Michael Roberts' Blog -San Jose Homes, Real Estate and Houses for Sale » Sellers

What are contingencies for a home purchase and home buyer inspection?

Michael Roberts — Wed, 25 Aug 2010 20:34:17 +0000

In the purchase contract your contingencies are those items that determine if you still like the home, accept the value and choose to proceed with the purchase. I listed the three types below. Their purpose is to provide a set time period for you, the home buyer, to investigate the property condition, title history and to secure financing.

The common contingency periods are 10- 17 days. The clock starts at the ratification date of the contract or when your purchase offer is signed and acknowledged by all parties.

Property Condition

Financing

Title Conditions

These are the most common contingencies found in your purchase contract. They are not required , however your contract should have one or more of these the contingencies. Which contingencies, is dependent upon the structure of your particular home purchase offer. The following details their significance to help you avoid the most serious consequences.

Property Condition: This is usually based on reports like the home buyer property inspection, the termite report, roof report and, when applicable, the fireplace or masonry report.

You may order any number of inspections you deem necessary. Inspections for rural property would be far more extensive than those necessary for a home in the suburbs or condominium. Raw land (dirt) properties require the most intensive inspection process. This would include septic or perk, utility soil, geological etc.

Loan Contingency: The loan approval or financing contingency is used to give you time to gain your loan approval. There is an additional element, the appraisal. These should be tied together. If the home you want to buy appraises at a value equal or in excess of your offer you won’t have any problem.

The appraisal contingency can cause a problem if it is incorrectly used in the contract. What if the home does not appraise for the amount you offered and you removed your loan contingency? For example, you received your loan approval subject to the appraisal and you removed your loan contingency. What if the home appraisal did not meet the offer price you and the seller agreed on?

You would likely find yourself in a pickle. It would be up to you to find a way to cover the difference in price. Not a fun place to be. You could negotiate with the seller and ask for help, pull money out of your pocket or hope you have another contingency to use to cancel the contract. I suggest you take measures to prevent that from happening. Make sure the contract uses language that ties the loan approval and home appraisal together.

appraisal note: The new loan disclosure process, that began last July, requires the lender to disclose your costs and allow you 72 hours to review them (commonly called the GFE [good faith estimate]). Often by email (except Wells Fargo). When that is sent to you by email or if your lender sends by regular mail you simply respond to it and that initiates the appraisal order.

The appraisal then occurs. The appraised value simply needs to meet the value that you offered for the home. We then remove appraisal and loan contingency.

Title: The title search is performed by the title company hired to hold escrow and perform it’s duties as a neutral third party. The title report is necessary to identify any clouds on title. Clouds on title are issues that affect ownership. This would include liens (encumbrances) and ownership rights of others attached to the property.

In addition, it clarifies lot lines, easements and the ownership title chain. The title company will provide a preliminary title report during the contingency period set forth in your home purchase contract and a final report, an updated version of the preliminary report, is available prior to the transfer of ownership.

Condominium buyers have a few other items to consider and should have these built into any contract. The most common of these is the Home Owners Association documentation. This package can be quite extensive. It covers the contingencies mentioned earlier and other important items: HOA budget, HOA reserves, HOA meeting minutes covering the past 12 months, articles of incorporation and by laws.

Not as common, yet becoming very important in today’s atmosphere, is to determine if the HOA project, sometimes called a PD or PUD, is FHA approved for FHA lending or VA approved if you are considering a VA loan (veteran’s administration).

Michael Roberts is a licensed California Realtor and real estate investor providing agent representation to home buyers and sellers in the San Fransisco Bay area.

He can be contacted at mroberts at rwnetwork.com or his Website Sad but True (true story) You might find the ending a happy one.

Terry (not her real name) called our office in tears. Her home was going on the county steps, the following day, to be sold to the highest bidder in a trustee sale.

She did have a little cash in the house in the form of equity. Not Fair!

Not a fun call by any measure.    After living there for 25 years and raising her family, the lender was foreclosing.   Not a rare story…I know.

This put the whole office in a buzz to solve Terry’s problem. I called my cash investors, others called attorneys.    My ‘ace in the hole’ investor was in Europe the other was unable to put it all together in such a short time.

It was looking dire by the end of the day.

The only solution turned out to be bankruptcy…according to legal council! That’s not what this story is about though. This was the only way to halt the foreclosure and allow Terry some time to get a grip. After all, she raised her kids in this home, had no job prospects and was on the verge of a serious breakdown.

She needed to hit pause.

Terry was not devoid of responsibility and I won’t defend her position.   She just needed help.

So, the only alternative was bankruptcy. The search began for an attorney to embrace Terry and get the ball rolling.   This was done in an attempt stop the snowballing effect! One found, we began to focus on solutions.

Move ahead a few days….

Terry hired us to meet the required ‘sale of the home‘ that the Trustee ordered.   This is where it went haywire AGAIN! The Trustee said he had the legal authority to choose and hire a Realtor. Well, his Realtor was preparing to sell the home for a ridiculously low price (about $100K low).   Leaving Terry with nothing! The Trustee’s agent claimed his price was based on his ‘expert opinion‘, the current market and the home’s condition.

Not so fast mister! We appealed to the Judge that this agent was out of his gourd. Providing some strong fact based data, we were granted the job to sell Terry’s home. Sorry Mr. Trustee‘s agent (and Mr. Trustee)!

The home was in bad shape, for sure. The kitchen cabinet doors were falling off, the Master Bath was in need of a Hazardous Materials Team and the yard more resembled a Jungle than a forest meadow with curb appeal.

We jumped in with both feet. Providing labor, guidance, advice and, in some cases, a late night shoulder for Terry to cry on.

The home sold in 10 days. The offer was great and provided Terry with $90,000.00 dollars after expenses.

We make money doing this, right? In this case there was little money left over after all the hours and effort.   It wasn’t what I earned that was rewarding, it’s what I learned…..

I work with the best group of ‘people’ in the world! They’re not your typical, robotic, scripted salespeople who only look out for themselves…they’re real people – that care!

I almost forgot the best part.    Once Terry began to see the light at the end of the tunnel she gained enough confidence and piece of mind to secure a great job!

Terry has a bright future on the horizon!

note: this solution is not for everyone there are short sale and other options to consider

Borrowers Harmed From Numerous Sources

Michael Roberts — Wed, 24 Feb 2010 20:08:36 +0000

This Video (below) is proof many homeowners in all areas are at risk of scammers, including San Jose homeowners. When you ask for help selling your San Jose House, remember, if it sounds too good to be true..Then it probably is!

There are no ‘Magic Wand’ solutions if you find yourself against the wall with your mortgage. Using common sense and a applying pragmatic approach is still the best and most effective way to determine whether you should sell your Los Gatos home or buy a smaller more affordable house in San Jose.

A good rule of thumb is to obtain 3 professional opinions and weigh them one against the other.   The first solution may not be the only solution and… Watch This Video!

Prop 60 and Prop 90 Transfer Tax Reminder

Michael Roberts — Mon, 22 Feb 2010 18:58:06 +0000

You may be thinking of selling your home by downsizing or moving closer to family, well Proposition 60 and Proposition 90 have to be considered too. Ask your CPA.

California property owners who are over 55 years of age may qualify to transfer the assessed value of their principal residence home sold in one County to their new principal residence they buy in another County.

A copy of the tax bill from the other county and a copy of the applicant’s birth certificate will be required by the County Assessor to be included in the application.

This website provides property tax answers for property owners who are selling and plan to move.

A Copy of the grant deed for the new purchase along with a copy of the closing statement of both the sale and purchase are also required.

Here is a short summary of the eligibility requirements…

Either the seller, or a spouse residing with the seller, must be at least 55 years of age when the original property is transferred.

The replacement home must be of equal or lesser “current market value” than the original property.

The replacement property must be purchased or built (newly constructed) within two years (before or after) the sale of the original property.

An application must be filed by the owner within the three years following the purchase date, or completion date of new construction, of the sale of the original property.

The filing is a one-time-only opportunity. Prop 60/90 cannot be granted if the claimant, or spouse of the claimant has already been granted this relief in the past.

Prop 60/90 relief includes, but is not limited to: single family residences, condos, units in planned unit developments, cooperative housing, corporation units or lots, community apartment units, mobile homes subject to local real property tax, and owners’ living premises which are a portion of a larger structure.

You, the taxpayer, are not eligible for this relief until you actually own AND occupy the replacement property as your principle residence

Proposition 90

Proposition 90 allows a homeowner to transfer the base year value of their principal residence in one county to a newly purchased residence in another county providing that certain requirements are met. Only a limited number of counties are participating in Proposition 90.

Proposition 90 Requirements (Santa Clara County):

The requirements for Proposition 90 in Santa Clara County are the same as for Proposition 60 except for the following:

1. Effective date: November 9, 1988.
2. A non-refundable processing fee of $78 is required.

The effective dates and filing fees vary from county to county. Those property owners interested in transferring the base year value from their principal residence located in Santa Clara County to a newly purchased residence in another county should call that county to make sure that the other county is participating in Proposition 90.

Applications must be filed in the county where the newly purchased residence is located.

The following is a list of those counties which have approved Proposition 90 and will currently accept base year value transfers from other counties.

It is essential for you to call the co-operating County to which you wish to relocate. You will want to verify that they are currently accepting the value transfer under Prop 90 and what their particular requirements are. For any further questions, the property tax office in Sacramento for all counties in California can be reached by calling (916) 445-4982.

Counties can and should be verified by calling the appropriate number…

Alameda – (415) 272-3755

Orange – (714) 834-2746

San Diego – (619) 531-5507

San Mateo - (415) 363-4500

Los Angeles – (213) 974-3101

Santa Clara – (408) 299-4347

Ventura – (805) 654-2181

I am not a Tax Advisor – For More Information Please Contact:

Assessor Real Property – General Questions, Property valuations and Propositions 3, 8, 60, 90
70 West Hedding St., East Wing
5th Floor
San Jose, CA 95110
Phone: 408-299-5300
Email: RP@asr.sccgov.org

Get More Drive Byes with 5 Curb Appeal Killers

Michael Roberts — Sat, 20 Feb 2010 06:50:16 +0000

You won’t sell your home in Los Gatos, San Jose or Phoenix for that matter, if you can’t get the potential home buyer to the front door. Homes for sale, regardless if they are short sales, must look neat and tidy!

When they drive up to your for sale sign will they still want to come in?

Those potential buyers will become drive bye byes if….

Lawn is overgrown and there is cheezy yard art everywhere

Weeds are growing in the flower beds and around the walkways

When the door is being opened it squeaks and the paint is old

The paint is peeling and cobwebs have taken over

The Doorbell is hanging off the wall or doesn’t ring

It is so very simple to overcome these curb appeal Killers if you want to sell your home!

Here are a few suggestions of how you can take care of these 5 deal breakers for little or no money. Get those home buyers in the door!

An overgrown lawn should be mowed and edged properly.

Remove any lawn art, Holiday decorations, Beware of Dog and I love Cats signs.   Pets can be a deal breaker for some home buyers and your Realtor can help you address this in a better way.

Pull weeds along walkways and flower beds and dispose of them.

Leaving the dead weeds in a pile somewhere after you pull them is actually worse than pulling them at all. It leaves the impression that you don’t follow through. So get rid of them!

Repair a sticky or squeaky door and paint it.

WD 40 will usually fix a squeaky door. Spray hinges lightly while you swing the door back and forth to help it get deep into the hinge mechanism.

A sticky door can be a bit more technical, but a little common sense and some time is all it takes. Look carefully where the door contacts the frame to find any rub marks. Usually, a good scraping off of old built up paint will do the trick.    Check the latch to see if the strike plate is out of alignment. The strike plate is the small plate on the frame where the bolt enters. Adjust it if necessary. Are the hinges tightly screwed in? No? Choose the right screwdriver and tighten them. Now Paint!

Painting is easy!   A light sanding and a patiently applied coat of white or an accent color will bring a bang to the entry! Caution: Paint won’t stick to WD40 so you should wash areas where you sprayed it with a little alcohol swab.

Broom away cobwebs followed by a good washing of the front and touch up peeling paint.

Washing the front with a power nozzle attached to your garden hose, before removing cobwebs, will only make it worse so, brush them away first. Peeling paint is an easy fix! Scrape away loose paint and simply apply a light coat of fresh paint.   If matching the color is difficult paint larger areas from a corner to the nearest opposite corner or trim board to trim board.

Does the doorbell work? Is it attached to the wall?

When a doorbell doesn’t work it can be for a number of reasons. Doorbells are powered by low voltage, so there is no reason to fear electrical shock.   Remove cover plate and look to see if the wire is connected.   Reconnect wire if necessary and reattach it.   Here is a simple ‘one move fix’ to cover all the reasons it may not work. Go to your local Lowes or Home Depot and ask for a wireless doorbell. These are easily attached and there are no wires to fiddle with.

Want to take it all up a notch? Add color. In most every gardening center or department you will find what is called a color bowl.   These are filled with bright flowers and soft green fillers. Strategically placed along boring walkways or a bland porch can really add some attractive flavor. Tip: Always work with odd numbers 3s, 5s and 7s.   Using odd numbers of plantings always appears more natural.

A large new welcome mat, placed at the entry to your home for sale, will make home buyers feel more welcome and it also gives a sense of ‘new’. What can buyers expect when they enter?

5 Steps to Sell a Home for More Money

Michael Roberts — Wed, 10 Feb 2010 20:28:41 +0000

Staging – 5 Easy Ways to Sell Your Home For More Money

Thinking about putting your home on the market this spring? Are you going to be a home seller or just another host of a Los Gatos ‘home for sale’? It’s never too early to start planning for your upcoming home for sale. And there’s a lot to think about. Perhaps one of the most crucial pieces to finding that perfect buyer is staging your home for sale properly. And that means…..de-cluttering.

Having a lot of clutter lying around the house tends to tell prospective buyers that “this house is your place, not theirs”…..never a good message to send. Removing clutter will not only make your home appear clean, well maintained, and move-in ready, but will also give you the added benefit of helping you relax after a stressful day of work. Here are seven tips on how to de-clutter your home.

1. Prepare for a de-cluttering marathon. This is a big, sometimes emotionally draining task and is best tackled in small bites. You’ll want to gather some de-cluttering tools before you begin.   Garbage bags, boxes, and dusting cloths can be most helpful. If you find yourself having trouble staying organized throughout the process you may want to start three piles labeled “throw out”, “put away”, and “charity.” This approach will keep you from throwing out things you want to save, and saving things you want to throw out.

2. Throw out old, unused stuff that tends to find itself on countertops and shelving such as junk mail, bills, receipts, etc…. Outdated paperwork can also find its way into drawers and closets. Potential buyers want to see San Jose homes for sale that have lots of counter space, not your mail or last Sunday’s paper. So don’t let the junk mail keep you from receiving an offer.

3. Sort through closets to find extra storage space. If your closets are overflowing with “stuff”, it may be time to do some closet purging. Potential buyers love to see storage space when they open closets. If the buyer’s eye goes directly to the boxes, cloths and clutter, they won’t notice all the great storage space you have. Overflowing closets also have the habit of telling buyers that your home doesn’t have enough storage. But not to worry, there is an easy fix to the full closet….. If you haven’t used something in a year, throw it out.

4. Clean off book shelves to give your room an open, lighter feeling. Again, buyers are looking for a Los Gatos home that has lots of storage space and if your shelving is packed with stuff, buyers will assume your home doesn’t have enough storage. Maintaining well organized, half-full book shelves also gives the appearance of space and can make a room feel larger than it actually is. And don’t forget to pack up the majority of your personal pictures when staging a home for sale. You want potential buyers to see themselves in your home.
5. Maintaining clear kitchen countertops has the potential to visually double the size of your kitchen. Always a good thing. The golden rule for countertops is to have no more than two appliances sitting on the counter. Los Gatos homes for sale that feature vast expanses of countertop space will have a competitive advantage in today’s buyer’s market. And it would be a shame to miss out on an offer because kitchen clutter overshadowed your fabulous countertop space.

Then you are on your way to the 26 seller tips.

And last, but not least, celebrate! If you’ve managed to de-clutter your entire home, then you deserve a pat on the back. You’ve just completed the most inexpensive remodel of your home possible. Potential buyers will see the value in your work and you will, quite possibly, be rewarded with a higher offer!

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26180 Hi 9 Los Gatos House for Sale

Michael Roberts — Sat, 06 Feb 2010 05:10:26 +0000

HUD Short Sale Guidelines

Michael Roberts — Thu, 28 Jan 2010 14:59:53 +0000

Do you own a HUD-FHA financed home, and need to do a Short Sale? Here is a summary of the requirements to perform an FHA-insured HUD shortsale or “Pre-Foreclosure” Sale:

You must be delinquent 31 days or more delinquent at the time of sale.

You must list the property with an un-related Licensed Real Estate Broker

You must actively market the property for four months (up to six).For the first 30 days of marketing, the short sale lender (mortgagee) may only approve offers that will result in a minimum net sale proceeds of 88% of the “as-is” appraised Fair Market Value (FMV). During the next 30 days of marketing, the lender may only approve offers that will result in minimum net sale proceeds of 86% of the “as-is” appraised FMV. For the rest of the marketing time (60 days), the lender may only approve offers that will result in minimum net sale proceeds of 84% of the “as-is” appraised FMV.

The property must be an owner-occupied, except for cases of job transfer, death, divorce, job loss

There should be written proof of your decrease in income showing inability to pay the mortgage, job loss, etc.

HUD will pay up to 1% of buyer’s mortgage as part of closing costs if the new mortgage is also FHA, plus reasonable “seller” costs

HUD allows 6% Realtor commission

HUD will not pay for Home Warranties, points or lender’s title insurance

You must get approval to participate in the HUD Pre-Foreclosure Sale Program in advance

Upon acceptance into the program, you will be given Approval To Participate Form which will outline program restrictions

There are a number of basic short sale faqs not addressed here.   This HUD guideline sets some of the story straight though.    For more FAQs read this.

Home Mortgage Short Sale Information FAQs

Michael Roberts — Wed, 20 Jan 2010 23:16:44 +0000

Q: Short Sale definition. What is a Short Sale?

Answer: 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.

Q: How do I know if I qualify for a short sale?

Answer: If you have a heavy asset portfolio that would cover the amount above the home’s value then the answer is likely to be no. Each case is different and would be better answered after a professional review to help learn how to short sale.

Q: Will a short sale affect my credit?

Answer: There is a lot of misinformation on the internet about this. A short sale is recorded on your credit report as “debt settled for less than the amount owed”. In plain English, this will result in a relatively minor hit to your credit compared to a foreclosure or late payments on your mortgage. A short sale will affect everyone’s credit differently. The more established your credit, the less of an impact it will have on your score.

If you stop making your mortgage payments for 4 months, regardless of whether you do a short sale or not, 4 months of missed mortgage payments will have a significant negative impact on your credit. A short sale will drop your credit 100 points or more.

If you are already behind on your payments, you have already incurred the majority of the hit that a short sale will have on your credit. Moving forward with a successful short sale will insure that your debt is settled with your lender.

However, if you are current on your payments and can stay current throughout the short sale process, you will save your credit to a large extent.

Q: SHORT SALE TAXES: Will I have to pay taxes on the $$ the lender loses in the short sale?

Answer: THIS IS THE MOST ASKED QUESTION: There are several scenarios with regard to whether or not you will owe federal income taxes on the loss the lender takes in a short sale.

When you do a short sale, your lender is agreeing to settle the debt on the property for less than the amount they are owed. As a result the IRS allows them to write off this loss, which is why your lender will send you a 1099-C after the short sale.

The IRS considers “debt relief” to be income for tax purposes. If your lender writes off $20,000 on your short sale, they will send you a 1099-C for that amount, and you would include that when you file your income taxes. The “C” stands for “Cancellation of Debt” and the law says canceled debt is taxable as income.

However there are EXCEPTIONS that most people who do a short sale qualify for, excluding them from having to pay taxes on their short sale.

Thanks to the Mortgage Tax Debt Relief Act that George W. Bush signed into law in January of 2008, homeowners who do a short sale on their primary residence, and have a purchase money loan (in other words, they have not pulled cash out of their home with a cash-out refinance HELOC) pay no taxes on the loss that their lender incurs in a short sale.

What is… pull cash out/Equity?
Answer: Homeowners who have pulled out cash from their home but have put that money back into their home to “substantially improve” their home, also are excluded from taxes on the short sale.

All other short sale scenarios – if you pulled cash out on your primary residence and spent it on something other than upgrading your home or if you are doing a short sale on a second home or investment property – result in a taxable event unless you qualify for the “Insolvency” exclusion.

The IRS does not require you to pay taxes on the loss the lender takes in a short sale if, at the time of the short sale, you are insolvent. “Insolvency” means your debts (including your mortgage) exceed the value of all your assets. In other words, if, at the time of the short sale, you have more debt than you do money or assets, you are considered insolvent.

Many people who short sale are insolvent and excluded from paying taxes on a short sale. I recommend you check with your accountant or IRS form 982, which is the IRS form for debt relief and short sales. The IRS gives an explanation of “Insolvency” on this form.

Q: Will I have to pay CA state taxes on the money my lender loses?

Answer: California has passed its own version of the federal Mortgage Tax Debt Relief Act. It is Senate Bill 1055, which conforms to the federal law described in detail above, but applies to California state income taxes on a short sale.

There are differences between the state and federal law.

The term of the California law was only until the end of 2008. As of Jan 2009, this law is no longer in effect.

However, CA, Tax Code Section 17131 provides that, unless there is some specific California statute to the contrary, California law tracks federal law on what income is excluded from taxation. Since there is currently no specific California law on this issue, short sales do not produce taxable income under California law as long as the Federal Mortgage Tax Debt Forgiveness Act is in effect (until the end of 2012).

I recommend you speak with your accountant and have them answer any tax questions that you have. I am not a tax accountant and do not give tax advice.

Q: Can my lender go after me for the deficiency in the short sale?

Answer:   The whole point of a mortgage short sale is to get out from under the debt of the mortgage. Your lender cannot write off their loss on their corporate taxes, send you a 1099-C, so you have to pay taxes on the loss, report the short sale as a “settled debt” on your credit and then turn around and go after you for the money.

This is why your lender will send you a 1099-C after the short sale. The “C” in “1099-C” stands for “Cancellation of Debt.”

Hiring an inexperienced short sale consultant or negotiator who does not negotiate a FULL release from your lender, could result in the liability becoming yours for the money the lender loses in a short sale or you could find yourself being forced to sign a promissory note to close escrow.

Q: What if I have a first and a second loan on my property with 2 different lenders (or the same lender)?

Answer: In most cases where people have a first and a second loan, they often are with 2 different lenders. For the short sale process to close escrow, both lenders have to agree to the short sale and agree to settle the debt. Thankfully, both lenders have a vested interest in doing this. The lender with the first loan does not want to foreclose, and therefore is willing to give a little money to the second in order to get them to agree to the short sale.

The second lender will get nothing if the first mortgage forecloses. The attitude that something is better than nothing is becoming more prevalent.

Q: What is the difference between recourse and a non-recourse loan?

Answer: A purchase money loan is considered to be a “non recourse” loan, while a “cash out” loan is considered to be a “recourse” loan.

The difference between these two loans is that in a “recourse loan” the lender has recourse to go after the borrower for the money they lose in a foreclosure, technically. For this to take place, the lender has to file a judicial foreclosure, which is rarely done in CA.

The majority of foreclosures in CA are “non-judicial” foreclosures, where the property is sold at a trustee sale.

Q: How will I know that I am being released from the debt?

Answer: You will know that you have been released from the debt right on the front in plain English. “releasing the lien”, “accepting a short payoff to satisfy the lien”, “reporting the sale as a settled debt to the reporting agencies”, “issuing a full satisfaction of the mortgage”, “not pursuing a deficiency judgment”, or some other variation that states they are settling the debt for less than what they were owed.

More importantly, your bank will issue a 1099-C to you, the borrower, after the short sale, confirming that the debt has been written off and is settled. Your lender cannot write off the debt, issue a 1099-C and subsequently go after you for the deficiency.

Q: What are the advantages of a short sale vs. letting my home go to foreclosure?

Answer: Many people ask this question: The primary advantage is that in a short sale, the debt is settled and you no longer owe the bank any money. If you foreclosure, you may still be liable for the deficiency in the event that the bank files a judicial foreclosure.

Secondly, in a short sale, your credit takes much less of a hit compared to a foreclosure.

Finally, Fannie Mae & Freddie Mac revised their guidelines in August of 2008 with regard to how they view borrowers who have filed bankruptcy, gone through foreclosure or done a short sale. Through these new guidelines, they are in effect severely penalizing those who go the route of foreclosure or bankruptcy, and rewarding or encouraging those who do short sales, which they view as the borrower doing the responsible thing in light of the circumstances.

Recent Fannie Mae / Freddie Mac guidelines stated borrowers, filing bankruptcy or foreclosure, may have to wait up to 7 years to buy another home.

In contrast, the new guidelines stipulate only a 24 month period after a short sale.

Q: Are there any advantages to letting my home go to foreclosure vs. doing a short sale?

Answer: I have yet to hear a good premise for letting your home go to foreclosure vs. short sale. Depending on whether you have recourse or non-recourse loan, when you let your home go to foreclosure you either run the risk of being liable for the deficiency amount or liable for the income taxes on that loss.

Secondly, your credit will drop up to 400-500 points and you will not be able to buy a home or obtain respectable credit for up to 7 years.

Comparison: With a short sale, the lender agrees to SETTLE the debt for less than the amount owed. If you have a recourse loan, you may be liable for income taxes on the lender’s loss (just as in a foreclosure) but you will not be liable for the deficiency (and if you qualify for the “Insolvency” exclusion, you will avoid the income taxes as well).

Furthermore, the loss that the lender takes in a short sale will be MUCH LESS than the loss the lender will incur following a foreclosure. The foreclosure process takes months & months, at the end of which the lender has to process the property through its overwhelmed system (another 3 -5 months) and then put the property back on the market, all while the market forces move against them.

Most importantly, the impact on your credit from a short sale will be significantly less than with a foreclosure and you will be able to buy again within 2 years, in most cases, compared to a 7 year waiting period to buy a home following the path of foreclosure.

Q: How much will a short sale cost?

Answer: Nothing –lender pays all closing costs, escrow fees, commissions etc. The lender may also pay any outstanding property taxes if negotiated properly.

Q: How long will a short sale take?

Answer: The short sale process typically takes from 2-4 months, start to finish. It can take longer depending on the subject lender, the abilities of your chosen professional and your personal level of determination. You can choose to live in the property for the entire duration of the short sale or you can simply move out whenever you wish.

Q: Do I need to be behind on my payments to do a short sale?

Answer: No, however lenders are known to be more motivated if you are not making payments or behind.   If you have a forbearance agreement it should not affect the commencement of a short sale.

Q: Do I need to hire an attorney to do a short sale?

Answer: You will be better represented in a short sale by an experienced Realtor who practices real estate sales on a daily basis. A Realtor is an integral part of the short sale and possesses the experience to market your property aggressively in order to attract, screen and deliver buyers to successfully execute the sale.

With that said a word of caution. Many attorneys seem to be preying on the fear and desperation of people facing foreclosure. Their websites use scare tactics to make people think that they would be crazy to do a short sale without first hiring an attorney. They wrongly attorneys as the only people qualified to interpret a short sale approval, and that hiring an attorney is normal and an accepted part of doing a short sale, like hiring an attorney for divorce proceedings.

The overwhelming majority of short sales are conducted by real estate brokers who are experienced at negotiating with the lenders and charge NO UPFRONT FEES for their services.   You can hire a realtor who employs a team of professionals that include an advising attorney to help.

Q: I found an attorney’s short sale website that says a new law in California, as of July 1 2009, supposedly limits negotiating short sales to attorneys ONLY. It says that from July 1 on, all short sales have to be negotiated by attorneys and not realtors. Is this true?

Answer: No. Misinformation put out of late regarding this law by attorneys looking to get into the short sale business. I recommend you be wary of an attorney trying to interpret the law for his or her enrichment.

The California Foreclosure Consultant Act (July 1 2009) applies to foreclosure consultants – those who collect an advance fee for modifying loans or helping borrowers avoid foreclosure in situations where a Notice of Default has been filed on the property. This Act has an exclusion in it Realtors
Per CA Civic Code and the CA Assoc of Realtors, The California Foreclosure Consultant Act does not apply to real estate agents facilitating a short sale except in the extremely unusual event that an agent is 1) Making a direct loan for a residence in foreclosure, 2) Acquiring an interest in a residence in foreclosure, 3) Receiving an advance fee before performing services for a residence in foreclosure, or 4) Assisting an owner in obtaining the remaining proceeds if any from a foreclosure sale of an owner’s residence.

Q: Should I file bankruptcy? Will it allow me to keep my home? I’ve heard the lender cannot foreclose if I file bankruptcy.

Answer: In bankruptcy there are two types commonly used– Chapter 7 a.k.a “Fresh Start” & Chapter 13 “Wage Earner.” Chapter 7 can give individual filers ability to wipe away debts such as credit card and medical issues and continue to make their mortgage payments.

Chapter 13 encompasses setting up a 3-5 year repayment plan to repay debts. It requires you have a steady income, as you will be repaying all of your debt. Both have a very negative impact on your credit and remain on your credit report for 10 years.

Due to the new 2005 bankruptcy law, which raised the bar for people to qualify for Chapter 7 “fresh start” bankruptcy proceedings, fewer and fewer people pass the “means” test to qualify for Chapter 7 and for this reason can only qualify for Chapter 13 bankruptcy (a 3-5 year repayment plan).

Chapter 7 Bankruptcy, in a foreclosure stay process, allows the bank trustee to choose the Realtor and the price for the impending bankruptcy sale of your home.   While a Chapter 13 allows you to have some control of the sale of your home and who you employ.

Unfortunately, both Chapter 7 and Chapter 13 temporarily delay foreclosure proceedings, neither allows you to keep your home unless you can bring your mortgage current.

Q: Can any agent do a short sale?

Answer: NO. Many agents have no interest in doing short sales because they require a tremendous amount of time and expertise. If you don’t know what you are doing, they often go to foreclosure.   93% percent of short sales do not sell due to poor representation.

You get one shot at doing a short sale – if your Realtor has not learned the many strategies, necessary, through experience, you will likely find yourself in a foreclosure proceeding.

Tip: Taking action quickly will serve you well in preventing foreclosure through the short sale process.

Our Short Sale team is qualified to provide professional advice and the ability to secure short sale approvals in all 151 counties in California and refer other tested professionals throughout the Nation upon request.

this faqs document created in collaboration with Justin DeCesare SdHomeGuy.com

Selling your House? How Could You?

Michael Roberts — Wed, 20 Jan 2010 01:57:26 +0000

Your neighbor Harry, the one that never shaves and causes you to wonder if he knows that there are still department stores that sell pants that fit, you know who I am talking about. Harry will be the first one at your door telling you how much he is going to miss you when you move away.

Away. From Harry.

Maybe you should buy a home in Los Gatos or West San jose. is that far enough?   Cambrian sounds pretty good.   You need to sell your house first though.

You have decided you are going to save money and do it yourself.    More money for you will help you get further from Harry. So, where do you start?

Figuring out what your house is worth is probably what you are thinking.   Not exactly… and…. yes, it is.   Better be quick. Harry is getting really Buddy-Buddy since he learned you are selling your house.   Saving that 6% Realtor fee should help get it done faster.

Think about it.   You have more room to negotiate!

Do you have experience selecting the prospect pool or knowledge of tested marketing techniques? How about relationships with hundreds of Realtors who have buyers that are best suited, qualified and ready to buy your home?   Probably not.   But…Harry would love to give you his 2 cents.    2 cents you don’t need.

Selling a house is more of an art than a science.

You are smart though. You can learn, right?   You are smart enough to read marketing flyers, read other listing comments, you can get tips from a Real Estate forums about how to negotiate sales price and terms etc. Great. Except half of what you learn will be wrong.    About as wrong as Harry’s 2 cents.

I would bet only 1% of what you read will be usable. The fact is, 80% of homes sold are sold by less than 2% of all the real estate agents.    That means most of what you read will be sourced from 98% of Realtors who are listing homes that will eventually be sold by, you guessed it, the other 2%.

Can you compete with professionals of that caliber?

To be frank, yes, many homes do sell when listed for sale by owner.

The statistics for those sales are very poor though. If a ‘Realtor Listed’ home will sell faster for more $$$, even after all Realtor costs are deducted, why wouldn’t you hire a full time professional?

In the coming days I am going to present a series of articles to help guide you through the morass.

You won’t have to feel sorry for lonely Harry either.   He will be as happy to see your house sold as you are to say goodbye to old Harry. Maybe that house you saw for sale in Los Gatos is closer than you think!