A Southern California Short Sale May be your Best Option Short Sale – If you have a Hardship

Posted on January 11, 2012 by Stephan Sabbah

Foreclosure Alternatives

One of the biggest mistakes some people make at this point is being too
attached to their property. This will cause heartache, heart attacks, and a huge amount of stress.

Let me start off by sharing a true story of a very good friend of mine, Roman.
Roman was too proud to tell me of his situation, and had no idea that I could have helped him. At the time, he was in his mid 30′s and suffered a heart attack during the foreclosure process of his home. Roman paid someone, who called them self a “professional” to do a Loan Modification, while the lender, behind his back…turned around and foreclosed on his home.

This incident that happened to Roman is what motivated me to go help people in this situation. I need to get the word out that a house is a commodity as well as a home. When times like this happen your house should be treated as a commodity and be sold so that the family can move on, pay less for rent elsewhere for a few years, and get back on top of things. How you handle things from this point can make or break you in the near future and for years to come. You can not ignore the problem you face.

We all know someone like Roman, who does construction, and has been affected by this housing crunch. It is no secret that locally, here in Riverside County, Southern California, our economy has taken a significant hit. Many people have not only lost their jobs but the businesses that hired them have also gone away as well.

It is of no fault of the average citizen to lose their property to foreclosure.
The banks set this up long ago by having special loan programs creating a bubble that had to burst. The result of that bursting bubble is smart people short sell their homes while others do nothing.

The following is the most common options someone facing foreclosure can do along with the pros and cons…

Short Sale
Short Sales have been proven to be the number one alternative to Foreclosure.
If a homeowner owes more on their property than it is currently worth, then they can ask a qualified REALTOR Broker to market and short sell their property.

A Short Sale requires the property to be on the open market and the homeowner must have a financial hardship to qualify. Hardships can be defined as a change in the financial stability of the people on the loan, between the time the home was purchased and the time of the short sale.

Acceptable short sale hardships include but are not limited to: mortgage payment increase, job loss, cut in pay, cut in hours, unemployment, divorce, excessive debt, forced or unplanned relocation, and more.

* Pros: A short sale allows the homeowner to avoid foreclosure and salvage some of their credit rating. This also keeps foreclosure off the individual’s public record, and in many cases will allow the homeowner to avoid a deficiency judgment.

The Borrower may qualify for another mortgage in as little as 2 – 3 years (as opposed to 5-7 years for a foreclosure).
NO DEFICIENCY IN CALIFORNIA ON SHORT SALES http://www.car.org/newsstand/newsreleases/sb458 check the law to be sure you are covered – California sb458

50% Short Sale Success Rate
Currently July 2012 success rate based on single family homes sold as short sales vs single family homes listed as short sales 516 Listed, 256 Sold.

Very Close to 50% SUCCESS RATE - based on the area So Cal Homes Realty Services. This is basically saying your odds of short selling your property is about half, whereas a year ago they were about 33% or one in three, and two years ago the odds were around 12.5% or one in eight.

* Cons: Short sales can be a trying process in which a homeowner is best served by contracting with a qualified real estate agent to guide the way. You can not short sell your house to a friend, family member, or anyone you know. You cannot collect any money from the short sale of the property unless you do a special short sale known as HAFA Short Sale.

HAFA Short Sale
A HAFA Short Sale – Home Affordable Foreclosure Alternatives has some different options in a short sale where as the buyer gets up to $3,000 at the close of escrow. A lender will pre price the property for sale on a price that the bank will accept for the short sale.

I believe it might be wise to apply for the HAFA short sale with the bank, but be ready to deny the HAFA portion and see what the bank wants. You have an option ( a small time frame ) to deny the HAFA portion and remain in control.

* Pros: you get up to $3,000 at the close of escrow to help cover moving expenses. NO DEFICIENCY IN CALIFORNIA ON SHORT SALES http://www.car.org/newsstand/newsreleases/sb458/

50% Short Sale Success Rate
Currently July 2012 success rate based on single family homes sold as short sales vs single family homes listed as short sales 516 Listed, 256 Sold.

* Cons: Banks generally do not like following government guidelines unless they set it up for themselves. So… lenders tend to have a way of making this short sale far more difficult to do. Generally a lender will pre price the property 10% above market value, killing the option of selling the property and in the contract of the HAFA arrangement you have automatically agreed to do a deed in lieu or voluntarily give up your property in as little as 120 days.

Loan Modification
Homeowners can apply for a Loan Modification of terms to reduce monthly payment. I call this a banks trap. You will be trapped in your home for a long long time. The payments will go up in a few years just after the benefits to short sell go away.

* Pros: Allows homeowner to avoid foreclosure and stay in the home.

* Cons: Your credit report is Dinged quite heavily right away, when you apply for a Loan Modification. Fewer than 10% are granted Loan Modifications. It requires that a homeowner qualify for the new payment and will often require full documentation. The Lender has to be actively pursuing modifications. No lenders are known for giving Principle Loan reduction, so you still owe the same amount plus fees, back interest, etc. This turns most existing loans into a 40 Year loan in which you will be on the hook for and be unable to sell the property at any time until you have positive equity. This could be 10+ or so years. Should you sell at any time after January 2013, if you are upside down by 200,000 and your property sells, it will be like paying taxes on 200,000 of regular income for that year. You Must pay tax on any difference. The IRS and the California Franchise Tax Board will be after you to collect for the rest of your life with penalties and interest, adding each and every day, and Bankruptcy is not an escape for Tax issues. There will be no forgiveness after the end of 2012! Contact a CPA and verify this Tax information.

Reinstatement

A reinstatement may seem like the simplest solution for a foreclosure, if you happen to have thousands of dollars laying around in the bank. The homeowner requests the total amount owed to the mortgage company to date and pays it. This can be done and will reinstate a mortgage up to five or six days prior to the final foreclosure or trustee sale date.

* Pros: Does not require the mortgage company or lender’s approval.

* Cons: Requires that a homeowner be able to pay all back payments, fines and fees. Usually causes people to borrow more money from family or friends to get further into debt.

Forbearance or Repayment Plan
Lets say you were out of work for a couple of months, but now you are working and things are fine. During that couple of months you were unable to pay your bills.
A forbearance or repayment plan involves the homeowner calling the lender and asking to get caught up by requesting a forbearance. Most lenders may do this but they will only do this once and you must have an excuse that is verifiable, such as you were out of work for two months and now you are caught up. Yes it will cost you some money. What doesn’t?

Pay back the mortgage company over a period of time. You would be typically making the current mortgage payment in addition to a portion of the back payments they owe. Keep in mind the bank has to approve of this situation.

* Pros: Allows the homeowner to make back payments over time.

* Cons: Requires that a homeowner be in a financial position to pay not only their current mortgage, but also a portion of the back payments owed. Mortgage companies will require a homeowner to qualify with documentation for forbearance.

Rent the Property or Rent out Rooms
We all know renting out the entire property usually will not cover the mortgage payment. In Some cases it may, and making up the difference may not be that difficult for you. I know many have elected to rent out rooms of their home to make up the difference and are doing well with it. There is an adjustment period to get use to one another but this is a very viable option.
If you do not have a hardship for a short sale this may be your best option.

* Pros: Allows you to keep your home.

* Cons: The issues that can arise with a rental property are many, and rent often does not cover the full cost of property ownership and maintenance. Renting a home out to others will cost you more as they are not the owner will not care as much as you do.

Deed in Lieu of Foreclosure
Also known as a voluntary foreclosure, a deed in lieu allows you to return the property to the lender. The Lender must approve of this option. If there are second liens, tax liens, personal liens,etc this is usually not an option. This is usually best done with a Real Estate Attorney. This option is really not any better than a foreclosure.

When a bank offers you a deed in lieu, think what are they asking you. They are asking you to bail and save them money and just foreclose on your property.
They usually get what they want from you, and fail to give you anything they have offered you such as moving expenses.

* Pros: Sometimes a real estate attorney can negotiate a successful deed in lieu, in a manner whereas the lender will forego their right to a deficiency judgment. This is usually with the help of a qualified Real Estate attorney and paying their fees.

* Cons: Requires you to vacate the property, hire an attorney, and a deed in lieu will usually be reported to credit bureaus the same as a foreclosure.

Bankruptcy
Some think Bankruptcy is some magic solution to to stop lenders from foreclosing on your house. At best it may stall the lender around 30 – 45 days. That is not a huge gain considering you just filed for Bankruptcy. If you have non-mortgage debts that cause a shortfall of paying your mortgage payments and a personal bankruptcy will eliminate these debts, bankruptcy, may be a viable solution.

If you are considering disposing of your property it may be wise to wait until you have disposed of the property before you file for bankruptcy. Using Bankruptcy to keep your property may not be wise. Using bankruptcy to think it will stop lenders from taking your house is a myth.

* Pros: Does not require lender approval.

* Cons: If a homeowner cannot afford their mortgage payment, a bankruptcy will barely stall—not stop—the foreclosure process. Bankruptcy can be costly, is damaging to credit scores, and can only be declared once every seven – ten years. Most banks know how to get around this in a very short amount of time. Ruins credit. Life will became much more difficult in some ways.

Refinance
If you have sufficient equity in your property and your credit is still in good standing, and you have a documented income, you may be able to refinance your mortgage.

* Pros: In some cases, you can lower your payments.

* Cons: In today’s market, a refinance will almost always raise mortgage payments, and is an expensive process. Usually, must show a reliable source of income. Refinancing a home costs money.

Service Members Civil Relief Act (Military Personnel Only)
If you are a member of the military and experiencing financial distress due to deployment, and you can show that your debt was entered into prior to deployment, you may qualify for relief under the Service Members Civil Relief Act. The American Bar Association has a network of attorneys that will work with you in relation to qualifying for this relief.

* Pros: If qualified, this may lower payments on your consumer debt in addition to mortgage payments.

* Cons: Must be active in the military to qualify.

Sell the Property
Homeowners with sufficient equity can list their property with a qualified agent that understands the foreclosure process in their area.

* Pros: Allows homeowner to avoid foreclosure and keep some of their equity.

* Cons: Selling in a down market is not the best time to sell however it is far better than foreclosure.

Foreclosure
Over 60% of the homeowners who are behind in their payments are afraid to read their mail and do nothing, thereby letting their property go to foreclosure.
Most vacate their home long before their property is even taken and suffer down the road with tax issues for the property is no longer considered their principle residence.

* Pros: Allows homeowner to move on and no longer have a house payment.

* Cons: Where do I begin? The song, “It’s no fun being an illegal alien” comes to mind on what life may be like for those who go through foreclosure. Credit issues of this magnitude is a difficult thing to shake. If this is your first option and you have tried to do nothing else, I would be very shocked. You can at least try something. In most cases foreclosure is not the fault of the homeowner, due to loss of work in our economy. These are the people I want to help the most.

Strategic Foreclosure
The decision, to walk away from their property and let it go to foreclosure.

* Pros: Allows people to walk away from their property and run from their problems.

* Cons: These are people who simply give up. They probably give up on everything. Their word or their word on a contract means nothing. Can anyone ever trust them? These people aid to destroy our economy, and way of life more so than those who are not in control of their situation.

It is wise to consult with a REAL ESTATE ATTORNEY, a REALTOR, and a CPA to figure out your best options.

Source: Harold Sharpe, SoCal Homes Realty

California House Dems Call for Recess Appointment at FHFA

Posted on January 11, 2012 by Stephan Sabbah

Brian Beutler writes that President Obama will likely have to make more recess appointments if he wants to staff key positions, including the newly-created vacancy at the Office of Management and Budget, as Jack Lew has become White House Chief of Staff. The assumption here is that Republicans will react to recess appointments at the CFPB and the NLRB by refusing to confirm any other Presidential appointee, and that’s a reasonable assumption.

But the President won’t get pressure just from Republicans on naming recess appointments. House Democrats in the California delegation, the largest in the Congress, wrote a letter late yesterday to Obama asking him to recess-appoint a new director to the Federal Housing Finance Administration. That institution has been without a confirmed director for over two years, since David Lockhart left.

The President has never had his own nominee at FHFA. And Democrats believe that FHFA, which currently oversees Fannie Mae and Freddie Mac, is uniquely positioned to help the country out of the housing mess. They accuse acting director Ed DeMarco of obstructing efforts to aid the housing market and keep borrowers in their homes. Here’s an excerpt from the California Dems’ letter, which I’ll put in its entirety on the flip:

As part of the FHFA’s ability to promote policies that will prevent foreclosures, they have the authority to establish rules over residential mortgages that Fannie Mae, Freddie Mac and other government enterprises are able to underwrite. FHFA has consistently and erroneously interpreted its mandate far too narrowly and as such has failed to take adequate action to help homeowners and has brought an end to successful, local initiatives—such as the PACE (Property Assessed Clean Energy) program [...]

As the fiduciary of government-backed entities, there are steps that the FHFA can take to help prevent future foreclosures while also protecting taxpayers. Installing a permanent Director of the FHFA will allow the FHFA to move forward to make key decisions that will help keep families in their homes and improve our economy. We appreciate your recent appointment of Richard Cordray as the new Director of the United States Consumer Financial Protection Bureau over similar Republican opposition and we urge that you take the same action to put in place a permanent Director to the FHFA.

I’m of two minds on DeMarco. He has interpreted his mandate very narrowly. It’s a bad thing when he refuses to engage in principal reductions for troubled borrowers, even though that would make more money for Fannie and Freddie in the long run, because he doesn’t want to take the short-term financing hit. But it’s a good thing when he sues 17 banks over misrepresentations of the mortgages in the securities they sold to Fannie and Freddie, with the hope of forcing repurchases of those mortgage pools.

There have been signs that DeMarco is warming to a more activist stance. He agreed to the changes to HARP, which is more of a stimulus program than a program that will save homes, but which will allow expanded refinancing come March of this year on GSE-owned properties. Freddie Mac just initiated a program for a 12-month forbearance (where the borrower can skip payments) for unemployed borrowers, although Democrats maintain that not everyone eligible will receive that forbearance.

Most promisingly, DeMarco is considering a principal pay-down program put forward by a California Democrat, Zoe Lofgren, that would allow underwater homeowners with GSE loans to have their mortgage payments go entirely to equity for five years, waiving the interest payments. DeMarco said he would look into the idea back in October, and there have been leaks since then suggesting that principal pay-down would happen. However, there has been no final word, and officially FHFA “continues to evaluate” the Lofgren proposal, even though in a meeting with House Dems they promised an assessment within two weeks.

I don’t think some in the Administration would have any problem getting rid of DeMarco – they don’t particularly like his aggressive stance on bank repurchases. But that would not necessarily be the best news for the housing market or the rule of law. If anything, the California Dems’ action shows that the previous recess appointments have opened a Pandora’s box for the Administration, and now everyone wants a recess appointment tailored to their concerns.

The entire letter from the Congressional Dems in California is below the fold.

The President
The White House
Washington, DC 20500

Dear President Obama:

We urge you to act on behalf of the American people and immediately make an appointment for the Director of the Federal Housing Financial Agency (FHFA). For two and a half years, Senate Republicans have been blocking the appointment of this position, causing there to be no permanent Director. The FHFA regulates and oversees Fannie Mae and Freddie Mac, which together hold 70% of mortgages in the US. The current economic crisis began in the housing market and our economic recovery is dependent on the important work pending before the FHFA. It is time to move forward and put in place a permanent FHFA Director.

According to RealtyTrac, 224,394 U.S. properties had foreclosure filings in November, 2011. This means that 1 in every 579 housing units received a foreclosure filing nationwide. In California, 1 in every 211 housing units received a foreclosure filing. And there are fears that a new set of foreclosure waves may come in the next few months. According to RealtyTrac cofounder, James Saccacio, “November’s numbers suggest a new set of incoming foreclosure waves, many of which may roll into the market as REOs or short sales sometime early next year…some bellwether states such as California, Arizona and Massachusetts actually posted year-over-year increases in foreclosure activity in November.”

It is clear that we must take immediate steps to prevent more foreclosures. As part of the FHFA’s ability to promote policies that will prevent foreclosures, they have the authority to establish rules over residential mortgages that Fannie Mae, Freddie Mac and other government enterprises are able to underwrite. FHFA has consistently and erroneously interpreted its mandate far too narrowly and as such has failed to take adequate action to help homeowners and has brought an end to successful, local initiatives—such as the PACE (Property Assessed Clean Energy) program. The PACE program allows property owners to finance energy efficiency measures and renewable energy projects for their homes and commercial buildings, thereby reducing their energy costs and making them better able to make mortgage payments. It has been successful in many of our districts, however, in July of 2009 FHFA issued a decision that essentially put an end to PACE programs across this country.

As the fiduciary of government-backed entities, there are steps that the FHFA can take to help prevent future foreclosures while also protecting taxpayers. Installing a permanent Director of the FHFA will allow the FHFA to move forward to make key decisions that will help keep families in their homes and improve our economy. We appreciate your recent appointment of Richard Cordray as the new Director of the United States Consumer Financial Protection Bureau over similar Republican opposition and we urge that you take the same action to put in place a permanent Director to the FHFA.

By: David Dayen Wednesday January 11, 2012 7:00 am

California Short Sale and Foreclosure Tax Update

Posted on January 5, 2012 by LAURA KEY

Thursday State lawmakers passed SB 401 which will exempt borrowers who lost their homes to foreclosure or short sales in 2009 from paying state taxes.

State officials say as much as 100,000 people statewide will be spared from paying tax they otherwise would owe.

The bill extends the state ban from 2009 through the end of 2012. It also bans state taxes on federal stimulus grants for renewable energy projects.

The bill still needs to be signed by Gov. Schwarzenegger, however a spokesman for the governor said he will sign the bill.

Who is affected:

Primarily, the bill affects people who had debt forgiven as they lost homes in foreclosures, short sales and deeds in lieu of foreclosure last year – and through 2012 now. Also affected: those who got loan modifications that cut the amount they owe the bank.

The Franchise Tax Board says the tax forgiveness measure mostly applies to people who refinanced their homes to get better interest rates or extract equity, and then had a short sale or foreclosure where debt was forgiven.

But the tax board also warned that refinanced dollars taken out as cash and spent on items other than home improvements may be taxable.

Who is not affected:

Those who bought houses and never refinanced before doing a short sale, loan modification or foreclosure are unaffected. In most cases the banks just take back the houses. There is no forgiven debt, and no tax bill, said the tax board.

Investors are also unaffected. They still must pay state taxes on forgiven debt. The bill affects only people who live in their home.

What people should do now when filing their taxes:

The Franchise Tax Board says: “Once the governor signs this into law, California taxpayers will not have to do anything. If they qualify for federal relief on the mortgage debt forgiven, then they will also qualify for state income tax purposes. California Form 540 starts with federal adjusted gross income so there will be no adjustment necessary to properly reflect the state adjusted gross income amount for this issue.”

By Parsons Media Group

Read the full article from the Sacramento Bee www.sacbee.com

Get rid of an upside-down second home

Posted on January 5, 2012 by LAURA KEY

Heavy tax burden looms for those attempting short sale

DEAR BENNY: We live in California and own a second home within five miles of our primary residence. This second home has been used as a rental, initially to persons we were not connected with in any way. For the past 10 years, two different sets of relatives who were in need of a new start in life lived in the home.

Each set of relatives lived there at different times. The current set has been there five years. The rental contract is for fair market value, though much less than the mortgage. Obviously, we have been paying the difference — at a loss.

A few years back we obtained an interest-only loan on the home (prior to the current relatives moving in). We had the intent of selling the home within a couple of years. Now, the market is where it is. We are extremely upside down in the value of the home with no equity whatsoever.

Financially, we are able to make the payment, but both my husband and I feel that we are just throwing money away each month. We would like to know what our options could be regarding this home.

We have heard from our tax person that if a short sale is done we could have a huge tax burden, which we cannot afford at this point in our lives (my husband is retired). We have excellent credit but feel that it would be extremely difficult to get a new loan because of the value and the fact that I am not working at this time.

We have actually considered moving into the home ourselves and living in it for the required number of years and then selling it, but we are unsure how this would be beneficial. –Kathryn

DEAR KATHRYN: It will not be a consolation to you, but you are not alone with this problem. Fortunately for you, however, you still can afford the monthly payments.

There are several options available. But under no circumstances should you decide to walk away from the house; that’s merely burying your head in the sand, and will have serious financial consequences for you.

1. Deed in lieu: Some lenders will allow you to give them the deed. This is “in lieu” of foreclosure. It will impact on your credit, but not as much as some of the other options below.

2. Short sale: This is an option whereby the house will be sold for less than the outstanding mortgage. Discuss this with your lender; sometimes you may not have to pay the entire difference between the sales price and the mortgage balance. However, this will impact your credit rating. Your tax adviser is correct, however. Because this is not your principal residence, you will have to pay income tax on the canceled debt. I call it “phantom income.”

3. Bankruptcy: You must discuss the pros and cons with an experienced bankruptcy attorney. However, filing for bankruptcy relief will not impact your credit as much as allowing the property to be foreclosed upon.

4. Foreclosure: In my opinion, this is the absolute last resort.

But here’s a suggestion: Before you proceed along any of these paths, contact your lender and discuss your situation with them. It is often difficult to find a person with authority, but you should try as best you can. You may be able to work out some arrangement with the lender such as a lower interest rate, a loan modification, or a moratorium on making payments for several months.

It’s worth spending the time before it’s too late.

DEAR BENNY: We have a purchase agreement with buyers that states they will close, as a cash sale, on or before a specific date. This agreement was signed one month before that closing date.

Shortly after the agreement was signed, the buyers decided they wanted to get into our home before closing and offered to put funds in their broker’s account and to give us cash upfront to move out. We proposed back that they give us the money instead of the broker. The upfront cash would go toward closing, once we got to closing. Because our things were going into storage, we wanted to be sure that we actually closed before we moved out. We wanted upfront cash money that was to be nonrefundable if they walked away from the deal.

We presented our proposal on a Friday and gave them until Monday to get back to us. That was a couple of weeks ago. They have never responded to our proposal. It has been pulling teeth to get them to move forward with a closing date in writing and they must also sign off on inspections.

A week before the scheduled settlement date, we received a call from our REALTOR® who told us that the buyers’ REALTOR® has not been in contact with the buyers for a few days now. We have canceled our movers because we have no agreement in writing as far as a closing date and they never signed off on the inspection items.

The only signed contract I have states a specific date as the date for closing. The last we heard from the buyer’s agent was that the buyers were working on getting their funds from overseas by yesterday, which was two days before the scheduled settlement date. That has not been confirmed.

We are wondering what happens after the settlement date passes and we have nothing further in writing. I am very disappointed in my Realtor/broker considering that the REALTOR® fees on the sale of my house are very high. This is been quite the roller coaster and no one seems to be sharing any answers. I am tempted to get an attorney to explain it all to me, but that would be yet another expense. –Pam

DEAR PAM: My column will run long after your closing date has passed, so I hope that all worked out well for you. However, your question is important. What happens when a buyer decides — for whatever reason — not to complete the transaction and go to settlement?

Different states have different laws and procedures, so my answer has to be general in nature. However, from my experience, most form real estate contracts — especially those prepared and used by real estate brokers and agents — spell out very clearly what happens in the event of a buyer default.

First, you have to determine whether the buyer really is in default. Are there any contingencies in the contract, such as obtaining a satisfactory home inspection, getting an acceptable appraisal, obtaining the necessary financing or reviewing the condominium or homeowner association documents?

Clearly, a buyer does not want to lose his/her earnest money deposit and will take the position he/she is excused from going to settlement (escrow) based on one or more of these contingencies.

So you have to be very careful to review the situation — and the real estate contract — before calling the buyer in default.

If there is a default, typically the seller has one of three remedies: (1) keep the earnest money deposit; (2) sue the buyer for damages; or (3) sue for specific performance.

1. Keep the earnest money deposit. Usually, those funds are held in escrow by the real estate broker or by the settlement (escrow) company. You have to understand that when money is held in escrow, the escrow agent cannot unilaterally release the funds to either side unless the parties sign a release or a court of law issues an order. So it is not always easy to access the deposit.

Furthermore, many real estate contracts specifically state that the real estate agent is entitled to a portion of the deposit not to exceed what the commission would have been had the transaction gone through.

2. Sue for damages. You lost the sale and finally resold it for $50,000 less than the first contract price. That’s one of your damages. Additionally, you had to pay additional real estate taxes, mortgage payments and insurance, and those costs also can be included in your lawsuit.

But litigation is time consuming, expensive and always uncertain. And unless your sales contract specifically states that the prevailing (winning) party can get attorney fees awarded by the court, you will have to pay your lawyer out of your own pocket.

3. Sue for specific performance. Here, you tell a judge, “The buyer signed a contract and has the money, so please order the buyer to go to closing.” Once again, my cautionary comments about litigation are applicable here also.

Bottom line: Unless you really want to spend a long time (and potentially a lot of money) in court, try to negotiate with the buyer about releasing all or some of the earnest money deposit. And further to the bottom line: Sellers should try to get as large a deposit as possible, at least 5 percent of the purchase price.

By Benny Kass
Inman News®

$8,000 first time homebuyers tax credit extended

Posted on November 13, 2009 by Stephan Sabbah

NEW YORK (CNNMoney.com) — President Obama signed an extension and expansion of the first-time homebuyers tax credit on Friday.

The $8,000 credit was scheduled to lapse on Dec. 1 but will now be in effect through the end of June. Homebuyers must sign a contract before April 30 and close by June 30. The income limits were also raised: Single buyers can now earn up to $125,000 and still get the full credit while a married couple can earn $225,000.

The bill also made more homeowners eligible to claim the credit on their taxes. First-time buyers — those who have not owned a home in the past three years — still qualify for an $8,000 rebate. But now people who want to trade up can also qualify. Those who have owned and occupied a residence for at least five years out of the past eight can claim a $6,500 tax credit if they close on a purchase by the end of June.

“The new version of the tax credit has the potential to stimulate the housing market even more than the old version due to the fact that more people will qualify under the new rules,” said Gibran Nicholas, chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers.

Who qualifies?

Nicholas provided four scenarios illustrating how the tax credit rules for existing homebuyers will apply:

• Harry owned a home in 2001 and 2002 but sold it to relocate for a job. He would qualify for the $8,000 first-time-buyer credit because he has not owned a home in the past three years.

• Sue purchased a home in 2004 and has lived there since. If she decides to buy a new home, she would qualify for the $6,500 tax credit because she has lived in the same residence for five consecutive years in the past eight.

• Jane purchased her home in 2002, lived there for five consecutive years before she rented it out in 2007. She would qualify because she was an owner/occupier for at least five consecutive years in the past eight.

• Mark purchased a home in 2006 and lived there for the past three years. He would not qualify because he is neither a first-time homebuyer nor someone who lived in the same primary residence for five consecutive years out of the past eight.

How it helps the economy

Legislators and industry experts expect that the credit will encourage buyers such as Jane and Sue to move up their purchase plans.

“This bill will shift demand from the second half of 2010 into the first half,” said Pat Newport, a real estate analyst with IHS Global Research. “As a result, home sales and prices will get a boost in the first half of 2010, with payback in the second.”

That’s not a bad thing, according to Bill Kilmer, vice president of advocacy for the National Association of Home Builders. It’s important to stabilize real estate markets quickly to help bring the economy out of its tailspin.

The original $8,000 tax credit appears to have helped accomplish that goal: Home prices have inched up the past few months, according to the S&P/Case-Shiller Home Price Index.

Would it have happened anyway?

But critics still see the program as being ineffectual because it rewards buyers who would have purchased a home anyway. Newport estimates that fewer than 400,000 of the 2 million who have claimed the original credit made their purchases solely because of the tax advantages.

Furthermore, buyers do not, in reality, receive the entire benefit. “The credit helped prices stabilize,” said Newport. “So the credit has been split between seller and buyer. The sellers are getting higher prices and buyers paying more than they would have without it.”

The housing industry, however, is pleased with the extension, although the credit has not been quite as effective as they hoped.

The industry thought the credit would provide a ripple effect, with sales to first timers triggering as many three additional “move-up” sales.

That did not happen, according to Lawrence Yun, NAR’s chief economist.

“It did not have the chain reaction impact it was supposed to,” he said. “Instead, many first-timers turned to vacant, foreclosed or other distressed properties the sellers of which were unlikely to be move-up buyers.”

So, the tax credit helped prop up the low end of the market without having much impact on the rest of the spectrum. Expanding the benefit to existing homeowners should boost those segments. That should produce additional benefits, according to Yun.

“Preventing further price decline or even nudging prices up a bit stabilizes housing wealth, which makes homeowners more comfortable in their spending,” said Yun. “They’re more likely to go out to the stores or buy a new car. That provides a boost to the overall economy.”

By Les Christie, CNNMoney.com staff writer

November 6, 2009: 3:18 PM ET

How Will A Short Sale Affect My Credit?

Posted on March 16, 2009 by Stephan Sabbah

A short sale will negatively affect your credit, but not nearly as much as a foreclosure or deed-in-lieu ~ read this entire article for details on each alternative.

A short sale simply means that the amount of the mortgage balance owed is greater than the current market value of your home. Homeowners who are in financial difficulties and facing foreclosure often opt for a short sale in order to escape the foreclosure process. This is precisely the situation now across the United States where the sub prime adjustable rate mortgage mess has caused mass foreclosures and significantly reduced the value of real estate.

A short sale takes place when the lender agrees to accept less than the amount you owe him on your mortgage because you don’t have enough equity to sell the home and pay all the costs of the sale. And make no mistake, the lender must agree or you’re out of luck.

the effect on your credit report

You will suffer much more damage to your credit report with a foreclosure than you will with a short sale. It will also take considerably longer to restore your credit rating once your financial difficulties are resolved. In general, here’s what happens:

For a Foreclosure or Deed-In-Lieu of Foreclosure

- Expect about the same things to take place. Quite often this means a loss of between 200-280 points on your FICO score. A pre-foreclosure FICO of 675 could drop to as low as 395, essentially eliminating you from future credit approvals. It may be as long as three years before you can qualify for another home loan.

For a Short Sale

- Expect to suffer some credit score damage, but nowhere near as much. Loss of FICO points will be around 75-125 and your report will show it listed as a ‘pre-foreclosure in redemption’ which is far less negative. You will most probably be able to secure a new home loan in about a year and a half.

In any case, it is a good idea to consult with a lawyer, tax accountant (CPA) or a good real estate agent who is experienced with short sales. These professional may charge you a bit for their services, but failing to have the right counsel could end up costing you a sizable bundle. So don’t consider going it alone. Get the help you need.

Know Where You’re At

NOTICE: Don’t get your credit score from anywhere else except myfico.com.

360 Realty Blog

Los Angeles Community BLOG

Tag Archives: credit