real estate financing

Title: A Historical Joke

May 13, 2012 By EmmanuelFonte Leave a Comment

Part of rebuilding New Orleans caused residents often to be challenged with the task of tracing home titles back potentially hundreds of years. With a community rich with history stretching back over two centuries, houses have been passed along through generations of family, sometimes making it quite difficult to establish ownership. Here’s a great letter an attorney wrote to the FHA on behalf of a client:

You have to love this lawyer…

A New Orleans lawyer sought an FHA loan for a client. He was told the loan would be granted if he could prove satisfactory title to a parcel of property being offered as collateral. The title to the property dated back to 1803, which took the lawyer three months to track down. After sending the information to the FHA, he received the following reply:

(Actual reply from FHA):

"Upon review of your letter adjoining your client’s loan application, we note the request is supported by an Abstract of Title. While we compliment the able manner in which you have prepared and presented the application, we must point out you have only cleared title to the proposed collateral property back to 1803. Before final approval can be accorded, it will be necessary to clear the title back to its origin."

Annoyed, the lawyer responded as follows:

(Actual response):

"Your letter regarding title in Case No.189156 has been received. I note you wish to have title extended further than the 206 years covered by the present application.

I was unaware any educated person in this country, particularly those working in the property area, would not know Louisiana was purchased by the United States from France in 1803, the year of origin identified in our application. For the edification of uninformed FHA bureaucrats, the title to the land prior to U.S. ownership was obtained from France, which had acquired it by Right of Conquest from Spain. The land came into the possession of Spain by Right of Discovery made in the year 1492 by a sea captain named Christopher Columbus, who had been granted the privilege of seeking a new route to India by the Spanish monarch, Queen Isabella.

The good Queen Isabella, being a pious woman and almost as careful about titles as the FHA, took the precaution of securing the blessing of the Pope before she sold her jewels to finance Columbus’s expedition. Now the Pope, as I’m sure you may know, is the emissary of Jesus Christ, the Son of God, and God, it is commonly accepted, created this world. Therefore, I believe it is safe to presume God also made the part of the world called Louisiana. God; therefore, would be the owner of origin and His origins date back to before the beginning of time, the world as we know it, and the FHA. I hope you find God’s original claim to be satisfactory. Now, may we have our loan?"

The loan was immediately approved.

Filed Under: Blog, real estate financing

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

A Home Buying Gets Another Boost in Affordability

May 4, 2012 By EmmanuelFonte Leave a Comment

For home buyers or refinancers, borrowing costs for home ownership just got a little cheaper as mortgage rates took another dip to new all-time record lows this week, Freddie Mac reports in its weekly mortgage market survey.

"Signs of slowing economic growth and inflation remaining subdued allowed yields on Treasury bonds to ease somewhat and brought most mortgage rates to new all-time record lows this week,” says Frank Nothaft, Freddie Mac’s chief economist.

Here’s a closer look at average rates for the week ending May 3:

30-year fixed-rate mortgages: averaged 3.84 percent, with an average 0.8 point, reaching a new historical low. The previous record for 30-year rates was 3.87 percent, which was set on Feb. 9 of this year. A year ago at this time, rates averaged 4.71 percent.
15-year fixed-rate mortgages: averaged 3.07 percent, with an average 0.7 point, another historical low. The previous record for 15-year rates was 3.11 percent set on April 12 this year. A year ago at this time, 15-year rates had averaged 3.89 percent.
5-year adjustable-rate mortgages: averaged 2.85 percent, with an average 0.7 point, holding the same as last week. Last year at this time, 5-year ARMs averaged 3.47 percent.
1-year ARMs: averaged 2.70 percent this week, with an average 0.6 point, also registering at a new all-time low. Last year at this time, 1-year ARMs averaged 3.14 percent.

Source: Freddie Mac

Filed Under: Blog, Economy, real estate financing

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

FHA Announces Price Cuts to Encourage Streamline Refinancing

March 10, 2012 By EmmanuelFonte Leave a Comment

Recently, Acting Federal Housing (FHA) Commissioner Carol Galante announced significant price cuts to FHA’s Streamline Refinance Program that could benefit millions of borrowers whose mortgages are currently insured by FHA. Beginning June 11, 2012, FHA will lower its Upfront Mortgage Insurance Premium (UFMIP) to just .01 percent and reduce its annual premium to .55 percent for certain FHA borrowers.

To qualify, borrowers must be current on their existing FHA-insured mortgages which were endorsed on or before May 31, 2009. Late last month, FHA also announced it will increase its upfront premiums on most other loans by 75 basis points to 1.75 percent. In addition, FHA will raise annual premiums 10 basis points and 35 basis points on mortgages higher than $625,500.

“This is one way that FHA can make a real difference to help homeowners who are doing the right thing, paying their bills on time and want to take advantage of today’s low interest rates,” says Galante. “By significantly reducing costs for these borrowers, we can make certain they cut their monthly mortgage burden, which will benefit the housing market and the broader economy in the process.”

Currently, 3.4 million households with loans endorsed on or before May 31, 2009, pay more than a five percent annual interest rate on their FHA-insured mortgages. By refinancing through this streamlined process, it’s estimated that the average qualified FHA-insured borrower will save approximately $3,000 a year or $250 per month. FHA’s new discounted prices assume no greater risk to its Mutual Mortgage Insurance (MMI) Fund and will allow many of these borrowers to refinance into a lower cost FHA-insured mortgage without requiring additional underwriting. FHA-insured homeowners should contact their existing lender to determine their eligibility.

Last month, the Obama Administration announced a broad package of actions and legislative proposals to help responsible homeowners save thousands of dollars through refinancing. This includes the changes announced today that will benefit current FHA borrowers—particularly those whose loan value may exceed the current value of their home. By lowering monthly mortgage costs for home-owners, FHA hopes to help more borrowers stay in their homes, thereby decreasing the potential for future default and reducing losses to the Mutual Mortgage Insurance (MMI) Fund.

The changes outlined in today’s mortgagee letter apply to all mortgages insured under FHA’s Single Family Mortgage Insurance Programs except:

Title I
Home Equity Conversion Mortgages (HECM)
Section 247 (Hawaiian Homelands)
Section 248 (Indian Reservations)
Section 223(e) (Declining Neighborhoods)

For more information, visit www.hud.gov

Filed Under: Blog, Real Estate, real estate financing Tagged With: fha, refinancing

Federal Government & Attorneys General reach landmark settlement with major banks

February 23, 2012 By EmmanuelFonte Leave a Comment

Roughly $25 billion in relief for distressed borrowers, states and federal government.

After many months of negotiation, 49 state attorneys general and the federal government have reached agreement on a historic joint state-federal settlement with the country’s five largest loan servicers:

The settlement will provide as much as $25 billion in relief to distressed borrowers and direct payments to states and the federal government. It’s the largest multistate settlement since the Tobacco Settlement in 1998.

The agreement settles state and federal investigations finding that the country’s five largest loan servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct. Both of these practices violate the law. The settlement provides benefits to borrowers whose loans are owned by the settling banks as well as to many of the borrowers whose loans they service.

About the Settlement: Learn about the settlement, who is affected and what claims may still be pursued against the banks. Find links to your state Attorney General’s Office to find state-specific information and contacts.

Help for Borrowers: Learn how to find out if your loan is affected by this settlement, the timeline for relief, how you will know if you are eligible. Find links to your state Attorney General’s Office to find state-specific information and contacts.

News: Read the national news release and find links to your state Attorney General’s Web site for state-specific news.

Filed Under: Economy, real estate financing Tagged With: mortgage settlement

Distressed Sales Undercut Home Prices in 2011, Study Says

February 4, 2012 By EmmanuelFonte Leave a Comment

A report released today says that home prices slid by nearly 5 percent last year, but also indicates that most of the decline was due to distressed sales.

CoreLogic’s December Home Price Index found that home prices fell 4.7 percent in 2011 compared with December 2010, marking the fifth consecutive year of the housing slump. But excluding distressed sales, prices only dropped by 0.9 percent in 2011. The discrepancy between the two figures highlights the foreclosure crisis’ obstructive effect on a market recovery

"Until distressed sales in the market recede, we will see continued downward pressure on prices," said Mark Fleming, chief economist of CoreLogic.

Since the housing bust battered the real estate market in 2007, 8.9 million homes succumbed to foreclosure, according to RealtyTrac

And millions more may share this fate. One expert estimated that, in addition to the 2 million homes already stuck in some state of foreclosure, 1.8 million more will join their ranks in both 2012 and 2013, The Huffington Post reports.

Foreclosure filings dropped dramatically last year, a market movement that would seem to indicate the beginning of a turnaround. But experts say the steep decline was not organic, and instead the result of government crackdowns on banks over alleged foreclosure abuses. The abuses include so-called "robo-signing," a practice where bank employees sign foreclosure documents without adequately reviewing them.

In 2011, distressed sales grew the most in Montana, Vermont, South Dakota, Nebraska and New York, according to the CoreLogic study. It also found that Nevada, Arizona, Florida, Michigan and California are the states that have seen the largest decline in home prices since the peak of the housing boom.

Nevada’s home prices have plunged 60 percent since the peak of the housing market, the report says.

If you are interested in knowing more about the foreclosure process and how to invest in real estate, call me 206-713-3244 or email me.

Filed Under: Blog, real estate financing, Real Estate Investment Tagged With: distressed property, foreclosure