Archive | September, 2009

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FHA’s 203(k) Program Great for Foreclosures

Posted on 26 September 2009 by Carl Martens

An often overlooked FHA loan  will allow buyers to not only purchase foreclosures but it will also pay for repairs and upgrades.

The FHA’s 203(k) program has been on the books for decades but over time it’s been rarely used. That’s changed recently, in part because the program is ideal for many foreclosure buyers.

With the 203(k) program buyers can get financing to purchase or refinance an existing home (it has to be at least a year old) plus additional dollars to fix it.  The construction money is provided in draws as the repair work is completed after closing.

This program, of course, works perfectly for foreclosure buyers because it covers both the cost of acquisition as well as the expenses that may be required to improve the property’s condition.

In order to qualify, buyers must reside in the property…therefore it must be a personal residence or an investment with multiple units and the buyer must reside in one of those units.

A benefit of the 203(k) program for those wanting to repair a home is that they can use one loan vs two which keeps the overall cost cheaper as there is a single settlement and thus only one set of closing costs, origination fees, taxes, etc.

Not all improvements can be financed under the program and the maximum available for repairs in $35,000.

For more information regarding the 203(k) program, contact us and we will put you in touch with one of our preferred lenders specializing in this program.

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Patience is Key with Short Sales

Posted on 26 September 2009 by Carl Martens

A short sale means a home sale that falls short of the amount owed on the mortgage. Short sales happen when the seller can’t come up with the cash to pay off the difference and the lender agrees to accept less than what is owed on the mortgage. Most important, though, is that they can happen only when the lender agrees to accept the shrunken payoff.

Desperate sellers pursue them to avoid a foreclosure, buyers pursue them in hope of snagging a home at a significantly reduced price.

It is important that you work with a Realtor who is a Certified Distressed Property Expert because you could end up wasting your time.  Short sales are tricky and it is important to gather some intelligence about the sellers, their financial situation and the Realtor they’ve hired.  Sometimes a short sale may never get the lender’s approval, thus it is important to only focus on those that have the lender’s approval.

Lenders aren’t in the business of accepting less than they are owed.  Their approval of a short sale is always slow in coming — if it ever comes at all.  It is important to learn whether or not the bank knows the seller is trying to sell their home as a short sale.

Too often, sellers and their agents are calling a listing a “short sale” or saying that “offers are subject to third-party review” without even having talked with the lender.  They plan to get a live fish on the hook before they try to tempt the lender.  Do you want to be that fish?

When the homeowner cannot come up with the cash to pay their mortgage, the homeowner’s pain becomes the lender’s problem. The lender’s options are either to agree to a short sale and forgive the unpaid debt, or to foreclose on the home and re-sell it.  This is a choice the lender makes, not the seller.

There are lots of things that can derail a short sale.  Lenders lose a lot of money when they foreclose, the payout from private mortgage insurance could reduce that loss enough to make the lender choose foreclosure.

Lenders holding second mortgages, such as home-equity lines of credit, can also kill the sale. Second-mortgage lenders are supposed to be at the back of the line to collect loan payoffs, but they can nix a proposed short sale if they don’t think they’re getting enough out of it.

If you try to buy a home through a short sale, be prepared for the deal to fall apart. Don’t spend money on appraisals or inspections until you have received some sort of commitment from the bank. You certainly don’t want to give notice to your landlord too early. And keep looking for other, easier deals, just in case one takes too long or falls through.

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Georgia Unemployment Rate Higher Than National Average

Posted on 17 September 2009 by Carl Martens

georgia unemployment lineGeorgia’s unemployment remains higher than the national average of 9.7 percent for the 22nd consecutive month.  The state’s current unemployment rate is 10.2 percent.  Last year in August the state’s rate was 6.4 percent.

According to the Georgia Department of Labor, Georgia’s work force has shrunk by 79,039 to 4.74 million people since last December.  The number of unemployed workers has doubled to 481,488 from 244,962.  The number of jobs has declined by 314,100 to 3.87 million.

Health care and private educational services improved, adding a combined 13,400 jobs.

Until the unemployment rate starts to improve we will continue to see a plethora of short sales, foreclosures, and REOs.  With mortgage rates extremely low and homeowner’s and bank’s willing to negotiate now is the time to purchase a home for investment purposes as well as primary residence.  Contact us if you would like to learn more about the available distressed homes on the market.

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The Importance of Frist Time Homebuyers

Posted on 15 September 2009 by Carl Martens

The recovery of the real estate market depends on first time home buyers.  Not only do they represent a large number of sales, but without them there would be no move-up market.  Current homeowners would not be able to move-up if they can’t sell their current homes.

HUD now says that first time homebuyers who qualify for the federal tax credit can apply as much as $8,000 to the down payment when financing a home with a FHA loan.  FHA currently requires that buyers make a minimum down payment of 3.5 percent of the sales price of the home…this means that a first time homebuyer can borrow as much as $228,500 and buy with no money down!

Four important things to keep in mind:

  1. You don’t qualify if you have owned a home during the three years before you plan to purchase.
  2. You must close before December 1, 2009
  3. Your income must not exceed $75,000 if single and $150,000 if married.
  4. You can’t use the credit against the down payment from just anyone, it must come from state housing agencies or certain non-profits.

If you are a first time homebuyer the time to act is now.  A closing by December 1st, 2009 means you ought to have a contract written by November 1st, and to write a contract you ought to begin looking for homes in September and October.  Even if you were to follow this schedule you may still be cutting it close.  ACT NOW and contact us!

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Home Foreclosures Continue to Creep

Posted on 11 September 2009 by Carl Martens

Nearly 10 percent of Georgia mortgages were past due in the second quarter, according to the Mortgage Bankers Association.  Making Georgia one of the highest delinquency rates in the country.

And the number of properties scheduled to be auctioned on the courthouse steps Tuesday hit 9,930 for a 13-county area of metro Atlanta, according to Alpharetta-based Equity Depot.  That’s the third highest total on record, according to Equity Depot.

Last year, scheduled foreclosures never broke 8,000. This year, the total has exceeded 8,000 in every month but one, according to Equity Depot data.

In August, Gwinnett County led the pack with 2,120 foreclosure notices. It was followed by Fulton (1,929); DeKalb (1,571); Cobb (1,107); and Clayton (785).

If you have a question about foreclosure or how to avoid it by short selling your home, please submit it below.  One of our Certified Distressed Property Experts will contact you.

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Taxing Short Sales

Posted on 08 September 2009 by Carl Martens

Many Realtors are unaware of the tax liabilities associated to a short sale and thus their clients aren’t always advised.

Whenever real estate is sold, whether in a standard transaction, a short sale or a foreclosure auction, there are potential tax consequences for the seller.  Although a house might sell for less than what is owed, the seller may still owe taxes, both in the form of capital gains on the home and on the unpaid portion of the mortgage.

With a short sale, the lender has three possible ways to handle the deficiency balance, which is the portion of the mortgage debt not covered by the sale of the home. First, the lender can attempt to collect the deficiency balance from the seller after the property has closed. Second, the lender may require the seller to sign an unsecured promissory note for the deficiency balance as a condition of agreeing to the short sale. If the new note is for less than the balance of the original debt, the difference would be considered canceled, or forgiven, debt. Third, the lender may agree to cancel the entire deficiency balance.

On the surface, option three would be seem to be the best alternative for a seller. However, the IRS considers any canceled mortgage debt ordinary income. This means that the amount forgiven is taxed at the same rate (somewhere between 15 percent and 30 percent) as the sellers’ salaries. In addition, because the IRS requires the lender to file a 1099-C form stating the amount of the canceled debt, the government will have a record of the exact amount of the debt that was cancelled. A seller will also receive a copy of the 1099-C to use in filing income taxes. The seller’s home state would also consider the cancelled debt as ordinary income.

4 Exceptions to the Rule

  • When the borrower receives a bankruptcy discharge and the deficiency was included in the bankruptcy
  • When the borrower is insolvent at the time of the cancellation of the debt. Insolvency would occur when a borrower’s liabilities exceed assets. Note that seller would have to prove this insolvency to the IRS when filing a tax return.
  • When the debt was secured by a nonrecourse loan. Under a nonrecourse loan, the lender does not have the legal right to collect a deficiency judgment from any assets of the debtor not pledged to secure the loan. While most home mortgages are do not fall into this category, purchase money loans on a person’s residence are nonrecourse in some states.
  • When the tax liability from the cancellation of debt on an investment property can be offset against other business liabilities and expenses. This exception does not apply to properties occupied as a residence by the mortgagor.

In many short sales, a seller would be able to qualify under the first two of these exemptions, especially since it was almost certainly necessary to show financial hardship in order to convince the lender to agree to a short sale. However, it is the seller’s responsibility to notify the IRS why the amount in the 1099-C should not be counted as ordinary income. Otherwise, the IRS will consider the forgiven debt as income and penalize the seller for unpaid taxes.

It is best to consult with an accountant or tax professional to learn what potential tax issues you may face.

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What’s the Difference Between a Foreclosure and a Short Sale?

Posted on 04 September 2009 by Carl Martens

What’s a Foreclosure

Foreclosure is the process whereby the lender takes possession of the property.  A foreclosure terminates all rights of the homeowner covered by a mortgage.  Foreclosure is the process in which the estate becomes the absolute property of the lending institution.

When a homeowner fails to make the payments on their mortgage, the lender can begin foreclosure proceedings. This is a very specific legal process with set timelines and outcomes. In a Short Sale situation, the home owner’s name is still on title of the property and they are the official owners who are trying to sell the property. In a foreclosure, the lender takes possession of the house and as a result, the homeowner is no longer a party in the sale.

Foreclosure my pose potential problems such as: Title problems, Superior loan pay offs, IRS liens, tenants or owners still occupying the property, and/or structural problems.

What’s a Short Sale

Short sales occur when the current value of the home is less than the debt owed to the lender.  It occurs when a lender agrees to take less than the full loan payoff from the homeowner. The seller must demonstrate to the lender that they have a financial hardship and are unable to fulfill their mortgage repayment obligation.  In most cases, the owner is in default and is not making their payments for whatever reason.

Short sales, in most circumstances, are the first step to avoid foreclosure. Although the lender(s) will recover less than the total loan amount in a short sale, they may prefer this in lieu of foreclosure. The costs of foreclosing on a property may be more than the bank’s loss by taking a short sale. Also, the property may not sell at auction and then the bank would be forced to take it back as an REO (Real Estate Owned) property, which then they would have to maintain, list and sell themselves.

Something to keep in mind, the lender is under no obligation to grant a homeowner a short sale and in most cases it can be a frustrating process to get approved for one.  A Certified Distressed Property Expert, however is trained to help you with the process.

Banks are overwhelmed with short sale requests and the approval process can take months. Each bank evaluates each individual request on a case by case basis. Many times there is more than one lender involved. Not only do the banks consider the borrower’s personal and financial situation, but they also consider an appraisal of the property, market conditions, the banks financial situation, their current portfolio and in many cases have to consult with an outside investor who purchased the loan at some point. Given all of these varying circumstances, you can imagine why this process takes so long.

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