As we all know, there is currently a 90 day moratorium on foreclosures here in California. Also worth noting, the Attorney General’s office has demanded all  foreclosure rescue and loan modification consultant firms register with the AG by July 1st and post a $100,000 bond. Keep in mind, attorneys are exempt from this action. So why is it that an attorney who did personal injury cases 3 months ago is suddenly more qualified for the task than a legitimate loss mitigation company? Is this the kind of person you want working on your file? What exactly does this measure accomplish? At this time, it is estimated that there will be roughly $500 Billion in mortgage resets in the Alt A, Prime and Option ARM arenas between the last quarter of 2009 through 2012. About 58% of those mortgages are here in California. You can read more about that here. There are a growing number of short sales, and yes, it is spreading to the Westside of Los Angeles. The question many people have is : can we qualify for a loan modification.? We have all heard the TV and radio spots for these companies- What most of these loan mod “consultants”, and even the attorneys will not tell you is that many people will not qualify. For instance, even if the lender is satisfied the homeowner has documented hardship and verified income, whomever is holding the note will ultimately take the action which is in their best interest, which in many cases is to let the property go into foreclosure. Furthermore, more than 50% of loan mods currently are re-defaulting, which just adds more to what is already a hot mess. The truth is, unless the homeowners qualify for a government backed loan mod program, in most cases the best case scenario is that the modification will be good for about 5 years. You can see for yourself who can qualify for Obama’s loan modification program here . Currently, most non-realtor opinions have home values on the westside declining for at least another year. This means even more homeowners will be eventually be underwater, along with more loan mod re-defaults, which inevitably increases housing inventory, which puts downward pressure on prices. In the present climate, with the aforementioned massive defaults looming, for a homeowner who owes more than what the property is worth, it makes more sense in this case to do a short sale and cut your losses. Why? because if you don’t you are potentially chasing bad money with more bad money, or in other words, investing in a non-performing asset, like buying stock in a declining market with no real basis for upside potential. I realize there are no easy solutions here to avoiding foreclosure, but for the homeowner who owes more than what the property is worth, a short sale is a much better alternative than waiting for a bailout, which in many cases is like Waiting For Godot.

Our office will be holding a seminar for first time home buyers on Tuesday, June 23rd from 7:00 to 8:30 PM . The things you will learn:

The entire buying process from start to finish

Current (historically low) mortgage rates

The different loans available, Difference between short sales, foreclosures, and REO properties

The $8,000 first time home buyers’ tax credit which expires 11/30/09 and the new construction tax rebate. 

This will be a great experience for those of you who have questions about the buying process, and best of all, it’s FREE!  All I ask is that you RSVP for this event as there will be limited seating.

Tuesday,  June 23 from  7:00 to 8:30pm

Keller Willams Realty

5900 Wilshire Blvd., Suite 610

Los Angeles, CA 90036

(Plenty of street parking)

Please RSVP

Johnny Burke

323-527-6600

johnnyb1@kw.com

By Valerie Faltas

When the real estate market is declining like it is now and has gone below your assessed value, you are allowed a break in your property taxes. Prop 8 Decline in Value is an exemption to Prop 13 which determines all property taxes today for taxpayers in California. Prop 13 was enacted in 1978 to limit the property taxes paid by taxpayers. Prop 8 Decline in Value is an exemption to Prop 13 which says that your property tax value should not be higher than the current market value.

Seems like great news but, it is only a SHORT TERM answer. Prop 8 Decline in Value is something you have to file for most of the time. Sometimes the Assessor will automatically lower your property taxes because he is an elected official and will do what he can to maintain voter approval. Prop 8 Decline in Value works is like this: your date for any fiscal year is January 1st for assessment purposes. The comparable sales for your home for need to have closed within the first quarter of the given year; January 1 to March 31 based on the language of the law. So to get a Prop 8 reduction for 2009, the comparables must have closed between January 1st, 2009 and March 31, 2009. To get this reduction in value there has to be comparable sales of houses similar to yours within the first quarter of the designated year that are lower than your assessed value for that year. If there are no comparable sales that show a lower value for your property during that first quarter, your are out of luck.

This is a major problem for several reasons: one of the biggest is that the first quarter of the year has the fewest comparables because those sales started during the holiday season which is the slowest time for real estate, no matter what type of market we’re in. Real estate sales take 30-60 days to close, so most of the sales that close within the first quarter of the year opened escrow during the holiday season. The comparable sales to choose from are much less than later on. When the decline really starts to show during the second and third quarters of the year you can’t use those sales for a Prop 8 reduction.

This is not the best solution because it is only a TEMPORARY reduction in value, so when the market starts to climb back up, and it always does, your old base value gets restored to what it would have been had you never gotten the reduction. Many property tax specialists appear in declining markets claiming to be able to save you on property taxes. They send mailers that look like they are from the Assessor which they are not and sadly, taxpayers pay good money to have their taxes “lowered” only to have their tax bills revert to higher rates once the market recovers. Truthfully you never pay the Assessor for any service or review of your value – you pay for that with your property taxes already!

Let me illustrate the way Prop 8 Decline in Value works on an average property in California. I purchased a residence in 2005, at the hight of the market, for $500,000, at a 2% trend my current assessed value for 2008 is $530,604. My market value as of the beginning of 2008 is close to $430,000 and since I am a knowledgeable homeowner I apply for a Prop 8 Reduction to get a break. So, for 2008 I have a break, Im paying on a value that is $100,000 below my trended base value and saving near $1,250! The real estate market goes down and based on the Assessors review, the Prop 8 Reduction value is given for 2009 also. So for 2009 I am paying based on the $430,000 which is even better this year since my trended base in 2009 would have been $541,216 and so I am saving close to $1,390! Fantastic!

The real estate market turns around, and the market values are rising and for 2010 my market value is higher than $500,000, so the Assessor changes my Prop 8 Reduction value to $500,000 which is lower than my 2010 trended base value of $552,040. Definitly, not as nice as having $430,000 as my value. Yet, I am still saving money and this year my Prop 8 Decline value is $52,000 lower than my trended base value I am saving $650 a year in property taxes. Its now 2011 the real estate market is rising again and now my market value is near $600,000 and the assessor restores my value to the trended base, which now is $563,080. So, I’m paying $7,038 in taxes. If I still had that $430,000 property tax base

In California there is a way to PERMANENTLY lower your property tax base utilizing today’s declining market, based on Prop 13 and essentially side stepping Prop 8 and all of its limitations. Also, find out how to avoid assessment when you inherit property and how to use all exemptions allowed by Prop 13.

About the Author: Valerie Faltas, Property Tax Expert has been involved in all facets of real estate for over ten years including assessments, appraisals, estates and trusts, investing and much more. She is a Certified Property Tax Appraiser, Licensed Residential Appraiser and a member of the International Association of Assessment Officers. As a real estate investor and advisor she is well versed in all aspects of real estate. To contact Valerie Faltas go to her website: www.propertytaxlittleblackbook.com