Homeowners in Foreclosure Pilot Program

NEW YORK – March 23, 2012 – Bank of America says it has begun a pilot program offering some of its mortgage customers who are facing foreclosure a chance to stay in their homes by becoming renters instead of owners.

The “Mortgage to Lease” program, which was launched this week, will be available to fewer than 1,000 BofA customers selected by the bank in test markets in Arizona, Nevada and New York.

Participants will transfer their home’s title to the bank, which will then forgive the outstanding mortgage debt. In exchange, they will be able to lease their home for up to three years at or below the rental market rate. The rent will be less than the participants’ current mortgage payments and customers will not have to pay property taxes or homeowners insurance, the bank said.

“This pilot will help determine whether conversion from homeownership to rental is something our customers, the community and investors will support,” Ron Sturzenegger, legacy asset servicing executive of Bank of America, said in a statement.

Among requirements to qualify for the program, homeowners must have a BofA loan, be behind at least 60 days on payments and be “underwater,” owing more on their mortgages than their homes are worth.

The bank based in Charlotte, N.C., said it will at first own the homes, then sell them to investors. If the program is successful, it could be expanded to include real-estate investors who buy qualifying properties and keep the occupants on as tenants.

“If this evolves from a pilot into a more broadly based program, we also see potential benefits from helping to stabilize housing prices in the surrounding community and curtail neighborhood blight by keeping a portion of distressed properties off the market,” Sturzenegger said.

Foreclosure tracking firm RealtyTrac says foreclosure activity has picked up in some states, as banks deal with a backlog of homes with mortgages that had gone unpaid yet remained in limbo due to delays stemming from foreclosure-abuse claims.

Nevada has the nation’s highest foreclosure rate as of last month, with one in every 278 households in the state receiving a foreclosure-related filing, twice the national average, according to RealtyTrac. Arizona ranks third behind California, while New York has not been as hard hit, with one in every 4,604 households receiving a foreclosure-related filing.

source:Claudette Bruck, CCIM Legislative Chair Florida CCIM Chapter

Florida Amendment 4 "Why vote Yes on 4"

1. Eliminating Property Tax Loopholes

Amendment 4 empowers the Legislature to stop “recapture”, a property tax trap that forces some homeowners to pay higher property taxes even if their home’s market value declines.

2. Saving Small Business Owners

Amendment 4 will lower the cap on assessment increases for non-homestead properties from 10% to 5% per year. For small businesses and commercial property owners, Amendment 4 provides the stability and the tax relief that they need to get out of this recession and create the jobs Florida needs now.

3. Renewing Florida’s Promise

With nearly 1 million Floridians still out of work and hundreds of thousands more underemployed, we must pursue new policies that will drive prosperity back to Florida and restore our economic future. Amendment 4’s new cap on non-homestead properties will attract new investment in Florida’s economy, which will help revitalize communities impacted by the recession, and spur job growth in the cities and counties that need it most.

4. Empowering New Homeowners

Families looking for their first home or looking to move back into a home after downsizing for the recession will benefit greatly from Amendment 4. Amendment 4 offers an additional homestead exemption for new homebuyers that will last up to five years, rewarding new homeowners for finding the right home for their needs.

Foreign Investors in US Real Estate

Investors around the world have always had great interest in properties in the United States and the reasons are clear. Not only real estate offers a safe investment with good returns but it also offers total control of the investment and it is an excellent hedge against inflation. The United States offers good economic and political stability like no other country in the world. Therefore any investor interested in real property should have in his/her portfolio real estate in the United States of America but many considerations are important when it comes to foreign investors acquiring properties in the US. Last year 72% of the foreign investors surveyed stated they will increase their investments in properties in the United States in the following 12 months, mainly in commercial real estate although the influence of foreign investment in residential properties is very high in South Florida and it is one of the reasons a real estate market recovery should be soon a reality in our area.

One of the most important aspects is the tax laws affecting foreign investment in real property. In 1986 there were many changes in the law and all foreign investors should be aware of all recent changes as well so they can establish the proper structure under which take title to properties. Can I take title under my personal name? Shall I take title under a domestic US corporation or limited liability company? Who should be the owner of that US entity, me and my family or a foreign company or trust controlled by us? Or shall I take title under an offshore company? In using offshore companies, should they be from my Country of origin or shall I use tax heaven jurisdiction?

All these questions are very important before one makes a decision to invest in properties in the United States because they will affect the operation and returns of the investment and proper planning will avoid costly mistakes.

It is crucial to analyze current US Treaties with the Country of origin. If the foreign investor’s country has a treaty with the US this will affect the type of entity and structure as well as the operation of the investment so it should be analyzed carefully taking into account possible future changes.

It is very important to analyze the income tax liability of the investment based on the chosen structure since this will affect the after tax return on the investment as well. The analysis should be of the nature to have potential estate and income tax issues in concert with the desired succession plans and investment objectives of the foreign investor.

Only property managers and brokers with the right experience in structuring investments for foreign clients have the knowledge to assist clients in analyzing real estate returns and investment objectives and are the ones that can properly orchestrate the work of other professionals such as real estate attorneys, tax attorneys and accountants to properly assist the foreign investor in optimizing portfolio operation and returns while enjoying all the benefits of a safe and sound investment in real property in the United States.

Our organization has the knowledge an skills of assisting foreign investors as well as the contacts with the right professionals to assure investment success.

Condo Inventory in Miami Florida

It seems that international buyers and investors have been helping the Condo market in Miami, especially the Brickell Avenue corridor and Downtown Miami. Almost 85% of the excess inventory is gone and new projects are being planned around Brickell Ave and the Biscayne Blvd area. Prices per suqre foot have gone up from $200/sq.ft to about $300.00 to $350.00/sq.ft in some cases and new projects are being priced between $325.00 and $380.00/sq.ft.

Inventory of rental units has also decreased putting pressure on the rental market. Rents have gone up an average of 15% for condo units in this area. Looking at all areas in Miami-Dade and Broward Counties, one can see rental inventories down and rental rates going up, making more attarctive residential rental investments. The expansion on the Panama canal is fueling the local economy creating jobs to expand the Port of Miami, Port Everglades and Fort lauderdale and Miami International Airports. The Canal expansion should be done in 2014 when we may see another possitive growth of our local economy and in the meantime who knows if we approve gambling and the projects that will come with it.A positive outlook for rental properties in our area.

What is the price per square foot?

Most of the time this is a question most investors and buyers ask when considering purchasing commercial real estate. With construction and replacement costs being more and less the same throughout the nation (in most cases cost of materials and labor do not differ that much)and some influence by the local demand and supply, one may think there should not be a great difference from one location to the other. In fact replacement cost has an influence on the cost of an existing building. Furthermore, local demand and supply will put pressure on how much buildings are trading per square foot in a specific area. There are other factors such as environmental conditions and property characteristics and condition or physical obsolescence if present. But in commercial/investment real estate the most important factor to determine the actual value of a building is how much the asset can produce, either in income for an investor or use value for a user. When an investor looks at acquiring income producing properties, an income approach to value will have more weight than any other method such as comparison sales or reproduction cost and appraisers use it all the time. This is why you can see that recently a 15,000 sq ft shopping center in good condition with a large expected economic life sold in Broward County Florida for $3,525,000.00 or $235.00 per square foot and a retail space totalling 15,000 sq ft, in a very similar condition, sold on Broadway, New York City for $136,550,000.00 or $9,103.33 per square foot. Although it is very important to know replacement costs, recent sales, property and location conditions, all comes down to the internal rate of return of the investment over a specific holding period and the question is more how much it produces rather than what is the cost per square foot. One an analysis is performed on a specific real estate investment and the results make sense for the investor, then all other conditions should be analyzed, future growth in the area, future supply, future demand from users of this property type, demographic and market forces, government plans, environmental hazards and property condition to determine when and how much capital improvements will be required and how much reserves for replacements should be put aside. When we blend all these factors into our investment and financial analysis, if we achieve the required return for our investment criteria, we will move and purchase the property, most of the time not paying too much attention to what is the price per square foot.

Property Management Trust Accounts

Misuse of trust accounts is the number one reason why property management companies are audited. That’s why it’s vital that the proper trust fund accounts are established as needed, and used properly.

Improperly using trust accounts that were established to maintain owner funds and tenant security deposits can result in stiff penalties, such as license suspension or revocation. Improper tracking or usage of tenant security deposits can also result in the management company being responsible for the cost of damages incurred while the property was occupied.

Trust accounts are traditionally used as a method to keep tenant deposits and rent payments separate from operating capital. For example, in both California and Arizona, rent payments must be placed into a trust account no later than three business days after the funds have been received.

Funds placed in the trust account can only be withdrawn by the broker or broker-officer whose name the account is established under. Brokers are not allowed to tap into these funds except for trust related items. To complicate matters, many states currently require that security deposits be kept in a trust account, with some state statutes requiring that the deposit be in a separate trust account, while others allow them to be placed with the owner’s trust account. For instance, in Arizona, brokers must maintain a separate account for all tenant security deposits. Note that in most states, security deposits received on broker-owned properties do not have to be deposited into a separate trust account, but it’s always wise to check your own state’s requirement.

In recent years, some states have implemented new laws requiring property managers and owners to specify in the management contract exactly how trust accounts will be used. Even if your state has statutes specific to the use of trust accounts, it’s best to spell out any specifics in the management contract.

The Department of Real Estate in each state has its own set of established rules and regulations governing the proper and improper usage of trust accounts, and it’s wise to get yourself up to speed on these regulations.

While your state’s department of real estate will continue to perform audits, if your management company has followed the statutes, and maintained ‘good accounting practices,’ you should be able to sail through any audit that your property management company may be subjected to. (Source propertymanagement.com)

New Accounting Rules Affecting Tenants & Landlords

The Financial Accounting Standards Board and International Accounting Standards Board have been working on a project to modify how leases are reported by tenants. Currently the standards require that tenants evaluate leases to determine if they are capital or operating leases. Capital leases are recorded as Assets and related Liabilities on the company's Balance Sheet. Operating leases are expensed as the lease term passes and future lease obligations are disclosed in the footnotes to the financial statements. Most real estate leases are recorded as operating leases. The new rules will require that all leases are recorded as a right to use Asset and lease related liability, calculated using the present value of all lease payments. These "Assets" will be amortized over the life of the lease and lease obligations will be reduced as lease payments are made with an interest component to take into account time value of money. We see many possible implications of this new rule. No question these new rules will affect the company's Debt/Equity ratio, maybe forcing a company to shorten the length of its leases to meet its covenants. A shorter lease will require only a fraction of the debt to be recognized in the balance sheet. Under the rule renewal options must be included if it is likely the option the option will be exercised. Landlords also have to change the way they report leases. For leases with significant risk and benefits associated with, they will have to record a liability for the obligation to provide space and an asset for the rents to be received. For all other leases landlords will have to use the derecognition approach, meaning they will have to record a lease receivable for the future rents and a residual asset representing the lessor's right to the underlying asset at the end of the lease term. Like with the case of a tenant, the term of the lease would require auditor's judgement and must be re-evaluated at each reporting date. These new rules will affect, landlord's and tenant's, leasing decisions in the future. Commercial real estate entities must contact their accountant and business advisors regarding these changes. It is our opinion that the proposed standard will create an incentive for shorter leases, creating more volatility and affecting property values. It may also create situations where tenants may be better off purchasing rather than leasing space. All these changes and their possible effects must be discussed with a Certified Public Accountant before making any decisions.