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  Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection



Francis Vayalumkal
BUYING A SHORT SALE - FEW THINGS TO KNOW
By FRANCIS VAYALUMKAL

Foreclosure is a fairly well-understood process, but as "short sale" signs sprout like weeds, you may wonder what it's all about. When a lender agrees to accept a mortgage payoff amount less than what is owed to facilitate a sale of the property by a financially distressed owner, it's called a short sale. The lender forgives the remaining balance of the loan.

Win or lose

Short sales are a mixed bag for the buyer, the seller and the lender.

If you're a seller, a short sale is likely to damage your credit - but not as badly as a foreclosure. You'll also walk away from your home without a penny from the deal, making it difficult for you to find another place to live.

The lender takes a financial loss but perhaps not as large a loss as it might if it forecloses on the property. Foreclosure is an expensive and time-consuming process for a lender. By agreeing to a short sale, the lender wraps up this little mess quickly, and perhaps with less of a loss than it would have incurred with a foreclosure.

Remember that after foreclosing, the lender owns the home and has to maintain it, insure it and pay taxes on it. So, instead of receiving payments each month, the lender is now forking out money every month. Plus, short sales help the lender look good on paper - the property never gets listed as an actual foreclosure, which helps the lender's numbers. They see it as the lesser of two evils - if the numbers make sense for them.

1. Identify potential short-sales

Locate pre-foreclosures in your area. You can use an online database, search courthouse listings, legal ads or use an experienced real estate agent as a buyer's agent. First, try to determine how much is owed on the house in relation to its approximate value. If it seems high, it's a good candidate because it indicates the seller might have trouble selling it for enough to satisfy the loan.

2. View the property

Gauge its condition and come up with a rough estimate of how much it's going to take to repair or renovate. If it needs work, many "normal" buyers won't consider it, which is good for you.

3. Do your research

What is the property worth? What's the profit potential? If you're an investor or even a homeowner planning to live in the home, a short time you'll want to profit from the deal.

4. Find all liens and mortgages Ask the seller or his agent what liens are on the property, and which lender is the primary lien holder.

5. Figure out the financing

This is critical. You have to know how you're going to pay for the property. If you're a good credit risk, the existing lender may be willing to give you a loan. Since they already have a lot of your information in the short-sale paperwork, they may be able to expedite the loan application process. It's important to understand that in a short sale, you have to have the ability to move quickly. Once an agreement is worked out, it is common the lender will require closing in as few as 20 days. This is too late to start shopping for a mortgage.

6. Contact the lender

You or your agent should speak with the loss mitigation department (or perhaps the resource recovery department) rather than the collection or customer service department, which is only interested in recouping past due loan payments. Finding the decision-maker can be one of the biggest initial challenges. You will first need to have the homeowner complete and sign (notarization is usually required) an authorization letter, which gives the lender permission to discuss the mortgage situation with you.

7. Complete the lender's short sale application, if they have one

Many lenders have an application specifically for a short sale request.

8. Assemble the proposal

The proposal generally consists of a package of materials including the application and authorization letter plus:

" The purchase and sale contract -- signed by you and the seller -- to buy the property for a specified price.

" A hardship letter - The lender must recognize the seller's inability to pay the loan -- immediately and in the foreseeable future -- and that the situation is irreversible. To make that case, start with a letter written by the seller giving an overview of the seller's desperate situation. The seller should supply as much evidence and documentation as possible. If the lender thinks the seller has money or assets stashed away, it will never go along with a short sale.

" A statement of the property's value. This can be an appraisal or a broker's price opinion. The lower the estimate of the property's current market value, the better it will be for you. You want to show the lender that the seller would not be able to get enough for the home via a normal sale to satisfy the loan. Compile a list of all the negatives and problems of the home that negatively affect the value and make it undesirable to the average buyer and tougher for the lender to resell.

" Detail the costs and liabilities. You want to show the lender it would be much better off letting you take the property off its hands. If you can convince the lender the home is a money pit, all the better. Take photos of any damages and get estimates of the repair costs.

" A settlement statement. This statement (which can be prepared by a closing agent or real estate lawyer) outlines the purchase price, the closing costs and any other costs or fees involved in the transfer of the property. Often referred to as a net sheet and the information can be entered onto a HUD-1 Settlement Statement to show the final, negative result at closing.

9. Negotiate

It's not uncommon for the lender to reject your offer or to come back with a counteroffer. As with any real estate transaction, you should figure out beforehand what your absolute highest limit is, and don't be afraid to walk away if the lender won't meet your figure.

10. Seal the deal

Once you've reached an agreement that all three parties (you, the seller and the lender) are OK with, get everything in writing and officially recorded. Make sure the seller understands all of the terms of the deal. It is always important and recommended that you work with a real estate professional that is experienced in short sales.

Francis Vayalumkal is a mortgage banker with Regions Bank and can be reached at (813) 719-0303 cevaya@gmail.com



Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection



Nitesh Patel
GIVE BACK WITH THE GIFT OF LIFE INSURANCE OR CHARITABLE DEDUCTIONS FROM IRAS
By NITESH PATEL

After watching the powerful images and later learning about the economic and social impact of recent natural disasters here and abroad, many of us instinctively dug into our wallets and made donations. According to Giving USA, charitable donations rose 6 percent in 2005 to more than $260 billion, fueled by disaster relief giving. (Giving USA Report, Giving USA Foundation - June 2006)

Yet, if you're like many Americans, it probably seems as if whatever you donate won't be enough to make a real difference in these situations. Will your $25 or $50 or $100 really help?

The answer is 'yes'. Although corporate foundations give millions each year, individual giving continues to be the largest single source of donations, accounting for over three-fourths of all charitable giving in 2005. (Giving USA Report, Giving USA Foundation - June 2006). Representatives from most charitable organizations would agree that even the most humble gift is appreciated and does help.

The good news is that you don't need to be wealthy to achieve your philanthropic goals and support a favorite charitable organization or a cause that's close to your heart. One long-term strategy that can effectively reach your philanthropic goals is giving the gift of life insurance. The gift of life insurance is an affordable and flexible way to maximize your contributions to help you to leave behind a legacy for future generations.

There are several ways to structure a gift of life insurance, but the end-result remains the same - the organization benefits. As the beneficiary of a life insurance policy, a charity receives proceeds on a tax-free basis upon the donor's death. Either the charity or a donor applies for a permanent life insurance policy on the donor's life and names the charity as both the owner and beneficiary of the policy. The donor's gift of the annual premium is income tax-deductible since the charity is the owner.

For those who want to maintain control and access to a policy's cash value without an income tax deduction, but still have the charity receive the insurance proceeds at death, the donor may retain ownership of the policy and simply name the charity as a beneficiary. Either way, you're able to leave your mark on a cause you believe in through life insurance.

Another more immediate strategy to support a non-profit organization is to make a charitable distribution from your IRA. A recent tax law change (Sec. 1201 of the Pension Protection Act of 2006 and Sec. 408(d)(8) of the Internal Revenue Code of 1986, as amended) allows tax-free "gift" distributions.

Previously, if an individual wanted to take funds from an IRA to give to a charity, he or she would be required to first take distribution of the funds, which were fully taxable as ordinary income. This could create quite a tax burden. The new law allows IRA owners age 70˝ or older to give up to $100,000 directly to the charity.

For some donors, these gift strategies may be the answer to "what else can I do?" The bottom line is that supporting a charity or organization you believe in -- either through the gift of life insurance or gift distributions from qualified retirement accounts -- is an easy way for you to leave your mark. All it takes is a simple call, a little paperwork, and a heart that wants to make a difference.

Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail nitesh.patel@nmfn.com.



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Kamlesh Patel
CRUNCHING ‘EM NUMBERS: NEW ZERO TAX RATE FOR CAPITAL GAINS AND DIVIDENDS

By KAMLESH H. PATEL, CPA

That's not a misprint. Starting in 2008 and continuing through 2010, certain lower-bracket taxpayers will pay zero taxes on long-term capital gains and qualified dividends. In order to avail yourself of the new zero rate, your taxable income can't exceed the normal 15 percent rate ($65,100 in 2008 for married taxpayers filing jointly and $32,550 for single filers).

However, be aware that the new zero rates may not apply to dependents that are under age 19, or under age 24 if they are full-time students. But the new law certainly doesn't prohibit you from shifting high capital gain assets to parents or other low-taxed family members so they can take advantage of the new zero tax on such gains.

Before dismissing the income limitations as too low for your tax situation, remember that you may be able to adjust your 2008 taxable income in order to move you into the zero rate "sweet spot." Consider increasing your deferred compensation at your place of employment. You also might consider increasing your charitable contributions, thereby reducing your taxable income. You also might prepay state and/or local income taxes. With planning, you might get your income to the appropriate level.

Remember that these new rates also apply to mutual fund shares that throw off capital gains and qualified dividends. They are not just for taxpayers holding actual shares of stock. Review your portfolio and determine which assets have potential long-term gains and qualified dividends. When possible, carry assets long-term for a potential tax break, and consider substituting investments in non-dividend-paying stock for dividend-paying stock. A zero tax rate could be your reward.

The computations can get a bit tricky, so using a qualified tax professional to help you in your planning is your best bet.

MAP OUT TAX BREAKS FOR SUMMER BUSINESS TRIPS

Do you plan on mixing pleasure with business on a trip this summer? There's no problem from a tax perspective as long as you follow a basic precept: The primary purpose of the travel must be business-related. Otherwise, you'll forfeit valuable tax deductions.

On the other hand, if you stick to the tax itinerary, you can write off most of your travel costs - even though you're spending part of the time on personal pursuits. The key is to record significantly more "business days" than "personal days" on the trip.

Example: John Green, a self-employed individual, flies cross-country on Monday to make a presentation to a client. He is in business meetings Tuesday through Thursday. On Friday, the client inks the deal. John decides to spend the weekend playing golf and lounging by the pool. He flies home the following Monday. The round-trip airfare costs John $1,500. He also incurs $1,600 in lodging ($200 a day) and $800 in meals ($100 a day) during his eight-day trip.

On these facts, John spends six days on business - the two days traveling count as business days - and only two days on pleasure. So the trip qualifies as business-related travel. He can deduct the entire airfare as well as six days' lodging and 50 percent of the meals attributable to his business stay. Result: John deducts a total of $3,000 ($1,500 airfare, $1,200 lodging and $300 meals).

Note that any personal expenses, such as green fees at the golf course, are nondeductible. Also, if family members accompany you on a trip, you can't deduct their expenses, but your travel may still qualify as business-related.

Of course, this is just a brief summary of the pertinent tax rules.

SINGLES: YOU NEED FINANCIAL PLANNING, TOO

If you have to earn a living, you need a financial plan, regardless of your marital status. You probably need estate planning as well, especially if you're single and own a significant amount of property. Financial and estate planning address two basic concerns: protecting your earnings and protecting your property. For singles who don't have someone to fall back on, planning for unexpected setbacks is particularly important.

Protecting your earnings (your ability to feed, house, and clothe yourself and any dependents) should start with creating an emergency fund sufficient to pay your basic living expenses for six to twelve months. The fund should be separate from your other investments, readily accessible, and most importantly, reserved solely for emergency use.

Insurance can be a useful additional tool for protecting your income. Disability insurance provides a revenue stream when you're sidelined by illness or injury. Employers often offer such policies, and they're available through private insurers as well. Life insurance may not be a priority if you have no dependents, but if anyone relies on you financially, a term life policy offers simple and effective protection.

Asset protection can be somewhat more complex. Through powers of attorney, you can appoint trustworthy people to make financial (and medical) decisions for you in the event of incapacity. By creating a will (and perhaps a trust) and by naming beneficiaries for your IRA or 401(k) plans, you can ensure that your assets will go to the individuals or charities of your choice. Under current law, if you die after 2010, your estate will be heavily taxed on amounts over $1 million, but proper estate planning can reduce that burden.

Kamlesh H. Patel, CPA, can be reached at (813) 949-8889 or e-mail kpaccounting@verizon.net or kpinsurance@verizon.net.


Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection



Satya Shaw
PROTECTING YOUR RETIREMENT ASSETS
By SATYA B.SHAW, MBA, CPA

A successful retirement does not just happen; you have got to plan for it. The long ramp toward retirement focuses on saving and investing, but once retirement starts emphasis shifts to spending and safeguarding. Even though the greatest challenge in retirement, and probably your greatest fear, is outliving your money, most people spend less time planning their retirement than they do planning a vacation.

What does retirement planning involve? Here are the steps: First, determine what you would ideally like to do in retirement, and then discuss it with your spouse and other loved ones. Will you spend your time traveling, enjoying hobbies, helping others, working part time, or what? Second, estimate the retirement income you'll have from savings, Social Security, pension and all other sources. Third, estimate your expenses making sure to take account of inflation, taxes and health care costs, which are likely to be an increasing part of your budget.

Steps two and three should be done for each five-year period of your retirement and then revised annually. Fourth, if you have more income than needed, you only need to safeguard your investments to make sure they're not lost or shrunk by bad decisions. If you have insufficient money for retirement (expenses exceed income), then you'll need to postpone retirement, work part-time or possibly use a Reverse Mortgage to access the equity in your home. Either way, it is highly recommended that you minimize your exposure to loss and maximize the full potential of your financial resources by working with a financial adviser. They can help you determine the risk you can afford, investment options and how to position your money for best results without sacrificing safety. Retirement is going to be long, filled with uncertainties, including emergencies, and going it alone is one of the greatest risks you can take.

Be realistic in your planning. For example, be aware that for a couple age 65, there is a 50 percent probability that one will live beyond age 90. Acknowledge that even a low rate of inflation can make a big difference in prices over the 20 to 30 years you'll be in retirement. For example, average inflation of 3 percent means $1 today will be worth only 55 cents in 20 years and 41 cents in 30 years. Since 78 million boomers are entering retirement over the next two decades, the price of everything related to retirement, especially health care, is likely to rise faster than overall inflation. Inflation is a cruel tax for those on fixed incomes, and chances are your income in retirement will increase a lot slower than prices.

The boomer explosion is going to overwhelm government-provided services and benefits. This means that the relative benefits of Social Security and Medicare are going to shrink under the pressure of increased retirees. There will simply be more people receiving entitlement benefits than workers paying the bills. Every study, government and private, indicates there will be a shortage of money to support these programs. To pay for this shortfall, the government must raise taxes of all types. The increased taxes, inflation, relative decrease of benefits combined with escalating medical care costs will be especially burdensome for those in retirement without rising incomes from wages and salaries.

If you haven't evaluated it yet, investigate the risk you're taking with your retirement money. Would you have a loss if the stock market lost ground? You might if your money is still in your ex-employers 401(k) plan, or if you own securities, even mutual funds, whose value is determined by the market. Generally, investments in stock have done well long term, but you may need your money before a long time. From November 1973 to October 1974, the S&P stock market index fell 48 percent, and it took over six years to recover. The last bust in the stock market was 2000-2002, and we have yet to fully recover. In the meantime, inflation marches forward with the shrinking dollar purchasing less. Much of your income in retirement is likely to be derived from your savings and investments, and you simply can not afford risk of loss and the compounding of inflation. If you lose some or all of your retirement money to bad investments, you'll increase dramatically your chances of realizing your greatest fear: outliving your money.

How do you safeguard against the challenge of too many years and not enough money? Like law and medicine, financial planning is best left to professionals. Your job in retirement is to enjoy life free of investment worries.

Satya B. Shaw, CPA, can be reached at (813) 842-0345.






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