Life After the Tax Credit: Real Estate 2010, Part Two

The $8,000 first-time-homebuyer tax credit has been expired for almost 3 months at this writing. While there was a glut of publicity and frenzied activity surrounding this federal government program, how is the market now that the credit has ended?
In a report from May 27, 2010, Chris Eigel, CEO, and Michael Pierson, President & Chairman, Prudential Rubloff, summarized the market:
• Much improved market with increasing sales activity
• General feeling of optimism among real estate professionals
• Continued low prices
• Very favorable interest rates for the near term with increases likely near the second half of 2010
• While definitely improving, inventory levels are still high and absorption rates are low, particularly at higher price points.
• Historically high unemployment and low consumer confidence
• A great time for qualified buyers—may be as good a time as we have ever seen
• Sellers should price conservatively and do everything they can to make their homes outshine the competition. (“We’re in a price war and a beauty contest.”)

We asked one of favorite real estate attorneys, Greg Braun, how things look from his perspective. His response, based on personal experience, was more tempered. “The combination of our usual spring push, the tax credit, and nerves about rate volatility made April an active time for real estate. However, a surprising number of buyers cancelled the new April contracts because of inspection issues and condominium disclosure problems – an $8,000 credit cannot bring all contracts to the closing table,” offered Braun.

He continued, “Going forward, I see that short sales will continue for the next several years. The economy is recovering, but the damage is done to home equity and personal savings. Consumers who experience setbacks on the job do not have the resources to bounce back. “

“Since new construction had stopped for the most part, homes in higher end neighborhoods will see prices solidify and increase. The market will not recover as fast as we would like, but homes must be bought and sold as people continue to have to live their lives – families expand, contract, workers transfer in and out of Chicago and investors see profit opportunities. More than ever, home sellers and buyers will have to use experienced professionals to guide them through the options and the process that continues to become more complex and dynamic.”

Perhaps it is too soon to tell what effect the lack of government incentives will have on the market, although we do agree with Mr. Braun that there will always be a need to buy and sell as people live their lives. Stay tuned as quarterly, semi-annual, and yearly statistics are spun to tell us what happened in the second half of 2010.

Revisiting: Was the Federal Tax Credit Extended?

Just so that we are all clear…yes and no…
YES: Service members who were on official extended duty outside of the United States for at least 90 days between January 1, 2009 and May 1, 2010, may qualify for a 1-year extension.

NO: to all others. If you have read about an extension, it was most likely the recently introduced bill to extend the present home-buyer tax credit closing deadline to Sept. 30. The measure, sponsored by Senate Majority Leader Harry Reid, D-Nev, and Senators Johnny Isakson, R-Ga, and Chris Dodd, D-Conn, was offered as an amendment to H.R. 4213, a tax extension bill now in the Senate.

The National Association of Realtors (NAR) estimates the number of home buyers who have qualified for the tax credit and met the contract deadline of April 30, but who would not be able to close their transaction by the June 30 deadline, could go as high as 180,000. Realtors® have reported as many as one-third of qualified applicants have been notified by lenders that their mortgages will not close before June 30 due to the sheer volume of applications in the pipeline.

“As the leading advocate for homeownership and housing issues, NAR commends these Senators for their attentiveness and sensitivity to thousands of qualified home purchasers, who through no fault of their own, are not able to meet the closing deadline of June 30 for the homebuyer tax credit. Now we urge the Senate and the House to act quickly to pass this legislation and ease the minds and pocketbooks of these homebuyers,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz.

Golder said she also wanted to make this clear: “This amendment does not extend the deadline for home buyers to qualify for the tax credit; it extends the deadline for closing the transaction, from June 30 to Sept.30. Since these applications were already in the pipeline and figured into the program’s cost, the extension of the closing deadline should not incur any further government costs.”

IT CAN’T HAPPEN TO ME: A BRIEF DISCUSSION OF BANKRUPTCY–Part II

© 2010 Andrew J. Maxwell

Part II: Definitions and Important Concepts for a Person Filing Bankruptcy. There are three basic bankruptcy alternatives for most people or businesses…

Briefly stated, and greatly over simplified, a Chapter 7 is intended to be an expedited case in which a ‘snapshot’ of the debtor’s financial condition at the time of filing the case is set forth. All of a debtor’s assets and liabilities are disclosed as of the date of filing and those are evaluated by a trustee who seeks to determine if there is any non-exempt property that could be sold or ‘liquidated’ to produce a fund to pay creditors. Unlike a Chapter 13 or Chapter 11 case, in the usual case the debtor’s future earnings are not included in a Chapter 7 bankruptcy case.

In a Chapter 13 case, the debtor similarly discloses all his or her assets and liabilities, but the emphasis is less on the value of the assets than on the future earnings stream as a way to repay debts in whole or in part over a period of time, generally between three and five years. Similarly, in a Chapter 11 case, the emphasis is on the future earnings stream to repay debts and, in the case of a business, the financial viability of the person or entity in the bankruptcy case.

Important concepts for a person considering filing bankruptcy are the automatic stay, discharge of debt, and exemptions to protect property. The automatic stay applies in both consumer and business bankruptcy cases in each of Chapters 7, 11 and 13. The automatic stay becomes effective immediately upon the commencement of a voluntary bankruptcy case and remains in effect until it is modified by an order entered by the bankruptcy court, providing some ‘breathing room’ for the debtor to try to resolve a financial situation. The discharge of debt is the goal for most people filing a bankruptcy case. If some statutory exception doesn’t apply (child support obligations, most taxes, and most student loan obligations, for example) or the court does not rule that the person is not entitled to a discharge, then debts included in a bankruptcy can be wiped out at the end of the case. The exemptions to protect certain property vary by state and can influence what type of bankruptcy relief might best suit an individual situation. It is important to carefully evaluate which assets might be at risk in a bankruptcy case and which assets would likely be protected by an exemption.

This brief article probably raises as many questions as it answers, but bankruptcy is a complicated law, even for lawyers. So, if you find yourself or know someone in or near the Pigs Fly Department, talk to a lawyer who is experienced in and knowledgeable about bankruptcy law before taking any action. I might add, have that talk sooner rather than later.

Andrew J. Maxwell concentrates his practice in bankruptcy, restructuring, reorganization and related areas of law, in regard to individuals and businesses. Mr. Maxwell has been a practicing attorney in Chicago for over thirty years, for more than twenty-five years has been a member of the panel of standing trustees maintained by the Office of the United States Trustee in the Northern District of Illinois, and has administered literally thousands of cases, including some of the largest liquidations in Chicago. He can be contacted at ajmaxwell@maxwellandpotts.com or (312)368-1138. His firm’s website is a work in progress.

Urban Gardening Bronzeville Style

“Never plant before Mother’s Day.” That’s what the farmers say; if you believe that old saying you are very glad that you did not plant your Chicago garden yet!
Bronzeville area avid gardener and RESNET Certified Energy Auditor, Sylvia Ruffin and her life partner Julian Dawson tend about 800 square feet every year on the corner of 44th and Vincennes to deliver a bounty that provides almost all their produce during the summer months and a good portion of their winter vegetables. The key is eat only what is in season, can tomatoes and store root vegetables (potatoes, rutabagas, beets, turnips, onions, garlic, and carrots) for use during the winter and start your garden early.
Sylvia and Julian made an initial investment of about $700 in gardening equipment and $4,000 in soil and spend about $200 annually to keep up their harvests. To keep expenses down and quality up Sylvia stores extra seed purchased one year under conditions that allow it to be used for planting the following year. Sylvia makes her own complete organic fertilizer (formula obtained from a gardening book) and purchases composted manure to supplement homemade compost, created from the vegetable waste and garden clippings collected in two large composters located close to the kitchen door.
Sylvia estimates that her garden takes her about 8-10 hours a week (although she says she could be out all day she enjoys it so much) between weeding, watering and harvesting. Most of us will not have 800 square feet of garden in eight raised beds plus an additional 5 containers. It is almost a farm!
The early plantings (started from seed before Mother’s Day) include broccoli, lettuce, kale, chard, radishes, beets, turnips, carrots, cilantro, and onions, some of which she will repeat in the fall. The main harvest (planted after Mother’s Day) includes strawberries, blueberries (grown in netting to keep the birds away), pole beans on climbers, hot and sweet peppers, winter squash, garlic, tomatoes, dill, basil, cucumbers, rutabagas, and lots of potatoes. Sylvia grows lettuce, green onions, cilantro, and blueberries in containers. Everything is started from seed except peppers, tomatoes, strawberries, and blueberries. Marigolds ring the garden to help keep the bugs away.
In addition to gardening, Sylvia tries to limit her purchases of store bought items to things locally produced—“no apples from New Zealand or blueberries from Chile”, she says! She and Julian also try to eat foods in season; “when asparagus are out of season, we don’t eat them”.
“Most items in the grocery store travel an average of 1,500 miles to get to your plate – most produce travels by air because it is perishable. It uses a lot of energy to transport food around the world. It just doesn’t make sense” says Sylvia.
“It is very rewarding to grow your own food. I encourage everyone to grow some of their food. Many people grew up with a family garden and we have gotten away from that. The food is more flavorful, more nutritious, and you know where it came from!” says Sylvia.

Resources – Web sites
1. http://www.veggiegardeningtips.com/
2. http://web.extension.illinois.edu/cook/urbanhort.html
3. http://compostguide.com/
4. http://www.gardenguides.com/

Resources – Books (reviews, comments are available on Amazon.com)
1. “Gardening When It Counts” by Steve Solomon (contains formula for COF – complete organic fertilizer)
2. “The Vegetable Gardener’s Bible” by Edward C. Smith (excellent photos)
3. “Kitchen Harvest” by Susan Berry (container gardening)
4. “The Gardener’s A-Z guide to Growing Organic Food” by Tanya L.K. Denckla
5. “The Organic Gardener’s Handbook of Natural Insect and Disease Control” by Barbara W. Ellis and Fern Marshall Bradley
6. Any gardening book by Eliot Coleman (he has at least three).

By Michelle Browne

Why We Blog: Help Us to Help You

Originally organized as an ad hoc group, we are Realtors® who meet monthly to exchange and implement marketing ideas. We brainstorm, fueled by the market, our recent experiences in the field, and some delish bagels. We generously call ourselves the “Super Loop Group.” From sponsoring an evening for clients at a Grant Park concert to offering info on restaurant deals to featuring guest speakers, we endeavor to inform and entertain our clients and customers.
Thus, the blog was a natural direction for the group. Being realtors, most of our content is related to real estate, but not all. We are a collaborative blog, with contributions from all members. What we have in common is real estate, working for the same company in the same office, but we have diverse backgrounds, live in different neighborhoods, and have differing interests. We have a wealth of information and experience to share.
We would love to hear from you, the visitor. What are topics of interest to you? If you have real estate questions or concerns, ask us! We will answer honestly and candidly. How about topics not related to real estate? We are open to your suggestions. Scroll down to the bottom of our home page and you will find a reply box. We encourage discussion, feedback, and opinions. We look forward to hearing from you.

IT CAN’T HAPPEN TO ME: A BRIEF DISCUSSION OF BANKRUPTCY

© 2010 Andrew J. Maxwell

As every real estate broker is painfully aware, this housing market is the most difficult one in a long, long time. And, although the American Dream of homeownership continues to be very widespread, the economic conditions have caused many to reevaluate their economic priorities – either voluntarily or involuntarily. So much so that columnist Mary Umberger captioned part of her column in the Chicago Tribune on February 14, 2010, “Pigs Fly Department” where she cited to reports that “its been dogma that homeowners who are strapped for cash will pay the mortgage first, then use whatever is left” for other bills, but that no longer is the mortgage payment sacrosanct, to be paid before all else. When people reach that point or realize they may reach that point, as well as for a huge variety of other reasons such as medical expenses or divorce, the concept of bankruptcy has to be one of the considerations. For most people in more normal economic conditions, consideration of a bankruptcy filing would fall into the Pigs Fly department – but not any longer.

First, all bankruptcy cases are filed and heard in federal court and based on federal law. There is no corresponding state procedure, although there are some alternatives using state law, particularly for business closings or liquidations. However, the law of the state you live in or in which you own property will impact the result of the bankruptcy case, particularly in the manner in which property rights are interpreted and what exemption laws may apply (more about the latter a little later).

To file a bankruptcy case a person or business must be an eligible debtor. If you are awash in cash and unencumbered property you may not be eligible to file bankruptcy (but you won’t care). For most people, “insolvency”, at least on paper, is not a problem by the time they add up their debt and compare it to the value of their assets, or when they compare their income to their expenses. So, most people can qualify as insolvent on one basis or another. There are certain limitations on the maximum amount of debt to be eligible for a Chapter 13 case.

There are three basic bankruptcy alternatives for most people or businesses (disregarding a variety of special purpose bankruptcy chapters). Chapter 7 is frequently referred to as “straight” or “liquidation” bankruptcy; Chapter 13 as a “consolidation” or “wage earner” bankruptcy; and Chapter 11 as a “reorganization” bankruptcy case. Individuals potentially can qualify for Chapters 7, 11, and 13. Business entities cannot qualify for a Chapter 13, but can qualify for Chapter 7 or 11. A detailed description of any of these chapters would require a much longer article than this one.

Part II of this article: Definitions and Important Concepts for a Person Filing Bankruptcy….

Andrew J. Maxwell concentrates his practice in bankruptcy, restructuring, reorganization and related areas of law, in regard to individuals and businesses. Mr. Maxwell has been a practicing attorney in Chicago for over thirty years, for more than twenty-five years has been a member of the panel of standing trustees maintained by the Office of the United States Trustee in the Northern District of Illinois, and has administered literally thousands of cases, including some of the largest liquidations in Chicago. He can be contacted at ajmaxwell@maxwellandpotts.com or (312)368-1138. His firm’s website is a work in progress.

Building Wealth with Income Property

Everyone knows we are in the midst of a challenging Chicago real estate market. However I like to think we are in a measured upswing of a Chicago real estate market. No matter what your position, one thing is for sure. There are fantastic income producing opportunities for the beginner and experienced investor.
Yes these are uncommon market times. The incentives & loan products offered by lenders and government entities are unprecedented. Beyond the $8,000 first time home buyer tax credit and the $6,500 existing homeowner tax credit. Lenders are finding new innovative incentives to help buyers shore up conventional closing cost associated with purchases.
This allows the smart investor to take advantage of the exceptional large Chicago inventory of 2-4 unit properties for sale. The smart investor knows that if they can find a 4 unit building for a price of $175,000-$225,000 that they are looking at a down payment of 3.5% or $6,125-$7,875. This translates to a monthly payment of about $1,500 per month. If you have 4 units and 3 are renting for a minimum of $800 per month, then you are looking at a net cash flow of $900 per month after the monthly mortgage payment. Obviously this is only an example. However there are real properties that fit this scenario. This is wealth building on a fundamental level. Here is my advice to anyone looking to incorporate a cash flow model into their home search; connect with a real estate professional and create a plan to secure a property and begin your wealth building journey. This market will not last forever and you owe it to yourself to benefit from this challenging market.

By Tracey Taylor,GRI

Capturing the Moment

It’s 2010! Have you made your move to take advantage of a rare Chicago real estate market that is offering deals of a lifetime? There has never been a better time than now to find that home, condo, or income property priced so low. Many buyers are finding and making offers on these truly great opportunities.
The Federal Tax Credit up to $8,000 is a great program for you to receive a little help from Uncle Sam. Combine a very low-priced home with the tax credit and a near prime interest rate, and you’ve got a rare incentive package.
Don’t let anyone tell you to wait; they are simply not ready themselves. Think of Chicago real estate as stock, ready to be owned by the smart investor. Interest rates will go up–that’s a fact. Owning a home will enhance the wealth-building opportunity for even the most nominal purchaser. Chicago real estate will appreciate and increase in value. The question is: Will you be on the receiving end of this great opportunity?
Call your local Realtor professional today. They have the knowledge and experience to help you plan and reach your homeownership goal. Prudential Rubloff is a proud advocate of first-time home buyers; we invite you to visit us at Rubloff.com.
Until next time, see you at the closing table!
Tracy Taylor

Fantastic Restaurant Deals in Chicago Click Here to see some great Chicago Dining Deals
Don’t miss out on this great opportunity to dine at some great restaurants and check out the neighborhoods at the same time. These restaurants are located all around Chicago and will provide you an opportunity to save money, check out the real estate, and have some fun all at the same time. Ellen Donnelly

How not to fail at a short sale…

“A fool with a plan can outsmart a genius with no plan,” according to T. Boone Pickens. That quote sheds light on the topic presented for this article. Having participated in smooth short sales and others that failed to launch, I have definite opinions on this enigma and offer some sage advice to help you through the minefield that is: The Short Sale. A short sale results when the seller’s lender accepts less than the full amount of its mortgage at the sale closing.
First and foremost, the players in this process all have a role that must be precisely mapped out ahead of time, much like the crew on sailboat. Failure to know your role or stepping on another’s could lead to disastrous consequences. Is the leader going to be the seller, the listing real estate agent, an independent negotiator or the attorney? We have seen it work every which way successfully. Once the roles are established, the leader must contact the lender on a regular basis. This contact pushes the lender along and provides an opportunity to find out what information is missing or needs clarification. Sometimes the missing document is a past bank statement or tax return, clarification on an employment status or an amendment to the closing statement: it can be anything the short sale lender wants.
Before we highlight a few of the standard steps in the process, we have to get past three initial hurdles to determine if our efforts will ultimately be fruitful. These “hurdles” are generalities of course, and everyone can say they have seen it done without getting past one of these – we have too!
The first hurdle and the impetus that gets the process going is the purchase contract – this is the motor that drives the deal. It creates the urgency – we do not want these buyers walking away because of the delay. Once in a while, the lender will move forward without a contract. It is critical that the real estate agent be familiar with the short sale process to present a contract that contemplates this adventure. It is equally critical that both the seller’s and buyer’s attorneys be experienced at the helm of this type of deal. Again, one inexperienced crew member can sink the ship!
The second hurdle – is whether the bank accepts the contract price. Logically, you would presume that the price must be realistic and return to the lender an amount greater than what they would obtain at a foreclosure. Unfortunately, logic and presumptions do not apply; these are treacherous and uncharted waters. The experienced crew must use intuition to guide them through, much like ancient mariners used the stars to find their way home. We have seen lenders want $10,000 more and we have seen others oblivious to the price.
Does a borrower hardship exist? The final hurdle examines the condition that caused the payments to stop. Typical hardships are job loss or required job relocation, health issues and divorce. If the seller has a lot of assets or is employed, the lender may not approve the sale. In such a case, the bank may permit the short sale if some form of cash, re-collateralization (offering a mortgage on another property) and / or note was arranged – you have to be creative. Sometimes, the process gets stalled because the lender does not take the process seriously as the owner is not behind on the payments and therefore a real hardship does not exist in their eyes.
Now back to the roles. The attorney must take time to analyze the issues and make sure the hurdles are met or can be massaged. The attorney must talk to the client to see if a short sale is in the client’s best interests or if other paths can be successful. For instance, sometimes bankruptcy can save the home – does the attorney know the client and know bankruptcy issues even if they do not practice in that area? Not every situation calls for a short sale.
Lender contact is critical. We need to know what the lender needs to be submitted. Do they have their own forms, is the process initiated online, does the borrower need to be behind in payments (one month or more or not at all)? Part of the plan is knowing who is going to provide which documents and who will submit the package of documents and follow it up. Typically the realtor will submit a valuation opinion that justifies the sales price and highlights the market forces, the seller will write a hardship letter and provide financial statements, and the attorney will get a closing statement generated and an authorization letter. There will be other items on the list, but the fact remains, you need to know who does what and get the package submitted. Then the leader follows up and makes sure it was received, posted in the system, that the package is complete in the lender’s opinion, that a BPO (broker’s price opinion) by the lender is scheduled and the file gets assigned to a negotiator who decides if they will allow the short sale (generate a payoff letter). Having a second mortgage or line of credit makes this process twice as complicated. If the 1st loan is not paid in full, then the 2nd lender will want something out of the sale in order to allow their payoff to be issued. Best to get the 1st paid, if possible, as fights between the lenders occur. For example, the 2nd lender wants $7,500 but the 1st lender will only allow $3,000.
Sometimes it’s the luck of the cubicle – which negotiator gets assigned to the deal. We have been assigned negotiators that take great pleasure in stymieing the deal and others that have answered their phone on a Friday afternoon and ask how the weather is in Chicago and if Millennium Park is as much fun as it seems and then say, by the way, your package is not in the system, but if you send it to my Efax, I will review it on Saturday, and since it really takes all of 5 minutes, I will give you an answer on Monday. Sometimes the seller calls and the negotiator takes interest in the matter, or other times the realtor is able to break through the red tape. Success requires timing, the alignment of uncontrollable factors and in every case – persistence and a plan….

Gregory A. Braun concentrates his practice in real estate law, serving individual buying and selling houses and condominiums, builders, developers, and investors. Greg provides counsel to these clients in areas including short sales, lending issues and workouts, compliance with federal, state and local development requirements, construction, insurance, corporate and tax matters, including 1031 exchanges. The firm offers a host of legal services, please visit http://www.mbflegal.com and Greg Braun can be contacted at gbraun@mbflegal.com , 312-327-3354.