Good news continues to flow in that benefit the California real estate market, Interest rates are at the lowest level in recorded history. The largest institutional banks settled for a staggering 25 Billion dollars with the Federal government for inappropriate foreclosure activity and now the California Homeowners Bill of Rights is completely implemented.  All have led to a resurgence in the California real estate market that will benefit homeowners as prices should continue to increase due to the positive economic factors.

But probably the best news is that foreclosure activity is down 65% from January 2012.  Couple this with the banks being much more active in “working things out” with delinquent homeowners and with the Homeowners Bill of Right instructing California lenders to stop the process of dual tracking will only lead to more future positive news for homeowners and real estate professionals throughout California.

California Property Taxes Might be Going Up

Taxes might be going up – Many California homeowners and owners of real estate are facing a possible increase in their property taxes with the passage of ACA 8 (Assembly Constitutional Amendment No. 8) which is the most serious assault on the safeguards put in place by Proposition 13 back in 1978.  The lead sponsor of the bill is Assemblyman Bob Blumenfield, he along with several other legislators was able to get the legislation passed by the California State Assembly on Saturday June 15, 2013. The desired outcome of the law by the legislators backing the proposed constitutional amendment would be to amend the following sections of the California Constitution:

  • Section 4 of Article XIII
  • Section 2 of Article XIII C
  • Section 3 of Article XIII D

The effects of the passage of ACA 8 would be that in the near future Special Taxes, taxes intended for designated purposes that currently require a 2/3 vote of the voting public for passage could be reduced down to a passing vote of only 55%.  Just a little more than half the voting public would have the power to impose taxes on property owners only.  The general public would not be expected or even required to participate in paying the interest and debt to finance local defined bonded indebtedness.

Currently the California Constitutional prohibits an ad valorem (Latin for at value) tax rate on real estate exceeding 1% of the full cash value of the property.  The only exception is from the passage of bonds by a 2/3 vote of the voting public for bonded indebtedness.  Property taxes are collected by counties throughout California and apportioned by law to each individual city and special districts within each county.

There have been propositions in the past that amended Proposition 13’s requirement of needing a 2/3 voting majority to raise taxes.  In the past there have been propositions approved by the voters allowing for a lower majority vote necessary to pass bonds for special defined purposes.  Those purposes are for school districts, community college districts and other educational entities.  Basically bonds for educational purposes.

The sponsors of ACA 8 have advertised the legislation as simply lowering the required voting majority necessary to pass other types of bonds to fund special public improvement and facilities. The 55% passing vote would match the 55% passing requirement that is already in place to pass educational type bond obligations.

The new designated uses that would be subject to only a 55% vote of the public are:  

  •        Police facilities
  •        Sheriff Facilities
  •        Fire Facilities
  •        Public Buildings

 Some other intended uses of the bonds would be the construction or improvement of facilities, buildings, roads, bridges or a number of other uses as determined by governmental authorities.  While the law appears to be specific in what future intended uses can be but there is a section in the proposed amendment that is vague enough to possibly allow for any desired use.

The designated governmental entities that the law would benefit are:  

  •         City
  •         County
  •         City/County
  •         Special Districts

The argument is that it would be easier to raise money for local infrastructure and necessary maintenance through bonded indebtedness.  The funding sources to raise money for Special Taxes are not like statewide bonds issued by the state of California for general funding purposes.  The costs and expenses for California general obligation bonds are repaid out of state general funds.  The sources of state general funds come from contributions from income taxes, sales taxes and other tax sources.  The effect is that all California residents share in the pain of paying the interest and the repayment of principal associated with General Obligation bonds.

The difference between General Obligation bonds and Special Obligation bonds is that only property owners are looked to for payment of interest and principal relating to Special Obligation bonds.

The entire voting public has the right to vote to pass Special Obligation ballot measures.  People who do not own real estate have the right to vote to raise the taxes on those who own real estate.

Allowing a lower passing voting majority will only lead to higher debt owed.  Since people who will not be expected to participate or pay will have no reservations in voting to have someone else pay.  We have seen this in election after election.

The California Public Policy Center has done a study of California’s debt and has calculated that currently California has a combined debt of $1.1 trillion. 

The good news is that currently the legislation has only passed in the State Assembly and still must be passed by the State Senate and later put before the voters of California. Taxes might be going up

The State Senate designation of the proposed bill is SCA 11 (Senate Constitutional Amendment 11) and the lead sponsor is State Senator Lori Hancock.  If passed by the State Senate the proposal could be put before the voting public to approve to amend the California Constitution.

If the 2/3 majority vote is lowed by the voters then in the future if cities, counties or special districts are interested in raising more money they simply need to put a ballot measure before the voting public and with 55% voting to approve the proposal the law would be considered passed. 

This proposed change in the California Constitution is a direct assault on the rights of property owner in California.  We encourage everyone who owns real estate in California or just believes in fairness and is truly concerned about the out of control debt crisis affecting our state to contact their State Senator.  When speaking with their office encourage them to put the best interests of California above political interests and vote no to the passage of SCA 11.

We will report back the progress of the pending proposed ballot measure following the State Senate vote.

New 2013 Taxes on Real Estate

Taxes on Real Estate Are Going Up The Affordable Care Act was passed on March 23, 2010 and has become known as ObamaCare. Buried deep in the Act are various tax increases designed to pay for additional governmental expenses that will supplement health care for millions of Americans.

The new taxes we want to address here became law on January 1, 2013 and affect real estate owners upon the sale of investment properties. The new laws tax capital gains from the sale of stocks, bonds or real estate and will assist in the funding of Medicare and other governmental services. Up to this point, Social Security taxes, Unemployment taxes and Medicare taxes were funded from employment income, not investment income.

This is the first time Capital Gains income from the sale of investments has been successfully targeted. The new Medicare tax rate is 3.8% and is now imposed on capital gains income.

It is our opinion that Americans are taxed more than enough and any additional attempts to take more money by way of taxation simply is another bad thing to happen to the borrowers we are in business to serve.

Now let’s take a look at the new tax laws as they apply to owners of investment real estate.

The new Medicare tax is as follows:

Capital Gains will now be subject to an additional 3.8% Medicare tax rate.

There are some income provisions that will allow many investors to avoid the new tax.

The minimum annual income levels that trigger the new taxes are:

  • $200,000.00 AGI (adjusted gross income) per year for Individual tax filers
  • $250,000.00 AGI (adjusted gross income) per year for joint tax filers


The other law change is an increase in the base Capital Gains tax rate, which is now effective as follows:

Capital Gains tax rate is increased from 15% to 20%.

The current federal income tax on capital gains is 15%. The new law provides an additional increase in the Capital Gains tax rate up to 20%.

There are two income limits that will protect many taxpayers from the new tax.

  • $400,000.00 AGI per year for individuals tax filers
  • $450,000.00 AGI per year for joint tax filers


The new 20% Capital Gains tax applies to taxpayers with AGI’s (adjusted gross income) over the respective minimum income limit which would trigger an additional 5% tax on their income.

Capital Gains taxes also apply to the sale of one’s personal residence if the profit from the sale exceeds the current taxable exemption of:

  • $250,000 for individuals
  • $500,000.00 for couples


Since there are numerous exceptions and tax implications, we highly suggest that competent income tax consultation be sought to determine any tax liability from the sale of real estate.

There is currently no governmental determination as to the possibility of “deferring” the 3.8% Medicare tax by using the 1031 tax free exchange.

We will report if and when the Internal Revenue Service issues an opinion as to the availability of deferring the new taxes in a 1031 tax free exchange.

In our next Blog we will take a look at new California tax laws that are now are in effect for 2013. We will give you a hint, they’re going up.

Proposition 13 – The Homeowner’s Best Friend

Proposition 13 – Many things in life are movable, such as planes, trains and automobiles, to quote a movie title from years past. Or personal items such as TV’s, golf clubs or a suit case, can all be moved from here to there, down the street or even across state lines. But when it comes to moving real estate a stark reality is immediately apparent: real estate is just not movable and the politicians are keenly aware of this fact.

As such, the political powers have always treated real estate as a target of taxation to fund general government services, special government needs or a politician’s pet project. Since real estate is not movable and can’t be transferred to cities or states where taxes might be lower, owners of real estate have historically been the target of high property taxes. They had simply been subject to whatever tax rate was imposed upon them.

By the mid 1980’s property taxes had increased so dramatically that many older homeowners who had owned their properties for many years could no longer afford to pay the property taxes that were expected by the tax authority. Many were on fixed incomes, pensions or were only receiving social security. Their income had not increased as fast as or in proportion to the increase in property tax rates. There were a lot of people who were property rich but cash poor.

In the early eighties Howard Jarvis literally became a one man driving force in advancing the movement that eventually placed Proposition 13 on the California state ballot in 1987. He had experienced the financial burden of his property taxes going through the roof on real estate he owned. In addition he was involved in a tax organization where he became aware of many others who were experiencing the same situation. So he went out and did the logical thing and started soliciting support from others to rally behind his property tax reduction movement. It developed over time to be one of the biggest tax revolutions in the history of California. He was successful in gathering enough registered voter’s signatures to get what was then becoming known as Proposition 13 on the California statewide ballot.

The voters overwhelming passed Proposition 13 on June 6, 1978 by a 2/3 majority vote and immediately the California Constitution was amended (since Proposition 13 was intended to be a constitutional amendment).

Prior to the passage of Proposition 13, properties in California were subject to the following:

  • No limit on the overall rate of tax
  • No annual tax increase limit
  • No remedy available to homeowners


Following the passage of Proposition 13, homeowners and property owners throughout all of California were entitled to:

  • Taxes based on 1% of the assessed property value
  • 2% maximum annual increase in total taxes owed
  • Reassessment only upon the sale of the property at 1% of the assessed market value


Property tax rates were immediately rolled back to 1976 levels with many homeowners experiencing a 57% decrease in their annual property taxes.

The only time now that properties can be reassessed is when a buyer purchases a property and the assessed value is then calculated at 1% of the price paid which is determined to be the fair market value of the property. For example, if a buyer pays $100,000.00 for a property the annual property taxes would be $1,000.00 (1% of the assessed value) which is payable in 2 installments of $500.00 each. The first installment would be due on November 1st and (delinquent after December 10th) and the second installment would be due February 1st (delinquent after April 10th).

In addition Proposition 13 provides for ¼ of 1% for bonded indebtedness to be assessed and secured by both General Obligation and Special Obligation bonds as passed by government bodies or by the voters.

Most governmental entitles make it a practice to always increase property taxes by the maximum annual 2% allowable under the law.

Currently there are movements by those that think Proposition 13 was the worst thing that ever happened to California. They believe that the government is being starved for money that would, in turn, provide services and payments to those involved in the governmental process. The reality is that ever since Proposition 13 passed 35 years ago government’s tax revenue has had annual increases that have been far above the rate if inflation. The government is doing better than just about every person and company in California. The claims back in 1987 that government services were going to be put in a desperate situation just never materialized.

The people behind this current movement want to begin chipping away at the protections to homeowners against taxation from their government. All homeowners should take very seriously the current movement by those who always want more government services and are now looking to property owners as a funding source for the money for their pet social programs. Many of the people behind the current movement are not property owners but are from the side of society that believes that if someone owns real estate they are by nature rich and as such should be taxed more because they have it and others need it. Since all levels of government throughout California are broke and spending like crazy there are politicians would like nothing more than to get more money to do more things.

Home ownership is a pivotal component that is very important in the economy. Repealing Proposition 13 or placing additional property taxation on real estate not only affects current owners now but will add additional impediments to prospective buyers desiring to own real estate. This one action could have a very negative effect not only in the real estate world but to the economy at large.

It would be highly advisable for everyone who reads our blog to get involved in preventing property taxes from going back to the confiscatory level that existed prior to the passage of Proposition 13.

The Los Angeles Real Estate Market in 2013: Is it Time to Buy or Sell?


How many times have you heard a Los Angeles Realtor tell you that it’s “time to sell”? Most Realtor’s spout that term and the other famous term “time to buy” quite frequently – especially in today’s market. The irony with these statements is that there just might be a time to buy or a time to sell. Even a broken clock is right twice a day.

Today, we want to concentrate on the term “time to sell”, which can be motivated by a number of events or factors, such as finding another house that you “just have to have” or a job opportunity that requires moving. Another possible motivator in selling your home might be determining that a high water mark might have been reached in the value of your house and selling now will provide the opportunity to obtain your equity from the sales proceeds.

Determining when it’s time to sell your home in Los Angeles requires knowledge about the real estate market which requires that you know everything you can about selling homes (values of competing and available homes on the market) and buying (number of buyers in the market). It goes back to the supply/demand ratio and the balance or imbalance of homes and buyers in the market. Currently, there are more home buyers in the Los Angeles market than sellers of homes. Prices are up over the last 12 months, but are they topping out or still have a long way up to go?

This situation can best be explained by an event that took place back in the 1920’s, when Joseph Kennedy was having his shoes shined by a man at a shoe shine stand. While the man was shining his shoes Mr. Kennedy was listening to the man tell him about the stocks that he was buying with the money he was earning from shining shoes. Mr. Kennedy listened intensely to what the man was saying. When the man was done shining his shoes and Mr. Kennedy was walking away Mr. Kennedy said to himself “When the man who shines my shoes is also buying the same stocks I’m buying, it’s time to get out”. Later Mr. Kennedy credited this event with his decision to sell most of his stockholdings prior to the stock market crash in 1929 and thus avoided the terrible losses that so many others suffered on that fateful day in October.

The moral of this story (to consider) is that it’s possible that the “time to sell is when everyone else is buying”.

Our Assessment of The Fed’s Monetary Policies for 2013

Federal Reserve – There is probably no agency or government department at the State or Federal level that has more effect on our daily lives than The Federal Reserve Bank which is responsible for setting Federal monetary policy.

Monetary policy is set by the Federal Reserve Bank in several ways:

  • The Fed increases and decreases interest rates
  • The Fed also increases or decreases the money supply

Currently the Chairman of the Federal Reserve Bank is Ben Bernanke and he oversees the Federal Open Market Committee which is the division of Federal Reserve Bank that sets monetary policy. Currently the Federal Reserve Bank’s monetary policy is focused on lowering interest rates and expanding the money supply.

A short explanation is in order here.

Lower Interest Rates

Lower interest rates are easy to understand as lower rates lead to additional buying power for products that normally require financing, such as cars and houses. Lower rates equate to lower monthly payments. When people have “additional” buying power due to lower rates they are empowered with added purchasing power which leads to a possible imbalance in the supply/demand ratio, which normally leads to an increase in prices, which is currently happening to the price of houses.

With interest rate at historically low levels, more people are able to qualify for real estate mortgages and are able to buy higher priced homoes than if interest rates were at higher levels. Also when interest rates are at such low levels potential buyers develop the attitude that “they don’t want to miss-out” on the low mortgage rates so even if they were not intending to purchase a home for a year or more in the future they often move up their buying plans to get in on the low rates. The effect of this psychological mindset contributes to additional supply/demand imbalance.

Expansion of Money Supply

The second way that the Federal Reserve Bank sets Monetary Policy is through the expansion and/or contraction of the money supply. Currently the policy is to expand the money supply by many of billions of dollars per month. This is often termed “printing money” and is accomplished by contracts the Federal Reserve Bank sets up with the United State Treasury Department through the buying and selling of bonds, where money is really created out of thin air. This monetary policy can lead to inflation as has happened many times in the past. The main reason that consumer prices have not currently increased is due to the continuing effects of the recession and the anemic economic recovery that the economy is experiencing.

In the near future interest rates will begin to rise from their historic lows and the demand for real estate will decrease which will put downward pressure on home prices. If money supply policy continues unabated (The Fed continues to pour billions into the economy), inflation could rear its ugly head which historically leads to higher real estate prices. When the two opposite forces are compared, the drop off in demand due to increased interest rates should more than offset the inflationary pressure on real estate prices.

Our conclusion is that while real estate prices are currently going up there appears to be a ceiling that will be determined on any increase in mortgage interest rates.

Caution is advised in over optimism about the current increase in real estate prices.

Good news to benefit California – Big Banks Settlement


Big Banks Settlement – Good news continues to flow in that benefit the California real estate market, Interest rates are at the lowest level in recorded history. The largest institutional banks settled for a staggering 25 Billion dollars with the Federal government for inappropriate foreclosure activity and now the California Homeowners Bill of Rights is completely implemented.  All have led to a resurgence in the California real estate market that will benefit homeowners as prices should continue to increase due to the positive economic factors.

But probably the best news is that foreclosure activity is down 65% from January 2012.  Couple this with the banks being much more active in “working things out” with delinquent homeowners and with the Homeowners Bill of Right instructing California lenders to stop the process of dual tracking will only lead to more future positive news for homeowners and real estate professionals throughout California.

The restrictions on “Dual Tracking” is the process of one department at the bank foreclosing on the property while the other department attempts to work things out with the homeowner.  This was tantamount to helping someone while at the same time stabbing them in the back.  It just wasn’t the right thing to do to people who were experiencing hardship due to many factors, this being possibly the largest factor being the downturn in both the national and California economy. It is now considered illegal for California banks and their foreclosure companies to employ such a process on homeowners.  The great news is that so many struggling homeowners are going to be able to keep their homes and this will prevent or minimize the vacant homes in neighborhoods all over California.

It is so nice to be able to report good news after so many years of month after month of reporting so much bad news. Big Banks Settlement!

California Real Estate Prices Rising 20.9% Year-Over-Year


California Real Estate Prices – Good news has finally come to the California real estate market.  With many of the foreclosures that occurred due to the irresponsible lending policies of state and federal chartered banks now behind us prices are now finally starting to rise.

As of March 1, 2013 California real estate prices have increased 20.9 over prices from a year ago.  In addition, sales activity is at a six year high and shows no indication of slowing down due to positive current economic factors.  First time buyers and investor confidence are significant factors in leading to the improvement in values.  It’s important to keep in mind that even after the current increase in values that the current medium sales price is still down 37% over the all-time high set in early 2007.

Most every market gauge indicates prices are up significantly over the past twelve months, even after adjusting for the type of properties sold, size, location and sales prices.

The current low inventory of available house or sale has also contributed to the increase in values.

I will have more positive news about real estate market in the days ahead.