Again, the definition of a “short sale” is when a homeowner decides that he no longer can make the payments on a mortgage which is collateralized by a home that is no longer worth what it was when the mortgage was made.  When this happens, the homeowner works with his real estate professional to come up with a listing price that will sell the house.  Once a buyer is procured, the seller/homeowner agrees to a contract with that buyer subject to approval from the mortgagor.  2 years ago, the waiting time for the response from mortgagee was anywhere from 6 months to a year.  Now, the process has been streamlined and mortgagee acceptance can be accomplished in as little as 2 weeks.

One of the things that is making the “short sale” a viable exit for the underwater homeowner is the new State of California law ( in effect since July 15, 2011) prohibiting the mortgage lender from collecting a deficiency (the difference between the outstanding loan balance and the loan payoff received by the lender)  or obtaining a deficiency judgment for a short sale involving a loan secured by a one-to-four residential unit property.  This law applies to first trust deeds, second trust deeds and other junior trust deeds including equity lines of credit.  Prior to this new law, short sale deficiencies were only prohibited on first deeds of trust.

Furthermore, the new law SB 458 (anti-deficiency law) for short sales applies to owner-occupied or non-owner occupied properties. Non-owner occupied properties include rental properties, vacant homes, second homes or vacation homes.  This is definitely relevant in our area as there are many second home owners who are struggling with what to do about their properties that carry onerous mortgages.  While not forced to accept a short sale contract, the bank that holds the mortgage who does accept the contract will be bound by this law.

So, the California Association of Realtors Legal Services recaps the circumstances under which the California Anti-deficiency protection law applies for us here:

• Mortgage loan is solely secured by a deed of trust or mortgage;
• Mortgage loan is for a dwelling of not more than four units;
• Borrower sells the property for less than the outstanding loan balance;
• Lender provides written consent for the short sale;
• Title voluntarily transfer to a buyer by grant deed or other document of conveyance recorded in the county where the property is located; and
• Proceeds of the sale have been tendered to the lender or lender’s agent in accordance with the parties’ agreement.

There is nothing in this article however, that speaks to the sellers’ tax liability for the forgiven, either Federal or State.

As always, we would strongly urge anyone considering this form of sale to consult their attorney and/or tax accountant before making any decision.

Most often now the private auction is used as a tool by banks who have had to purchase the properties that they held loans against at trustees sale.  After they take the property back, the bank typically lists it on the multiple listing service with a local (sometimes not so local) real estate agent.  If the property does not sell, then some  banks employ the assistance of a private auction house such as Williams & Williams.  This marketing tool works well for the banks because they can lower the price of the home since they generally will not be paying anymore than 1-2% to a real estate agent who helps a buyer.  Some buyers will decide to skip the buyers’ agent altogether, thus lowering the overhead further for the bank.

One of the problems with this type of sale is that there is no “inspection contingency” period.  When a buyer and/or his/her agent put in a bid — be it on line, pre-auction or at the physical auction itself — they best be prepared to buy that house no matter what.  The auction house does offer to hold the house open for a couple of hours prior to the auction and if you employ a buyer’s agent, the auction house will give your agent that lockbox code so you can go inside the house and inspect but there is no formal “inspection” period and no opportunity to present the seller with a “request for repairs” as is typical in a standard transaction in California.

Each auction house handles their auctions differently so if you want to participate, you best be sure to read the fine print — usually published under “terms and conditions.”  There is no arguing with the auction house, either you play by their rules or you don’t play at all.  The good news is that you can get a super bargain by using this tool.  The bad news is that if you aren’t careful, you could “get what you paid for.”

We currently have a client who is involved with us in this Auction process.  There is a “physical” auction in Truckee for the home he wants but he has decided to place a pre-auction bid, which is just another story.

One of the things you can count on if you are involved in this real estate business is CHANGE!!  First there was the short sale, then REO sales and now this Auction sale.  If we don’t keep up with the changing market — we may as well get out.  Never a dull moment.

1)  Get rid of your junk!! You don’t need it anymore.  You know that, give it away to someone else who thinks they need it.  Do it before the end of the year and you can get a credit for your tax deductible donation — hit the Hospice Thrift Store or the Salvation Army.

2)  Declutter your house. Invite a friend or better yet your real estate agent, over to give you their honest opinion of what needs to be out of your living room, bedroom or kitchen.  Sometimes it is difficult for us to see our own homes objectively.  Don’t get your feelings hurt.  Your friend or agent is just trying to help.  See above for suggestions on how to get rid of this stuff — if your child doesn’t want it.

3)  Paint, paint and paint — again.  Don’t do anything wild — no dark colored accent walls — just white or something like that.  You have enough time to take care of this between now and March — a room at a time.

4)  Spruce up your bathrooms.  This can be done with a minimal amount of $$$.  Some new sink fixtures or just some new towels and accessories.

5)  Clean out your kitchen cabinets and closets.  This is related to numbers 1 and 2 above.  You’ll feel better, especially when potential buyers open them and brooms and glasses don’t fall out.

The word for the year 2011 is SIMPLIFY!!! especially if you are thinking of selling.

The National Association of Realtors announced their latest enticement for the buying public.  One of the reasons the real estate market has been taking so long to recover is that people are afraid of loosing their jobs.  Anyone can understand that concern in these times.  So, to try to allay that fear, Realtors are offering their buyers an insurance policy that will essentially pay up to $1000 or $1500 per month for 6 months if the borrower looses their job.  This insurance has a premium somewhat like a Home Warranty policy.  For the higher amount of coverage, one pays $275 (one time at close of escrow), the lower one $200.

There are some restrictions of course but basically this looks like a good deal.  The coverage is only for one year and the buyer cannot renew it.  It does only cover 6 months but this bit of help could be just what buyers need to get them off the fence and into their own home — at a time when everything else is giving them the green light!  If you are interested, read more here and contact us!

Way to go NAR!!  NOW, LET’S GET THE WORD OUT!!

On October 1, 2010, the U. S. Congress voted to extend the heretofore temporary Fannie Mae and Freddie Mac conforming loan limits. The bill has been passed on to President Obama and he is expected to sign it extending the expiration date until October 1, 2011.

In the U.S. a conforming mortgage loan is one that conforms to Fannie Mae/Freddie Mac guidelines. Conforming loans offer the best possible interest rates and qualification requirements are not as strict as Jumbo loans. Conforming loans are favorable both in terms of available rates & qualification, because Fannie/Freddie guarantee they will buy all conforming loans from lending banks. This is paramount to all banks maintaining proper balance of liquidity vs. loans oustanding.

There used to be only 2 types of loans: conforming & jumbo. Now, since 2008, the mortgage market should be thought of as having 3 types of loans: conforming, high balance conforming (aka “confumbo”), and Jumbo. Most of the qualification criteria guidelines for the high balance conforming loans mirror those of true conforming, but carry a small rate premium of .25%, on most business days.

In order to help the housing market, the high balance, or “confumbo,” loan amount limits were put in place in 2008 to bring more homes within loan limits that conform to Fannie/Freddie guidelines. “Confumbo” limits are geographically specific based on median price range within a county, and have a nationwide cap of $729,750. In 2009 these limits were temporarily reduced to reflect updated/lower median price ranges, but were quickly, and temporarily, amended back up to previous limits as part of the stimulus package. These limits were returned higher temporarily and are exactly what Congress voted to extend again on October 1^st, 2010. This vote prevents the lowering of “confumbo” loan limits in each county, and rather than the nationwide cap dropping to $625,500, it will remain at $729,750. This will help the housing market.

Moreover, the true conforming loan limit is still set nationwide at $417,000. Loans above the “confumbo” limits are Jumbo.

How this might affect us as consumers can be illustrated here. Let’s consider a property owner who currently holds a $700,000, 30 year fixed mortgage at a rate of 7% (payment Principle and Interest = $4657 per month). It is now possible that he would be able to refinance his loan into a $700,000, 30 year fixed mortgage at a rate of 4.5% (payment $3547 per month), thus saving himself $1,110 per month. If these limits had not been extended, this homeowner would be subjected to higher interest rates & stricter qualification guidelines of the Jumbo loan market.

You can visit Ephraim here if you have more questions.

]]> http://www.tahoetruckeehomesales.com/congress-votes-to-extend-temporary-loan-limits-for-fannie-freddie/feed/ 0 http://www.tahoetruckeehomesales.com/lets-get-the-facts-straight-here/ http://www.tahoetruckeehomesales.com/lets-get-the-facts-straight-here/#comments Sun, 26 Sep 2010 20:08:02 +0000 Kappy Mann http://www.tahoetruckeehomesales.com/?p=1445 Read More »]]> I resent when people take a piece of information and blow it out of proportion. I have been hearing lots of rumors that there will be a new 3.8% tax on all real estate sales to fund the unpopular health care reform - Ouch, that could really hurt my business!  Then just this morning I read an article which clarifies the new tax beginning in the taxable years following December 2012, or should we just say 2013 and beyond.

As it turns out this is a tax on net investment income that could result in a small percentage of home sellers (ie: those defined as high earners) paying additional taxes on a  portion of home sales profits over the designated capital gains threshold amount. ($250,000 per individual or $500,000 per couple). The majority of home sellers will not be impacted.

An example given that was easy to follow helped me understand how it works:

A couple with a combined income of over $250,000 per year (1.5% of  all U.S. households) decides to scale back and sell their 2 million dollar residence in favor of a smaller home and they make a $750,000 profit on the sale; they would pay and additional 3.8% tax on  $250,000 (ie: $750,000 minus the $500,000 capital gains threshold).

We can argue on the fairness of the tax or weather or not we like  health care reform, but let’s at least debate with the true facts.  This information was provided by a Snopes article that was dated April 24, 2010, so this is not new information.  http://www.snopes.com/politics/taxes/realestate.asp

Fortunately, as the result of some very aggressive lobbying, the bill has been moved to inactive status.  So for now it is a non-issue.  If you would like to know more about the IRC 1031 tax deferred exchange for investment properties, please be sure to check out the website of our exchange colleagues at  Starker Services.   Or if you are one of those people who doesn’t like to visit websites, give us a call and we will hook you up with an experienced professional in the field.

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.

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.

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