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Home Mortgage Interest Deduction Limit May Decline

Posted: 26 Nov 2010 02:29 AM PST

Real estate industry insiders are truly worried that the home mortgage interest deduction limit may fall thereby increasing the cost of ownership of more expensive properties.

Irvine Home Address ... 81 PINEWOOD 41 Irvine, CA 92604
Resale Home Price ...... $649,000

Another red letter day
So the pound has dropped and the children are creating
The other half ran away
Taking all the cash and leaving you with the lumber

It's not easy love but you've got friends you can trust
Friends will be friends

Queen -- Friends Will Be Friends

Everyone whose livelihood is dependent upon real estate is frightened about the recommendations coming from the government commissioin studying what we should do about the deficit. California realtors Say Cutting Mortgage Interest Tax Deduction Will Devastate Nation. And now the homebuilders are beginning to worry that the limit on the home mortgage interest deduction may actually go down.

Tightening mortgage tax code limits housing recovery: John Burns

by JON PRIOR -- Friday, November 19th, 2010, 9:57 am

John Burns Real Estate Consulting said in a report Friday that government intervention is hurting the housing market, and the firm is growing more concerned that lawmakers will reduce the cap on mortgage interest rates that qualify for tax deductions "significantly."

I know John Burns, and I doubt he put those two contradictory statements together like the writer of this story did. He is correct that government intervention is hurting the housing market, and all of it should be reduced or eliminated. He is also right that as we remove these government props, there will be pain for the housing market.

While John Burns graded the overall indicators of the economy in positive territory, such as gross domestic product, personal income growth and even employment, housing continues to remain weak as demand is vacant and distressed sales will continue to pressure pricing.

Big policy shifts from Congress are in store for 2011, according to the report.

"While big curveballs could be thrown at the housing business, the most likely scenario is that government intervention will make homes slightly harder to sell over the next few years," according to the report.

And as the government withdraws from the housing market, selling homes will become even more difficult.

When a commission was appointed by President Obama to overhaul the tax system and reduce the national debt, it came back earlier in November with an option to reduce the mortgage interest deduction, one of the primary incentives for owning a home. The Mortgage Bankers Association and the National Association of Realtors immediately recoiled at the idea, but John Burns said it was unlikely Congress would act until now.

"We have been saying that Congress won’t mess with the interest rate deduction, except maybe to drop the cap below $1,000,000," the report said. "We are becoming more concerned that the cap might be lowered significantly. A drastic decline in the cap, or a phased in decline, would impact the move-up builders and a minority of expensive states dramatically."

John Burns makes frequent trips to Washington, and he has been involved in the meetings and negotiations on this issue. If he is worried about what congress might do, there is genuine reason for concern. It appears the commission may make a recommendation to reduce the deduction limit.

With other reform to the government-sponsored enterprises and mortgage underwriting standards up for review in 2011, John Burns highlighted the impact Congress can have on housing.

"There is plenty of short-term risk ahead. Focus on good locations where people want to live, and plan for having to sell homes to higher credit quality buyers. Stay more informed than ever because surprise announcements could impact consumer confidence and sales positively or negatively," the report said. "In turn, that could dramatically affect home buying sales, volume and pricing."

Burning Bridges

People often come to the aid of friends in need. When it comes to financial matters, it is something to be very careful about. Friends may have a moral obligation to repay, but if they don't have the capacity, it may take a very long time to get the money back.

The owners of today's featured property must be very well connected. They received five private party loans to help them through the rough patch otherwise known as the deflation of the Great Housing Bubble. It is so bad that the five friends apparently banded together to buy the property at auction when the first mortgage finally foreclosed. The California Friends Foundation is now the deed holder subject to the first mortgage still in default. They are hoping to get some of their money back at the sale, but it doesn't seem likely they will recover it all.

  • This property was purchased on 7/15/1999 for $315,750. The owners used a $306,250 first mortgage and a $9,500 down payment.
  • On 2/5/2002 they borrowed $25,000 from a private party lender.
  • On 4/1/2003 they borrowed $75,000 from a private party listed as a retirement trust.
  • On 9/6/2007 they borrowed $32,000 from a private party lender.
  • On 11/20/2007 they borrowed $78,000 from a private party lender. These lenders all have names of people rather than corporations or banks. People who know this couple loaned them over $200,000.
  • On 12/13/2007 -- a few weeks after the last loan -- the owners were issued a notice of default followed by a notice or rescission.

Foreclosure Record
Recording Date: 01/30/2008
Document Type: Notice of Rescission

Foreclosure Record
Recording Date: 12/17/2007
Document Type: Notice of Default

Foreclosure Record
Recording Date: 12/13/2007
Document Type: Notice of Default

  • on 3/19/2008 there is a loan for an astonishing $825,000 from a private lender. I think that number may be in error as it seems very large, and other loans follow. Not long after, he received another notice of rescission.

Foreclosure Record
Recording Date: 03/25/2008
Document Type: Notice of Rescission

  • On 4/8/2008 he received a loan from a corporation for $130,000, but it does not look like a bank loan. Later that year they went back into default.

Foreclosure Record
Recording Date: 08/17/2009
Document Type: Notice of Sale

Foreclosure Record
Recording Date: 03/23/2009
Document Type: Notice of Sale

Foreclosure Record
Recording Date: 12/15/2008
Document Type: Notice of Default

  • On 3/8/2010 the California Friends Foundation (whoever that is) bought the property at auction for $318,755. Since this almost certainly would have been bid up much higher at auction if the lien was in first position, it is likely the new owners are still subject to the original $306,250 first mortgage, plus late fees, interest and so on.

There is no way to be certain from my view of the records how much is truly owed on this property and by whom. It's a mess.

The owners of this property have not consistently made mortgage payments since sometime in 2007. They used friends as HELOC lenders, and now it looks like those friends are likely going to lose a lot of money.

When a friend asks for a loan, ask yourself if you would give the money. If the answer is no, you shouldn't loan it either.

Irvine Home Address ... 81 PINEWOOD 41 Irvine, CA 92604  

Resale Home Price ... $649,000

Home Purchase Price … $315,750
Home Purchase Date .... 7/15/1999

Net Gain (Loss) .......... $294,310
Percent Change .......... 93.2%
Annual Appreciation … 6.3%

Cost of Ownership
$649,000 .......... Asking Price
$129,800 .......... 20% Down Conventional
4.55% ............... Mortgage Interest Rate
$519,200 .......... 30-Year Mortgage
$127,583 .......... Income Requirement

$2,646 .......... Monthly Mortgage Payment

$562 .......... Property Tax
$0 .......... Special Taxes and Levies (Mello Roos)
$108 .......... Homeowners Insurance
$455 .......... Homeowners Association Fees
$3,772 .......... Monthly Cash Outlays

-$443 .......... Tax Savings (% of Interest and Property Tax)
-$678 .......... Equity Hidden in Payment
$220 .......... Lost Income to Down Payment (net of taxes)
$81 .......... Maintenance and Replacement Reserves
$2,952 .......... Monthly Cost of Ownership

Cash Acquisition Demands
$6,490 .......... Furnishing and Move In @1%
$6,490 .......... Closing Costs @1%
$5,192 ............ Interest Points @1% of Loan
$129,800 .......... Down Payment
$147,972 .......... Total Cash Costs
$45,200 ............ Emergency Cash Reserves
$193,172 .......... Total Savings Needed

Property Details for 81 PINEWOOD 41 Irvine, CA 92604
Beds: 3
Baths: 1 full 1 part baths
Home size: 2,065 sq ft
($314 / sq ft)
Lot Size: n/a
Year Built: 1977
Days on Market: 71
Listing Updated: 40452
MLS Number: P751943
Property Type: Condominium, Townhouse, Residential
Community: Woodbridge
Tract: Wc
According to the listing agent, this listing is a bank owned (foreclosed) property.

STEAL THIS HOUSE!!! Private lender foreclosed, wants quick re-sale!!! CLOSE IN 30 DAYS!!! Large, spacious home with 3 BR, 2 BA, 2,065 sf and 2.5 car garage. Remodeled kitchen with maple cabinets, granite countertops, new electric range & microwave, new sink, garbage disposal, fixtures. Sunny breakfast area off kitchen. Very light & airy with 4 skylights. Upstairs addition (3RD BR, and loft) is permitted, adds almost 700 sf to original floorplan. New flooring in most of house. Wraparound patio with 2 patio covers offers multiple entertaining areas. Park & HOA pool across the street are great for get-togethers. Short walk to North Lake. Access to association pools, parks, & sports fields. Very friendly area for biking, hiking, jogging, walking, other outdoor activities. ALL THIS CAN BE YOURS AT A VERY REASONABLE PRICE!!! And, your kids can go to the highly acclaimed Irvine USD schools. MAKE THIS YOUR NEXT HOME!!! CAN CLOSE IN 30 DAYS OR LESS.

STEAL THIS HOUSE!!! The realtor should be careful. Some squatter may take them literally.

wants quick re-sale!!!




Have you had enough ALL CAPS and exclamation points?


I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.

Have a great weekend,

Irvine Renter

real estate home sales


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