Real Estate

Written by Mike Sprague, Spectrum Enterprises

In today’s economy, we are seeing more and more people giving up or losing their homes and subsequently looking for more affordable housing.  Since tax credit apartments meet this criteria, we are seeing an increase in applicants that have owned, or still own, Real Estate (RE).  Verifying this asset and figuring out what to count on the TIC can be a little confusing.  It is important to keep in mind that an asset is an item of value that may be converted to cash.  For RE, the “cash value” is the market value less any reasonable expenses that would be incurred in selling or converting the asset to cash.

The first step to determine how to count RE is to ask questions to find out the status of the asset.  Is the property for sale, is it being rented out, is the property owned jointly, has it been given away or sold for less than fair market value, or has the applicant lost it due to bankruptcy, foreclosure, or divorce?  The answer to these questions determines how to count the RE.

For Sale (still owned) – You will need to verify the fair market value of the property, the amount still due on the mortgage (if any), and any closing costs that would be incurred.  Obtain the market value from the real estate broker selling the house.  The tax valuation or appraised value is not an accurate value and should not be used.  Another source to determine market value is www.zillow.com.  Using a RE Asset Worksheet, subtract the closing costs and current mortgage principle from the market value.  This is the cash value to be counted as an asset on the TIC.  If the property is owned jointly with someone that is not in the household this amount should be multiplied by the percentage the applicant owns.

Example 1 – Mrs. Smith’s home has a FMV of $200,000.  She still owes $50,000 and the broker has stated that the closing costs would be $6,000.  The total cash value for the property to count on the TIC is $144,000 ($200,000 – $50,000 – $6,000).

Rent – You will need to verify the rental income for the next 12 months and the expenses to rent the property over the next 12 months.  The expenses would include taxes, insurance, maintenance and utilities, and mortgage interest.  If the property is already being rented, the most recent tax return can give you all of this info.  Using the RE Asset Worksheet, subtract the total expenses from the rental income to determine the income from the asset.  Again, take ownership percentage into consideration.  Also, since the applicant still owns the home and could turn it into cash at any moment, the cash value still needs to be counted.

Disposed of for less than FMV – If the property was sold for a discounted amount, or if it was given away for nothing (such as to a family member or friend), then it was disposed of for less than FMV and needs to be counted for a period of 2 years from the date it was disposed.  To determine the value of the asset in this case, see For Sale above.  If the disposal occurred more than 2 years prior to the move-in date then it is not counted as an asset.

With the current housing market condition, many houses are being sold for less than what they were once valued at.  This does not necessarily mean it was disposed of for less than FMV.  If the listing price is lowered because the property had not sold yet, it would still be considered at “fair” market value as the market is forcing the lower price tag.

Bankruptcy, Foreclosure, or Divorce – If RE was lost for any of these reasons, then it is not considered an asset and is not counted.  Of course, you must properly verify this for the file.  All three of these instances should be able to be verified through court documents detailing the outcome of the hearing.  If the foreclosure, bankruptcy, or divorce process has no begun yet, the asset must be counted in full until the process is complete.

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