Housing market a multilevel affair

'A bit of a hybrid' situation this spring favors sellers in some price ranges and buyers in the middle sector.
By: Gayle Pollard-Terry: latimes.com
AS the spring buying and selling season hits its stride, the local home market looks like two different places, depending on the price range.

It's a buyer's market in the broadest swath of homes, priced from about $550,000 to $10 million. But at the extremes, sellers still control the action. "A bit of a hybrid" is how Leslie Appleton-Young, chief economist for the California Assn. of Realtors, characterizes it. "What I'm hearing is a real mixed bag."

Sales for March in the Los Angeles region were down 4.6% over the same period last year as the median home price ticked up 2.6% to $571,110, according to the association. Statewide, the picture was grimmer, with sales falling off a sharp 20.8%.

Yet for entry-level homes, it's "still quite competitive," said Raphael Bostic, interim associate director of USC's Lusk Center for Real Estate. "Those homes are going to turn fairly quickly." Take, for example, the 1,100-square-foot fixer-upper on a busy street in Granada Hills listed in late March for just under $500,000. The three-bedroom ranch-style house attracted six offers within two days, said agent Andrea Volore, with Coldwell Banker Woodland Hills. It is in escrow for close to the asking price.

A similar anecdote is recounted by Octavio Solorio, with Rodeo Realty Inc. in Studio City. Two days after he listed a two-bedroom, one-bathroom bungalow in Van Nuys, the owner received four offers. That deal closed at the end of March for close to the asking price of $550,000.

"There are a lot of buyers for the low end of the market," Solorio observed.

Although Bostic characterizes the starter-home sector as a "place where we still have a seller's market" due to demand, the buyers face steep financial hurdles.

Ryan Ratcliff, an economist with the UCLA Anderson Forecast, cites the implosion in the sub-prime mortgage business. That, he said, coupled with tougher lending standards, could sideline some potential buyers.

USC's Bostic agrees. "You are going to see fewer no-documentation loans," he said, "that don't require income verification" and that are popular with buyers who have poor credit.

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Deals that turn sour

Already, L.A.-area agents are starting to see the ramifications of tighter lending practices. Escrow companies don't report the number of purchases that fall out, or the reasons, but agents who work with low-income buyers believe they are seeing more deals sour.

"Maybe 15% are falling out," said Solorio, who works with many low- or no-down-payment clients.

"Buyers think they're going to qualify. They have a 'friend' who's going to get them the loan," he said, but then the mortgage doesn't materialize. Others have credit problems, he said, that scuttle the deal.

Solorio's observations were echoed by agent Volore.

"We have quite a few things that are falling out of escrow," she said. "People are having a lot of trouble keeping the deal together."

At the stratospheric opposite end of the market, where homes are priced over $10 million, it's also "more of a seller's market," said Betty Graham, president of Coldwell Banker's Greater Los Angeles division, which has 3,800 agents and 45 offices.

On the Westside, 29 sales closed in the first quarter of the year for more than $10 million, compared to last year's 25 for the same period, reported Beverly Hills broker Cecelia Kennelly-Waeschle, who tracks this sliver of the market. At $20 million and above there were seven sales, compared to two for the same quarter in 2006.

Among the sales was a 50,000-square-foot home on 25 acres in the Beverly Hills post office area; listed at $33 million, it went for $35 million.

But it is in the fat middle of the market where buyers are showing their fickleness. Coldwell Banker's Volore has seen buyers back out during the contingency period if another house comes on the market that they like better.

And buyers aren't rushing. Houses, in general, are taking longer to sell. In Los Angeles County, homes stayed on the market an average of 54.6 days in March 2007, up from 36.8 days a year earlier. In March 2004, it was just 20.9 days.

"Buyers think if they wait a little longer, they are going to be able to grab a better price, a lower price," agent Solorio said.

Some are willing to wait much longer than others.

"I have buyers who have been looking for years," said Natalie Neith, an agent with Prudential California Realty, John Aaroe Division, Hancock Park.

Buyers like John Moody. Neith sold Moody's Victorian near downtown Los Angeles for $479,000 in 2004, a hefty gain from the $170,000 that he and his partner paid in 1996 at the nadir of L.A.'s last buyer's market.

Moody then rented and waited for home prices to fall. They didn't. Tired of waiting, he went on a buying spree out of state in 2006. He bought a three-bedroom, 2 1/2 -bathroom condo in his hometown, Greenville, S.C., for $65,000. He spent $31,000 for a two-bedroom, one-bathroom house in Danville, Ill. In nearby Indianapolis, he bought a restored Victorian with two bedrooms and one bathroom for $32,000. He rents out those properties and continues looking in L.A.

The way Moody figures it, "Now that there are so many properties around, prices are coming down."

There is more to chose from. The California Assn. of Realtors' Unsold Inventory Index in Los Angeles County — a ratio of listings to sales — rose to a 9.6-month supply as of last month from a 5.2-month supply in March 2006, Appleton-Young said. In March 2004, it was at 1.2.

"There are an ocean of listings compared to a year or two ago," said agent Volore.

And when sellers vastly outnumber buyers, homeowners are more willing to offer concessions.

Agent Volore has seen it in action.

"Buyers are getting closing costs paid for, termite work paid for," she said, and that "wasn't happening" until recently.

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Keep expectations in line

As the market continues to stabilize after a frenzied four-year boom that saw bidding wars and a surge in median prices, Appleton-Young said all parties must become more realistic in their expectations.

"A homeowner thinks, 'My property will sell for 20% more than my neighbor's did,' and that's not going to happen," she said. "Home buyers expected to walk into Brentwood and Santa Monica to see prices drop 30%, and that hasn't happened either."

Time will tell.

Despite the overall uptick in the median price of a home in L.A. County, UCLA economist Ratcliff sees a less rosy picture ahead: "flat sales and falling prices."
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Mortgage Tax Deduction Big Driver for New Home Buyers, Says Report

Real estate and tax experts agree that the tax benefits of homownership are excellent-up to $1 million of acquisition mortgage debt qualifies for interest deduction.
RISMedia
As tax season progresses, various homeowner tax benefits highlight the need for top online resources like GuideToRealty.com, an online consumer resource for real estate buyers and sellers.

As a result of changes to the tax laws this year, many Americans may qualify for tax savings in the form of energy credits as a result of home improvements. Homeowners can claim up to $300 for installing energy-efficient air conditioners or heaters, $150 for a furnace and up to $200 for new energy-efficient windows.

Says Jeff Pretsfelder, a senior tax analyst with Thomson Tax & Accounting, "You may not have intentionally set out to make improvements to earn these credits, but you may nonetheless qualify for them."

These savings are in addition to home loan benefits: in some cases points or loan origination fees are tax deductible and, in general, interest charged on a mortgage loan is tax deductible.

Married homeowners selling this year can possibly earn up to $500,000 from the sale of the home and pay no income tax, according to Realtor.com.
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The loft re-imagined

Razor wire and Zen gardens. Graffiti and secure parking. Loft life in Los Angeles is both edgy and comfortable - a hybrid style of urban living that's all our own.
By: Christopher Hawthorne: latimes.com
THERE is no single block that neatly sums up the way downtown Los Angeles is being transformed, condo by condo and loft by loft, into a place with real residential character. Just as there are many downtowns — South Park, Little Tokyo, the historic core, skid row — there are many architectural responses to the idea of downtown living in this city.

But three residential developments on a stretch of Industrial Street, just off 7th Street near the L.A. River, come pretty close.

At the corner of Industrial and Mateo streets stands the Toy Factory Lofts, a solid, broad-shouldered building offering views of the downtown skyline two miles or so to the northwest. Across Industrial are the Biscuit Company Lofts, a 1925 Nabisco factory that has been impressively transformed by architect Aleks Istanbullu into 104 narrow, high-ceilinged units, about 70% of which have been sold. And just up the street is the site of a new building, the Mill Street Lofts, a $40-million, 16-story project designed by German firm Behnisch Architects and scheduled to open in early 2009.

Together, the projects, built by developer Linear City, span the architectural range between adaptive reuse and ground-up construction. They suggest how the concept of "loft living," invented in New York City two generations ago, has been transformed — some would say deformed beyond recognition — by coming into contact with Los Angeles. (That deformation is especially acute in the case of the Mill Street Lofts, since a new loft building — creating from scratch what was once by definition a conversion — is basically a contradiction in terms.)

These projects have begun to create a micro-neighborhood whose personality feels vital, organic and entirely artificial at the same time. For all those reasons, as I spent the last couple of weeks visiting nearly a dozen loft and condo buildings downtown, Industrial Street was the place I kept coming back to.

I didn't conceive of this exploration with any particularly high-toned goals in mind. I was mostly interested in feeling the shifting ground of downtown L.A. beneath my feet.

But as it turned out, visiting the projects in person, not as an architecture critic with publicists and designers in tow but simply as a prospective renter or buyer, revealed quite a bit about where the overlapping strands of architecture, history, real estate and marketing come together downtown. .

Though I didn't run into soccer star David Beckham and his wife, Victoria "Posh Spice" Beckham, who have reportedly purchased a penthouse in the Biscuit Lofts in advance of Becks' debut with the Los Angeles Galaxy, I found in each building a variation on the same ritual. A sales agent, usually in his or her 20s, relatively attractive and seemingly bored, handed me a sheaf of fliers and floor plans ("the literature") along with a business card and led me through an affectless tour of "the property."

For a while, my tour was shaping up as a complete jumble. There were soft lofts (those with separate, closed-off bedrooms) and hard lofts (big, open spaces), apartments and condos. But in the midst of all that variety, as I stumbled from one downtown to another, a strange pattern began to emerge in these new residential buildings.

What I discovered is that the lack of a coherent architectural vision of what it means to live downtown — ambivalence, in short — is actually part of the sales package. It may, in fact, be the very heart of the sales package.

And so at the Library Court building at the corner of Hope and 6th streets, an old building restored and rebuilt by talented architect Brenda Levin, there is the strong smell of urine on the sidewalk out front and, inside, a business center overlooking a "Zen garden." Out front, the facade attempts a complicated contextual juggling act, trying its best to cram in references to the skyscrapers, hotels and low-slung offices that surround it.

At the 2121 lofts in the Arts District, where a view of the L.A. River's graffiti-covered concrete bed is part of the package, there are hard edges and "distressed" floors, but also an herb garden and a promise from the sales agent that the razor wire wreathing the parking lot will guarantee that there is no "intruder access." In other words, part of what you are buying is a tiny, manageable bit of roughness, but please be assured that nobody is going to steal your Prius.

The 2121 building — actually, it is more of a compound, with connected warehouses — was also the backdrop for an entertaining bit of symbolism. When I drove up to the sales office, I had to dodge a forklift whose operator was trying to maneuver between parked cars.

Aha! I thought. The collision of industry and residential living! But then I looked more closely and realized the forklift belonged to the Modernica warehouse across the alley, which assembles the very same Eames chairs that will be filling the lofts here and across downtown. What I saw wasn't a collision but some weird kind of synergy.

Finally, at the turquoise Eastern Columbia building on Broadway — one of the most beautiful pieces of architecture in the city, a building that would be world-famous if it were located in Manhattan or San Francisco instead of downtown Los Angeles — I noticed that the developer, the Kor Group, has covered the ground-floor windows with sales banners trumpeting the fact that the project stands "at the intersection of concrete and cashmere."

Of course, the combination of edginess and amenity has always been at the heart of the loft aesthetic. But it gets an extra couple of twists in Los Angeles, where confusion about history, centrality, authenticity and indigenous style has long reigned.

IN New York City, where the concept of "loft living" was invented by artists and other creative types who ventured below Houston Street in the 1960s in search of high ceilings and low rents, the progress of gentrification has moved consistently from the inside out, from the center to the periphery. When the New York Times reported on the state of the loft scene in 1987, the piece carried this headline: "Manhattan's Fringes Getting Voguish."

But in Los Angeles, it's not the fringes that are getting voguish these days but the downtrodden, overlooked, still vaguely ghost-town-like neighborhoods that make up large sections of the downtown core. Or, to put it another way, our center became the fringe over the last 50 years. And now it's getting center-ish again.

The shadow of downtown's residential past — people did live there once, in great numbers, particularly on Bunker Hill — can also be glimpsed on many blocks. That makes the process now unfolding here less about colonization or gentrification than about adding another layer of architecture to a part of the city that has more history than we like to admit.

A bigger difference between New York and L.A., when it comes to loft living, has to do simply with space. In New York, loft dwellers, if they were artists, sought out old industrial buildings to get more room to paint or make sculpture. For others, a high-ceilinged, light-filled loft close to the tip of Manhattan (even if it meant living illegally or without a doorman) was better than a cramped apartment uptown. And indeed it is these same desires — more space, more light — that have always driven the real estate market in New York.

But in Los Angeles the process has been reversed. For most prospective loft buyers, moving downtown will mean giving up space — and a backyard and a garage. This is a gigantic mental shift, because Los Angeles has been based for virtually all its short history on the fact that you can live like a sprawling suburbanite, with four cars and a huge lawn, in the middle of one of the biggest, most dynamic cities in the world. The shift is so great, in fact, that I'm sometimes surprised that any downtown lofts have been sold at all, except maybe to relocating Manhattanites.

Add to that the way the tastes of loft dwellers have changed in 20 years since that New York Times headline, and you're left in downtown Los Angeles with a strange architectural recipe. It is a mixture, as I discovered these last two weeks, of suburban taste and Dwell magazine taste, of a desire for comfort, style and freedom from convention at the same time. It's then salted with some speculative zeal and watered down with anxiety about the state of the residential market as a whole.

OF course, one explanation for this jumbled portrait has to do with the rising prices for these projects. Five years ago, residents of Los Angeles' downtown were wedded to the notion of living downtown. They moved here because it was somewhat undiscovered and affordable, and they were enrolling at Sci-Arc or they wanted to be near the Music Center after they retired.

But these days, putative downtown dwellers also may be real estate consumers who are thinking about moving to Culver City or Los Feliz. They may be considering a single-family house or a prefab along with lofts and condos. They may want to rent out their new place or flip it.

And so as they shop for places, they want to hear that they are pioneers, seeing the future more clearly than the lemmings buying condos in West Hollywood or Santa Monica. They want to see visual confirmation, in the form of actual, unimproved landscape, of their pioneer status: a little barbed wire, views of onramps and warehouse roofs, staircases made of corroded metal that clangs satisfyingly underfoot. They want to be reminded that they are here because they are actively rejecting the comforting historicism and the infantilizing, Disneyland quality of the architecture at a place like, say, the Medici apartments just on the western edge of downtown. They want to see some people like themselves on the sidewalk — but not too many people like themselves.

They also want parking spaces. (At nearly every building I visited, the sales agent began the tour with a lengthy spiel about parking. Either the large number of parking spaces was lauded or the limited amount was defended.) They want high-end kitchen appliances and countertops and a nice shower head. They want to know when that Ralphs supermarket is going to open, already. What they're looking for, in sum, is some mixture of authenticity and amenity, real history and faux history, risk offset by various kinds of reward.

Which brings us back to Industrial Street.

Shaded not by trees but by the hulking loft buildings themselves, Industrial Street brings to mind a block in SoHo or Tribeca. The street, with its ground-floor shops in the Toy Lofts building, including the Royal Claytons restaurant at the corner of Industrial and Mateo streets, and more to come inside the Biscuit Lofts, is a very pleasant street to walk on.

And it's not just the architecture that makes it so. It is also the fact that the developer teamed up with the city to widen the sidewalks and turn Industrial into a one-way street. (For a while, Linear tried to close off the whole block to cars and create a pedestrian plaza.) Just as in the lofts upstairs, the proportions of the new streetscape show signs of careful, skilled manipulation.

That means this new miniature neighborhood, which will be home to about 1,000 people once the Behnisch Architects building is complete, is essentially a stage set. It is a place for young Angelenos with some money in the bank (and a good number of Brits, if the rumors about the Beckhams and the number of bumper stickers I saw proclaiming allegiance to Premier League soccer clubs are any indication) to act out their ideas of urban living.

As a developer, if you have to change the traffic flow and the sidewalk width along with the loft interiors to make a project work, it becomes tough to claim you are selling a piece of historic architecture or even that you respect architectural history more than your competitors do. What you're doing is closer, it seems to me, to architectural husbandry, cross-breeding the new with the old, the commercial with the residential, to produce some loft-like hybrid.

But if Industrial Street is a stage set, it's a very effective one, a superb mixture of New Urbanist values, whip-smart design and urban grit. (Even the name is perfect.) And in a city that knows something about stage sets — both the literal, movie-business kind and the kind that architects have created here in homage to all sorts of historic styles — I'm guessing it will prove to be hugely popular. If I were one of Linear's competitors, I'd be down there right now taking notes.
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How to Turn Excuses for Not Buying a Home into the Reality of Home Owning Benefits

Hard-core renters can come up with all kinds of reasons to avoid real-estate purchases. Here are some of the usual stories — and why they just don't wash.
By: Colleen DeBaise: RISMedia
A good chunk of the U.S. population refuses to give up renting. We're not sure how many renters are stubborn holdouts because the U.S. census doesn't measure in terms of obstinacy, although we do know that the majority of Americans-about 69%-own their own homes.

For many, the American dream is simply out of reach for financial reasons. But for others, it's not the money, it's the . . . well, we've come up with five reasons why people don't want to buy real estate.

We've enlisted the aid of experts — Stacy Francis and Nancy Flint-Budde, certified financial planners in New York City and Salem, N.Y., respectively, and Mark Schussel, a spokesman for the Chubb Group of Insurance Cos. in Warren, N.J-to counter these excuses and knock some sense into the real-estate-challenged.

Excuse No. 1: "Everyone is way too insane about real estate."

Count this as the "protest" renter — the person who perpetually rents, who thinks he's too cool for school and doesn't want to be one of those people who talks about renovation projects at a cocktail party. (The true "protest" renter also protests cocktail parties.) Such people might also fear growing up, becoming their parents, owning guest towels, etc.

Counter: Well, owning your own home is indeed a responsibility, and if you're not ready for it, then don't do it. Of course, you'll miss out on nice tax breaks for mortgage interest and property taxes, which make owning a compelling proposition for many. Not to mention, you're not exactly building equity when you split the rent with the roomies (but hey, it does help with the cable bill).

"I look at renting as writing a check and throwing it out in the garbage," says Francis, who often advises clients on buying apartments in Manhattan. For many people, buying a home is their first crack at building their net worth over the long term, she says. The traditional way to ease into homeownership is to buy something like a condominium or town house, so your weekends aren't spent at the home-improvement store picking up weed whackers.

But be careful: You might feel like a real adult once you own. "You are no longer at the whims of your landlord to raise your rent or sell your building," Francis says. "It really gives you stability."

Excuse No. 2: "Renting is a good deal."

Truth be told, there is some logic to that. After all, if something breaks in your rental apartment, you just call your landlord. You don't spend money on pricey renovations. Heck, you don't have to pay property taxes. And if you've got enough money for a down payment, why dump that cash into an expensive home when you could use it to buy something like stocks instead?

Counter: Many people consider their home an investment. "We call it a use asset," says Flint-Budde. "It's an asset that you own, and you hope it will appreciate, but you are using it along the way."

That means even if your home doesn't appreciate as much as your favorite stock or exchange-traded fund, you still gain because it doubles (hopefully) as a nice place to live. Homes historically appreciate over time, so if you are able to hold on to your abode for a minimum of five years, you'll likely see a significant increase in value, Flint-Budde says. In its latest report, the National Association of Realtors, said typical sellers are still experiencing healthy gains on the value of their homes over the past five years, even in areas where prices have fallen recently. The group estimates that the median five-year price gain is 41.8%.

Would you still rather build your securities portfolio than buy a house? "If you have to turn around and pay $1,000 a month to rent somewhere, you may have less available to put into stocks," Flint-Budde points out. "And at the end of the day, if you put some into stocks and some into real estate, you would have diversified your portfolio more."
Oh, and for those averse to paying taxes? Don't fool yourself. Even renters pay property taxes. That's often what most of your rent check goes to pay, and your landlord-not you -gets the tax deduction.

Excuse No. 3: "Buy a house on my own? Then I'll really never get married. What do I do next — buy a cat?"

OK, so we hear this one a lot from women. Well, interestingly enough, research has found that single women are leaping into real estate. In 2006, they accounted for 21% of home buyers, up from 14% in 1995, and well ahead of single men, who made up only 9%, according to NAR research. Yet many women confess they are hesitant to buy a home on their own. Shouldn't they be waiting for Mr. Wonderful to come along and sweep them off their feet?

Counter: Tsk, tsk, says Francis, who hosts "Savvy Ladies" seminars to counsel women on personal-finance decisions. She's heard this excuse hundreds of times from female clients. "I call it the Prince Charming syndrome," she says. "They put their life on hold until they find that Prince Charming. What it really comes down to is that women are just as capable as men at doing things on their own and starting to live their life for now."

One thing Francis reminds women, regardless of their marital status, is that they're more apt to live longer and need more money in retirement. A home is a perfect way to begin building wealth, she says. Women in general are hesitant when it comes to not only buying a home but investing, looking for a new job or asking for a raise. Accept that you are not going to be comfortable with the process, but do what you can to prepare for it, such as reading books on real estate, or doing research on the Internet, Francis says. Buying a home is a smart decision in many ways.

"Women who have actually purchased homes tend to have more equitable relationships," she says. "They are choosier and decide to be with men who they want to be with for emotional reasons, not financial reasons."

Excuse No. 4: "I'm afraid of commitment."

Funny, we hear this excuse more from men. But seriously, there are some meaty issues here. Many people aren't sure they want to commit to a certain city, especially if they are building a career and possibly switching jobs. And despite the fact that we're a nation of debtors, some people perish the thought of taking on an enormous mortgage. Others are worried about the possibility of outgrowing their home, perhaps because they're considering starting a family or having more children.

Counter: As excuses go, this one isn't bad. Most experts recommend that you stay in your house at least three to five years, to recoup costs associated with closing and to see an increase in the home's value. Plus, you need time to weather the ups and downs, such as shifts in interest rates that can quickly turn a healthy seller's market into one where the buyer calls the shots.

In addition, from a tax perspective, you need to own your home for at least one year to qualify for the 15% capital-gains tax rate on profits; own it for more than two years and there's no tax on the proceeds from a sale (up to $250,000 for singles, and $500,000 for married couples). Flint-Budde says she tells clients, especially first-time home buyers, to purchase a home only if they plan to live there at least five years.

Research has shown that home buyers put thousands of dollars on credit cards upon moving into a home "because they need so many things — they never needed a garden hose before," she says. "There are some real cost issues with moving into a house."

Francis says she tells clients to put buying on hold "if you've had some traumatic thing happen in your life — maybe it's the loss of a spouse or a divorce, or a job change," she says. "Sometimes it's good to just sit for a few months so when you do go out there and purchase a home, it suits your needs."

Francis also recommends that home buyers have enough for a 25% down payment and a stable job. If you don't, then "it may not be the time," she says.

Excuse No. 5: "I'm worried about disaster striking."

No doubt about it — this is a valid concern. In recent years, a Category 5 hurricane, a terrorist attack and a documentary about the certainties of global warming have struck fear in the hearts of many potential home buyers. But should it stop you from buying a home?

Counter: Nope. Historically speaking, property values bounce back, especially if the disaster happens in a desirable area. Real estate in Manhattan, for instance, has soared in value since the 2001 terrorist attacks. Despite mudslides, earthquakes and smog, property along the California coast is still the most sought-after in the country. What to do if you're really worried? Before you buy, call in a loss-prevention specialist, who can analyze a home's design and construction to see how likely it could survive a catastrophe, Chubb's Schussel says.

Then, if you really want peace of mind, beef up your insurance. For starters, people who are investing in expensive homes in vulnerable areas should make sure their policies include guaranteed-replacement-cost coverage, which would protect you during rebuilding if the prices of labor and material surged, Schussel says. Make sure your policy covers debris removal, rebuilding to code and additional living-expense coverage, in case it could take you months or even more than a year to rebuild, he adds. There's a good chance you might not want to rebuild if disaster strikes, so check to see if your policy provides an optional cash settlement so you can decide whether you're "taking the money and running," he says.

In places where flooding is a concern, many homeowners get basic coverage through the National Flood Insurance Program. Upscale customers may want to buy additional flood coverage (offered by private insurers) to supplement that, he says.
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More Homebuyers Turn to Parents for Help

With home prices out of reach for many first-time and even move-up buyers, an increasing number of parents are helping their grown children buy a home through a shared equity deal.
By: Christopher Farrell: REALTOR® Magazine Online
With many first-time and even move-up buyers strapped for down-payment cash, an increasing number of parents are helping their grown children buy a home — and taking an equity share in return.

Typically, parents put in cash to help the buyers amass a down payment of at least 20 percent. That allows buyers to qualify for a conventional 30-year fixed-rate mortgage. The equity sharers get back their initial stake plus 10 percent to 50 percent of the profits.

Generally, a written contract spells out that the home owners are responsible for mortgage payments and get the tax deduction that comes with it. The contract also specifies who pays the property taxes — often that’s a 50-50 split. In some cases, the parent’s name is on the loan. In others, it isn’t.

Economist Andrew Caplin of New York University and a number of other experts are designing standardized shared-equity mortgages that would allow outside investors to buy a piece of the equity gain. Caplin estimates that about 25 percent of first-time homebuyers could find such arrangements attractive. One thing is certain: Investors in it for the money will extract stiffer terms than mom or dad.
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Playa Office Projects Turn the Marina Tide

The Bayside Boom
By: DANIEL MILLER: Los Angeles Business Journal Online
Marina del Rey, Playa Vista and the surrounding environs are experiencing an office boom, partly due to price as rents rise nearby.

A “For Sale” sign hangs in front of a former residence on Beach Avenue in Marina del Rey that speaks volumes about the changing area.

The sign lists the usual information – contacts and such – but it also indicates that the property is zoned for commercial use. And it’s not the only residential property to feature such a sign in the area near Redwood Avenue.

So called live/work units – where people live in the same space as their small business – are being built next to creative office space. And those little spaces are playing off the big, billion-dollar projects that are also going up in that area.

Indeed, Marina del Rey, Playa Vista and the surrounding environs are experiencing an office boom.

Part of the attraction has to do with price. As office rents skyrocket in west Los
Angeles, users are looking to the Marina del Rey area as the last large-scale opportunity for new office space.

And another part of the attraction has to do with traffic. Spurred by the success of the Playa Vista residential development – which provides new and mostly upscale housing for workers – all sorts of office users are staking their claim in the area.

“For the pure amount of size of acreage and square footage that can be built, it is the final frontier for office space on the Westside,” said Steve Solomon, Senior Vice President at Jones Lang LaSalle Inc.

Developers and politicians alike say they dream of an entire live/work region that would make the car an unnecessary component of the work day.

“The ultimate dream of mixed use is meaning you can live, work and play in same neighborhood,” said City Councilmember Bill Rosendahl, whose district includes Playa del Rey and Playa Vista. “With the new office, I don’t want more car trips coming into the district, what I want is people living in the district working in it.”

Vacancy rates and asking rents for Class A space on the Westside show why office tenants are looking to the Marina del Rey area. For example, Santa Monica had a 5.9 percent vacancy rate for first quarter, compared to the county average of 9.5 percent, according to Grubb & Ellis Co. data. Also, Santa Monica’s average asking rent for Class A space was $5.17 per square foot per month – the highest price in Los Angeles County, where the average asking rent is $3.

“The West L.A. market has seen an enormous amount of growth in the survivors of the technology market and growth in the media market, where Los Angeles has an enormous amount of skilled employees,” said David Binswanger, executive vice president of Lincoln Property Co. of Dallas.
Earlier this month, Lincoln broke ground on a 15-acre creative office campus at Playa Vista. The project will be built in phases – with the first portion slated to open fourth quarter 2008 – and includes a total of 950,000 square feet of Class A office space.

Binswanger said that Playa Vista offers the only opportunity in Los Angeles for this sort of large scale office development.

“Being able to put together a project of this scope and size – nearly 1 million square feet – is nearly impossible in West L.A.,” he said.

Projects galore

The Marina/Culver City office market currently totals 5.61 million square feet. But observers say that by 2009 an additional 2 million square feet will be on the market, with more to follow.

“It will certainly be a nice size market and it will be the newest office market in the West L.A. market to be developed,” said Rick Buckley, a principal at real estate firm Madison Partners.

There should be no problem filling the new space, said Buckley, who cited Madison Partners data that showed the Marina del Rey/Venice submarket had a first quarter vacancy rate of 5.3 percent.

Madison Partners is the leasing agent for a new office project at Howard Hughes Center, the 70-acre mixed-use campus just off of the San Diego (405) Freeway that is already dotted with office buildings and includes the Promenade shopping center. CarrAmerica Realty Corp., an affiliate of Blackstone Group LP, will break ground this fall on a Gensler-designed, five-story, 250,000-square-foot office building at 5901 Center Dr. The building is slated to be completed in early 2009, and CarrAmerica has plans for a second building of similar size.

Because the office market in the Marina del Rey area is so tight, it is an enticing opportunity for developers.

“It is tight as a drum,” Buckley said. “That leaves us with the perfect storm with fundamentals in place (for prices to rise).”

In addition to Lincoln’s project, there are other office projects slated for development at the nearly 1,100-acre Playa Vista mixed-use development. The Los Angeles Clippers held a groundbreaking ceremony April 5 for a 42,500-square-foot training facility, which will include gyms and offices for the Clippers Basketball Operations Department. The project is slated to be completed early next year.

The largest office development at Playa Vista is the joint venture between New York-based Tishman Speyer Properties LP and Chicago-based Walton Street Capital LLC, which have teamed up to develop an office complex on 64 acres. The firms purchased the property on the east side of Playa Vista in February. Tight-lipped Tishman Speyer did not return multiple calls seeking comment.

The low-rise office buildings will be adjacent to Lincoln’s project and a 9-acre park. Tishman Speyer’s property includes historic buildings originally constructed for Howard Hughes’ Hughes Aircraft Co.
Construction will begin in 2008, and will be completed in four stages for a total of about 1.6 million square feet of space delivered by 2012, according to Tishman Speyer documents.

Industry experts say that the Playa Vista office projects will attract marquee tenants in the interactive media and entertainment fields. That has already happened – video game developer Electronic Arts Inc. has a 250,000-square-foot office on Lincoln Boulevard in Playa Vista.

“We are going after the convergent type of tenant and interactive tenant. We’ve seen the growth of companies like Google, YouTube and Yahoo and certainly all of those types of tenants should take a look at Playa Vista,” Binswanger said.

Real estate investment firm the Lionstone Group has purchased a 392,000-square-foot building that was formerly owned by the United States Postal Service but had been acquired by The Home Depot Inc. The building at 13031 W. Jefferson Blvd. is located on nearly 20 acres and will be redeveloped into creative office space.

“These are all financial giants so they will implement their plans as the market deems appropriate,” said Carl Muhlstein, executive vice president at Cushman & Wakefield Inc. who represented Playa Capital Co. LLC in the sale of property to the office developers.

Living and working

The success of the currently sold-out Playa Vista residential development has bolstered developers who are convinced there is a segment of the population interested in living close to – often within walking distance of – the forthcoming office developments.

“This community is a microcosm of urban melting pot L.A. living – without the car,” said Steve Soboroff, president of Playa Vista.

And at Playa Vista, there are plans for significant mixed-use development that brings residential units to the doorstep of retail and office amenities. Caruso Affiliated has plans for a large retail center that will also include apartment units. Developer Rick Caruso said the Village project will break ground at the end the year.

“The daytime population in the office market is important to us,” said Caruso, who added that office users will have a variety of dining options including fine dining and a “daily market.” “All of that services the office product.”

Looking beyond Playa Vista, there are several mixed-use and live/work residential projects being developed in the Marina del Rey area to take advantage of the area’s burgeoning office market.

Ken Kahan, president of California Landmark, is building multiple residential projects in the up-and-coming Marina Arts District, including two projects on Redwood Avenue. The Redwood buildings will include live/work units and the industrial-style loft buildings will be marketed toward interactive media workers who may make the short drive to Playa Vista.

“We love live/work,” Kahan said. “The community would like some commercial on these streets, not just residential. We are in favor of it. We think it is great for the community. There needs to be alternatives that are less costly for people to have office space.”
And at 8601 Lincoln Blvd., Los Angeles-based Decron Properties Corp. has broken ground on a 539-unit rental building and will deliver 405 units in September 2008. The project – called Playa del Oro – will include 27,000-square-feet of retail space and 12 live/work units.

“We think that the residents that will be living in our complex will be likely nearby office users and it will likely be working force housing for those office developments,” said Decron president David Nagel. The Playa del Oro project is about a quarter mile from Playa Vista. “We think there is a shortage in that direct community for quality rental housing and we think our project will serve that.”

Kahan said that new mixed-use projects signal a shift in thinking for the area.

“People will start making concentric circles that are smaller and smaller. We are trying to create a neighborhood out of the Marina Arts District,” Kahan said. “Playa Vista is doing the same thing.”

Traffic issues

All of that development – residential and office alike – means that the Marina del Rey and Playa Vista area is set to deal with a significant spike in traffic. While much of the area’s forthcoming office development is designed to give Westsiders new office opportunities so they need not look further to places like downtown or the Tri-Cities, it is bound to increase traffic in the area.

Marina del Rey already is significantly congested, which in some cases has kept prospective office tenants away from the area.

Faced with a rent increase, Michael Schneider, chief executive of West L.A.-based design agency Fluidesign, is considering leaving his office space on Wilshire Boulevard for new Westside digs. But he is not considering a move to the Marina del Rey area because of traffic concerns.

He favors Venice and Culver City because his employees work there. “I am not going to spend 45 minutes a day going three miles,” he said.

While Playa Vista has spent more than $100 million on traffic mitigation – improving intersections and installing traffic lights – some areas still need significant improvements. Commuting artery Lincoln Boulevard in particular is cause for concern, with Soboroff admitting that traffic has gotten worse on that thoroughfare since Playa Vista opened. Government officials agree there is more to be done.

“The biggest question of the supervisor’s concern has to do with transportation and traffic control,” said David Sommers, spokesman for Los Angeles County Supervisor Don Knabe, whose district includes the area. “You can’t increase the number of people without addressing capacity.”

While shuttle programs in Marina del Rey and Playa Vista aim to lessen the burden on the area’s roads, developers agreed that continued mitigation is necessary to help solve the problem.

But the prospect of creating smaller, “walkable” communities – like the work being done at Playa Vista and the Marina Arts District – appear to be solutions for alleviating gridlock.
“You have more and more people living, working and dining and being entertained in a small radius,” Caruso said. “Playa is a good example of a small, well thought-out community that allows people to walk or hop on a bus. There should be more communities like that.”

With millions of square feet of office space coming online soon in the area, community stakeholders say they are prepared to deal with the good and bad that comes with all of the development.

“The area is experiencing a renaissance,” Binswanger said. “The area has come a long way and it has a long way to go.”
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The Weekend Guide! April 19 - April 22, 2007

The Weekend Guide for April 19 - April 22, 2007.
Full Article:
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Freddie Mac to help troubled homeowners

Company to provide up to $20 billion in financing
Inman News
U.S. mortgage buyer Freddie Mac on Wednesday said it will purchase $20 billion in fixed-rate and hybrid adjustable-rate mortgage products to provide more stable financing alternatives for borrowers of high-risk subprime loans.

The subprime lending segment has been in turmoil after rising defaults caused Wall Street investors to pull back on purchasing these loans, which in turn caused several subprime lenders to go out of business.

A congressional committee held a hearing on Tuesday where the heads of Freddie Mac and Fannie Mae each said that the companies are developing new loan types to help distressed borrowers with high-risk mortgages to keep their homes.

A key federal regulator during Tuesday's hearing also urged lenders to extend flexible terms to struggling borrowers.

Freddie Mac's announced products, currently under development by the company and slated to be introduced by mid-summer, will limit payment shock by offering reduced adjustable-rate margins, longer fixed-rate terms and longer reset periods, the company said.

"The problems facing borrowers in this segment of the market are of deep concern to Freddie Mac. Two months ago, we announced several pro-borrowers steps, including the enhanced underwriting standards and more consumer-friendly mortgage products for borrowers with impaired credit," Richard F. Syron, chairman and CEO of Freddie Mac said in a statement Wednesday.

"Today, we're again ramping up our commitment through this $20 billion pledge to assist families caught up in the subprime crisis and to make the market more stable and transparent for all borrowers," he said.

The commitment follows Freddie Mac's recent announcement that it will cease buying subprime mortgages that have a high likelihood of excessive payment shock and possible foreclosure. Among other things, the company will require that subprime ARMs - and mortgage-related securities backed by these subprime loans - qualify borrowers at the fully indexed and fully amortizing rate.

The company also said it will limit the use of low-documentation products in combination with these loans; require that loans be underwritten to include taxes and insurance; and strongly recommend that the subprime industry collect escrows for taxes and insurance, as is the norm in the prime sector.
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New Credit Score Based on Rent, Utility Payments

Fair Isaac has launched the FICO Expansion Score to help prospective borrowers with minimal credit histories obtain loans and credit scores.
By: Joan Goldwasser: REALTOR® Magazine Online
The Expansion score gauges a borrower's creditworthiness using timely utilities and rent payments and clean checking accounts, among other factors.

While car dealers and credit-card companies have already embraced the new scoring model, mortgage lenders are unlikely to do so unless Fannie Mae and Freddie Mac purchase the resulting loans.
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Short-sale tax fears are real

How the IRS views 'phantom income'
By: Ilyce R. Glink: Inman News
Q: We bought our home for $179,000 and because of health issues we sold our home through a short sale for $134,000. When we went to file our income taxes, our accountant told us we would have to pay taxes on the $45,000 loss our mortgage company took when we sold our home.

Is this true? I called the IRS and whoever answered the phone told me we would not owe taxes on the mortgage company's loss. But when my husband called, he was told we would owe about $13,000.

Ms. Glink, $13,000 is a lot of money for us to come up with! I read on the IRS Web site that if you owned your home for five years and you lived in it for at least two, a couple could be exempted from paying taxes on their home if did not sell for more than $500,000. It is Publication 523 that explains this.

My husband and I meet all of the tests listed in Publication 523. We had to sell our home because of my mental health. Our accountant tells us our situation is not what Publication 523 states. He tells my husband we have to pay taxes on the $45,000 for the loss because it's as if the mortgage lender gave us that money.

We need your help desperately. Tax time is upon us.

A: It's clear to me that you're a bit confused about IRS rules regarding profits and losses from the sale of property. In general, you and your spouse are each entitled to keep up to $250,000 in profits tax-free when you sell your home, for a total of $500,000, provided you have lived in your home as a primary residence for two of the past five years.

In your situation, you do not have a profit on the sale, you have a loss. Worse, you have a mortgage for a significant amount of money that you cannot repay. Your sale is "short" $45,000. The lender has wiped this off the books, which the IRS views as a gift of income.

Unfortunately for you and your spouse, you probably do owe tax on what the IRS considers to be "phantom income."

This cash, commonly referred to as "phantom income" simply because it doesn't exist in your pocket or bank account, is the forgiven amount of your loan. To the IRS, it's as if you earned another $45,000 last year. So, you now owe tax on what the IRS views as earned income.

If you don't have the $13,000 to pay off this bill, you will need to talk to the IRS to set up a repayment plan. Do this soon, because this issue won't go away, and if you don't address it now with the IRS, you will owe additional penalties on top of what you actually owned.

While this news is bound to be devastating for you, it doesn't sound like you had much of a choice. The only other thing you could have done would have been to rent the property and wait for your local market to rebound enough to at least pay off your mortgage in full.

Q: I inherited lakefront property valued at $150,000 dollars. My cost basis is zero. If I sell the property and purchase another property with the proceeds and sell it for a similar amount, how much I will owe in taxes?

A: My first question to you is when did you inherit this property? If you inherited the property and the estate valued it at $150,000, and you now sell it for $150,000, you shouldn't owe any tax whatsoever, other than possibly transfer stamps or local sales tax.

If the property has appreciated since you inherited it (let's say it's now worth $175,000) and you owned if for more than one year, then you'd owe capital gains tax of up to 15 percent plus state tax on the difference between the value of the property on the day you inherited it and the value of the property on the day you sold it.

If you inherited the property years ago when it was virtually worthless, and now it is worth $150,000, you'd owe capital gains tax plus state tax on your profits unless this home is your primary residence and you lived in it for two out of the last five years. If it was your primary residence and you lived there for the required time, you would pay no tax on the first $250,000 of profit ($500,000 if you are married).

If this is property that is now an investment for you, and you have profits, you may be able to defer those profits by using a 1031 tax-free exchange, which is a provision in the tax code that allows people to defer the payment of taxes on the sale of investment real estate. You will be required to sell your property and buy a replacement investment property that costs at least as much as the property you're selling. There are other rules to consider, and you need to follow these rules carefully.

If you decide to go the 1031 route, make sure you work with a competent "qualified intermediary" that can help you navigate the many rules associated with this kind of exchange. You should also make sure the intermediary is a reputable company that has been around for a while. You should also investigate how your funds will be secure while the intermediary holds your money until you buy a replacement property.

Please talk to your accountant or estate attorney for more details and other options.
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C.A.R. Launches $2.3 Million Ad Campaign Highlighting Value Realtors Bring to the Transaction

The California Association of Realtors® (C.A.R.) has launched a new consumer advertising campaign highlighting the value Realtors bring to the transaction.
RISMedia
Through a bold, new approach and theme — "California REALTORS® - We get it." — the campaign also will raise awareness of the Realtor brand and reinforce the professionalism of Realtors who belong to C.A.R.

The $2.3 million "California Realtors® - We get it." campaign features four new radio spots; interactive Web banners placed on popular Web sites; and search engine marketing on Yahoo! and Google directing consumers to a new Web site, www.yourpieceofcalifornia.com. The radio ads will air through Aug. 19; the online banners will run through Oct. 31.

"Developed expressly for consumers, www.yourpieceofcalifornia.com reinforces the key messages of the radio ads while providing valuable information when buying or selling a home. The 2007 Consumer Advertising Campaign also includes print and HTML components C.A.R. members can use in their own direct mail and e-marketing efforts," said C.A.R. President Colleen Badagliacco. "The Web site also reminds consumers why they should use a REALTOR® in all of their real estate transactions."
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Mortgage giants may help borrowers

WASHINGTON - The heads of Fannie Mae and Freddie Mac said Tuesday the mortgage finance giants are developing new types of loans to help distressed borrowers with high-risk mortgages keep their homes at a time of rising foreclosures.
By: MARCY GORDON, AP Business Writer: yahoo news!
A key federal regulator also urged lenders to step in now and extend flexible terms to struggling homeowners.

The moves by the two government-sponsored companies, the biggest buyers and guarantors of home mortgages in the country, came in response to the turmoil in the market for so-called subprime mortgages, higher-priced loans for people with tarnished credit or low incomes who are considered greater risks. In recent weeks, the distress has roiled financial markets and stoked anxiety that it could spill over into the broader economy.

The companies' initiatives were disclosed by their chief executives at a hearing by the House Financial Services Committee.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., exhorted mortgage lenders to show flexibility toward borrowers to help staunch a flood of defaults among homeowners with subprime loans.

Many of those borrowers "could avoid foreclosure if they were offered (loans) that allow for affordable mortgage payments," Bair testified. "Restructuring their loans into more affordable products, especially 30-year fixed-rate mortgages, would bring them back to good standing, allow them to repair their credit histories and dampen the impact that foreclosures may have on the broader housing market."

Most importantly, Bair added, "people would be able to stay in their homes."

The home-mortgage business has exploded in the last two decades with big Wall Street investment firms buying loans in bulk from banks and other lenders, and bundling them into securities to be sold to investors, spreading the risk. That has complicated the mortgage industry picture and the search for solutions to the immediate crisis.

Amid rising pressure to act, Democrats in power positions in Congress have started drafting legislation to curb abusive mortgage lending practices that especially target minorities and the elderly, putting people into home loans that they cannot afford to repay.

The greater distance now usually separating the home borrower and the ultimate holder of the mortgage, Bair acknowledged, "has complicated the ability of interested parties to apply flexibility and creativity to assist borrowers facing difficulty."

Richard Syron, Freddie Mac's chairman and chief executive, said the company is "working on a major effort to develop more consumer-friendly subprime products that will provide stable financing alternatives going forward," which are expected to be available by midsummer.

He said the new products will include 30-year and possibly 40-year fixed-rate mortgages as well as adjustable-rate mortgages with longer fixed-rate periods.

Fannie Mae, in a new program called "HomeStay," is offering new options so that lenders can help subprime borrowers refinance out of high-interest adjustable-rate mortgages or other difficult loans, said President and CEO Daniel Mudd. He said the company plans to stretch the term on subprime loans to 40 years from the current maximum 30 years — which will reduce monthly payments for borrowers by around 5 percent.

Adjustable-rate mortgages, known as ARMs, are especially prevalent in the subprime market. They are considered higher-risk loans because they typically draw borrowers in with an initial teaser interest rate, which can spike upward after the first two or three years. About 1.8 million ARMs are resetting to higher rates this year and next, making foreclosures sure to continue rising, according to a new report by Congress' Joint Economic Committee. Areas said to be hardest hit by foreclosures include Atlanta, Indianapolis, Denver, Dallas and Detroit.

Fannie Mae and Freddie Mac were created by Congress to pump money into the home-mortgage market by buying home loans from banks and other lenders and turning them into securities for sale on Wall Street. They have grown dynamically in recent years and now finance or guarantee some $4 trillion of home mortgages, representing about half of the single-family mortgages in the country.
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Seniors Avoid Money Troubles by Owning

Boomers may want to think again before selling their home and renting, a lawyer says. Otherwise, they may be giving up a significant amount in their retirement assets.
By: Susan E. Peterson: REALTOR® Magazine Online
Boomers thinking about downsizing are increasingly considering the possibility of selling the homestead and renting.

But Julian Zweber, a lawyer specializing in senior law, advises thinking analytically before making that decision. He says selling their home can mean a couple gives up a significant amount of security and stability in their retirement assets.

If a couple sells their home with the idea of investing the proceeds and living on the interest and renting, they are making a significant portion of their invested funds subject to “spend-down” rules before one spouse would qualify for Medicaid to cover nursing home care, Zweber points out.

"If you're married, you can protect your home, one car, household goods, [prepaid] funeral arrangements, and a certain amount of money," generally a maximum of $101,640, Zweber says.

People who have turned their home into a nest egg will have to spend that money, potentially leaving the healthier spouse with no place to live.

Other factors that favor holding onto the home rather than selling include the deductibility of mortgage interest and tax payments and the availability of reverse mortgages and home equity loans for emergency cash, Zweber notes.
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Multiple $250K tax breaks possible on single sale

Good news for unmarried co-owners
By: Robert J. Bruss: Inman News
DEAR BOB: Please clarify. You often mention a married couple filing a joint income tax return can claim up to $500,000 principal-residence-sale tax-free profits, thanks to Internal Revenue Code 121. But what about two unmarried co-owners of a home who each meet the 24-out-of-last-60-months ownership and occupancy tests? Both are on the title. Can each claim a $250,000 exemption or do they have to split the exemption? -Mary O.

DEAR MARY: There is no limit to the number of co-owners who can claim the IRC 121 principal-residence-sale tax exemption up to $250,000 each. Theoretically, you could have three, four, five or six home sellers who each can claim up to $250,000 tax-free principal-residence sale profits if they each meet the 24-out-of-last-60-months ownership and occupancy tests in the same home.

The IRC 121 tests are applied individually to each co-owner so they need not have owned and occupied the residence at the same time. But each must be on the title for the required time.

This is slightly different than for a married couple where title to the principal residence can be held in the name of one spouse alone, as is quite common. However, for a married couple filing jointly to claim up to $500,000 principal-residence-sale tax exemption, each spouse must meet the 24-out-of-last-60-months occupancy test. Full details are available from your tax adviser.

INMATE FINDS LOOPHOLE TO AVOID TAX ON INHERITED PROPERTY

DEAR BOB: As you can see from my letter, I am currently a prison inmate. But I will be released next month. My father passed away in March 2004. His estate was just probated. I received $93,000 for my share from the sale of his house. But I was told I will have to pay capital gains tax on $107,000. My brother bought the house from me and my two sisters. How much capital gain tax will I have to pay? Are there any loopholes? -Lonnie P.

DEAR LONNIE: That's a nice check you have waiting for you when you are released next month. Use it very wisely to get a "fresh start," perhaps by investing in real estate, and avoid future mistakes.

Yes, there is a major "loophole" that many heirs overlook. When you inherited a share of the house (plus perhaps other assets) from your late father, you received those assets with a new "stepped-up basis" to market value on the date of his death.

You and your siblings should hire a professional appraiser to determine that 2004 market value because it is very important. The estate administrator might have had an appraisal made. If so, you can use that valuation.

Your taxable capital gain is only the increased value after the date-of-death "stepped-up basis."

For example, suppose your individual stepped-up basis valuation share of the house was $75,000. Because you received $93,000, that means your capital gain share increased in value during the three years after the death by $18,000.

This $18,000 amount is taxable in this example at a maximum federal tax rate of 15 percent, plus any state tax. I have no idea where that $107,000 number originated. For full details, please consult your tax adviser.

TITLE INSURANCE ARBITRATION WAS A RIP-OFF

DEAR BOB: We had a very bad experience with our owner's title insurance policy. Several months after we bought our home it was discovered we did not have clear title. The title company admitted they made a mistake and offered to pay a percent of the insurance claim. They wanted to go to arbitration. The arbitrator ruled we suffered no loss because the property went up in market value after our purchase. We were ordered to pay the title insurance company more than $8,000. It seems the arbitrator was clearly on the title insurer's side. Do we have any recourse? -Neal C.

DEAR NEAL: Your situation shows the pitfalls of agreeing to arbitration because there is no right of court appeal from an arbitrator's decision. In the future, if you foolishly agree to arbitration (perhaps involving a small amount), please remember the arbitrator probably works for your opponent frequently and is likely not to rule in your favor.

Contact the state insurance commissioner to file a complaint against that no-good title insurer who failed to pay a legitimate claim without hassle. After you bought your owner's title insurance policy, you should never have to pay a dollar to protect your property title rights.

CAN HOMEOWNER ASSOCIATION PROHIBIT OUTDOOR CLOTHES DRYING?

DEAR BOB: I recently moved into a condominium where the homeowner association rules prohibit residents from air drying their laundry outside their units. Not only is air drying a great electricity savings, but we live in a patio home where few people see our clothes drying. Do we have any protection under energy conservation laws? -Norbert M.

DEAR NORBERT: Welcome to the mini-democracy world of condominiums and homeowner association rules. I am not aware of any state or federal law entitling you to air dry your clothes in violation of homeowner association rules.

Of course, if everyone hung their laundry out on their balconies and patios, your condo complex would soon look like a Hong Kong high-rise slum where everyone air dries their clothes.

If the homeowner association should decide to enforce the rule against you by levying a fine, you then would have the opportunity to contest the fine in local court.

PRE-DEATH PROPERTY GIFT COULD BE EXPENSIVE FOR DONEE

DEAR BOB: My wife and I own two rental properties acquired in an Internal Revenue Code 1031 tax-deferred exchange. One is a rental home. The other is a two-family rental duplex. We have owned each about seven years. Since we are getting up in years, we would like to transfer these properties to our children. If we do that, will we have to pay tax now or when they sell the properties? -Roland L.

DEAR ROLAND: Because the gifts will exceed the $12,000 annual gift exemption per donor per donee, you and your wife will have to file federal gift tax returns. However, no gift tax will be due if your total lifetime non-exempt gifts are less than $1 million each.

By making these lifetime property gifts, your adult children will be burdened by taking over your presumably low adjusted cost basis. When they eventually sell these properties, they will owe large capital gain taxes.

A better alternative is to let your adult children inherit the properties after you both pass on. Then they will receive them with a new "stepped-up basis" to market value on the date of death. For full details, please consult your tax adviser.

WHY JOINT TENANCY ISN'T AS GOOD AS A LIVING TRUST

DEAR BOB: You often suggest properties be held in a revocable living trust to avoid probate. We are an unmarried couple in our late 60s and own two properties together as joint tenants with right of survivorship. In our situation, should we set up a revocable living trust? -Dean T.

DEAR DEAN: The primary purpose of a revocable living trust and a joint tenancy is to avoid probate when one co-owner dies.

However, living trusts offer a major additional advantage if one co-owner becomes incapacitated, such as due to Alzheimer's disease or a severe stroke. Then the successor trustee can manage the trust assets, even selling them if necessary. That advantage is not available with joint tenancy. For more details, please consult an attorney specializing in living trusts.

NO STEPPED-UP BASIS IF SPOUSE DIDN'T INHERIT ANYTHING

DEAR BOB: My wife died in 2006. We lived together in our house for 31 years. Although title was in my name alone, do I get a new stepped-up basis to market value? -Herb W.

DEAR HERB: No. The reason is you didn't inherit anything. To be entitled to a stepped-up basis to market value on the date of death, you have to inherit the asset.

Now I hope you understand why I recommend married spouses hold their assets in both names, preferably in a living trust. For full details, please consult a local probate attorney.

CAN A REVERSE MORTGAGE BE REFINANCED?

DEAR BOB: My wife and I took out a reverse mortgage about four years ago. It provides us with extra monthly income so we can live very comfortably. Before that, we often could barely pay expenses without dipping into our meager savings. Recently, our reverse-mortgage company asked if we would like to "refinance" our reverse mortgage because our home has gone up in market value by about $125,000. However, we would have to pay the up-front fees all over again. Is this a good idea? We are now 83 and 77. -John and Ida W.

DEAR JOHN AND IDA: The answer depends how long you want to stay in your home. If your answer is at least five years, then it might be wise to refinance your reverse mortgage to increase your borrowing power since your home has appreciated in market value.

More reverse-mortgage details are in my new special report, "Everything You Need to Know About Reverse Mortgage Pros and Cons for Senior Citizen Homeowners," available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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