1) Your IRA Cannot Purchase Property Owned by You or a Disqualified Person
One of the most common questions about real estate IRAs is: “Can my IRA purchase a property that I currently own?” The answer is always no.
IRS regulations don’t allow transactions that are considered “self-dealing,” and they don’t allow your self-directed IRA to buy property from or sell property to any disqualified person, including yourself. Fiduciaries (which in the case of a self-directed IRA includes you, as the IRA owner and service providers); and the following family members of the IRA owner:
- Grandparents and Great-Grandparents;
- Children (and their spouses);
- Grandchildren and Great-Grandchildren (and their spouses).
2) You Cannot Have “Indirect Benefits” from Property Owned by Your Self-Directed IRA:
Can your self-directed IRA purchase a vacation home for you to occasionally use? Can you rent office space for yourself in a building that your self-directed IRA owns? No.
The purpose of the IRA is to provide for your retirement at some future date. It’s not intended to benefit you (or any other disqualified person) today. If your IRA engages in a transaction that, in some way, benefits you or a disqualified person, this is considered an “indirect benefit.”
3) Real Estate IRA Investments are Uniquely Titled:
You and your IRA are two separate entities. As such the investment needs to be titled in the name of your IRA – not in your personal name. All documents related to the investment must be titled correctly to avoid delays.
The correct title for most real estate IRA investments is:
“TRUST Company Custodian FBO [for benefit of] [Your Name] IRA”
4) Real Estate in an IRA Can Be Purchased without 100% Funding from Your IRA:
You can purchase property in more ways than just an outright purchase of the full amount from your account. These other options include using undivided interest and partnering with others.
5) IRA Investments that Use Financing Must Pay UBIT:
Your self-directed IRA can purchase real estate using financing as long as the loan is non-recourse. If you do use financing, unrelated business income tax (UBIT) is due.
6) Real Estate IRA Expenses Must Be Paid from Your IRA:
All expenses related to property owned by your self-directed IRA (maintenance, improvements, property taxes, condo association fees, general bills, etc.) must be paid from your IRA.
7) Real Etate IRA Income Must Return to Your IRA:
All income generated by property owned by your self-directed IRA must be paid into your IRA.
There are three basic ways to purchase real estate with a self directed IRA:
• Purchase with cash
• Partner with family, friend, or business associate
• Borrow money for investment
1) Purchase with Cash – The Most Straightforward Approach
If you have sufficient funds in your self directed IRA to cover the purchase price, closing costs, taxes, insurance, etc., you can purchase a property outright. All ongoing expenses are paid in total from your self directed IRA, and all income/profits are returned in total to the IRA.
2) Partner with Family, Friend, Business Associate
If you don’t have enough funds for a cash purchase, your self directed IRA can purchase an undivided interest in a property.
For example, your self directed IRA could partner with a family member, friend, or business associate to purchase a property for $100,000. The friend could provide 70% of the purchase price ($70,000), and your self directed IRA could purchase the remaining 30% ($30,000).
All ongoing expenses must be paid in relation to your percentage ownership. In our example, for a $1,000 property tax bill, the friend would pay $700 (70%) of the bill and your self directed IRA would pay $300 (30%).
Likewise, if the property collected monthly rent of $1,000, the friend would receive $700 (70%) and your self directed IRA would receive $300 (30%).
3) Borrow Money (Receiving a Loan) for Investment
An IRA may obtain financing (loan/mortgage) for a real estate investment. However, you must be aware of two points when considering this option:
• Loan must be non-recourse – Per IRS regulations, an IRA cannot guarantee a loan or be used as collateral. A non-recourse loan only uses the property for collateral. In the event of default, the lender can collect only the property and cannot go after the IRA itself.
• Tax is due on profits from leveraged real estate – If your IRA uses debt financing (i.e., obtains a loan) on a real estate investment, a tax will probably be due on profits. This tax is called unrelated business income tax “Unrelated Business Income Tax (UBIT).
Innovative predictive score can help lenders safely grow mortgage origination volumes
SANTA ANA, CA—July 10, 2012—CoreLogic (NYSE: CLGX), a leading provider of information, analytics and business services, and FICO (NYSE: FICO), the leading provider of predictive analytics and decision management technology, today jointly introduced a high-performance consumer credit risk score that is expected to improve lending decision quality and increase the number of mortgage loans lenders make. The new FICO® Mortgage Score Powered by CoreLogic® evaluates the traditional credit data from the national credit data repositories and the unique supplemental consumer credit data contained in the CoreLogic CoreScore™ credit report, introduced in October 2011, to deliver a more comprehensive and accurate view of a consumer’s credit risk profile for loan prequalification and origination.
The new scoring model was designed specifically to predict mortgage loan performance and has shown a substantial improvement in risk prediction over other generally available risk scores in use today. As a result, this new scoring model developed by FICO to leverage data only available on the CoreLogic CoreScore credit report, will help mortgage lenders more safely and profitably expand their origination volumes, ultimately strengthening and growing the overall mortgage lending market.
According to a recent FICO quarterly survey of bank risk professionals, conducted by the Professional Risk Managers’ International Association (PRMIA), bankers continue to lack confidence in the housing finance marketplace. Of bankers surveyed, approximately 75 percent of respondents expect the level of mortgage delinquencies to increase or stay the same over the six-month period following the survey, and more than 85 percent hold the same view for home equity line delinquencies.
“In this complicated operating environment, lenders are increasingly turning to new data sources to help better interpret a consumer’s credit risk, so that more loans can be approved while mitigating potential losses,” said Tim Grace, senior vice president of product management at CoreLogic. “Today, we are announcing an industry first—a new composite, multi-bureau credit score generated from both traditional credit data and CoreLogic supplemental data, expanding the applicant credit spectrum by including property transaction data, landlord/tenant data, borrower-specific public data, and other alternative credit data. For a top-20 lender processing 300,000 applications a year, adopting this new score could translate into 3,900 more loans approved every year along with a net financial benefit of $14.5 million. As such, it not only provides a more complete and predictive evaluation of a consumer’s credit risk profile, but it can empower lenders to better mitigate risk and approve more loans for more consumers.”
“The new FICO Mortgage Score is designed especially for prequalification and origination and delivers increased insight when it matters most,” said Joanne Gaskin, senior director of Scores product management and mortgage practice leader at FICO. “For many lenders, the increased predictive lift will translate into thousands of new mortgages, and the avoidance of millions of dollars in bad loans and associated costs. This innovation is a win-win for lenders and consumers alike.”
The new FICO® Mortgage Score Powered by CoreLogic® maintains a consistent score range, set of reason codes and odds-to-score relationship with prior FICO® Score versions, making it easy for lenders to integrate and for consumers to understand. Additionally, the CoreScore Solution maintains backward compatibility making it readily available within existing CoreLogic Credco Instant Merge® integrations – the most widely used credit report in the mortgage industry.
For more information about the new FICO® Mortgage Score Powered by CoreLogic® and the CoreScore credit report, visit http://www.CoreScore.com.
About CoreLogic CoreLogic (NYSE: CLGX) is a leading provider of consumer, financial and property information, analytics and services to business and government. The Company combines public, contributory and proprietary data to develop predictive decision analytics and provide business services that bring dynamic insight and transparency to the markets it serves. CoreLogic has built one of the largest and most comprehensive U.S. real estate, mortgage application, fraud, and loan performance databases and is a recognized leading provider of mortgage and automotive credit reporting, property tax, valuation, flood determination, and geospatial analytics and services. More than one million users rely on CoreLogic to assess risk, support underwriting, investment and marketing decisions, prevent fraud, and improve business performance in their daily operations. The Company, headquartered in Santa Ana, Calif., has approximately 5,000 employees globally. For more information, visit http://www.corelogic.com.
CORELOGIC, the stylized CoreLogic logo, CREDCO and INSTANT MERGE are registered trademarks owned by CoreLogic, Inc. and/or its subsidiaries. CORESCORE is a common law trademark owned by CoreLogic, Inc. and/or its subsidiaries. All other trademarks are the property of their respective owners. No trademark of CoreLogic shall be used without the express written consent of CoreLogic.
CoreLogic Statement Concerning Forward Looking Statements Certain statements made in this news release are forward-looking statements within the meaning of the federal securities laws, including but not limited to those statements related to the mortgage default industry, expected number of future mortgage delinquencies, benefits of the CoreLogic CoreScore credit report and/or the new credit score. Factors that could cause the anticipated results to differ from those described in the forward-looking statements are set forth in Part I, Item 1A of CoreLogic’s most recent Annual Report on Form 10-K for the year ended December 31, 2011, including but not limited to: limitations on access to data from external sources, including government and public record sources; changes in applicable government legislation, regulations and the level of regulatory scrutiny affecting our customers or us, including with respect to consumer financial services and the use of public records and consumer data which may, among other things, limit the manner in which we conduct business with our customers; compromises in the security of our data transmissions, including the transmission of confidential information or systems interruptions; difficult conditions in the mortgage and consumer credit industry, including the continued decline in mortgage applications, declines in the level of loans seriously delinquent and continued delays in the default cycle, the state of the securitization market, increased unemployment, and conditions in the economy generally; our cost reduction initiatives and our ability to significantly decrease future allocated costs and other amounts in connection therewith; risks related to our international operations and the outsourcing of various business process and information technology services to third parties, including potential disruptions to services and customers and inability to achieve cost savings; and impairments in our goodwill or other intangible assets. The forward-looking statements speak only as of the date they are made. CoreLogic does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.
About the FICO® Score With over 10 billion FICO® Scores used worldwide to empower lenders to make credit decisions, the FICO® Score has become the standard measure of credit risk worldwide. FICO® Scores are used today in more than 20 countries on five continents, as well as all of the top 50 U.S. financial institutions and both the 25 largest U.S. credit card issuers and auto lenders. The latest FICO® Score version, the FICO® 8 Score, has already been adopted by more than 7,500 lenders.
About FICO FICO (NYSE:FICO) delivers superior predictive analytics solutions that drive smarter decisions. The company’s groundbreaking use of mathematics to predict consumer behavior has transformed entire industries and revolutionized the way risk is managed and products are marketed. FICO’s innovative solutions include the FICO® Score — the standard measure of consumer credit risk in the United States — along with industry-leading solutions for managing credit accounts, identifying and minimizing the impact of fraud, and customizing consumer offers with pinpoint accuracy. Most of the world’s top banks, as well as leading insurers, retailers, pharmaceutical companies and government agencies, rely on FICO solutions to accelerate growth, control risk, boost profits and meet regulatory and competitive demands. FICO also helps millions of individuals manage their personal credit health through http://www.myFICO.com.
FICO: Make every decision count™. For FICO news and media resources, visit http://www.fico.com/news.
Statement Concerning Forward-Looking Information Except for historical information contained herein, the statements contained in this news release that relate to FICO or its business are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the success of the Company’s Decision Management strategy and reengineering plan, the maintenance of its existing relationships and ability to create new relationships with customers and key alliance partners, its ability to continue to develop new and enhanced products and services, its ability to recruit and retain key technical and managerial personnel, competition, regulatory changes applicable to the use of consumer credit and other data, the failure to realize the anticipated benefits of any acquisitions, continuing material adverse developments in global economic conditions, and other risks described from time to time in FICO’s SEC reports, including its Annual Report on Form 10-K for the year ended September 30, 2011 and its last quarterly report on Form 10-Q for the period ended December 31, 2011. If any of these risks or uncertainties materializes, FICO’s results could differ materially from its expectations. FICO disclaims any intent or obligation to update these forward-looking statements.
FICO and “Make every decision count” are trademarks or registered trademarks of Fair Isaac Corporation in the United States and in other countries.
Governor signs California Homeowner Bill of Rights into law
California Governor Jerry Brown signed into law today the Homeowner Bill of Rights to help struggling Californians keep their homes. This law aims to avoid foreclosure where possible to help stabilize California’s housing market and prevent the other negative effects of foreclosures on families, communities, and the economy. The new law will generally prohibit lenders from engaging in dual tracking, require a single point of contact for borrowers seeking foreclosure prevention alternatives, provide borrowers with certain safeguards during the foreclosure process, and provide borrowers with the right to sue lenders for material violations of this law.
The Homeowner Bill of Rights has four major components:
- Prohibiting “dual track” foreclosures that occur when a servicer continues foreclosure while also reviewing a homeowner’s application for a loan modification;
- Creating a single point of contact for homeowners who are negotiating a loan modification;
- Expanding notice requirements that must be provided to a borrower before taking action on a loan modification application or pursuing foreclosure; and
- Allowing injunctions against foreclosure until violations are corrected and permitting civil penalties against servicers that file multiple, inaccurate mortgage documents or commit reckless or willful violations of law.
These new laws make California the first state in the nation to take provisions in the National Mortgage Settlement, which covered the nation’s five largest mortgage loan servicers, and apply those rules to all mortgage servicers.
C.A.R. opposed this well-intentioned legislation because it will encourage the filing of lawsuits intended for delay and further discourage lending.
While C.A.R. is disappointed in the final outcome, the good news is that what has passed is a much-improved version of the package of bills initially sponsored by the Attorney General, which would have originally halted ALL foreclosures, drying up both REO inventory and even short sales.
C.A.R. will continue to fight for the thoughtful, balanced reform of the foreclosure process. For example, C.A.R. is sponsoring AB 1745 (Torres) which prohibits “dual tracking” to prevent lenders from selling a property at a foreclosure sale if a short sale has already been approved. C.A.R. has also worked cooperatively with the Attorney General on several of the bills in her “bill of rights.”
The law will go into effect January 1, 2013. For full text of the bills, visit: http://leginfo.ca.gov/bilinfo.html.
California Association of Realtors®
Principle of Change
When looking at value in real estate, it’s important to consider these principles of real estate marketability to see how pricing is determined. A great number of factors establish owner occupied and investment prices, including supply and demand, competition, conformity, gross rental income and more.
Cities, neighborhoods, and developments experience change, whether it is growth or decay. Nothing really stands still. Economist’s note that cities and states alike experience four distinct stages of change, including development, stability, decline, and renaissance.
The stage of the city, county or development for which the subject property lies will have an effect on the value of the property.
Principle of Competition
When there is strong demand for real estate, profits rise and competition stirs. With this increased competition and profit comes more home building and development. Unfortunately when excessive profits are available, a surplus of competition can create an oversupply of housing, and collapse the market. Something we’ve seen lately in the United States with the so-called “housing bubble”.
Principle of Conformity
Many housing markets thrive on conformity. If the properties of a given market are all similar in type, size, style, age, quality, etc, the maximum value is a result. If for example, a non-conforming home, such as 6-bedroom home is situated in a 3-bedroom community, the true value will not be realized.
Principles of Progression and Regression
Related to conformity, the principle of regression tells us that high-valued properties tend to suffer when found in close proximity to lower-valued homes. While the principle of progression assumes that lower-valued homes will see increased value if found amongst higher-valued properties. That’s why you always hear people saying, “buy the cheapest property on the block”, as the weight of those around it will make it more valuable.
Principle of Substitution
When setting a market price for a piece of property, the cost of acquiring or constructing a similar property must be considered. If the asking price of a home is $500,000, but similar homes in the neighborhood sell for $450,000, chances are the home will not sell for the full asking price. The same is true if the cost of constructing a new home (along with lot lost) is less than the asking price of $500,000.
Principle of Supply and Demand
When demand is greater than supply, the price of homes and rent go up, and the inverse is true as well. When demand is strong, homebuilders should react by increasing development to meet the demand, and keep prices at bay. However, if the reaction to demand is too strong, overproduction can occur, leaving a surplus of property and weak demand, followed by lower house values.
When supply and demand are a perfect equilibrium, the cost of production (along with the profit) should be reflected in market prices.
David Gutierrez III, REALTOR®