Every week, Mike publishes the recent Orange County Mortgage rates:

30 year Fixed Rate:	5.750%	1.000%
15 year Fixed Rate:	5.625%	1.000%
30 year Fixed Rate (Non-Owner / Rental Prop):	6.375%	1.000%
5/1 ARM - (Interest Only for 5yrs):	5.500%	1.000%

30 year Fixed Rate:	6.125%	1.000%
30 year Fixed Rate (Zero Points!):	6.375%	0.000%
15 year Fixed Rate:	5.875%	1.000%
5/1 ARM - (Interest Only for 5yrs):	5.875%	1.000%
1 Mo. MTA Adjust. Rate Mort. (w/ Pre-Pay):	1.000%	0.000%
“Piggy Back” I/O Equity Line (10 yr draw):	8.250%	1.000%

Our Orange County Weather gives us much Better Home Sales Statistics Than the Median Figures Below for the U.S.

Orange County, California real estate buyers and sellers caught a break from December through February, because our weather was cool, but quite good for house hunting during the early months, and Realtors were out with home buyers in full force.

The rest of the country, especially the East, faced dank winter days that kept both home buyers and Realtors at Home for many non-productive weeks.

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The National Association of Realtors got out its crystal ball and made these predictions for upcoming housing market:

Last year there were 6.48 million existing-home sales, There are 6.42 million of them projected for this year and in 2008, there’s to be 6.66 million.

The national median existing-home price is projected to rise 1.2 percent to $224,500 this year. This is after a 1 percent gain in 2006.

Existing-home sales are projected to be reduced due to subprime lending restrictions, but they should rise gradually this year and next. Nar says that total sales this year will be fairly close to 2006 because last year’s sales begain high and ended up low.

Sales of new homes are forecast at 950,000 in 2007 and 981,000 in 2008, down from 1.06 million in 2006.

The new-home median price should increase 1.7 percent to $249,600 in 2007, after an increase of 1.9 percent last year.

There will probably be 1.50 million housing starts this year and 1.56 million in 2008. This is in comparison with 1.80 million starts last year.

Weather played a big role so far this year:

January’s icy spell slowed home shopping in December and thus fewer contracts were written on sales.

Then, February had terrible storms that pretty much twarted sales in a good part of the country—there had not been such a fold February since 1979. This, naturally, will keep March sales down with may transactions not closing until April and May.

You Must Buy a Property that is Equal or Greater in Value Than the One That You Have Sold or There’s No 1031.

Debbie Ferrari moderating a meeting of IRC/1031 Property Exchange Professionals.

To shelter 100% of the taxes on your exchange, you need to buy a property that is equal in value or greater than the one that you sold.

Be sure that you reinvest all of the cash that you got from the old property.

Then, buy one or more properties that are equal to or more than the net sale price of what you sold.

There are two factors to consider in figuring the equal or up number.

Debt Relief: This is the term for the money used to eliminate debt against the property, such as first, second, third mortgages, leins, etc.

Cash: This includes the amount of debt relief, plus the cash that you would get as seller. Together, these two sums comprise the target replacement value that you need to invest in the new property or properties to defer of 100% of the taxes on your sale.

Note: YOU CAN TAKE MONEY OUT if you want at closing. The IRS calls this money, “boot.” It IS taxable, but you are free to remove it from the exchange and keep the 1031 valid, if this feature was addressed in your early documentation.

With a 1031, the Ownership of the Sold Property and of the Purchased Property Need to be the Same.

1031 rules require that whomever owned the old property must now own the new property. If a partnership owned the old property, then the same partnership, with all the same partners, must take title to the new property.

The same applies to corporations, partnerships, trusts, LLCs and other forms of ownership.

If a couple held title to the old property, then they must hold title to the new one…if one is missing, the 1031 fails.

Debbie Ferrari (foreground) is flanked by John and Nancy Barta,
Executive Directors of the National Council of Exchangers.

With a 1031 exchange, you MUST involve a Qualified Intermediary (QI), often called an Accommodator, before you close escrow on your sold property.

You cannot use someone that shares a business or family relationship with you. Thus, your closest consultants, such as financial advisor, stock broker, lawyer, CPA, bookkeeper, accountant, etc., may not be used. Neither can your linear relatives.

The QI is your expert to rely upon during a 1031. A QI holds onto the money from the property that you sold, or you cannot conduct a 1031 exchange.

Even if you have even the least bit of access to the money, that alone will disqualify you from a 1031 and you will have to pay taxes on the gain.

The best move is to get the Qualified Intermediary/Accommodator involved even before you close escrow on the property that you are selling.

You as an exchangor, must buy a replacement property for the one that you sold, within 180 days from the close of escrow on the sold propery.

And, the property that you buy, must be one of the ones that was on your list of identified properties.

On close of escrow, you will be paid by the qualified intermediary that you have been using, often called a 1031 accommodator, who has been holding onto your money since you divested yourself of the relinquished first property.

Note that for a 1031 to take place, YOU cannot have control of the proceeds from the sale. The Qualified Intermediary, then, acts like an escrow firm for you, your buyer, those involved in your purchase, and for the IRS in a way, too.

Debbie Ferrari, EMS, CE, e-PRO, RRS, (R), Vice President, National Council of Exchangors, with Thom Bohan, 2006 NCE President. NCE members bear the designation of Equity Marketing Specialist or “EMS” after achieving a high level of education in real estate marketing, real estate counseling, 1031 real estate taxation, real estate financing, 1031 real estate management, and real estate 1031 property exchange as determined by the National Council of Exchangors.

The 45-Day Rule Cannot Be Broken; The IRS Knows No PITY

In step two, you have to identify, within 45 days of the closing date of the sale of your old property, which property you will choose to replace it.

Holidays don’t matter in the 45 day calculation. So if the 45th day is New Years Eve, Easter, Christmas, Saturday or Sunday, no matter. That 45th day is still the deadline for identifying the replacement property or properties.

You can comply with the 45-day rule using two approaches. In the first, you would have already bought your new property. If when you bought it, you used all your money that you got when you sold the first property, or more, then your exchange is done.

If you haven’t closed escrow on a new property and therein spent all the proceeds from your sold property within 45 days, then you need to make a very precise list of properties that you are considering buying as replacement for the sold one.

This cannot be a loose list, either. For each property, you need to give the exact property address, the exact legal description or, lacking that, some other means that the IRS could follow in determining what property you were talking about.

If you identify more than three properties, the IRS limits their value to that of twice the value of the property that you just sold. This is called the 200% rule.

Remember, if you miss one day, or fail to dot one “i” or cross one “t” in the process, the IRS will not forgive you. You will likely have to pay capital gains taxes on your proceeds.

So get expert help BEFORE you begin a 1031 transaction, and remember that not ALL CPAs, financial advisors, or attorneys are “up” on doing 1031s, because the laws are constantly changing. So, don’t feel bad about getting second opinions if there’s a question.