You have done the hard part in the home-buying process and chosen a lender and a real estate agent to work with. You have also gone out and found the home of your dreams! Best of all, your team has done a great job of negotiating the best deal for you.
Now, as a buyer, all you have to do is sit back and wait for your loan to close … right? Wrong!!
Getting a home loan these days is a very interactive process. I am always amazed by how many clients I work with who come to me unaware of all the pitfalls they face during the loan process. To help avoid any surprises while waiting for final approval, I provide my clients with a short list of “do’s and don’ts” to follow.
Let’s start with the “do’s” …
Do keep the process moving by responding to your loan officers’ requests for documentation as soon as possible.
Do make decisions as soon as is reasonably possible.
Do convey questions or concerns you
Do continue to make all of your rent or mortgage payments on time.
Do stay current on all other existing accounts.
Do continue to work your normal work schedule with no unplanned time off.
Do continue to use your credit as normal.
Do be prepared to explain any large deposits in your bank accounts.
Do enjoy purchasing your home but remain objective throughout the process to help make decisions that are best for you.
After you have been preapproved for your mortgage you will want to refrain from the following…
Do not make any major purchases (car, boat, jewelry, furniture, appliances, etc.).
Do not apply for any new credit (even if it says you are preapproved or “xxx days same as cash”).
Do not pay off charges or collections (unless directed by your loan officer to do so).
Do not make any changes to your credit profile.
Do not change bank accounts.
Do not make unusual deposits into your bank accounts or move money around from one account to another.
Follow these simple rules and you will help to make your loan closing as smooth and hassle-free as possible! Good luck!
Update on the current status of the mortgage debt cancellation tax relief provision that expired at the end of 2013. As soon as the last one-year extension was passed on New Years’ Day 2013, NAR began working on another extension of this critical tax provision. With NAR’s encouragement, champions of this provision introduced bi-partisan bills in both the House and Senate (H.R. 2994/S. 1187), to extend the provision for one or two years. Unfortunately, the current prospect of these bills being enacted in the short term is not particularly high. We are facing four big hurdles.
1. The Chairmen of both of Congress’s tax committees (Senate Finance and House Ways and Means) have committed to passing comprehensive tax reform legislation before the end of 2014. As part of reform, they have both indicated that they plan to go through the long list of expiring items, including mortgage debt cancellation, and cull those that are not worthy of permanence and make all the “worthy” ones a permanent part of the tax law. However, tax reform is unlikely to be completed in the coming months. If Congress were to extend the expiring provisions now, it might appear that they were giving up on tax reform. This is not a signal they wish to send.
2. There are over 50 such expiring tax provisions (often referred to as “extenders”). Congress rarely passes single tax provisions by themselves. The rules in both the House (and especially the Senate) could allow for added amendments that would turn a simple bill with wide support into a politically divisive bill.
3. The extension of the tax relief “costs” money to the Treasury. The Joint Committee on Taxation estimates that a one-year extension of the mortgage debt cancellation relief would cost $3.7 billion. Some Members of Congress will insist that amount be offset by raising taxes elsewhere or cuts in spending – an ongoing debate in Congress.
4. The Chairman of the Senate Finance Committee, Senator Max Baucus of Montana, has been nominated by President Obama to serve as the next United States Ambassador to China. His departure from the Senate will turn the chairmanship over to Senator Ron Wyden of Oregon. As with any change in committee leadership, there will be an adjustment period.
In sum, NAR tried to have the extension passed by year-end but it was not possible. Because of the factors listed above, NAR has so far decided not to issue Member-wide Call for Action at this time, but has instead focused on working with Congressional leadership and the bill sponsors to find additional support for moving this legislation now that Congress has returned to Washington. Our lobbyists are in daily meetings with Members of Congress, pressing for an extension and providing the most up to date data on short sales and foreclosures to continue to highlight this as a top priority.
What can you do? First, you can contact your Representative and Senators to urge them to act on these bills. If you are in distressed situation, urge them to do so as well. The more Members hear from constituents, the better.
NAR cautions REALTORS® against giving clients tax advice, as every situation is different, but at this point our best estimate is that Congress will pass some extension of this law, probably late in 2014, and make it retroactive. There is precedent for Congress doing this, but no guarantee.
NAR cautions REALTORS® against giving clients tax advice, as every situation is different, but at this point our best estimate is that Congress will pass some extension of this law in 2014 and make it retroactive. There is precedent for Congress doing this, but no guarantee.
The California Association of REALTORS® announced yesterday it received a letter from the California Franchise Tax Board (FTB), obtained by Board of Equalization (BOE) member George Runner, clarifying that California families who lost their home in a short sale are not subject to state income tax liability on debt forgiveness “phantom income” they never received in a short sale.
Last month, in a letter to California Senator Barbara Boxer, the Internal Revenue Service (IRS) recognized that the debt written off in a short sale does not constitute recourse debt under California law, and thus does not create so called “cancellation of debt” income to the underwater home seller for federal income tax purposes. Following the IRS’s clarification, C.A.R. sought a similar ruling by the California FTB. Now with the FTB’s clarification, underwater home sellers are also assured that they are not subject to state income tax liability, rescuing tens of thousands distressed home sellers from California tax liability for debt written off by lenders in short sales.
“We are pleased with the recent clarifications issued by the IRS and California Franchise Tax Board, which protect distressed homeowners from debt relief income tax associated with a short sale in California,” said C.A.R. President Kevin Brown. “We would like to thank Senator Boxer and BOE member Runner for their leadership in obtaining this guidance from the IRS and FTB. Distressed California homeowners can now avoid foreclosure or bankruptcy and can opt for a short sale instead, without incurring federal and state tax liability, even after the Mortgage Forgiveness Debt Relief Act of 2007 expires at the end of the year.”
This is wonderful news for California families still struggling with an underwater home. We still recommend all REALTORS® encourage their clients to speak with a tax professional who can advise them on their specific situation. This information in no way should be taken as either legal or tax advice.
(Sacramento Association of REALTORS® Web Log, Caylyn Brown Thursday, December 5th, 2013)
If you are financially distressed in the state of California and can no longer afford your home and are pursuing a short sale or a deed in lieu of foreclosure, you may be eligible for financial help with your relocation to alternative housing. The funds come from the Transition Assistance Program (TAP), part of the Keep Your Home California Program.
The state of California is providing up to $5,000 in transition assistance to qualified homeowners who can no longer afford to stay in their homes. You must:
• Maintain your property until your house is sold or returned to the lender via a negotiated deed in lieu of foreclosure.
For qualified homeowners, these state funds may be used in addition to any other transition assistance that you may receive by participating in the Federal Home Affordable Foreclosure Alternatives (HAFA) program or in any other pre-offer short sale program.
To learn more about the Transition Assistance Program’s guidelines, and how you may qualify, please visit the website at http://keepyourhomecalifornia.org. Or call 1.888.954.5337 if you are a Bank of America customer.
Short sales have become a part of the normal fabric of real estate business. At a minimum, most people now understand the term “short sale” doesn’t mean the sale will be short, will take less time, or that the price the home will sell for will be much less than market value.
Surprisingly though, there is still a large segment of the population unaware of what may probably be three of the most important benefits to completing a short sale. With that being said, you too may be surprised to learn that, if you complete a short sale there may be:
1. No cost to you, the seller
That’s right. For the majority of sellers, to complete a short sale is totally free. The proceeds from the sale cover the costs associated with the sale, and your lender approves all fees. For example: title and escrow fees, state mandated items (NHD reports), broker fees for service (commissions), and most lenders even pay outstanding property tax liens!
You should never be asked to pay a fee to complete your short sale. If an agent asks you to pay a fee as a requirement to start or complete your short sale, find another agent.
2. Zero Tax Liability, Zero Deficiency Liability Tax Liability – In the past, when you completed a short sale, your lender would send you a 1099 and view the forgiven difference as taxable income for the year. This gets filed with your next tax return and, unless you have an exemption, you must pay taxes on the forgiven income. This would, of course, push most people into a new tax bracket requiring you to pay taxes on that forgiven difference.
Loan Amount Owed $300,000
-Short Sale Price $160,000 Difference $140,000
However, for owner occupied residences, the Debt Forgiveness Act allows tax liability protection on the difference up to $250,000 if you are single, and $500,000 if you are married. President Obama recently extended the act until December 31, 2013. So let’s apply this law to our example above:
Loan Amount Owed $300,000
-Short Sale Price $160,000 Difference $140,000 = FORGIVEN!!
Up to $250,000 (single); $500,000 (married)
In addition, there are numerous exemptions that apply which can enable you to avoid this tax even if it is not your primary residence.
Deficiency (In the state of California) – The California Legislature passed Senate Bill 931 adding Section 580e to the California Code of Civil Procedure and stating that the senior lien holder could not pursue a deficiency judgment after a short sale which they had previously approved. The law equally applies to purchase money, hard money and refinance – as long as there was no cash out.
They later passed Senate Bill 458, amending Section 580e and extending the protection of SB 931, by making it applicable to junior liens as well. In addition to not being able to get a deficiency judgment it provides that after a short sale, no deficiency shall be owed or collected and no deficiency judgment shall be requested or rendered provided the short sale closed escrow and the lender was paid the amount they agreed to accept.
The amended law further provides that the holder of a note shall not require the seller to pay any additional compensation, aside from the proceeds of the sale, in exchange for their consent to the short sale.
How’s that for protection? So, to recap – you get to complete a short sale at no cost to you, your debt and deficiency are also forgiven, and the lender cannot ask you to come in with any additional funds above the amount they agree to accept. What more could you ask for? How about cash back?
3. Cash Back to You
Lenders learned rather quickly the magnitude of the financial responsibilities which came with foreclosed properties; tax liens, outstanding utility bills, property damage, vandalism, etc – all at a very large price tag and not including their standard attorney fees. So not only did it make sense to pay the seller an incentive to remain in the home and keep the home in good condition until close of escrow, but it also helped the seller with moving expenses as well. This turned out to be a win-win situation for everyone. Thus, relocation assistance was born and adopted.
How much assistance you will receive and specific assistance guidelines will vary. For example, if you short sale under HAFA (Home Affordable Foreclosure Alternative), you could receive $3000. However, many lenders now have their own in-house incentive programs which offer relocation assistance anywhere from $3000 to as much as $30,000 or more.
So if you are facing foreclosure, contact Mathews & Co Realty Group with Century 21 Landmark Networ at (916) 678-1803 or me, Keisha Mathews, (team short sale specialist) via direct email at SacramentoShortSaleLady@gmail.com. I would be happy to meet with you to go over your options helping you avoid foreclosure, and explain how you could reap the many benefits as well.
The information contained above is not to be construed as legal or tax advice. Each individual’s personal situation may vary. We at Mathews & Co Realty Group are not tax professionals or attorneys. Please consult a real estate attorney or tax advisor to determine whether the information above is applicable to your individual situation.
What once was a predictable pattern, real estate market conditions now seem to change about as often as Daylight Savings Time and are about as unpredictable as the Spring to Summer weather transition – hot one day, rainfall the next.
Add to this mix, low inventory, a surplus of buyers, slowly increasing interest rates, and frantic “buy now”, “sell now” mixed messages from the media and we will work ourselves right up to a quiet storm where the people do nothing. No buying, no selling, just waiting, watching, and analyzing. Over analysis paralysis will soon be the “weather” of the day if we don’t use good old common sense.
In this article, I’d like to address the buyer. A few tips to help you come out of analysis paralysis and be able to take advantage of today’s market, now:
1. Save up at least 5% of the purchase price to be competitive in this current market. Down Payment Assistant programs are great, but they work even better if you come in with some skin in the game. 100% financing programs don’t work very well in this market.
2. If you qualify at $200K, look for homes at $150K. Why, so that you can have somewhere to go if you get into a multiple counter situation (which will most likely occur). You can then be a true contender and increase your offer when needed.
3. Understand the order of preferred financing in this current market – This is a seller’s market so VA loans are “low man on the totem pole”, next FHA, then Conventional, and finally Cash is King! The more “risk” you have (cash), the better your ability to negotiate an acceptable offer.
4. A hard working, full-time agent who is proactive and follows up on every offer made, asks why yours did not get accepted, and what could you have done to be an offer which gets accepted.
5. Be committed to that agent. Need I say more?
Advice to the seller, coming next.
My best to all of you soon to be homeowners out there and to the agents making it happen for you!
If you have been foreclosed on or have completed a short sale, don’t be so quick to throw away mail from your past lender. Payments to 4.2 million borrowers will be distributed to those whose homes were in any stage of the foreclosure process in 2009 or 2010 and whose mortgages were serviced by one of the following companies, their affiliates, or subsidiaries: Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.
In most cases, eligible borrowers will receive a letter with an enclosed check sent by the Paying Agent–Rust Consulting, Inc. Some borrowers may receive letters from Rust requesting additional information needed to process their payments. Rust is sending all payments and correspondence regarding the foreclosure agreement at the direction of the OCC and the Federal Reserve.
Borrowers can call Rust at 1-888-952-9105 to update their contact information or to verify that they are covered by the agreement. Information provided to Rust will only be used for purposes related to the agreement.
Watch out for scams. Beware of anyone who asks you to call a different phone number than the number above or to pay a fee to receive a payment under the agreement.
SO WHAT’S THIS ALL ABOUT
The Federal Reserve Board issued enforcement actions against four large mortgage servicers
–GMAC Mortgage, HSBC Finance Corporation, SunTrust Mortgage, and EMC Mortgage Corporation–in April 2011. Under those actions, the four servicers were required to retain independent consultants to review foreclosures that were initiated, pending, or completed during 2009 or 2010. The review was intended to determine if borrowers suffered financial harm directly resulting from errors, misrepresentations, or other deficiencies that may have occurred during the foreclosure process.
Some buyers in hot markets with a low inventory of homes for sale are losing out over and over in multiple-offer competitions. You can improve your chances of having an offer accepted by clearing up any issues that might cause a seller to look askance at your offer when compared to one from another buyer.
If your purchase offer is littered with contingencies that protect you, the sellers are more likely to see the contract as risky, especially if they are looking at other offers that contain fewer contingencies.
A clean contract is free of contingencies, which can give buyers a competitive advantage, especially if they are offering less than full price or are in competition with other buyers.
Timing is everything in the home sale business. Buyers often lose out on the opportunity to make an offer on a listing because they are traveling for business or vacation. One partner may see the home of their dreams, but the other won’t be back in town to take a look for days or weeks.
Making an offer contingent on the absentee buyer’s approval of a property is risky from the seller’s standpoint. If the seller accepts the offer, he takes his home off the market not knowing if the absentee buyer will like the house enough to buy it.
It would be very difficult to get such an offer accepted if there are multiple offers from buyers who have all seen the property. The Internet can give a great introduction to a listing, but it usually doesn’t include photos of items that might cause you to pass on the property, like a neighbor’s home that is in poor repair or a location close to a noisy freeway.
Some buyers buy property without having seen it. To get an offer accepted, these offers usually have a generous price, and close quickly. The buyers may later find problems that they could have discovered had they seen the property before making an offer. It’s better for both buyers and sellers if all potential buyers have seen the property before an offer is made.
HOUSE HUNTING TIP: Try to anticipate if there is any condition of your home purchase that would cause the sellers to shy away from accepting or countering your offer. If such conditions exist, try to address them before you make an offer.
For example, let’s say your parents are willing to give you a large amount of cash for a down payment to make your offer more competitive. Make sure this will be acceptable to your mortgage lender.
Find out what verification the lender will require from your parents. If the lender needs a gift letter that stipulates you don’t need to repay the money, have your parents write this letter and include a copy with your offer.
Sellers are always concerned about the buyer’s financial capability to close the transaction. Your offer should include a letter from your lender stating that you are preapproved for the financing that you need. The letter should stipulate that the lender has verified the cash you need for the down payment and closing costs.
If the verification of funds needed to close is not included in the preapproval letter, make a copy of a bank or brokerage statement that verifies the amount you need. Black out the account number and include a copy of this with your offer.
In some areas, buyers are making offers without any contingencies. That is as clean as it gets. However, there can be problems with contingency-free offers. Buyers can feel pressured into waiving an inspection contingency because they’re sure they can’t compete unless they do. The sellers could end up in a legal hassle with the buyers after closing if problems arise that weren’t disclosed to them.
THE CLOSING: Buyers should ask the sellers for permission to preinspect the property before they make an offer without an inspection contingency.
For homeowners who are in danger of losing their home to foreclosure, it is common to feel like you are alone and that there is no one to help. This simply isn’t true. There are real people who have been in the same situation who have found solutions. Take, for example, Punipuao W. of Hawaii.
Punipuao found herself struggling to keep her home after her husband passed away. “With only my income, I was no longer able to make my monthly mortgage payment,” she said. Faced with the prospect of losing the home she and her husband had bought together, she began looking for alternatives to help her keep the home.
She pleaded with the bank for relief, “but their responses gave me little information and even less hope.”
The prospect of losing the home she and her husband had shared for over 20 years was difficult. “I was so distraught,” she said. “I did not know where to turn.
“Then, one day, my miracle came through a red envelope in the mail.”
In the envelope was a note from a local real estate agent with the Certified Distressed Property Expert designation (or CDPE). This designation meant that the agent was trained specifically to help people like Punipuao. She called the agent.
“About four hours after I made the call, he was at my door offering help. I told him my story.” In merely two days, she received a call from the bank saying that the president of the bank was reviewing her file. “That was a good sign,” she said.
A few days after that, Punipuao had been approved for a trial loan modification. “There were many tears of gratitude at the miracle that came to me in the form of my agent. I thank god for sending me that miracle.”
Punipuao’s story is just one of many. I have a report entitled “From Foreclosure to Freedom” which tells other stories of real homeowners who faced foreclosure and found relief. Download the report, read the stories, and then contact me for a free, confidential consultation.
A great question. This question was recently asked of me and I thought I would share the information with you all.
The Jr Lienholder in the past has been very difficult to deal with. However, recently, most Jr Lienholders are very cooperative in the short sale approval process. This is due to new laws (state and federal) and incentives being offered to the Jr Lienholder for their cooperation.
For example, the jr lienholder currently can be offered up to $8500 through the HAFA short sale program (if the seller qualfies for the program). In addition, there is typically an unspoken threshhold which the Sr Lienholder is already willing to go to offer a payoff to the Jr Lienholder. So, it is safe to say that there is already some money there for the Jr Lienholder, most of the time, not always.
Then you have the Jr Lienhodler from hell, like Franklin Credit. I must say, it took over one year (and I’m assuming some personnel turnover) to get them to approve as Jr Lienholder on a file we closed several years ago. Needless to say, things with them have not changed. I was contacted by an agent from So Cal who was going through a very similar and painful experience with Frankline Credit – their tactics have not changed. They are a mostly non-negotiable, non-cooperative, non-customer friendly credit collector. I don’t mean to sound so negative about them, but these are the facts. If things have changed with them and I am wrong, please, please, please correct me.
So, how do you prepare a buyer going into a short sale situation with a jr lienholder? In our Short Sale Offer Submisison Addendum, we let the buyer know that there may be a possibility that they may be asked to pay any additional fees which the Sr Lienholder does not approve, as long as the Sr Lienholder approves of the buyer paying those fees. That normally works out fine. When we are negotiating a short sale, we always begin negotiations with a small amount to the Jr Lienholder ($3000). That is traditionally the standard amount most Sr lienholders will approve to the Jr Lienholder. From there, if the Jr requires more, we submit that to the Sr lienholder first, then if more cash is required, we go to the buyer. Buyer is lready prepared, so no surprises there.
However, most Jr Lienholders that I am dealing with will now accept the standard $3000 payoff. Not always the case, but we can usually work something out if they require more.
Note also that SB 458 prohibits the seller from being required to make a contribution to the sale in order to attain an approval. It is the seller’s discretion as to whether they are able and willing to contribute In most cases the seller is not in a finanical position to make a contribution.
So the above are a few ways in which you can prepare yourself as a buyer, or buyer’s agent when representing a buyer in a short sale, and contending with the Jr Lienholder. If my colleagues out there have any additional advice to offer, I’d be happy to hear about it!