Monday, December 27, 2010

Tax ramifications of a short sale

This makes me crazy. A homeowner is in trouble, yet wants to do the right thing and attempt a short sale rather than just walk away. So what does the IRS do? Possibly count the amount forgiven as income. Aaaaargh! If the homowner just lets the lender foreclose then the IRS isn't interested. What is wrong with this picture?

by Dave Cherry - Dec. 26, 2010 06:10 PM
Question: My daughter executed a "short sale" of her home in 2010. What are the tax ramifications?
- Barry Davis, Apache Junction


Answer: In a "short sale," the IRS would most likely consider the difference between what the house sold for and what she owed on it as income to her in 2010. This applies when the lender forgives the debt entirely and gives up any further rights to collect it. In this case, the lender would most likely send her a 1099-C showing the difference as income, and your daughter could owe tax on it. Your daughter should check IRS form #982 to see if she qualifies for one of the many exemptions available. If she does qualify, the difference may not be considered income. Conversely, in a foreclosure the difference is most often not considered income to the homeowner.Read more: http://www.azcentral.com/arizonarepublic/business/articles/2010/12/26/20101226tax-cherry1227.html#ixzz19KWc6Xxo

Friday, December 24, 2010

Christmas musings, Christmas

I sat down to write my usual “Christmas Cheer” Bits and Pieces. I quickly became suspicious that it was turning out to be a clone of my “Thanksgiving Blessings” piece last month.

I can’t do it. Let’s be honest – I’m not a big fan of Christmas. As a child growing up in an alcoholic/workaholic family, Christmas was always (at the very least) disappointing, and often it was just plain awful. One year I mounted a focused campaign for a bride doll. For some strange reason I wanted this doll that I had seen in the Sears catalog desperately. Yes, she showed up under the tree all right, with my sister’s name on her tag. Parents with too much to drink and a child asking for an anomaly of a gift led to a mistake. It has not been forgotten.

Then, on December 15th, when I was 19, a tragedy in my family happened. That event led directly to an even bigger tragedy on Christmas Eve. I’m not prepared to talk about the particulars, but there I was looking at the Christmas tree and listening to the Christmas Carols feeling my heart break and wishing that I could die, too.

Time marches on. I was a single Mom with 2 boys, frantically compensating for the fact that given a choice I would have just ignored the whole accursed thing. I would happily have gone to China or India, where I suspect they don’t sing many Christmas Carols. Since I couldn’t do that I went full-bore and rampant with the commercialism of Christmas. I spent way too much money on way too much stuff, pretending that I didn’t want to scream most of the time.

Fortunately I came out of the “Happy Holidays!” closet years ago and admitted to the world that I don’t like Christmas very much. I was amazed at how many like-minded people are out there. (I know a guy who became a Jehovah’s Witness solely to get away from Christmas.) Some people embraced me like a long-lost sister, while others look at me like I suddenly sprouted a leg out of the side of my head. “How can you hate Christmas? Why, there’s lights and Carols and poinsettias and gifts and unicorns and sparkleys and Santa Claus! Comfort and happy happy happy joy joy joy! What’s wrong with you, you horrible Grinchy Scrooge, you?”
That’s OK – as Popeye would say, I yam what I yam and I’m hard-wired to look at the weeks between Thanksgiving and New Year’s with narrowed eyes.

And now here we are, December 2010. I’ve gotten better – I don’t break out in hives anymore when I’m forced to be in the same place as a Christmas Carol. I don’t flinch (as much) when I suspect that I’m about to be inflicted with a Santa Claus.

I’ve found things about this season that I can get behind. I adore the concept of “Peace on Earth, Good Will Towards All” – that’s a good one. The lights are pretty. I’ve made peace with the tree. I like presents, and I give them because it’s fun to give and not because I have anything to prove. I like the feast and I love the family gathering. I like observing people that are actually enjoying this whole Yuletide thing, sort of the same way that I would watch an alien from another planet that I don’t really understand but find to be intriguing. I like to see that even the grouchiest among us try to be a little nicer, and I hope that this new attitude of theirs will last past December 25th. Hey, why stop now?

It occurs to me that I am not such an oddity in the global sense - most religions don’t much get into Jesus’ Birthday. So however you feel about the season and whatever your declared religion, find a place in your heart for some holiday spirit.

If you love the season, congratulations! I envy you. If you find it to be a chore, that’s OK. If you celebrate Hanukkah as opposed to Jesus’ Birthday, L’Chaim! If Kwanzaa is your thing, Umoha! If you celebrate the Hopi Soya Luna or the Winter Solstice, Cheers! The point is that whatever your personal reason for the season, remember the spirit of the season. Decide what matters most and keep it safely in the front of your mind.

I believe that the great leaders of all religions taught the same thing: Be nice. Be good. Do your best. Keep your priorities straight. Love another. Take care of the weak and feed the hungry. Do the right thing. We are all brothers and sisters, and what hurts one of us hurts all of us. Respect the Earth. At its best, Christmas embodies these concepts and gives us a season for embracing them.

Now, at THAT I can rejoice!

Happy Holidays!

Monday, December 20, 2010

total eclipse of the moon

If rain, clouds or fog don't obscure the midnight sky Monday night, a dramatic total eclipse of the moon will be well worth staying up late to watch - in the Bay Area and across the nation.
Lunar eclipses are by no means uncommon, but during this one the moon will be high in the sky, so it should be easily observable from everywhere, said Andrew Fraknoi, chairman of astronomy at Foothill College in Los Altos Hills.
"It's a really democratic event," he said, "because you don't need an expensive telescope or any other sophisticated equipment to enjoy the spectacle - just your eyes or, if you like, a pair of binoculars."
The moon is always full during an eclipse, and for astronomers, this one actually starts at 9:55 p.m. Monday, when the full moon enters the pale outer fringe of Earth's shadow, called the penumbra. The dimming, though, will be so faint it can't be observed by ordinary folk.
By 10:33 p.m., the moon's edge will move into the inner shadow of Earth, called the umbra, and during that time of partial eclipse, watchers will see Earth's shadow creeping slowly across the bright lunar surface. By looking closely, it's apparent that the edge of the shadow is actually curved, which to ancient Greek observers proved that Earth is indeed round.
At 11:41 p.m., the lunar eclipse will be total as the moon will have moved entirely inside the Earth's shadow. That sight can be spectacular: refraction of the sun's light by the
Earth's atmosphere will color the moon's surface unpredictably, and during past eclipses it has appeared a deep bronze or blood red or even a dark yellow.
Totality ends at 12:53 a.m. Tuesday, and the last of the partial eclipse finishes at 2:01 a.m.
Two Bay Area institutions have announced public events for the eclipse.
The
Chabot Space and Science Center in Oakland will be open from 9 p.m. to 2 a.m. for its Midnight Delight, rain or shine. If the sky is clear, visitors can watch the eclipse from the observatory's deck and through its major telescopes. A simulated eclipse will be shown in the Chabot planetarium, and astronomers will explain the event to visitors.
The
Lawrence Hall of Science in Berkeley will be open from 8 p.m. to 2 a.m. and will also offer a planetarium show, telescope viewing and explanations by astronomers and veteran eclipse enthusiasts.
On the Internet
Helpful
NASA video of the total lunar eclipse, along with animations and more information about the moon and the night sky, can be found at shadowandsubstance.com.
E-mail David Perlman at
dperlman@sfchronicle.com. Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/12/18/BAJ31GSALU.DTL#ixzz18fT57LJH

Saturday, December 18, 2010

AZ AG's Office sues B of A for loan fraud

Arizona sues BofA for alleged mortgage fraud
by Catherine Reagor - Dec. 17, 2010 11:37 PMThe Arizona Republic
Arizona's attorney general filed a lawsuit Friday against Bank of America, accusing the state's largest mortgage lender of deceiving borrowers who were trying to obtain loan modifications to keep their homes.
Bank of America violated the state's consumer-fraud laws by not responding to many homeowners' requests for help, rejecting loan-modification applications without supplying sufficient reason and beginning foreclosure proceedings on homeowners at the same time those borrowers were starting loan modifications, according to the lawsuit filed in Maricopa County Superior Court.


"BofA is abusing borrowers systematically," Arizona Attorney General Terry Goddard said. "It showed a blatant disregard for people's rights and practiced blatantly deceptive procedures."

Goddard's lawsuit follows a one-year investigation into the loan servicing and foreclosures practices of the Charlotte, N.C.-based lender, Arizona's largest mortgage holder and servicer. In 2010, nearly 500 consumers filed complaints against the bank with the state attorney general.
Goddard said in one case, attorney general investigators were able to prove the fax number BofA employees were giving customers to send in loan-modification requests and documents was a dead line.


Nevada's attorney general filed a similar lawsuit against the bank on Friday.

Goddard's lawsuit alleges the bank violated a previous consent judgment with the attorney general over mortgage-fraud allegations against Countrywide. BofA bought Countrywide in summer 2009. Later that year, the lender reached agreements with several state attorneys general to modify subprime loans made by Countrywide and to fund consumer-fraud-prevention efforts.

Goddard is calling for BofA to pay $25,000 for each violation of the consent judgment and $10,000 for each violation of the Arizona Consumer Fraud Act. Goddard said it's too early to place a price on the suit or any settlement. He said his office negotiated with Bank of America this week to try to reach a settlement before filing the suit.

Bank of America on Friday described the filing of the lawsuits as hasty.

"We are disappointed that the suits were filed at this time, however, because we and other major servicers are currently engaged in multistate discussions to address foreclosure-related issues more comprehensively," said Dan Frahm, a senior vice president for the bank, through an e-mail statement.

"Bank of America has been a cooperative partner with the attorneys general, has worked with state leaders to evolve programs and resources to broaden assistance to distressed customers," he said. "And we are already under way with further improvements to our processes and programs for Bank of America customers."

The Arizona attorney general's lawsuit describes the experience of more than a dozen Bank of America borrowers. One is Jeff Adams, who filed a complaint earlier this year with the Attorney General's Office over BofA's handling of his loan modification. He requested a modification on the mortgage for his Scottsdale home early last year. By October 2009, he said BofA had lost his paperwork four times, but his loan application was finally approved.

Early this year, Adams received a foreclosure notice despite making his payments on time. He called BofA and said he was told to keep making his payments and ignore the foreclosure notice. In July, someone from Fannie Mae knocked at his door and told him to move out because the mortgage company had foreclosed on it. Adams was able to fight and have the foreclosure canceled because no one had bought his home through the foreclosure auction.

"I felt like I was housejacked," he said. "I am making my payments but am still afraid that another foreclosure notice might come in the mail or at my door."

Goddard's lawsuit, if successful, won't provide compensation for Adams or other BofA loan holders who believe they have been wronged. Goddard said any damages paid by the lender would go toward the state's fund to fight consumer fraud. The lawsuit, though, could help pave the way for Arizona homeowners to file civil lawsuits against BofA, Goddard said. A successful settlement or lawsuit would establish bad practices by BofA.

Goddard said anyone in Arizona who feels he or she was treated unfairly by Bank of America through a loan modification or foreclosure proceeding should contact the Attorney General's Office at www.azag.gov. The lawsuits against Bank of America are the latest sign that homeowners and regulators are getting increasingly impatient with the banking industry.

Many metro Phoenix homeowners trying to avoid foreclosure through federally backed loan modifications are frustrated and angry with lenders over the problems with the process. Borrowers accuse several of the nation's biggest lenders of being unresponsive, requesting the same paperwork multiple times and making mistakes on paperwork and foreclosure actions.
The prosecutors want lenders to standardize their practices to reduce the chances of improper foreclosures and create a fund to help homeowners who have been foreclosed on illegally.Read more:
http://www.azcentral.com/arizonarepublic/news/articles/2010/12/17/20101217bofa-suit-mortgage-fraud.html#ixzz18TUUuePB

Thursday, December 16, 2010

5 tips before you list your house

It's resolution time, folks. Last week, we offered some immediate action items for those who want 2011 to be the year they become homeowners. By popular demand, this week it's sellers' turn! Whether you are simply trying to decide whether to sell your home next year, or it's been on the market before and you are trying to revamp your approach to get it sold next year, here are 5 things you can do during what's left of 2010 to position yourself for home selling success in 2011.

1. Reality check yourself . . . before you wreck yourself (and the sale of your home, that is). The age-old real estate advice to wanna-be sellers is to get real about pricing - and like my sweet Grandma's advice about always rinsing the cake batter out with cold water, never hot, the caution against overpricing is advice that will stand you in good stead. (And that cold water trick works, btw - rinsing with hot starts to cook the batter to the bowl! But I digress) Before you even get to pricing, though, first you should get real about what your goals really are. Why do you want or need to sell? And how badly - how important is it to you? What would it take to make selling make sense? If you even think you may want to sell your home next year, get clear on these items in your own head before you even talk to anyone outside of your household.

Your very next step is to look at your mortgage account statement online and find out what you owe, and find out what your payoff amount would be.

Get a reality-based idea of what your home is worth - by talking with several local real estate agents who have a strong, recent track record of succesfully selling homes in your area; these are the folks who'll have a strong idea of what recent sales are the most comparable to yours, and what a local buyer would agree to pay for your home, as well as what it might appraise at. If 3 agents give you one range, and one gives you a bizarrely higher number, be skeptical about the outlier; there are rare bad apples out there in the agent world who will tell you whatever it takes to get the listing. Get real and stay there - don't fall prey to the fallacy that your home is worth more than others, for no substantive reason beyond the fact that, well, it's yours.Then, move toward making a decision about whether selling actually makes sense for you. Whatever you do, don't let your mental GPS steer you anywhere near that fantasyland where all your plans for selling, moving, etc. rest on the hypothetical that you can get 25% more than your home's actual fair market value. That sort of magical thinking costs you and your agent the time, inconvenience and money it takes to try to conjure up a sale that just ain't gonna happen, and that doesn't even count the opportunity costs of other things you could be doing with those resources. If your home's current value is bizarrely less than you want or need to move on, consider a short sale and price it appropriately or consider staying put and sprucing up your home so it better suits your needs - but don't price it at your "wishful thinking" price and set yourself and your agent up for failure.

2. Figure out the lay of your local land. National blogs and media outlets offer all sorts of useful advice about whether, how and when to sell your home, but there's one thing that sort of advice cannot convey: what's going on in your local market. Ask questions and read blogs in your local market and start talking with the real estate brokers and agents from your area who are actively blogging, listing properties and answering questions. They can give you the hyperlocal essentials you need to knows. Sure, it's a buyer's market nationwide, on average. But if you live in Omaha, that may mean that homes sell at or near asking in 45 days or less; in Mesa, Arizona, your home could stay on the market 6 months and sell for 30% below asking. In my neck of the woods, it's not bizarre for homes to sell at 5 percent above asking, in two weeks - and that's still a buyer's market compared to the 20% above asking sales that were common in 2006. Every market is different, and you can neither know what to expect when you list your home for sale, nor implement smart strategies for getting your home sold without knowing what's going on in yours.

3. Tour nearby Open Houses. Your job, as the seller of your home, is to present a compelling package to buyers - compelling enough to make them sign away 30 years of their lives and the vast majority of their worldly possessions in exchange for your home (kinda ups the ante, doesn't it?). To do that, it helps to get inside the minds of your home's target buyers. And to do that, you need to think how they think and see what they see. Visiting the other homes your target buyers will also see online and/or in real life will give you a sense for how your home's price and condition will measure up to the competition. Go view other homes that are for sale in your area, making sure you see at least a few that fall into each of these categories: (a) properties in your neighborhood or similar neighborhoods, (b) homes in your home's general price range, all around town, and (c) homes that have similar numbers of bedrooms, bathrooms and square feet - no matter what the price. You'll likely end up seeing homes in a wide range when it comes to price and condition; know that your home, to sell, will need to beat these on one or both measures. Also, if you try to go to at least a few open houses, rather than just asking your agent to show them to you at your convenience, you'll also get a sense for what sort of buyer traffic you can expect from open houses, and you can even chat with those home's listing agents about local market dynamics and what factors they believe may help or hurt that particular listing.

4. Formulate a plan: in A-B-C order. Collaborate with your broker or agent to put an action plan in place. Make sure you address: list price, list date, showing arrangements and the property prep work (see #5, below) that your agent recommends you do prior to listing the place. To minimize the stress of a somewhat inevitably stressful experience (i.e., selling your home!), work with your agent on Plans B and C now, too! What is the average number of days a home stays on the market in your area before it sells (DOM)? (Hint: don't look at the ones that never sold, because you don't want to be part of that group!) Decide up front if your home sits on the market for X number of days with no offer, you'll lower the price to Y. Also cover alternative marketing plans/vehicles for your home, and even calendar when you might start to offer transactional incentives, like closing cost credits, interest rate buy-downs, throwing in personal property and even making reverse offers to buyers who have expressed an interest but can't seem to get off the fence. At some point along the timeline, include a pause where your agent can interview buyer's brokers who have shown your home to collect buyer feedback, so you can course correct your pricing, marketing or staging strategies accordingly.

5. Do your prep work - fix and pre-pack. If you are sure you're selling in 2011, and want to put your holiday vacay time to good use, make a list of all those little repairs you've been wanting to do forever, call up your neighborhood handyperson and get 'em done. Loose knobs and handles, double-hung windows that are painted shut, the frayed carpet on the steps, that broken bathroom tile - fixing those things can give your place just the patina and polish it'll take to compete with the ample, low-priced competition you'll have next year.It may be tough for non-distressed home sellers to compete with foreclosures and short sales on price. But one area where individual home sellers usually can best the competition is CONDITION! Your home can present to buyers in tip-top condition in a way that most foreclosures and short sales cannot. And this includes staging - most foreclosures will be shown vacant, and/or with the debris of the former owner's lives tragically littering the premises. Short sales are usually (but not always) a bit better, but are most often shown fully occupied, furnished and cluttered - just as the owners live in them, because of the distressed nature of the sale. As a non-distressed home's seller, it behooves you to ensure that your home's curb appeal is at it's best and that throughout the interior, the buyer is able to visualize the lovely life they can, scratch that, WILL live once they buy and move into your home. Depersonalizing and decluttering are essential to this staging effort; in fact, one wise Trulia Voices contributor tells her sellers to go ahead and start "pre-packing" - put most of the personal items that make your home yours in a box, like you're getting ready to move (which you are!) and leave your place in as close to model-home move-in condition as possible.
Carol Anne disagrees with this stance, saying that a "real" house sells better than a "model."

Monday, December 13, 2010

Funny. My last post was also from Freddie Mac, saying that interest rates are going up.

5 Predictions for 2011:

Freddie Mac analysts point to five features that they believe will likely characterize the 2011 housing and mortgage markets:

1. Low mortgage rates. With Fed observers expecting the central bank to keep the federal funds rate at its current target range of 0 percent to 0.25 percent for most (or all) of 2011, relatively low mortgage rates will be a feature of the 2011 mortgage market. Thirty-year fixed-rate loans are likely to remain below 5 percent throughout the year, and initial rates of 5/1 hybrid adjustable-rate mortgages will likely remain below 4 percent in 2011.

2. Prices have hit bottom. House prices are likely to begin a gradual, but sustained recovery in the second half of 2011.

3. Housing will remain affordable. With affordability high, many first-time buyers will be attracted to the housing market in the New Year, likely translating into more home sales in 2011 than in 2010.

4. Refinances will dwindle. Many eligible borrowers have already refinanced and the federal Making Home Affordable refinance program is expiring on June 30. While fixed-rate loans are likely to remain low, they will move up gradually, making it even less likely that refinances will be attractive to most home owners.

5. Delinquency rates will decline. Based on the last several business cycles, the share of loans that are 90 or more days delinquent or in foreclosure proceedings — known as the "seriously delinquent rate" — generally crests within a year of the start of the recovery in payroll employment, and this economic recovery appears to fit within that pattern. Payrolls began to rise last January, and by the spring the seriously delinquent rate had begun to fall.Source: Freddie Mac (12/09/2010)

Saturday, December 11, 2010

Mortgage Rates Jump to 6-Month High

Mortgage rates rose for a fourth-straight week to reach a six-month high as yields on government bonds continue to rise.

The average interest on a 30-year fixed loan hit 4.61 percent, up from 4.46 percent a week ago, Freddie Mac reported.
Also, 15-year fixed loans averaged 3.96 percent, up from 3.81 percent last week; and rates for variable adjustable-rate mortgages floated higher as well.

Source: Los Angeles Times, E. Scott Reckard (12/10/10)

Thursday, December 9, 2010

Home Buying checklist

There are lots of purchases that are highly prone to impulse buying: shoes on sale, puppies at the pound, and carrot cupcakes with cream cheese buttercream frosting come instantly to mind. (But that's just me.)

But houses? Not so much. Savvy, regret-free homebuying can take weeks or months of financial and lifestyle research and planning. If you want 2011 to be the year you become a homeowner, here are 5 things you should be doing, as we speak.

1. Minimize your holiday spending and save your cash. Instead of using the holiday sales to acquire a new winter wardrobe of cashmere sweaters, hold the discretionary spending down so you can give yourself the gift of homeownership! If you are serious about buying a home next year, don't run up additional credit card debt on gifts this year. Instead, make homemade cards or write holiday letters this year for everyone except the kiddos. And even for the kids, consider scaling back on the stuff, spending more of your time with them than your money, and getting started now saving toward your home purchase. (I don't think too many folks would argue that a less materialistic holiday season would hurt anyone, at any age.) Kickstart your 2011 homebuying resolution by starting a "Home" savings account at an high-interest, online bank (the discipline-boosting goal is a bank that isn't super easy to transfer funds out of when you run low on cash), and set up an automatic deposit into it every payday. To get specific about your savings goal, if you're cash-flush, obviously a 20% down payment will get you top notch interest rates and provide you with the maximum ability to manage your monthly payments. If you're going to be more of a bootstrapping buyer, an FHA loan might be right up your alley - they offer a down payment of 3.5% of the purchase price. All buyers should plan to have at least 3 percent of the purchase price saved up for closing costs, even if you want the seller to chip in. The lower-priced the home you want to buy, the more percentage points you should be willing to chip in for closing costs. It's easy for closing costs on an $150,000 FHA loan to run as high as $4,000 or more, considering transfer taxes, inspections, appraisals and mortgage insurance fees. So, even the scrappiest buyer should have a savings target somewhere around 6.5% of their target home's price. To buy a $200,000 home, for example, that would mean a savings target of $13,000. Local real estate and mortgage pros can help you clarify realistic "cash to close" expectations and savings targets for your area.

2. Research financing, areas homes, prices, agents and online. Smart homebuying takes a lot of research and knowledge-gathering. Since most buyers find it much harder to qualify for a mortgage than it is to find a home you'd love to live in, start with studying up on home financing and what it will take for you to get a home loan (note: FHA loans are preferred by the average homebuyer on today's market who has less than a 10% down payment, so start your research there). If you're considering relocating next year, now's the time to start narrowing down states, cities and even neighborhoods that may or may not work for you. Take into account the job market, housing and other costs of living, and income and property tax rates, as well as the critical lifestyle inputs that vary from state-to-state, like weather and whether the place is a personality fit for you and the life you want to live, be it urban sophisticate or outdoors adventurer. Also, start to develop a feel for home prices in a what-you-get-for-your-money type way, and start narrowing down the home styles and even neighborhoods that might fit your aesthetic preferences and lifestyle. If you're one of those rare buyers-to-be who is not already obsessively house hunting, hop on Trulia and start regularly checking out homes and neighborhoods, making sure to take advantage of the neighborhood ratings and reviews feature, which empowers you to surface what other folks think and say about an area.

3. Rehab your credit, if you need to. Go to
AnnualCreditReport.com and check out your credit reports - from all 3 bureaus - for free. (Note - these will not give you your credit score for free - that costs extra, but it will give you the actual detailed credit reports.) Audit them for errors and do the work of disputing inaccuracies to have them corrected. Pay particular attention to: accounts that are not yours/you never opened, derogatory information that should have "aged off" your report by now (i.e., 7 years for late payments, 10 for bankruptcies) and balances or credit limits that are inaccurate (i.e., your credit card balance is listed at $2500, but you actually only owe $250.) These are the errors most likely to foul up your financing, so follow the instructions each bureau provides to correct them, stat. While you're at it, don't close any accounts, even if you are able to pay some down or off - actually, check out these tips for getting the bank to give you the best possible home loan, without unintentionally making your score worse!

4. Run your numbers. In the past, some overextended homeowners complained that they felt pushed into a mortgage they couldn't afford. Pundits blamed that on the real estate and mortgage industry, but I have witnessed firsthand many a homebuyer push themselves or their spouses into buying too expensive of a home. Eliminate this issue entirely by doing this - run your own numbers, before you ever even talk to a salesperson or start looking at homes beyond your means. (I assure you, once you see the million dollar home you think you can afford, the $250,000 home you can actually afford will be underwhelming.) Get your monthly finances in order, and get a clear read on how much your monthly bills are - outside of housing. Decide how much you can afford to spend every month for housing, when you buy your home. Get clear on exactly how much cash you plan to have at hand to put into your transaction up front. When, in the next step, you begin working with a mortgage broker, you'll want to share these numbers with them, early on in your conversation, to empower them to tell you what home price you can afford - not based on their rubrics, but based on what you say you want to spend every month and what you want to put down.

5. Talk to a real estate and mortgage broker (1 of each). Call or email MIke or Carol Anne. We will give you timely, thorough responses to your questions, and communicate in a language you understand. Drop us an email, letting us know you'd like to work on putting an action plan together for buying a home next year, and would like to talk with us about what action steps need to go on the list. Ask us to brief you on the timeline of a transaction in your local market, and to point out for you things like when along the process you'll need to bring money in, when you'll need to miss work and come into their office or the closing office, whether we offer conveniences like digital document signing, and generally the local standard practices about which buyers you'll need to know.

Depending on your target home purchase timeline, we might even want you to take a spin and look at a few properties to reality-check your expectations or narrow down a broad wish list. In addition to chatting about timing your purchase vis-à-vis your other life events and plans for the year, make sure to ask for referrals to a local, trustworthy mortgage broker or two - preferably one that has worked with them and closed a number of transactions with our clients. (In fact, many busy real estate pros will want you to talk with their trusty mortgage partner before they get too involved in your planning process. You may think you only need a month to get ready to buy, but once the mortgage folks weigh in, it might turn out that you actually need a few.) When you do get in touch with the mortgage maven, if you're serious about buying, you will want them to actually pull your credit report, check the actual FICO scores that come up on their system and give you their professional recommendations for what final tweaks you can do to your debts to get your credit score where it needs to be.

Monday, December 6, 2010

Have you ever seen Australian Rules football? I don’t know why they include the word “Rules” in the name – as far as I can see there are no rules whatsoever. I love Australian Rules football. It’s a bunch of guys theoretically trying to get a football across the goal line, although usually they seem forget about the football entirely – they break often to have a fight. To my eyes, accustomed to civilized American football, it jut looks like one big brawl. There’s no padding, you don’t know who’s on which team, there’s lots of blood and cussing and sometimes they bite. It’s very different from what I’ve always been used to when it comes to football.

Representing a buyer on an REO or short sale reminds me a lot of Australian Rules football.

REOs, short sales, and auction properties comprise at least one quarter of the available residential properties on the market today. I was surprised at that number, 25%. I thought that it was higher – maybe 50 to 60%. I showed property the other day – out of the 7 properties, 2 of them were owned by “normal” people. The other 5 were foreclosures.

Knowing me as you do, you might be expecting a rant right about now. It’s not going to happen. I’m not going to rant, but I am going to ask us to adapt. If you or I (comfortable with how we’ve always done it here) decide to go to Australia and play football then we’d better learn how to play it in a different arena.

Like it or not, right or not, wrong or not, if we’re willingly going to The Land Of The Deal With The Bank then we’d better learn how their game works there. To come out of the first round of their game bitter and bloody and bitten, whining “They’re not playing fair!” is foolish, and is not representing our buyers. (Oh. “Bloody and bitten” comes from the bank’s asset managers, not our list agents.)

If we’re going to play on their field then we’re going to have to live with their rules or we don’t play. That’s how it is right now. Do I like it? It doesn’t matter. To spend our energy thrashing around instead of adapting to the new game and learning the new rules is a waste of time and is making neither progress nor money.

So what are the rules? That’s the problem. Each team (bank) makes their own rules. However, some trends seem to be in lockstep with all of the banks, so these I will take a stab at. I’m going to talk about REOs today. OMG! What the hell am I doing? I am going to get so nailed for this piece when all I’m trying to do is help. Oh, whatever. Nail away – I can take it.

Our time frames mean nothing to the bank. We can and should write “This offer must be responded to by Seller before next Tuesday the 7th at noon.” This way we have a valid offer with valid time frames. That’s all very nice, but the banks don’t care about our arbitrary time limits. (My favorite is when it takes the asset manager 3 weeks to respond and then demands a 7 day inspection period and a 10 day close. ~Snort.~) Warn your people that they shouldn’t expect a response quickly, and not to take it personally. The banks figure that when they finally respond to our offer we will either proceed (time for acceptance stipulations be damned) or we’ll go away. They don’t much care which one we do.

Now the back and forth of negotiating happens. Expect this negotiating to be verbals on the bank’s part. You will probably get emails or unsigned counter offers or phone calls from the list agent until you reach an agreement – then you’ll get the whole thing in writing in the form of the dreaded bank addendum.

Once you get the bank’s addendum, READ IT. Just as all REALTORS® are not the same, neither are all bank addendums. Some of them get grabby at the Buyer’s earnest money, some of them impose per diem penalties for delay in closing (no matter whose fault the delay is), some of them are just plain ludicrous. If we tell our Buyer to sign something without us thoroughly reading and understanding it first and then things get sticky over the language we’re going to look pretty stupid, and with good reason.

IMPORTANT THINGS TO UNDERSTAND ABOUT THE BANK’S PROCESS.
· The whole thing is totally unemotional on the bank and asset manager’s part. It’s business - pure dollars and cents. They can’t care that this was your childhood home, they can’t care that you love the house more than anything you’ve ever seen, they can’t care that this is your dream home. Show ‘em the money.
· The actual bank might never see your offer. The list agent uploads the pertinent info into the asset manager’s screen. The only thing that this asset manager sees is price, COE date, the amount of Seller concessions (Seller paid closing costs, Homeowner’s warranty, etc.) and the bottom line - what will the bank get when it’s all done? This asset manager can accept or kill a deal without ever consulting the bank. BTW – if the Buyer gets mad and calls the bank and says “Why didn’t you respond to my offer?” and the banker says “What offer?” it could mean that it was never presented, but it probably means that it died at the asset manager.
· Cash versus financing isn’t an issue.
· You will not get an asset manager or bank officer’s signature or a “REJECTED” or much of anything at all in response to your offer until and unless it is accepted. Acceptance is evidenced by the appearance of the Seller’s Addendum.
· If you end up in a competing offer situation and get a request for your Buyer’s “highest and best” it’s time to get serious. No more caginess, no more holding back. Get your Buyers to put on paper the highest price that they can stomach. The asset manager will choose which offer they want and either you win or you’re dead - Game Over.
· If your Buyers blew it at the highest and best stage they can still hang around as back-up. It’s the same story, though – you will not get a signature that puts you into iron-clad first back-up position. Hang and hope, that‘s what I say.

Title and escrow companies. Oh, what a bone of contention this is! Very simply, since the big banks are doing so many escrows they worked out a deal with their favorite title company for a volume discount. They used to like to insist that you use their title company or no deal. OK - cool, except that that’s a violation of RESPA and Fair Trade and Arizona State law. So now they say that they will pay the title company fees if you use their favorite. The Buyer is welcome to use any title company that they want, but in that case the Buyer will usually pay all title fees, both sides. Since Buyers think that all title companies are the same and they don’t want to pay all of the fees, we end up with a title and escrow in Far Away and a title officer that we don’t know, and who may or may not be competent.
You know what? Deal with it. Either your Buyer pays the fees (which they won’t want to do) or we work with the bank’s choice. Pick your battles – this is one that (in my opinion) is not worth the fight.

Once you get into escrow the battles that you and the list agent can (and have to) win will commence. The asset managers seem to all live together in a basement in New Jersey. They don’t understand easements or wells or septics or private roads and they don’t want to acknowledge our State mandated Affidavit of Disclosure. They also don’t want to understand that when they’ve accepted an offer that includes these items as a Seller’s expense they do have to deal with them. Instead, they want to throw up their hands and scream “As is! We won’t do it!” Or, “We don’t need any stinkin’ disclosure statements!”
The list agent goes head-to-head with them at this point and it’s usually fixed pretty quickly. If the list agent doesn’t win, tell them to tell the asset manager to consult with their legal department – that usually takes care of it. We might have to provide the statute for their legal department, since Arizona is so very different about a lot of these things.

Requirement for the Affidavit of Disclosure can be found at www.azleg.state.az.us/ars/33/00422.htm
Requirements for certification and transfer of septics (cost is negotiable in contract):
www.azdeq.gov/environ/water/permits/download/septictank.pdf

Let’s talk about the agents who specialize in listing foreclosures. Most of them are doing their best to do a good job in a tough niche. REO list agents are bound by Article 1 of the Code just like everybody else – if the instruction from their client is lawful then they have to do what they’re told, so don’t shoot the messenger. That said, yes, I repeat, REO agents are just as bound by the Code of Ethics and Arizona law as anybody else. Just because the banks don’t want to follow the rules doesn’t mean that their agents are bullet-proof. Forgive them if they’re having an unmannerly moment – maybe you’re the 40th person to yell at them so far today and it’s only 10 AM. (No, it’s not ever OK, but if it’s just this once try to forget about it.)

I spent my Wednesday at another Association of REALTORS® sitting on a Professional Standards panel. The Respondent (the guy defending himself) is primarily an REO list agent. This whole process just bit him. The Complainant/Buyers did not believe that he had presented their offer on his listing, since there had never been much traditional-type response from the bank. We (the panel) knew that he had presented the offer because the bank issued a “highest and best.” The buyers dinked around and didn’t get the house and were mad. I wish that this list agent had kept all communication with the asset manager to email, and saved his “sent” emails. Even better, there is a little button at the top of my keyboard. It says “print screen.” I can’t get it to “print screen” (Maybe Mary knows how?) but if it does capture the image of what I’ve just done (like upload an offer) this will be an awesome CYA. If I was an REO agent I’d sure as heck learn how to make it work, I would email copies to everybody involved, and I would keep the “printed screen” in a file somewhere until the statute of limitations runs out.

Yes, List agents must disclose the existence of accepted offers by changing the status in MLS. When I call on an active listing and am told “We have an accepted offer, 2 back-ups, and 6 more in the wings but we’re leaving it active so that we can collect a few more,” I get mad.

List agents must also present all offers. Just because “it will confuse the bank and delay closing” is not an excuse to bag somebody’s offer. The only time that it’s permissible to sit on an offer is when you’ve got a letter from the Seller instructing you not to present anything after the property goes into escrow, and even then I’d let them know about it, anyway. (I am NOT talking about short sales. If during a short sale the Seller says “Don’t let the bank know about any other offers” that could be construed as mortgage fraud. I’m just saying.)

There you go. As a NON-REO agent, I did my best. You foreclosure list agents out there, thank you so much for consulting, and I look forward to your kind and constructive feed-back. If I got anything really wrong I will happily print a clarification next week, so let me know. It would be good if you start out with “thank you.”



Saturday, December 4, 2010

Banks favor foreclosure

Banks favor foreclosing over altering home loans
by Laurie Roberts, columnist - Dec. 4, 2010 12:00 AMThe Arizona Republic


Hannah Swearengin and I are walking around her cozy north-central Phoenix home on Thursday, and she is describing what it feels like to live there these days.
"Terrible stress, just terrible stress," she says. "I have, like everybody else, worked hard all my life. I raised and educated four children, one with special needs. I've never asked anybody for anything. I never thought at this time in my life that I'd be in this position, ever."
Swearengin is in good company. Close to 200,000 Arizona families are believed to be behind on their mortgages. By month's end, more than 50,000 will have lost their houses this year, as banks foreclose and sell them for a song.
OAS_AD('ArticleFlex_1')

When that happens, the Swearengins of the world will be out and their neighbors will be left an empty eyesore, plus an average $22,000 hit to the value of their own homes, according to the Center for Responsible Lending. Meanwhile, the banks or whoever owns the loans will have bigger losses in many cases than if they had just worked with the struggling homeowner.
So what gives?
"I wish I knew," said Attorney General Terry Goddard, who is asking the Legislature to adopt a Borrower's Bill of Rights that would force banks to treat customers more fairly.
"They're hurting themselves. They're hurting their investors. They're hurting their credibility going forward, bottom line, by essentially trashing these assets. Every house that gets sold on the courthouse steps in this economy is a fraction of its value. All of us take a hit."
Swearengin, 68, has owned a home for most of her life and says she had never missed a payment until February. Her struggles began in late 2008 when she fractured her back and was unable to work, assuming she even could find work given that she's a Realtor in one of the nation's worst real-estate markets. For much of the past two years, she's lived on her savings, and the drain only increased in late 2009 when she was hospitalized with kidney failure.
By January, it became clear that she wouldn't be able to keep up with the $1,700 monthly payments on her $225,000 mortgage. So she called CitiMortgage, hoping to work something out, only to be told that she had to miss three payments before they could even talk about it.
She's now missed 11. She's faxed and re-faxed documentation of her situation. She calls every few days, never speaking to the same person twice. And still she waits to hear whether the bank will modify her mortgage. At one point, she says, the bank told her that it might be able to cut her payments in half by extending her loan to 40 years.
But since then, she's heard only silence, and her home is due to be auctioned off on Dec. 30.
CitiMortgage declined to discuss Swearengin's loan, citing privacy, but it offered a general comment. "The modification process involves submission of financial documentation, which must be updated and refreshed at certain points," wrote Mark Rodgers, CitiMortgage's director of public affairs. "If any required documentation is missing, the modification may not proceed. Variations in the borrower's financial circumstances, such as changes in income, also have a direct bearing on eligibility for permanent modifications. We are looking into this case and will work with the homeowner to explore potential solutions to avoid foreclosure."
This is, of course, what all the banks say, right up until the moment they foreclose and sell your place for a fraction of what it's worth.
In fact, the practice is so prevalent that this week, U.S. Acting Comptroller of the Currency John Walsh told the U.S. Senate Banking Committee that he's directing the big banks to suspend foreclosures for borrowers who are actively seeking loan modifications.
So who's responsible for putting people like Hannah Swearengin and Hazel Nitis - the cancer patient whom I wrote about earlier this week - out when it appears each could stay put if given a modification?
Banks blame the investors who own the loans.
But two of the biggest - Freddie Mac and Fannie Mae - pointed right back at the banks that service the loans, in testimony before Congress this week. "Servicers are required under our servicing contracts to help borrowers in trouble, not just collect payments," said Terence Edwards of Fannie Mae.
But a local real-estate attorney tells me that there's a financial incentive for the banks to foreclose rather than modify.
"At a foreclosure, they get all the fees, they get all the late charges. They get all their lost money off the top," said attorney Robert Nagle. "They don't want to reduce principal, because it's like your investment portfolio: They charge you 1 percent based on the amount they're managing. So if they start giving everyone reductions, their fees are going to be less because they're not managing as much."
Swearengin isn't even looking for a reduction of her principal, just an extension of her loan and perhaps a lower interest rate to bring her payments to a level she can afford.
The alternative is obvious. All you have to do is look at the foreclosed house next door. It's not hard to spot. It's the albatross at the end of the block, the weed-ridden mess surrounded by homes with neatly trimmed lawns ... for now.
Reach Roberts at
laurie.roberts@arizonarepublic.com or 602-444-8635.Read more: http://www.azcentral.com/arizonarepublic/local/articles/2010/12/04/20101204bank-foreclosures-roberts.html#ixzz17AIR29bj