From Bankrate.com - 2 steps to finding credit after bankruptcy

Justin Harelik, a L.A. attorney writes about bankruptcy for Bankrate.com. A reader posed this question about life after bankruptcy-

Dear Bankruptcy Adviser,
I have had really good credit for the past 20 years and recently went through a bankruptcy and am wondering how to "start over." I did keep my two cars and my house, but they still show up as discharged in a bankruptcy on my credit report and, according to my lender, that will continue for three to six months after the bankruptcy is discharged. How do I explain that to potential creditors?
-- Terri

The answer-

Dear Terri,
"As you begin the credit repair process, you will need to explain yourself to potential lenders over and over and over again. Yes, it will get to a point where you just might give up. But you cannot!"

Lenders today are quick to say "no" to anything out of the ordinary. Credit dings, especially ones as big as a bankruptcy, give the lender all the incentive needed to reject you for a loan or financing. You must remember that you can get credit again, but it will take some time. Here's a two-step process to follow.

Here are the two steps:

Tell your story. Research shows that the vast majority, more than 80 percent, of individuals who file bankruptcy have dealt with an illness, a divorce or a period of unemployment. You need to prepare a 30- to 40-second sound bite, explaining why you filed for bankruptcy. Even the most sympathetic loan officer or underwriter will not want to hear you tell your life story. Be concise, but thorough.

Interview your lenders. You don't want unnecessary credit inquiries showing up on your credit report after a bankruptcy. You will want to know whether you have the option of a loan after bankruptcy before you even fill out an application.

Bankruptcy does not mean your life has come to an end. It may seem that way, but never, ever, let them get you down.

Read the full article from Bankrate.com.

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“Strategic defaults” or walking away from the old homestead

Notwithstanding that they can afford to make monthly payments, there are homeowners who walk away from their homes, and leave the bank holding the bag, when the value of the home is less than mortgage amount. Well, it seems that Fannie Mae won’t be taking it on the chin without a little payback.

According to the New York Times, a recent report

“found that about 19 percent of all mortgage defaults in the second quarter of 2009 involved borrowers who could afford the loans. In the previous quarter 21 percent of the defaults were strategic.”

Meanwhile, last month Fannie Mae, the government-controlled company that sets lending standards for most mortgages, changed the penalties for borrowers who enter foreclosure with Fannie Mae-backed loans.

Previously, they would have had to wait five years before becoming eligible for a mortgage. Now they can re-enter the market in as few as two years, as long as they first attempt a “graceful exit” via a short sale or a deed in lieu of foreclosure. Freddie Mac, Fannie Mae’s smaller counterpart, maintains a similar policy.

Much has been written about short sales, but we never knew that walking away from a mortgage was called a strategic “default.”

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Greedy mortgage brokers charged with theft.

The Asbury Park Press reported

Three executives from Hawthorne Capital Corp., a mortgage brokerage with offices in Manalapan, New York and Pennsylvania, have been charged with theft for failing to pay off original loans after refinancing mortgages, the Monmouth County Prosecutor's Office said.

New Jersey customers used the company to refinance their mortgages, the Prosecutor's Office said. Typically when that happens, the lender pays off the original mortgages. But the Prosecutor's Office said it received a complaint from a Monmouth County homeowner who said a check sent to her original mortgage company had been returned for insufficient funds after the homeowner refinanced with Hawthorne.

Now, this is interesting because we normally find a title company and/or lawyer involved in the actual disbursement the new mortgage loans, not the mortgage broker, and there is no mention in the story or the Prosecutor's press release of any involvement. So, we think there’s more here than meets the eye. We’ll try to follow this story.

The Monmouth County, New Jersey Prosecutor's press release can be found here.

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No tax credits for N.J. homebuyers; impact of end of Federal program being felt in New Jersey.

We previously told you about a plan to give N.J. home buyers a tax credit.

Well, N.J. Gov. Chris Christie has vetoed bill that would have given tax credits of up to $15,000 to homebuyers. The reason-- the state could not afford to forego $100 million in tax revenue over the program’s proposed three-year lifespan.

According to the report in the Star-Ledger,

Christie has said that while he would support some economic development programs in other times, the state does not have the luxury of paying for them now.

Responding to criticism, “Christie argued in his veto the money would have been used by people already committed to buying homes and would “’briefly and artificially inflate home values.’”

Read the full article.

Meanwhile, the New York Times reports,

“After the expiration of the federal tax-credit program for buyers on April 30, the number of contract signings in New Jersey abruptly fell to the lowest point in six years — after more than a year of continuous gains.”

Well, I guess we are not seeing the light at the end of the tunnel.

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Sales tax on title abstracts? N.Y. says "yes" will N.J. follow?

The New York State Department of Taxation and Finance has announced that it has changed its policy on title abstracts – they're now taxable when done by a title agent.

You can read the determination on page 4 of the memorandum TSB-M-10(7)S, Sales Tax, July 19, 2010, Sales and Compensating Use Tax Treatment of Certain Information Services, issued by the Office of Tax Policy Analysis Taxpayer Guidance Division.

My take? Well, if the taxation folks in New York think it will work, then the taxation folks in New Jersey will most likely give it a shot.

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N.J. Home buyer tax credit - will it happen?

Is the N.J. home buyer tax credit in jeopardy? That's the question being asked in a news report from Channel 3 in Philadelphia.

"A bill that some say would reenergize New Jersey's housing market is still sitting on the desk of Governor Chris Christie.

"It's a spend money to make money, create jobs and create commerce initiative."

Patrick Murray, on Newsroom New Jersey, asks a question, what's the bottom line on the bill's effectiveness?

Well, what happens after the credit program is shut down? Do those buyers stay in the market and keep housing demand high? If we look at the experience of the federal credit program, the answer appears to be "No."

The numbers are even more astounding if we look at how the credit will apply to sales of existing homes. According to state figures, more than 110,000 existing houses were resold last year. That translates to about 300 a day. This means the $25 million pot for existing home sales tax credits will be snapped up within a week of the program going into effect. One week!

Considering how lengthy the sales and mortgage process is, a homebuyer's likelihood of closing on their purchase within the seven day window this credit program is available will be more a matter of luck than planning. "Mr. and Mrs. Jones, here are the keys to your house, and congratulations — you just won $15,000!"

The bill is seen as a jump-start, more like a defibrillator, if you ask me, for New Jersey's ailing housing market. The idea is to give home buyers a $15,000 tax credit or get back 5 percent of the price, whichever is less. The money would be paid over three years. You can read the bill here.

We'll keep you posted.

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Selling a vacation home? Tax treatment of furniture can catch you.

Karin Price-Mueller, the BizBrain at the Star-Ledger, fields questions from readers on a variety of matters. Here's one regarding tax treatment of furniture when selling a furnished home. (The question is shown in full.)

Q. When selling a furnished vacation home, can I add to my original basis the replacement costs of the furniture and accessories that came with my condo and that I have replaced over the years, such as TVs, rugs, couches, chairs, drapes and air conditioners? The condo unit was originally purchased for $80,000 plus a $5,000 furniture package, and we sold it furnished for $250,000. While I rented it out at times, I didn’t depreciate it. It was primarily a vacation home.

— Bob

"A. Even though you bought the home furnished all those years ago, you can’t include the furniture as part of your cost basis."

Essentially, you can only add improvements to the cost basis of the home, not furniture.

"Some examples of capital improvements that would qualify as an increase in cost basis include the cost of putting an addition on the home, replacing the whole roof, installing central air-conditioning, paving the driveway or rewiring the home."

"Adding the furniture to the cost basis is only asking for trouble, said Douglas Duerr, a certified financial planner and certified public accountant with U.S. Financial Advisors in Montville. "

Read the full article Furniture sold with home does not count toward cost basis.

And, as always, we recommend you speak to your tax advisor when undertaking any major financial transaction.

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FDIC - 6 more banks closed this past week

In my opinion, one of the quieter aspects of the economy is the FDIC's closing of banks. There's just not a big hoopla when it happens and six more were shuttered this week.

As reported by the Morris County Daily Record's Associated Press Wire,

Regulators on Friday shut down three banks in Florida, two in South Carolina and one in Michigan, bringing to 96 the number of U.S. banks to succumb this year to the recession and mounting loan defaults.

The closures will cost the FDIC about $330 Million. That's not chump change. We're sure more banks will close before this recession is over.

Read the full article here.

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Homeowner beware - folks are out there ripping you off

The New York Times reports on efforts of unscrupulous businessmen - more like con artists - who are out there trying to take advantage of you.

MAINTAINING a home is expensive, as we all know, but if you upgrade a kitchen or replant the garden, at least you have something tangible to look at and appreciate. It’s when the boiler goes or you need a new roof that home maintenance feels particularly unrewarding — so much money, so little to show for it.

So where's the trouble? "[I]f the problem is hidden, it’s especially easy to put your faith in the wrong hands."

What kind of contractors are apt to try to pull the wool over your eyes? Well, they range from chimney sweeps who claim you need a new lining to prevent a fire, air duct cleaning companies that claim you have mold in your HVAC system, and carpet cleaners.

As the article Avoid Fly-by-Night Cleaners by Making a Phone Call First says,

"When contracting for maintenance, bewared the swindlers."

Care to comment, let us know what you think.

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How many foreclosures in a million? A lot.

One million is the number being bantered about of houses that may be lost in foreclosure actions this year.

Rosalyn Dalebout rents out space in her home to three tenants, has cut off her phone service and canceled her earthquake and life insurance — all to pay her mortgage every month.

So far, she's one of the lucky ones.

More than 1 million American households are likely to lose their homes to foreclosure this year, as lenders work their way through a huge backlog of borrowers who have fallen behind on their loans.

Nearly 528,000 homes were taken over by lenders in the first six months of the year. If foreclosures continue at that rate, the yearly number would eclipse the more than 900,000 homes repossessed in 2009, RealtyTrac Inc., a foreclosure listing service, said Thursday.

Whatever the actual number, things do not look well for American homeowners or the banks who gave them the mortgage. Does government have a fix? Perhaps loosening up mortgage modifications for those who are current on their loans but whose homes are valued for less than the amount of mortgage would be a good first step.

What do you think?

The Associated Press story by Alex Viega can be found here - Homes lost to foreclosure on track for 1M in 2010

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Help with mortgage modifications? Maybe in New York.

The New York Times reports that NYC and unions are pressing banks to modify mortgages.

Hoping to succeed where Washington has largely failed, New York City’s comptroller, John C. Liu, and six large unions plan to begin a campaign on Wednesday to press the biggest banks to do more to prevent foreclosures in the New York area.

We have complained before on these pages about lender reluctance to modify mortgages in spite of the borrower's good payment history.

Mr. Liu said the group would send Citigroup, JPMorgan Chase, Bank of America and Wells Fargo, among others, a letter that criticizes them for dragging their feet on modifying mortgages that are underwater or delinquent, and that urges them to do “everything possible” to avert foreclosures.

Just how will they pressure the banks? How about moving "pension funds" and other union money? That might work.

Don't expect anything to happen quickly. But this is a good first step.

Read the full article New York Presses Banks on Foreclosures

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Home Buyer Tax Credit Deadline Extended

From Realty Times,

"The home buyer tax credit now has an extended closing deadline, thanks to Congress. The new deadline is set for September 30, 2010. This new legislation, bill H.R. 5623, will allow for thousands of home buyers to take advantage of the $8,000 and $6,500 tax credits that saw their previous deadline pass on June 30th.

"The National Association of Realtors (NAR) has been encouraging of its passage. “We know that up to 180,000 home buyers eligible for the tax credit are rejoicing this morning. And we all thank both houses of Congress for their work to ensure passage of both bills,” said NAR president Vicki Cox Golder.

"Who is eligible for this deadline extension? If you are a first time or "step up" homebuyer who had a ratified contract in place as of April 30, 2010, but was unable to close by the previous June 30th deadline, then you're in luck. You are considered a first time home buyer if you have not owned your own home in the last three years. The same income restrictions and rules apply for the extension as were in place for the previous June 30th deadline. "

Read the full article - Realty Times - Home Buyer Tax Credit Deadline Extended

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