Rehabbers can combine the loan price and improvement costs in one loan
There are homes out there, just waiting to be “adopted” by a loving family. They may be a bit on the ragged side, down on their luck, but with some tender, loving care, a qualified homebuyer and an FHA 203(k) loan, they’ll be returned to their glory.
We’re talking about foreclosed properties that aren’t in tip top shape, but deserve a chance and are manageable rehabs.
This HUD program, administered through the Federal Housing Administration (FHA), is not a new idea. More than 31 years old, the 203(k) is a loan that includes both the purchase price and the rehab price for a qualified buyer to fix up the place. Because of the amount of foreclosed properties now, this type of loan is very attractive for the buyer who sees value at the end and doesn’t mind rolling up his or her sleeves.
There are two types of 203(k) loans–the full deal for major rehabs and really big projects, and the Streamline 203(k) that tops out the rehab budget at $35,000. This is an excellent way to go for properties that need some sprucing up and energy efficient improvements. It’s amazing how far $35,000 will go to transform a home. Qualifying properties include one to four-family structures.
The loans are granted through FHA lenders. When the purchaser is approved, the down payment will be 3.5%. The potential buyer is responsible for working with an approved contractor and designing a bid for the rehab. The bid must be very detailed, including plans, materials, labor, time frame, which can be no more than six months, and an estimated completion value.
This information is necessary to assemble the package and final loan amount. When the project is approved and closed, the buyer will receive up to half the rehab amount to begin work on the house. The final payout comes after the work has been inspected to make sure it conforms to the original plans.
These loans can be more involved that a conventional loan, so it’s best to work with a SCHNEDIER real estate agent who understands the complexities and can recommend a lending institution that is approved to provide the 203(k) loans.
Just think how satisfied you’ll be to rescue a foreclosed property, make a contribution to improving a neighborhood and take part in the housing market recovery.
Check out St. Charles foreclosed homes.
Showing posts with label foreclosed home. Show all posts
Showing posts with label foreclosed home. Show all posts
Monday, September 14, 2009
Friday, April 17, 2009
Foreclosures VS Short Sales
Elizabeth Kayser, Esq.
Kayser & Associates, LLC
Short Sale Negotiators
St. Louis, Missouri
(314) 402-1788
attykayser@sbcglobal.net
Attorney at Law
OVER HALF OF FORECLOSURES SHOULD BE
SHORT SALES USING REALTORS, NOT FORECLOSURES
Short sales produce financial and nonfinancial rewards for all key players including the economy:
Protect homeowners’ credit
Keep properties occupied v. vacant properties (blight)
Produce a happy buyer
Minimize losses to lenders
Allow Lenders to avoid having take back more distressed properties which results in the deepening national financial crisis.
------------------------------------------------------------------------------------------------------------------------------
What is a “SHORT SALE?” Millions of homeowners are behind on their mortgage and can no longer make their mortgage payment due to either job losses, divorce, bad loans they should have never been placed in, an ARM that’s resetting higher, etc. Up to recently the only generally accepted option was foreclosure. That is usually not the ideal solution even if it does erase the mortgage lien since, 1) it does not preclude the bank from seeking a deficiency judgment against the borrowers (a personal judgment that is collectible after the conclusion of the foreclosure) and 2) a foreclosure devastates the homeowners credit. . . not good for realtors either as they are effectively removed from your client base.
Solution: Short Sale. Get the lender to accept an amount below the mortgage payoff and waive the deficiency against the homeowner. In most cases, all closing costs are built into the deal where the lender pays the closing costs. On occasion the Seller will need to bring cash to the closing table. Everything is case by case basis. Lenders generally demand fair market value for the property – which in a short sale is significantly below the mortgage balance.
Credit implications
The number one reason a distressed homeowner should proceed with a short sale is to protect their ability to obtain financing in the future. Most short sales result in a “settlement” status on their credit report as opposed to “foreclosure”. Fannie Mae and Freddie Mac guidelines are much more favorable to borrowers with short sale on their credit report, typically allowing a borrower to obtain financing for a new home within a couple of years. In sharp contrast, a foreclosure remains on a credit report for seven years, making it very difficult to finance another house, a car, open a new business, or even qualify for credit cards. Any loans received will most likely bear very high interest rates.
A Short Sale offers a fresh start, eliminating debt, while minimizing damage to credit and avoiding eviction proceedings.
What services are provided as part of the Short Sale Fee?
A crucial part of the SHORT SALE process is negotiating the terms of the short sale. In order to provide the best possible result, we gather the relevant information from the seller, prepare a hardship package to submit to the bank, perform a preliminary title search on the property to determine what liens, mortgages and taxes are due on the property if one has not already been done, and negotiate with the bank in an attempt to have them accept a lower payoff on the mortgage than is currently due…potentially avoiding the credit impact and economic ramifications of a foreclosure or bankruptcy. Most importantly, regular updates and status reports are provided to realtors and homeowners as to the short sale process. Communication is everything and will never be compromised. We will be a team in the short sale process requiring a continuous flow of communication.
• Prequalifying the homeowner
• Assemble excellent lender packages
• Directly and immediately respond to negotiators' calls and emails
• Immediately provide well-written market narratives and critical analyses proving price
• Ensure that appraisers and bank BPO agents understand the subject property's challenges
• Immediately provide additional documentation required by the lender
• Keep the parties well-informed and in the deal
• Document all tasks in detail for transaction-saving reference
• Provide creative solutions to negotiators' demands such as promissory notes and cash contributions
• Use 12 years of negotiations skills as an attorney and mediator to ensure success
Why allow my firm for your short sale negotiations?
There are many articles out there that say it is extremely important to get an attorney to handle your negotiations. The lenders have their attorneys, you should have yours. Short sales involve a myriad of legal issues, timelines, and landmines that can kill the deal, and result in devastating consequences for the buyer, seller, and realtor. The process of obtaining approval for a SHORT SALE is lengthy…taking as much as 8 to 12 weeks. The first step is to prequalify your client/seller. Lenders in most cases pay the negotiators as part of the closing costs on the HUD. The realtor still receives their commission but avoids the burden and hassles of dealing with negotiating a short sale.
Convincing the Lender
The bank will have to be convinced that the seller deserves to be approved for a short sale. They will need to disclose to the mortgage lender financial hardships, including layoffs, loss of jobs, divorce, medical issues. Some or all of the following would be required: hardship letter signed by the homeowners, 2 yrs tax returns, recent pay stubs, bank statements, authorization for the negotiator to discuss the mortgage with the lender. Lenders also request listing history, recent sold properties, repair estimates and photos, second mortgage payoffs if any, and other lien information. Lenders will furnish their requirements as to sellers’ assets, liabilities, income, and obligations. Our hardship package aims to fit within each Lender’s parameters. Each lender has different parameters, a different short sale policy. The contract must not be contingent upon the sale or closing of another property, also the seller cannot do owner-financing or carry-backs. The Lender often times verifies with the buyers lender that they are pre approved with no contingencies. Also, properties with multiple mortgages, 2nd liens are not the best short sale candidates but it can work.
Short sales may take longer to close than more conventional sales, so plan accordingly. However, it is well worth it. Again, the alternative – foreclosure.
How is a sales price determined?Most lenders will request a BPO (broker’s price opinion) or full appraisal of the property. In some cases they will use a drive-by value or a computer analysis comparing other similar homes that have sold. In this real estate market, this is very difficult – there are few sold homes! This is where the negotiation begins. Some factors negotiated are such things as close proximity to power lines, railroads tracks, busy streets, high numbers of neighborhood foreclosures (blight), declining market, repairs needed, the banks loss severity rate in a foreclosure to justify our offer price. Also negotiated hard is the lenders’ Loss Severity Rate.
Loss Severity Rate (What is this?)
Let me talk a little bankalese here (not legalese). This is the rate of loss a lender incurs in a foreclosure. Here’s an example: In a foreclosure, the bank recoups only a portion of the mortgage balance plus they incur significant property preservation costs (aka maintenance costs), legal fees, liquidation costs, additional “carrying costs”. The ‘net’ the bank receives after a foreclosure sale is divided into the total costs or ‘balance’ due which is now much higher than the original mortgage balance . . .resulting in the Loss Severity Rate. This rate has climbed to 40% of more. Much higher than a short sale!
Closing
Once an agreement is reach, the lender issues a short payoff to the realtor and the title company being used for the short sale closing. This letter will state the closing date, names of the parties, a Release of any deficiencies incurred by the lender, and any cash or promissory notes required from the seller. I am not the closing attorney and I do not go to closings. The title company continues to be the closer.
When is it too late?In Missouri, the foreclosure process can happen quickly, therefore a short sale must be identified before the seller receives a Notice of Foreclosure. The bank cannot delay foreclosure by more than one week in Missouri, however, the lender may cancel or “continue” foreclosure proceedings only if we have an accepted contract. Short sale candidates need to be identified and counseled before a Notice of Foreclosure is received. However, if a Notice has been received recently, let us still counsel the homeowner, then we’ll see what we can do about securing an accepted contract quickly and we will communicate with foreclosure department and attorneys. There are instances where we may be able to get a short sale through before the Trustee Sale.
Short Sale vs. Bankruptcy
Lenders cannot consider a short sale if the borrower is in an active bankruptcy. The bankruptcy would have to be discharged or dismissed prior to the lender considering a reduced payoff.
There are many bankruptcies that are filed to save a homeowner from the deficiency judgment or shortage in the sale of their home – when really all they needed was a short sale of their home!
A bankruptcy stays on the homeowners credit report for 10 years.
Bankruptcies typically only delay the inevitable. . . a foreclosure. Then the homeowner has both a bankruptcy AND a foreclosure on their credit report. The worst case scenario for anyone.
Short Sale vs. Foreclosure
Foreclosure is devastating to one’s credit report. Someone who goes the short sale route generally can buy a home in less than 2 yrs, compared 5 yrs + after a foreclosure. Many employers run credit checks on prospective employees and foreclosure is one of the top items that will put a potential new hire in jeopardy. Also, current employers may run credit checks and a foreclosure can put a current position in jeopardy. Security clearances (law enforcement) and government positions can be jeopardized by a foreclosure. Additionally, interest rates will be markedly high on credit cards and any credit with a foreclosure or a deed in lieu on one’s credit report.
The lender can still pursue the former homeowner with a Judgment for any deficiency after the property sells under foreclosure. This deficiency most likely will tack on attorney fees, costs to sell the property, and many other related fees such as property preservation fees, insurance and the like.
Foreclosure effectively reduces your potential clients as buyers as it is rare to secure financing for another home for a long time after a foreclosure is reported on one’s credit report. So, not only did you not make a cent off of that foreclosure. . .you just lost another potential client.
From the lenders standpoint – see Loss Severity Rate above! Enough said.
Taxes
The Economic Stabilization Act extends the Mortgage Forgiveness Debt Relief Act to 2012.
Qualified principal residence indebtedness is defined as acquisition indebtedness, the dollar limitation is $2 million with respect to the taxpayer’s principal residence. Acquisition indebtedness generally means indebtedness incurred in the acquisition, construction, or substantial improvement of the principal residence of the individual and secured by the residence. It also includes refinancing to the extent of the original debt (not any cash that was taken in the refi). So, the amount unpaid to a lender in a short sale is technically considered income to you. HOWEVER, for the tax years 2007 through 2012, the government is waiving any tax liability on that phantom income. The lender will send you and the IRS a copy of Form 1099-C "Cancellation of Debt," reporting that forgiven debt as income. To make sure you are not taxed on the amount, you will have to file Form 982, "Reduction of Tax Attributes Due to Discharge of Indebtedness." Forms can be downloaded free from http://www.IRS.gov. Be aware, that forgiven debt on vacation homes and rental properties may be taxable, unless you can prove insolvency.
This document is not intended to give tax advice. It is advisable to confirm the current tax laws with each case with a CPA or tax attorney.
Kayser & Associates, LLC
Short Sale Negotiators
St. Louis, Missouri
(314) 402-1788
attykayser@sbcglobal.net
Attorney at Law
OVER HALF OF FORECLOSURES SHOULD BE
SHORT SALES USING REALTORS, NOT FORECLOSURES
Short sales produce financial and nonfinancial rewards for all key players including the economy:
Protect homeowners’ credit
Keep properties occupied v. vacant properties (blight)
Produce a happy buyer
Minimize losses to lenders
Allow Lenders to avoid having take back more distressed properties which results in the deepening national financial crisis.
------------------------------------------------------------------------------------------------------------------------------
What is a “SHORT SALE?” Millions of homeowners are behind on their mortgage and can no longer make their mortgage payment due to either job losses, divorce, bad loans they should have never been placed in, an ARM that’s resetting higher, etc. Up to recently the only generally accepted option was foreclosure. That is usually not the ideal solution even if it does erase the mortgage lien since, 1) it does not preclude the bank from seeking a deficiency judgment against the borrowers (a personal judgment that is collectible after the conclusion of the foreclosure) and 2) a foreclosure devastates the homeowners credit. . . not good for realtors either as they are effectively removed from your client base.
Solution: Short Sale. Get the lender to accept an amount below the mortgage payoff and waive the deficiency against the homeowner. In most cases, all closing costs are built into the deal where the lender pays the closing costs. On occasion the Seller will need to bring cash to the closing table. Everything is case by case basis. Lenders generally demand fair market value for the property – which in a short sale is significantly below the mortgage balance.
Credit implications
The number one reason a distressed homeowner should proceed with a short sale is to protect their ability to obtain financing in the future. Most short sales result in a “settlement” status on their credit report as opposed to “foreclosure”. Fannie Mae and Freddie Mac guidelines are much more favorable to borrowers with short sale on their credit report, typically allowing a borrower to obtain financing for a new home within a couple of years. In sharp contrast, a foreclosure remains on a credit report for seven years, making it very difficult to finance another house, a car, open a new business, or even qualify for credit cards. Any loans received will most likely bear very high interest rates.
A Short Sale offers a fresh start, eliminating debt, while minimizing damage to credit and avoiding eviction proceedings.
What services are provided as part of the Short Sale Fee?
A crucial part of the SHORT SALE process is negotiating the terms of the short sale. In order to provide the best possible result, we gather the relevant information from the seller, prepare a hardship package to submit to the bank, perform a preliminary title search on the property to determine what liens, mortgages and taxes are due on the property if one has not already been done, and negotiate with the bank in an attempt to have them accept a lower payoff on the mortgage than is currently due…potentially avoiding the credit impact and economic ramifications of a foreclosure or bankruptcy. Most importantly, regular updates and status reports are provided to realtors and homeowners as to the short sale process. Communication is everything and will never be compromised. We will be a team in the short sale process requiring a continuous flow of communication.
• Prequalifying the homeowner
• Assemble excellent lender packages
• Directly and immediately respond to negotiators' calls and emails
• Immediately provide well-written market narratives and critical analyses proving price
• Ensure that appraisers and bank BPO agents understand the subject property's challenges
• Immediately provide additional documentation required by the lender
• Keep the parties well-informed and in the deal
• Document all tasks in detail for transaction-saving reference
• Provide creative solutions to negotiators' demands such as promissory notes and cash contributions
• Use 12 years of negotiations skills as an attorney and mediator to ensure success
Why allow my firm for your short sale negotiations?
There are many articles out there that say it is extremely important to get an attorney to handle your negotiations. The lenders have their attorneys, you should have yours. Short sales involve a myriad of legal issues, timelines, and landmines that can kill the deal, and result in devastating consequences for the buyer, seller, and realtor. The process of obtaining approval for a SHORT SALE is lengthy…taking as much as 8 to 12 weeks. The first step is to prequalify your client/seller. Lenders in most cases pay the negotiators as part of the closing costs on the HUD. The realtor still receives their commission but avoids the burden and hassles of dealing with negotiating a short sale.
Convincing the Lender
The bank will have to be convinced that the seller deserves to be approved for a short sale. They will need to disclose to the mortgage lender financial hardships, including layoffs, loss of jobs, divorce, medical issues. Some or all of the following would be required: hardship letter signed by the homeowners, 2 yrs tax returns, recent pay stubs, bank statements, authorization for the negotiator to discuss the mortgage with the lender. Lenders also request listing history, recent sold properties, repair estimates and photos, second mortgage payoffs if any, and other lien information. Lenders will furnish their requirements as to sellers’ assets, liabilities, income, and obligations. Our hardship package aims to fit within each Lender’s parameters. Each lender has different parameters, a different short sale policy. The contract must not be contingent upon the sale or closing of another property, also the seller cannot do owner-financing or carry-backs. The Lender often times verifies with the buyers lender that they are pre approved with no contingencies. Also, properties with multiple mortgages, 2nd liens are not the best short sale candidates but it can work.
Short sales may take longer to close than more conventional sales, so plan accordingly. However, it is well worth it. Again, the alternative – foreclosure.
How is a sales price determined?Most lenders will request a BPO (broker’s price opinion) or full appraisal of the property. In some cases they will use a drive-by value or a computer analysis comparing other similar homes that have sold. In this real estate market, this is very difficult – there are few sold homes! This is where the negotiation begins. Some factors negotiated are such things as close proximity to power lines, railroads tracks, busy streets, high numbers of neighborhood foreclosures (blight), declining market, repairs needed, the banks loss severity rate in a foreclosure to justify our offer price. Also negotiated hard is the lenders’ Loss Severity Rate.
Loss Severity Rate (What is this?)
Let me talk a little bankalese here (not legalese). This is the rate of loss a lender incurs in a foreclosure. Here’s an example: In a foreclosure, the bank recoups only a portion of the mortgage balance plus they incur significant property preservation costs (aka maintenance costs), legal fees, liquidation costs, additional “carrying costs”. The ‘net’ the bank receives after a foreclosure sale is divided into the total costs or ‘balance’ due which is now much higher than the original mortgage balance . . .resulting in the Loss Severity Rate. This rate has climbed to 40% of more. Much higher than a short sale!
Closing
Once an agreement is reach, the lender issues a short payoff to the realtor and the title company being used for the short sale closing. This letter will state the closing date, names of the parties, a Release of any deficiencies incurred by the lender, and any cash or promissory notes required from the seller. I am not the closing attorney and I do not go to closings. The title company continues to be the closer.
When is it too late?In Missouri, the foreclosure process can happen quickly, therefore a short sale must be identified before the seller receives a Notice of Foreclosure. The bank cannot delay foreclosure by more than one week in Missouri, however, the lender may cancel or “continue” foreclosure proceedings only if we have an accepted contract. Short sale candidates need to be identified and counseled before a Notice of Foreclosure is received. However, if a Notice has been received recently, let us still counsel the homeowner, then we’ll see what we can do about securing an accepted contract quickly and we will communicate with foreclosure department and attorneys. There are instances where we may be able to get a short sale through before the Trustee Sale.
Short Sale vs. Bankruptcy
Lenders cannot consider a short sale if the borrower is in an active bankruptcy. The bankruptcy would have to be discharged or dismissed prior to the lender considering a reduced payoff.
There are many bankruptcies that are filed to save a homeowner from the deficiency judgment or shortage in the sale of their home – when really all they needed was a short sale of their home!
A bankruptcy stays on the homeowners credit report for 10 years.
Bankruptcies typically only delay the inevitable. . . a foreclosure. Then the homeowner has both a bankruptcy AND a foreclosure on their credit report. The worst case scenario for anyone.
Short Sale vs. Foreclosure
Foreclosure is devastating to one’s credit report. Someone who goes the short sale route generally can buy a home in less than 2 yrs, compared 5 yrs + after a foreclosure. Many employers run credit checks on prospective employees and foreclosure is one of the top items that will put a potential new hire in jeopardy. Also, current employers may run credit checks and a foreclosure can put a current position in jeopardy. Security clearances (law enforcement) and government positions can be jeopardized by a foreclosure. Additionally, interest rates will be markedly high on credit cards and any credit with a foreclosure or a deed in lieu on one’s credit report.
The lender can still pursue the former homeowner with a Judgment for any deficiency after the property sells under foreclosure. This deficiency most likely will tack on attorney fees, costs to sell the property, and many other related fees such as property preservation fees, insurance and the like.
Foreclosure effectively reduces your potential clients as buyers as it is rare to secure financing for another home for a long time after a foreclosure is reported on one’s credit report. So, not only did you not make a cent off of that foreclosure. . .you just lost another potential client.
From the lenders standpoint – see Loss Severity Rate above! Enough said.
Taxes
The Economic Stabilization Act extends the Mortgage Forgiveness Debt Relief Act to 2012.
Qualified principal residence indebtedness is defined as acquisition indebtedness, the dollar limitation is $2 million with respect to the taxpayer’s principal residence. Acquisition indebtedness generally means indebtedness incurred in the acquisition, construction, or substantial improvement of the principal residence of the individual and secured by the residence. It also includes refinancing to the extent of the original debt (not any cash that was taken in the refi). So, the amount unpaid to a lender in a short sale is technically considered income to you. HOWEVER, for the tax years 2007 through 2012, the government is waiving any tax liability on that phantom income. The lender will send you and the IRS a copy of Form 1099-C "Cancellation of Debt," reporting that forgiven debt as income. To make sure you are not taxed on the amount, you will have to file Form 982, "Reduction of Tax Attributes Due to Discharge of Indebtedness." Forms can be downloaded free from http://www.IRS.gov. Be aware, that forgiven debt on vacation homes and rental properties may be taxable, unless you can prove insolvency.
This document is not intended to give tax advice. It is advisable to confirm the current tax laws with each case with a CPA or tax attorney.
Monday, March 23, 2009
9 Tips for Homebuyers
As demand for homes is expected to increase this Spring, Bankrate.com offers 9 tips for homebuyers.
Buyers have access to the lowest mortgage rates in years and an $8000 first time home buyer tax credit that does not have to be repaid if the homeowner lives in the home for at least three years. This should improved demand side for the housing market and with these nine tips, buyers should be moving in to their new home soon.
For assistance on qualifying for your home purchase or for a Realtor referral contact us directly at JaneNicoletti@schneidersells.com or 636.946.5553 ext. 216.
Source: Bankrate.com
9 Tips for Homebuyers and Sellers in 2009
February 24, 2009
Buyers have access to the lowest mortgage rates in years and an $8000 first time home buyer tax credit that does not have to be repaid if the homeowner lives in the home for at least three years. This should improved demand side for the housing market and with these nine tips, buyers should be moving in to their new home soon.
- Cash is king. With down payment increases from FHA and Fannie Mae, cash has more buying power than before.
- Negotiate everything. Home sellers will be offering more incentives to sell their home quickly. Consider asking for seller paid closing costs, property taxes, and home association fees.
- Save for a down payment. Set up a budget and include savings. The ideal goal is for 20% down on your new home.
- Determine how much home you can afford. Understand what you would like your monthly payment to be before finding out what amount you qualify for.
- Improve your credit score. Check your credit report for reporting errors, pay your bills on time, and do not cancel or close any open accounts.
- Research the local housing market. As you work with your local Realtor, search online to find out how long homes have been on the market and what they have sold for. The more you know, the better off you are in negotiating your purchase.
- Watch for certain neighborhoods. A Realtor will be able to help you avoid traffic issues, zoning changes, and higher crime areas.
- Consider foreclosed homes. With the number of foreclosed homes on the markets banks should be eager to sell.
- Look ahead. If you don’t qualify for a mortgage today continue to watch the market and keep up your savings.
For assistance on qualifying for your home purchase or for a Realtor referral contact us directly at JaneNicoletti@schneidersells.com or 636.946.5553 ext. 216.
Source: Bankrate.com
9 Tips for Homebuyers and Sellers in 2009
February 24, 2009
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