Tax Credits, Home Improvements & Short Sales
April 1st, 2010 categories: Home buying, Real Estate, Short Sales, Tax Incentives
The National Assoc of Home Builders (NAHB) recently issued a handy fact sheet detailing the type of home improvements eligible for the $1500.00 tax credit. Homeowners can qualify when installing new energy efficient items on their home until Dec. 31, 2010. Items that qualify range from upgrading your insulation to installing new heating and air conditioning, replacing doors and windows and installing roofing systems that improve energy consumption.
The tax code (Section 25C) states that the credit is available for 30% or up to $1500.00 for a lifetime limit. If you’re in the process of building this is not something you can apply towards your building costs as it is specifically intended for existing principle homes. One thing to beware of is that not all Energy-Star rated products qualify for the tax credit, so check their website before you buy. Also, it prohibits most installation costs so keep that in mind when shopping.
Among the items included that don’t ordinarily come to mind are skylights, smart vents or whole house fans and wood burning stoves and fireplace inserts. I know what you’re thinking…wood burning stoves? In this valley? Yes, Martha, the manufacturers have vastly improved them to the point that some meet the federal requirements for efficiency and most importantly the tax credit. This is also an exception where the installation can be included so long as it is a requirement from the manufacturer to ensure safe functioning.
So how does all this relate to short sales? Well, if you’re in the process of purchasing a short sale it might not be a bad idea to keep energy efficiency in mind when doing your inspections. For example, if you find that the home you are considering needs new windows and your budget doesn’t allow for that after closing there are loans structured specifically for that need. Rolling the costs into the loan keeps cash in your pocket and the tax credit will help at the end of the year. Lenders who specialize in home improvement loans can walk you through the process.
One last thing to remember is to ask for the manufacturer’s certification that the item qualifies for the tax credit. The items installed must also meet the requirement that they remain in use for at least five years. For more information go to NAHB’s website at www.nahb.org/remodel
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Short Sales: Know Your Options
February 26th, 2010 categories: Finances, Foreclosures, Home Selling, Loan Modifications, Real Estate, Short Sales
With the recent decline in foreclosures due to banks holding back some REO (real estate owned) inventory, agents have begun to re-tool their marketing to target short sales. Clear guidance is the key to getting your home sold via a short sale so when hiring a broker to sell your home ask if they will be personally handling the transaction. It’s imperative to let the broker know the date of the last payment made or how many payments you are behind. These details will determine the success of your short sale so providing as much information up front will help speed the process. Below are some of the pitfalls facing sellers as their broker attempts to negotiate with the banks to sell short.
Each lender has its own criteria and level of tolerance for short sales. Multiple levels of approvals with varying conditions are common in short sale transactions. Once a sale is submitted and uploaded to the system, it must fit the pre-determined criteria dictated by the banks loss mitigation dept. Loss mitigation is the first department that grants approval. The initial package typically takes about 3 weeks to be uploaded to most banks systems. Recently banks have begun to streamline the process and are utilizing online software which is supposed to speed response time. This is relatively new so we hope to see time frames shrink as new requests are processed.
Every short sale is unique and the amount of time it takes to get the home closed will depend on how many liens are attached to the property. There are so many possibilities when it comes to lien holders but here are a few that hold sway. Home equity lines of credit (HELOC), Home Owners Associations (HOA) that can have multiple assessments attached, tax liens (income, estate or corporate franchise tax) real property taxes and mechanic’s lien holders. Additionally, any unpaid utilities will need to be paid and if maintenance has been neglected and the city has to mow the lawn there will be a lien for that service attached.
There are additional pitfalls that can also prevent the short sale by way of lender required mortgage insurance on the loan. The way this works is that the bank is obligated to allow the mortgage insurer to be party to negotiations. This is part of the servicing agreement initially set up by the mortgage insurer with the bank. The reason being that the insurer will have to pay out a claim to offset the lender’s loss in the short sale. Some mortgage insurers require a side note to be executed in order to transfer title. This is another item of negotiation that can halt the transaction so knowing upfront if there is mortgage insurance certainly helps.
The failure rate of short sales is relatively high due to the complexity of the processes involved. Numerous parties to the transaction, fickle buyers unable to perform or worse walking away from the purchase complicate an already frustrating experience. Inexperienced agents who do not understand basic procedure can jeopardize the sale because time is of the essence. Auctions do happen and most of them are for homes that failed to sell short.
Short sales do adversely affect a person’s credit score although the negative impact is typically less than a foreclosure. Short sales are a type of settlement and remain on a credit report for seven years. Some lenders are designing loans for those customers who have experienced a short sale with some buyers able to re-purchase in as little as 13 months. The determining factors are keeping your other credit obligations under control and no late payments exceeding 90 days. Of course, you have to qualify your income and work history but the banks realize that there is a distinct need for these loan products and it will grow as we get out from under this current market.
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Folsom’s Inventory Status
October 23rd, 2009 categories: Folsom CA, Foreclosures, Home Auctions, Short Sales
Current Statistics for Oct 2009
As Halloween approaches it appears that some of the homes on the block will have the porch light out for reasons other than avoiding tricker treaters.
Inventory is down in Folsom CA and short sales and foreclosures currently represent just under one half of all residential home sales. The spookiest information I found was the amount of bank owned homes (REO’s) in Folsom which currently stands at 896! According to Realist there are currently 232 pre-foreclosures in Folsom which means that the homeowners are behind in their mortgage payments and a Notice of Default (NOD) has been filed. Their are also 192 homes that are set to go to auction. I usually see most of these homes go back to the bank because buyers are leery of purchasing a home without full disclosures available on the condition of title.
The latest numbers for Sept. 2009 show that there were 64 homes sold in Folsom CA, of which 14 were bank owned. Short sales accounted for 12 homes sold which is encouraging because most likely those homes were still occupied and maintained up to the sale. The rest of the properties were fair market sales which include investors selling previous bank foreclosures.
There is some positive news on the horizon which includes a possible extension of the $8000 tax credit for buyers. The discussion includes allowing all buyers to participate so that could help those move up buyers re-examine their options. One other piece of good news are the current interest rates which are still hovering at the 4 3/4% to 5 1/2 % range. These are not the frightening rates that were available when I purchased my first home…they were around 11%…now that’s scary!
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Lenders Wise to Short Sale Flippers
September 1st, 2009 categories: Finances, Real Estate, Short Sales
Don’t Fall for this Scam
Short sales are here to stay and many agents who previously wouldn’t touch them are realizing they now ARE the current market. For those of you who do not know what a short sale is I’ll briefly explain: When a lender agrees to take less than the amount owed on the loan or “short” from the buyer. The seller does not receive any money, is not liable for the difference and the buyer gets the house free of any liens. My blog today is focusing on the lenders and their perspective when it comes to approving a short sale and transferring the title to the new buyer.
There are a number of “investors” who are purchasing short sales but never intend to hold on to the property. There are also a number of desperate real estate agents who are not making it and have agreed to work with these investors. Let me explain how they set up these fraudulent transactions.
Real estate agent A lists a home for sale advertising it as a short sale. Investor Joe submits a low-ball offer with the listing agent to the bank. The agent continues to advertise the property for sale with the intent of finding a buyer who is willing to pay more than the investor. The investor gets an approval from the bank, sells the property to the new buyer and makes a tidy sum on the difference. The only problem with this scenario is that it’s fraud. Don’t forget the seller signed a contract to pay back the loan therefore any money made from the sale of the home is rightfully due to the bank until the loan is paid in full.
The interesting part is that the banks are finally getting hip to what is going on and including language on the approval letters against this practice. I just received one such approval for a short sale and the lender clearly outlines how the transfer of title is to be conducted and prohibits any third parties from receiving any funds. This implies that if a seller is aware of any such transaction that they can be held liable for fraud. That’s a nasty little word and in all honesty I don’t ever want to be involved in any litigation that includes that word.
So how do you beware of unscrupulous agents? The first rule of thumb is to check out the agents license with the Dept. of Real Estate (DRE) and see if there are any previous disciplinary actions against him. You can also go to the local real estate board and check for complaints against the agent. If the agent is not a member of the local board then you have no recourse should he do something unethical.
Remember that a short sale is STILL A SALE and you are hiring someone to represent you in this real estate transaction. Your agent should be able to tell you what to expect and explain the process clearly. If they seem a bit fuzzy then you know they are not experienced. If they tell you they have an investor they are working with, ask them to explain the process to you, and if it sounds like what I just outlined then beware of fraud. You are hiring the agent to represent you so cover yourself and hire someone with integrity to represent your interests. The old adage is true: You can delegate responsibility but you can’t give it away.
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Distressed Property Solutions for Folsom Lake Homes
June 11th, 2009 categories: Folsom Lake Homes, Foreclosures, Loan Modifications, Short Sales
Seven Myths of Short Sales Exposed
Having just completed my designation for the Certified Distressed Property Expert (CDPE) I wanted to share more about short sales and expose some myths that you might have heard. The Distressed Property Institute recognized the need to train real estate agents to handle the current crisis and has received overwhelming approval by the National Association of Realtors in endorsing this certification. The president of Remax currently sits on their board and encourages all agents to obtain this designation.
Myth #1 -Foreclosing is easier than a Short Sale
The reality is that banks do not want to foreclose on your property because the foreclosure process is incredibly costly. Banks have all publicly stated that if a person is qualified for a short sale, the deal needs to be considered. Overwhelmingly, banks receive more on their investment through a short sale than a foreclosure. There are three pre-requisites needed to qualify for a short sale:
- 1. Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
- 2. Monthly Income Shortfall – “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
- 3. Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
Myth #2 – You Need to Miss Payments to Negotiate a Short Sale
This was the way it used to be but today lenders are looking for a verifiable hardship. If you have a monthly cash flow shortfall, a pending shortfall and show you are insolvent you meet these three requirements. If you believe that you soon may be unable to afford your mortgage, act immediately. Any delay could limit your options.
Myth #3 – There is Not Enough Time to Negotiate a Short Sale Before My Foreclosure
This probably hurts homeowners the most. Many people do not realize that foreclosure is a process, and that there is time to make decisions. The foreclosing party-in most cases a lender-can stall a foreclosure up to the final day of the process. Today, many lenders will stall a foreclosure with as little as a phone call from you explaining that you are trying to sell, and almost all lenders will stall a foreclosure with a legitimate contract.
Myth #4 – Listing a Short Sale is Embarrassing
Recent estimates show one out of five homeowners in the U.S. is in the same situation. You are to be congratulated for admitting you need help, taking action, and finding a professional who can work with you toward a solution. In our area we are seeing up to 70% of all listings on the MLS in a short sale status.
Myth #5 – Short Sales Never Get Approved
This is a complete falsehood. Are short sales more difficult to execute? Yes. Do you, as a homeowner, need to learn about a new process? Yes. Are they impossible? Absolutely not. While there are no guarantees in any transaction, more and more short sales are being approved regularly. This is far from an impossible process. Professionals who have the CDPE Designation are fully trainied in methods to help homeowners in distress and process short sales.
Myth #6 – Banks are Waiting on a Bailout and Not Approving Short Sales
The reality is that banks (and the U.S. government) are trying to do anything they can, within reason, to avoid foreclosing on properties. Denying a short sale in the hope that some future legislation would pass and pay them for losses is preposterous. Freddie Mac recently hosted a national training Webinar for real estate agents where they expressly stated the organizational goal of “eliminating distressed assets through modification or short sale.”
Myth #7 – Buyers Agents Are Not Showing Short Sale Properties
This is a myth that potential sellers hear all the time. Smart agents are getting calls from buyers who say they only want to look at foreclosure and short sales. For buyers, short sales and foreclosures have become synonymous with “good deals.” Listing with an experienced agent who is educated in the short sale process will provide you with a great chance of quickly seeing a contract on your property.
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Related articles:
http://folsomlakehomes.com/2009/05/06/foreclosures-fixer-scams/
http://folsomlakehomes.com/2009/04/28/short-sales-impact-on-credit-scores/
http://folsomlakehomes.com/2009/04/14/california-prevention-act/
http://folsomlakehomes.com/2009/02/16/loan-modifications-vs-short-sales/
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Deal of The Week
June 1st, 2009 categories: Folsom CA, Investors, Real Estate, Short Sales
3bed/2bath in Folsom CA
Whenever I tell someone I’m a broker the first comment is usually something like “I wish I had money to buy a house in this market” and I agree the rates are exceptional, the prices in our area are down and the selection is pretty good from a buyer’s perspective. The next question is usually something along the lines of: “Do you have any good deals?” And that’s when I realized that offering a deal of the week might not be such a bad idea…so here goes!
For you investors or first time buyers I do have a deal and it’s currently the 3rd lowest priced single family home in Folsom CA. Located at 205 Fargo Way in Folsom CA the gross living area is 1316sf and the lot size is .176 acres. The kitchen is original but there is an addition that opens into the expanded family room. The backyard has mature landscaping and there is a 2 car attached garage. The hall bath has been redone and there is pergo flooring in the main areas.All of the work required to close escrow is in place and although this is a short sale the approvals are in the file and this is ready to cross the finish line.
My goal is to offer a deal of the week in our geographic area so that investors and first time buyers can have a heads up on finding a great home before it goes pending sale. There are others in the towns surrounding the lake and if you’re looking to find something specific you can enroll to receive properties emailed directly to you the minute they go live on the MLS. Given the low interest rates and additional tax incentives it’s a hard combination to find so now is the time to take advantage. One more thing…no one is going to ring a bell to let everyone know we’re at the bottom…it only happens in hindsight.
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FREE Mortgage Rights Workshop
May 11th, 2009 categories: Elk Grove, Loan Modifications, REO, Real Estate, Short Sales, Special Events
Legal Forum for Homeowners in Crisis
This Tuesday, May 12th at the Elk Grove Community Library there will be a seminar hosted by two local attorney’s who specialize in real estate mortgage matters. The most impressive part is that it’s FREE and one of the speakers, Davie Pereira is a “court qualified expert in mortgage finance.”
The reason I am promoting this seminar is because as a real estate broker I am not afraid to ask the tough questions and to defer to the experts when I don’t know what I don’t know. I’ve met with Mr. Pereira and I believe his knowledge of real estate mortgage law is impressive and his willingness to share his expertise with the public is refreshing.
According to the flyer there are no commercials for his or his companies products and there will be a question and answer session after the presentation. Additionally he has told me that he does offer a free consult so if you have further questions or don’t want to discuss your situation in a public setting that is an alternative solution.
You must pre-register at 916-275-0907as seating is limited and if you have any questions concerning mortgages, credit, foreclosures, bankruptcy or other financial questions I would advise you write them out and bring them with. Opportunities for the public to ask relevant questions of mortgage professionals are rare and given his knowledge of contracts any insight he might offer is well worth the time spent.
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Related articles:
http://folsomlakehomes.com/2009/05/06/foreclosures-fixer-scams/
http://folsomlakehomes.com/2009/04/28/short-sales-impact-on-credit-scores/
http://folsomlakehomes.com/2009/04/14/california-prevention-act/
http://folsomlakehomes.com/2009/02/16/loan-modifications-vs-short-sales/
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Foreclosures Fixer Scams
May 6th, 2009 categories: Foreclosures, Real Estate, Short Sales
FTC Cracks Down On Rescue Scams
A bit late but better than never. Peggy Twohig, the Associate Director (Division of Financial Practices) for the FTC, spoke today before the House and introduced their plan to curb the schemes of fraudulent companies taking advantage of homeowners.
Apparently over the past year there have been eleven cases brought forth against companies who have defrauded uninformed consumers. What this means to you and me is that you now have somewhere to go to find out what questions to askto verify if someone is legitimate or not. Hope Now Alliance is a good place to start to educate yourself about the process and even offers Free counseling.
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Related articles:
http://folsomlakehomes.com/2009/04/28/short-sales-impact-on-credit-scores/
http://folsomlakehomes.com/2009/04/14/california-prevention-act/
http://folsomlakehomes.com/2009/02/16/loan-modifications-vs-short-sales/
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Short Sales Impact on Credit Scores
April 28th, 2009 categories: Foreclosures, Loan Modifications, Real Estate, Short Sales, Taxes
How the credit agencies are reporting short sales
At today’s realtor tour meeting our speaker, a former owner of the Money Store, offered some information about the impact short sales are having on seller’s credit scores. According to his statistics a short sale affects credit by reducing a seller’s FICO score on average 80-100 points. In contrast a foreclosure or bankruptcy impacts the score between 250-280 negatively. It’s obvious from this information why a homeowner should pursue a short sale but I would caution that getting your home on the market at the first sign of distress is a must for a successful short sale.
Another bit of important information is the impact a short sale will have in terms of taxes. The Mortgage Debt Forgiveness Act of 2007 states that non-recourse money (original purchase money) is a non-taxable event for sellers of homes sold from Jan 2007 until Dec 2012. California has not to my knowledge extended this beyond 2009. This is not so with recourse money IE: equity lines or refinances. However, if you took out a loan to put in a pool or landscape and you find yourself in a situation where you have to short sell you might be able to avoid paying taxes on the borrowed money IF you can produce receipts. Of course talking with a CPA is always one of the first things I recommend to my clients.
Talking with a knowledgeable Realtor is your first line of defence and can offer you a dignified exit during a stressful time in your life. If you would like more information or need to speak with me please call and let me explain your options before things snowball and get out of control.
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California Prevention Act
April 14th, 2009 categories: Foreclosures, Loan Modifications, Real Estate, Short Sales
AKA: Extend the moratorium on Notice of Default filings
There’s been a lot of talk about the extension of the Notice of Default (NOD) filings by the senate bill 1137 passed this February and it’s impact on the housing crisis in California. According to the report it extends the filing of the NOD’s (Notice of defaults)by 90 days so it seems that homeowners will gain an additional 3 months before they hear from their banks.
I’ve heard both sides of this argument and frankly don’t know which side I’m inclined to favor. Some folks claim that it will keep a flood of homes from hitting the market all at once. Others say it will prolong this down market and we should just let the market adjust itself without meddling in it. Given the amount of short sale business that I’ve been doing lately I’m in favor the freeze because it allows us Realtors to get in front of the banks with our listings a bit faster. Short sales and REO’s (bank owned) are driving this marketand with the next wave of adjustments on the horizon it makes sense for the banks not to overload their already overworked loss mitigation depts.
Currently short sales are taking an average of 21-30 days for the bank to respond. Some lenders are so impacted that you cannot get them to answer a phone call. Email is not the typical mode of communication so the result is slow processing and little understanding for the plight of the homeowner, let alone buyer. So what is the solution? I counsel all parties involved to be patient…remember what Mom used to say about it being a virtue? The payoff can be very good for those who are willing to go the distance and with the delay in NOD filings you have plenty of time to get through the process without fear of the house being foreclosed on in the middle of the transaction.
If you are looking for good counsel it pays to talk with a Realtor who has been working in the short sale arena. There are attorney’s advertising for loan modifications who also provide short sale assistance but there is a big difference and that is how they get paid. Typically when you hire a Realtor to represent you in your sale or purchase the commission paid to the agent does not occur until the transaction closes. When you hire an attorney to represent you then you pay them a fee…regardless of the outcome. So be wise and understand that you will still be liable to pay the attorney even if you don’t succeed in getting a loan modification and your home needs to be sold short. It doesn’t make sense to go further into debt when your Realtor can guide you through the process. I’ve been successfully closing shorts sales and would gladly help you get through the process.
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