Archive for May, 2012
Wednesday, May 30th, 2012
Are you thinking about short selling your home, but worry about possible tax consequences if it does not close by December 31 (the end of homeowner tax relief under the Mortgage Forgiveness Debt Relief Act)? You may be in luck, even if the Act is not extended.
The Mortgage Forgiveness Debt Relief Act (MFDRA), which prevents the federal government from taxing the difference between the sales price and amount owed on a mortgage in short sale and foreclosure situations, expires on December 31 of this year. Many agents are advising their clients to make decisions quickly if they are planning to short sale their homes, so that there is time enough for marketing and obtaining lender approval before the deadline – and since we are already at the halfway point in the year, time is ticking. But there is another way to protect yourself from the federal taxation even if the act expires and you want to short sale your home.
Little known to many, the Internal Revenue Code, section 108, provides a “moment of insolvency” document that could save you from taxation should the act not be extended.
Section 108 has an “insolvency” exclusion, which allows you to avoid taxation if you can show you are insolvent. To figure out whether you qualify, you need to take your total liabilities immediately before the discharge of debt, minus the fair market value (this includes exempt assets like retirement accounts and pension plan interest) of your total assets before the discharge. The resulting number will give you the extent to which you are insolvent. This amount cannot be taxed federally.
It is important to note that many people who are short selling or foreclosed upon do not have assets to cover their responsibilities, thus the reason they are in this position. So if the MFDRA is repealed and you didn’t have time to short sale your home before, you may still be in luck. I highly advise you to consult with your CPA or tax professional to see if you are insolvent.
Thursday, May 24th, 2012
There has been a lot of talk lately in the real estate industry about inaccurate appraisals resulting in cancelled home sales. Appraisals have definitely been more challenging, as lenders and their underwriters place strict requirements on the use of comparable properties and of what exactly that can include. Both sellers and buyers have a few ways of helping to assure that appraisals come in at contract value.
Buyer Options: Buyers do not have much say in the outcome of their appraisals, and cannot communicate with the appraiser, but they do have some options when appraisals do not come in at contract value.
1. Renegotiate the contract price. The buyer and seller can renegotiate the purchase price to reflect the appraisal value. Sometimes the seller may not be willing to do so.
2. Pay the difference in cash. If renegotiating is not an option, the buyer can choose to pay the difference between the contract price and appraised value.
3. Negotiate a compromise with the seller. Sometimes the parties can reach an agreement that will allow the sale to move forward. This can include anything from meeting in the middle of the contract and appraisal value, with the buyer laying down some cash to close, to the seller accepting the appraisal value and not contributing to any repairs that were agreed upon, and many other creative options.
4. Challenge the appraisal and request a second appraisal. The buyer can always challenge the appraisal with pertinent additional facts and/or comparable properties that were not considered in the report. It may also be possible to request a second appraisal, which the buyer may have to pay for. Speak with your real estate agent and your mortgage professional to decide how to best accomplish this method, as you must have information that that you feel should have been but was not contained in the report.
5. Cancel the contract. If none of the above options work or are desired you can always elect to cancel the contract. Take into consideration that you have likely spent money on a home inspection and of course, on the appraisal.
1. Educate the appraiser. The most important way a seller can help an appraisal come in at value is to ask the listing agent to prepare a report for the appraiser. In it, the agent needs to review the comparable properties and compare and contrast them to the subject property. It is also important to point out any upgrades or special features the home possesses, like a view or large yard, the fact that it’s on a cul de sac, or even things that may not be obvious, like green features and energy efficient appliances. Include photos of the comparable homes and the subject house, and a list of costs spent on any improvements.
2. Challenge the appraisal. Like the buyer, the seller can always challenge the appraisal with pertinent additional facts and/or comparable properties that were not considered in the report. See above.
3. Renegotiate or compromise: (see above).
4. Cancel the contract. This is always an option, but make sure that you have a plan moving forward. If you are planning on re-listing the property in the hopes of finding a cash buyer or another buyer who will pay the difference, keep in mind that you will likely be required to disclose the appraisal report from the first buyer. If you are thinking of renting the property make sure to crunch the numbers and take into consideration rent amount, property taxes, homeowner association payments and/or assessments, insurance and maintenance costs.
Appraisals, like many home sales, can be challenging these days. Over-improved properties and properties in neighborhoods with multiple distressed sales (that tend to sell for less) are especially at risk for low appraisals. But if you and your agent are prepared and have done your homework, there can be a successful outcome even when an appraisal does not come in at contract value.
Photos courtesy of Dreamstime
Monday, May 21st, 2012
Will Housing Money be Spent on Housing? The national mortgage settlement with some of the biggest U.S. Banks (from the the robo-signing scandal last year) is supposed to provide many states with money to help with housing issues. California, set to receive a $410 million settlement, could create more programs to help distressed homeowners stay in their homes, strengthen counseling services, fix up neighborhoods that have suffered from foreclosure blight, help people qualify for loans to purchase homes…the list is long and the possibilities endless. Sounds great for housing, right? Not so fast. While State Attorney General Kamala Harris says half of the money will be put into the housing sector, Governor Brown announced that the other half will be used to dig California out of debt. Do you really want my opinion on this one?
Bank of America Offers Up to $30k to Short Sellers: Bank of America announced at the end of last week that it has initiated a new nationwide program that will give up to $30,000 to distressed homeowners upon completion of successful short sales. There are some restrictions – the seller must work with B of A to get a preapproved short sale price before accepting a contract, and the short sale must start before the end of this year and close before September 26, 2013. But B of A says that homeowners in the midst of a short sale may be able to take advantage of this program as well. To find out if you are eligible call 877-459-2852.
Just a quick note – one of my sellers called B of A this morning to see if he was eligible for this new program, but he felt the representative was not very knowledgeable about the program. If anyone has success with this program please let me know.
Condos May Soon Be Easier to Purchase: The FHA announced that it may be changing some of the restrictions that frustrate condo buyers and investors, thus making these properties easier to purchase. Two of the restrictions – a 50% minimum owner-occupancy requirement and a refusal to approve complexes when the delinquency rate on homeowner association dues is over 15% – have made many condos unattainable for those who require loans. There are several other restrictions that are being looked at, and there are no details yet, but it will be good news for buyers and the housing market if these restrictions are loosened.
Monday, May 14th, 2012
Things are really heating up in the real estate market in San Diego. Encountering multiple offer situations is not uncommon these days, especially with properties that are priced well and are in good condition. So, is it a seller’s market?
To answer the question we need to divide the market into attached and detached homes.
Attached homes: In the attached market many areas of San Diego are officially in the seller’s market territory. What does this mean? It means that sellers are receiving multiple offers, prices are going up, and sellers are able to often drive prices higher and pick their choice of offers. This means that buyers do not have as many opportunities to submit lowball offers, even when they would realistically pay more but want to “feel the waters.”
Of course, long gone are the days of severely inflated prices, but I will take a thorough look at comparable sold properties, and advise my clients to stay as close as they can to those numbers (assuming the properties are similar to the one on which they are placing an offer). Slight increases from the comps are definitely justified, as the market is trending upwards in many developments.
Overbidding is often something a buyer may want to do to secure getting their offer accepted, and as a listing agent I have received multiple offers sufficiently over the asking price. However, as much as I would like my sellers to get the highest price possible for their home, when I doubted that the offered price would survive an appraisal I counseled my sellers to choose not the highest offer, but the one most likely to close (cash offers first, and then loans with very qualified buyers and nice downpayments). So, it is not just about the numbers, but buyers DO have to be aware that if they truly want a certain property they need to present their highest and best offer in today’s attached home market.
Detached homes: Detached homes are still in the buyer’s market category here in San Diego in most areas, but in reality it depends on the area, inventory and price range. In most north county coastal cities, such as Carlsbad, Encinitas and Solana Beach, we have seen prices stabilizing and little change in trending. As more inventory comes onto the market as we head into summer it just may create a trend toward higher prices, but we will have to see how strong demand is at that time.
Personally, I have seen that listings are going very quickly in the detached market. Three recent listings of mine all received offers within days of listing, including multiple offers. So my advice is that it really matters in which area the property is located, and that buyers still want to write offers as strong as possible, unless they know there are no other offers and they feel they have time for negotiations. It is important you work with a skilled buyer’s agent who knows the local market and can negotiate well on your behalf.
The bottom line is that if you are a buyer looking for a detached home, it is still a great time to negotiate. Have your agent do her research on the comparables, and come in with a strong offer…but there is no need to offer an amount sufficiently above comparable solds. If your agent knows there are other offers on the property of course you need to discuss how to present your offer in the best light to give it the highest chance of acceptance.
Happy house hunting, and please let me know if you have any market questions you would like to see answered here.
Photos courtesy of Dreamstime.
Wednesday, May 9th, 2012
So many sellers ask me when they can repurchase after a short sale, foreclosure or bankruptcy. Following is a great synopsis of when a seller can repurchase after a distressed sale or bankruptcy, based on the type of loan/bankruptcy:
Chapter 7: 2 yrs.
Chapter 13: 2 yrs.
Foreclosure: 3 yrs.
Short Sale: 3 yrs, * unless borrower was not late prior to short sale (on ANY obligation) and was not trying to take advantage of the market.
Chapter 7: 2 yrs.
Chapter 13: 2 yrs.
Foreclosure: 3 yrs.
Short Sale: 3 yrs.
VA High Balance:
Chapter 7: 7 yrs.
Chapter 13: 7 yrs.
Foreclosure: 7 yrs.
Short Sale: 7 yrs.
Chapter 7: 4 yrs.*
Chapter 13: 2 yrs. from discharge date or 4 yrs. from dismissal date*
Foreclosure: 7 yrs.*
Deed in Lieu:
• 2 yrs. if subject loan is 80% ltv or less
• 4 yrs. if subject loan is 90% ltv or less
• 7 yrs. if subject loan is over 90%ltv
• 2 yrs. if subject loan is 80% ltv or less
• 4 yrs. if subject loan is 90% ltv or less
• 7 yrs. if subject loan is over 90% ltv
BK Chapter 7: 4 year waiting period is required measured from the discharge date or dismissal date of the BK. A 2 yr. waiting period is permitted if extenuating circumstances can be documented.
BK Chapter 13: 4 year waiting period is required for a Chapter 13 dismissal. A 2yr. waiting period will be permitted with extenuating circumstances (* See below)
Multiple BK filings: for a borrower with more than one BK filing in the last 7 years, a 5 yr. waiting period is required.
Foreclosure: 7 year waiting period is required, and is measured from the completion date of the foreclosure sale date.
A 3 yr. waiting period is permitted if extenuating circumstances can be documented and the loan-to-value rules are applied, MUST to be a purchase of a principle residence or a limited cash out refinance on an owner occupied, second home or non-owner.
*What are extenuating circumstances? They are non-recurring events that are beyond the borrower’s control that result in a sudden, significant and prolonged reduction in income or a catastrophic increase in financial obligations.
This analysis was provided courtesy of Daniel Dobbs with American Commerce Mortgage. He can be reached at 949-250-3981 or firstname.lastname@example.org.
Monday, May 7th, 2012
Unethical people stink. We can find them in every profession, including real estate. I certainly have seen my share of such types and I know many other agents who have stories of their own. The frustrating fact is that many agents do not report ethical violations, and these people continue to work in such a manner. What can we do about it? It’s simple: REPORT THEM.
For those who are unaware, real estate agents and brokers, like many other professionals, are bound by a strict code of ethics. If you have never read the code you should – it is built on the idea that we are dealing with legal situations and that we represent others in these situations. It promotes professionalism and respect for our colleagues, and asks us to strive to do right by our clients, colleagues, our profession, and by society. It is something we should each read at least once a year.
There are a few ways you can report violators:
1. Report to your local association. This is the quickest way to deal with an ethics violator. Associations may differ in their processes, but my local association has a simple way of doing so. First, a complaint form is filled out. It is submitted along with a written statement and any documentation that the complainant might possess. The complaint is reviewed by a committee, and then is scheduled for a hearing if found to warrant such (the complaints are deemed to be factual). The respondant is notified, has 15 days to respond, and then both parties attend the hearing.
Many agents do not bother reporting violators because they do not want to face the respondant, or because they do not want to go through the time the process requires. But it is worth it to do so, because these unethical people will just continue to do what they are doing, and you could prevent innocent people from being hurt or damaged due to such actions.
Punishment: The local associations do not have the authority to take a respondant’s license away, but if they feel there are issues of public trust involved they can report the issue to the Department of Real Estate (DRE), which does have authority to revoke licenses.
The local boards can place a letter of warning in the respondant’s file, levy fines, require them to take ethics classes, and suspend membership from the association. If the agent’s association membership is suspended it will be published in the national database, where everyone can see it.
2. Report to the DRE. The DRE’s role is to investigate potential violations of real estate law, such as financially related scenarios (e.g. where an agent/broker took monetary kickbacks), or loan fraud. Punishment is stricter, as the member could lose his/her license.
Check your agent’s status! You can check whether there have been any issues with your real estate agent/broker by clicking here. For agents and brokers, click on “Real Estate Brokers and Salespersons,” and them enter the required information.
If you are a buyer or seller and feel your agent may have committed an ethical violation, contact his/her broker. You may also want to contact their association and see what options you have in reporting them.
As professionals we need to report violations by other agents. If you are in a transaction and there is something fishy going on, you need to save all copies of communications with the other person, and any other evidence. Do not worry about getting involved in an investigation – we as a profession are only as strong as we choose to be. If we do not report those who don’t follow laws and rules, we are only hurting our profession and ourselves.
Monday, May 7th, 2012
If you love real estate technology – whether you are in the industry, or whether you are a buyer or seller – click here to read my latest blog post on MoneyPress. I discuss some of the newer apps, websites, tools and technology that make our lives a little bit easier. In our fast-paced world, it is nice to keep up with the latest tools and gadgets.