by CRESTICO | Nov 23, 2010 | CRESTICO
That Short Sale May Not Be A Good Deal
Lately – I have had many of my clients interested in short sales. I have tried to explain to them that not to be deceived by the name “short sale” because it’s quite deceiving. Neither word, “short” or “sale” has any truth to it in this instance. The time a short sale takes is not “short” and it’s definitely almost always never a “sale” in the sense of the word that includes a discount or “deal” of some sort.
Short sales take place when values drop and homeowners do not receive enough cash from a buyer to pay off their existing mortgages and think ONLY happens when lenders (the true “owners”) agree to accept less than the amount owed to them in exchange for releasing the current homeowner from his/her obligations to the bank.
On the surface, it seems a short-sale buyer is getting a bargain. But, most of the time a buyer would be better off buying a home that is not in default and not a short sale.
Why?
First let me tell you that because agents get paid no matter what kind of sale, they’re not going to tell you not to consider a short sale. But in the interest of bringing integrity and honesty back to the Real Estate industry (where, I feel it is severely needed) I will tell you the truth.
First, the Seller probably paid too much to begin with. If a home sold for $700,000 in 2005 and is now for sale at $500,000, that doesn’t mean the buyer is picking up $200,000 of equity for free. It means the seller paid too much in a rising market and now the market has fallen. It means the seller has no equity in the house and each of his mortgage payments has basically been trashed.
Next, the Seller probably borrowed too much against the house. Remember when HELOCs were ALL the rage and people were cashing out to go on trips? Remember those mortgage bankers that told you to refinance and cash out your equity and then you will be able to do it again in six months? What they were NOT counting on was the market crash and as well all know – it crashed. Hard. Years ago, the banks that were eager to lend money in upwardly moving markets – and they even let borrowers to over-encumber (that means owe more than it’s worth) the home, meaning the borrower’s loan balance exceeded the value of the property. Appraisals are subjective, and not all appraisers will place the same value on a home. Although against the law, some appraisers are pressured by banks to appraise at the amount the home owner wants to borrow.
Next, remember, short sales have strict requirements. Inexperienced or unethical real estate agents might influence a seller into a short sale when the seller doesn’t necessarily qualify. The banks require lots of things when determining whether or not to approve a short sale.
Another thing to remember is that, as a rule, homes sell at Fair Market Value. The bank that owns the short sale you are looking at is a highly sophisticated institution and knows exactly how much that home it worth. They will always get a comparative market analysis (something I provide all of my clients when they are considering making offers) to determine the value of a property. If the bank thinks it can make more money by foreclosing, it will not approve a short sale until it sees a profitable transaction for itself. Banks are here to make money – for themselves, not you. The bank will wait until it gets an offer at a price that it is willing to accept, and that price is going to be close to fair market value. If you are lucky enough to be dealing with an approved short sale. That is the minimum price that the bank will accept. Remember, this price has taken months to arrive at along with a lot of research and analysis. You can’t haggle the bank into a lower price and you definitely won’t get one below market value.
The condition of the home is another factor in considering a short sale. In regular transactions, closing costs, repairs and inspections can be negotiated and often shared between buyer and seller. But in a short sale, because the Bank is paying the closing costs more often than not, they are not going to pay for anything else. These other costs include things like: Suggested repairs disclosed on a home inspection, Pest inspections or work necessary to issue a clear pest report, Roof certifications or roof repairs, Home protection plans for the buyer, and Deferred maintenance. Because lenders rarely will pay for any extras, like a seller would be willing to do, if you want any of those extras, you will pay for them yourself. Sometimes lenders will refuse to pay for standard seller closing costs such as transfer taxes, too. If you want specific inspections, you will probably pay for them out-of-pocket.
When do you want to move? If you are looking at a short sale, you’re not looking at a 30-day transaction. Depending on when the Notice of Default was filed, the lender’s back-log of foreclosures and how much paperwork the seller has already submitted, it could take anywhere from two weeks to six months to get a response on a purchase offer from a lender. In addition, if two lenders are involved because there are two loans secured to the property, it could take longer to satisfy the demands of the second lender. If you need to close escrow by a specific date, lots of luck with that. A short sale home closing process takes an indefinite amount of time. The seller’s lender calls the shots, not the buyer nor the buyer’s lender. If you are trying to close escrow concurrently with the sale of your home, it might not happen.
The Bank is in charge. Some lenders reserve the right to renegotiate the terms of the short sale at the last minute. If the market changes, new laws pass or new information crosses the lender’s desk, the lender can attempt to change the terms of the contract. Lenders generally have lawyers at their disposal, and ordinary buyers do not.
These are all things to consider before and when buying a short sale. I’m sure you’re thinking it doesn’t as good as it seems. Great rule to live by: if it sounds too good to be true, it probably is.
As always, we at Crestico Realty are here to help answer all your questions about real estate. Please visit our website at http://www.crestico.com for more information regarding this and any other real estate topic.
by CRESTICO | Sep 9, 2010 | CRESTICO
Is Buying A Home Still a Good Investment? Lately, many of my colleagues and friends have been asking me whether I think buying Real Estate is still a good investment. While it may seem like renting a property that is easier to get out of, costs less to maintain and is more easily negotiable to get into is a better choice than dealing with selling agents, competitive cash offers from investors and escrows and taxes; I firmly believe that it is NOT. You may think, "Sure, of course SHE doesn’t want us to rent, she wants us to buy – that’s how she makes money" so keep reading and decide for yourself.
First we need to define what is considered a "good" investment. There used to be a time when people would see huge returns on their investments, be they in stock, bonds or real estate. In a recession however, all kinds of earnings and returns are diminished. This leaves investors to re-define their idea of a "good" investment. Sometimes, they may consider an investment that does not lose value as a "good" investment, other times nothing less than doubled value would be considered "good." Generally speaking, according to most economic theorists and financial advisors, any investment that is yielding a 5-8% annual return is considered a "good" return. This leads us to a discussion of ROI.
Often you will find people talking about ROI. Historically, ROI (Return On Investment) has been a common method for individuals and companies to measure how "good" of an investment they have made, based on the rate of return that they have enjoyed. When trying to determine whether a particular real estate purchase is a good one – one would need to consider a few things. Real estate’s value depends mainly on its location. (I know you’ve heard it "location, location, location") Often, communities that are built to support big educational institutions or employers (think big name colleges and the neighborhoods close to them, or big factories and suburbs created to house the families of the workers) tend to enjoy more stability in terms of price and rate of return than others, even in times of depression and recession. By looking at the location of the real estate, you will have more information about whether or not it is a good investment. Surveying historical values over time in the area will allow you to see the retention of prices in the area.
Ultimately, as an investor you will need to gather information not only about the property you are considering purchasing, but also the surrounding neighborhood, historical values and proximity of institutions that can contribute to the stability in price. Overall, investing in a home, even at this time in our economy can yield the same (if not better) return as investing in stocks or other types of investments. The key difference would be that you can live in, build a home in, create a family in and achieve your dreams in a piece of real estate whereas a stock certificate can not provide these intrinsically satisfying things for you.
by CRESTICO | Jun 4, 2010 | CRESTICO
Buying a first home can be a daunting experience. Here are five common and costly mistakes that novice home buyers make:
1. Ignoring the costs of having a low credit score. Lower-score borrowers pay thousands of dollars in increased Interest Rates over the life of the loan.
2. Muddying the waters by shopping for other things before closing. Lenders continue to check credit scores right up until the time of closing. Too much shopping could cause the lender to take back the loan.
3. Scrimping on an inspection. Being surprised by the need for expensive repairs can be financially devastating.
4. Buying without contingencies. Buyers should give themselves an out if the inspection turns up problems or the bank raises the interest rates.
5. No money for insurance. Insurance can be surprisingly pricey. Buyers who don’t budget for it can face a nasty surprise.
Source: CNNMoney.com, Les Christie (04/19/2010)
Mitra Karimi
by CRESTICO | Jun 4, 2010 | CRESTICO
Lately, I have been getting asked many questions about what it takes to buy a home and how to start the process. So, today, I thought I would write on what exactly an “offer” is comprised of. This year, the California Realtor Association has re-vamped the “offer” form, also know as the “Residential Purchase Agreement.” I thought it would be particularly helpful to go over some of the key components and aspects an offer to purchase a property.
In Real Estate, oral contracts are not legally binding. If you wish to bid on a property, you must make a formal, written offer or proposal. Your Crestico sales professional is experienced with the offer/counter-offer process, and will know which of a variety of standard proposal forms are suitable for your area. Once written, your Sales Professional will present your offer to the seller. (In some cases, this is all handled by the respective parties’ lawyers.) We have provided the basic information needed during this critical phase here.
What the Offer Contains – Your written proposal may include, but is not limited to, the property’s address and legal description, sale price, terms, earnest money, expiration date of the offer, prorating (adjustments) of utility bills, real estate taxes, insurance, contingencies, repairs and any other terms that you deem important.
Earnest money – Earnest money is a deposit given when making an offer. It demonstrates sincerity—“earnestness”—on the buyer’s part. If the offer is accepted, it becomes part of the down payment. If not, it is usually returned.
Contingencies – A contingency means that the purchase is subject to certain events occurring, such as the buyer’s loan being approved, or the property passing the termite inspection. If the contingencies aren’t met, the offer is void.
Response – If the seller accepts the offer, and signs an acceptance, you have a deal. If not, you are free to walk away, and cannot be held liable for the contract. The seller may make you a counter-offer, and you are free to accept it or not, or make your own counter-offer. Only when an offer is accepted and signed by both parties is the contract binding.
Withdrawing an offer – In most cases you can withdraw your offer up to the point when it is accepted. If you do wish to cancel the offer, it’s a good idea to consult with a real estate lawyer. You don’t want to lose your deposit, or be sued for damages perceived by the seller.
Mitra Karimi
Crestico, Inc.
http://www.crestico.com
mitra.karimi@crestico.com
by Houtan Hormozian | Jun 4, 2010 | CRESTICO
Fannie Mae is beginning to implement some changes to its policies regarding distressed homeowners. The institution is now moving towards helping currently distressed homeowners maintain their ability to own a home, by giving them second chances. Intended to support the housing market and incentivize homeowner cooperation with lenders, Fannie Mae will now offer homeowners who grant a “deed-in-lieu of foreclosure” a shorter waiting period before they will be able to qualify for a new Fannie Mae mortgage.
Historically, this waiting period has been at least four years, which is to say that if you, as a Fannie Mae borrower lost your home to foreclosure, you would not be eligibly for another Fannie Mae mortgage for at least four years from the date of foreclosure. Now, however, this waiting period is being reduced by half.
With the new two-year waiting period, homeowners will be required to put at least twenty percent of the purchase price as a down payment, however. This new policy will begin to take effect on July 1 of this year. Fannie Mae is hoping that offering such incentives to these homeowners will be helpful to the country’s recovery as well as setting forth a policy that homeowners who work with lenders are less risky to deal with and better than homeowners who simply abandon their mortgage obligations or fight the lenders for short sales.
Fannie Mae’s policy may be, in part, a reaction to Obama’s HAFA program which is aimed at homeowners who do not qualify for modifications and other foreclosure alternatives. Industry expert are predicting a dramatic increase in “pre-foreclosure” activities this year and next year, which Fannie Mae is hoping to alleviate through its new policy.
Mitra Karimi
Crestico, Inc.
by CRESTICO | Apr 13, 2010 | CRESTICO
California state income tax on forgiven debt resulting from a short sale, foreclosure, or loan modification will no longer be imposed on homeowners in California. Senate Bill 401 makes California’s tax treatment of mortgage debt relief income the same as federal law. Be advised, however, that only the debt stemming from the loan secured by a "qualified principal residence," will be exempt from both federal and state income tax consequences. While the federal exemption amount is up to $2 million, the California exemption is up to $800,000 and forgiven debt up to $500,000.
Now, I know you’re thinking … what is a "Qualified principal residence." This means that only the debt incurred in connection with acquiring, constructing, or substantially improving a principal residence is the subject of this legislation. Principal residences are where you actually reside, receive mail and inhabit for all intents and purposes. This new debt forgiveness exemption will include first and second trust deeds, as well as debt incurred in connection with a refinance loan to the extent that that fund from said loan were used to payoff a previous loan that would have also qualified under Senate Bill 401’s guidelines.
These "tax breaks" are applicable to debts that are discharged from 2009 through 2012. Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment. Taxpayers who do not qualify for the exemptions (for example, those homeowners with second or third homes and/or rental property or properties) may potentially also claim an exemption, through other provisions in the law, however.
A very important thing to note is that taxpayers who are bankrupt are exempt from debt relief income tax. This means, that they have no liability. Also, taxpayers who are insolvent and have no assets may also claim exemption from debt relief income tax to the extent their current liabilities exceed current assets.
For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board’s Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service’s Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage. The full text of Senate Bill 401 is available at www.leginfo.ca.gov. Also, remember to consult with an attorney before taking any steps that may impact your tax and/or legal liability.
