Posts Tagged ‘Short sale’

THANKS TO BARBARA BOXER

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Barbara Boxer, United States Senator from Cali...

Barbara Boxer, United States Senator from California (Photo credit: Wikipedia)

As of Dec 1st both the IRS and Franchise Tax Board have put in writing that they no longer consider “Debt Forgiveness” resulting from a Short Sale to be taxable income under either State or Federal tax laws.

This removes a huge potential problem from anyone going through a short sale. Until now It has been common to receive a tax bill in the tens of thousands of dollars many months after the property has been sold.

Thanks are due to Barbara Boxer for her part in fighting this battle for us.

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SMART FHA CHANGE

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A great deal has been writen in the past few weeks about the MAJOR good news from FHA. It’s all useful to the professionals but let me try to take out the fluff and show just the bones.

As of August 8th, 2013, people who recently lost their homes due to temorary hardship in any of the following ways have a good chance of qualifying for a new FHA loan:

0. Foreclosure.

o. Deed in Lieu of Foreclosure.

o. Short Sale.

o. Bankruptcy (ch 7 and 13).

If you think you might qualify under the new guidelines talk to a Loan Agent who has strong FHA background. Understand that not all of them have strong FHA experience.

Logo of the Federal Housing Administration.

Logo of the Federal Housing Administration. (Photo credit: Wikipedia)

 

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SHORT SALES-THE END??

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Silicon Valley

Silicon Valley (Photo credit: Wikipedia)

For about 2 years now my market (Silicon Valley) has seen a steady increase in sales prices. This is finally causing changes in Banks approach to Short Sales.

I just had my 1st experience where a Bank (BofA) cancelled a previously approved short sale when they realized that the current value of the property is now higher than the amount of the loan.

They have now re-started the Foreclosure process where they can expect to get all of their money back and not have to take a loss after all.

This also gives the owner/borrower the opportunity to minimize the Credit hit by selling the property before the foreclosure completes, and maybe even get a little money back themselves.

I firmly believe that the age of the Short Sale Specialist is coming to it’s end and all those useless seminars will disappear with them.

However, there

Bank

Bank (Photo credit: 401(K) 2013)

for the home owner who is falling behind  if the Banks begin to think it might be smarter to foreclose and lose a lot less than previously, rather than expend time and effort trying to keep the afloat.

The next 6 month will be very interesting.

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SILICON VALLEY Real Estate UPDATE

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The real estate crisis has gutted house prices, tipped millions into foreclosure, and rattled the global economy to its core. But for many would-be home buyers, the historic boom and bust have been a blessing in disguise. During the first half of the previous decade, easy credit and speculative excitement worked to make houses increasingly expensive. By the fourth quarter of 2005, median home prices had reached 2.77 times median household incomes. That is sharply higher than the 1.92 average of the 15 years ending in 2003 and too expensive for many families. But the subsequent crash in home prices–values have fallen roughly 30 percent at the national level from their 2006 peaks–has helped restore affordability to this once inflated market. By the third quarter of 2009, the price-to-income ratio–a key measure of housing affordability–had fallen below its 15-year average, to 1.84 for the nation as a whole.

Beginning Jan 2010 Silicon Valley Counties (North Santa Clara and Southern Alameda) sales prices have stabilized and some areas are now seeing small increases.

Apart from this being a normal process indicating the last stages of any financial cycle, it has been significantly driven by 5 major sources:

  1. 1st Time Buyer Tax Credits which ended mid 2010.
  2. Extension of FHA and V/A maximum loan limits for High Priced Zip codes.
  3. Historically low interest rates.
  4. Huge increases in the number of 1st Time Buyer programs from Federal, State, County, City, and Employment specific sources. These continue to increase and improve.
  5. Major reductions in Bank Owned (REO), and Short Sale properties coming to market as Banks have beefed up programs designed to keep people in their homes where possible. This has allowed more normal conditions to have control of sales prices.

NOTE: I’m only describing my local Market here in Silicon Valley. I know conditions in other areas have been, and continue to be hit worse than us.  

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Reality vs. Partisan Pundits. No Contest

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The Administrations well meant efforts to make it possible for many homeowners to avoid foreclosure has stirred up a hornet’s nest among some media commentators.

The Plan described at http://www.makinghomeaffordable.gov/ uses up to $75 billion to provide incentives to holders of FANIE MAE and FREDDY MAC loans to work with Borrowers to refinance, or modify existing problem loans, rather than simply go ahead and foreclose.

This is a classic version of the glass ½ full, or ½ empty. Typically, in our current exclusively partisan media, the answer is dictated solely by political affiliation regardless of the facts.

This is unfortunate because there are legitimate reasons for supporting, opposing, or, better still, improving the current process.

One the one hand it is a legitimate effort to try to help Joe Public get through a situation brought about by failures in our economic systems. Given the Trillions of dollars being ploughed back to the very people who caused this situation, the $75 Billion allocated to this program is peanuts.

On the other hand there is a valid argument to be made that subsidizing refinances, or modifying problem loans, is simply putting off an inevitable final default. This can often hurt the very people it purports to help by having them use up scarce funds in a doomed attempt to save an impossible situation, rather than simply give the property back to the Lender and getting  on with life.

The December report on the status of this program provides ample ammunition for both schools of thought, and the regulators have shifted emphasis to try to deal with the problems showing up.

The summary shows that 728,000 loan modifications are already in the required trial phase. Unfortunately only 31,382 have completed that phase and have become permanent, saving homeowners an average of $550 per month. The low rate at which Trials become Permanent  is a serious problem raising concerns that a significant number of these modifications are simply allowing the Banks to delay acknowledging the number of bad loans on their books and to avoid taking the losses on to their Balance Sheets.

If that is true then the inevitable result will be a longer period of foreclosed properties coming to market as these failed modifications fall apart.

As with most things there is not a simple answer, but on balance I come down on the side of giving the program a fair shot. This is based mostly on my view that given the countless billions we have poured into supporting the financial institutions that caused the problems,  a little effort to give similar assistance to the victims is not unreasonable.

Short Sale vs REO

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Buyers question. Should I concentrate on Short Sale Listings or Bank Owned (REO) ones?
I’ll advise we look at ALL listing but if we see 2 similar ones then based on the following I’ll suggest going for the REO.

Reasons are:
1. The Bank has major financial reasons for wanting the property off its books so will respond quickly and realistically. Note: If you would like to understand these financial reasons drop me an e-mail and I’ll give you the details.

2. The REO listing and sales price will almost always set a new low for similar homes in similar condition in the same neighborhood.

3. This is not so for Short Sales where the price has NOT been agreed to by the major party, the Lender holding the mortgage. Even if the current owner signs your low price offer, the Lender is not going to do so unless it reflects the fair market value of the property i.e. the price at which an REO would be sold. Typically they will take between 2 and 3 months to actually respond with their decision. During that time you are in limbo.

4. Once the price has been agreed to the Bank will close within a week if you can.
5. Despite false rumours Banks will re-negotiate if major problems come to light through your inspections.
6. Approximately 80% of all Short Sale contracts in my area ever close!
I rest my case.