New Real Estate Loan Tax Hitting Market Now, by Brett Reichel,

To pay for a two month extension in the payroll tax, Congress (both sides of the aisle), and the President have decided to tax real estate loans for the next ten years. This was voted in recently, and will now start affecting real estate transactions.

It’s not been publicized as a tax because it’s been identified as an increase in the agency’s “Guarantee Fee”. But the money does not go to the agency’s, it goes directly to the US Treasury. The fee is only 10bps(bps stands for “basis points” which means 1/100th of a percent, or .1%). But, when market factors come into play(like lock term, etc.), it will be more. The largest US mortgage lender said recently that some programs will be affected as much as 80 bps.

This will not be an additional fee on the Good Faith Estimate, but will be factored into pricing. Industry estimates conclude that the typical borrower will pay approximately $4,000 more during the life of their loan.

Let’s face it, this is a tax. A couple interesting thoughts come to mind when considering this new tax.

First, since Fannie Mae and Freddie Mac are now a funding source for the US budget this works against the goal of both parties to “wind them down”, or eliminate them and replace them with private funding sources.

Second, for those of you who will immediately jump on this as “liberal” spending….the “conservatives” were also in favor of this new tax, despite their signing of the “no new taxes” pledge.

Third, housing has led the economy out of recession historically. Housing is still hurting nationally. The Federal Reserve has kept interest rates low to stimulate the economy and just last week wrote a letter to Congress expressing the importance of housing in revitalizing the economy. It makes you wonder why all these “job creators” in Washington, D.C. are for this tax that will serve as an additional barrier to stimulating housing and create jobs.

It would appear that the Nation’s leaders have other priorities. What they are, who knows



Brett Reichel


Owners Escape Tax Debt By Rebuying Foreclosed Homes, by Christine MacDonald/ The Detroit News

Detroit —Landlord Jeffrey Cusimano didn’t pay property taxes on seven of his east-side rentals for three years, owing the city of Detroit more than $131,800.

Typically, that would mean losing the properties. But Cusimano not only got to keep them — his debt, including interest, fees and unpaid water bills, was virtually wiped free.

Cusimano and a growing number of Detroit property owners are using a little-known loophole to erase tax debt by letting their properties go into foreclosure and then buying them back a month later at the Wayne County Treasurer‘s auction for pennies on the dollar.

It’s legal. But that doesn’t mean it’s fair, said homeowner Marilynn Alexander, who lives on Fairmount next door to one of Cusimano’s rentals. The landlord owed $26,200 in taxes and other fees on the bungalow, but bought it back in October for $1,051.

“He shouldn’t be able to get away with that,” said Alexander, a 57-year-old laundry worker who said she scrapes together every year her $1,500 in property taxes at the house where she’s lived for 20 years. “That’s not a fair break to anybody else out here.”

Critics described it as a growing problem as the foreclosure crisis deepens. A record number of properties — nearly 14,300 — are expected to be auctioned this fall, and officials predict more owners will try to buy back their properties.

The News identified about 200 of nearly 3,700 Detroit properties sold at auction last year that appeared to be bought back by owners, some under the names of relatives or different companies and many for $500. The total in taxes and other debts wiped away was about $1.8 million.

“I don’t think it’s OK; it’s just how things are,” said Cusimano, who argues Detroit taxes are so unfairly high he was forced to buy back the foreclosed properties.

At the September auction, the properties’ prices are the debt that’s owed. But in October, the county treasurer sells off whatever is left at a $500 opening bid. That’s where most of the sales happen, including owners buying back their properties.

There’s an effort in Lansing to ban the practice, but others defend it.

Many of those defenders are struggling homeowners, said Ted Phillips, who runs a legal advocacy nonprofit agency. He helped about 140 families buy their houses back last year and expects to “easily” double that in October.

“It’s absolutely better to have folks in their homes,” said Phillips, executive director of the United Community Housing Coalition.

“The system is just so broken. This is a little bit of a way to correct the broken system. Not a great way, but a way.”

But he agreed that others who can afford to pay the taxes are exploiting the loophole and should be stopped.

Besides Cusimano, well-known land speculator Michael Kelly bought back three properties last fall through a company he is affiliated with to erase a $37,595 debt. The News profiled the Grosse Pointe Woods investor who, through the tax sale, gained control of more Detroit properties than any other private landowner as of earlier this year.

Cusimano, who owns about 80 rentals, makes no apologies and blamed Detroit for failing to reduce his assessments on homes whose values have crashed. He said he’s got small bungalows with $4,000-a-year tax bills, which he argues sometimes is more than the house is worth.

“The taxes are ridiculous,” Cusimano said. “I don’t even pay that for my house in Clinton Township.”

Huge debts wiped clean

The savings can be striking.

One owner bought back her storefront on West Seven Mile last year for $15,000, eliminating nearly $37,000 in debt. Another owed $23,100 on two buildings and a parking lot on Conant, but bought each back for the minimum $500.

And Cusimano got his seven rentals back for $4,051, erasing nearly $128,000 in property taxes and other government liens.

Cusimano, a landlord in the city for two decades, said the method wasn’t his first choice. He said he tried to appeal his high taxes without success. He admits he’s taking advantage of the loophole, but said he must to survive the tough economic times.

“You just have to go with how the system goes,” said Cusimano. “I have been learning that in the last few years.”

Owners often buy back their properties using the same name under which they lost them. And there’s generally a low risk of getting outbid because of the glut of vacant land. Last fall, at least 6,847 parcels in Detroit went into the city’s inventory after they didn’t sell at auction.

Landlord Allen Shifman justified his buys, saying “every house is going to the highest bidder.” He owed $35,300 on three properties owned by one business in which he has an interest, but bought them back under another affiliated business for $3,500.

Shifman described them as “garbage properties” even though the city puts the three houses’ market value between $20,000 and $60,000. He said many of the city’s landlords are struggling.

“It didn’t work out that well for me,” Shifman said of repurchasing the properties. “I didn’t get anything for my money.

“The taxes are more than it’s worth. The houses don’t have any value at all. If the properties were worth the value of the houses, people would pay the taxes.”

Detroit’s tax rates — 65 mills for homeowners and 83 mills on other property owners — are the highest in the state, according to a recent Citizens Research Council of Michigan report. The average statewide rate is 31 mills for homeowners and 48 mills for other property owners.

Dan Lijana, a spokesman for Mayor Dave Bing, said the city has been reducing residential assessments “in the double-digit range” over the last four years, but that “distressed sales,” such as the sales from the county auction, can’t be a factor.

Cusimano’s neighbors on Fairmount, a street in northeast Detroit with mostly maintained aluminum-sided bungalows, argued they are paying taxes and were angered when told of the loophole.

“OK, he gets to buy his back and my mother has to struggle?” said Tekena Crutcher, who lives with her mom. “The city is the way it is because of people like him not paying his taxes.”

Alexander said she’s suffering from throat cancer, but pays her taxes.

“It’s disappointing to know that the system is set up like that and things like this are allowed to happen,” she said.

Lijana said City Hall is looking at the city’s tax structure and the auction loophole.

“We are working to make the City of Detroit run more like a business,” Lijana said in an email. “This is an example of a challenge that we are looking to address both from a fiscal perspective and as a land use policy.”

Legislation aimed to stop it

Wayne County Chief Deputy Treasurer David Szymanski, whose office runs the auction, said it’s frustrating to see people ditch tax obligations, but the law allows for it.

“There is no restriction in the law about who can or cannot bid at auction,” Szymanski said. “It’s such a tough issue.”

“It’s clearly in the best interest to keep people in their homes. But it’s a very bitter pill for the people next door.”

Mah-Lon Grant, 62, and Gloria Grant, 57, said they would be homeless and their house likely gutted if Phillips’ nonprofit group hadn’t helped them buy it back.

Their debt only was about $5,500, but it was overwhelming.

The couple got behind on their taxes after losing their landscaping business when Mah-Lon Grant went to prison in 2005 for five years on felony firearm and assault charges, according to state records. He said the situation got out of control while he was defending himself as he collected a debt from an associate.

“If we had to do it ourselves, I don’t think we would have been able to do it,” Mah-Lon Grant said. “There’s no way we could catch up.”

“We are barely surviving.”

The couple was able to buy the house, where they’ve lived for 34 years, back at auction for $500. They live there with their 22-year-old son and 15-month-old great-granddaughter.

He said his family is different from other property owners using the loophole.

“They are doing it for profit,” Grant said. “We are doing it for survival.”

State Sen. Tupac Hunter, D-Detroit, has introduced legislation to ban buyers who owe back taxes.

He said he’s looking to retool it to make sure nonprofits can buy properties on behalf of families, such as the Grants.

But Hunter said he wants to stop “land speculation and the scavenging currently going on in Wayne County’s tax foreclosure auctions.”

“My intent is to make it more difficult for land speculators to game the system,” Hunter wrote in an email.

Szymanski said his office opposes Hunter’s bill because it’s too restrictive, but is brainstorming ways to prevent owners who can pay their taxes from buying back properties.

“We want to help people in need, not make people rich,” Szymanski said.

But Shifman and others who oppose limits on who can buy at auction said it will only hurt taxpayers further.

All the revenue raised at the auction goes back to the city, schools and library.

“I don’t know what the county is going to do without all those proceeds,” Shifman said. “You will eliminate a lot of buyers.”

(313) 222-2396

From The Detroit News:

9 Commonly Forgotten Tax Deductions, by

It is that time of year again. Now that the ball has dropped on 2011, it’s time to celebrate the beginning of tax season. In order to help get you organized and prepared for the grueling task of filing your taxes, here are some tax deductions that are often overlooked. By taking advantage of them, you have the potential to save hundreds or thousands of dollars.

1. Sales and Income Tax Many filers forget to include state sales and income tax as deductions. If you live in a state that doesn’t impose an income tax, adding up all the tax you’ve paid on personal and household items can really mount up. On the other hand, if your state does have an income tax, it’s usually a better strategy to claim that as a deduction for more savings unless you made some high-ticket purchases such as a car or boat.

2. Dividends If your investments have earned you a return this year, you can save money if you take advantage of special tax breaks. If you reinvest your dividends to purchase more shares rather than taking the income they’ve generated, you’ve reduced your current tax liability. This is one deduction a lot of investors miss.

3. Demutualization If your insurance company switched its status from being a mutual insurer and began offering stock to stockholders, this process of demutualization will save you money if you sold your shares based on what the share were worth when they were distributed to you as a former policyholder.

4. Charitable Donations Out-of-pocket charitable contributions are often overlooked, especially if they were in the form of many small donations rather than a few large ones. If you’ve covered the cost of postage, baked cookies for fundraisers or given rides to the clients of nonprofit organizations, save your receipts. If they total more than $250, you can deduct the amount if you have documentation from your favorite nonprofit. If you provided rides or did other significant driving, claim 14 cents per mile for this deduction.

5. Childcare If you’re a working parent and your kids spend part of the day with a sitter or in child care, claim those expenses as a tax credit. If you have childcare reimbursement through your place of work, you can easily overlook the additional costs you incur beyond the $5,000 or $6,000 allocated by these accounts. Don’t miss out on significant savings; save the receipts for sitters and after-school care. If your children are older and in college, don’t forget to deduct the interest you’ve paid on their student loans throughout the year.

6. Job Search Job losses and career changes aren’t all bad. If you were looking for a job in your previous field; had business cards printed; mailed out resumes; drove to an interview; paid for meals, lodging, and parking for an overnight trip or paid for advertising or employment agency fees, you can deduct those costs up to 2 percent of your adjusted gross income.

If you are a first-time job seeker, you can’t claim those deductions, but you can claim your moving expenses if the new job is more than 50 miles from your old place of residence. You can claim the costs of moving your belongings to the new site, plus 16.5 cents for driving your vehicle there as well as parking and toll fees.

7. Mortgage Interest and Remodeling If you’re a homeowner, you’re luck continues. If you remodeled your existing home, deduct state sales tax for building materials if you’re itemizing. If you bought your house, be sure to claim the interest paid on the points on your mortgage. If you’ve refinanced, you have to distribute the points interest over the life of the mortgage. If you’ve made your home more energy-efficient, you can get a 30 percent credit of the purchase price, up to $1,500.

8. Military Travel If you are a member of the National Guard or are a military reservist, part of your travel expenses for attending meetings or drills more than 100 miles from home and overnight stay are deductible even if you don’t itemize. You can write off all your lodging cost and half your meal expenses, as well as mileage and tolls if you drove your own vehicle. Mileage is reimbursed at 50 cents per mile.

9. Self-Employment With widespread job loss, many Americans have switched to self-employment. This freedom comes at a price. These workers not only have to buy their own health insurance, they also pay a hefty self-employment tax. Make sure to deduct the cost of health insurance premiums you pay for yourself and your family. This reduces your self-employment tax. You’re going to have to dig a bit through Schedule SE. Your health insurance figure from Line 29 is subtracted from your calculated self-employment tax on Line 3.

What other commonly overlooked tax deductions can you think of?

This article was written by Bob who runs, a personal finance blog tackling the topic using Biblical principles.