25 Year Foreclosure From Hell

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Am quoting here a featured story from the Wall Street Journal entitled “The 25-Year Foreclosure From Hell” by Robbie Whelan Monday, December 6, 2010

This story may be incredulous to some people, but some of the antics used here to prevent foreclosure of mortgage actually happens in Philippine jurisdiction. 

"Patsy Campbell could tell you a thing or two about fighting foreclosure. She's been fighting hers for 25 years. The 71-year-old retired insurance saleswoman has been living in her house, a two-story on a half acre in a tidy middle-class neighborhood here in central Florida, since 1978. The last time she made a mortgage payment was October 1985. And yet Ms. Campbell has been able to keep her house, protected by a 105-pound pit bull named Dodger and a locked, rusty gate advising visitors to beware of the dog.

"They're not going to take this house," says Ms. Campbell. "I intend to stay in this house and maintain it as my residence until I die."

Ms. Campbell's foreclosure case has outlasted two marriages, three recessions and four presidents. She has seen seven great-grandchildren born, plum real-estate markets come and go and the ownership of her mortgage change six times. Many Florida real-estate lawyers say it is the longest-lasting foreclosure case they have ever heard of.
The story of how Ms. Campbell has managed to avoid both paying her mortgage and losing her home, which is currently assessed at more than $203,000, is a cautionary tale for lenders that cut corners and followed sloppy practices when originating, processing and servicing mortgages. Lenders are especially vulnerable in the 23 states, including Florida, that require foreclosures to be approved by a judge.

Top secrets on getting the best mortgage for your car loan

Most people acquire their car through mortgage financing. Car is no longer considered a luxury these days but a necessity because the convenience it brings far outweighs the cost shouldered for the value of the car.

Photo credit flickr 31674926@N02/3079479453 

There are two ways of loaning to acquire car title. This can be done either through a chattel mortgage contract or via a car/asset/finance lease agreement. The car or finance lease is usually granted as a benefit by corporate employers to their employees. Basically, a certain percentage of the value of the car is subsidized by the employer and the remaining portion is offered as loan to the employee subject to minimal interest rates.

Under this scheme of finance lease agreement, the employer, which acts as the financier, retains actual ownership of the vehicle but enables the employee to utilize the car or its commercial value and benefits of car ownership.   The financier-employer purchases the vehicle on behalf of the employee, who then leases the vehicle back from the financier-employer and pays a fixed monthly lease rental for the term of the lease.

At the end of the lease, the employee can either pay a residual value on the lease and take ownership of the car, trade it in or re-finance the residual and continue the lease.

On the other hand, under a Chattel Mortgage or car loan title, the bank or financier advances funds to the customer to purchase a vehicle, and the customer takes ownership of the vehicle (chattel) at the time of purchase.

The financier then takes a "mortgage" over the vehicle as security for the loan subject to interest and via the “Chattel Mortgage Contract”. Once the loan is fully paid, the mortgage is cancelled giving the customer full and clear title to the vehicle. Following are the features of a car loan:

·     Flexible contract terms ranging from 24 to 60 months (two to five years)

·         Fixed mortgage interest rates and monthly mortgage amortization

·         Mortgage Deposit (either cash or trade-in) may be made

·         A tax deduction is available when the vehicle is used for business purposes

To avail of a car loan, the process usually involves negotiation with the dealer of the car of your choice. The car dealer then applies your loan with their in-house financing or your own bank via a Chattel Mortgage Contract. In the contract of car loan, not every amount you shell out is reflected in the Chattel Mortgage Contract because not all the amounts paid go to the bank. What are usually paid to the bank are the principal amount and interest and administrative or processing fees of the bank. Items such as registration fees and taxes are paid to government agencies such as the Land Transportation Office (LTO) and Bureau of Internal Revenue (BIR). There is also the mortgage insurance payable of course to the insurance company. 

This is where every person desiring to have car loan title should watch out for the hidden cost. To have the best mortgage you should be aware of certain fees which you can possibly haggle and be informed of the legal basis of various amounts your mortgage bank or car dealer is charging you with. In order for you to get the best mortgage price for your car loan consider the following:

Firstly, the suggested retail price or selling price offered by your car dealer can be haggled with the agent of the car dealer. The suggested retail/selling price of the car, most often than not, includes the agent’s commission, hence you should be able to maximize the standard discount offered by the agent. Haggle with agent and you can be assured the best price or best mortgage for your vehicle. You can also ask for additional freebies from the car dealer such as car matting, leather car seats, free LTO and car registration, free car loan insurance, free gas, and other warranties and service check up.

Secondly, know the legal basis of the documentary stamp tax being charged. The documentary stamp tax is usually part of the hidden cost and this is where you might be overcharged.

Section 195 of the Tax Code states:

SEC. 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust. - On every mortgage or pledge of lands, estate, or property, real or personal, heritable or movable, whatsoever, where the same shall be made as a security for the payment of any definite and certain sum of money lent at the time or previously due and owing of forborne to be paid, being payable and on any conveyance of land, estate, or property whatsoever, in trust or to be sold, or otherwise converted into money which shall be and intended only as security, either by express stipulation or otherwise, there shall be collected a documentary stamp tax at the following rates:

(a) When the amount secured does not exceed Five thousand pesos (P5,000), Twenty pesos (P20.00).

(b) On each Five thousand pesos (P5,000), or fractional part thereof in excess of Five thousand pesos (P5,000), an additional tax of Ten pesos (P10.00).

On any mortgage, pledge, or deed of trust, where the same shall be made as a security for the payment of a fluctuating account or future advances without fixed limit, the documentary stamp tax on such mortgage, pledge or deed of trust shall be computed on the amount actually loaned or given at the time of the execution of the mortgage, pledge or deed of trust, additional documentary stamp tax shall be paid which shall be computed on the basis of the amount advanced or loaned at the rates specified above: Provided, however, That if the full amount of the loan or credit, granted under the mortgage, pledge or deed of trust shall be computed on the amount actually loaned or given at the time of the execution of the mortgage, pledge or deed of trust. However, if subsequent advances are made on such mortgage, pledge or deed of trust, additional documentary stamp tax shall be paid which shall be computed on the basis of the amount advanced or loaned at the rates specified above: Provided, however, That if the full amount of the loan or credit, granted under the mortgage, pledge or deed of trust is specified in such mortgage, pledge or deed of trust, the documentary stamp tax prescribed in this Section shall be paid and computed on the full amount of the loan or credit granted.

Thus, if the amount of car loan is worth PHP 500,000.00, your documentary stamp tax should be PHP 1,010.00 for the first year. For the second year, the documentary stamp tax should be computed based on the diminished balance of the credit car loan. And so on and so forth until the end of the term of the credit car loan. Add the figures for each year of the credit car loan and the amount charged for documentary stamp tax should not be more than the total added amount. It is thus prudent for one desiring to have loan for car title to get his mortgage calculator and compute the actual documentary stamp tax due.

Thirdly, the car loan insurance may also be part of the hidden cost. Remember that for brand new vehicles, a comprehensive car insurance is a requirement for the car registration. You ought to know that comprehensive motor policies or comprehensive mortgage insurance vary from one insurance company to another, and in order to be assured of the best price you should find the best deal and not simply accept the in-house mortgage insurance being offered by your car dealer or agent. After all, that is your vehicle and nobody can compel you just to accept any mortgage insurance.

The best deal for a mortgage insurance is one that has the least premium price with the maximum coverage. By maximum coverage of a mortgage insurance means insuring every risk the car might be involved in including theft and carnapping and acts of God or the so called force majeure. Therefore find out the insurance company that offers the best mortgage insurance policy by inquiring about the premium and insurance coverage. Make sure you check out provisions of the insurance policy so as to include each and every risk agreed upon during the negotiation stage of the insurance policy contract. This is where you can haggle for the mortgage insurance price and ensure that it is not part of any hidden cost.

Lastly, the price being charged for your car registration with the Land Transportation Office can again be part of the hidden cost. Therefore make sure you know the legal basis for the amounts charged and check if the amount charged actually corresponds to the receipts issued by the concerned Land Transportation Office.

So get the best mortgage for your car by considering the foregoing items.

Sale or Donation. Which is more tax efficient?

Am quoting here a post from another blog. It’s a good read for all property owners. 

“In my professional life, I am always asked the question on which is the tax efficient way of transferring capital property or property not used in business. Is it through donation or sale? Well, the answer depends on two factors, namely: i) value of the property and ii) relationship of the donor to the donee.

If the donation is made to a “stranger”, then sale is more tax efficient than donation. This is because the tax rate for donation to a stranger is 30% while the tax rate for sale is 6%. Further, even if donation is not subject to documentary stamp tax and sale is subject to 1.5% documentary stamp tax, nonetheless, the total tax rate for donation is still higher at 30% compared to the total tax rate for sale of 7.5% ( capital gains tax of 6% and documentary stamp tax of 1.5).

For example, if a father donates a house and lot worth PHP 3 million to his son and the bride-to-be, then 50% of the donation that pertains to the son shall be subjected to the graduated tax rate on donation, while the remaining 50%, pertaining to the donation to the future daughter-in-law shall be subject of 30% tax rate, because the donation made by a father-in-law to his daughter in law is considered or treated by law as donation to a stranger.

The law defines a “stranger” as a person who is not a brother, sister (whether by whole or half blood), spouse, ancestor and lineal descendants; or relative by consanguinity in the collateral line within the fourth degree of relationship (up to first cousin).

If the transfer of property is made from one person to another person who is not a “stranger”, as defined by law, then donation is more tax efficient than sale, at least up to a certain value of the property.”

This is based on the following reasons:

a)   

     Donation is not subject to documentary stamp tax while sale is. Documentary stamp tax for a sale transaction is equivalent to 1.5% of the selling price or fair market value of property whichever is higher.

b)    Tax rate for a sale transaction is 6% while the tax rate for donation is based on graduated rates from 2% to 15% depending on the value of the property.

For example, if a property worth PHP 500,000 is donated, the amount of tax for this donation would be PHP 8,000.00, while the tax rate for sale would have been PHP 37,500, had the transaction been a sale. Donation is thus more tax efficient for this particular case.

Another example; if a property worth PHP 4,500,000.00 is donated, the amount of tax for this donation would be PHP 354,000.00, while the tax rate for sale would have been PHP 337,500.00,, had the transaction been a sale. Thus under this particular case, sale is more tax efficient.

Below is a tax table for donation type of transaction that will help you determine the corresponding tax dues if the transaction is a donation. Compare this with the existing tax rate of 7.5% (6% + 1.5%) for a sale transaction.

Effective January 1, 1998 to present

Net Gift Over	But not Over	The Tax Shall be	Plus	Of the Excess Over
	100,000.00	exempt
100,000.00	200,000.00	0	2%	100,000.00
200,000.00	500,000.00	P 2,000.00	4%	200,000.00
500,000.00	1,000,000.00	14,000.00	6%	500,000.00
1,000,000.00	3,000,000.00	44,000.00	8%	1,000,000.00
3,000,000.00	5,000,000.00	204,000.00	10%	3,000,000.00
5,000,000.00	10,000,000.00	404,000.00	12%	5,000,000.00
10,000,000.00	and over	1,004,000.00	15%	10,000,000.00

Notes:

1.	Rate applicable shall be based on the law prevailing at the time of donation.

What everyone ought to know about the Family Home

Family home

A family home is usually the dwelling place in which a married couple, with their children, ordinarily resides. Basically, the family home would be registered in joint names of both spouses, being a conjugal property, except if the house was inherited through succession or bought before the marriage by either of the spouses.

Not everyone knows that the family home can have beneficial effect on taxation. As a tax saving tip, the family home can be exempted from certain taxes, or used as a deduction to minimize or save on taxes.

Your accountant or lawyer should be advising you of the following key tax information where the family home is subject of taxation:

1)      Exemption from Capital Gains Tax. Generally sale of real property not used for business, such as family home is subject to capital gains tax. However, there the proceeds from such sale is to be utilized in in acquiring or constructing a new principal residence within eighteen (18) calendar months from the date of sale or disposition, such sale is exempt from the capital gains.

This exemption from capital gains tax is subject to the following conditions:

a)      The historical cost or adjusted basis of the real property sold or disposed shall be carried over to the new principal residence built or acquired;

b)      The Commissioner shall be duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption;

c)       The said tax exemption can only be availed of once every ten (10) years;

d)      If there is no full utilization of the proceeds of sale or disposition, the portion of the gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax. For this purpose, the gross selling price or fair market value at the time of sale, whichever is higher, shall be multiplied by a fraction which the unutilized amount bears to the gross selling price in order to determine the taxable portion and the tax due.

2)      Deduction from Gross Estate or Exemption from Estate Tax. Where the family home is part of the gross estate of a deceased, the same may be written off or deducted up to the amount equivalent to the current fair market value of the decedent's family home not exceeding One million pesos (P1,000,000). As a requisite for the deduction, a barangay certificate of the locality where the family home is located must be submitted.

So before entering into any transaction affecting your family home, be reminded of these tax schemes to save on taxes.