Real Estate Information

Happy New Year! January is the time for starting out with a clean slate and vowing to make changes that are good for us. In spite of our good intentions, however, by now many of us have made--and broken--many familiar resolutions and have fallen back into bad habits. Despair not. There is one action you can begin right away, stick to without hardship or self-denial, and benefit greatly from in just a few months. The holiday season may be behind us, but tax season is not far away, and you can resolve to get an early start by identifying house-related tax deductions now and gathering the necessary documentation for them.

Doing so provides you with a win-win situation. Not only will you get a head start on a sometimes onerous task, you will also derive pleasure from seeing how much money you will save simply by owning Chester County real estate. The following information is current as of now, but I urge you to check with your accountant, visit the IRS website, or call the IRS assistance line at 800-829-1040 for verification and/or specifics.

PRIMARY RESIDENCES

• MORTGAGE INTEREST: As you know, much of your mortgage payment goes toward paying off interest, especially in the early years. All this paid interest, on debts of up to $1 million on a joint return, is tax deductible. The amount you have paid is reported to you on a 1098 form sent by your lender and should be reported by you on line 10 of a Schedule A form (itemized deductions).

• HOME EQUITY LOAN INTEREST: Interest paid on home equity loans (second mortgages, equity credit lines, and some refinancing) is fully deductible up to $100,000--regardless of how you use the proceeds. If you use some or all of the proceeds for home improvements, that amount can be added to the $100,000. Be sure to carefully document all improvement costs. Note: The limits mentioned apply only as long as all debt secured by the residence does not exceed the fair market value of your Chester County real estate.

• POINTS: The points you paid to the lender at closing are deductible for the year in which you paid them. This amount is also reported to you on the lender’s 1098 form. See publication # 936 from the IRS for more specific information, especially about points paid for refinancing.

• PROPERTY TAXES: Chester County real estate property taxes are fully deductible.

• PRIVATE MORTGAGE INSURANCE: If your mortgage was taken out between 2007 and 2010 and your joint income is below $100,000, you can deduct any premiums you paid. Note: This is the last year that you can take this deduction.

• HOME OFFICE: If you use a portion of your home exclusively for business purposes, there are certain costs you can deduct. Such expenses may include a percentage of your utilities, repairs, qualified insurance premiums, and even property taxes. The IRS has specific requirements for these deductions. Consult IRS publication #509.

• SELLING YOUR HOME: In addition to being able to pocket as much as $500,000 tax free in profit if you file jointly and have lived in the piece of Chester County real estate for two of the past five years, you can also deduct from your taxable capital gain many costs which you incurred while selling the property. Such costs usually include realtor commissions, legal and inspection fees, and title insurance. In addition, cosmetic repairs and improvements you made to the home within 90 days of the sale are also deductible.

TAX CREDITS: These are even more beneficial than deductions and fall into two categories for the 2010 tax year.

• HOMEBUYER TAX CREDIT: Buyers who purchased a house before May 2010 and qualified for a Homebuyer Tax Credit may claim that credit by mailing in (you cannot file electronically) your return with IRS Form 5405. Members of the military, foreign service, and intelligence communities have until April 30, 2011, to purchase a home and be eligible for this credit.

• HOME ENERGY TAX CREDIT: If you installed qualified energy-efficient systems, windows, and/or appliances in your home before December 31, 2010, you may be eligible for a tax credit of up to $1500. Again, you may not file electronically, and you must complete and attach IRS Form 5695 to your return.

FORGIVEN DEBT: Mortgage debt to buy a principal residence that is forgiven (as in a short sale, foreclosure, or debt restructuring) is no longer taxable in many cases. Restrictions apply for investors, equity lines, refinancing, etc. See IRS Publication 4681 for detailed information and use IRS Form 982 for filing.

Your credit score is a number that helps lenders predict how likely you are to make your payments on time. This score affects your ability to obtain credit and helps determine what you pay for credit cards, auto loans, and mortgages on Chester County homes. Even your insurance rate is related to your score. The higher your score, often referred to as a FICO score, the more apt you are to be approved for and pay a lower interest rate on new loans. Scores ranging from 650 and below are considered bad and indicate to the lender that you are a very high risk. Chances are you will be unable to secure a loan, or if you are, it will be at a much higher interest rate and/or require a cosigner.

What If there Are Errors

What to do if you have a low score and do not qualify for a mortgage on a Chester County home? Your first action should be to check your credit report for errors. If you find erroneous information, you need to act immediately by contacting both the credit bureau (the three major ones are Equifax, Experian, and Transunion) and the organization that provided that information.

• The credit bureau/agency: Send a certified, return receipt requested letter to the bureau pointing out each inaccuracy and enclose copies of documents which support your claim as well as the report itself (with the misinformation highlighted). Factually explain why you dispute each item and request a deletion or correction for each one.
• The creditor or information provider: Send the same type of letter and enclose the same documents. Request that the provider notify you of action taken (generally within 90 days) so that you can verify the amended information.

If there are no errors on your report, then you should take immediate steps to improve your credit. Ways to do this include the following:

• Stop using your credit cards. Do not continue to accumulate debt.
• Get current on delinquent accounts. Since payment history makes up 35% of your score, this action will have a great impact on your score.
• Keep accounts with balances open, but don’t apply for more credit.
• Call your creditors. Explain your financial situation and ask about possible hardship programs which will temporarily reduce your monthly payments.
• Begin paying off your existing debts, even if you have to sell some belongings to do so. Come up with a get-out-of-debt plan and stick to it.
• Get professional help. There are resources available to help you reestablish a good credit rating. Contact the National Foundation for Credit Counseling for assistance.
• Be patient. Realize that improving your credit score takes time and that there is no quick-fix --and keep in mind your goal of owning a Chester County home.

News releases in recent weeks have increasingly unearthed irregularities in the foreclosure process, disclosures which have far-reaching effects on first time and move-up buyers of Chester County real estate, those in the process of foreclosure, the real estate market, and the economy in general. In reaction to these reports, Ally Financial, JP Morgan, PNC, Morgan Chase, and Bank of America have temporarily halted all action on foreclosures, and nearly half of the states have issued a foreclosure moratorium.

The National Association of Realtors (NAR) has long urged lenders to seek resolution to distressed properties through modification and short sales rather than through foreclosure, stating that “These options are far better” and that they involve less risk of irregularities caused by the impact of dealing with such a high volume of foreclosures and heavy demands by lenders for speedy processing, In a recent letter to various federal agencies, the NAR expressed both concern for the rights of borrowers and the buyers of Chester County real estate and the hope that the foreclosure review will proceed expeditiously.

Reacting to a demand by some for a national moratorium (which many feel is inevitable), the White House called for caution in taking such a step and acknowledged that there are valid foreclosures with proper documentation that should go forward. White House spokesman David Axelrod also placed some of the responsibility for the “title wave” on government-run Freddie Mac and Fannie Mae, stating that “…if they had slowed down their loan purchases using internal controls, many of these problems would not have occurred.”

So what does all this mean for the purchaser or would-be buyer of Chester County real estate? In all probability, closings and contract purchases on distressed properties will not take place until all moratoriums have been lifted. It also means that foreclosures already in process will be held up and that some bank-owned listings will be removed from the market. Some “experts” say that those who have already purchased a foreclosed home will not have problems because of the legal finality of foreclosure sales, while others worry that that the moratoriums will bring most mortgage closings to a halt. All seem to agree, however, that properties which do have clear mortgage documentation will demand a premium price in what will be smaller supply of homes from which to choose.

Obviously there is no imminent solution to the current foreclosure fiasco, and the wise and prudent buyer would do well to follow the situation carefully, proceed cautiously, and seek professional advice before making a commitment.

At a recent lecture at the New York University Club, millionaire hedge fund operator John Paulson, who is often touted as an investment genius, enthusiastically urged members of his audience to buy real estate--now! Echoing the September Forbes report, Paulson stated that “this is the best time in 50 years to buy a home,” and he maintained that securing a 30 year mortgage with record low interest rates is a wise and safe investment.

While there are those in the real estate field who disagree with Paulson’s views, there is an increasing number of factors which supports his advice, among them reduced house prices, increased negotiating power, very low interest rates, and the rapidly growing availability of Chester County real estate.

Those considering the purchase of a home should be forewarned, however, that lenders have tightened their requirements for qualifying for a mortgage. Generally speaking, applicants who want a 30 year fixed loan at a low interest rate must have a credit score of at least 720, a well-paying and secure job, money for a down payment, and a financial situation which makes buying Chester County real estate feasible. Pre-approval for a loan is a must before making an offer on any home.

1. PRICES: Prices of Chester County real estate are generally lower today than they have been in many, many years and do not show signs of increasing quickly, so it is possible to get more house for the money than in recent years. Buyers should be prepared to occupy their homes for 5 to 10 years to see any significant gain, but most realtors agree that spending money on a monthly mortgage payment is far wiser than putting it towards rent. The substantial addition of foreclosures and short sales also provide an opportunity to buy at a (often greatly) reduced price

2. NEGOTIOATIONS: Because homes currently on the market are extremely slow to move, sellers are generally more than willing to negotiate with a potential buyer in matters such as price, financing, repairs, closing costs, occupancy time frame, and the like. Buyers definitely have negotiating power right now.

3. INTEREST RATES: Interest rates are currently quite low, and buying Chester County real estate now at these rates can result in substantial savings and/or purchasing power. For example, if you’re looking for a loan around $400,00, each point decrease gives you $50,000 in purchasing power, and with 20% down, the difference between a mortgage payment for a $425,000 home and one worth $525,00 is only $32!

4. AVAILABILITY: As the economy worsens and unemployment rises, the number of foreclosures and short sales increase greatly, resulting in an abundance of available homes for sale. Buyers have a much wider selection in terms of location, price, and size from which to choose and can often obtain features they have been unable to afford in the past. What used to be a “dream house” may now become a reality

So, is now the time to buy Chester County real estate? For many the answer is a resounding “Yes”!

In our present economic situation, many people are currently facing the loss of their homes. However, because foreclosure is expensive for lenders, mortgage insurers, and investors, the FHA, HUD, Freddie Mac, Fannie Mae, and private companies are being required to work with borrowers who are experiencing money problems. As a result, lenders do have workout options to help you keep your Chester County home. Warning: Do not mistakenly assume that your mortgage situation will correct itself; you must take the steps suggested below to avoid, or at least forestall, foreclosure.

1. ACT NOW! Time is of the essence. Do not ignore letters or calls from your lender. If you do, chances are that action to foreclose will begin quickly.

2. CONTACT YOUR LENDER:  When you reach the lender, you should be prepared to provide him/her with your account number; a brief explanation of your circumstances; income documents or evidence of unemployment, public assistance, or business losses; and a list of your household expenses. Ask about a reduced interest rate, refinancing, lengthening the term of the loan, and a repayment plan for missed payments. In all probability, the lender will mail you a loan workout package. It is important that you complete and return these forms quickly.

3. DO RESEARCH; Reread your loan documents to determine what is said about unpaid mortgage payments. Learn about specific foreclosure laws in your state Get in touch with the government housing office where you live.

4. CONSIDER SELLING: Lenders will most likely suspend foreclosure proceedings while your Chester County home is on the market and possibly even eliminate mortgage payments during this time. Explore a short sale.  If the market value of your house is less than you owe, your lender may consider taking the sale proceeds and forgiving the rest of the debt. Or you might give your deed to the lender in return for the loan balance being cancelled. Check with an attorney or housing counselor before taking these actions.

5. BEWARE OF SCAMS! Avoid “foreclosure prevention” companies who offer to negotiate with your lender, will cost you thousands of dollars, and may even “rescue” your home away from you. Do not sign anything from these firms!

6. SET PRIORITIES: Pay the mortgage on your Chester County home before paying credit card debts, doctor bills, or the like. Can you sell a second car or other assets? Could you take a second job to ease the situation? Your lender needs to know that you are serious about trying to find a solution to your financial problems and are willing to make sacrifices to do so.

7. EXPLORE ALL OPTIONS:

        a. Get legitimate help. Contact a HUD approved housing counselor (1-800-569-3287) or 1-888-995-HOPE) for free or low-cost guidance. Help is also available from the National Foundation of Credit Counselors (1-866-557-2227). Also, check with your local bar association or a neighborhood legal services program for pro bono legal representation.

        b. Look into government benefits such as fuel assistance, food stamps, or property tax abatements to help you through this difficult period.

It is important that you be both aware and proactive in your fight to keep your Chester County home!

Settlements provide necessary funds for reliable electric & natural gas service, customer support and low-income assistance.

PHILADELPHIA (Press Release-August 31, 2010) – PECO today filed joint settlement petitions with the Pennsylvania Public Utility Commission (PAPUC) reflecting agreements reached with all interested groups on the increases in natural gas and electric delivery charges beginning Jan. 1, 2011.

“We are pleased to have worked cooperatively with all involved to reach these agreements,” said Denis O’Brien, PECO president and CEO.  “These settlements will help us continue to provide reliable gas and electric service and quality customer care while also managing the impact of these changes to our customers.”

The settlement reflects a $20 million overall increase in natural gas delivery rates and a $225 million increase in electric delivery rates.  Specifically, with these increases PECO will:

• Continue to invest in our electric and natural gas delivery systems – replacing equipment, upgrading infrastructure and investing in new technology.  We plan to invest about $1.7 billion in our electric delivery system and $380 million in our natural gas delivery system during the next 5 years – ensuring reliable service to customers and employing thousands of people in our regional workforce.
• Continue to improve customer service, and expand our natural gas energy efficiency programs.
• Increase assistance to low-income customers by providing more tailored assistance programs and limiting total program costs.

Based on these settlements and electricity purchases to date, PECO now estimates that total prices for residential electric customers will increase less than 10 percent.  For the typical residential electric customer, the increase will be less than $8 per month.  The actual prices that electric customers will pay beginning Jan. 1, 2011 will be determined following PECO’s final electricity purchases this fall.

Costs for our residential natural gas customers are now expected to increase about 8 percent.  For the typical residential natural gas customer, the increase will be less than $8 per month.  The final prices that natural gas customers will pay beginning Jan. 1, 2011 also will be determined later this fall.

This is PECO’s first electric delivery rate request since 1989 and only the second natural gas delivery rate request in 23 years.  The delivery charges are the portion of the bill that covers PECO’s costs to deliver electricity and natural gas to customers.  They represent about one-third of a customer’s overall bill.

The commodity charges, or the electricity and natural gas used by customers, make up the remaining two-thirds of a customer’s total bill.  These charges are passed along directly to customers at exactly the price that PECO pays. 

Customers can offset this increase by taking simple steps to use less energy.  For example, just by replacing five incandescent bulbs with CFLs and raising the thermostat two degrees during the summer customers can save more than $8 a month – totally offsetting the expected increase.

PECO Smart Ideas, our full suite of energy-efficiency programs, has products and programs to help save energy and money:

• PECO has discounted CFL bulbs at more than 700 area stores.  These light bulbs use up to 75 percent less energy and last about 10 times longer than traditional light bulbs.
• PECO is paying rebates to customers who purchase qualified energy-efficient electric appliances, and upgrade to high efficiency natural gas heaters and water heaters.
• PECO is paying incentives to customers who allow us to pick up older, energy-wasting refrigerators and freezers.
• PECO has developed an online home energy audit to help customers understand how they currently use energy and how they can use less. 

PECO also offers payment options, like Budget Billing, to help customers manage their bills.  Budget Billing divides energy costs evenly throughout the year.  Customers also can potentially save money by choosing a competitive electric generation supplier.  To learn more about shopping for a competitive electric generation supplier visit the PAPUC’s website at www.papowerswitch.com.

Programs also are available to help customers who may be struggling to pay their energy bills.  Through PECO’s Universal Services programs, we assist more than 130,000 low-income customers each year with reduced rates, free energy-efficiency improvements and Federal Low-Income Home Energy Assistance Program funding.

As part of the PAPUC review process, the proposed settlements will be reviewed by two administrative law judges prior to final PAPUC ruling later this year.  For more information about upcoming changes in our energy market and how PECO can help, visit www.pecoanswers.com.

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Based in Philadelphia, PECO is an electric and natural gas utility subsidiary of Exelon Corporation (NYSE: EXC). PECO serves 1.6 million electric and 485,000 natural gas customers in southeastern Pennsylvania and employs about 2,400 people in the region. PECO delivered 83.7 billion cubic feet of natural gas and 39.4 billion kilowatt-hours of electricity in 2008.  Founded in 1881, PECO is one of the Greater Philadelphia Region's most active corporate citizens, providing leadership, volunteer and financial support to numerous arts and culture, education, environmental, economic development and community programs and organizations.