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Help Raleigh Real Estate: Contact Your Senator!

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Posted by Tim Burrell - The Senate Finance Committee has approved an economic stimulus package that does not include an increase in the limits for loans by Fannie Mae and Freddie Mac (commonly called GSE's), and does not include an increase in the limits of the guarantees allowed by the FHA.   The stimulus package passed by the House of Representatives in HR 5140, the Recovery Rebates and Economic Stimulus for the American People Act of 2008,  includes increases in the amount of Fannie Mae and Freddie Mac loans to 125% of the median price for homes in high cost areas, with a cap of $729,750.  The House bill would also allow FHA to guarantee loans up to 125% of the median price in high cost areas, with the same cap.  This increase would be temporary, as it would expire at the end of they year.

Now is the time to contact your Senator and explain the obvious: THE PROBLEM IS REAL ESTATE LOANS, STUPID

The main source of the economic problems, and possible recession, is the lack of availability of real estate financing.  The exotic loans that used to allow a segment of the market to buy homes do not exist any more.  The standards for qualifying for nearly all loans have been raised, a second shrinking of mortgage funding.  With the increase in housing prices in many areas, conventional loans that are limited to $417,000 or less do not allow "regular folks" to buy a home in those areas.

The House bill would allow the limits on the conforming loans that "regular folks" need to go up.  This would allow more people to buy houses in the areas hardest hit by foreclosures.  The National Association of Realtors projects that this increase would prevent about 200,000 foreclosures nationwide.  Decreasing foreclosures would help consumer confidence, not only in the housing market but in the economy in general.

It is hard to imagine any reason for the action by the Senate.  The problem is a sudden decrease in the availability of real estate financing.  Why not deal with that problem by providing a short term increase in that financing?

The House bill would increase the availability of loans, and cost the consumer nothing.  The Sentate is concentrating on giving money from the US Treasury to taxpayers, and proposing amendments to give money to recipients of Social Security, both of which will eventualy cost taxpayers.  The money given to consumers will be used to buy consumer goods at WalMart and Best Buy.  We need something that will allow consumers to buy houses.  Also, the increase in loan limits is temporary, so that it is not a long term authorization which means any potential problems are limited in duration.

This difference between the House of Representatives and the Senate gives you a better appreciation for our form of government.  The Founding Fathers wanted to have a body in the legislature that was more in touch with the people, and they created the House of Representatives.  The Senate has only two members from each state, and focuses on larger pictures, but is less in touch with what is happening with "regular folks".

The National Association of Realtors is making an effort to have Realtors contact Senators to point out this mistake.   It would be even more important for consumers who are not Realtors to contact their Senators, so that the national importance of this mistake is felt, and the Senators cannot dismiss this as a self serving effort by Realtors.

This increase in the conforming loan limits is not as important to Raleigh real estate, and all of the real estate in the Triangle.  A loan of $417,000 will buy more than the average home in this area.  But increasing these limits will allow more people to buy the more expensive Raleigh real estate and Cary homes, and move into a Chapel Hill house.  More importantly, this increase will help the areas in the United States that have large amounts of foreclosures.  Decreasing foreclosures will be good for the entire economy, which will help our area.

Please contact your Senator and ask the Senate to face the problem head on.  Since the problem is a decrease in real estate financing, provide a temporary increase in that financing.

Yes, Cary Has Termites Too

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Posted by Bob Rodwell:

I'm told by local pest control service personnel that North Carolina ranks third in the country for having the most termites.  And yet I frequently meet home buyers or sellers who do not know the risk that presents.  Recently I had a contract on a very nice home in Cary fall apart because of termite damage, ten days before the scheduled close.  It was a painful process for all parties involved.  That situation highlighted several points that I'll recap here.

1. I've heard there are two kinds of houses: those with termites, and those that will have them.  While that's overstated, the point is that we should not expect to be so lucky as to always avoid them. 

2. Termite inspections are not generally required when buying a house, but the cost is so low, and the risk so high, I can think of no reason to skip it.

3. But inspections are not fool proof.  Unless the home is vacant, it likely has furniture and other items positioned against walls, preventing inspectors from getting total access.  In our case, the initial inspection did spot termites, but in only one location, leading us to believe it was a minor infestation.  It wasn't.  Finding more, later, made a bad situation much worse.

4. Standard treatments, such as those all new homes receive, last for several years, but not indefinitely.  We can buy treatment chemicals and devices ourselves.  Or we can hire professional pest control companies that offer one-time or ongoing maintenance programs, with annual or more frequent inspections.   Some of those companies offer insurance - if the bugs come again while under the program, they retreat for free.  Some cover the cost of repairing the damages. 

5. And yes, if termites are in the house, there will be damages.  And you usually need to tear off some siding or sheetrock or something just to confirm exactly what the extent is - they don't eat out in the open.  So even finding out how bad it is, is bad.

6. So besides treating, re-treating, inspecting, and re-inspecting, what to do?  Well, when buying a home, or selling one, think about it ahead of time.  Sellers who do not have one of those annual maintenance programs might want to get an inspection prior to putting the home on the market.  Better to find out early than right before closing!  Buyers should ask if the sellers have a maintenance program as those with insurance aspects are typically transferrable.   Otherwise, if you want to begin a program, expect to pay first for a full treatment - not cheap.

7. The pros can tell you (and so can library and web resources) how to minimize risk of intrusion by controlling crawlspace moisture content and minimizing cellulose (mulch, paper, wood, etc) near or under your home, and how to recognize their tunnels and other signs.  One good thing about our red clay here is that when termites build a tunnel across brick foundations to get to the wood, the tunnels stand out - we shouldn't have lines of clay running up foundations.  Kind of hard to spot tunnels in crawl spaces though, especially if you, like me, don't enjoy going in yours much!

Hopefully you won't have any bad experiences with termites - and if any of the above helps you avoid them, that would make be feel better about what we all just went through.

 

Posted by Tim Burrell - The Federal Reserve cut the Federal Funds interest rate by 1/2 point and the Discount Rate also by 1/2 point.  The one is the rate of interest when banks borrow from the Federal Reserve, the other is when they borrow from each other.  There were two quick financial responses.

In the first response,  major banks cut their Prime Rate, the rate that their best borrowers get, from 6.5% to 6%.  The second was an immediate improvement in the stock market, that had been down before the announcement, trading immediately went from negative territory to positive.

The decrease in the Prime Rate affects many homeowners who have Home Equity Lines of Credit (HELOC).  Many of these loans have an interest rate that floats with the prime rate.  So, this decrease will reduce the monthly payments on those loans.  This will have a positive effect on Raleigh Real Estate, as it will enable more families to afford their mortgages and stay out of financial trouble.  It may not directly lower the number of homes going into foreclosure, but it will help.

The decrease in the two interest rates by the Federal Reserve may also further reduce interest rates, eventually but today they went up.  More on that later.  Even though the federal interest rates went down by 1/2 percent, do not expect mortgage rates to go down that much.  There are a great number of factors calculated in setting the interest rate on a 30 year loan, and the changes made by the Federal Reserve are to the rates on extremely short term loans that banks take out in order to maintain the proper amount of liquidity. 

It is not unusual for the interest rates on 30 year mortgages to anticipate what the Federal Reserve will do, so they went down last week.  Immediately after the announcement, they went up, but just slightly as you have to be well tuned in to even notice.  The rate before on a fixed 30 year conforming loan was 5.5%.  The rate on the same loan after was 5.5%.  The part that went up is the cost of the loan to originate.  The rates went up so slightly that the interest rate offered the customer did not change, but the cost of a $200,000 loan increased by about $250.  Most lenders will absorb that cost, so it looks to the consumer like the rate is the same, but it actually went up.  Doesn't it seems odd that a cut in the Federal Reserve rates designed to make loans more affordable would result in an increase in the cost of a 30 year mortgage?  But, if you understand that the market tries to anticipate the move of the Federal Reserve, then corrects when it actually announces its move, it will make more sense.   It is like they say in the Stock Market, "Buy on rumor, sell on news".

So, will this help Raleigh Real Estate?   Only indirectly, as the cost of a conforming mortgage did not change much, and most of our sales involve conforming loans (a loan of $417,000 or less).  The economy will be better, the prime interest rate will be better, the HELOC payments geared to the prime rate will be better, so there may be fewer foreclosures.  But, there are so few foreclosures in the Triangle area that I could only find one HUD foreclosure in our entire Multiple Listing Service.

In general, Raleigh real estate is in good condition, and it will stay in good condition or improve.  

Moving with Children... A Time to Clean!

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Posted by Sheri Moritz - Ok, Who decided that moving with children was a good idea?  As a Realtor myself, I see families pack up their family and lives belongings everyday and move them to a new house.  It looks like an easy task from the outside.  We, the agents, just get the paperwork signed and the family packs their belongings...Right?
Well, when I was in high school and college I was a waitress and thought everyone should do it once just to see what it is like to better appreciate what the servers are going through.  Maybe part of the real estate exam should be to see how well we Realtors handles a move of our own.  This might help agents better understand what our clients go through on a daily basis.
I have recently had to move my newborn and a 10 year old to a new house and I think that those that move a long distance have an advantage of limited space.  When you are moving local and can make several trips people seem to throw or give less away.  In my move I learned several things that I hope will help you whether you are moving with children or not.
1.  Prioritize what you really want and need to move with you!  Now is a great time to look in those boxes that have been in the attic for several years.  Do you really want or need these things.  Sometimes it seems easier to just pack that box into the truck and move it to your next home.  I found that if you post anything for free on Craigslist (www.Raleigh.Craigslist.org) that someone will come and pick it up.  This way you don't have to worry about an additional trip to the dump or goodwill.  Just set it outside, post an ad and someone will pick it up.  You can also try www.FreeCycle.com for a community of people who recycle what they do not want for free.
2.  Help Children Sort through their things ONCE!  That is right...ONCE.  This is my third move with my 10 year old and found the best thing to do is first have a discussion with her about the importance of giving to other children that don't have as much as she does.  Then I let her go through each of her toys and decide what is important to her, what she really uses and what would be a blessing to a child needing toys.  Of course our pile of give always is small, but I then go through them while she is not around and narrow the keeper pile to what I know she actually uses.  I allow her to look at the pile of stuff I don't think she needs anymore and have her explain why it is important.  With most of the toys she agrees that it would be better for another child and she really doesn't play with it.  But like most adults, children find it hard to let go of things even if they are not using them.
  
3.  Ask the Older Children to Help!  I found that children enjoy helping pack.  Although it may take longer sometimes it makes them feel better and more secure with the move if they have seen their belongings go into the boxes and then where the boxes go.  Most children fear a move and losing their belongings.  This allows them to feel more comfortable that the new house will have all of their things from the old house.  Most teenagers should be responsible for packing and unpacking their own room.  They too will feel more comfortable knowing where their belongings are and if you are a parent of one will understand..."you didn't touch their stuff".
4.  Get a Babysitter for Children Too Young to Carry Boxes!  You might have to pay a friend or a neighborhood teenager to help with this task, but is worth every penny in time.  Moving is very stressful without children running around and needing attention and food.  It is also a potentially dangerous place for them to be.  You will be able to cut your move time considerably if you don't have to manage the small children.  If you can’t find a sitter because they are all helping with the move you should plan to have things for the children to do, such as coloring.  Moving day might be a good time to rent a couple of good kid’s movies, get out some snacks and pack the tv and dvd player last!
5. Resort items at Your New Home!  Take a second look at the things you moved with you when you are unpacking.  If you have no place for it, don't plan to use it, but still moved it... This again is a great time for Craigslist or FreeCycle.  If it is valuable, sell it.  You are not under the same time pressure.  If you have a garage, don't bring items into the new house you don't plan to use.  This will encourage you to get the garage cleaned out and to donate or sell those things you are not going to use.
The closing to a blog like this can only be… Good luck! Moving itself is hard. But, moving with children allows us to show them our maturity to give to others, to prioritize what is important and needed, and how the unconditional love we have for them gives us patience to help with their stress from moving and the separation anxiety from the clothes and toys they have outgrown.J

Posted by Tim Burrell - One of the reasons for the decrease in the number of home sales in California, Florida and other high priced areas is the decrease in available financing.  The Triangle homes and houses in of the rest of the country are selling using loans that are associated with Fannie Mae and Freddie Mac, as they are able to stay within the limits allowed for those loans, so called Conforming loans.  The loan limit is $417,000.   Other loans are guaranteed by the FHA, with a lower limit of $362,000.  These programs do not do much for buying a home in California and Florida, unless you have a huge down payment.   But, those are the areas with an abundance of foreclosures.

Last week, an agreement was reached between the leaders of the House of Representatives and the White House to raise the Conforming Loan limit.   Some of the people involved in the agreement must not have taken good notes, as House Republican Leader John Boehner said they were raising the limit to $625,000 while House Speaker Nancy Pelosi said the limit would go up to $729,750, so the conforming loan limit for GSE's (Government Sponsored Entities)could be one or the other or someplace in between.  They were on the same page when they said that the FHA loan guarantee program would be expanded to a new limit of $725,000.  The increase in the conforming limit was supposed to be for one year, while the increase in the FHA guarantee would be permanent.

However, they forgot this thing called two house legislature, an idea that Thomas Jefferson, Ben Franklin and James Madison thought was important.  What about the Senate, the other part of the legislature?   Senator Richard Shelby of Alabama, a prominent member of the Senate Banking Committee, wants to tie the increase to the passage of legislation to increase the oversight of the GSE's.  That may work out, as the House of Representatives has already passed HR 1427, a bill that would provide for that increase in oversight.  Senator Chris Dodd of Connecticut, the chairman of the Senate Banking Committee, has stated he will support passage of legislation that would reform the oversight of GSE's and expects it to pass later this year.  So, if the Senate passes legislation similar to HR 1427, the oversight may come into effect, and maybe all parties will follow through with the increase in the loan limits. 

But, Senator Dodd wants to go farther by creating the Federal Homeownership Preservation Corporation, and fund it with $20 billion to purchase loans from lenders, allow homeowners to refinance into fixed rate government backed mortgages.  This proposal is designed to prevent foreclosures and allow more homeowners to keep their homes.   However, the White House does not want this added to the Stimulus Package, which is what Senator Dodd would like to do.

What will the White House do?  In the State of the Union Message tonight, President Bush urged the Congress to pass the legislation that would reform Fannie Mae and Freddie Mack, and modernize FHA.  He did not include anything about increasing the Conforming Loan limit.  He also urged the Congress not to add additional costs to the Stimulus Package, indicating he would oppose Senator Dodd's efforts to ceate the Federal Homeownership Preservation Corporation.  So, will the loan limit increase go into effect, or will it get bogged down in confrontation over the items in the Stimulus Package and reform of the GSE's and FHA?

If the Senate will get the oversight it wants and the White House gets the Stimulus Package it wants, then maybe  the House will get the increase in the limits it wants.  What will the nation get?

The National Association of Realtors estimates that if the limit of conforming loans is raised to $625,000, it will prevent between 140,000 and 210,000 foreclosures, as well as have a positive effect of 2 to 3 percent on home prices.   Those who oppose this legislation say it will  weaken the ability of the GSE's to help low and moderate income families.  Others warn that if this legislation passes and the conforming loan limits were increased, then it would increase the risk to the taxpayers just to benefit the wealthy.

Most Raleigh real estate can be purchased with the current conforming loans, and those Raleigh homes do not need the increase in the loan limit.  However, there part of the Raleigh real estate market that is slow is the part that is priced over $400,000.  So, increasing the conforming loan limits will make more financing available for that price range, which will help to decrease our inventory of higher priced homes.

The other benefit to increasing the loan limits will be to aid the markets in the areas with the largest amount of foreclosures.  If this decreases the number of foreclosures in those area, there will be less doom and gloom about the real estate market, and that will help all of us.

If the biggest problem with the economy is the lack of financing for real estate, you would hope that the politician would pass some legislation that would provide for more real estate financing, particularly for states like California and Florida, where most of the foreclosures are occuring.  It is only logical that if what we need is more financing for these areas that the politicians would provide that.   But, logic and government frequently do not coincide.  Lets hope they do this time. 

I enjoy your opinions, so feel free to comment. 

Posted by Tim Burrell

The Federal Reserve had an emergency meeting last night, the first action taken between official meetings since September 17, 2001.  At the meeting, they cut the Fed Funds rate by 3/4%, the largest one day cut in this rate since 1984, over 24 years ago.  This emergency action was taken because the stock markets around the world fell on Monday, while Wall Street was closed for Martin Luther King day, indicating that investors around the world thought the United States was facing a recession.  Furthermore,  US Stock Futures were trading much lower on Monday, indicating that the market was expected to take a nose dive

This is what they said: "The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent. The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets. The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully. Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."

So, the Federal Reserve stepped in to lower the Fed Funds Rate, which is the interest rate that is used when Banks borrow from each other to meet the reserve requirements.  This makes the cost of being a bank less expensive, as a bank can get up to the right amount of reserves and spend less when it borrows.

What does that mean to the Triangle and Raleigh Real Estate?  Will your 30 year loan go down by 3/4%?  No.

The rate may go down, as being a bank just became less expensive, and if the savings are passed along to you, the interest charged may be less.  However, setting the rate for a fixed 30 year loan has much more involved than the cost of short term borrowing from other banks.  In general, long term rates follow the Fed Funds rate, but not always.  If you want to see an explanation of many factors involved in setting long term mortgage rates and the correlation between Fed Funds rates and 30 year mortgage rates, take a look at this website http://library.hsh.com/?row_id=91

There are some borrowers that will benefit more directly from this action.  Homeowners with Home Equity Lines of Credit (nicknamed Heloc) where the interest rate is geared to the Prime Rate will see their interest rate go down.  Also, homeowners with Adjustable Rate Mortgages (ARM) will see the adjustment in their interest rates change in a more favorable manner.  But, the long term effect for thirty year rates remains to be seen.

In short, it is likely that interest rates will at least remain at historic lows, and may go even lower.  So, buyers of Raleigh real estate will be able to have lower monthly payments when they are buying homes in the Triangle.  Since the Triangle has a real estate market that is appreciating for good, fundamental reasons that primarily involve job growth, you get a good investment at a low monthly price.

If you want more information about real estate in Raleigh, please visit http://www.TeamForYOUrDreams.com and click on Search Listings found on the left button.  You will be able to see everything in one of the best markets in the United States.

I enjoy hearing what you think, so feel free to make a comment.  

Posted by Bob Rodwell

When a buyer and a seller come together and reach agreement on a contract, that may be the end of the home price negotiation, but it is just the beginning of the home purchase process.  As a Buyer's Agent, my job is to help the buyer get the best deal possible, not only on the contract, but on what follows.  That process can require even more negotiation with the seller than the contract did.  It helps if both the buyer and seller have been through that process before, but often one or both have not, or not in a long time.  So we may need some education.  That's why I'm writing on this topic.  There are three areas that frequently can generate some stress.

First comes the inspection process.  While the seller hopefully honestly disclosed known problems on the required Property Disclosure document, and the buyer (and I) looked over the property carefully before purchase, we need qualified experts to assess the condition of the home accurately.  In our area, that means selecting all or some of the following inspections: home, termite, radon, well and septic.  Others can apply in special circumstances.   The seller must provide reasonable access to the property to allow these inspections to proceed.  The buyer and seller can be present for the inspections, but need to steer clear and let the professionals do their jobs.

That leads to the repair negotiations.  The contract spells out the rights of both sides, but really, each party chooses whether to try to find a common ground, or to dig in and try to get or save every penny they can.  Sometimes, when one side seems to feel the only way they can win is to make the other side lose, it makes you wonder about being an agent!  Buyers should expect to have their options explained and their desires presented.   If the conditions support it and the contract allows it, that may include the option to walk away.  But assuming the objective is to acquire the home, the focus should be on reaching a fair conclusion to the repairs needed, not a wipe out of the other party.  If the seller feels they received a low price, they may not want to do any repairs.  If the buyer feels they paid top dollar, they will want everything done first class.  Somehow, we need to find a win-win.  Keep in mind that after you buy the seller will be telling your new neighbors what they think of you!

Once we get past that hurdle, that leaves taking possession.  Let's say the home owner had a dog, and lots of pictures on the walls.  The carpets looked good and so did the paint when you contracted to buy the home.  So they move out, you come by for the final inspection, and are taken aback by what the walls look like now that the pictures are gone, the carpet doesn't look so hot where the furniture was, and you got a couple flea bites walking through.  Does the seller owe you anything?  No.  When buying a pre-owned home, don't expect it to look new when empty.  The holes were in the wall when you signed the contract.  Plan to paint, maybe deep clean carpets, maybe take care of some other items that are easier to do before you move in than they would be after.  I've had sellers ask me, do I need to patch and paint the nail holes from those pictures?  Despite what I said above about painting, if the buyer does not intend to paint, it is best to leave those holes alone.  It is easier to cover the small hole with another picture than if the hole has been patched and painted, making a large area stand out.   When in doubt, talk it out!

Posted by Bob Rodwell. 

I have lived in Northwest Raleigh for 28 years, love it, and know it well.  And we won't be moving.  But if we were to consider somewhere else around Raleigh, my first choice might be Clayton.  Too far?  Not anymore.  Using the 64E Bypass and Smithfield Road, I can get from my NW Raleigh home to major subdivisions in Clayton in 40 minutes or less.  From those subdivisions to major downtown and Garner/Knightdale area amenities takes significantly less time.  But that's not why I like it. 

I have three primary reasons.  #1 - I think Clayton offers the best choices in homes priced $200,000-$300,000 - pretty much the sweet spot currently for families looking for reasonably-priced homes.  We can find homes on large lots (acre plus) to much smaller lots, volume builders (Centex, Lennar) offering a lot of square footage in a new home for the money to local custom builders offering more variety in floor plans, lots of new and recently built resales - in other words - homes you cannot find in NW Raleigh at anywhere near that price.  Now Clayton offers good values below and above that price range too, but I'm particularly fond of what is available there in that sweet spot.

#2 - Clayton is simply a nice town, with a relaxed atmosphere, but very pro-growth, and Johnston County planners have done a great job of keeping the infrastructure buildout at a pace to keep up with that growth.  Many subdivisions outside the city limits have county water instead of wells, allowing for smaller lots than if they had to handle both well and septic systems - a great approach.  Downtown is friendly and vibrant, with more shopping and restaurants coming to the area.  While some may view the coming 70-bypass just as a way to get around Clayton faster, I see it as a way to open up the area south of 70-business, much like 64-bypass is helping the north side.  And local planners seem to be quick to recognize issues, such as the strain growth generates on water supply systems, rather than burying their heads in the sand. 

#3 - the schools are good, new, and as close to being neighborhood schools as you will find near Raleigh.  You could live in the Riverwood PUD and walk to your elementary and middle schools, both on site.  Cleveland, Polenta, River Dell, Riverwood and others are modern facilities with well-deserved good reputations, and nearby subdivisions.  With more schools under construction, I think local planners are doing a great job of keeping up with the growth rate.  As my wife says, it's not just 2 miles from Crabtree Valley Mall like we are now, but it is closer to the beach!  I know I keep meeting people who live in Clayton and love it.  I think it's a winner.  

Posted by Tim Burrell - The amount of Venture Capital raised in the Triangle soared in the fourth quarter of 2007 to almost $325 Million according to the National Venture Capital Association.   For the year, companies in North Carolina received $720.3 million in investment funds.   To give you an idea of how strong the Triangle is, Triangle companies were over $500 million of that figure, raising the most they had since the year 2000.

Is that high?  The previous record was $259 Million in 1999, at the height of the dot-com boom.  This is more than 25% over the old record.  This infusion of cash will help many companies grow, creating new products, improved products and more high paying jobs.  Venture Capital is usually used by young companies to develop and market new products, as well as hire new employees.  The Venture Capitalists usually get an ownership share in the company in return for their investment.

This confidence in the brilliance of Triangle companies will increase the demand for quality homes as the companies produce more jobs and make the investors wealthy.  Since these companies need people that cannot be outsourced to India and the Philippines, they will have a long term effect on the prosperity of Raleigh and the rest of the Triangle.  In short, the jobs they create are stable in addition to being well paying.

Motricity lead the field by raising $185 million on venture capital, which was the biggest single amount ever raised by a privately owned Triangle company.   Motricity's software helps entertainment companies sell content for mobile devices.

The Triangle is now competing with Silicon Valley around San Jose and the Boston Area in terms of the amount of Venture Capital that is poured into the area.  The Raleigh Chamber of Commerce indicates that the Triangle is also the competition for Boston and Silicon Valley for technology, bio-tech, medical device and advanced fabric companies when they decide where to locate or relocate.  It used to be that Raleigh competed with Atlanta and other southern hubs for new firms.  Times have changed, so that Raleigh is in the big leagues, particularly for companies that need an abundance of highly educated members.

The Chamber has been particularly effective in recruiting such firms, as we have many top quality universities, producing large quantities of "smart people" necessary for these firms.  These firms are have a tremendous long term effect on the Triangle, as they cannot outsource what they need to develop and improve the products they create.  In other words, the jobs that they create here will stay here for as long as the companies stay here.  With good infrastructure, reasonable housing prices (cheap by Silicon Valley standards), good weather and a government that supports enterprise, the Triangle attracts not only record amounts of Venture Capital, but a steady increase in businesses that need "smart people."

For more information, you can visit the Raleigh Chamber of Commerce's website at http://www.RaleighChamber.org

Let me know what you think about this trend, as our Blog enjoys comments.

Posted by Tim Burrell - The pain may have been lessened for some "short" sales.  One of the problems with a "short" sale used to be that a seller had to pay income tax on the amount the payment was "short".  A "short" sale is where a home is sold and the seller does not repay the full amount of the mortgage, i.e. the payment is "short".  So, if you owed the bank $300,000 and you paid $250,000 when the sale closed, the $50,000 that you are short is taxed as ordinary income.  That could cost you $14,000 to the IRS and more to the state taxing authorities.

The Mortgage Forgiveness Debt Relief Act of 2007 was just signed into law eliminating the income tax for some sellers whose sales close between January 1, 2007 and January 1, 2010.   There are several requirements:

1. The property sold must be your principal residence, as defined in section 121 of the Internal Revenue Code.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

2.  The debt that is forgiven must be  "Qualified Principal Residence Indebtedness", i.e. the money used to acquire a principal residence.

3. There is a limit of Two Million Dollars for the amount of non-taxable Debt Forgiveness, a limit that will not affect anyone in the Triangle.

These rules raise some questions. The biggest one is what is Qualified Principal Residence Indebtness.   The law says "For purposes of this section, the term `qualified principal residence indebtedness' means acquisition indebtedness . . . with respect to the principal residence of the taxpayer."  So, if you refinanced the house for more than what you owed and took money out to spend on other things, that additional amount is not covered by this law.  For example, you had a loan of $200,000 when you bought the house.  You refinanced it with a loan of $400,000, and used the additional money to pay off your other debts.  If you sell the home and pay $350,000 instead of the $400,000 debt,  this new law does not protect you from paying income tax on the $50,000 that was "short".  If you take out a mortgage to buy the house, refinance it for the amount owed on that mortgage (and no more), then your payment to pay off the mortgage is $50,000 short, you will not pay tax on that amount.

Another question is do you need to have lived there for 2 years out of the five years before your home is sold, as that requirement exists to establish a home as your principal residence in order to avoid paying tax on the gain when you sell your primary residence.   It does not make sense to impose that requirement based on the purpose and intent of the legislation, but there is a lot of the Internal Revenue Code that does not make sense.

One more question is what happens if you refinance the home and use the additional funds to remodel the home.  Normally, that would increase your basis in the home, so it would decrease your tax liability if you sold the house.  So, it would be logical to allow this type of refinancing to be subject to the protection of the new law.  Again, it is hard to rely on logic when dealing with the IRS, so I hope there are some regulations developed to interpret this situation.

The amount of forgiven debt that is not taxed is subtracted from the basis of your next house, so that when you sell it, you have to recognize more gain on that sale.  For example, you go short by $75,000 when you sell a home, you buy another one later for $400,000.  Your basis is not $400,000, but $325,000 as the $75,000 is subtracted from your basis.  So, when you sell it, you will have $75,000 more gain.  Remember, there is an exemption from tax for $500,000 of gain for a married couple filing jointly, so this amount of additional gain could be covered by this exemption.  Even if it is not, if you make more than $500,000 in gain and have to pay some tax, you should not cry.

One other good thing this law did was to extend the deduction for the payments for Mortgage Insurance to 2010.  We used to avoid Mortgage Insurance in sales that did not have 20% down payment, as it was not deductible.  Now it is.

It is hard to find the text of the law, but here is a link to how it looked when it passed, so you can read it for yourself. http://tinyurl.com/2qdnwj .   This law is so new, and in need of interpretation, that if you find yourself in this situation, you need to consult a tax professional before you sell.

So, for people who bought a home, did not refinance it for more, and sold it for less than they owed, there is no income tax due on the short sale, so long as the sale is less than two million dollars short.  This legislation eliminates one of the most miserable parts of a short sale, as it was obnoxious for a homeowner to loose all their equity, have to sell their house, and then get a tax bill.

If you have any thoughts on this, I enjoy comments.

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Team For Your Dreams, Inc.
REMAX United
7721 Six Forks Road, Suite 110, Raleigh, NC 27615
Raleigh NC 27615
919-846-3272
919-812-5111
Fax: 310-347-4041