Written By: Esperanza Creeger, Independent Mortgage Bond Expert, 21 years in the mortgage industry (administered the housing bond program for the western U.S. thru American Home Mortgage) and can be reached at ECreeger@Hotmail.com.
There I was, sitting at my busy, messy, yet highly efficient desk, minding my own business when out of the blue the phone rang jarring me out of my stress induced catatonia. The java, all seventeen cups, triggered a sudden barrage of heart palpitations - I was ready for the day. I made my first executive decision of the day and answered the phone, fully prepared for whatever meltdown awaited me on the other end of the line. Steeled for anything, I heard the voice of lovely Suzy Escrow Officer on the other line. From the unnaturally high pitch in her voice, I vibed all was not well.
"Hello? Yes, I have a borrower at the table who will not sign her loan documents?" ending her declarative statement as a question.
"Mmmm, hmm - why?" I asked dryly, lips pursed.
"There is a tax form in the loan documents that her loan officer did not tell her about. It's called a 'Federal Recapture Tax Disclosure Form' and she refuses to sign it. What should I do?"
Yes, the oh so threatening sounding FEDERAL RECAPTURE TAX is not the big scary monster lurking in the shadows to swallow you, your family, dog and cat in one fell swoop if you could sell your home within nine years from the purchase date. Not even close. In fact, it is more likely a spaceship manned by little grey men will land in your front yard and throw a barbeque kegger before any punishment is meted out by way of federal recapture tax provisions associated with public benefit subsidy programs (although partying with little grey aliens in your front yard would be way cool).
OK, back on point. In the context of tax-exempt mortgage revenue bond programs and mortgage credit certificates, borrowers receive what is defined by the Internal Revenue Service as a federal subsidy benefit or public benefit.
- They receive a lower than market rate interest rate is a public benefit/public subsidy (as is the case with tax-exempt mortgage revenue bond programs).
- Receiving a tax credit by way of lowering one's tax liability and then applying that credit to a new mortgage to facilitate qualifying is a public benefit/public subsidy (as is the case with Mortgage Credit Certificates or MCCs).
- The principal and interest portion of the borrower's mortgage payment is extracted, so to speak, then passed through to the original bond investor as tax free income.
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