Entries from June 2008 ↓
June 30th, 2008 — Consumer Resources, Realtor Tips & Resources
Since the influx of short-sale and bank-owned homes I have been waiting for the Tucson Association of Realtors (TAR) to get on board and add specific designations in our MLS system to address these items. It is entirely too cumbersome to search the Tucson MLS on keywords in the description fields when looking for a lender-owned home or home going through a short sale.
I don’t know how many times I’ve run the same search with the following keywords in the “Description field” and gotten different results: lender, bank, reo, foreclosure, foreclosed, short sale, short. And then, some agents only put these keywords in the “Agent Remarks” section (only us Realtors get to see those) so that makes it even more time consuming.
What’s the hold up? Apparently ARMLS (the MLS for the Greater Phoenix Area) has two such indicators to search on, “Lender/Corp Approval Required” and “Lender Owned Property”. Many other MLS’s across the nation have the same capability and yet we have not caught on.
It reminds me of the short sale addendum situation for TAR; I was at a special short-sale information session a few weeks ago and TAR finally has a draft of an official TAR created short-sale addendum; I just wish it would have been done last year.
Granted, most offices/companies already have their own version of a SS addendum but the TAR form should eliminate the headache of not having a standardized form.
Not only would having these additional search criteria make it easier for us Realtors but it would make it easier for consumers as well. Let’s hope it gets changed soon!
June 25th, 2008 — Consumer Resources, Tucson Tips
I was recently introduced to a tool offered by Tucson’s Department of Transportation (TDOT) that I have used numerous times since: The TDOT Map Center. This website is so amazingly useful I had to share it with everyone.
First, a couple caveats. You have to use Internet Explorer to view the site and you have to install their plug-in to view the maps (free of course). After that you’re good to go!
They offer twenty mapping services, from Hydrology information to Floodplain Maps (for you Marana residents I suggest reading my old post) to HOA maps to Parking Permit maps.
After selecting a map to view you can toggle checkboxes on the left-hand side to turn on/off those options. I’ll admit, the interface isn’t as refined as I’d like it (would look much better with Flash) but who am I to complain?
Besides the map center, the TDOT website offers a multitude of resources for Tucsonans and I encourage you to explore their site when you have some freetime.
June 24th, 2008 — Consumer Resources
This is part two of my Tucson Short Sales series. If you haven’t read part one (Tucson Short Sales - Part 1 - What are Short Sales?) please read it first for the proper background.
In this article of the series we will go over the ramifications of a short sale. Keep in mind that you should not go ahead with this decision lightly and I would recommend exhausting every other possible avenue before considering a short sale. Also keep in mind that I am not an accountant, a lawyer, or anything other than a Realtor.
Alright, here we go. You’ve called up your accountant, talked to your lender (or tried to), asked your Realtor for advice, asked your friends and family for advice, and you haven’t had much luck. You’re upside down on your mortgage and/or you can no longer afford your mortgage and/or your job is transferring you and/or you’re PCS’ing to another base. The truth there is there are many possible reasons why you may be considering a short sale. Here are the issues we will be going over:
- Credit Impact
- Tax Implications
- Personal Liability
Credit Impact
This is the first question to pop into many homeowners’ minds; Will my credit be affected? The short answer is: YES! A short sale is reported differently then a foreclosure to the credit bureaus but can still result in a 200 to 300 FICO score decline.
Now keep in mind, we are assuming the homeowner doesn’t have the assets to cover the difference between their mortgage and whatever they are able to sell their home for. These assets can include: 401k, IRA, Money Market Accounts and Mutual Funds. If you can come to the closing table with a check to cover the difference then there will be no issues at all!
After a short sale your credit report will show a “settled for less than owed” connotation which essentially prevents you from getting any sort of loan for a 24 month period. Fannie Mae recently changed their guidelines for lending to previous short-sale homeowners in the wake of the recent credit crunch. Effective June 1, 2008, for loans to be considered by Fannie Mae from any potential borrowers their credit history must be cleared from any foreclosure activities for at least 5 years. And after those five years, a borrower would have to have a Fair Isaac Corp. (FICO) credit score of 680 and put 10 percent down.
National trends suggest that banks are becoming more willing to negotiate new terms with homeowners facing foreclosure, so please call up you bank if you are having trouble making payments!
Tax Implications
The tax implications in a short sale are actually quite complicated and exist in several layers. We will begin by discussing federal income tax implications. Let’s say you bought your house for $200,000 three years ago. You now owe $195,000 but it is only worth $165,000 and you short sale the home.
Now, the bank has a couple of options here. One is to sue you for the difference ($30,000). If you can’t pay this difference your credit is hit with a “deficiency judgment” which hurts it even more (in addition to the short sale.
Another option is for them to choose not to sue but instead to claim a “tax write-off” of the $30,000. But in the eyes of the IRS the $30,000 difference between what you owe the bank and what you paid the bank (from the proceeds of the sale) is seen as “phantom income“. The IRS would actually kick the homeowner while they were already down, forcing them to pay income tax on $30,000. Assuming a tax bracket of 25%, that is a whopping $7,500!
Fortunately for homeowners, in December 2007 President Bush signed into law IRS Revision Bill HR3648. In a nutshell, this bill removes the tax liability from the homeowner in the event of short sale. In addition, this bill also extended the tax deductibility of Mortgage Insurance through December 31, 2010.
Also remember there may be further tax state implications. Check with your local state laws for further information.
Personal Liability
The amount of your personal liability depends heavily on several factors and here is the quick explanation:
A “non-recourse” loan is one in which the borrower does not have personal liability for the loan; the property is the collateral. A “recourse” loans is where the borrower does have personal liability for the loan.
What this means is, if you obtained a non-recourse mortgage and foreclose or short-sale the home, the lender cannot go after your personal possessions (car, boat, other homes, kids) to satisfy the debt. If you have a recourse loan, they can (except probably for the kids).
Now how do you know what type of loan you have? Go read your loan documents! It should be spelled out quite clearly. Here is an unofficial list of states that have non-recourse loan laws:
Alaska
Arizona
Arkansas
California
Colorado
District of Columbia (Washington DC)
Georgia
Hawaii
Idaho
Mississippi
Missouri
Montana (as long as non-judicial foreclosure is used)
Nevada - note that the lender CAN get a deficiency judgment
New Hampshire
Oregon
Tennessee
Texas (but even in a non-judicial foreclosure, the lender can pursue a deficiency judgment)
Virginia
Washington
West Virginia
The other thing to remember is that refinancing or second mortgages typically are not covered under non-recourse loan laws; check with you lender or loan documents for further clarification.
Summary
I hope the information I provided above is useful to some of you homeowners out there. Please keep in mind that these are merely guidelines to begin your quest for information, be sure to follow up with more qualified individuals.
In light of the magnitude of this issue I will be adding one more article to my Tucson Short Sales series, the outline will now be:
If you would like to search the Tucson MLS for Short Sale, Bank-Owned, or Foreclosure homes, search my Tucson MLS or contact me for a comprehensive list.
If you would like assistance in avoiding foreclosure feel free to contact me for a no-cost consultation.
June 16th, 2008 — Consumer Resources, Finance Sector News
Yesterday the Arizona Daily Star published this article about the executives of the now defunct First Magnus Financial Corp. forming and opening another mortgage company, StoneWater Mortgage Corp.
It seems unfair to me that a company can go belly up (which I wrote about last August), declare bankruptcy (all the while not having paid their employees their final wages), and yet come back to life in a matter of months doing the same thing while the mess they left behind still lingers! I know several people personally who were hit especially hard by the repercussions from this disaster, and I’m talking not only about being laid off, but losing cars, homes, and having family life affected.
A brief excerpt quoted Karl F.W. Young, former CEO of First Magnus:
“While it stayed largely away from loans labeled as subprime, First Magnus did do substantial business in “Alt-A” loans, which were offered to borrowers with high credit scores but have been deemed risky by investors.
Young said StoneWater will stick largely to “agency” loans — those that fit the guidelines of government agencies like the Federal Housing Administration and the quasi-governmental mortgage buyers Freddie Mac and Fannie Mae.
Initially, StoneWater will also do business only as a wholesale lender — one that provides funding for mortgages to brokers — not a retail lender that interacts with borrowers, Young said. No lending will be conducted in Tucson, he said.”
I don’t have a problem with StoneWater doing business in Tucson, in fact I applaud them for getting back on their feet. My issue is with the lack of closure with First Magnus employees regarding wages earned and owed. Young says that the back wages are “out of his control,” but it still stinks.
Judging from the comments (located at the bottom of the article), many Tucsonans feel the same way.
June 14th, 2008 — Consumer Resources
Since the real estate boom of 2003-2005 the Tucson real estate market has been flooded with homes going into foreclosure, short sale homes, and bank-owned homes. Many consumers aren’t completely clear on what a short sale is, but the easy explanation is this: Whenever you are trying to sell your home for less than what you owe on it (your mortgage), it is considered being short, or a short sale.
Why would a bank want to accept less than what you own on it? Well for the same reason that banks are in the banking industry: to make money! The average foreclosure process (notices, paperwork, court proceedings, publications in the local newspapers) costs a bank on average $50,000! That isn’t including the market value loss from the house, just the cost of actually processing a foreclosure.
You can understand why banks are much more receptive to a short sale than a foreclosure (in most cases).
In many cases banks will be more open to renegotiating terms of a loan (forbearance, principal reduction, loan modification) instead of accepting a short sale.
A homeowner in distress should always call the lender first if you are having trouble making payments, or foresee trouble making payments in the future. National foreclosure statistics indicate too many homeowners are not calling their lenders for assistance and are instead falling into foreclosure.
Believe me, the banks don’t want you to lose their home and they will try hard to keep in your house.
Stay tuned for:
If you would like to search the Tucson MLS for Short Sale, Bank-Owned, or Foreclosure homes, search my Tucson MLS or contact me for a comprehensive list.
If you would like assistance in avoiding foreclosure I can help you also, feel free to contact me for a no-cost consultation.
