The Tipping Point
August 2010 | Dave Corsi, MREIA's Legislative Awareness Chair
We are certainly not living in boring times. The changes in law and regulations as investors and Americans are coming hard and fast. And as is the case many times, the changes are not good.
The government appears to be headed for a showdown with the people. They seem to forget that the United States is a republic, founded on the principles of limited government and free enterprise. Washington, any state and city governments, to a large degree, seem to forget this and think that we work for them. Their foolish policies and actions (Community Reinvestment Act, overspending, easy money policies) played a large part in creating the economic mess we have today.
The following are a few of the policies and events that have brought us to this point. Please review and take the time to understand the issues. Our future depends on it.
The first point that must be understood is that we are at a tipping point. Nearly 50% of the population does not pay any income tax. No nation in history has been able to sustain itself when half the population is not contributing.
Consider what will happen when the producing 50% finally have had enough and join the “non-producers.” Read “Atlas Shrugged” or “Animal Farm” for the answer. The pilgrims and colonists at Jamestown only survived and prospered when the rule was made that if you don’t work, you do not eat. Prior to this dictum, half refused to do any manual labor and the settlements were failing.
Hidden in the news was the fact that “pending home sales” dropped 30% in May to a record low of 77.6%. Although the government and its minions in the media keep trying to put a happy face on the economy, do not be fooled. Real growth and improvement are a long way off and are by no means guaranteed. If the government continues to pass bad legislation, pursue “easy money” policies and lie about the economy, nothing will improve and indeed, the situation will get worse.
The Social Security Trust Fund went negative this year, meaning more money is going out then coming in. This was not supposed to happen until 2018, but due to the weak economy it happened eight years early. Congress, with the President’s blessing, has “borrowed” nearly $2 trillion from the Social Security Trust Fund and has no way of paying it back, except by getting you to pay it.
Now the trick is for Congress to come up with a way to get the American people to reimburse the fund, while keeping the public from realizing they have paid twice for the same service. Considering the fact that economic illiterates rule Washington, this can only mean higher tax rates and tax increases, unless there is a wholesale change in the members of Congress in November.
In short, “It is time to throw the bums out!” And please don’t think that your Congressman or woman is ok and the rest are the problem. I would venture that there are only 20-25% of the members who deserve to be re-elected, so chances are, particularly in NJ, that you are saddled with an incompetent representative.
Recently Congress passed, and President Obama signed into law “The Wall Street Reform and Consumer Protection Act, ” another of the 2,000 plus page bills that neither Congress nor the President read. This gem includes the Mortgage Reform and Anti Predatory Lending Act that previously died in the Senate. This section puts a limit on the number of owner-financed deals a Seller will be able to make, unless the Seller holds a mortgage originator license.
The original proposal called for no owner financing. Thanks to lobbying efforts with the NJ Association of Real Estate Professionals taking the lead, a change was made and the final bill allowed for three owner financed transactions “in any 12 month period.”
The passed “Obama Care” bill includes a tax on real estate sold, beginning in 2013 and 2014. It is a “capital gains tax of 3.8% to be paid by individuals with an AGI of $200,000.00 and couples with an AGI of $250,000.00, in addition to what the normal capital gain tax rate will be. Keep in mind that the Obama Administration and Congress are working on new tax legislation and both have said the capital gains rate will be going up, so get ready to kiss the current 15% rate goodbye.
Also included in “Obama Care” is a requirement that businesses must file tax forms for every vendor that SELLS THEM more than $600 worth of goods.
On July 21st the Wall Street journal had a series of articles pointing out that real estate is still sputtering, contrary to the happy face spin of the Obama Administration. Keep in mind that in regard to most of the loans in default, most lenders have not yet instituted foreclosure proceedings.
In Atlantic City, a NJ Superior Court Judge ruled that banks must prove that they hold the “original note” before they can foreclose on a property. This has tremendous implications to the real estate industry and is consistent with rulings throughout the country.
In the past decade, thanks to bad legislation and sloppy documentation, many lenders when selling their “securitized” notes never bothered to properly assign the note and mortgage to the secondary purchaser of the note and mortgage. Coupled with the fact that many lenders gave the transaction to outside servicing companies such as the Mortgage Electronic Registration System (“MERS”) to transfer and track ownership and servicing rights to these loans.
After the loan went into default and the banks/MERS instituted foreclosure proceedings, the borrowers came up with a strategy to fight back. Only a person or entity “with standing" (note holder) has the right to institute foreclosure proceedings. The borrowers and their attorneys have begun demanding proof of “standing”, meaning the lenders must produce the “original note.” A copy is usually not acceptable. As mentioned, securitization, sloppy paperwork has led to the fact that many of the whereabouts of the “original note” is unknown. As might be imagined, the consequences can be staggering. At the least, they may delay the foreclosure process, and at the worst, they may wipe out the debt only time will tell.
And let’s not forget the Supreme Court ruling of “Kelo vs New London”, where the court in a 5-4 vote, decided that it was ok for the city to take (steal) a woman’s home and give it to private developers. Incidentally the five votes came from the court “liberals,” while the conservatives voted in favor of Ms. Kelo.
A historic election is coming up this November. The people of this nation are going to have to decide if we are going to be a nation of freedom, limited government, self reliance and free enterprise with elected officials who understand these principles, or a Socialist nation where the government “owns” you. The time is coming to make your choice.
About the Author
Dave is a Past President of MREIA, the current Legislative Awareness Chairperson and has made presentations at MREIA meetings and the Learning Annex.