Thomas Merical

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Success With Short Sales

01-01-09

Success with Short Sales
by Phoebe Chongchua-Realty Times

It may truly be the choosing of the lesser of two evils -- short sale or foreclosure -- but, if you have to get out of your home, finding a way to complete a successful short sale may provide the best outcome for a distressed homeowner.

Since I've covered short sales in previous columns, see Short Sale: May be Solution for Delinquent Homeowners, I am not going to focus on what they are but rather how to make them successful. Short sales are typically more difficult than a regular real estate transaction but they are better than simply walking away from a home and letting it foreclose.

These days, with foreclosures and short sales comprising nearly 40 percent of recent home sales, the National Short Sale Center (NSSC) is receiving more than 3,000 calls per month from homeowners across the nation. The company has already handled more than 1,000 short sales in all 50 states.

Nearly 12 million homeowners are upside down with their mortgages -- owing more than their home's value -- and the number is growing. It's estimated that number will increase to 15 million within a year's time.

Travis Hamel Olsen and some partners opened the NSSC a few years ago. He says the short sale is a "win-win" situation. The bank ends up losing less money than if it ended up taking back the property and the homeowner's credit is not damaged as much as from a foreclosure.

But the short sale process is not easy or financially pain-free. Some lenders will absorb the difference between what the outstanding mortgage is and what the home sells for in a short sale. However, other times the lender will seek to collect the difference from the homeowner.

If you're considering a short sale, here are some tips that you should consider.

Get expert help.

This is a must. Short sales are difficult and negotiating through the process can be very stressful. You need guidance and the best available information that you can find. "There's no charge for our services to the homeowner," says Travis Hamel Olsen, President of National Short Sale Center. That's because the NSSC is paid by splitting commission with the listing agent and the lender pays the company a closing fee that is authorized by the homeowner. For those fees, the company will help the homeowner navigate through rocky waters. "We will guide the homeowners, letting them know all the documents that they need to collect for their specific lender," says Olsen.

Start the process as soon as possible.

Contrary to what some homeowners believe, you do not have to be delinquent to start or complete a short sale. "Don't sign title over to anybody else to conduct a short sale for you," cautions Olsen. He adds, "A lot of people will sign the deed of the property over to somebody to negotiate the property -- that's not needed."

Submit a hardship letter.

Even though you'll utilize the services of expert agents and short sale specialists, you'll still need to do your part to help convince the lender that the short sale is the best outcome for all. The hardship letter explains to the lender why it is impossible for you to pay the full amount of the loan. It demonstrates your true financial hardship. Experts say you have to be careful if there is a big gap between your current income and the income you used to get the initial loan to buy the property. A large gap could point toward possible mortgage fraud, unless your financial circumstances have drastically changed.

Price the short sale competitively.

Usually, it's best to price the property at or near market value. Keep it competitive says Olsen. He says a lot of people want to list the property at what the debt is but that is not usually successful. The good news is that Olsen says banks are more willing to negotiate. "We are seeing more approvals and consequently more closings every single month," says Olsen.

The short sale can be a lengthy process, have, patience, quality experts on your side, and stay on top of what is needed from you to help close the deal. For more information on short sales visit: shortsalecenter.com.

Published: December 19, 2008

Thomas Merical

What's In, What's Out for Home Buyers in 2009?

12-31-08

What's IN

Sidelined home buyers. Family or lifestyle additions or changes made in buyers households in the last three years are forcing those waiting out the market transition to finally get off the fence and say, it's time for our family to buy the new home that suits our new needs.
Home uplifts. Not a big renovation, but some new finishes that can visually holdover stay-put home sellers. Not a gut rehab to the studs new kitchen, but new flooring, countertops and appliances.
Collaborative home pricing. The old days of home sellers configuring a homes price are out. What's new is that the seller with their agent look at closed comparables, set a price, then the buyer and their agent agree or disagree, but in the end, a mortgage lender and their appraiser will set the price, as they are assuming the most risk in the transaction.
Balanced reporting by real estate and personal finance journalists. Consumers learned in 2008 that the 'doom and gloom" residential real estate market headlines don't apply to all markets. What's been lost in the foreclosure hype is that there are still stories of homes selling in short market times (in as little as 3 days), homes selling at full price and some selling with multiple contracts on the table. Existing home sales will be 5.02 million versus 5.652 million for 2007, a decrease of just over eleven percent, considerably less that the recent correction in the U.S. stock market, plus a realistic view that over five million people purchased a home despite the headlines in 2008.
Creative home seller financing. Exhausted home sellers are turning to self-financing to move properties. Installment sale contracts and lease to own are the most popular and effective ways for sellers to begin to receive income from a property that has languished on the market in 2008.
Real estate agents as a housing resource not a salesperson. New-age real estate agents help consumers through the home sale or purchase process which takes a skilled agent who is not driven by sales, but by providing resources to help the consumer determine if they should buy or sell a home. Home ownership is not for everyone. Factors such as a job move in 3 years or less, marginal credit and lack of interest in home maintenance can be reasons for a resource-driven agent to advise their client not to buy.
Property tax appeals. With home prices dropping, many savvy home owners are appealing their property taxes. This is especially attractive to those looking to sell their home in 2009. With a competitive marketplace, those with the most realistic taxes are more likely to offer buyers an overall lower expense in home ownership.
House therapists. Divided partners in a home are increasingly relying on an independent third party (house therapist or coach) to bring household relationships to common ground on such prickly issues such as to stay or move, how much to spend on remodeling or decorating, or spending nothing at all. Third parties can outline the benefits and pitfalls of over-spending on a new larger home or weighing in on a spouses desire to over-improve for the neighborhood. With less equity and with the financial stakes higher smart couples hire a home therapist to wrangle concessions and agreements out with their significant other instead of doing damage to their relationship by going head-to-head with them.
Architectural overhead garage doors. After years of bland vanilla garage doors, the architecture has permeated the door most people look at the most. Traditional styling has arrived with mullioned windows, faux wrought iron hinges and latches that provide the original non-overhead garage door look. Contemporary looks now include the adjacent siding applied over the door for a seamless look, much like the panels installed on refrigerator doors to complement cabinets in a kitchen.
Loveseats. A pair or trio is gaining acceptance as the functional way to rearrange a living or family room. Consumers appreciate the ease at which they can rearrange them, move an extra one to another room, or provide long-term furniture flexibility in future homes. Plus, they're tired of sitting miles away from others on over-sized sectional sofas.
The master bed as a throne. With consumer spending down and more nesting at home, home owners are focusing on making their bed like an at-home luxury hotel experience. Posh linens, pillows and mattresses create a getaway without leaving home.
Older war-horse appliances. Collectable, working appliances form the 1940's through the late 1980's have found a new niche among homeowners who appreciate their rock-solid construction and durability. Harvest gold double ovens from the 1970's have been repainted a metallic red and go from boring to bold. Cold spot refrigerators from the 1950's refinished in sky blue perks up the butler’s pantry in suburban home. And, the early 1960's dryer that looks like it's from a Jet son house painted pink to match punches up the in-unit laundry room in a condominium.
Dining chairs that don't match. With consumers watching their non-essential spending closely and electing to stay home to entertain friends, many have found a quick pick-me-up for their dining room suite, mismatched pairs or single chairs. Feedback from friends or family has been favorable to this easy and cost effective way to say welcome to my cutting edge table.
Obama era paint colors. President elect Barak Obama will add a fresh, younger and forward-looking feel to residential interior paint decor in the spaces at The White House where he and future First Lady Michelle have a say. Look for parchment whites, cashmere yellows, bright optimistic blues and radiant gold’s. Depressing Bush era colors such as plum, chocolate brown, rusty mustard and pale sage will gladly be replaced by more optimistic colors in American homes.

What's OUT

Fixer-upper homes. With larger down payments required by mortgage lenders and consumer credit cards mixed out, home buyers want a home in move-in condition. The DYI days are on the wane as buyers want to inherit new kitchens and bathrooms.
Foreclosure fluff. The foreclosure rate nationally in 2008 was just under 3 percent. In the Great Depression it was just over forty-percent.
Home buyers endless "circling" prospective short-list properties. Overly optimistic thinking by buyers to circle a preferred property indefinitely, often for months, waiting for further price reductions or to wear out long weary sellers. This practice has backfired for buyers who practice this style of pre-negotiating. They often loose their short-list dream home and frustrate savvy price-right sellers. Ditto the bottom-feeder buyers.
Real estate agents that started career in the boom. It was easy for any new real estate agent to have instant clients during the boom years. After all, they thought the business was about order (contracts) taking. Now they've realized they didn't build a long-term client base during the boom or acquire knowledge about servicing client’s needs in a not-so-easy market.
Home staging. A recently over-used low cost marketing band-aid for vacant or occupied homes with longer than normal market times. Buyers have said enough of the non-professional usage of assorted leftover props placed around a for-sale home to make it supposedly homey. Buyers say, market it as it is and clear out the tired silk flowers and stale potpourri.
Indoor-outdoor carpet. The staples of quick-fix home sellers for basements, balconies, screened porches and lanai’s, buyers have said enough. Many have told agents that inexpensive indoor-outdoor carpet is visual pollution and often masks flaws in a home.
Track lighting. Thought of by homeowners to be a quick way to get an art gallery look, many prospective buyers usually take them out and discount their appeal. As one Gen-X home buyer said to me "Why do sellers install them up when they don't really have any interesting artwork or architectural features to spotlight? They bring undue attention to nothing."\

Published: December 31, 2008

Thomas Merical

Washington Report (12/29/2008): New Congress and Fannie Mae

12-29-08

Washington Report: New Congress and Fannie Mae

by Kenneth R. Harney

www.RealtyTimes.om

The Obama administration still has three weeks before taking over in Washington, but the new Congress arrives in town much earlier - January 6th.

Besides a massive economic relief package -- which is expected to cost anywhere from $800 billion to $1 trillion and focus on job-producing projects like repairing roads and building bridges - there's another key item on the agenda: What to do with Fannie Mae and Freddie Mac.

Both companies are mainstays of the U.S. home real estate market, accounting for more than half of all new mortgages. But both have come to financial grief and are operating under "conservator" arrangements run by the federal government.

That's not technically bankruptcy reorganization, but it's pretty close.

Given Fannie's and Freddie's importance to housing and the mess they're in, Congressional Democratic leaders have already begun discussions on what to do with them.

Unlike the last Congress, where Democrats ran the committees but didn't have the votes to overcome Republican opposition in the Senate, this year they pretty much can rule the roost.

So the ideas they're discussing now have special importance for home buyers, sellers, builders, Realtors, investors and others involved in real estate.

Here's a quick overview of some of the possibilities:

One option is to combine the two companies into a single financial entity. After all, they both perform similar functions, so why do we need two?

A second option is to slice off the public-service functions of the companies -- support for low and moderate income single and multifamily housing -- and turn them into some form of federally-controlled corporation.

At the same time, the purely private market operations of the companies could be spun off and sold to private investors. Here we're talking about buying mortgage bonds and loan pools from banks and other lenders, and trading them.

According to the Washington Post, Lawrence Summers, the former Treasury secretary who's slated to be President Obama's chief economic adviser, favors cutting Fannie and Freddie into purely private and public pieces, with the federally-controlled portion assigned the job of guaranteeing mortgage bonds to keep money flowing into the home loan sector.

Still another concept under discussion would to turn Fannie and Freddie into public utilities. That means they'd be like the electricity and water companies -- privately-run but serving essential public purposes and heavily regulated to make sure they do what they're supposed to.

Wherever Congress comes down on all this, one thing's for sure: Fannie and Freddie are going to look and perform very differently, sooner rather than later.

For taxpayers and borrowers, that probably will be a good thing.

Published: December 29, 2008

Thomas Merical

Don't Miss Tax Deductions on Your Real Estate Investment

12-26-08

Don't Miss Tax Deductions On Your Real Estate Investment

by Phoebe Chongchua--RealtyTimes

There are an estimated 11 million real estate investors in the U.S., according to IRS data. However, not all of them chose to be a real estate investor. Some accidentally became investors due to market conditions.

"There are people who have bought property for flipping and now they're kind of stuck with them and in some markets they can rent them," says Narinder Sandhu, founder of T-ReX Global.

It's this group of people that could be losing money, especially if they aren't aware of how best to manage their real estate investment.

"One of the most important things in real estate investment is taking advantage of all of the tax benefits that are available to [investors] and the write-offs," says Sandhu.

Sandhu says that real estate has numerous tax benefits, but many investors miss out on the tax-saving advantages because they are not prepared to properly track their investment.

"In order to take advantage of all those benefits you really have to track your income and expenses," says Sandhu.

His company T-ReX Global was started to help real estate investors not lose out on money. The former VP of the Small Business Division at Intuit (The makers of Quicken, QuickBooks and TurboTax) says he saw a niche market that needed help.

"It's a very simple application. It's like Quicken but is designed specifically for real estate investors and it's an online application whereas Quicken has been a desktop application," says Sandhu.

The program helps investors make sure they don't miss out on money-saving opportunities. "It allows you to track your income. It also gives you a lot of write-offs that most people miss," says Sandhu.

Sandhu says the program takes very little time to get started and only minutes each month to track your property's income and expenses. Another added benefit is that the program produces a rental property Schedule E form. For more details visit, trexglobal.com.

Sandhu says no matter which program you use to manage your real estate investment you should look at these five areas to make sure that you're not losing money on your real estate investment.

Take advantage of depreciation deductions. "You can set up depreciation expense in such a way that you can either write-off all the value over 27.5 years or you can go in and look at the assets within the property that are short-life [depreciation expenses]," says Sandhu. Basically, the IRS allows real estate investors to choose to use an accelerated depreciation method which can result in costs being recovered at twice the rate applicable to the real estate property if the 27.5-plus-year deduction were used. "IRS statistics show that only 13 percent of investors take advantage of the short-life [depreciation expenses]," says Sandhu.

Keep track of travel to property. "Make sure you have all the accounting for that so that your travel to and from your property can be a written-off," says Sandhu.

Tax preparation. "Most people don't realize that the cost for the preparation for the Schedule E, which is the rental property form that you have to fill out, can be written off.

Document repairs versus improvements. "Repairs are something that if you go in [to your rental property] and fix it, it can then be expensed in the same year," says Sandhu.

Casualty or damage to property. Sandhu says, "If there has been rain and a storm came in and blew your fence away, there's a casualty expense that you can write-off that year.

Published: December 26, 2008

Thomas Merical