California Home Equity is Up, But Distressed Owners Are Still Among Us

Distressed property owners have not disappeared totally.  A review of the Los Angeles County tax records today for the entire Long Beach area shows 257 residential properties in pre-foreclosure status.  Who's represented?  Property owners in all zip codes and while I didn't make an exact count, adjustable mortgages seemed to predominate.  This is unfortunate, because while many more owners are now benefiting from the upward trend in values, many are still affected by loss of job or short term jobs or lower paying jobs in the face of an upward increase in their mortgage, just to name a few reasons.

Owners who have attempted loan modifications may not have met all the hardship requirements, or they do not have enough income to refinance under today's more stringent-i.e., traditional-loan guidelines. And so, like the TV advertisements show us, they "freeze" up, unable to take action, and unable to come to the decision they might need to sell and relocate.  If you or someone you know falls into this category, short of finding a financial benefactor, the choices may be to sell, go into foreclosure, or continue to struggle if you possibly can.  One of the dividing lines for being eligible for loan modification or short sale assistance is whether or not your property value is still (much) lower than what you owe, OR you have experienced a qualified economic hardship.

Under a current California program, an owner may be eligible for up to $5,000 in transition assistance, loan principal reduction, unemployment mortgage assistance, and loan reinstatement assistance.  Also, Bank of America and other banks still offer their transition assistance programs for people in short sales. This program does not do loan modifications--for that you need to go directly to your servicer--but it does offer 4 other types of help.

For more information on this program, go to http://keepyourhomecalifornia.org, a program run by California Housing Finance Agency (CalHFA) with $2 billion in funds through the Hardest Hit Fund of the U.S.Treasury.  The site includes all information about eligibility, the participating servicers, and income requirements.  Over 43,000 California homeowners have been helped. 

Prices Continue Up for June in Many Cities, But Sales Volume Way Down

Average single family home prices in June, 2014, and the increase or decrease compared directly to June of one year ago (prices may differ from overall annualized price), plus stats on closed sales and days on market (DOM).  Actual number and percentage of sales are down (see red column), a lot; properties are usually spending more time on the market before going into escrow (last column); and the average house price, on a citywide basis, is higher than one year ago.  The percentage increase in price, however, is lower compared to May's increases, in many areas. (P.S. See my new Metro Summary page for Long Beach region info for July).
     

Cerritos	$739,333	+10.8%	Closed Sales	-40%	DOM +27.8%
Lakewood	$463,096	+7%	Closed Sales	-32%	DOM +8%
Long Beach	$555,496	+17%	Closed Sales	-28.4%	DOM +58%
Los Alamitos	$726,667	+9%	Closed Sales	-57%	DOM +72%
Seal Beach	$1,021,223	+14%	Closed Sales	-20%	DOM -33.3%
Signal Hill	$655,000	+7%	Closed Sales	-75%	DOM +87%
Huntington Beach	$920,396	+19%	Closed Sales	-21%	DOM +68%
Norwalk	$340,943	+9%	Closed Sales	-8%	DOM +5%
Downey	$444,903	+8%	Closed Sales	-24%	DOM +59%
Garden Grove	$503,922	+15%	Closed Sales	-58%	DOM -9%

Thinking of Taking Money Out of Your California 1031 Exchange? Do It The Right Way

A basic feature/requirements of 1031 exchanges is that the taxpayer doing the exchange cannot have access to their funds--that's why there's an accommodator, or "qualified intermediary" (QI).  In real estate, 1031 exchanges are allowed where the property owner has not lived in the property as a principal residence, but has owned it usually as some form of income or investment property. There are certain exceptions to this, but they will not be covered here.  Just know that the rules surrounding IRS 1031 exchanges are specific and detailed, and must be complied with to the letter.  A principal 1031 exchange benefit is in deferring capital gains taxes on the sale of property by shifting funds into a new purchase, also a non-owner occupied property.  For a property owner who bought in a low market, and is selling in a much higher market, the tax savings can be significant. Simply, in this type of transaction, the taxpayer is not allowed access to funds which are handled through the QI, unless there is an agreement that the taxpayer is taking money out of the first sale, known as "boot", which will not be used in the acquisition of the next property.

As previously covered in other posts, the State of California wants all of the money it's entitled to, so recently a tax audit of an exchange failed because the State said the taxpayer didn't follow the 1031 exchange agreement.  So that means the taxpayer is now probably paying a lot of taxes which otherwise would not have been the case.  The State didn't like the taxpayer giving the escrow officer, not the QI, instructions to exclude $150,000 from the purchase of the next property and send it over to the taxpayer.  The Franchise Tax Board said the taxpayer thus really had access to the funds, which he/she was not supposed to have, and so the exchange was violated.

Moral of this story:  If you're doing a 1031 exchange transaction and you want to take out money from it, make sure it's included in the actual written agreement with the QI, because the QI is who is responsible for handling all funds in the exchange, not the escrow officer. Make sure you are using an experienced and known professional accommodator, are following the advice of an experienced tax professional, and are working with an experienced REALTOR as well.  It could make a huge difference to your bottom line.  Read more at Asset Preservation.