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By SILVAR Government Affairs

The Mortgage Interest Deduction (MID) may be under attack again. As the 112th Congress struggles to finalize a budget plan for this year, everything is back on the table. House Speaker John Boehner (R-OH) recently stated that MID for second homes is becoming harder and harder to justify in these difficult times. So might be the MID for homes greater than $500,000.

If these rollbacks to the deduction are put into law, it will be devastating for Silicon Valley homeowners and the overall housing market. But how will it impact you? As part of the National Association of REALTORS® (NAR) Home Ownership Matters campaign, NAR has released an APP that calculates how homeowners do and will benefit for the preservation of the mortgage interest deduction.

The MID Calculator allows homeowners to estimate the tax savings value of the mortgage interest rate deduction. Use the buying power calculator to see how your housing dollars are optimized by the tax savings. This APP is compatible with iPhone, iPod touch, and iPad.

As budget talks heat up, homeowners and REALTORS® should be prepared in the coming weeks to contact their member of Congress to voice their support for preserving the mortgage interest deduction. More information regarding legislative proposals and the deduction can be found at NAR’s MID site.

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In the wake of the recent disaster in Japan, Californians ask themselves, “If a similar earthquake just like the one that hit Japan struck today, are we prepared?” Many studies show, despite being aware that California is prone to earthquakes, few Californians are prepared.

The recent disaster in Japan is a wake-up call that reminds us in the case of a major destruction it will take time for help to come. Electricity, water, gas and telephones may not be working after an earthquake. The police and fire departments will likely to be tied up, so individuals and families should be prepared to fend for themselves for at least several days to a week.

Homeowners can protect their families and reduce the risk of destruction by following the guidelines recommended by the California Department of Conservation and the U.S. Geological Survey. SILVAR members can review these earthquake safety measures and share them with their clients:

Identify Potential Hazards in Your Home and Fix Them
1. Move heavy furniture away from where people sit or sleep. Make sure exit paths are clear of clutter. Secure hanging objects, cabinet doors and appliances with earthquake-safety straps, fasteners and adhesives.

2. Water pipes can break and cause extensive damage; broken gas pipes are a major fire hazard. Replace rigid gas connections to water heaters and other gas appliances with flexible (corrugated) stainless steel gas connectors.  Excess-flow gas-shutoff valves for individual appliances will stop gas flow in case of a catastrophic leak.

3. Move flammable or hazardous materials stored in garages and utility rooms to low areas that are secure.

Create a Disaster Supply Kit
Create a disaster supply kit and place it in an easily accessible location. This kit should be in a large watertight container that can be easily moved and should hold at least a one-week supply of the following items:

* First aid supplies, including spare eyeglasses and essential hygiene items

* Drinking water (minimum one gallon per person per day)

* Whistle (to alert rescuers to your location)

* Emergency cash in small bills (ATMs may not work)

* Snack foods high in calories, canned and packaged foods and cooking utensils, including a manual can opener. Don’t forget pet food.

* Emergency lighting—light sticks and (or) a working flashlight with extra batteries.

* Comfort items for your children, such as crayons, writing materials and stuffed animals

* A battery-operated radio (and spare batteries).

* Warm clothing, gloves, sturdy shoes, extra socks, blankets and perhaps even a tent.

* Heavy-duty plastic bags for waste and other uses, such as tarps and rain ponchos

* Copies of vital documents, such as insurance policies, personal identification, medical consent forms for dependents.

NOTE: Replace perishable items like water, food, medications, and batteries on a yearly basis.

Make Sure You Have a Disaster Preparedness Plan
Decide how and where your family will reunite if separated during a quake. Choose an out-of-state friend or relative to call and alert other relatives and friends that you are all right.

It would also be a good idea to discuss earthquake insurance with your agent. Depending on your financial situation and the value of your home, it may be worthwhile.

What to Do During an Earthquake
1. If you’re indoors, get under a desk or table, or stand against an interior wall. Stay away from exterior walls, glass, heavy furniture, fireplaces and appliances. The kitchen is a particularly dangerous spot. If you’re in an office building, stay away from windows and outside walls and do not use the elevator.  If you’re outside, stay clear of buildings, power lines or anything else that could fall on you. 
 
2. If you’re driving, move the car out of traffic and stop. Avoid parking under or on bridges or overpasses, or close to trees, light posts, signs and power lines.

3. If you’re in a mountainous area, beware of the potential for landslides. If you’re near the ocean, be aware that tsunamis are associated with large earthquakes, so get to high ground.

We are not immune to disaster in our state. Remember the magnitude 7.8 earthquake that struck on April 18, 1906 ranks as one of the most powerful earthquakes to hit Northern California. Then there was Loma Prieta in 1989, another devastating earthquake with a 6.9 magnitude that struck the region. Let’s make sure we are prepared for the next one.

To learn more about earthquake safety, visit http://www.conservation.ca.gov/index/Earthquakes/qh_earthquakes_what.htm, http://www.fema.gov/areyouready/emergency_planning.shtm, or http://earthquake.usgs.gov/prepare/.

PRDS is pleased to announce the new and highly anticipated San Mateo/Santa Clara Counties Advisory is now available online. This 14-page form is live on PRDS Forms on Instanet Solutions (access through www.silvar.org) and available for your next sale or listing. Printed copies will also be available at the PRDS store in a few weeks; preorders are being accepted.

This form is essential for all of your residential sales transactions. It has everything right down to city and municipal website references. Instead of using 53 pages of forms from the California Association of REALTORS®, PRDS and individual company disclosures, it’s all here in one convenient and consistent form.
 
What does the new PRDS advisory replace?
1. Normal San Mateo and Santa Clara County disclosures
2. Mold Advisory
3. High Speed Rail
4. Supplemental Tax bill notice and advisory
5. Half Moon Bay Disclosure
6. Unincorporated county info
7. Non-confidentiality of offers form
8. Retrofit and Litigation advisories
 
And . . . the 10-page C.A.R. statewide buyers and sellers advisory.
 
The new PRDS advisory was developed to make a PRDS transaction as up to the minute as possible in terms of general and local disclosure issues for buyers and sellers. It is a great means of clearly explaining the disclosure and investigation obligations of the principals and their agents. It also saves a lot of paper and time. You only have to reach for one form instead of making sure you have the nine different forms referenced above.
 
Written with the help of local brokers, managers, agents, and very sharp and experienced attorneys who are all members of the PRDS Standard Forms Committee, the new PRDS advisory is endorsed and recommended by large and small companies alike who are members of the San Mateo County Association of REALTORS® and SILVAR.
 
It’s another reason why PRDS is here to help REALTORS® do a better transaction by being more thorough on their disclosures.

PRDS is an extensive line of paper and online forms for residential purchase and sales transactions. These forms are available online free of charge as a member benefit to all REALTOR® members of the Silicon Valley Association of REALTORS® and the San Mateo County Association of REALTORS®.

More than 130 members of the Silicon Valley Association of REALTORS® attended SILVAR’s Los Gatos/Saratoga District tour meeting a few weeks ago and listened as Jacquie Berry, owner of Community Association Data Source, emphasized the greatest mistake any seller can make is an incomplete disclosure.

When dealing with homeowner associations (HOAs), it gets especially complicated because the law requires more disclosures from common interest developments (CIDs), in addition to the normal disclosures required in the sale of single-family homes. Common interest developments are condominiums and planned developments that are governed by a homeowner association which administers the property and is responsible for repairing, replacing, or maintaining the common areas. The homeowner association places restrictions on the use of the property and the common areas.

Berry shared the following statistics: There are over 48,000 homeowner associations in California; CIDs make up a quarter of all housing in the state of California; 49 percent of CIDs are self-managed and less than 25 percent are 100 percent funded in their reserves.

Berry said lenders are asking more questions about the financial health of HOAs so buyers won’t be caught by surprise by undisclosed defects in the common areas and underfunded reserve accounts, which result in special assessments. Agents and prospective buyers should review state laws, documents that HOAs are required to provide, and ask questions. She noted forms change, and homeowner associations rarely provide a complete or updated set of disclosure documents.

Also, HOAs may state they have adequate reserves to maintain deferred maintenance, but they do not specify a timeline for which these reserves are adequate. HOAs must prepare a reserves budget every year, providing a current estimate of the costs of repairing and replacing major common area components over the long-term. Ideally, reserve funds should be able to cover all major repair and replacement costs when needed.

“The value of the property is directly related to reserves,” stressed Berry.

Berry said it’s very important that these disclosures be obtained and reviewed by the appropriate professional so the buyer can make an intelligent decision as to whether or not to purchase the property.

“It’s all about disclosure,” Berry said. “It’s not about anything else but disclosure.”

Real estate brokers and salespersons who earn more than $100,000 in gross receipts from business operations per calendar year may now be required to register as a “qualified purchaser,” report and pay use tax directly to the California Board of Equalization by April 15 for the previous calendar year. This new requirement was promulgated by AB x4-18(2009). There is no fee for registration, but qualified purchasers will now have to pay the state’s use tax for out-of-state purchases directly with the BOE starting with the 2010 tax year.

REALTORS® began receiving notices and registration applications in the mail this week from the State. Completing the registration and making the use tax payment to the BOE for 2010 purchases prior to April 15 will prevent fees and penalties from being assessed. 

The use tax applies to most purchases from sellers who are not required to collect sales tax. That is often the case with Californians’ purchases from out-of-state or online retailers. The use tax was created as a companion to the sales tax in 1935 in order to protect California businesses that must regularly collect sales tax and would otherwise be at a competitive disadvantage to out-of-state vendors.

Use tax is administered by the Board of Equalization, but legislation enacted in 2003 provided individuals the option to report use tax on their state income tax return instead of filing a use tax return with the BOE. In general, consumers must pay California use tax if they purchase an item from an out-of-state seller and the seller does not collect California sales or use tax, and the consumer uses, gives away, stores, or consumes the item in this state.

While sales tax is owed to the BOE by the seller, the purchaser is generally responsible for paying the use tax. The use tax rate is the same as one’s local sales tax rate.

For more information on other taxes and fees in California, visit www.taxes.ca.gov

A lender panel recently told REALTORS® they are seeing some loosening in underwriting and easing of jumbo loans.

Asked about whether there is a preference between fixed loans and ARMs (adjustable-rate mortgages), Connie Chronis (Diversified Capital) said it depends on the individual’s circumstances and whether the borrower is going to keep the property as a personal residence or a rental. She did note that ARMs are becoming more attractive these days and some buyers continue to look at them as a good strategy “to get in,” save some money and refinance down the road. She said move up buyers tend to lean more on a 30-year fixed rate conforming loan.

Asked about appraisal management companies, Alan Russell (Princeton Capital) said in the past there were numerous complaints of lenders using out of town appraisers who were unfamiliar with property values in the area. Russell said lenders are now more inclined to use experienced appraisers from within 10- to 15-mile radius of an area.

John Woodfin (MetLife) reminded REALTORS® the high conforming loan limit, which was extended to $729,750 in high-cost areas, will end on September 30, so there could be a sense of urgency among some buyers. “It will certainly impact the marketplace,” Woodfin said.

The panelists also noted it is easier to get a loan today than it was 12 months ago, when lenders reverted to tighter underwriting and guidelines. Maria Anderson (Bank of America) said she has seen a loosening of underwriting in the past 12 months. She attributes this to more educated and knowledgeable loan officers. 

The key to a smooth loan process is working with a good loan officer. “The ultimate loan officer is detail-oriented and thinks like an underwriter,” Anderson said.

The panelists stressed the need to work together as a team. As loans perform well, they expect underwriting standards will relax a little more.

March 2011
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