What are Mineral Rights? And Who Owns Them?

What Are Mineral Rights?

Mineral Rights: the rights to the natural resources lying below the earth’s surface. Any transfer of land may be accomplished with or without the transfer of the subsurface rights. Normally, the term “mineral” is considered to include almost anything of value found under the earth’s surface. However, the term ordinarily does not include commonplace materials such as soil, sand, gravel, clay, and water.

In the United States the law creates a difference between surface rights and mineral rights. Surface rights include the right to build or farm on the land while mineral rights include the right to mine the property.

The United States is one of the few nations that allow private ownership of underground mineral resources. When reserved the owner of the mineral rights can then enter into contracts and agreements to mine and extract the minerals which may or may not include royalty payments to the surface owners.

Now, Who Owns Them?

Starting in April of this year (2013) the FDIC (Federal Deposit Insurance Corporation) has begun to reserve mineral, oil, and gas rights in any real property it conveys in the US. This new policy applies to all FDIC owned residential and commercial property except for condominium units and real property valued at $50K or less. The FDIC’s closing instructions will have an addendum addressing the reservation requirement and require the deed to contain the reservation.

If you wish to purchase the mineral rights from the FDIC you may do so, however, a specific price must be negotiated for the rights separate from the rest of the property.

New Abbot Kinney Parking Restrictions

Vehicles that are over 6 feet high are no longer allowed to park within 100′ of the intersections between Westminster and Venice on Abbot Kinney. The signage was approved and placed by the LA City Department of Transportation at the request of the Abbot Kinney Merchants’ Association to improve visibility at the intersections.

In addition to improving the safety at intersections, the new signage will also limit the amount of food trucks that will legally be able to park on Abbot Kinney during “1st Fridays”. Then again, if the trucks are not towed after the $58 ticket, the food truck owners may just write it off as the cost of doing business. We will see what happens tomorrow!

While a Range Rover with stock wheels will slide under the 72″ restriction by 1/2 an inch, some SUV’s like the Ford Expedition will not, as they are 77.2″ in height.

- Yo Venice | http://goo.gl/ZXUS4

The 6 Need-to-Know Tax Breaks for Homeowners

January has come (and nearly gone!), bringing with it the promise of a new year filled with new beginnings–including the start of tax season. And while owning a home is a great investment, the taxes that come with home ownership can also bring a lot of uncertainty and confusion.

David Bakke, a contributor of Money Crashers, one of the top personal finance blogs, recently offered his take via Zillow on the 6 need-to-know tax breaks for homeowners.

According to Bakke, “In most cases, you need to itemize your taxes in order to take advantage of all the tax breaks that accompany home ownership. This might seem overwhelming, but the benefits of completing this process make up for the inconvenience.”

1. Mortgage Interest Deduction

Mortgage Interest Deduction (MID) is one of the top tax breaks for homeowners, potentially saving you a significant amount of money. Bakke explains: “In the beginning, the majority of your monthly mortgage payments go toward loan interest, and you can deduct all the interest from your mortgage on your taxes. Keep Form 1098, issued by your lender, with your important records. This form explains exactly how much you can deduct and serves as proof if you are audited by the IRS.”

2. Mortgage Insurance Premiums

For homeowners with new mortgages, if your loan-to-value ratio is higher than 80%, you most likely carry some form of private mortgage insurance (PMI).  Typically, “Once you reach 20% equity in your home, you can avoid paying private mortgage insurance.”

According to Bakke, “Until you reach that level of equity, if your adjusted gross income (AGI) is less than $100,000 (or $50,000, if married filing separately), you may be able to deduct the amount that you paid. If you surpass that income level, the deduction is either reduced or eliminated. If your AGI is $109,000 ($54,500, if married filing separately) then the deduction goes away altogether.”

3. Energy Star

The energy-efficient fixtures or appliances you installed can help save money on top of the savings you score with your monthly utilities bills.  If you install energy-efficient windows, doors, and skylights in your primary residence before the end of the year, you could be eligible for another tax deduction. In order to take advantage of this tax break, you must install the items by the end of the year.

Assuming your installations meet the necessary criteria, including the Energy Star program requirements, “You can receive a tax credit equal to 10% of the cost of the products. The credit for windows and skylights is capped at $200, the limit for doors is $500, and you cannot deduct installation costs. The IRS does not state what documentation you need to prove that you paid for these costs. However, you should hold on to all receipts and Energy Star labels for any qualified improvements you make on your home. There are quite a few green energy tax deductions for home improvement.”

4. Points

Points, the fees charged to the borrower when obtaining a home loan, may also offer a tax break to homeowners.  According to Bakke, “If you have your first mortgage, you can deduct these charges in the year that you paid them if the loan is for your primary residence and you didn’t pay excessive points. If you have refinanced your mortgage, you can deduct points over the life of the loan.”

5. Property Taxes

You can also deduct state and local property taxes, “As long as they are based on the assessed value of the real property. If you pay your property taxes out-of-pocket, you need to locate your bills to determine how much you paid. Most homeowners pay through an escrow account; if you do the same, the information also appears on Form 1098.”

6. Construction Loan Interest

Did you take out a construction loan to build your home?  You might qualify to be able to deduct the interest. However, this  deduction is only usable during the first 24 months of the loan, even when the actual construction takes longer.

The Bottom Line

Staying organized and keeping impeccable records will help you TREMENDOUSLY, allowing you to take advantage of every tax break, deduction, and credit at your disposal. However, you may want to seriously consider consulting a tax professional, especially if you are preparing your taxes for the first time after you buy your home.

As Bakke points out,  “You will likely encounter various technical restrictions and confusing guidelines, and you certainly don’t want any problems with the IRS. A professional can help you find more tax breaks, and you will get the best return on investment when you understand and take advantage of each and every one.”

Which tax breaks are you taking advantage of as a homeowners?

OK to Flip that House, says FHA

CNN is reporting that the Federal Housing Administration has some good news for real estate flippers–the investors who buy homes on the cheap so that they can quickly resell in order to turn a profit.

The news report said this of FHA: “In an effort to help stabilize housing prices and unload some of the foreclosures that are flooding low-income communities, the mortgage insurer extended a waiver of its anti-flipping regulations through 2012.”

The waiver, which was issued in 2010 and expired at the end of December, suspended regulations that prohibited the agency from insuring mortgages used for purchasing homes that are bought and resold in less than 90 days.

Acting FHA Commissioner Carol Galante explained: “This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight.”

The ban was first initiated as a preventative measure against predatory flipping, in which homes when homes are quickly resold at inflated prices to unsuspecting buyers.  However, the extension of this waiver through 2012 may offer help to many low-income communities that continue to struggle.

Foreclosures have been especially problematic in many low-income neighborhoods, causing declining property values and surges in crime and other “social ills.” In such neighborhoods, “Real estate flippers often rehab these damaged homes before reselling them, improving conditions for neighborhoods.”  FHA mortgage insurance plays a crucial role for many low-income communities.  In fact, many of the loans in these communities could not be issued without FHA backing.

CNN reports that in order to qualify for the waiver, certain conditions must be met:
  • The transaction must be “arms length” with no other relationship between seller and buyer.
  • If the new sale price is 20% or more above the previous selling price, the lender has to document and justify the increase and meet other conditions, such as making sure the home has been inspected.

The report states that, “Since the waiver went into effect in February of 2010, the FHA has insured more than 42,000 loans to purchase homes that were being resold within 90 days. These totaled more than $7 billion in mortgage principal.”

Healthcare Bill Adding 3.8% Sales Tax to Homes?

Recently there’s been a lot of chatter about a supposed 3.8% real estate sales tax to be implemented in 2013 under the new healthcare bill.  We looked to what other experts are saying about it and as it turns out, the rumors are indeed, JUST RUMORS.

Factcheck.com set the record straight:

“The truth is that only a tiny percentage of home sellers will pay the tax. First of all, only those with incomes over $200,000 a year ($250,000 for married couples filing jointly) will be subject to it. And even for those who have such high incomes, the tax still won’t apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home.

It’s easy to see how the misconception started. Written in highly technical language that only a qualified tax expert would understand, the bill says, “The tax falls on ‘net gain … attributable to the disposition of property.'”  Which would include the sale of a home.

“The bill also says the tax falls only on that portion of any gain that is ‘taken into account in computing taxable income’ under the existing tax code. And the fact is, the first $250,000 in profit on the sale of a primary residence (or $500,000 in the case of a married couple) is excluded from taxable income already.” Note: Exclusion does not apply to vacation homes or rental properties.

Factcheck.com further explains:

The Joint Committee on Taxation, the group of nonpartisan tax experts that Congress relies on to analyze tax proposals, underscores this in a footnote on page 135 of its report on the bill. The note states: ‘Gross income does not include … excluded gain from the sale of a principal residence.’

 

And just to be sure, we checked with William Ahern, director of policy and communications for the nonprofit, pro-business Tax Foundation. ‘Some home sales would see a tax increase under this bill,’ Ahern told us, ‘but it would have to be a second home or a principal residence generating [a gain of] more than $250,000 ($500,000 for a couple).’

 

The Internal Revenue Service says that to qualify for the $250,000/$500,000 exclusion, a seller must have owned the home and lived there as the seller’s ‘main home’ for at least two years out of the five years prior to the sale.

According to Sara Orrange, Government Affairs Director, Spokane Association of REALTORS, “Most people who sell their homes will not be impacted by these new regulations. This is not a new tax on every seller, and that correction needs to be made.”

And there you have it.  We hope this helped to shed some light the issue. Remember, when it comes to IRS regulations, you should check with your accountant for the most accurate and up-to-date information.

HARP Expansion to Reach More Buyers

At a campaign stop in Nevada last week, President Obama announced an expansion of the HARP (Home Affordable Refinance Program), eliminating the current maximum Loan-To-Value (LTV) ration of 125%.  RIS Media reports:

The Federal Housing Finance Agency, with Fannie Mae and Freddie Mac (the Enterprises), has announced a series of changes to the Home Affordable Refinance Program (HARP) in an effort to attract more eligible borrowers who can benefit from refinancing their home mortgage. The program enhancements were developed at FHFA’s direction with input from lenders, mortgage insurers and other industry participants.

FHFA Acting Director Edward J. DeMarco stated:

“We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach…Building on the industry’s experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the Enterprises. Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.”

Of the 9 million families that Fannie Mae and Freddie Mac have helped refinance into a lower cost or more sustainable mortgage product, about 10% of those via HARP.

“HARP is unique in that it is the only refinance program that enables borrowers who owe more than their home is worth to take advantage of low interest rates and other refinancing benefits. This program will continue to be available to borrowers with loans sold to the Enterprises on or before May 31, 2009 with current loan-t0-value (LTV) ratios above 80 percent.”

Since program specifics won’t be released until next month, the KCM Blog offered these highlights:

  • It will only pertain to loans currently being serviced by Fannie Mae or Freddie Mac
  • Because of the removal of the LTV cap, appraisals may not be required
  • With the only qualifying criteria announced being that the last six payments be on time, it is possible that income documentation may be streamlined and credit scores might be more forgiving
  • Fees allegedly will be reduced
  • Incentives may be offered to people who shorten their repayment time
  • It also sounds that the banks may be given some incentive by not holding them liable for the underwater portion of the new loan (a major incentive for sure).

By eliminating certain risk-based fees, borrowers will be encouraged to utilize HARP to refinance into shorter-term mortgages. Borrowers who owe more on their house than the house is worth will be able to reduce the balance owed much faster if they take advantage of today’s low interest rates by shortening the term of their mortgage.

President Obama’s executive move has been praised by many as “the right action at the right time,” as bit of financial relief to many struggling homeowners throughout the nation.

New Addendum to Help Appraisers Give Value for Green Features

The environment may not be the only thing anymore to benefit from eco-friendly and energy-efficient home improvements, thanks to a new appraisal addendum which would credit these homeowners.  The LA Times reports:

“The Appraisal Institute, the country’s largest and most influential association in its field, published the long-awaited addendum late last month. It’s designed to be attached to any standard appraisal report covering a property with significant green features. Owners, sellers, buyers, refinancers and realty agents don’t have to wait for an appraiser to use it. They can download it at no cost and ask that it be made part of the appraisal submitted to the lender.”

While this addendum probably won’t influence an appraiser to value your home tens of thousands of dollars higher, it will definitely greatly improve your odds that any eco-inspired upgrades in your home will get the fairer market value they deserve.

According to the LA Times, “The three-page form is a response to growing concerns that although the Obama administration and many state governments and utilities are pushing homeowners to invest in energy-conserving components, standard appraisal forms — including those used by financing giants Fannie Mae and Freddie Mac — are not set up to give adequate recognition to those often costly improvements.”

Until now, homeowners have been frustrated by these “low ball valuations,” which have block many from refinancing as they are unable to qualify for the loan amount because of an appraisal report that excludes the monthly utility savings they get from energy-saving improvements.   To make matters worse, appraisers are often required to make their assessments based on vague or misleading information about these improvements that local real estate companies present to them.

For example, “Appraisers complain that some realty listings claim that the house is an ‘Energy Star Home’ when in fact there’s nothing more than a few Energy Star appliances installed in the kitchen. The Energy Star Home designation is a much higher standard: It requires qualifying under a comprehensive set of criteria for the lighting, windows, water heating and high-efficiency appliances, among others.”

Besides energy efficiency, the new addendum covers a wide spectrum of improvements and ratings.  Sections that cover all of the following will be included in the new document:

  • insulation
  • windows
  • lighting
  • heating
  • air conditioning
  • solar
  • water-saving or reclamation systems
  • landscaping that lowers water or energy use
  • home’s proximity to public transportation, which might help lower fuel usage

For any homes that have been audited or rated for green features and energy efficiency, the new addendum asks for detailed information regarding the rating or auditing authority, dates of such reporting, average local utility costs and estimated monthly savings.  Generally higher utility charges in an area will translate to higher value gain from energy-saving installations.

If there are any relevant certifications, the new addendum requires that they be submitted with the report, along with details about any changes made to the property by the owners since the time of certification.

According to the LA Times, “Appraisers using the new addendum should now be better equipped to identify accurate, recent ‘comparable’ sales in the area — a key part of coming up with a valuation…In other words, if you have a highly efficient, audited house with extensive energy-saving features as demonstrated by the addendum, an appraiser should look for prices of houses that sold recently with and without energy-efficiency features for indications of your home’s true market value. Appraisers who have training in green valuations can also use one or more techniques that essentially capitalize the documented monthly savings on utility bills into a specific value adjustment appropriate for the local market.”

You’ll find the new addendum on the Appraisal Institute’s website.

Fannie Mae’s New “Delayed Financing Rule”

If you are purchasing or have recently purchased a home with all cash, there may be some good news for you.  Fannie Mae’s new Delayed Financing Rule will give all cash buyers a new post-purchase financing option.

Under current Fannie Mae regulations, all cash buyers may not apply for a cash-out refinance before 6 months have lapsed.

The Delayed Financing Rule, introduced as part of Fannie Mae’s Selling Guide update SEL-2011-05, home purchasers may now pay all cash for a property, and then immediately take out a mortgage.

According to Fannie Mae, eligibility depends on:

  • The new loan amount is not more than the documented purchase price
  • The purchase transaction was an arms-length transaction.
  • Purchase transaction documented by the HUD-1
  • HUD-1 confirms no mortgage financing was used in purchase transaction
  • Title report confirming there are no liens on the subject property
  • The source of funds for the purchase transaction can be documented
  • Any loans used as the source for the purchase transaction will be required to be repaid on the new HUD-1.
  • All other cash-out refinance eligibility requirements are met and cash-out pricing is applied

Although intended for real estate investors, you don’t have to be an investor to take advantage of the Delayed Financing Rule.   Mortgage rates, closing schedules, and underwriting process will remain the same as with any cash-out refinance, and no specific fees will be attached to the loan.