Financial Frontlines®

For those of you bumping up against the “10% decline in the market impact zone” requirement, we have an update. Plus, $323M in additional HAP funds on the way.

We spoke to the Corps of Engineers national project officer for HAP Friday. He told us that impact zone requirement can be disputed if sellers can provide data that indicate your immediate area was impacted more than the Corps of Engineers area studies show. He says every regional office has the discretion to allow other evidence and the national/regional offices accept other information. We know of examples here in Fairfax county VA where some areas of the county were hit much harder than other areas. Marketing surveys provided by real estate firms and appraisals from local/county governments can help. The other Shane who has been posting on this site mentioned a case like this previously where a family overturned the 10% rule using this regional office management flexibility.

Also, there is a bill working through Congress now that will add $323 million to the current HAP budget. This bill stands a high chance of passage from the Congress and the President. This additional money is projected to be enough to cover most HAP claims. Updates will follow.

Go to the web site www.regulations.gov.

In the Search Box labeled “Enter Key Word or ID” type RIN 0790–AI58.

When the search comes back, the HAP is in the search result box. Note the comments hypertext to the right.

Homeowner assistance program begins tomorrow

By Karen Jowers – Staff writer
Posted : Tuesday Sep 29, 2009 12:13:16 EDT

A program to help military homeowners caught in the downturn of the housing market can start processing applications Wednesday, sources said, with the scheduled publication of the implementing rules in the Federal Register.
About 4,300 homeowners have already applied for assistance under the expanded Homeowners Assistance Program, which was signed into law Feb. 17 with $555 million in funding. Eligible are people on permanent change-of-station orders, wounded warriors, surviving spouses and those affected by base realignment and closure actions.
Wounded warriors and surviving spouses receive priority in the program, although about 98 percent of the applications received so far have been in the PCS category.
The Army Corps of Engineers, which runs the program, has been increasing staff and preparing to start processing applications. Some service members have said that HAP officials have been doing initial reviews of their applications, asking for more information, to further prepare in advance.
But the primary issue that has held up the program for six months still looms: Homeowners who receive benefits under the expanded HAP will have to pay taxes, and the taxes will be withheld upfront. Recently introduced legislation that would fix the problem and make the benefits tax-exempt is still pending.
For now, the tax requirement will limit the number of people who can be helped, because service members who are “upside-down” on their mortgages — those who owe more on their mortgages than the sale price of their homes — would not have enough money to take to the table to close the sale.
Defense officials have been exploring options that could help these service members.
Each individual’s situation will be different, and service members will have to decide what is best for their circumstances.
If they qualify for the program, those who have already sold their homes at a loss can be reimbursed for part of the loss, minus the tax withholding.
The program is retroactive for those who received PCS orders on or after Feb. 1, 2006. Homeowners affected by PCS or base closure actions must have purchased homes before July 1, 2006. Additional eligibility requirements will be included in the final rules.
Although there still will be a 30-day comment period on the implementing regulations in the Federal Register, the Corps of Engineers will be able to process applications starting the day of publication.
The tax issue is out of the Defense Department’s hands, and the Office of Management and Budget and the Internal Revenue Service had tried to come up with a resolution. Assistance under the original HAP, created to help those affected by base closure actions, is not taxed. But that tax exclusion was not written into the provision that expanded the program.

Spoke to members of the HAP office Friday.  Projection is that the Federal Register is due mid- to late- August.  They are ready at the starting gate.  They are ready to reimburse folks in the PCS category of applicants who have already sold their homes.

Late(r) Breaking News:

Friday, June 12, 2009

The OSD tax person advised today that they have a “fix” that will make HAP benefits in the PCS category non-taxable.  The fix is under review by OMB; OSD hopes to attach the provision to a bill later this year.  So for now, HAP benefits are taxable, but if the proposed measure passes Congress, the PCS HAP category could become tax exempt .

June 11, 2009

We just found out some of the financial assistance for members under the Homeowners Assistance Program is taxable for some applicant categories. The PCS category is one of the taxable categories and we are determining whether the other categories are affected.

This is a surprise to us as we believed the benefit to be excluded as income as was HAP program payments prior to this recent expansion of the program.  See IRS Publication 3, page 4.

We are researching this issue and will report back as soon as we can get a source and a decision. In the meantime, if you apply for the HAP, ask about the tax status of your possible benefit. It could be that your $100,000 HAP payment could go down as income when you file your taxes for 2009.