Guest Review by Tara-Nicholle Nelson

Image courtesy of Penguin.com.

Book Review
Title: “The Complete Idiot’s Guide to Getting Out of Debt”
Author: Ken Clark
Publisher: Penguin, 2009; 352 pages; $16.95

If years were keywords, perhaps 2009 was “frightened frugality.” This year was all about belt-tightening in the face of a very uncertain financial future, for our nation and ourselves, as individual families and people. Now that we’re on what most agree is the other side of the financial apocalypse, albeit just barely, my guess is that 2010 will be the first of perhaps several years of recovery for most Americans.

This year, everyone I knew hoarded their cash because they weren’t sure what would happen next. Next year, most of us who haven’t already done so will be putting an action plan in place to rebuild our finances, from the foundation up.

So what is the foundation of these new and improved personal finances so many of us will be building in 2010? Freedom from debt — especially nasty credit card and other unsecured debt. In the world of credit cards, the 2009 keywords would be “skyrocketing rates” and “crazy-making unilateral terms changes.” Accordingly, the 2010 keywords should be “pay it off” — and “The Complete Idiot’s Guide to Getting Out of Debt,” by certified financial planner Ken Clark, promises to provide “simple and effective solutions” to help us all pay it off and “(g)et back on firm financial footing.”

My knee-jerk antipathy to any book whose purchase is equal to a deep insult to my own intelligence was stopped short by the back cover’s assurance that “you’re no idiot, of course.” So, I gave it a chance. And if you’re looking for a systematic, hopeful approach to resolving your own debt, you should too.

“The Complete Idiot’s Guide to Getting Out of Debt” provides a simple, crystal-clear process and plan for, well, getting out of debt. It presents a set-by-step approach that sits right in the realistic, reasonable middle of the two extremes usually espoused by debt-elimination tutorials — hard-core, complicated, time-consuming models that do not take into account the psychology of those who carry a lot of debt and their frustration potential at living on pork and beans to get rid of a few credit cards (on the one hand) and the life-consuming, psychoanalytic approach that focuses more on talk than on the action needed to mow through the bills

A) We all know that pricing is the most important part of marketing your home for sale.

B) A willing buyer and seller are key to executing a sale and buyers set market price for everything.

Right? Not so fast.  We have experienced a climate change in the entire real estate market specifically, Los Gatos and comparable San Jose neighborhoods.

Today, the appraisal has become a problem for some.  Just look at Los Gatos  homes for sale they are like a floating iceburgs…. some underwater.  The appraisal issue has created some warming and chilling.  Why appraisals? It’s called HVCC (Home Valuation Code of Conduct).   Basically, it means a buyer’s lender will have little, if any, persuasion in the appraiser’s valuation.   Cooling home prices and heating up debate.

When the Poole family wanted to make an offer on a home recently they were surprised I suggested a number much lower than the listed price.  It was obvious to me the home was poorly priced.   Due to the HVCC issue the appraisal came back even lower!  This was great news for us and terrible news for the seller.

Appraisals are now ordered and obtained through appraisal firms who then distribute the appraisal orders to their list of appraisers. The chosen appraiser may not be familiar with the Los Gatos Real Estate market, the surrounding neighborhoods in Cambrian or the broader San Jose Real Estate Market that they are being asked to evaluate.  Real climate change.

Should you ask your Real Estate Agent to provide a market analysis to help set a Los Gatos ‘market price’ for you?  Yes, but not any “agent” will do anymore.

In the end the appraisal will make or break the pending sale.

A market analysis report provided by an agent is derived from the MLS and misses a few appraisal factors as part of the equation.  Alternatively, an agent who provides BPO (broker price opinion) to lenders will have experience using a more accurate formula as opposed to an ordinary agent’s market analysis.

Lenders order BPOs from qualified Broker/Agents, as an analysis tool,  for refinancing, loan modifications, short sale approvals and foreclosure pricing.   Using a Broker/Agent, who is qualified to provide lenders this kind of  information is a better choice.

So what do you do?

• Interview several Realtors to help you ‘range’ your price.
• Request contact information from their past clientele.  Not simple ‘textimonials’.
• Choose one who provides 3rd party resource material as part of their pricing quote.
• Try to find a Realtor who is a BPO provider and request their BPO documentation that supports their familiarity with your neighborhood.

Using these simple tips alongside a common sense marketing approach will help you price your home realistically.  Remember,  the appraisal will ultimately define the selling price and it is of enormous importance to get it right from the start.

How would you feel if you accepted a “pie in the sky offer” to only have the buyer’s lender not grant loan approval?  You would probably go off like Mt. Vesuvius and that won’t help the climate change debate.

I can give you a value

23 mistakes you better avoid

Realtors Lie?

In Real Estate we call it a Short Sale.   Alternatives are bankruptcy, foreclosure or granting a deed in lieu of foreclosure. I prefer a mortgage short sale.

Does your home resemble a non-performing asset?

The Basic steps you will need to accomplish The Short Sale process Start here.  Execute these simple steps and successful negotiations will follow.

First what is a short sale?  Here is the short sale definition:

In ”short”, a shortsale is when the lender agrees to settle the debt owed on the property for less than the full amount of the debt. In most cases “Settled” means the lender writes off the debt. You usually will receive a 1099 after a short sale for the amount of debt forgiven. The bank is agreeing not to go after you for the money they lost by filing a deficiency judgment in the future. The exception is the HELOC loan where they reserve the right to file a default judgment.

Step 1

Contact your mortgage lender. Don’t just call or email customer service or the “loan work out” department. You need to speak with the manager of the problem loan department or another individual who has the authority to approve a short sale request.

While mortgage lenders can be sympathetic to these problems, they are never anxious to allow a short sale. If you are uncomfortable in this role, let your lawyer or Realtor negotiate with your lender.   This article clarifies the latest trends.

Step 2

Write a letter authorizing your mortgage lender to disclose your loan information to real estate agents, lawyers, title companies, or other interested parties. Your loan information is subject to privacy laws so your lender needs your written authorization to release this data to anyone.

At a minimum, this letter should include the property address, your name, your loan number (or other identifying data), and, if appropriate, a list of the parties for whom you wish this information to be given.

Step 3

Compile some preliminary financial information (sometimes called a “Net Sheet”) about your prospective short sale. A HUD 1 can be produced by your local  Title Company. It should include the expected sales price and all costs that might be attached to the sale, including your current unpaid loan balance, payments due, real estate commissions, and loan or other fees expected to be payable.

If you’re unsure how to create this document, your real estate agent, lawyer or advisor should be able to produce it for you in collaboration with a local Title Company at no expense to you.

Step 4

Write a serious “hardship letter“, detailing all the surrounding events that have occurred to cause you to arrive in this financial situation. Explain your economic problems honestly and directly ask your mortgage lender to accept a less than full balance payment. While the more dire your circumstances, the better the chance your request will be granted, you should resist the temptation to over dramatize your situation. A concise explanation will be most acceptable.

Step 5

Write up a statement of your current income and all of your other assets for your mortgage lender to evaluate.   This step is usually helps the Lender identify assets to help pay down their loss.

List your other assets, including bank accounts, stocks or other investments, additional real estate, and anything else of value. This information should support your assertion  that you have neither the income nor the assets to repay your mortgage loan in full.

You will often be asked to submit the last 3 to 6 months’ bank statements, also. Your mortgage lender will examine these to learn if there are recent large cash withdrawals or high numbers of checks clearing your accounts. Lenders want some assurance that you haven’t been hiding or diverting funds that might go to them.

Step 6

Compile a current market analysis of real estate sales in your area to emphasize the wisdom of your request for a short sale. This document should show the selling prices of similar homes in your area for the past 3 to 6 months.  In rural areas, with little or no sales activity, a 1 year history will be acceptable. You should also include some similar properties currently for sale in your area.

During times of market value declines, short sales become more “popular” and this comparative analysis again reinforces the need for you to request this consideration. If you’re unsure how to create this analysis, your real estate agent can prepare this document for you.

Step 7

Next?   An interested (patient) buyer is all you need. After you reach common ground with a potential buyer, deliver a copy of your proposed Letter of Hardship Letter, Authorization to Communicate with Third Party, Purchase Agreement, Listing Agreement, MLS Property Report, Hud 1, to your mortgage lender.

Your Realtor should assist you at a very  high level here. They will want to examine the price, terms, and other conditions in the document.  Don’t be surprised if your lender attempts to renegotiate (downward, of course) some features, like real estate commissions or other financial considerations you’ve made.

Assuming your lender accepts the agreement, you can then proceed to bring your short sale to fruition. This is a test of patience for many. If you have hired a Realtor experienced in Short Sale transactions this process will go more smoothly.

download new FHA short sale guidelines

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• Homeowners Weigh Staying or Leaving (online.wsj.com)

If you were current when your short sale is made you have every chance of buying a new home according to the new guidelines from the Department of Housing

from FHA guideline-

Borrowers are considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage

• All mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale, and

• All installment debt payments for the same time period were also made within the month due.

Lenders are not allowed to approve  a new home purchase  if…

from the FHA guideline-

-Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Lenders may make exceptions to this rule under certain circumstances.-

Another caveat is that if you are simply trying to take advantage of the market a new FHA insured mortgage will not be approved-

Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to
• take advantage of declining market conditions, and
• purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.
Reference: For detailed information on converting existing principal residences into rental properties, see 4155.1 4.E.4.g

You can download the guidelines in a PDF format below here download FHA Guideline PDF

I don’t know how sexy insulation is, but with tax season coming it is a very good time to plan ahead for spring.  If you do it right you could get a few ‘sexy’ bucks from Uncle Sam.

If you are planning to do a remodel project take time to plan.  I know, how else would you do it?   I am talking about planning what materials and products you and your contractor are going to use.  Don’t forget to get a permit if the cost of improvement  exceeds $1000.

The San Jose Planning Dept. has reduced staff, so start the process early.

If someone offered you free money wouldn’t you take it?  Well, the IRS is here to do just that.   When choosing your materials and products be sure they qualify for a the  new energy rebates.

With all the short sales and foreclosures it has become fashionable to remodel your existing home rather than try to sell and move up.  This is the case in Los Gatos and most of Santa Clara County, lately, and will likely increase over the coming Spring months.

The product specs here are what you’ll need when shopping.   Remember to take it with you they are technical and easily forgotten.  Especially, if you are easily distracted by power tools and paint sample displays.

realted articles

Remodel advice/opinion

sell or remodel  hmm.

why wallpaper?

The median price of a home sold in the county rose 9.9 percent compared to a year ago to $494,400 in November, according to MDA Dataquick, the second straight month of year-to-year increases.

The number of homes sold also rose 47.2 percent to 1,649 in Santa Clara County.

“The latest stats show just how much the Bay Area market has changed in a year,” said John Walsh, MDA DataQuick president.

The question I hear most is…”Has the market bottomed out?”

If this price trend continues for another quarter I will answer with a firm, yes.   For now,  let’s agree that the prices are not falling and the inventory is very low especially,  in the Los Gatos Real Estate Market.  This usually means higher prices, not to mention, the low 4.8% 30 year fixed mortgage rates available.

The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $1,639 last month, down from $1,665 the previous month, and down from $1,695 a year ago reports Dataquick.

That’s 52.2 percent below the current cycle’s peak in July 2007.   What a steep slide.  It’s true that more streamlined Short Sale process will balance the severely discounted REO closings to help further the trend too.

Looking forward to 2010?

related stories

Fannie Mae needs help

2008-2009 chart

Fixer Upper Fix

Selling your home because it’s a non performing asset?

Zillow is here to help.

I often compare the short selling of homes to the selling of stocks that are not delivering a fair dividend.   How does that cause a rental market you ask?

This is what’s happening…

The surge of interest in rental properties is due to the decline in housing values.  This is causing so many homeowners to walk away or to attempt a short sale of their homes.   The Los Gatos  Rental market is a glaring example.  Have you tried to find a rental here?    Those upside down sellers need housing and are searching for rentals in large numbers

It is fair to say Zillow has found a new product to peddle.

We can only hope that the lease prices are more accurate than the terrible performance of their “Zestimate” which, arguably,  has not shown to be very accurate.

Their rental zite (yes zite as a play on their ‘z’ nomenclature) provides mapping too.  If you have any experience with the search engine or results I am interested in hearing your opinion.

The rumor several banks have agreed to streamline short sales is true and will certainly make the spanking a light one.  How do I know?  When I inquired why my calls were not being returned, for a few days in October, contacts at BofA told me they were being trained for a new program to expedite…something.

This ‘something’ has something to do with…

• What affect Loan Modifications have on Fannie Mae
• How does streamlining  Short Sales make any sense
• What is a  Shadow Inventory?
• How does Macro Economics play a roll?

Foreclosures are Down

From RealtyTrac.…“November was the fourth straight month that U.S. foreclosure activity has declined after hitting an all-time high for our report in July, and November foreclosure activity was at the lowest level we’ve seen since February,” says James J. Saccacio, CEO of RealtyTrac. “Loan modifications and other foreclosure prevention efforts, along with the recently extended and expanded home-buyer tax credit, are keeping a lid on the most visible symptoms of the nation’s ailing housing market — foreclosures and home value depreciation.”

But!  Loan Modifications are Failing

True, the temporary loan modification program just ended…opening the door for permanent modifications.   That is if the temporary loan mod payment schedules were met by applicants,  Right?   Yes.  That is not what is happening though.   After the inexcusable delays, lost documents and lack of communication borrowers are giving up on this failed theory.   Fannie Mae (may) be looking at a nasty spanking through increased foreclosures if alternatives aren’t implemented.

Shadow Inventory Myth or Fact

Have you heard the term  ‘Shadow Inventory’ (SI)?  The belief that banks have tons of foreclosures?  Keeping them in the ‘shadows’ as inventory?   It’s true but, not the conspiracy many have theorized.  I know of several cases where people are several months past the default deadlines and still have not heard from the Sheriff (meaning they have not been officially foreclosed on in practice).  This is one way a  shadow inventory is created.

Taking into consideration that modifying loans will not help those who can’t afford their payments, unemployment numbers comes to mind,  it makes perfect sense that an expedited short sale process is the best solution.

Short Sales -  The Next Best Thing to a Spanking

Since Short Sales net more money than REOs (foreclosures) it is reasonable to expect banks to promote them by doing… something like this.

Fannie Mae insures many mortgages and subsequently gets spanked for the losses following low net REO sales.

note: Watch for legislation changes next year.   Fannie Mae holds an enormous amount of political  leverage and the mid term elections are coming!

Removing the stigma that foreclosures place on the market, through short selling,  stabilizes prices, reduces shadow inventory and improves the outlook as a whole.   Perfect!  download FHA short Sale Guidlines PDF

Macro Economics…my tiny brain version

Since you have read this far let me create a ‘big picture’ with my tiny brain.    Banks are myopic to the degree that they are in the business to make money.    Looking at Real Estate as being a single issue for the banks,  makes us myopic.

A Real Estate investment is the single largest investment a person will make. When it fails to produce dividends (equity) it affects ones entire financial situation. This is no less true for banks.

Think about it..not only mortgages…they are battling delinquent credit cards, bad car loans, signature loans etc..  All leading to huge losses and fewer potential investors.  The banks see what is on their horizon and are working to prevent it at all ‘cost’ (or loan from the taxpayer).  Better save that for another time, so…

Fannie Mae (may) get a spanking, but it may be one of affection rather than discipline if the foreclosure fears are relieved.  This can ONLY be done through the streamlining of short sales.  Think I am wrong?  Don’t bet on it.

related articles

Only 4% get long term help

Mortgage help coming slow to many

Back taxes Plague Loan Mods

No Jobs!  No Deal!

The purchase of a fixer-upper house is often a catch-22 situation, because the bank won’t lend the money to buy the house until the repairs are complete, and the repairs can’t be done until the house has been purchased. Fixing up your new house is a costly idea in Los Gatos, San Jose and the whole Bay Area, really.

HUD’s 203(k) program can help you overcome this cost obstacle by enabling you to purchase or refinance a property plus the cost of making the repairs and improvements in one mortgage.

Dian Hymer of Inman News suggests “design your offer with a 60 day close and a 45 day finance contingency.”

The FHA-insured 203(k) loan is provided through approved lenders nationwide and is available to persons wanting to occupy the home

The 203(k) loan includes the following steps:

1. A potential homebuyer locates a fixer-upper and executes a sales contract after doing a feasibility analysis of the property with his/her real estate professional. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
2. The homebuyer then selects an FHA-approved 203(k) lender and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.
3. The appraisal is performed to determine the value of the property after renovation.
4. If the borrower passes the lender’s credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.
5. At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
6. The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
7. Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines their will be no liens on the property.

Dian Hymer of Inman News suggests “design your offer with a 60 day close and a 45 day finance contingency.”

Now,  what are you waiting for?   Call your Realtor and find a fixer..Quick!

15400 VIA PALOMINO Single Family  4 bed(s) /3|1 bath(s)23,482 sq ft     Monte Sereno $2,395,000

16242 AZALEA WY Single Family  3 bed(s) /2|0 bath(s) 8,000 sq ft Los Gatos   $1,229,000

102 HOLLYCREST DR Single Family 3 bed(s) /2|0 bath(s) 7,070 sq ft  Los Gatos  $799,000

14225 LORA DR #102 Condominium 2 bed(s) /1|0 bath(s)     2,242 sq ft Los Gatos $345,000

These homes all sold for below their asking price from  High reduction of -9% for Lora Drive and low price reduction of 3% for Azelea Way.  Home sellers and agents in Los Gatos and surrounding areas should take heed of the substantial reductions made this week.    The days on market or CDOM are more relevant factors in pricing homes today than we have seen in the past few years.

This article  (here) is evidence our market is doing better than average.