Ordinarily, if a borrower has debts forgiven outside of a bankruptcy, the amount of the forgiven debt is taxable income. This makes perfect sense if you think about it. If one party gives another money, it is either a gift or it’s income. Even if it’s a gift, if it’s over a certain threshold, the government taxes it as income, largely to prevent wealthy people from avoiding inheritance taxes.
When a borrower gets a large amount of money from a lender, it’s not income because the money is repaid. If it isn’t repaid, it’s either a gift or it’s income. Anyone who received debt relief from a lender between 2007 and 2012 was able to treat the money as a gift. It was truly free money. There’s no good reason we should be subsidizing those receiving these free-money gifts from lenders, but if we hadn’t, the overhanging tax bills would be dogging debtors for years. For as much as I would like to see that happen to Ponzis, it’s not a fate commensurate with the crime of those who simply timed the market poorly.
Like many others, I assumed this tax break would be extended in perpetuity. There are a number of other consequences to individuals and the entire housing market. If it isn’t extended, it will force many people into bankruptcy. Also, anyone who signed up for a loan modification rather than a short sale or strategic default had better keep paying. The consequences of short selling or defaulting later will be much more severe. A great many loanowners signed up for loan modifications under HAMP 2.0. Most of those modifications will at least make it into 2013 before they implode or otherwise need to sell. With no tax forgiveness on a short sale, even fewer people will be able to sell their homes which will exacerbate the inventory shortage we have today.
Housing Alert: Short Sales May Be in Big Trouble
CNBCBy Diana Olick | CNBC — 9/28/2012
As lenders plow through a backlog of over five million delinquent mortgages, short sales are becoming an ever more popular escape route. A short sale is when the bank allows a home to be sold for less than the value of the mortgage. The bank takes the loss, but that loss is generally less than a more costly foreclosure.
While prices were going down, lenders often lost less on short sales, but once prices begin to rise, the opposite will be true. Short sales take much longer to complete that REO sales after a foreclosure. Both may go into escrow with a similar market discount, but when prices are falling, the longer duration of a short sale means it sells for more relative to comps at the time of sale. In a time of rising prices, the short sale discounts get deeper as time goes on causing a loss even larger than an REO.
The government has been pushing more short sales at Fannie Mae and Freddie Mac through financial incentives, and banks are streamlining the process. Short sales have been gaining so much steam, they actually surpassed sales of foreclosed properties last spring, according to LPS Applied Analytics’ Home Price Index. But all the progress that has been made could end abruptly.
A short sale is debt forgiveness. Debt forgiveness is taxable. In order to help the huge volume of troubled borrowers and promote more short sales, Congress in 2007 passed the “Mortgage Forgiveness Debt Relief Act and Debt Cancellation.” The debt forgiveness from a short sale or a mortgage principal reduction would no longer be taxable. That act is part of many Bush era tax cuts that expire at the end of this year. Without an extension, short sales would grind to a halt, as might mortgage modifications that involve principal reduction.
Is that a realistic scenario? It will certainly make it less desirable to short sell. It will likely prompt more strategic default as many who would like to sell either stop paying and move on, or they stop paying and squat until foreclosure. If there is a tax consequence either way, the greater benefit comes from squatting until foreclosure, particularly if prices are rising and they end up owing less tax if they wait.
I foresee some epic challenges over the junk fees lender pile on to delinquent loans. Many people believe they walked away from $50,000 to $100,000 in debt only to find out later the final amount was closer to $250,000 because the lender tacked on late fees, lost interest, service fees, and other foreclosure expenses. The tax bills will be much, much larger than many anticipate.
“Realtors believe if the legislation is not extended, households who are already struggling to pay their mortgages will be further burdened with tens of thousands of dollars in additional taxes that they probably can’t afford to pay because the IRS would count the cancelled debt as income,” said Jamie Gregory, a lobbyist for the National Association of Realtors.
With the tremendous benefit these people are getting with the debt forgiveness, I can’t feel too sorry for their tax “burden.”
Short sales and mortgage principal reduction are the foundation of the $25 billion mortgage servicing settlement signed early this year by the nation’s largest lenders and state attorneys general. As of the end of August, first lien principal reduction trial modifications were offered and begun for about 28,000 homeowners, totally approximately $3 billion of potential relief, according to the settlement monitor, Joseph A. Smith. Banks have granted $10.6 billion in consumer relief, which would include short sales. More than a quarter of a million short sales were completed in the first half of 2012, according to RealtyTrac.
One of the reasons our inventory is so low is because many pending short sales were approved once lenders go credit for these under terms of the settlement.
So what is the possibility of congress extending the tax relief? One Hill-watcher puts it at 60-40. The Senate Finance Committee passed a package of tax extenders right before the recess, including a one year mortgage relief extension, but leadership in the House of Representatives has not figured out how it wants to handle these extenders. With the looming “fiscal cliff,” tax cuts are an increasingly tough sell. This particular extension does have bipartisan support, but that doesn’t always mean passage in Congress, especially around a presidential election.
I wrote about the difficulties of the upcoming tax debate in Will rising taxes force housing over the fiscal cliff. I would be pleasantly surprised if this tax break were not extended.
“It could be an uphill fight to get this passed this fall, as it will likely get caught up in larger debate of over taxes, deficits and the financial cliff. But we believe that it is a helpful provision for distressed borrowers, as getting a tax bill on forgiven debt can be another punch in the gut for families who are already facing financial hardship,” says David Stevens, president and CEO of the Mortgage Bankers Association.
Rep. Jim McDermott (D-WA), who introduced legislation last March to extend the tax relief for three years said in a release, “Collecting federal income tax on relief intended for struggling homeowners is not only bad policy, but is simply wrong.”
No. Giving tax relief to millions who foolishly overextended themselves is simply wrong, particularly for the Ponzis. I could endorse a tax forgiveness on purchase-money mortgages even though some of those people foolishly over-borrowed because many victims of bad timing would be helped. I can’t endorse any tax break for Ponzi borrowers who tapped their home equity to fuel consumer spending. What possible justification is there to give Ponzis a subsidy?
With great uncertainty as to the fate of the tax relief, some say short sales could get a boost this fall. Borrowers and banks alike may rush to get in before the expiration, which could help boost overall home sales numbers.
I don’t think that is going to happen. If they haven’t listed it yet, there probably isn’t time to complete the short sale before the end of the year anyway. If this tax break isn’t extended, the chronic shortage of MLS inventory will continue, and people who sell short or obtain relief in the future will be really hosed. I suspect large numbers will fail to report these taxes and take their chances.
Today’s featured property was purchased for $207,000 on 9/22/1999. The owner used a $201,974 first mortgage and a $ 5,036 down payment. She refinanced in 2004 with a $274,900 first mortgage and again on 10/5/2006 with a $371,000 first mortgage. She couldn’t afford the payments and fell into foreclosure early this year.
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Proprietary OC Housing News home purchase analysis
$369,900 …….. Asking Price
$207,000 ………. Purchase Price
9/22/1999 ………. Purchase Date
$162,900 ………. Gross Gain (Loss)
($16,560) ………… Commissions and Costs at 8%
============================================
$146,340 ………. Net Gain (Loss)
============================================
78.7% ………. Gross Percent Change
70.7% ………. Net Percent Change
4.4% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$369,900 …….. Asking Price
$12,947 ………… 3.5% Down FHA Financing
3.51% …………. Mortgage Interest Rate
30 ……………… Number of Years
$356,954 …….. Mortgage
$108,532 ………. Income Requirement
$1,605 ………… Monthly Mortgage Payment
$321 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$92 ………… Homeowners Insurance at 0.3%
$372 ………… Private Mortgage Insurance
$414 ………… Homeowners Association Fees
============================================
$2,804 ………. Monthly Cash Outlays
($239) ………. Tax Savings
($561) ………. Equity Hidden in Payment
$14 ………….. Lost Income to Down Payment
$66 ………….. Maintenance and Replacement Reserves
============================================
$2,085 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,199 ………… Furnishing and Move In at 1% + $1,500
$5,199 ………… Closing Costs at 1% + $1,500
$3,570 ………… Interest Points
$12,947 ………… Down Payment
============================================
$26,914 ………. Total Cash Costs
$31,900 ………. Emergency Cash Reserves
============================================
$58,814 ………. Total Savings Needed
The property above is available for sale on the MLS.
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45 Responses to “The debt forgiveness tax break may not be extended”
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With regard to the various moratoria, HAMP and other bureaucratic delay tactics of desperation, once the election concludes and the dust settles, the upsides will have been maximized. Thus, the time for lenders to inform debt-serf peons they are about to be foreclosed upon is nearing.
Sometime shortly after the election, the major banks will have reached their settlement quotas. When that happens, they will start foreclosing on the committed squatters in earnest.
Here in Vegas, people seem to be to stunned to move, and continue to squat despite the big tax bill that’s in their future.
Most people will opt to do whatever’s in their short-term best interest. When they must face the long-term consequences of their decisions, most will seek to avoid taking responsibility. I’ll bet most of these people will simply fail to report the income and take their chances with the IRS.
The problem with that strategy is the banks are also required to report the forgiveness to the IRS. The borrower gets a 1099C and if they “forget” to report the amount forgiven, the IRS will give them a kindly reminder.
To complicate matters, I doubt banks will give out many 1099s. They will sell this zombie debt to collectors to hound these people. The actual 1099s may not come for years in the future, and only after the zombie debt collector gives up.
Bad news for Nevada sellers; good news for buyers.
http://bit.ly/QFyLHu
By Tim O’Reiley
LAS VEGAS REVIEW-JOURNAL
Posted: Oct. 1, 2012 | 2:04 a.m.
Supreme Court gives banks foreclosure win
The Nevada Supreme Court has sided with banks by validating a key cog in the foreclosure enforcement machinery that has sparked legal disputes all over the country.
In a 26-page ruling delivered Thursday, all seven justices agreed that hundreds of thousands of home mortgages in the state involving the Mortgage Electronic Registration System Inc. could be put into foreclosure after technical adjustments…continues
MERS seems to be winning 9 out of 10 cases filed against them. I think it’s safe to start viewing these lawsuits as stall tactics rather than anything based on sound legal theory.
I hope this finally restarts the foreclosure machinery in Las Vegas. Since November of 2011, the process has largely been stalled. Almost all foreclosure proceedings since then have been brought by HOAs. The banks basically stopped. With 100,000 delinquent mortgages, they have a lot of work to do.
Do you think they will let the tax break expire, because now GSE’s will push these REO to Rental programs? So, out goes the bank settlement (lenders fulfill their quotas) and in comes the REO to Rental programs.
That will be part of it, but the government will also want to maximize tax revenues in the face of soaring deficits. If they let this break expire it will largely be due to a need for more tax revenue.
Very True. Two other test will that I look out for:
1) Will congress increase the mortgage tax?
2) Will Mortgage Interest Deduction ceiling will be lowered for from $1.1 million?
Housing Can’t Save the Economy
Both existing and new home sales are on the rise, but no amount of improvement in the housing sector will bring relief to the overall economy, which continues to struggle, according to Capital Economics.
Existing home sales rose 10 percent from January to August, and new home sales rose 30 percent over the same period.
These numbers may continue to be strengthened by the Fed’s QE3 announcements, which instigated a decline in the mortgage-backed securities yield from 2.4 percent to 1.7 percent.
Economists at Capital Economics suggest this may bring the 30-year fixed rate mortgage rate even below its most recent record-low of 3.6 percent. The economists envision a possible decline to 3.3 percent.
While this may entice more home buyers, “the bottom line is that housing is unlikely to become a significant driver of GDP growth,” Capital Economics states.
The reason, Capital Economics points out, is that housing makes up too small a portion of GDP to have a major impact.
Residential investment made up 2.4 percent of GDP in the second quarter of this year. This is just half the long-term average and well below the 6.3 percent peak recorded at the end of 2005.
The cumulative effect of the past five consecutive quarters of residential investment growth has been a 0.2 percentage point rise in annualized GDP growth.
Thus, while the housing sector may celebrate small victories such as rising sales and an increase in housing starts, the overall economy continues to struggle with unemployment above 8 percent.
19% appreciation next year in Orange County? LOL
Pro Teck Ranks Top Markets, Says Foreclosure Flood Won’t Happen
Investors who are eagerly waiting for bargain prices from the potential foreclosure flood are likely waiting for something that won’t happen, according to the September home value forecast report from Pro Teck Valuation Services.
In the report, the company explained why it believes there will be no such flood.
“With regard to the U.S. foreclosure inventory, there has been a misperception that it is a problem for the entire market. In fact, it is quite concentrated in specific cities and neighborhoods,” said Tom O’Grady, CEO of Pro Teck Valuation Services. “For this reason, potential buyers who have been waiting for bargain prices in desirable neighborhoods may be disappointed.”
Instead, the report focused on the current lack of inventory in San Diego, Orange County, and Los Angeles.
Overall, Pro Teck found that all three areas have less than 5 months of remaining inventory left.
“This is significant because in the Los Angeles market over the past 25 years, whenever this indicator was below five months, the median price increased by close to 19 percent the following year. Of course, it remains to be seen if the same appreciation happens again,” said O’Grady.
The report also analyzed price per square foot and months of remaining inventory in the three areas and found that the lowest priced areas have the lowest levels of inventory.
The report included a list of the 10 best and worst performing metros based on the company’s market condition ranking model.
The list of the top performing markets is based on a several indicators, such as changes in sales, foreclosure sales, prices, and inventory.
The reported noted that one common characteristic of the top markets is they all have experienced significant declines in active listings over the past year.
Top CBSAs
Oxnard-Thousand Oaks-Ventura, California
Seattle-Bellevue-Everett, Washington
San Diego-Carlsbad-San Marcos, California
Los Angeles-Long Beach-Glendale, California
Santa Ana-Anaheim-Irvine, California
Houston-Sugar Land-Baytown, Texas
Baltimore-Towson, Maryland
Fort Worth-Arlington, Texas
Austin-Round Rock-San Marcos, Texas
San Antonio-New Braunfels, Texas
Bottom CBSAs
New Haven-Milford, Connecticut
Bridgeport, Stamford, Norwalk, Connecticut
Augusta-Richmond County, Georgia-South Carolina
Rochester, New York
Spokane, Washington
Portland-Vancouver-Hillsborough, Oregon-Washington
New York-White Plains-Wayne, New York-New Jersey
Edison, New Jersey
Nassau-Suffolk, New York
Newark-Union, New Jersey-Pennsylvania
Wow, that’s incredible, Pro Teck exec’s believe sales will shift to 19% pricier areas of OC next year. I’ll alert the mainstream media.
IR – I’d imagine you would have laughed had somebody predicted the OC median to be 7% higher at this time last year.
Probably. I certainly didn’t think the banks woutd withhold all the inventory from the MLS to drive up prices.
The median might go up again, particularly if the low-end inventory is removed from the market. The change in sales mix is largely responsible for the 7% increase this year. If no low-end sales occur, the rise in prices could be significant. I will prefer to see what my reports based on the $/SF say is going on. The smoothed $/SF numbers I track are just about to turn positive YoY.
It’s a double-benefit for borrowers like me. Low mortgage rates are aiding other factors in raising house prices. As prices rise, and rates go lower, we may be able to refi into a 30-year 3% mortgage in 2013 without spending additional cash to bring the principal down.
As you can clearly see below, malinvestment continues to pile-up, especially in the bubble counties.
http://static1.businessinsider.com/image/5059f67beab8eaac36000000-590/the-proportion-of-mortgages-originated-between-2008-and-2011-that-are-seriously-delinquent-90-days-is-rising.jpg
The “experts” have all been touting the increase in credit quality from new loans, yet the 2009 vintage loans — when the market was supposedly at the bottom — are showing seriously delinquent rates in excess of 10%. And the 2010 and 2011 delinquency rates are tracking on the same rate.
For all the complaints about tightening credit standards, this graph clearly shows credit needs to tighten further.
el BOGEY’s graph appears to be FHA only. Many of the early ’09 vintage loans have been streamline refinancing out, leaving a higher proportion of severely delinquent loans behind to skew delinquency percentages.
I’ll give him points for spin value though.
The RE market and economy are on life support:
0% fed funds
fed monetizing debt to keep interest rates low
mark to delusion accounting
subsidy, subsidy, subsidy
No amount of graphs or stats (bullish, bearish, spun or unspun) can change this fact.
There’s a not so subtle irony present when you yourself reference someone elses post utilizing words like ”skew” and ”spin”….
….and hilarity ensues.
PS: estancia sed mi amigo
matt138-
The bottom line is you can wish for a pure economic system or you can play within the system we have. I vote for a pure system at the ballot box, but invest based on the system we are stuck with.
Fighting the Fed is a loser’s game and the shorts have gotten killed since March ’09 trying to outmaneuver the Fed. This includes el BOGEY, somebody that I tried to warn in real time as wave after wave of subsidies was being rolled out. He can respond with cute replies, but he can’t dispute the numbers. Facts are indeed stubborn.
It’s looking more and more foolish to bet against the Fed lately. When they basically pledge unlimited support in the form of interest rate subsidies until unemployment is reduced and house prices go up, it’s hard to bet against that kind of pressure. This is the bazooka on auto reload.
MelloRuse says: “Fighting the Fed is a loser’s game”
—————————————————————-
Total rubbish!
Sorry to rain on your sheeple’s parade, but… the following chart proves without a doubt that fighting the fed is actually a winners game.
http://www.kitco.com/LFgif/au00-pres.gif
Indeed, facts ARE stubborn.
“don’t fight the fed” ?? LOL
SFR’s priced in gold…
http://pricedingold.com/charts/CSXR-1987.png
Perhaps fighting the Fed is the wrong analogy. You can certainly out maneuver the Fed, but taking them on in a full frontal assault can be costly. Buying commodities is out maneuvering the Fed. IMO, buying homes in beaten down markets is also. They are still hard assets likely to benefit from the stimulus.
IR.. yeah, I hear ya, just giving my good friend MR a little factual ‘stick-poke’. B-)
IR,
The new loans do havve high quality. Not from the borrwers, but for the defacto co-signers — the GSE’s and therefore the US govt.
The economy will be in the duldrums with high stock prices until enoght liability is transfered. I never though the Fed would exend the buy out or transferring of liability for this long. It actually causes high unemployment, but what politicians care when you can fool the sheeple so easy while selling their children into indentured servitude.
You have a point. From an investor’s point of view, the credit quality is excellent. The government won’t default because they will just sell more bonds which the Federal Reserve will buy at whatever price they ask.
Can’t wait for the elections to end and the pandering to stop. Kick the squatters out. Late 2013 is when I hope to get a place.
Hopefully, it 2013 with no elections to face, we may make some progress on foreclosures. There are about 100,000 people not paying their mortgages in Las Vegas. That’s a lot of supply if it ever makes it to the market.
Shiller Data Questions Housing Revival Power
Sept. 28 (Bloomberg) — Don’t bet the house on a robust revival of the U.S. property market, says the Yale University professor who predicted the bursting of the dot-com and subprime-mortgage bubbles.
There is no “unambiguous” sign of a strong recovery in the market, Robert Shiller and fellow economists Karl Case and Anne Thompson say in a paper published this week by the National Bureau of Economic Research. The study seeks to shed light on the role buyer expectations play in house prices, an angle the authors say has been ignored in analyzing the housing slump.
The results of their work, entitled “What Have They Been Thinking? Home Buyer Behavior in Hot and Cold Markets,” are based on the responses of almost 5,000 recent homebuyers in four cities to regular mail surveys over the past 25 years.
The answers to the latest questionnaire indicate that while perceptions of short-term price direction have turned positive, long-term expectations continue to weaken.
The upshot for Shiller and his colleagues is that while “a recovery may be plausible, and home prices have been rising fairly strongly in recent months, we do not see any unambiguous indication in our expectations data of sharp upward turning point in demand for housing that some observers, and media accounts, have suggested.”
Shiller’s views carry weight: He forecast the end of the Internet bubble in his 2000 book “Irrational Exuberance.” He said in a second edition in 2005 that the U.S. housing market had undergone the biggest speculative boom in U.S. history. The Arthur M. Okun professor at Yale, he’s based in New Haven, Connecticut, while Case is professor emeritus at Wellesley College in Massachusetts. Thompson is an economist at McGraw- Hill Construction in Boston.
Case and Shiller are also the creators of a key U.S. real- estate benchmark, the S&P/Case-Shiller index of property values in 20 cities. This week the index showed home prices in the U.S. climbed more than forecast in July from a year earlier, adding to signs that housing will spur economic growth.
In reviewing a quarter-century of data, the study concludes home buyers were “very much aware” of trends in prices when they made their purchase and that there’s a “strong correlation” between how survey participants describe the market and actual price movements.
The authors found long-term price expectations have been consistently more optimistic than those for the short term across the years and locations, although the magnitude of the differences fell to 0.8 percent this year from a high of 8.3 percent in 2008.
Gary Thomas NAr president… funny and insightful on so many levels. One big turd leading the giant turd thta is the NAr.
Finances shadow Realtor’s leadership
By JEFF COLLINS / THE ORANGE COUNTY REGISTER
Real estate broker Gary Thomas believed he could make a difference.
And for over more than two decades, he did.
Orange County broker Gary Thomas will be sworn in as president of the National Association of Realtors on Nov. 8 at NAR’s annual convention in Orlando, Fla.
By applying his powers of “strategic thinking,” the Mission Viejo Realtor helped streamline his profession, consolidating a balkanized collection of small associations and listing services into bigger, more efficient groups.
He formed for-profit business units to help subsidize Realtor operations and he created standardized forms to improve the industry’s professionalism.
He did it first in Orange County, then throughout California. Now, he’s training his sights on the nation.
On Nov. 8, Thomas, 68, will be elevated to the highest office in realty, taking the oath as the 2013 president of the National Association of Realtors. He will be the first NAR president from Orange County in at least 84 years.
“I can make a difference,” Thomas said at his real estate office in Villa Park last week. “A lot of leaders come in and are on autopilot. I like to come in, look ahead and make things even better.”
But others say Thomas is unfit to lead the nation’s foremost real estate group because he filed for personal and corporate bankruptcy in the past 17 months, walking away from millions of dollars in debts.
“Is there credibility in this person leading our industry and being the voice for 1 million-plus (NAR) members?” asked RE/MAX President Vinnie Tracey, who’s so opposed to Thomas becoming president he asked the NAR board to give him the boot.
“The NAR president should be the best and the brightest. He should be a pillar of the industry and be beyond reproach,” Tracey said.
Supporters counter that you can’t blame a Realtor for misfortunes suffered in the worst real estate crash in 70 years.
“I’ve dealt with so many people that have had significant business reversals in the last five years,” said Joel Singer, executive vice president of the California Association of Realtors and a 25-year acquaintance of Thomas’. “That, to me, is unfortunate, but hardly unique.”
Sales acumen
Gary Okla Thomas was born in Joplin, Mo., and grew up in Manhattan Beach.
He got his middle name from his dad, named by an Oklahoma teacher who was a Sooner through and through.
Father Okla Thomas’ twin brother’s name? Homa.
Thomas got his real estate acumen from his parents, who ran Sea Realty in Manhattan Beach.
Thomas had been working for State Farm Insurance for about 10 years when co-workers at the Santa Ana office became curious about his life as a resident of Mission Viejo, a new town when Thomas and his wife, Frances, moved there in 1969.
“I would bring them down and show them around,” Thomas said. “I thought, ‘Well, maybe I should get my (real estate) license and sell.’ ”
He did, and after just six months, he was making twice as much in real estate as he was at his day job. He soon quit State Farm, and within 10 years, was running his own RE/MAX office. Eventually, he owned 14 RE/MAX offices from Aliso Viejo to Anaheim Hills.
Making a difference
In the mid-1980s, Thomas was asked to join the budget and finance committee of what was then the Saddleback Board of Realtors.
Through the years, he rose through the ranks, becoming Saddleback’s treasurer and president, a board member of the California Association of Realtors and, in 2001, the statewide association president.
He kept at it because he enjoyed the work and because he made a difference.
Thomas became a leader in the battle to merge eight to 10 separate Realtor boards into today’s two dominant groups – the Orange County and the Pacific West associations of Realtors.
He also got involved in merging separate multiple listing services, or MLS’s, first in Orange County, then in the state as a whole.
When NAR began forming a committee to link efforts of MLS’s nationwide, Thomas was named its chairman.
“Gary was very instrumental in planting the seeds for a statewide MLS. He was the one behind it,” said Nancy Gilmore, CEO of the Pacific West Association of Realtors.
Bankruptcy and debt
But the housing crash of the past seven years hit Thomas’ business hard.
To save money, Thomas quit RE/MAX and formed his own chain, Altera Real Estate.
In late 2008, RE/MAX sued Thomas for failing to pay more than $1.7 million in fees and dues owed under his franchise agreement. He settled out of court for $1.2 million.
Court records show several lawsuits filed by landlords accusing Altera of failing to pay rent.
In January 2011, an Altera Real Estate agent sued Thomas, accusing him of failing to pay $128,000 in commissions she had earned from the sale of five homes. When she asked for payment, Thomas told her Altera had used her commissions to cover operating expenses, the lawsuit said.
Fifteen days after the agent sued, Thomas’ corporation filed for bankruptcy. He filed for personal bankruptcy this past June.
The combined personal and corporate debts from the two bankruptcies totaled $13.2 million, while the combined assets totaled $1.7 million.
Thomas’ creditors likely will get pennies on the dollar when the bankruptcies are completed.
In May 2011, Newport Beach Realtor and landlord Bill Cote sued Thomas for failing to pay about $58,000 in rent for an Altera office in Corona del Mar, court records show. Because of the bankruptcy, Cote hasn’t been paid.
“He was a payment problem nearly from the moment he took occupancy,” Cote said recently. Thomas denied the accusation.
After the bankruptcies, Thomas’ empire shrank to one Evergreen Realty office in Villa Park. In June, he sold his Coto de Caza home for less than he owed on it and moved into an apartment. He said it may be a year or two before he can become a homeowner again.
Questions raised
RE/MAX’s Vinnie Tracey said he began advocating in January that NAR prevent Thomas – now the president-elect – not be elevated to president.
Last March, he met in Chicago with NAR Executive Vice President Dale Stinton, NAR President Maurice Veissi, past President Ron Phipps and other board members and made his final pitch.
“I don’t think this is good for the industry,” Tracey recalled telling the NAR brass. “We have an obligation to let people know who (Thomas) is. I’m the guy standing up for what’s right.”
NAR President Moe Veissi said a long and arduous vetting process took place over years before Thomas was picked for president and that an additional inquiry was launched in response to Tracey’s concerns. Thomas answered questions to the board’s satisfaction.
“It’s at least a five- to seven-year process to get into a position to be considered as president,” Veissi said. “He’s been vetted and is qualified to lead the National Association of Realtors.”
Tracey concedes that Thomas didn’t do anything morally wrong. But he worries that his bankruptcy and financial problems could be a distraction – if not an embarrassment for Realtors.
“The real truth is hundreds of thousands of Realtors didn’t file bankruptcy and managed their businesses — and honored their commitments,” Tracey said.
Cote, the Newport Beach landlord, agreed.
“He is fiscally and financially unqualified to lead the largest real estate trade organization in this country,” Cote said. “He walked away from all of his responsibilities, both corporate and personal.”
A strong hand
About half of 30 agents now working for Thomas stuck with him through the bankruptcy. Associates up and down the Realtor ranks called him a man of integrity, competence and class.
“Some came up through the ranks through different avenues. Gary came up as a working broker, someone who understands people’s businesses,” said Vince Malta, one of several former CAR presidents interviewed for this story. “He not only knows the public policy side, he knows the business side of the organization.”
Long-time associates say that Thomas is a consensus builder, a good listener with a calm, reassuring demeanor. He’s a quiet force with a strong hand, associates said. A high-energy guy who makes good use of his time.
“Has he had some unfortunate situations? Like all of us, yes,” said former NAR President Dick Gaylord of Long Beach. “But I don’t think anyone thinks he’s anything but competent, hardworking and honest.”
Contact the writer: 714-796-7734 or jcollins@ocregister.com
I think they should nominate Gary Watts as Nar president.
The corruption in that industry is mind boggling! These guys could give politicians a run for their money.
I second the motion for Gary Watts nomination for Nar president.
REALTORS subscribe to a code of ethics, to eliminate practices that would discredit the real estate profession. The term REALTOR has come to connote fairness and high integrity resulting from adherence to lofty ideals of moral conduct in business relations. Should this individual be placed in THE top position when he cannot honor his own commitments??
I THINK NOT –
He may be less saavy than even the Mortgage Bankers Association.
I wonder if he is as skilled in bullshit as his predecessors or Lawrence Yun?
This is sort of related to debt forgiveness and taxes.
Americans face $3,500 fiscal cliff tax hit
NEW YORK (CNNMoney) — American households face an average tax increase of $3,500 if Congress doesn’t act to avert the fiscal cliff, according to a new analysis from the Tax Policy Center.
Overall, 88% of households would end up with higher taxes.
That’s because a record number of tax increases — due mostly to the expiration of temporary provisions put in place since 2001 — are set to take effect starting in January.
All told, the center estimates that the fiscal cliff tax provisions would raise an additional $536 billion in revenue next year, or 21% of what the federal government would otherwise collect.
The range of average tax increases is enormous depending on one’s income level.
The top 1% of households, which have incomes above $506,210, would face an increase of $121,000. Within that group, the top 0.1% — those making more than $2.66 million — would get hit with a tax hike of nearly $634,000.
By contrast, households making up to $20,113 would see a $412 average increase. That may simply represent a smaller refund to those households, many of which have very little if any federal income tax liability to begin with.
Households in the middle — with total incomes between $39,790 and $64,484 — can expect a roughly $2,000 increase.
“Households with low incomes would be particularly affected by the expiration of tax credits expanded or created by the 2009 stimulus,” the Tax Policy Center wrote on Monday. “And households with high incomes would be hit hard by the expiration of the 2001/2003 tax cuts that apply at upper income levels and the start of the new health reform taxes.”
The 2010 health reform law will impose additional Medicare taxes on the wages and investment income of those making more than $200,000 ($250,000 if married filing jointly).
The biggest part of the tax hit for middle-income Americans would come from the expiration of the Bush tax cuts and the payroll tax cut.
Few think, however, that Congress will let all the scheduled tax increases take effect. The current betting says lawmakers will let the temporary payroll tax cut expire but leave the majority of the Bush tax cuts in place and reinstate another so-called “fix” to the Alternative Minimum Tax so that it doesn’t ensnare more than 20 million households this year and next. Political observers also expect the new health reform taxes will take effect as scheduled.
But at the moment no one can say with any certainty what kind of fiscal cliff deal lawmakers will negotiate. And anything they do resolve won’t happen until after the election.
I can see moral justification for tax-free debt forgiveness for those that bought at the high, expecially with a large downpayment. Tax-freee debt forgiveness for the Ponzi schemers that pockets hundreds of thousand dollars is adding insult to injury. Well, it just the application of the new ant and grasshopper fable — the grasshopper played all year round while the worker ants slaved away for the winter. Winter came and the queen ant invited the lazy grasshoppers in to share the food and shelter.
The Ponzis used that money as income. They should be made to pay taxes on that money.
We should put a check in the system similar to withdrawals from retirement accounts. If you take an early withdrawal on your retirement, they withhold taxes. Why not do the same on HELOCs? Unless the borrower is bringing in receipts for actual construction or improvements, any money withdrawn should be subject to tax withholding. That would also serve to drive up the cost of this money because the borrower is paying interest on money held for taxes. That added cost would make this money much less desirable. With the withholding in place, if they default, the lender can issue a 1099, and the government will get their tax money.
IR,
Don’t you know the mere use of a house increases its value. It’s an appreciating asset not a depreciating asset. RE always goes up.
I agree with you that the forgiven debt should be counted as income. But knowing the RE industry, if it is ever taxed it will be counted as long term capital gains at half the normal rate as earned income.
Working ants are taxed for slaving to save up for winter. Grasshopper are not taxed for debt forgiveness for HELOC used for non-house frills and some for saving (pure stragetic default).
If you put have 20% down and can’t pay, bank FC and you lose your equity.
If you refinance and have negative 50% equity, you get to squat and live off the 50% extra funds borrowed. You’re part of the club.
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