Oswaldo "Wally" Torres, Your Friend in Real Estate!

As one of the few Featured Agents™ for New Port Richey on the #1 real estate site1, REALTOR.com®, I provide home sellers with a unique marketing system that can increase demand for your home. As a Featured Agent, I am prominently displayed to the over 5.7 million consumers who visit the site per month,¹ and I am able to utilize my marketing skills to make your property stand out and create substantially greater demand and, possibly, a higher sales price. While no REALTOR® can guarantee a certain price for your home, I can help ensure that your home receives greater exposure to help stimulate greater demand. My goal is not to sell more homes – it is to sell homes for more. I invite you to visit REALTOR.com® and my website at www.wallytorres.com to learn more about my commitment to real estate marketing, or if you prefer, please call me at 727.247.6355. I’d be delighted to meet with you in person to demonstrate how I, as a Featured Agent on REALTOR.com®, can leverage powerful marketing resources to help sell your home for more! Sincerely, Oswaldo “Wally” Torres Future Home Realty 1 Media Metrix – Number of unique users on REALTOR.com® each month of 2007.

Do you or some one you know, owe more on their home than their home is currently worth! Most likely the home was purchased at the height of the market; 2004, 2005 or 2006 and now the mortgage is upside down, not current, or maybe both.

First things first!

What caused this unfortunate situation; illness, divorce, job loss, accident? Has the situation been corrected? In other words, if you lost your job did you find another? Are you capable of making the monthly payments now?

Please carefully review and write down the answers to these questions before you read any further.

What are your options?

1.You can work out an agreement with your lender or forbearance. In essence you are asking the lender to work out a payment plan that you can afford and that allows you to bring your mortgage current. This is a good option if the situation has been corrected and you now can afford to make the monthly payments. This arrangement may include; no payments for a predetermined number of months, reduced payments for a predetermined number of months, interest rate reduction, taking the past due payments and adding them to the end of the loan, or taking the delinquent payments and spreading them out through a predetermined number of months and adding them to your monthly payment (this last option will make your payments temporarily higher). Before this is approved, the lender will usually require that a financial statement be submitted and that you provide financial records including: W2's, current paystubs, and bank statements.

2.Many people file for bankruptcy as a delay tactic to the foreclosure process and/or to give them more time to sell their home. Bankruptcy should only be considered as a last resort. This decision should only be made with the guidance from an attorney.

There are two types of bankruptcy; Chapter 13 or Chapter 7!

A Chapter 13 bankruptcy is when you consolidate all your debt into one single payment and you make payments until your debt is paid in full. Typically for three years. Most people find that making payments is difficult and never complete the process.

Chapter 7 allows you to wipe off all debt and start from scratch and for most people this is their best option as it provides them with a fresh start. Once again, Bankruptcy should only be considered after consulting with an attorney that specializes in bankruptcy law.

3.If the problem that caused you to fall behind has been corrected you may borrow the money from a family member or friend and bring your mortgage current. However, this is only an option if you have the ability to stay current on your monthly payments and pay back the money you borrowed. Think this very carefully as a hasty decision here can cause you not only to go further in debt but to put a strain in your relationship with the person who lends you the money if you are unable to pay back the money you borrowed.

4.You can list your home and sell it as a "Short Sale". A Short Sale is when you, your attorney or your real estate agent negotiates on your behalf with your lender or lenders to allow you to sell short. In other words, the lender accepts to take a discount on the mortgage note instead of going through the often lengthy and expensive process of foreclosing on the home.

The average foreclosure process can be an expensive and lengthy proposition for the lender. A contested foreclosure can add months to an already lengthy process and it includes expenses such as; attorney fees, court fees, lost interest, sales expenses, closing costs, repairs, insurance, title insurance, taxes, damage from vandalism and/or storm damage, etc.

In addition, an REO (real estate owned), adds to the amount the Federal Government requires the bank to keep in reserves, affecting the money they have available to lend. Banks are not in the business of foreclosing on homes they make money from lending money. They are better off taking the "Short Sale" today, close on it and get it off their books.

5.How does this benefit you; the seller? By getting your property sold today you are relieved of a very stressful situation allowing you to concentrate on getting your life back on track. Especially, if you can not afford to make the monthly payments.

A good real estate agent, who is knowledgeable on short sales may help the seller by explaining the pros and cons of the "Short Sale", help the seller prepare the lenders package, help find an able and willing buyer and negotiate with the lender on behalf of the seller to accept a discount on the mortgage.

A "Short Sale" may help the seller find a solution that may help them avoid bankruptcy and/or foreclosure. However, every situation is different and you should always seek professional assistance.

6.There are many risks to the seller associated with the short sale, including; possible tax liabilities, the lender may still go after the seller for the money they lost, the lender may require the seller to sign a note, the lender may file a deficiency judgment against the seller or the short sale may never go through resulting in foreclosure.

Many sellers fear the "Short Sale" because of these risks. Truth is whether they "Sell Short" or the lender forecloses on the home they will have a deficiency. The further the foreclosure process goes through the higher the costs associated with the lender and the less likely they are to negotiate with you.

The lender can only take one of three actions at a time against you; have you sign a note agreeing to pay back the remainder of the loan (all or part), chase you by filing a deficiency judgment, or write it off and send you a 1099 at the end of the year. The later may produce a tax liability.

Once an offer has been received on your home and approved by the lien holder(s), you should proceed with the short sale only if: (a)Lien holder(s) has prepared a note and payment plan for the deficiency that is satisfactory to you or (b) Lien holder agrees to forgive the debt and waive their right to have you sign a note and/or file a deficiency judgment against you

The later is your best option and may be written as a contingency in your contract and may be negotiated as part of the lien holder's written approval of the short sale.

Just remember; the lien holder does not have to approve the "Short Sale" and does not have to forgive your debt or waive their right to a deficiency judgment. This is something that may be negotiated as part of the "Short Sale" process.

In the event that the negotiations have been successful and the lien holder has agreed to forgive a portion of your note, you may receive a 1099 at the end of the year showing the forgiveness of debt as earned income. A good tax advisor with knowledge of The Mortgage Forgiveness Debt Relief Act can help you minimize or prevent any tax liability resulting form a "Short Sale".

Please consult with your Tax Advisor, CPA and/or Tax Attorney for possible tax ramifications and/or go to www.irs.gov and review The Mortgage Forgiveness Debt Relief Act and Debt Cancellation before listing your home for sale.

No Real Estate Agent, Attorney or Mitigation Company can guarantee any results when it comes to a "short sale". Never pay any advance fees for these services and always seek the advice of an attorney in all legal matters and/or tax advisor or CPA in all tax matters.

These blog is not intended as legal or tax advice and Oswaldo "Wally" Torres, Future Home Realty and their affiliates are not attorneys or tax advisors. No part of this Blog is intended as legal or tax advice and shall not be interpreted as providing legal or tax advice to anyone reading this Blog.

© Oswaldo "Wally" Torres - 2009

FYI received this email from Pasco CDC, read below;

The Florida Housing Opportunity Program (FHOP) is a special program to provide up to $8,000 in assistance to first-time homebuyers to receive advance funding for the homebuyer's tax credit. Right now, this program is set to expire November 30, 2009. To help the program along, Pasco County is SUSPENDING the requirements for all recipients to go through the County's homebuyer education class. We know for a closing to occur before November 30, a contract needs to be signed now. One-on-one counseling will still occur, but that will not delay closings.

Please contact us if you have any questions. Information about the program is available at the following website:

http://portal.pascocountyfl.net/portal/server.pt/community/citizens/299/home_buyers_documents_and_forms

I have worked in real estate since 1992. Started as a Realtor© moved on to mortgages and eventually property management; including managing a portfolio of 20 properties for a large REIT out of Chicago. Now I have come full circle working again as a Realtor©.

During all those years there was a lesson that stuck with me. Whether I was qualifying someone to buy a home, get a home loan or qualifying for a rental; the end decision always was affected by the acronym DICE.

DICE stands for Debt, Income, Credit and Equity.

Let's review them one by one and see how they affect your ability to buy a home and qualify for a loan.

Debt - this is the amount of credit card, car loans, personal loans, student loans, mortgage(s) that you are responsible for at any given time. If you are maxed out on your lines of credit, it will have a negative impact on your credit score. You may have a $100,000 in credit from credit card companies but if they are all maxed out, lenders see you as a high credit risk and you would be less likely to get a loan even if you always pay on time. You should always try and keep the credit card balance to no more than 50% of your credit line. I always tell people to use your credit wisely and always pay your credit card debt in full.

Income - This is your gross monthly or yearly income. Lenders will take this number and determine what percentage goes into paying monthly debt. This is called the debt to income ratio. There are two ratios lenders look at; front end and back end.

Front end is your projected monthly mortgage payment including taxes and insurance. The back end is your projected monthly mortgage payment, including taxes and insurance, plus all consumer debt.

For example, a conventional loan may use the 33%/38% debt to income ratio; on the front end your mortgage payment including taxes and insurance should not exceed 33% of your gross monthly income and on the back end your mortgage payment including taxes and insurance plus all consumer debt should not exceed 38% of your gross monthly income. For FHA loans this number may be higher. Also lenders may make exceptions depending on other factor such as... YOUR CREDIT SCORE!

Credit - while most lenders will tell you they do not use a credit score to qualify for a loan all of them have guidelines that affect your qualification according to your credit score. The higher your credit score the less of a credit risk you are perceived to be. Of course this is greatly affected by your debt to income ratio and the amount of your down payment in other words; your Equity!

Equity - This is the amount of money you are using as a down payment on your home. This will determine your loan to value ratio. Obviously the larger your down payment the more flexible lenders are with the other three factors affecting your loan approval. Of course there are, limits to that flexibility and is affected by your credit worthiness and your debt to income ratios. For example an FHA loan the minimum down payment is 3.5% of the purchase price. For a conventional loan this is more in line with at least 10% down.

So how well do you roll the DICE!