Real Estate — Page 29

Short Sale vs. Foreclosure – 10 Common Myths Busted

May 9, 2012 By EmmanuelFonte Leave a Comment

It’s likely you’ve heard the term “short sale” thrown around quite a bit. But what, exactly, is a short sale?

A short sale is when a bank agrees to accept less than the total amount owed on a mortgage to avoid having to foreclose on the property. This is not a new practice; banks have been doing short sales for years. Only recently, due to the current state of the housing market and economy, has this process become a part of the public consciousness.

To be eligible for a short sale you first have to qualify!

To qualify for a short sale:

Your house must be worth less than you owe on it.
You must be able to prove that you are the victim of a true financial hardship, such as a decrease in wages, job loss, or medical condition that has altered your ability to make the same income as when the loan was originated. Divorce, estate situations, etc.… also qualify.

Now that you have a basic understanding of what a short sale is, there are some huge misconceptions when it comes to a short sale vs. a foreclosure. We take the most common myths surrounding both short sales and foreclosures and give a brief explanation. LET’S BUST SOME MYTHS!!

1.) If you let your home go to foreclosure you are done with the situation and you can walk away with a clean slate. The reality is that this couldn’t be any farther from the truth in most situations. You could end up with an IRS tax liability and still owing the bank money. Let me explain. Please keep in mind that if your property does go into foreclosure you may be liable for the difference of what is owed on the property versus what is sells for at auction, in the form of a deficiency balance! Please note this is state specific and in most states you will be liable for the shortfall, but in some states the bank may not always be able to pursue the debt. Check your state law as it varies widely from state to state.

Here is an example of how a deficiency balance works

If you owe $200,000 on the property and it sells at auction for $150,000, you could be liable for the $50,000 difference if your state law allows it.

Not only could you be liable for the difference to the bank, but in some situations you could also be liable to the IRS! Although there are exemptions (mostly for principle residences) under the Mortgage Debt Forgiveness Act, there are times when you could be taxed on both a short sale and a foreclosure, even in a principle residence situation. Since the tax code on this is a little complicated and I am not a CPA, I advise always talking to a CPA when in this situation as you are weighing your options. Hard to believe? Well, believe it or not, the IRS counts the difference between the sale and the charged off debt as a “gain” on your taxes. That’s right-you lost money and it’s counted as a gain! (I didn’t make that rule, that’s a wonderful brainchild of the IRS). Banks and the IRS can go as far as attaching your wages. Not to mention if you let your home go to foreclosure you will have that on your credit, as well.

Guess What? A short sale can alleviate your liability to the bank, in most situations. There are also exceptions to this, but in most cases banks are releasing homeowners from the deficiency balance on a short sale.

2.) There are no options to avoid foreclosure. Now more than ever, there are options to avoid foreclosure. Besides a short sale, loan modifications along with deed in lieu are also examples of the many options. In most cases (but not all) a short sale is the best option. Either way, there are more options today than there have ever been to avoid foreclosure.

3.) Banks do not want to participate in a short sale, or, it is too hard to qualify for a short sale. Banks would rather perform a short sale than a foreclosure any day. A foreclosure takes a long time and creates a huge expense for the banks; a short sale saves both time and money. Banks have more foreclosure inventory than ever before, and certainly do not want any more. Banks more than ever welcome short sales. Qualifying for a short sale is easier than you think, you need to have a true financial hardship, or a change in your finances and your house has to be worth less than what you owe on it. Not only do consumers, but banks also now have government incentive to participate in short sales.

4.) Short sales are not that common. At this present time, short sales range from 10-50 % of sales in various markets and it is predicted that in 2012 we will have more short sales than any other year, to date. Due to economic changes in the last few years, this is something that is affecting millions of Americans. Short sales are in every market, and are not just limited to any particular income class. This has affected everyone from all facets of life. A short sale should be looked at as a helpful tool, not a negative stigma. That is why the government is offering programs that actually pay consumers to participate in short sales. It is not just affecting one community; it is affecting communities and consumers across the nation.

5.) The short sale process is too difficult and they often get denied. Though the short sale process is time consuming; it is not as difficult as the media would have you believe. The problem is that most short sales are denied because of a misunderstanding of the process. It is true that if the short sale process is not followed correctly there is a good chance of getting denied. An experienced agent knows how to avoid this. Short sales require a lot of experience, and a special skill set. If you are looking to go the option of a short sale make sure your agent is skilled and experienced in this area.

6.) Short sales will cost me money out of pocket. A short sale should not cost you any out of pocket money. In fact, you could get between $3000-up to $30,000 to participate in a short sale. In many ways, a short sale may put you in a better financial position than prior to the short sale. Almost every short sale program now has some type of financial incentive for the home owner, as long as it is a principle residence, and we are even seeing relocation money being paid on some investment/second homes. As a seller of a property you should never have to pay for any short sale cost upfront to any professional service. Realtors charge a commission that is paid for by the bank. In most communities there are also non-profits and HUD counselors who can help you with foreclosure prevention options for free. The only potential cost you could incur is if the bank would not release you from a deficiency balance in the short sale, which is happening less and less now.

7.) If I am behind on my payments, I can perform a short sale any time. The farther you get behind on your payments, the harder it is to get a short sale approved. The closer a property gets to a foreclosure the harder it is to convince the bank to perform a short sale. As they get closer to a foreclosure sale more money is spent, thus deterring them from doing a short sale. If you think you need to perform a short sale, time is of the essence; the sooner you start the process, the better. Waiting too long can trigger the ramifications of a foreclosure, losing the ability to do a short sale as a viable option.

8.) I have already been sent a foreclosure notice so I can’t perform a short sale. For the most part just because you received a foreclosure notice or notice of default it does not mean that you do not have time to perform a short sale. The timeline and specifics do vary from state to state, but having done short sales all over the country, I have seen banks postpone a foreclosure to work a short sale option as close as 30 days prior to the scheduled foreclosure auction, but the longer you wait the less chance you have. If you have received a legal foreclosure notice, please reach out to a professional right away. The longer you wait, and the closer you get to foreclosure, the fewer options you have. If you have received a notice to foreclose this means the bank is filing paperwork and starting the process to take legal action to repossess the house. You still have time at this point to prevent foreclosure, but do not hesitate! The closer you get to the foreclosure date the harder it becomes to negotiate with the bank for whichever option you choose.

9.) I was denied for a loan modification, so I know I will get denied for a short sale. Short sales and loan modifications are handled by two separate departments at the bank. These processes are totally different in approval and denial. If you got denied for a modification you can still apply for a short sale; in some cases you can get a short sale approved faster than a loan modification, as some loan modifications are denied because they cannot reduce the loan low enough based on the consumers income.

10.) If I go through a short sale I cannot buy another house for a long time. The time to buy another house depends on your entire credit picture and can vary from 12-24 months. There are even a few FHA programs that allow for a purchase sooner than that. I have worked with clients who went through a short sale and bought another house in less than 12 months.

These are just a few of the common myths surrounding short sales and foreclosure. With the options available today, no homeowner should ever have to go through foreclosure, and hopefully this information can help a few more homeowners think twice before walking away from their home not realizing the possible long term ramifications a foreclosure can have.

(via)

Filed Under: Blog, Real Estate, real estate financing

3.8% Tax Starting in 2013: What Does It Mean?

May 9, 2012 By EmmanuelFonte Leave a Comment

3.8

The health care legislation enacted in 2013 included a new tax that was designed to affect upper income taxpayers. Understand this tax will not be imposed exclusively on real estate transactions. The tax is NOT a transfer tax on real estate sales and similar transactions.

Rather, when the legislation becomes effective it may entail a 3.8% tax on some (but not all) income from interest, dividends, rents (less expenses) and capital gains (less capital losses). These items are all included in an individual’s adjusted gross income (AGI). The tax will fall only on individuals with an AGI above $200,000 and couples filing a joint return with more than $250,000 AGI

The new tax does NOT eliminate the benefits of the $250,000/$500,000 exclusion on the sale of a principal residence. Thus, ONLY that portion of a gain above those thresholds is included in AGI and could be subject to the tax.

Tax payers should familiarize themselves with the tax. The amount of tax will vary from individual to individual because the elements that comprise AGI differ from taxpayer to taxpayer. Contact me today for a referral to a licensed tax professional.

Filed Under: Blog, Economy, Real Estate, real estate financing

Short Sales Will Increase Dramatically in 2012

May 8, 2012 By EmmanuelFonte Leave a Comment

by THE KCM CREW

We believe that short sales will be a major part of the real estate market in 2012. That is why we have dedicated this entire week to posts exclusively on this subject. We hope that by the end of the week you have a better handle on the need for short sales and a better understanding of the process. – the KCM Crew

It seems that the banks have finally realized that a short sale is a better option than foreclosure for them, the homeowner and the neighborhood. It is for this reason we believe that 2012 will come to be known as the year of the short sale.CNN Money reported on this exact point:

“We believe 2012 could be a record year for short sales,” said Daren Blomquist, vice president at RealtyTrac.

Banks are showing signs of being more open and willing to approve the deals — even if it means accepting less money. The average sales price for a short sale was $174,120 in January, down 4% from December and 10% year-over-year.

Market Watch also addressed the short sale situation recently:

Fitch expects the increase in short sales to continue because of the potential benefits afforded to both lenders and borrowers. Some borrowers may prefer short sales because, though they cannot stay in the property, they often walk away with cash incentives from lenders and healthier credit reports unmarred by foreclosure. For lenders, short sales provide a more efficient and cheaper alternative to the increasingly lengthy and costly foreclosure process.

Why Are the Banks Now Leaning Towards Short Sales?

The simple answer is that the banks lose less money when doing a short sale. The CNN Money article mentioned above explains:

Typically, banks get about 20% less for a foreclosed home. Foreclosure can also take years to unload, during which expenses, like property taxes, insurance and other expenses, mount up.

The Market Watch report breaks it down further:

Short sales…are currently getting completed 20 months after the last payment made on the loan, approximately 10 months less than the average time to foreclose. Shorter timelines reduce lenders’ carrying costs (i.e. accrued loan interest and property taxes, insurance, and maintenance) and eliminate most of the legal expenses associated with foreclosure and liquidation. As a result, loss severities tend to be considerably lower. Historically, for loans with similar attributes, short sales have severities 10%-15% less than REO sales. As the proportion of short sales increases, we expect average loss severities to improve further.

How Many Short Sales Could Be Completed?

JPMorgan has projected that over 500,000 short sales will be done this year. Also,NECN.com recently reported:

RealtyTrac estimates that if the January numbers it found hold up, there would be about 105,000 “pre-foreclosure” sales of homes, most of them short sales, during the first quarter of this year, and at that rate something like 400,000 for the year.

How Long Will Short Sales Be a Major Part of the Market?

The NECN article shows us that short sales are here to stay for some time.

According to the Mortgage Bankers Association, there are nearly 3.5 million homeowners delinquent on their mortgages by at least one month, including 1.5 million who are 90 days or more behind on paying their mortgage. And there are 12.5 million homeowners still who are “underwater,” owing more on their mortgage than their home is worth. That suggests that at the current rates, barring some spectacular economic recovery, it would take years, even decades, for short sales alone to clean up the mortgage mess that remains.

Short sales are here to stay. We must accept this fact and work hard to learn the process and apply it where it makes sense.

Filed Under: Blog, Real Estate

Major Housing Market Shift

May 2, 2012 By EmmanuelFonte Leave a Comment

This is a unique time in the real estate market. Here are the market facts for the Puget Sound region

Strong Sales Activity Being Driven by Local Home Buyer Surge

Driven by the return of local home buyers, a positive market psychology has returned. Low inventory, adjusted prices and the historically low interest rates combined with improving job growth have created a positive market for local home buyers. Starting in 2010 an elevated level of residential investors seized the opportunity to purchase homes and helped reestablish the market by bringing sales activity back to a healthy level. By November 2011, we saw the return of the local home buyer to the marketplace and as market activity began to heat up, the level of available inventory could not sustain the demand. This brings us to Spring 2012 where there is a shortage of inventory available to a backlog of buyers looking to take advantage of the superb market conditions.

Shortage of Inventory will Continue

It is foreseeable that this shortage of inventory will continue for some time. With both residential investors and local home buyers competing in the market place for a restricted amount of homes the supply will not find much relief. The restriction of supply is being caused by several factors; underwater sellers not able to bring their home on the market and sellers with equity thinking they can’t currently sell or waiting for prices to rise.

Stabilizing Prices and Multiple Offers

The shortage of inventory and the flood of local home buyers to the market falls in line with the classic principals of supply and demand, which is why we are now seeing a slow but steady stabilization and the beginning of price increases, as is evidenced by the multiple offer situations. 40% of new properties brought on the market are selling in the first 30 days. Compare this to the Fall of 2010 where only 40% were selling within 6 months. This is happening across the board through the mid-price ranges as well as the upper end close to job centers.

If you are not “Buyer Ready” you may not get a home in today’s market

Buyers who want to win their dream home, in these multiple offer situations, need to come to the table prepared. There are three important things a buyer can do to be “buyer ready.” The first is to have a detailed market review consultation with your trusted broker. The second is to get pre-approved by a lender. The third is to get in the flow of information. Sign up to receive email notifications when new properties come on the market within your desired market area and price range. You can also download a mobile app on your smart phone which will let you look up property information on the go.

via: Lennox Scott Blog

Filed Under: Blog, Real Estate

Another Housing Bear Turns Bull

May 2, 2012 By EmmanuelFonte Leave a Comment

Every day there seems to be more positive news about the real estate recovery. We attempt to give you two things in this blog:

The actual data that indicates where the housing market is headed
Quotes from analysts who have scrutinized this data

Today, we want to give you a quote by Ivy Zelman which appeared last week in a Wall Street Journal article Stunned Home Buyers Find the Bidding Wars Are Back.

“We very much believe we’ve hit bottom.”

Why is the quote from Zelman important? She is an industry expert consistently recognized by Institutional Investor, Greenwich Associates, StarMine and The Wall Street Journal as an industry-leading analyst. She has been nicknamed ‘Poison Ivy’ for her harsh positions on housing over the last several years. Now, Zelman is calling a bottom and projecting prices to moderately increase in the next twelve months.

Again, another expert on housing is calling a bottom; another bear turns bull.

by THE KCM CREW

Filed Under: Blog, Economy, Real Estate

Renters Qualified to Purchase a Home: 2011 vs. 2005

May 1, 2012 By EmmanuelFonte Leave a Comment

Did you know that nearly 10 million more renter households had the income to qualify to buy a home in 2011 versus 2005?

Many factors have increased the number of renter households qualified to purchase a home in 2011 versus 2000 and 2005: 1) incomes have increased, 2) population has grown, 3) mortgage rates are lower, and 4) prices have fallen since 2005.

The tables below show the data underlying the change in required income. Because of lower home prices and mortgage rates, qualifying income required to purchase a median priced home has fallen from $56,600 in 2005 and $40,300 in 2000 to $33,100 in 2011.

Finally, based on all of these factors, we see that while 33 percent of renters qualified to buy the median priced home in 2000 and 24 percent of renters qualified to buy the median priced home in 2005, 47 percent of renters would qualify in 2011[1]. Translating these numbers into households, 7.7 million renters qualified to purchase the median priced home in 2005 while in 2010, 15 million renter households qualify.

These calculations assume that potential buyers meet credit qualifications and have sufficient cash on hand to close a transaction. Lending standards, credit quality, and access to funds will affect the number of households who will be able to buy a home.

[1] This calculation assumes that income distribution in 2011 is the same as it was in 2010.

Filed Under: Blog, Economy, Real Estate, real estate financing

Proof That Real Estate Is ALWAYS Local: The Truth On Pricing

April 24, 2012 By EmmanuelFonte Leave a Comment

Case-Schiller released their data today with the bold headline that homes are at 2002 prices. While it may be true for a National average, I wasn’t convinced that our region reflected that statement, so I went looking for the truth.

Below is the chart that Case-Schiller released. It shows that prices have declined back to their 2002 prices.

A closer look regionally would not fully support Case-Schiller’s claims. The MLS data for King County allows us to go back to the end of 2003. Average Sold prices are very close to 2003.

This (Below) may be the best evidence that we in King County, Seattle and Bellevue are NOT in alignment with the Case-Schiller report. Back in 2002: King average was at $266K / Seattle at $296K / Bellevue at $372K

Below shows that in 2012: King is at $329K / Seattle is $387K / Bellevue is $512K

Taking this same data (below), one could argue that we are more likely back to 2005 prices.

What do you think? Let me know.

Filed Under: Blog, Economy, Real Estate

Single Family Rentals Now Exceed Multifamily

April 24, 2012 By EmmanuelFonte Leave a Comment

While inventories of homes for sale have been shrinking this spring, MLSs are filling the void with rental listings for single family homes that until recently were foreclosures. Some 16.1 percent of all listings on MLSs today are rentals, more than double the number in 2006, according to some reports.

Single family rentals are $3 trillion business today and growing as investors turn to real estate and opt to rent out the bargains they buy until prices improve. Today the single family rental market accounts for 21 million rental units or 52 percent of the entire residential rental market, according to a new study by CoreLogic economist Sam Khater.

Yet the single family rental market is poorly understood and almost invisible to economists and journalists because virtually all rental market data tracks multifamily properties and either ignores the single family segment or lumps it together with multifamily.

“Single family rentals are very distinct from multifamily and they behave very differently,” said Khater in an interview with Real Estate Economy Watch. For example, on a per unit basis, rents for single family rentals run 1.5 to 1.6 times higher than multifamily. Unlike multifamily, millions of single family rentals are listed on MLSs by real estate brokers, many of who represent new owners in acquiring investment properties. As the for-sale inventory has trended down since 2005, the rental share rose 13.3 percent last year alone. As of the end of last year rental closings were up 11.5 percent year-over-year while prices fell 9.8 percent during the year. Demand is strong. The national average months’ supply for single family rentals was 4.5 months in December compared to 6.2 months for homes listed for sale.

Another important difference is the nature of the tenants. Single family rentals, usually stand-alone properties in ownership settings, appeal more to families. In fact, the typical SFR tenant is a family that has just left a foreclosure and can afford to pay the rent on a former foreclosure but could not make the mortgage payment on their old home, perhaps because they bought with alternative financing or purchased at the peak and could not get a modification when their home lost value. Over the past five years, foreclosures have turned more than 3 million homeowners into renters. Typical multifamily tenants, however, are younger, generally single and more mobile, and have never owned a home.

Khater found a strong relationship between distress sales markets and single family rentals. Census data shows a correlation between single family rentals and the hardest hit areas of the so-called “sand states”-Arizona, California, Florida and Nevada.

Investors buying REOs and short sales in foreclosure markets convert them to rental units and homeowners in the same locale who have lost their homes to foreclosure rent homes that until recently were owned by other families who suffered the same ill fortune.

For more information, visit www.realestateeconomywatch.com

Filed Under: Blog, Real Estate, Real Estate Investment

Rents On the Rise

April 23, 2012 By EmmanuelFonte Leave a Comment

It may be time to pull the trigger and buy that investment property you’ve been considering. The greater Seattle area have several opportunities.

Filed Under: Blog, Economy, Real Estate, Real Estate Investment