Cash On Delivery

In the normal world of commerce, “COD” means you GET something of value when you pay “cash on delivery”. As is often the case, the Internal Revenue Service has given a new meaning to “COD”. In their lexicon, COD means you pay them cash when you GIVE up something.

If you are the owner of commercial real estate financing with recourse debt and the value of the property is less than the mortgage amount, brace yourself for an introduction to the IRS version of COD. In the situation when the value of your property is less than the mortgage amount and you don’t have enough cash flow to pay the current principal and interest when due, you have four “traditional” options and one contrarian option.

First, you can raise new capital to subsidize the mortgage payments or to pay down the loan to a level that is serviced from the current cash flow. The obvious peril, in this case, is that you may be throwing good money after bad. If the value of the property is more than 20% below the mortgage amount, it may be a very long time before the cash flow grows sufficiently to bring the property value back even with the mortgage amount. This option is less attractive given that in many markets values on certain commercial property types have declined 40% or more and rents are flat or declining while most expenses are rising. Add to that fact pattern the reality that in order to refinance your property at maturity the property will need to be valued at 125 – 135% of the maturing mortgage amount, and you really have to challenge whether it makes sense to pour more money down a rat hole.

Second, if your lender is enlightened about the reality of property values and the length of time it is likely to take for property values to recover, you may be able to convince your lender to “write down” the loan amount. This is when you need to know all about the IRS version of COD, which is “cancellation of debt”. Whether your mortgage is recourse or non-recourse, the amount by which the loan is written down results in ordinary income to the owners. There are certain exceptions, such as bankruptcy and insolvency, to the current recognition of COD income. However, if the property is owned by a pass-through entity, such as a partnership or limited liability company, the exceptions for bankruptcy or insolvency are applied at the partner or member level.

Third, you can capitulate to foreclosure or do a voluntary deed-in-lieu (“DIL”) of foreclosure. In the common vernacular, you just hand the keys to the lender. However, the pain is not over and the IRS will be standing at the exit door to collect taxes on the COD and, in many cases, gain on the sale. If the property was financed with recourse debt, the measure of the COD is the difference between the fair market value of the property and the debt balance. In addition, since a foreclosure or DIL is treated for tax purposes as a sale of the property, in the case of property financed with recourse debt you will have a gain equal to the difference between the fair market value of the property and the adjusted tax basis of the property. In the case of property financed with non-recourse debt, foreclosure is treated for tax purposes as a sale of the property for an amount equal to the debt amount and you will have taxable gain equal to the difference between the debt balance and the adjusted tax basis of the property/

Fourth, the entity owning the property, either a partnership or limited liability company in most cases, may file a petition under Chapter 11 of the U.S. Bankruptcy Code. Debt canceled in a Chapter 11 reorganization case is not included in your income if the debtor is under the jurisdiction of the court and the cancellation of debt is granted by the court or occurs as a result of a plan approved by the court. For individual partners or LLC members, the bankruptcy exception to the recognition of COD applies at the partner or member level. Accordingly, if the partnership files for bankruptcy protection and achieves cancellation of debt under the supervision of the bankruptcy, the COD income will still be included in the ordinary income of the partner or member unless the partner or member is insolvent or has filed a petition under Chapter 11. Given the cots of prosecuting a case in the Bankruptcy Court, the stigma associated with bankruptcy filings, and the fact that the individual partners or members may still recognize ordinary income, the bankruptcy option may not be the best alternative.

Given the unattractive consequences of these traditional options to resolving distressed commercial real estate, a distressed borrower must ask what other options are available. There is at least one contrarian firm, Abacus Financial, LLC, that offers a compelling contrarian option. Abacus seeks to acquire well-located commercial real estate at a price greater than the debt encumbering the property, regardless of the value of the underlying collateral. The silver lining for the distressed borrowers is that they are relieved of dealing with the day-to-day harassment by lenders, unpaid vendors, and disgruntled investors AND they accomplish a sale at above-market prices while realizing capital gains, rather than ordinary income.

Before making any decision about how to resolve your distressed commercial real estate you should consult your attorneys and tax advisors and make a “reality check” on when you think the property may recover sufficient value to enable you to refinance without writing a huge check to your lender.

Reasons To Hire Laguna Beach Real Estate Agent

Whether or not to hire an agent is perhaps the first thing on every home buyer’s mind. But in a market like Laguna Beach, the answer is simple, it’s always worth the money. A Laguna Beach real estate agent does more than just show you homes–he or she also helps you plan your purchase from start to finish. Sure, it may cost more at the outset, but when you’re about to make your life’s biggest investment, it always helps to work with the pros. If you’re not sure you need a real estate agent Laguna Beach, read on for a few good reasons.

Market knowledge
The main advantage of a Laguna Beach real estate agent is knowledge: they know their way around the market and can easily tell you which homes are worth it. Although there’s no formula for market values, a real estate agent Laguna Beach can recognize trends that the average home buyer might miss. Besides home prices and mortgage rates, an agent can also offer neighborhood information such as demographics and local transport.

Buying advice
If you’re a first-time homebuyer, much of the process is probably new: comparative market analyses, purchase offers, closing costs. While you can certainly pick things up on your own, working with a Laguna Beach real estate agent can help you avoid common pitfalls and make sure you know where your money is going. They can help you set a budget, define your preferences, and determine whether or not a home is worth its price.

Paperwork assistance
Home buying involves a good deal of documentation, from financial statements to purchase contracts. Even for experienced buyers, this usually entails a lot of work. With a real estate agent, Laguna Beach home buying doesn’t have to take up hours of poring through documents and fine print. You’ll still have to read before signing, of course, but an agent can explain things more clearly and leave you more time for your home search.

Smart negotiation
An agent’s primary job is to help you get the home you want for the best possible price. This means negotiating for purchase terms that make financial sense for both parties. It’s not just about haggling: it’s also about making sure your money goes a long way. For example, if you pay $500,000 for a home, would that include inspections and title insurance? These are complicated questions, but with a Laguna Beach real estate agent, you can make smart decisions that will benefit you in the long run. For more information

Manhattan Mortgage Rates – To Understand Borrowing Options Better

Buying a house means an investment of a lifetime. So, one should take time in getting the proper mortgage quotes. In Manhattan, a buyer can compare the mortgage rates offered by different lenders and choose the best suitable one. According to a recent report by Jonathan J. Miller, president of the appraisal firm Miller Samuel, the Manhattan residential real estate market has stabilized. Mortgage rates are now at record lows and the prices are still much below peak levels.

Only opting for the lowest mortgage rate will not be a good idea. A buyer also needs to see the other terms and conditions stated in the mortgage before finalizing the deal. A person can also get an online mortgage quote. He needs to fill out a form that asks for some basic information like-

* Credit report: A person having an excellent credit report is likely to get a lower interest rate on a home loan.

* Type of mortgage: Whether the person wants to take a fixed-rate, adjustable-rate, hybrid, or a balloon loan. If a borrower wants to refinance his existing loan, the terms and conditions will be slightly different.

* Loan term: If a person opts for a longer loan term, the interest rate will be more.

* Type of home: The interest rate will also depend on the type of real estate property. The property can be an apartment, a single-family unit, a duplex, or a condominium.

* Percentage of down payment: A person needs to pay 20% of the total loan amount toward a down payment. However, if one is unable to do so, he needs to buy PMI (Private Mortgage Insurance). This insurance ensures repayment of the mortgage amount to the lender, in case the buyer fails to make payments.

* Loan amount: The mortgage rate also depends on the amount of loan taken by the homebuyer.

In Manhattan, mortgage rates for both commercial and residential properties in case of adjustable type are set to recast. If you are a resident here and want to get low Manhattan mortgage rates, log onto Great Northern Mortgage Corp. is ready to help you whether you are looking for Manhattan mortgage rates for refinancing or purchasing a new property. They provide loans that will be specifically tailored to your needs. Each acquisition will receive the best Manhattan mortgage rates and terms. You will also receive unsurpassed customer service and customized product knowledge. Their team of professionals will help you in every process from initial loan application to closing. Visit them and make your real estate transaction a smooth one.