Short Sale & Bankruptcy – What do YOU think?

We value your opinion, reader so we would love to hear what you think about this:

I was at an office meeting this week and one of the agents described the following scenario in one of his short sale escrows — true story.  The agent was representing the seller of a home which was in escrow as a short sale that had been approved by the seller and the bank which held the note.  The buyer was approved and ready to close on the house when about 3 days from closing the sellers filed bankruptcy.  The sale was frozen which means that the buyer can’t buy and the seller can’t sell and, of course, the agents cannot collect their commissions on the deal that they put together.

The question from the agent at the meeting was should they file to become one of the vendors that the bankruptcy court orders paid?  My answer was yes, of course.  The agent had provided the service that was contracted for.  He had brought a bonafide offer that was approved by the seller and their bank.  The agent did what was contracted for — so he should be paid.  What do you think?

Also, I was wondering what you might think of this scenario in general.  The seller was able to stay in this house without making a mortgage payment for about 1 year.  Now that the situation has changed and they have filed bankruptcy, more than likely they will be able to stay in the house for another 6-12 months without paying a mortgage.  Yes, the bankruptcy will destroy the sellers’ credit but not paying your mortgage for a year probably had a similar affect on the credit too.

If  someone out there has an opinion on either of these issues,  I would like to hear it.

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BMPs, who needs EM?

The Tahoe Regional Planning Agency says that any property that exists — residential or commercial — within the Tahoe Basin, requires a compliance certificate that their BMPs have been completed.

Jennifer and I attended an informational meeting today at the North Tahoe Conference Center that was put on by the TRPA. Shay Navarro, Associate Environmental Specialist with the Agency did a good job of explaining what the BMPs are. This is an acronym for “Best Management Practices.” The problem is that the clarity of our finest lake — Lake Tahoe – has diminished since 1968 when the visibility was 102 feet. At last measurement 2008, the visibility was 69 feet. Apparently the cause of this regression is a lot of sediment entering the Lake from things like water dripping off of roofs, moving dirt down the road and into the Lake. Another cause might be snow melt off on unformed and unpaved driveways, again picking up sediment including oil from autos and moving it into the lake.

The TRPA has been charged with remedying this situation and one of the ways they plan to do that is to require property owners to have their property assessed and bear the responsibility for mitigating any problems that their property may be causing. The 3 ways they are forcing the property owners hand are requiring the BMP certificate of compliance at 1) the point of application for a building permit; 2) application for a buoy permit; 3) targeted enforcement; or 4) at the point of a real estate transaction as something that must be disclosed to a potential buyer.

Some drastic measure of cooperation must be taken since out of the 45,000 properties within the Tahoe Basin that need to have compliance with this BMP situation, only 12,000 properties have stepped up to the plate (and this has been required since 2003).

For more information on this — there is a lot at the TRPA’s dedicated website where you can even find out if your property has a certificate.

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New Developments in Short Sale and Foreclosure

There were a couple of new developments this past month in the banking industry with regard to foreclosures and short sales. The 2 largest banks have made some movement in changing their policies.

First, the Bank of America announced this past month that it will introduce “principal forgiveness.” This term refers to reducing the loan balances of some distressed homeowners who have either adjustable rate mortgages or sub-prime loans. If a borrower “qualifies” for this reduction, it will not only reduce his principal (the loan amount) but also his monthly payments.

The Obama administration’s Home Affordable Modification Program, or HAMP, has a goal of lowering the payment on a first mortgage to about 31% of a borrower’s gross income.

Not sure how this is going to work, or how it will be received by the people who are not currently “distressed,” but it remains to be seen whether or not the Bank of America actually carries through with this promise.

Another problem that has held homeowner’s hostage over the past 2-4 years is the second mortgage. It seems that even though some people qualified for relief for their principal mortgage under the U.S. Treasury’s mortgage-modification program, their home equity or second mortgages were still putting them at risk for default (some consumers’ second loan payments are higher than their first’s). Wells Fargo and the Bank of America have bowed to pressure from the federal government to modify these home-equity loans.

As for its part, government has come to the aid of distressed homeowners in that the IRS has been told not to pursue taxing the forgiveness (the difference between what a short sale/foreclosure/loan modification nets the bank and what the borrower owes), on principal residences. For a while it looked like this would NOT be the case in the state of California but another bill passed very recently by the state legislature (SB 401) and expected to be signed by Governor Swartzenegger in time for April 15, 2010, would, make homeowners immune from state taxation on this “forgiveness” also.

for more info

and even more

and for info on state forgiveness

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More Homebuyer Tax Credits, Courtesy of California

California may be broke but our legislators  are working hard to give away tax credits to first time buyers and purchasers of never lived in homes.  This is being done in order to stimulate the housing and construction industries.   Governor Schwartzenegger  signed into effect a law on March 25, 2010 that will run alongside the federal government’s soon to expire (4-30-10) current $8,000 first time homebuyer and $6500 long time resident homebuyer tax credits.

Under the combined state and federal provisions, a first time buyer who enters into a purchase contract for a principal residence before May 1, 2010 and closes escrow between May 1, 2010 and June 30, 2010, inclusive are eligible for up to $18,000 in combined tax credits.  Home buyers who are not first time buyers but have lived in their residences for awhile may also take advantage of up to $16,500 combined tax credit if they purchase a home that has never been lived in.  Federal benefit is up to $6,500 and California is up to $10,000.

The timing is critical on both of these programs.  Also, California has a limit of $100 million in credits to be given to each program (first time buyer and new home buyer).

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First Time Homebuyers HURRY UP!

As if the first time buyer needs more incentive to get off the dime, FHA has just announced that they are considering increasing the up front “mortgage insurance premium” fee that they assess a borrower when they take out one of their insured loans.

The FHA is talking about increasing the fee from the current level of 1.75 percent of the loan to 2.25 percent.  That would mean that based on a $300,000 mortgage, a borrower will now have to pony up  $6,750 instead of $5,250. This amount will still be able to be financed by adding it to the total loan.  These changes are expected to take effect sometime in the first half of this year (2010).

For the reader who is not aware, the FHA does not make loans, they insure loans against default, something that we have seen a lot of lately.   According to The Mortgage Banker’s Association, 18 percent of FHA borrowers are at least one payment behind or in foreclosure, compared with 14 percent of all loans.   FHA insured loans are traditionally granted to those borrowers who put a minimum of 3.5% downpayment of their own money.

So, Buyers, hurry up.  On top of this looming cloud, don’t forget the other reasons to purchase NOW.

1)  prices are lower than they have been in years,  here is a list of homes under $350,000 – there are condos too, call us for more info.
2)  The federal government has offered a tax credit of up to $8000 for the first time buyer. This credit is set to expire in April 2010;
3)  There are many down payment assistance plans in your neighborhood. If you live in Truckee check it out here at. If you live elsewhere, check with your city or county website or housing affordability department.  I’ll bet there is something similar there, everyone is trying to stimulate the economy.

Whatever you do, be sure to go talk to a mortgage broker and a Realtor about your chances of purchasing your new home this year.  We’re Realtors and We would love to help you!!

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