers excluded from disclosure laws are banks and mortgage companies with foreclosure properties.

Federal and Local Laws

In addition to state mandates, some local and federal laws require sellers to make specific disclosures. Federal law, for example, requires sellers of homes built before 1978 to disclose any known lead hazards.

Real Estate Company Requirements

Some major real estate companies require prospective sellers to complete a disclosure form before listing their property.

Tip:

A fact that is material to one buyer may not concern another. If you’re wondering whether something should be disclosed, consult your real estate agent or a property attorney. Ask yourself if you’d want to have the information if you were the buyer. If the answer’s yes, then disclose.

Toxic Hazards

Structural defects are one thing; health risks from exposure to toxic chemicals are another issue altogether. Homebuyers are becoming increasingly concerned about environmental hazards and toxic materials in houses, especially in older homes. Common toxic substances include lead paint, lead pipes, asbestos insulation, asbestos ceilings, formaldehyde insulation and glues, and carbon monoxide or radon gases. Have your home tested for these substances. More buyers are requesting such tests, and may expect you, the seller, to correct the problem or offer a lower price to cover the cost of removing toxic substances.

Article Source: http://realestate.msn.com/selling/article.aspx?cp-documentid=25077

But anyone considering buying a foreclosed home should forget about paying pennies on the dollar. In today’s hot real estate market, such deals are rare. “You can buy foreclosures for as cheap as 30 or 40 percent below market, but most foreclosures sell for 5 percent below market,” said John T. Reed, editor of Real Estate Investor’s Monthly, a newsletter based in Alamo, Calif. Yet the savings may be twofold if the property is purchased from the lender who holds the mortgage that’s in default. That lender may be willing to waive some closing costs, maybe even offer a break on the interest rate or the down payment.    

Investment of Time 

Before you go bargain hunting for homes, you’ve got to learn to navigate the foreclosure process. Todd Beitler, owner of the Real Estate Library in Boca Raton, Fla. and author of a foreclosure how-to manual, says the time and effort can translate to savings. “If somebody spends 10 hours a week for five weeks to do research, it’s worth it.” For most people, however, the foreclosure process can prove daunting, Reed says. Good buys are available, but they require research, preparation, patience and persistence. The foreclosure process starts when a property owner falls behind on mortgage payments. Because the homeowner has been in financial trouble before defaulting on the mortgage, the home likely hasn’t been maintained. This can be a boon, or boondoggle, for a buyer. Houses in poor condition might fetch bargain prices, but repairs can boost the cost again.    

Reading Assignments 

When a lender decides to foreclose on a property, a notice of default is filed, depending on the state. This document is a public record, and for buyers, it’s the first step in locating a property in foreclosure. A buyer looking for foreclosures also can buy magazines and newsletters that list properties in default. 

Once a home has been located, search public records. Look for liens on the property, since they can drive up the purchase price. Liens typically are placed on a house for unpaid property taxes. Also check assessed values and sale prices of neighboring properties. 

Research local state foreclosure laws, since they differ. Some states — such as Florida, New York, Ohio and Pennsylvania — require the lender to sue the borrower and get a court order for the sale of the property, a process known as judicial foreclosure. Other states, including California and Texas, follow the non-judicial foreclosure process, which doesn’t require a lawsuit. 

For novice investors, buying from the lender is the safest way to buy. Most foreclosures are taken back by the bank during auction, Beitler says. While well-located homes in good shape generally don’t sell for deep discounts, rundown properties can be sold more cheaply. Sometimes, the banks hire a real estate agent and sell foreclosed homes in the traditional manner, Reed says. But sometimes buyers can succeed by pestering bank loan officers with low offers. Buyers might try low-balling the lender’s REO (for “real estate owned”) officer shortly before the non-performing assets have to be reported to supervisors, Beitler says.    

The Safest Deals 

Bank-owned properties offer the safest deal for inexperienced foreclosure buyers, Beitler says: “There’s no risk. There are no taxes, no liens, no tenants to evict.” A lender that’s eager to sell might be willing to offer attractive terms, says George Tribble, head of Tribble Mortgage Co. in Oakland, Calif., and president of the California Association of Mortgage Brokers. 

The lender might offer to finance the property at a below-market rate or with a lower-than-usual down payment. Because the bank already has done an appraisal, the buyer might not have to pay an appraisal fee, Tribble says. And lender deals typically include title insurance, which removes much of the risk that accompanies buying homes earlier in the foreclosure process. 

For more daring investors, there are two other points in the foreclosure process to buy homes:

Before Foreclosure

The buyer finds a homeowner about to go into default. The homeowner doesn’t want to lose all of the equity in the property, so accepts a portion of the difference between the equity and the home’s market value.

Pre-foreclosure

Pre-foreclosure buys offer bargains but demand persistence. That’s because creditors are often hounding owners at this stage. 

 ”Trying to get through to the homeowner is virtually impossible,” Beitler says. If the homeowner is contacted, the buyer could be in for a surprise, Reed adds. Homeowners in default might not have phones or electricity, and they might have alcohol or drug problems. What’s more, they probably need somewhere to live before they can move out of the property the buyer wants. 

During an Auction

This is a high-risk, high-reward proposition, and it’s not for first-time foreclosure buyers, Beitler says. Most auctions take place at the county courthouse steps, and they pose disadvantages: Buyers might not be able to inspect the property, and they’ll have to put up the entire purchase price the same day. 

The U.S. Department of Housing and Urban Development also runs auctions to unload homes it has acquired through defaults on federally backed mortgages. There aren’t a lot of steals in this process, according to a study by Tim Allen, a real estate professor at Florida Atlantic University. 

Allen tracked sales at a HUD auction in Florida in 1998; he found that buyers paid prices very close to assessed value. Beitler agrees that there’s a “frenzy” at HUD auctions that can push prices to unreasonable levels.  

Bank Rate Monitor for CNNfn.com: http://homebuying.about.com/gi/dynamic/offsite.htm?zi=1/XJ&sdn=homebuying&zu=http%3A%2F%2Fcnnfn.cnn.com%2F1999%2F02%2F11%2Fbanking%2Fq_bankrate%2F

The level of involvement of the attorney in the sell of your home differs in each state. In some states, attorneys are very involved in the real estate transaction, including negotiating the contract, preparing documents and attending the closings. In other states, attorneys may get involved only after the contract is negotiated but do not attend the closing. In many states, attorneys are rarely involved in residential sales and purchases until problems arise. 

Should you buy another home before you sell you existing home? 

If you can afford to buy another home first, you should consider doing so. Your existing home may show better when it is empty. However, most people need the funds from the sell of their existing home to purchase a new home. 

Do I need a contingency provision if I have to sell my existing home before I purchase a new home? 

Yes. If you need the funds from the sale of your existing home, you should be sure that you provide for such contingency in your contract to purchase the new home. By doing so, you will not be obligated to purchase your new home until your existing home sells. 

Should I buy my new home and sell my new home in the same day? 

You can do a simultaneous transaction when you close the sale of your existing home earlier in the day and purchase your new home several hours later. However, you may want to schedule the sale of your existing house a week or several days before the purchase of your new home to allow for the possibility that the buyers of your existing home ask for a short extension. This short delay ensures you can close on the sale of your home before you go to close on the purchase of your new home. 

What costs are associated with the sale of a home? 

Some of the costs incurred in the sale of a home include, repair expenses to get your home ready to sell, sales commissions to Realtors, closing costs from the title company, closing costs that you offer to pay on behalf of your buyer and your moving expenses. 

What do I need to do to get my home ready to sell? 

When you decide to sell your home, you need to determine what repairs need to be done that the buyer may request after an inspection or the village where you live may require before they authorize the sell. Many municipalities perform an inspection of your home and provide a report identifying the repairs (if any) which need to be completed before the municipality will allow the house to be sold. The municipality will typically charge a fee to the owner for an inspection and a tax for the actual sale of the home. Without paying the municipality fee, you may not be able to sell the home. 

Should I use a real estate sales agent in selling my home? 

You may use a real estate sales agent, but you are not required to do so. A real estate sales agent may give your home more exposure which may lead to a quick sale. Be prepared to pay the real estate agent’s commission, which ranges from 4% to 7% and is customarily paid from the proceeds of the sale at the time of closing. Negotiate the commission amount before signing any contract with the real estate sales agent related to the sell of your home. Most states require a written listing agreement between the owner and the real estate agent in order to create an enforceable contract. If your agent is acting as a dual agent (on behalf of the buyer), be aware that the agent in that case does not have an undivided duty of loyalty to you. 

How do I find a real estate agent? 

A good way to find a real estate agent is to ask for referrals from family and friends, or look in the newspaper for advertisements. 

What agreement do I sign with the real estate agent when selling my home? 

Typically, the real estate agent will have you sign a listing agreement. The listing agreement is a contract between you and the real estate agency that sets for the commission you agree to pay the real estate agency and the terms of the contract with the real estate agent. You may authorize the real estate agency to exclusively sell you home during the period of the listing agreement. 

When should you consider selling your home yourself? 

A For Sale By Owner (FSBO) transaction will require that you market your home yourself and negotiate your own contract. Setting the price of your home can be tricky. The price will depend on the current market, what your home has to offer and how quickly you want to sell. In the event you become a FSBO seller, you should use an attorney to assist in preparing the sale agreement, deed and other documents necessary to complete the sale.
Article Source: http://www.abanet.org/rppt/public/realestate/sellinghome.html

For example, many lenders offer reduced-documentation loans, also known as low-doc. or no-doc. loans. These loans require the borrower to provide little financial documentation. They may, however, have pricing premiums attached and cost you more than a loan requiring full documentation (financial statements, proof of employment, etc.).

It is important to comparison shop and understand the loan terms and associated benefits and risks prior to choosing a product. Some mortgage lenders may advertise products that appear to carry substantially lower interest rates than others. These rates, however, may simply be introductory or “teaser” rates to attract customers. Typically, the introductory rate will adjust to a higher rate at some point in the loan term.

Federal law requires the lender to provide you with specific written disclosures during the application process. Federal Reserve Regulation Z, which implements the Truth in Lending Act, and the Real Estate Settlement Procedures Act (RESPA) mandate that the lender provide you with specific documents such as The Good Faith Estimate and the initial Truth in Lending Disclosures. These documents contain the terms of your loan: review them carefully before closing on your loan. They should accurately reflect the terms promised by your lender.

What you should ask the lender:

• Which of your products offers the lowest interest rate?
• Will my interest rate be fixed or variable (change periodically)?
• If the interest rate can change, when will it change and how high or low can it go?
• If the lender offers an introductory or “teaser” rate, ask, When does the rate expire and how will the new rate change my monthly payment amount?
• If the rate expires, what will the new rate be, and will it be fixed or variable?
• Would I qualify for a better interest rate if I went for a standard full-documentation loan rather than a low-doc. or no-doc. loan?

True or False?

No matter what type of mortgage I have, as long as I continue to make monthly mortgage payments, my principal balance will fall every month.

False: If you have a conventional mortgage, (a 15 – or 30 – year fixed rate product), your principal balance will fall every month because the product requires you to pay down both interest and principal each month and allows you to reduce (amortize) your loan amount.

That, however, is not necessarily the case with some of today’s nontraditional mortgage products such as option-ARMs and interest-onlys with teaser rates: your balance may not fall, and in some cases it may go up, even though you make all the required payments. This is called negative amortization; it can occur if you choose to make minimum monthly payments that typically cover only a part of the monthly interest owed and none of the principal for a certain period of time. The interest that is not paid is added to your principal balance. As a result, your loan balance increases and could exceed what you originally intended to borrow.

The lender should provide you with clear information about the benefits and risks of the products it offers so that you can make an informed decision.

What you should ask the lender:

If the product permits negative amortization: (the loan balance can increase every month)

• May I have a repayment analysis that includes the initial loan amount plus any balance increase that may result from the negative amortization provision?

If the lender suggests an option-ARM: (option to make minimum monthly payments OR interest only payments)

• What is the minimum monthly payment on the loan?
• If I make that payment, will my loan balance rise, fall, or stay the same?
• What effect will choosing minimum monthly payments have on how much of my home I actually own?
• What effect will choosing interest-only payments have on my loan balance and my home equity (the amount of my home I own)?
• When I start paying down the principal, as required, how would the dollar amount of my payments compare to that of a conventional mortgage lasting the same number of years?

If the lender suggests an interest-only mortgage:
(allows you to pay only the interest and no principal for a set period of time)

• When my payments increase after the designated period (usually 3-5 years), will I still be able to afford my home?
• How does the interest rate on an interest-only compare to a conventional 15- or 30-year mortgage?
• When I start paying down the principal, as required, how will the dollar amount of my payments compare to that of a conventional mortgage lasting the same number of years?

True or False?

With many types of mortgages, my monthly payment could go up a lot from one month to the next.

True: Depending on the terms of your loan, your monthly payments could increase – in some cases dramatically. Nontraditional mortgage loan products such as interest-onlys and option-ARMS are more complex than traditional fixed or 15 – or 30 – year adjustable rate mortgages (ARMs) and can carry a significant risk of payment shock (a large and sudden increase in your monthly payment).

To avoid drastic increases in your monthly payments, it is important for you to understand loan terms and associated benefits and risks prior to choosing one of the many mortgage products available today. If you are considering an adjustable-rate mortgage, traditional or otherwise, make sure you have the ability to repay the debt.

Federal law requires the lender to provide you with specific disclosures about the terms of your loan during the application process. Review these disclosures carefully. The lending institution should provide you with enough information to make an informed decision.

What you should ask the lender:

• What is the most appropriate loan product for me?
• Can my monthly payments rise? If so, how much?

True or False?

If the lender is willing to lend me the money for my dream house, I must be able to afford it!

False: Typically, reputable mortgage lenders will not lend to you beyond your means. But others will and may not properly take into account your ability to repay should loan terms or your financial circumstances change.

For example, if you are considering an interest-only mortgage, the lender may qualify you based on your ability to make those interest payments without considering the fact that later on in the loan term you will have to pay down principal as well.

Lenders offer a variety of products that can make it much easier for you to get a house that would otherwise be unaffordable. As with any mortgage, these products are appropriate for some and not others. An interest-only loan may be beneficial to you if you plan to own the house for a short term. If, however, you plan to stay long term, you need to be able to continue to pay your mortgage when the loan resets at a new rate and your monthly payments increase. A soft second or piggyback loan (a mortgage taken to cover your down payment), or private mortgage insurance (PMI) may save you from making a down payment on the house at closing (traditionally 20 percent of the cost). But that means you are starting out with little or no equity in your home.

To obtain your dream house, be sure to understand the risks associated with mortgage products. First and foremost, be sure you can repay the debt. For the unwary borrower, the dream can turn to a financial nightmare if the product is inappropriate or too risky.

It is important, therefore, that you do your homework: Evaluate your financial circumstances to determine what you can and cannot afford before you agree to a mortgage.

Consider the following:

• Think about how long you plan to stay in the house: is this a long- or short-term investment?
• Do you anticipate any changes in your compensation?
• If you plan to stay long term, will you be able to cover changes in your monthly payment and thereby avoid foreclosure or financial disaster?

What you should ask the lender:

• Given my circumstances, is this loan suitable for me?
• If you are considering a piggyback loan (a simultaneous second loan) because you cannot afford to put a down payment on your dream house, ask, What will cost me more – a piggyback loan or PMI?
• Will I qualify for PMI?

True or False?

I can always refinance my mortgage in the future.

False: The truth is that in the following circumstances, it may be imprudent to refinance:

1. If home values stop going up, your original loan amount may exceed the value of your home;
2. If you have an adjustable-rate mortgage, it may be costly to refinance as interest rates start rising;
3. Prepayment penalties (fees charged for paying the loan off early) could limit your ability to get out of an unfavorable loan without substantial penalties; or
4. If your credit rating deteriorates, you may no longer qualify for the best rates.

Be cautious of lenders who want to steer you toward a particular product and make predictions about the future direction of interest rates. Telling you that you can always refinance at a later date is, in effect, making such a prediction.

What you should ask the lender:

• How soon after I get the mortgage can I refinance?
• Are there penalties if I pay off the loan early?
• What is the dollar amount of the penalty?
• If the value of the house falls by 5 percent, for example, will I still qualify for the same type of mortgage when I refinance?

Article Source: http://www.bos.frb.org/consumer/knowbeforeyougo/mortgage/mortgage.htm

(Money Magazine) — When Diane Carr, 55, received word in February that her home-equity line of credit would be canceled, she was dumbfounded. The HELOC had been open since 2003, when she bought her Woodside, Calif. home. And Carr had never even tapped it. 

“It was just a security thing,” she says. No matter. In recent months, tens of thousands of homeowners like Carr have been shut off from their equity as lenders try to stem losses from subprime mortgages and other high-risk loans. 

As of September, delinquencies on HELOCs were up 47% year over year, according to Economy.com; the numbers are expected to be worse in 2008. In response, Countrywide has already suspended an estimated 122,000 lines, many in high-foreclosure-rate states, and USAA has frozen or reduced some 15,000 accounts. Bank of America (BAC, Fortune 500), Chase (JPM, Fortune 500) and Citibank (C, Fortune 500), among others, are following suit. 

Not all HELOCs will be frozen or downgraded, but you can be sure lenders will scrutinize every account – including yours. 

If your HELOC hasn’t been frozen (yet)

Know your risk. Areas where housing prices have fallen by 10% or more are prime targets for freezes, says Susan McHan, president of Opes Advisors, a mortgage banking firm in Palo Alto, Calif. Because of new lending standards, your HELOC could also be in danger if you bought your home in the past few years with little money down. 

Last year consumers could easily borrow up to 100% of a home’s value through a combination of a HELOC and a first mortgage. Today you’d be lucky to get up to 90%; 60% is the max in areas hit hardest by home-price declines. 

Lenders are beginning to apply the same standards to existing HELOC customers. Call your bank and ask what the loan-to-value cap is on new HELOCs. If your house debt is above that, your line could be at risk. A change in credit score or a missed payment could also flag your account. Reread your contract to see if such factors allow the lender to cut you off. 

Access cash now. If your line is in jeopardy and you need the HELOC to finish a renovation, you could draw a lump sum. On the downside, you’ll cut your equity; you’ll owe interest now; and if prices keep falling, your loan values could top your home’s value. So borrow only as much as you need and put the cash in a high-yielding savings account or CD until the bills in question come due. 

If your HELOC is on ice

Fight for a defrost. The letter from your lender should explain why the line was suspended and how to appeal. Some banks use automated processes to identify troubled markets. 

To prove that your house hasn’t been affected, ask a realtor to pull prices for houses sold within three miles in the past six months, ask your mortgage originator to intervene, or have your house reappraised. The latter can run $400, but if you were counting on the line, it may be worth it. 

If a change in your risk profile is the cause, check your credit reports. Carr was told that her HELOC had been canceled because of a drop in her FICO score. But when she checked, it was above 800, so the lender reinstated her line. 

Compromise. If your efforts fail, ask for a lower credit line instead of a total freeze. The bank may be more amenable if you hold your primary mortgage there, as that’s an insurance policy of sorts. 

Shop around. Not all banks have the same standards. If you have at least 10% equity, you may qualify with another lender. Search at bankrate.com, or click on the link above and to the right. 

By Carolyn Bigda, Money Magazine writer-reporter: http://money.cnn.com/2008/04/18/real_estate/heloc_freeze.moneymag/index.htm?postversion=2008042104

Also, I have an S-Corp. Should I put all the rentals under the S-Corp or create an LLC for each rental?

- Robin Dion, Miami, Fla. 

Dear Robin: In general, tax law does limit the extent to which you can deduct losses from rental real estate and other so-called “passive activities.”

Your rental real estate deductions can be taken only against “passive activity” income - such as the rent you charge your tenants – and not other income sources like wages, royalties and dividends, says tax attorney Terry Perris of the international firm Squire, Sanders and Dempsey, LLC.

So, the dollar amount of losses you deduct is limited each year to your total passive-activity income. However, if you have more losses than you can deduct, you can “suspend” the excess to take against future passive activity income – or against the proceeds when the property is disposed of.

Remember also that only the portion of your mortgage that goes toward interest is tax-deductible, and not the principal, Perris said.

How to Survive the Real Estate Market

There are two exceptions to this deduction limit. The first is referred to as the “real estate professional” exception, and applies if more than half of your professional hours are spent on rental real estate and you perform more than 750 hours of this type of service each year, says tax attorney Brian Whitlock of Chicago, Ill.-based Blackman Kallick.

The other exception allows up to a $25,000 annual deduction, as long as you actively participate in making management decisions, such as arranging for repairs or approving new tenants, said Perris.

However, this latter exception phases out on a scaled basis for individuals whose adjusted gross income exceeds $100,000, says Cristina Perez of Coral Gables, Fla.-based accounting firm De La Hoz & Associates.

The exception is not available at all to those with AGIs of $150,000 or greater, Perez says.

The S-Corp Route

Neither Perris nor Whitlock recommends putting your rental real estate into an S-Corp., as you won’t be able to remove the properties from the S-Corp. later without being subject to tax liability on any built-in gains.

“The corporation rules are highly complex and can be fraught with tax traps,” Whitlock said. “Limited partnerships and LLCs that are taxed like partnerships are usually better vehicles for holding real estate.”

For example, should you put the three properties into an LLC – or each into individual LLCs – you likely won’t incur any tax liability upon removing them, Perris said.

Using an LLC may also protect you from personal liability that arises from ownership of the properties, Perris said.

Separating each property into individual LLCs may be more complex than holding all of them in one, but it would offer the potential to protect each piece of real estate from liabilities that arise from the other properties, Perris said.

CNN Money: By Lenora Chu:  http://money.cnn.com/2008/04/14/smbusiness/Florida_rental_tax_loss.fsb/index.htm

Lawmakers slipped plenty of new tax breaks for real estate into newly enacted legislation that is intended to provide relief from the current mortgage crisis. Taxwriters have approved tax cuts worth $12.4 billion over 10 years, as well as tax increases to offset them.

Filers who do not itemize deductions can deduct real estate taxes they paid in 2008 in addition to their standard deduction. The extra write-off is capped at $1,000 for marrieds and $500 for singles. But this break only lasts a short time: It is scheduled to expire after this year. Folks who itemize their deductions aren’t affected, unless the sum of their standard deduction and the special real estate tax deduction exceed their total itemized deductions. In that case, they will be better off with the enhanced standard deduction.

First-time home buyers get a tax credit of up to $7,500 for buying a main home after April 8, 2008, and before July 1, 2009. To be eligible, purchasers must not have owned a principal residence in the U.S. in the previous three years. The credit phases out between $150,000 and $170,000 of adjusted gross income for married couples and $75,000 to $95,000 for single filers. The tax credit is refundable to the extent it exceeds the buyer’s regular tax liability, but does not offset the alternative minimum tax. Home buyers in 2009 can make a special election to take the credit on their 2008 income tax returns. That may require the filing of an amended return for 2008.

But the credit is really only an interest-free loan from the government. The new law requires it to be recaptured evenly over a 15-year period, without any interest due, starting two years after the year the credit is claimed. Thus a first-time home buyer who claims a $7,500 tax credit for a purchase in 2008 must pay an extra $500 of income tax in 2010 and in later years. If the homeowner sells the residence before the credit is fully repaid, the seller is taxed that year on the lesser of the gain from the sale (if sold to an unrelated party) or the unrecaptured balance of the credit.

The credits for low-income housing and fixing up old buildings are juicier: They now can offset the minimum tax. This rule applies to low-income projects that are put in service after 2007 and rehabilitation expenses incurred after 2007.

Interest on more tax-free bonds is exempted from the minimum tax. This relief applies to bonds used for low-income housing and mortgages for veterans and low-incomers. This easing applies only to bonds that are issued after July 30, 2008.

Victims of the 2005 hurricanes also get relief. Those whose casualty losses were later reimbursed can elect to report the funds as if they were received in 2005. This helps folks whose tax rate in 2005 is lower than in the year they were reimbursed. IRS will charge them only one year’s worth of interest. Remember that amended returns for 2005 are due by April 15, 2009.

Congress even gave a tax break to businesses that cannot benefit from 50% bonus depreciation: Firms can elect to accelerate the use of their minimum tax and R&D credit carryovers instead.

Now turn to the two major revenue-raising provisions. Congress restricted a tax break for turning a second home into a main home: Some of the gain will be ineligible for the home-sale exclusion if the house is converted to personal use after 2008 and is later sold. The portion of the profit that’s taxed is based on the ratio of the time after 2008 when the home was used as a second residence or rented out to the total time that the seller owned the house. The rest of the gain remains eligible for the home-sale exclusion of up to $500,000 if you owned and used the house as your primary residence for two out of the five years prior to selling it.

This tightening may not bite you too badly if you owned the house for many years before converting it. For example, if you owned a vacation home for 18 years and make it your main residence in 2009 for two years before selling it, only 10% of the gain is taxed. The rest qualifies for the exclusion of up to $500,000. Homes owned for a short time prior to a post-2008 conversion fare the worst taxwise. And you can completely avoid the tax hit by converting before Jan. 1, 2009. Nor does the tightening apply if you turn a primary home into a vacation home. You can still exclude up to $500,000 of profit on the sale of the house if you owned it and used it as your principal residence for two years in the five years before the sale.

Congress also gave IRS the ability to sniff out unreported income of businesses. Credit card issuers will have to file 1099s on payments to merchants, starting with payments for 2011. This also applies to payments by debit card issuers and third-party networks, such as PayPal. The delayed effective date gives issuers time to gear up their computers. IRS will then match the 1099s with merchants’ tax returns. There is a special reporting threshold for third-party networks: 1099s will be required only for payees who receive at least $20,000 in payments during a calendar year or participate in 200 or more sales transactions annually. There is no minimum threshold for credit card or debit card payments. If a merchant does not supply a valid tax identification number, 28% backup withholding is required from payments starting in 2012.

By Peter Blank, Editor, The Kiplinger Tax Letter: http://www.kiplinger.com/businessresource/forecast/archive/New_Law_Adds_Tax_Breaks_for_Real_Estate_080801.html

It is also severely under-reported. The U.S. Department of Housing and Urban Development (HUD) estimates that more than two million instances of housing discrimination occur each year, but less than one percent are reported.

Many people are unaware that they have been victims of housing discrimination. A 2002 study by HUD suggests that many renters and homebuyers do not fully understand which activities are illegal under the Fair Housing Act. 

If you think your rights to fair housing have been violated, help is available. Housing discrimination complaints can be filed by phone or in writing, with HUD and/or with private fair housing enforcement agencies located across the country.

The Fair Housing Act prohibits discrimination in housing on the basis of:

• Race or color
• National origin
• Religion
• Sex
• Familial status (families with children)
• Disability

Under the Fair Housing Act, the following activities are illegal:

• Refuse to rent or sell housing
• Refuse to negotiate for housing
• Make housing unavailable
• Set different terms, conditions, or privileges for sale or rental
• Provide different housing services or facilities
• Falsely deny that housing is available for inspection, sale or rental
• For profit, persuade owners to sell or rent (blockbusting)
• Deny any access to or membership in a facility or service (such as a multiple listing service) related to the sale of housing
• Refuse to make reasonable accommodations in rules or services if necessary for a disabled person to use the housing
• Refuse to allow a disabled person to make reasonable accommodations to his/her dwelling
• Threaten or interfere with anyone making a fair housing complaint
• Refuse to provide municipal services, property insurance or hazard insurance for dwellings, or providing such services or insurance differently

What You Should Do

When reporting a complaint, be sure to include the following information:

• Your name and address
• The name and address of the person your complaint is against
• The address of the housing involved
• A short description of the event that caused you to believe your rights were violated
• The date(s) of the alleged violation

To reach the local HUD office in your area, call 1-800-669-9777, TDD 1-800-927-9275 or visit HUD.gov.

CivilRights.org: http://www.civilrights.org/issues/housing/fairhousing/housing-discrimination.html

Women, people with disabilities and families with children may also face barriers to their fair housing rights. These stories portray the human faces of housing discrimination – a diverse group of people who confronted discrimination and fought back against it by sharing their stories and filing complaints to end illegal practices.

Kids Need Not Apply

When Ana Ramirez began looking for an apartment in Toledo, Ohio, she saw a newspaper listing for an affordable two-bedroom condo available immediately. It seemed like the perfect place for Ana and her daughter. 

Ana phoned the rental office, and listened with growing excitement as the woman on the phone described the terrific features of the condo. Anticipation turned to dismay when the woman told her that children were not allowed in the complex.

Because she works for the Toledo Fair Housing Center, Ana knew that the “no kids” policy was illegal. The center began a testing investigation that deployed individuals posing as renters to call the realtor and record the conversations. The realtor mentioned the “no kids” policy to all the testers, even acknowledging the policy was illegal.

Ana filed a formal complaint to ensure that no other families would become victims of the unlawful “no kids” policy. Facing the judge’s promise of a stiff punishment, the rental company is negotiating a settlement.

Evicting Black Tenants

Joseph Ngangum had lived in his apartment building in Takoma Park, Maryland, for more than three years when the complex was purchased by a new management company. All of the building’s residents were Black.

Shortly after the purchase, the building owner evicted all of the tenants except one, who was permitted to live in the basement and limited to building access from a side entrance. The landlord’s excuse: massive renovations, leading to increased rent. The Black residents, including Joseph, were forced out despite their requests to stay and willingness to pay higher rent. The so-called “massive” renovations were completed within a week, and White tenants promptly moved into the vacated apartments.

Joseph’s local fair housing center determined that other buildings owned by the same company demonstrated the same pattern – all White tenants except for a single Black tenant living in the basement and using a side entrance. Joseph’s experience made him feel that Black people do not have the same right to a home as Whites. Appalled by the behavior of the building owner, Joseph filed a complaint to halt the owner’s illegal practices.

No Pets – Including Guide Dogs

Linda Gagne and her husband, Alfred, were searching for a new apartment in San Jose, California. Linda is blind, and relies on her guide dog, Wyoming, to get around.

After finding a promising listing in the paper, they made an appointment to see the building. Showed the apartment, the Gagnes were pleased by the amenities, the nice neighborhood, the park nearby for walking Wyoming, and the close proximity of a bus stop. Linda and Alfred made an appointment to apply for the apartment, and went to the building owner’s home. The first thing out of the owner’s mouth when she opened her door to the Ganges and Wyoming was “I said no pets. If I let you have one, everyone will want one.”

Despite the Gagnes explanation that Wyoming was a service animal, the owner refused to budge. She allowed them to complete an application, but had no intention of renting to the Gagnes. Despite Linda’s efforts to make her understand, the apartment owner did not accept that Wyoming, not simply a dog, gives Linda the service of sight.

This was not the first time Linda and Wyoming had experienced discrimination. But unlike the exclusion from a restaurant or department store, Linda points out that you can’t just choose to go live someplace else. The Gagnes filed a complaint in federal court to make sure other blind people would not be victimized, and won a settlement from the building owner.

Linguistic Profiling

James Johnson was looking for an affordable apartment in San Francisco with enough room for his two daughters. He saw a promising building with a “For Rent” sign out front, and left several messages for the landlord indicating his interest. He never received a call back.

Suspecting that he was the victim of discrimination because his voice “sounded Black,” James asked a friend who “sounds White” to call the landlord. The friend’s call was returned within a few hours. His suspicions confirmed, James reported the incident to his local fair housing center.

The center had Black and White testers phone the landlord. The White testers’ calls were returned, and the Black testers’ calls were ignored. James sued the landlord to protect other renters and homebuyers from what amounted to racial voice profiling.

Interracial Discrimination

Lisa Lincoln and her partner Don Weaver made arrangements to view a two-bedroom apartment in New Orleans. When the apartment owner arrived and saw the couple, he got out of his car and began walking in the other direction. Lisa followed him and identified herself to the owner who indicated the apartment had been rented. Lisa is Japanese-American and Don is African-American. They had a gut feeling that the owner had lied to them.

Lisa asked a White coworker to call about the apartment. The owner told the coworker that it was available. Subsequent Black testers were told the apartment had been rented; White testers were offered opportunities to see the same apartment.

With the help of their fair housing center, Lisa and Don filed a lawsuit and were awarded over $100,000 in damages. The couple acknowledges that the enforcement process was rigorous, but they hope their positive outcome will encourage other victims of housing discrimination to stand up for their rights.

CivilRights.org: http://www.civilrights.org/issues/housing/fairhousing/faces.html