First, there was the default last month by Tishman Speyer Properties and BlackRock Realty on billions of dollars in loans on Stuyvesant Town and Peter Cooper Village, the huge apartment complexes in Manhattan. When the deal was done, in 2006, it was the biggest of its kind in American history.

And this week, Simon Properties tried to buy General Growth Properties, its shopping mall rival, for $10 billion, a price General Growth says is too low even though the company is in bankruptcy.

Yet in the midst of this, financial advisers are telling their wealthy clients that there is tremendous opportunity in real estate. What is equally intriguing is that these investors are looking again at something as illiquid as a building, which goes to show just how quickly people can reacquire their appetite for risk if it means higher returns.

“The trick with investing in commercial real estate is not knowing if something is bad, but knowing if that ‘bad’ is priced in,” said David Frame, global head of alternative investments at J.P. Morgan Private Bank.

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When Toronto resident Celia Bernath files her annual income tax return, she includes a long list of deductions from her home-office income. After all, as a chartered accountant, she knows that travel, bank charges, postage, courier, utility and other expenses are fair game for the micro-entrepreneur. But the item that sometimes has the most impact is deducting a proportion of her residential mortgage interest.

“The mortgage-interest deduction — like other deductions — is based on the square footage of my office divided by the total square footage of the house. Keeping track of all your household expenses is very important,” says Ms. Bernath who has about 15 corporate and 100 personal clients.

Ms. Bernath is one of the more than 700,000 home-based business owners who might be eligible to deduct a portion of their mortgage interest on their principal residence as an expense.

Generally speaking, in Canada, interest on residential mortgages is not tax deductible.

However, Ms. Bernath can do so because there is a direct link between the borrowed money and earning income.

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In a nod to the effects of the real estate meltdown, Freddie Mac shows that mortgage borrowers, if not lenders, may have learned their lesson. According to Freddie Mac’s quarterly Product Transition Report for Q4, 2009, refinancers are overwhelmingly choosing fixed-rate loans, whether or not the original loan was an adjustable-rate mortgage (ARM) or a fixed-rate mortgage.

ARMs are the reason that many found themselves in trouble during the real estate meltdown. Sub-prime loans with attractive interest rates that adjusted to a higher rate, or even had a balloon payment, put those who had gotten themselves into homes they could not justifiably afford, into situations that could only end in foreclosure.

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There is growing concern in Congress that the shaky $6.7 trillion commercial real estate market could implode, delivering a major blow to the economic recovery. A bipartisan group of 79 House members led by Representative Paul E. Kanjorski, Democrat of Pennsylvania, and Representative Ken Calvert, Republican of California, sent a letter to the Treasury Department and the Federal Reserve on Monday urging them to take a more active role in keeping the commercial real estate market from turning into a disaster.

“The growing bubble in the commercial real estate industry has the potential to infect our economy and slow a recovery,” Mr. Kanjorski said in a statement.

“In order to safeguard the businesses operating on Main Street and protect the millions of jobs depending on commercial real estate, the Treasury and the Federal Reserve now must take needed and urgent action to stave off a potentially devastating wave of commercial real estate foreclosures and bank losses,” Mr. Kanjorski said.

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When John King stopped making payments on his home in Coral Gables, Florida, two years ago, he assumed the foreclosure ended his mortgage contract, he said. Last month, a Miami-Dade County court gave collectors permission to pursue him for $44,000 stemming from the default.

King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.

“The big dogs get a bailout, and the little man gets no mercy,” said King, 39, referring to the U.S. government’s rescue of banks and other financial institutions.

While there are no statistics on the number of deficiency judgments approved by courts, the Federal Deposit Insurance Corp. tracks the amount banks collect after defaulted loans were written off.

These mortgage recoveries rose 48 percent to a record $1.01 billion in the first nine months of last year compared with the year-earlier period, according to the Washington-based regulator. Recoveries on defaulted home-equity loans almost doubled to $392 million, the FDIC data shows.

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In his years as a mortgage broker, Bill Enfinger didn’t consider it his job to assure a home loan made sense. The banks decided who qualified and who didn’t. He simply brought borrower and lender together.

Johnnie M. Perkins, 63, who lives on Social Security disability payments, laments the refinancing she obtained in 2007 hoping to shed credit card debt. “It was just a bad, bad business deal I made, thinking I was doing something to set myself free.”

Bita Honarvar, bhonarvar@ajc.com Johnnie M. Perkins, 63, who lives on Social Security disability payments, laments the refinancing she obtained in 2007 hoping to shed credit card debt. “It was just a bad, bad business deal I made, thinking I was doing something to set myself free.”

Johnnie M. Perkins bought her Ellenwood house in 1994. In 2007 when she refinanced it, her monthly gross income was $1,168. Her new house payment, including taxes and insurance, is $971.50.

Bita Honarvar, bhonarvar@ajc.comJohnnie M. Perkins bought her Ellenwood house in 1994. In 2007 when she refinanced it, her monthly gross income was $1,168. Her new house payment, including taxes and insurance, is $971.50.

In fact, Enfinger marveled at the deals banks approved for some of his clients during the heyday of subprime lending. “I knew it was risky,” he said.

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A Stamford accountant accused of profiting off the misery that’s playing out in state courtrooms overrun by foreclosure cases has pleaded guilty to involvement in an alleged mortgage fraud ring.

Accountant Jose I. Flores, 50 of Fairfield Avenue in Stamford, waived his right to indictment and pleaded guilty last week to one count of conspiracy to commit wire fraud in U.S. District Court in Hartford. He faces up to five years in prison and a fine of $250,000, or twice the gross gain or loss from the offense.

Flores’ attorney, Shelley Marcus, said Friday she could not comment on the matter, as it is still pending.

Flores’ sentencing is scheduled for April 9.

U.S. Attorney Nora R. Dannehy said Flores, who ran a tax preparation firm called Harvard Financial Services, admitted that, from 2004 to 2008, he conspired with others to defraud mortgage lenders by providing fraudulent “accountant letters” as proof of income for people buying homes. Dannehy’s office cited three instances in which Flores provided letters that falsely indicated how long mortgage applicants had been self-employed, working as landscapers and cleaners.

Accountant letters are needed when people take out “stated-income loans.” These loans were created for the self-employed or those who work on commissions. It allows lenders to consider the potential borrowers’ work and earning history, rather than just the most recent income tax returns.

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A funny thing happened quietly at the stroke of midnight on January 1, 2010—the new RESPA (Real Estate Settlement Procedures Act) regulatory changes came into effect, turning all the mortgage lenders upside down and inside out as they try to figure out how to implement the regulations in a correct manner without making consumers and themselves insane.

The solution so far seems illusory, since no matter how many times mortgage lenders review the procedures and try to figure out how the HUD regulators expect them to be put into play, actual implementation of these procedures is geared to cause more havoc than protection for the consumer looking for a mortgage.

HUD is essentially requiring that mortgage originators provide borrowers with a completely reformulated GFE (good-faith estimate) that they feel will clearly disclose key loan terms and closing costs for a potential borrower, and is also requiring that all closing agents associated with providing the borrower with representation at closing provide exact costs in advance. The new GFE will now be a three-page document as opposed to a simple one-page itemized disclosure.

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NEW DELHI: Foreign investors in real estate continue to repose their faith in US markets as they believe the country provides the best opportunity for capital appreciation, while India is among the top five emerging market in this space, a survey says.

According to a survey conducted among the members of the Association of Foreign Investors in Real Estate (AFIRE) “In 2009, foreign investors in real estate say they remain committed to the US as their preferred real estate investment opportunity.”

The United Kingdom emerged as the second-best country for capital appreciation, receiving 30 per cent of respondents’ votes followed by China which received 10 per cent.

The survey further said the top five emerging markets are China, Brazil, India, Mexico and Turkey. China was considered as the top emerging market, followed by Brazil and India.

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Virtually all commercial real estate (CRE) both locally and nationally has experienced some decline in value from its peak a couple of years ago.

A large part of the decline in CRE values is due to increasing capitalization rates. Capitalization rates are the ratio of building income to building value and reflect an investor’s perceived risks associated with a particular property. Capitalization rates are also influenced by the cost and availability of investment capital, particularly mortgage capital.

Prior to mid-to-late 2008, financing for CRE (like the residential real estate market) was inexpensive and easy to attain. The low cost of capital contributed to capitalization rate compression. Significant increases in CRE values were realized because of this compression.

When it started to become clear that much of the continued increase in the value of CRE was not economically supported, both the availability of financing and investor’s perceived risks started to drastically change. This trend is continuing to this day with lenders pulling back loan-to-value ratios and shortening amortization periods, and with investors requiring higher rates of return to account for the risks of operating in this environment.

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