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Heller Real Estate Report

October 2012 
Short Sales Become More Difficult – Service Released Short Sales

More and more short sale transactions are now getting service released.  What does this mean?  The “lender” that is actually servicing the loan sells the servicing rights to a new company for a fee.  The new company is now responsible for collecting payments, disbursing escrow funds, and monitoring/enforcing the performance of the loan.  How does this impact a short sale?

  • When a short sale that is in the midst of being negotiated transfers to a new servicer, the process starts from the beginning with the new servicer.  It doesn’t matter what progress had been made prior to the file being service released; the entire process starts over.
  • If a short sale was approved with a servicer who then service releases the loan to a new servicer, the approval becomes null and void.  The new servicer will not recognize or abide by the approval issued by the previous servicer.
  • If the original servicer had determined that the short sale was eligible under HAFA or Cooperative guidelines, the new servicer will have to complete their own eligibility testing.  The HAFA/COOP eligibility determination completed by the original servicer cannot be applied toward the new servicer’s review of the short sale.
  • If documents have been submitted to the original servicer, they will not be transferred to the new servicer that purchased the servicing rights on the file.  The seller will need to provide updated documents and “lender specific” docs to the new servicer.

Who is service releasing the most short sales right now?   Bank of America.  Who is purchasing the most servicing rights at this time?  NationStar, SLS, Real Time, Ocwen, and Select Portfolio.

The challenge is that the servicers who purchase servicing rights obviously have to pay a fee (simplistic terms) to the old servicer for these rights.  For this reason, the new servicer must draw a hard line on their acceptable net on the short sale in order to make a profit.   The companies purchasing servicing rights (listed above) allow less fees that are paid on behalf of the seller and sometimes require higher nets on the short sales in order to compensate for the fee that they paid to purchase the loan from the old servicer.

If you have a short sale that has been service released, you can expect the process to start from the beginning, and the new servicer to be more strict with offer prices, allowable fees, and allowable net.

New Pennsylvania Act:                
E-Verifying Employees

On July 5, 2012, the Public Works Employment Verification Act  (No. 127) was signed into law by Governor Corbett.  The Act is effective as of January 1, 2013 and applies to all public works contracts in Pennsylvania of more than $25,000.00.  The Act creates new employee verification requirement for all public works contracts.

The Act requires that all public work contractors and subcontractors use E-Verify, an internet-based system, to verify the employment eligibility of its new employees.  E-Verify compares the employee’s information with information from the Department of Homeland Security and the Social Security Administration.

In order to be awarded a public works contract,  a contractor must submit a signed verification form acknowledging, under penalty of perjury, that the contractor verified the employment eligibility of all new employees through E-Verify.  The verification form will be available online by the Department of General Services before the end of the year.

A public works contractor who fails to verify employment eligibility through E-Verify or fails to provide the verification form can be subject to a warning letter from DGS for a first violation.  A second violation will result in the contractor’s debarment from public works for 180 days to one year.  There are additional sanctions for willful violations of the Act.  A contractor can also be subject to civil penalties, ranging from $250 to $1,000 for each violation, for failing to use the verification form or for making false statements on the form.  Contractor are not liable for violations by their subcontractors.

To See the Act

Medicare Contribution Tax: 
3.8%

One of the most important new areas of concern for year-end tax planning in 2012 is the 3.8 percent “unearned income Medicare contribution” tax on higher-income individuals, estates and trusts.  Taking effect immediately on January 1, 2013, the Medicare surtax will be imposed on the taxpayer’s “net investment income” (NII) and will generally apply to passive income.  The Medicare surtax also will apply to capital gains from the disposition of property.  The Medicare surtax will not apply to income derived from a trade or business, or from the sale of property used in a trade or business. For individuals, the Medicare surtax will apply to the lesser of the taxpayer’s net investment income or the amount of “modified” adjusted gross income (AGI with foreign income added back) above a specified threshold.

Net Investment Income

Net Investment  Income (NII) for purposes of the 3.8 percent Medicare Surtax includes:

-Gross income from interest, dividends, annuities, royalties, and  
  rents provided this income is not derived in the ordinary course  
  of an active trade or business.

-Gross income from a trade or business that is a passive activity  
 (within) the meaning of Code Sec. 469);

-Gross income from a trade or business of trading in financial
  instruments or commodities; and

-Net gain (taken into account in computing taxable income) from
  the disposition of property, other than property held in an active trade or business.   

Additional 0.9 Percent Medicare Tax

Effective January 1, 2013, higher income individuals will be subject to an additional 0.9 percent Medicare tax.  This additional Medicare tax should not be confused with the 3.8 percent Medicare surtax, also enacted as part of the Affordable Care Act.  The additional Medicare tax means that the portion of wages received in connection with employment in excess of $200,000 ($250,000 for married couples filing a joint return and $125,000 for married couples filing separately) will be subject to a 2.35 percent Medicare tax rate.  The additional Medicare tax also attaches to self-employed individuals.

PGW to Give Landlords Warning of Impending Liens

Philadelphia Gas Works announced a new program to give commercial landlords 30-day warnings that the utility company is going to place liens on their properties because of deadbeat tenants. The Commercial Lien Notification Program gives advanced notice to a registered landlord if a property is at risk of getting a lien to recover unpaid tenant gas bills. Landlord groups and Philadelphia REALTORS had requested that PGW warn them about impending liens. PGW also has a program for owners of residential properties to avoid penalties because of tenants in arrears. For more information, including eligibility requirements,  See PGW Works 

Source: Philadelphia Inquirer; 10/2/2012

October 2012 Applicable Federal Rate

See Rev. Rule 2024: Use Table 1