Good news for T exas veterans who want to buy land! In his first act as chairman of the Texas Veterans Land Board (TVLB) Texas Land Commissioner George P. Bush increased the land loan limit . The previous land loan limit was $100,000. Texas veterans are now eligible for low-interest land loans up to $125,000. This is the apparently the maximum loan by the TVLB allowed by Texas law.
The TVLB loan requirements are:
1. For the purchase of one acre or more.
Those who follow the oil and gas industry, especially in Texas, are always interested in indicators of the health of the industry. One recent news story that caught my eye on this front was Chevron’s announcement of construction of a 50-story new office at 1600 Louisiana Street in downtown Houston, Texas, calling the city the “epicenter” of the global energy business. This is great news for the industry, the city, and the state of Texas, and it shows that Chevron is committed to continued growth and investment in our state.
The new skyscraper, set to be one of the tallest buildings in the city, will be 1.7 million square feet of office space and will be designed by the architecture firm HOK. When combined with Chevron’s current buildings at 1500 Louisiana Street and 1400 Smith Street, there will be a Chevron campus, including indoor and outdoor areas, a fitness center, and extra parking. The Texas Enterprise Fund has said it will supply $12 million towards the project. Chevron anticipates being able to move into the newly constructed building in 2016 and it is expected to have office space for as many as 4,200 workers.
Despite these new plans and greatly expanded office space, Chevron says that the company will not move its headquarters to Houston, but will keep it in San Ramon, California where it has been for 130 years. However, in April, 2013 Chevron eliminated about 11% of jobs at the San Ramon location, (about 400 jobs), as it relocates more of its offices to Houston. Nine of the businesses that Chevron owns have their headquarters in Houston and overall the company employs an estimated 9,000 people in the Houston area. Bereket Haregot, president of Chevron’s business and real estate services group, said, “The announcement of our new office building underscores Chevron’s long-term commitment to Houston and Texas. The Lone Star State and its largest city play a vital and growing role in Chevron’s global business.”
There seems to be a steady stream of good news as the oil and gas industry in Texas continues to show signs of expansion. However, one potential problem area which might impact our growing economy relates to taxes. It remains to be seen how some of the President’s tax proposals may affect the industry and its operation. For example, “Obamacare,” officially called the Affordable Care Act, was recently upheld as constitutional. On January 1st of this year, the so-called “Medicare tax” portion of the bill went into effect, creating an investment surtax on rental income properties. The tax is 3.8%, and will not affect real estate companies or full time real estate professionals managing properties. To qualify for an exemption, the person must show that they spent over 500 hours a year (about two hours a day) managing or operating the properties and/or show that they are managing the properties as their livelihood.
Who Is Affected?
This tax will hit, and hurt, mostly hard working professionals who have regular full-time jobs but who also have real estate investments on the side. The tax will apply to married couples earning more than $250,000 a year and individuals making over $200,000 annually.
When the federal government began giving billions of dollars to the banking industry through the Troubled Asset Relief Program (TARP), we discovered that many financial institutions had gotten themselves into their dire situations by making or investing in high-risk home loans. Subsequent to that discovery, there was a push to reform residential lending practices.One piece of legislation aimed at curbing such high-risk lending for homes is the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. In part, this law gives federal bank regulators the authority to set mortgage lending standards to attempt to prevent the lending mistakes of the past. Using this authority, the newly empowered regulators have created a new Qualified Residential Mortgage (QRM) standard and proposed guidelines to govern it. This standard is meant to increase the number of loans that are of high credit quality and have a low likelihood of default.
According to the Community Associations Institute, as proposed, these QRM loans require that a person be able to provide a 20 percent down payment (or more), pay full closing costs out-of-pocket, provide full income documentation, and be current on all existing debt payments. Additionally, applicants are subject to strict debt-to-income ratio limitations, must not have been more than 60 days delinquent on a debt obligation for two years, have had neither property repossessed nor been party to a bankruptcy proceeding, foreclosure, short-sale, or deed in lieu of foreclosure within the last three years, and have never been subject to a Federal or state judgment for collection of any unpaid debt. QRM loans are also only available as first-lien mortgages for a purchaser’s primary residence or second-liens for refinancing existing loans. Finally, adjustable rate mortgages are only to be adjusted only twice per year, and those adjustments cannot exceed six percent during the life of the loan.
The new guidelines impose much stricter standards than previous lending practices. For example, previously closing costs (which can be several thousands of dollars) could be financed. The 20 percent down payment requirement is perhaps the greatest change, as it doubles the 10 percent down payments that were routinely made by first time home buyers in previous years. What is so onerous about saving up the amount needed for closing costs and down payment, like we all used to? In addition, if buyers have more invested in their home purchase, they are less likely to just walk the loan, as so many have done.
Texas real estate attorneys who practice residential real estate law in Texas will want to be sure to tell their clients about a new tax credit available to first time home buyers. As part of the Housing and Economic Recovery Act of 2008, first time home buyers get a credit against income taxes of 10% of the purchase price of the home, up to a cap of $7500.00. The credit applies to new or resold housing, and the full credit is available to single taxpayers with incomes up to $75,000.00 and married couples with incomes up to $150,000.00.There is a partial credit available for single taxpayers with incomes between $75,000.00 and $95,000.00 and married taxpayers with incomes between $150,000.00 and $170,000.00. If the taxpayer does not have sufficient income to be able to use the full credit, they will receive a check for the balance. There is no special form; the credit is simply deducted on the taxpayers’ federal income tax return. Home buyers will be required to repay the credit to the government without interest over 15 years, or when they sell the house if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. The credit expires on June 30, 2009.
For additional details, go to: http://www.federalhousingtaxcredit.com/faq.php.
As a real estate attorney representing clients all over the world in connection with their real estate interests in Texas, I am naturally following the current economic challenges and their impact on Texas real estate very closely. Dr. Mark Dotzour, with the Texas A & M Real Estate Center, was speaking at the national convention for Commercial Real Estate Women (“CREW”) recently in Houston, Texas. According to the Real Estate Center’s chief economist, investors will return when:
1. they can believe bond ratings agencies again;
2. they can believe corporate accounting again;
Texas lawyers and real estate brokers have by now, along with other Texas business owners, filed their first return under the revised Texas Franchise Tax. It is described by the Texas Comptroller as a “privilege tax“, paid for the privilege of doing business in Texas, but it is an income tax, nonetheless.One of the frustrating and, in my opinion, inequitable, aspects of the new tax is that companies that produce tangible goods are able to deduct the cost of making those goods, under the “cost of goods sold” deduction. Those of us who are in the business of providing a service, whether lawyer, broker, physician, hair stylist, health care worker, massage therapist, etc., do not get this or any comparable deduction.
Nationally, service businesses account for 55% of all economic activity, according to the 2006 Service Annual Survey by the U.S. Census Bureau. Does it make economic sense to discriminate against this segment of our state’s economic base? I think not!
One of the things I love about being a Texas real estate and development lawyer is that Texans are so open to innovative real estate developments. Practicing real estate and development law in Texas is great fun and very satisfying for this reason. A recent real estate development in Texas illustrates the point: co-housing, while not invented in Texas, has come to Texas. As a recent article by Bob Moos in the Dallas Morning News online entitled “Co-Housing Catching On in U.S.” explains, the first elder co-housing development in Texas is being built in Duncanville, Texas, called Wildflower Village.The members of the Village have been meeting together over the past two years to get to know one another, and to design their community. Some arguments have occurred, but they also meet socially to have fun as well. They like to arrive at decisions by consensus, rather than a “majority rules” vote. The development is limited to adults over 50 years of age. They plan to individually own their own single-story home. However, they will collectively own a common building that will have a gourmet kitchen, dining room, living area, home theater, craft room and two guest bedrooms.
This is an incredible concept and I wish them all the best of luck. They have gotten to know each other before they even hired a builder or an architect, and so have created a community for themselves, meaning “community” in the sense of a village with neighbors and friends, not just buildings. For more information, visit their website.
As a Texas real estate and development attorney who has represented lenders, commercial borrowers and developers for years, and as someone who has been critical of the “band-aid” solutions to the sub prime delinquency problem proposed by some politicians, I am heartened when I see solutions that appear to actually address the problem. Recently, an article by Karen Freifeld and Sharon L. Lynch in Bloomberg reported that Fannie Mae and Freddie Mac have reached an agreement with Andrew Cuomo, New York’s Attorney General, regarding appraisal standards. The agreement provides that Fannie Mae and Freddie Mac will buy mortgages only from lenders that adopt new standards that are meant to make sure that appraisals for home mortgages are independent and objective. Specifically, the new standards would prohibit mortgage brokers from selecting the appraiser for a loan, and would also prohibit lenders from using in-house staff or lender-owned appraisal companies to do appraisals for home loans.Fannie Mae and Freddie Mac are two federally chartered but privately operated organizations that buy real estate loans from banks. A large percentage of United States banks do not keep each home mortgage that they make for the full term of the loan. Instead, they sell their loans to Freddie Mac or Fannie Mae for a discounted amount of the full loan. Once the banks get paid by Freddie Mac or Fannie Mae, they can go out and make new loans with that money. Obviously, Fannie Mae and Freddie Mac are crucial to the liquidity of the United States mortgage industry. Banks will have to comply with standards set by Freddie Mac or Fannie Mae in order to sell loans to them.
From what I have read about the sub prime delinquency situation, inflated and even fraudulent appraisals appear to be at the heart of the current problem, just as they were for the Texas savings and loan debacle of the 1980’s. I suggest that the adoption on a national basis of the rules that are going into effect in New York will go a long way towards preventing the sub prime loan problems we see now.
As a Texas real estate and development attorney who has represented lenders, borrowers and developers in Texas for years, I find the current debate over sub prime mortgages to be especially interesting. Sub prime loan foreclosures in Texas are not as extensive as they are in other states, however, they are still of concern in Texas and certainly nationally. Hillary Clinton has proposed a ninety day moratorium for foreclosures on sub-prime loans, according to her web site. Manny Fernandez in a recent article in the New York Times online describes how politicians in New York are pushing for a one year moratorium on sub-prime mortgage delinquencies in that state. One of these politicians, James Brennan, a Brooklyn Democrat, is quoted as saying: “There’s nothing wrong with giving people some time to see if better arrangements can be worked out.”Will someone please send these politicians to economics school? Their proposals may be designed to get votes, but they do not appear to deal in an educated way with the current sub-prime mortgage issues. For one thing, these proposals are based on the assumption that all sub-prime loans were made by evil, greedy lenders who imposed fraudulent terms on unsuspecting borrowers. I doubt that this is the situation for every sub prime loan out there. Secondly, a certain portion of these borrowers will not be able to pay any type of reasonable monthly payment, and should not have qualified for these loans in the first place. Giving them more time to “work things out” may be a fantasy. Thirdly, who is going to be responsible for deterioration in the condition of some of these homes while payments are not being made (since the threat of foreclosure often serves to dampen homeowner maintenance and repair)? Fourth, have these politicians calculated the cost to the economy of the mortgages to qualified borrowers that do not get made because of the chill this “solution” has on the mortgage lending market? And finally, do we really want government to step in and rescue people who have, in many cases, made an uninformed or inappropriate financial decision?
This kind of mass moratorium is calculated to wreck havoc with financial markets (can you say recession?). So in answer to James Brennan’s comment that there is nothing wrong with a moratorium, I would have to respond: think again! These proposals seem to illustrate what our form of government does best: create ill-considered quick-fixes to complicated problems in the hopes that voters will buy in to the illusion that something is being done.
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