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Senate Stimulus Bill’s Home Buyer Tax Credit

Sacramento, Feb. 16, 2009
Amarveer Dhillon

Readers are posing lots of different questions about the proposed $15,000 home buyer tax credit that’s in the Senate version of the economic stimulus bill. It’s important to remember that the proposed credit is far from a done deal. The bill still has a couple of big hurdles, including tomorrow’s scheduled vote in the Senate. (Read the Senate version.)
If it passes, it will have to be reconciled with the House version of the stimulus bill, which modifies an existing $7,500 home buyer credit, repealing a provision that requires buyers to pay it back.

There are some big differences between those two versions. The Senate version is nonrefundable, meaning you can only receive the credit if you owe federal income taxes. The existing credit is refundable, meaning you get a check from the government even if you don’t owe income tax. And the current credit applies to first-time home buyers, defined as anyone who hasn’t bought a house in three years. The Senate version is open to existing homeowners.

Here are some more Frequently Asked Questions. Please note that the answers may change as the Senate bill changes:

If I bought a home and used the $7,500 home buyer tax credit, can I retroactively receive $15,000 credit if it becomes law? No.

Are there any income restrictions on the tax credit? The Senate version currently has no income limits. The current $7,500 tax credit phases out on buyers with incomes exceeding $75,000 for individuals and $150,000 for married couples.
When will the new tax credit go into effect? The Senate version would take effect when the bill is signed by the president into law, and it would last for one year.

Can I take the tax credit this year? Yes. The Senate proposal would allow buyers — even those who purchase in 2009 — to claim the credit on their 2008 taxes.

The proposed tax credit is nonrefundable. What does that mean? You can only receive the credit to the extent that you owe federal income taxes. The Senate proposal would give home buyers two years to claim the credit, so buyers could claim a $7,500 credit in 2009 and a $7,500 credit in 2010. A family of four that makes less than $82,000, for example, could have a tax liability of less than $7,500 and they would not receive the full value of the credit.

Are there any repayment requirements on the tax credit? No. The Senate proposal does not require the credit to be paid back. The House proposal eliminates a 15-year repayment provision on the existing $7,500 tax credit.

If I am eligible for the current $7,500 credit, am I also eligible for the $15,000 credit? While the $15,000 credit has fewer restrictions than the existing credit, there is one big difference: because the credit is nonrefundable, if you have a low federal income tax liability, you could end up receiving more money with the current credit than the larger, proposed credit.

Are there any increased down payment requirements on the proposed tax credit? No. A separate measure has been introduced in the House that would expand the tax credit to $15,000 but would require a 5% down payment on mortgages. The Federal Housing Administration currently requires a minimum 3.5% down payment.
Can I use the tax credit to buy a second home? No.

How long do I have to live in my home after I purchase it with the tax credit? The Senate version requires buyers to pay back the credit if they sell the house less than two years after they buy it.

source: Wall Street Journal

Be Aware of Fake Lawyer or Loan Modification Callers asking for $1500 to $4000 upfront.

Sacramento, Feb. 14, 2009
Amanveer Dhillon

Mortgage-modification pitches may carry big risk and scam you out of money.

Increasingly they're pitching on TV. Desperate for a loan modification, they ask? Call now.

For thousands now struggling with mortgages there's a more important question: Whom can you trust?

Diane Mathews of Sacramento surrendered to a phone pitch a few months ago. She paid a firm $3,500 upfront to intervene with her loan services about a risky mortgage.

"They said we were on a list of people with bad loans and they wanted to help us. I was skeptical, but they hounded us. They literally hounded us," she said months later, still in the same bad predicament.

"I finally relented," said Mathews. "I felt desperate."

Thousands of Californians, and Sacramento-area residents in particular, will sympathize.

As soon as they default on a mortgage – or before – the calls begin. Often, the firms seek $1,500 to $4,000 upfront to help them out of jams with housing-boom loans.

Nationally, there's been an explosion of questionable companies getting into the game, government authorities say, and rising numbers of consumer complaints. This, they note, is for services that consumers can do themselves or get free from nonprofit loan counselors approved by the U.S. Department of Housing and Urban Development.

"It's similar to after a hurricane hits," said Tom Pool, spokesman for the California Department of Real Estate. "The bogus contractors come and collect money for repairs and don't do anything. These people are on their last dollar, anyway, and these loan-modification companies are having them draw on their credit cards with false promises."

"We have a lot more consumers coming to us having paid $1,500 to $2,000 to a firm that was clearly committing to things that were beyond their scope of authority," confirmed Martha Lucey, president of Fresno-based By Design Financial Solutions. The nonprofit loan counselor has 11 California offices, including one in North Highlands, that offer free help with loan modifications.

Pool said DRE has shifted staffers to investigate 250 cases of loan-modification offenses. Many involve former real estate agents. It also has filed a growing number of cease and desist orders statewide.
California Deputy Attorney General Angela Rosenau said she has worked almost entirely on loan-modification scams since fall 2007. She is blunt with consumer advice.

"In terms of somebody that's trying to do a loan modification, they themselves are in the best position to be able to do that. It's not very likely that a third party is going to be in much better position to make that happen.

"And paying them to do it is not necessarily going to advance your cause much more," she said.
DRE's Pool said the bottom line is loan modifications are entirely in the hands of lenders, not third parties.
"Some lenders are more aggressive in allowing loan modifications and others aren't ramped up or staffed to handle the number of requests so they go unanswered," he said.

Indeed, the difficulties struggling borrowers are having in dealing with lenders makes a perfect ad pitch for third-party intervention. Borrowers continually complain that lenders are unresponsive before they default, sometimes lose their paperwork and make them endure long waits on the phone. It's little wonder they seek help.
For those who believe they can't do it themselves, there are safe options. There are attorneys, firms cleared by DRE and legitimate operators who play by the rules and get clients by word of mouth.

Experts say a request for advance fees is always the first alarm bell that consumers should heed.
Pool said many firms – sometimes out of ignorance, sometimes with intent to defraud borrowers – illegally ask for upfront fees.

The DRE says this is what borrowers should know:

• If your lender has issued a notice of default against you (after you missed numerous payments) loan-modification companies cannot collect an advance fee, even if they have a real estate license.
• Lawyers are exempt and can charge an upfront fee if they are rendering legal services and operating under the scope of their licenses.
• If you haven't yet received a notice of default you can be charged an advance fee. But:
• The firm must provide an agreement for you to sign that explains what services will be performed, when they will be performed and what they will cost.
• And before you sign it, that agreement must have been sent to the Department of Real Estate for review and permission to collect upfront fees. Those fees must then be held in a trust account and only be spent on agreed-upon services.

Some in California believe all that's too complicated.

Last month, state Sen. Ron Calderon, D-Montebello, introduced legislation, Senate Bill 94, to ban upfront fees altogether. Calderon is chair of the Senate Banking, Finance and Insurance Committee.

In a statement accompanying the introduction, he said, "Borrowers facing financial ruin are misplacing their trust in so-called consultants" who often leave clients worse off.

The bill must pass the Senate and Assembly and be signed by Gov. Arnold Schwarzenegger before the end of 2010 to become law.

In the meantime, it's buyer beware, say regulators.

"To the extent that it's a solicitation by an attorney or someone in the real estate business," said Rosenau, "check with the California Bar Association or the Department of Real Estate to be sure it's a licensed individual with a clean record. It never hurts to check with the Better Business Bureau," she added.

Mathews wishes she had.
After she paid her $3,500 last year, months went by and nothing happened. She called DRE and learned her helpers had lost their real estate license.

She didn't want to believe it, she said, recalling sincere promises of a principal reduction and waiver of prepayment penalties. She also remembered the desperation those promises played on.

"It felt like, 'What can I do?' "