Real estate news and tips for homeowners that are thinking about selling or refinancing.

Real Estate forms–Sellers

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According to a real estate law firm, legal transactions always involve the use of forms and contracts to make the deal enforceable.  These include selling a residential property such as a home.

Selling real estate properties require the use of specific forms.  These can be the standard ones or the state specific forms.  The reason is that some states have their own set of laws when it comes to buying and selling homes which homeowners and real estate agents should follow.

Whether you’re selling your home on your own or are using a real estate agent, here are some of the most important forms that you should prepare.

Home/Property disclosure form.

This particular document is required from sellers.  As per its name, it aims to disclose the physical condition of the property at the time of sale.  To gain the trust of potential buyers and agents, home sellers needs to be as honest as they can in providing information about the real state of the property such as repairs made and other existing physical defects.

Lead disclosure form.

Those selling homes built before 1978 are required to submit this form as per the Residential Lead-Based Paint Hazard Reduction Act of 1992.  The goal is to disclose any known information regarding the use of lead paint and possible hazards, the location of this paint and condition of painted surfaces. As these are the house where the residents suffer injuries, lawyer for brain injuries in Chicago can help you stay transparent to any residents.  Executing this form is also a way of protecting the parties involved.  This can even serve as a deciding factor for the buyer whether to push through with the purchase or not after learning of the property’s condition.

Purchase contract.

Also known as a purchase agreement or sales agreement/contract, this document states the intention of the buyer.  Here is an article source that you can look up to find the legalities associated to such contracts. It specifies the proposed purchase price and details of the person buying the property as well as suggestions for an appraisal and home inspection if necessary, you can learn more at Bengal Law’s website. It should also state the payment terms such as if a deposit is required, how much and who should handle the amount.

Normally, an escrow agent is needed and in most cases, a lawyer acts as the agent.

Counter offer.

This can be presented by buyers who may not be amenable to the requested purchase price by the seller.  Most often, the counter offer asks for a lower amount and this done formally through the execution of a document.  This contains the property address, original and proposed selling price, terms and conditions, date when the proposal ends and suggested terms of payment.

There are two options when the counter offer is accepted by the seller.  It’s either the revisions will be included in the offer to purchase document or the signed counter offer will serve as supporting document to the sales contract.

Home inspection form.

If the homeowner has earlier called for a professional to do a home inspection, he or she can provide a copy of the inspection report to the potential buyer.  This will give the buyer a concrete idea in advance on the real condition of the residential property being sold and can even save him or her additional costs.

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Real Estate Forms For Selling

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real estate formsLegal transactions always involve the use of forms and contracts to make the deal enforceable. These include selling a residential property such as a home. Apart from legal part of this issue you should also learn why staging your home is an essential investment if you wish to sell fast.

Selling real estate properties require the use of specific forms. These can be the standard ones or the state specific forms. The reason is that some states have their own set of laws when it comes to buying and selling homes which homeowners and real estate agents should follow. You can easily get additional info on them.

Whether you’re selling your home on your own or are using a real estate agent, here are some of the most important forms that you should prepare.

Home disclosure form.

This particular document is required from sellers. As per its name, it aims to disclose the physical condition of the property at the time of sale. To gain the trust of potential buyers and agents, home sellers needs to be as honest as they can in providing information about the real state of the property such as repairs made and other existing physical defects. Read more

Questions & Answers: Short Sales

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Q: What is a Short Sale?

Answer: A short sale is when the lender agrees to settle the debt owed on the property for less than the amount currently owed.  “Settled” means that the bank  is writing off the debt (which is why you get a 1099 after a short sale for the debt forgiven) and that they are not going to go after you for the money they lost by filing a deficiency judgment in the future.

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

Answer: Simply click here to provide your contact information  and we will immediately begin the qualification process.  I have a very high success rate when helping homeowners avoid foreclosure by pursuing a short sale.

Q: How will a short sale affect my credit?

Answer:   Great question! There is currently a lot of misinformation on the internet about this topic.  A short sale is recorded on your credit report as “debt settled for less than the amount owed”.  This usually will result in a relatively minor hit on your credit compared to a foreclosure or late payments on your mortgage.  The word ‘”usually” is used because it affects each person’s credit differently.  The more established your credit, the less of an impact a short sale will have on your credit score.

The main reason you often hear and/or read that a short sale will reduce yoru credit rating 100 points or more is that  many homeowners persuing a short sale  stop making their mortgage payments.  If you stop making your mortgage payments for 4 months, regardless of whether you do a short sale or not, four months of missed mortgage payments will have a significant negative impact on your credit.  The missed mortgage payments have the big impact on your credit, not the short sale itself.

With that being said, if you are already behind on your payments then you have already incurred the majority of the hit that a short sale will have on your credit rating.  Conductiong a successful short sale at this point will insure that your debt is settled with your lender.  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.  If you do stop making your mortgage payments, there are various credit repair agencies that can repair your credit by removing late payments from your credit report after a short sale.

Q: Will I have to pay federal taxes on the money my lender loses in the short sale?

Answer: There are several different scenarios regarding  whether or not you will owe federal income taxes on the loss that the bank takes in a short sale.

When you proceed with a short sale  your lender is agreeing to settle the debt on the property for less than the amount they are owed. The IRS therefore allows them to write off this loss, which is why your lender will send you a 1099-C upon the successful closing of your home.

The IRS considers “debt relief” to be income for tax purposes. In other words, if your bank writes off $50,000 on your short sale, they will send you a 1099-C for that amount.  You would include that when you file your income taxes.   The “C” stands for “Cancellation of Debt” and the law says cancelled debt is taxable as income.  There are, however, a few exceptions that most people who conduct a short sale qualify for that exclude 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 proceed with 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) pay no taxes on the loss that their lender incurs in a short sale.

Homeowners who have pulled out cash from their home but have put that money back into their home to “substantially improve” their home are also excluded from having to pay taxes on the loss incurred by the bank.

All other short sale scenarios – if you pulled cash out on your primary residence but spent it 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 will not require taxes to be paid on the loss the lender takes in a short sale if at the time of the short sale you are insolvent. Insolvency means your debt–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 find themselves facing a short sale scenario are in exactly this situation and are excluded from paying taxes on a short sale.  It is highly recommend you check with your CPA or accountant or go to the IRS website and look up IRS Form 982, which is the IRS form for debt relief and short sales.  The IRS gives an explanation of  the term “Insolvency” at this website location.

Finally, the time period for The Mortgage Tax Debt Relief Act was originally slated to go through the end of 2008.  However it has now been extended to the end of 2012.

Q: Can my lender go after me for the money it loses in the short sale?

Answer:  The main purpose of a short sale is to get out from under the debt of the mortgage.  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.  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.

If you hire and inexperienced short sale agent or negotiator who does not negotiate a full release from your lender then you may be liable for the money the bank loses in a short sale or end up being forced to sign a promissory at the table.  It is never recommended that our clients sign a promissory note or close escrow without a full written release from their lender(s).

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

Answer: Most homeowners that I help with a short sale have a first and a second loan–often with 2 different lenders. For the short sale to successfully close both lbanks must approve the short sale in writing and agree to settle the debt.  It is important to note that 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 forecloses.  So, with the attitude that something is better than nothing they will agree to take a fraction of what they are owed in order to avoid getting absolutely zero capital.

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

Answer:  In general, 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 types of loans is that in a “recourse loan” the lender technically has recourse to go after the borrower for the money they lose in a foreclosure.  I say “technically” because  for this to happen the lender has to file a judicial foreclosure.

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

Answer: It will be stated on the bank’s short sale approval letter. Your lender will state in plain English (though in different verbiage depending on the bank) that they are “releasing the lien”, “reporting the sale as a settled debt to the reporting agencies”, “accepting a short payoff to satisfy the lien”, “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.

Further, 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.  Again, your mortgage holder cannot write off the debt, issue you a 1099-C & then go after you for the deficiency.

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

Answer:  The primary advantage to doing a short sale vs. walking away and letting your home go to foreclosure is that in a short sale the debt is settled and you no longer owe the bank any money.  If your home goes to foreclosure you may still be liable for the deficiency in the event that the bank files a judicial foreclosure.

A secondary yet important advantage is that in a short sale is that your credit takes much less of a hit compared to a foreclosure.  As mentioned above, the impact on your credit will vary depending on how established your credit is at the time of the short sale or foreclosure.

Freddie Mac & Fannie Mae  have 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 updated 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.  Per recent Fannie Mae / Freddie Mac guidelines, borrowers who file bankruptcy or go through foreclosure have to wait up to 7 years to buy another home.  By contrast, the new guidelines stipulate only a 24 month waiting period after a short sale so borrowers who do a short sale can buy again in just 2 short years.

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

Answer:  I have yet to hear a coherent argument for letting your home go to foreclosure vs. doing a successful short sale.  Depending on whether you have a 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 points and you will not be able to buy a home or get any decent credit for up to 7 years.

Compare this with a short sale, in which the lender agrees to SETTLE the debt for less than the amount owed. If you have 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).

Further, the loss that the lender takes in a short sale will be MUCH LESS than the loss the lender takes at the end of the foreclosure process. 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 continues to drop.

Q: How much will a short sale cost me?

Answer:  A short sale costs the seller nothing – the lender pays all closing costs, escrow fees, commissions etc. The lender may also pay any outstanding property taxes.

Q: How long will a short sale take?

Answer:  The short sale process typically takes about 4 months–start to finish.  It can take longer depending on how backlogged your mortgage holder is. You can live in the property for the entire duration of the short sale or you can move out whenever you wish.

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

Answer:  No.  This is a common misconception. You do not need to be behind on your payments or have been late on a payment to do a short sale although the lenders tend to be more motivated to do the short sale if you are not making payments.

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: There are 2 types of bankruptcy commonly used by individuals – Chapter 7 (“Fresh Start”) and Chapter 13 (“Wage Earner”). Chapter 7 enables individual filers to wipe away debts such as credit card and medical bills so they can continue to make their mortgage payments.  Chapter 13 involves setting up a 3-5 year repayment plan to repay your debts. Chapter 13 requires that you are earning 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.

Because of 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).  While both Chapter 7 and Chapter 13 can temporarily delay foreclosure proceedings, neither will allow you to keep your home unless you can bring your mortgage current.

In a nut shell (I know this was a long article), it is worthwhile to pursue any alternative besides foreclosure.  I am available to chat at anytime so give me a call or shoot me an email (which is confidential) if you need questions answered or are intersted in pursuing a short sale rather then letting your home go into foreclosure.

Don’t Be Ashamed. . . Seems like everyone’s doing it

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Lack of jobs, divorce, injury and death of a loved one often forces hard working folks into default on their home loans.  Without help, foreclosure looms.  Don’t be ashamed to save your home and the opportunities for homeownership in the future.   There is hope. 

Three options that a homeowner in or nearing default has are 1) Deed in lieu of foreclosure, 2) Loan Modification, and 3) Short Sale.  From experience, the first two options have had a low success rate with the third having the highest.  It’s a mystery as to why this is the case yet feel the banks are a step behind and lack the work force to service those in need within a timely manner. 

You will need the services of an experienced short sale specialist upon deciding that a short sale is needed.  I specialize helping homeowners in need of alternatives to foreclosure.  Call me for no obligation consultation at anytime—869-3469.

1)  A Deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.

The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him/her from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he/she would in a formal foreclosure. Another benefit to the borrower is that it hurts their credit less than a foreclosure does. Advantages to a lender include a reduction in the time and cost of a repossession, lower risk of borrower revenge (metal theft and vandalism of the property before sheriff eviction), and additional advantages if the borrower subsequently files for bankruptcy.

Neither the borrower nor the lender is obliged to proceeed with the deed in lieu of foreclosure until a final agreement is reached. 

2)  Loan or Mortgage modification is a process where the terms of a mortgage are modified outside the original terms of the contract agreed to by the lender and borrower (i.e mortgagor and mortgagee). In general, any loan can be modified.

In the normal progression of a mortgage, payments of interest and principal are made until the mortgage is paid in full (or paid-off). Typically, until the mortgage is paid, the lender holds a lien on the property and if the borrower sells the property before the mortgage is paid-off, the unpaid balance of the mortgage is remitted to the lender to release the lien. Generally speaking, any change to the mortgage terms is a modification, but as the term is used it refers to a change in terms based upon either the specific inability of the borrower to remain current on payments as stated in the mortgage, or more generally government mandate to lenders

Mortgages are modified to the benefit of the borrower in one or more of the following ways:   1)Reduction in interest rate, or a change from a floating to a fixed rate, or in how the floating rate is computed, 2)  Reduction in principal, 3)  Reduction in late fees or other penalties, 4)  Lengthening of the loan term, 5)  Capping the monthly payment to a percentage of household income./

The borrower can be current, late, in default, in bankruptcy, or in foreclosure at the time the application for modification is made. The programs available will vary accordingly.

3) A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency. 

In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the borrower. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. Neither side is “doing the other a favor;” a short sale is simply the most economical solution to a problem. Banks will incur a smaller financial loss than foreclosure or continued non-payment would entail. Borrowers are able to mitigate damage to their credit history, and partially control the debt. A short sale is typically faster and less expensive than a foreclosure. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

Lenders often have loss mitigation departments that evaluate potential short sale transactions. The majority have pre-determined criteria for such transactions, but they may be open to offers, and their willingness varies. A bank will typically determine the amount of equity (or lack thereof), by determining the probable selling price from an appraisal or Broker Price Opinion (abbreviated BPO or BOV).

Lenders may accept short sale offers or requests for short sales even if a Notice of Default has not been issued or recorded with the locality where the property is located. Given the unprecedented and overwhelming number of losses that mortgage lenders have suffered from the 2009 foreclosure crisis, they are now more willing to accept short sales than ever before. This presents an opportunity for “under-water” borrowers who owe more on their mortgage than their property is worth and are having trouble selling to avoid foreclosure as a result.

Home Selling Quick Tip 3

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Make sure to clear out the clutter.  You want your home to shine above and beyond the other homes on the market.  Remember that the average home buyer is going to look at 10-20 homes that meet their criteria before they make a decision.  This is a case of first impressions.  If you don’t make the list of top 2-3 homes on their list, your home will be forgotten and discarded from their search.  You usually only get one chance.  Make it count.

By taking 4-5 hours upfront to fix up your home and stage it a bit can go a long way.  Even $200 – $500 in staging can end up netting you thousands more on your house.  It is so worth it.

Sell Your Home Quick: Tip 2

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Come up with a sales strategy, but make sure it’s flexible. What’s your initial asking price? How long will you insist on it before making a reduction? How much of a cut will you accept? What about after that? Having a plan in place will help you react quickly, according to Greenwood, and will move your home that much more quickly.

Buyers want to feel like they are getting a deal these days.  It is important to know your bottom line and not be offended if you don’t get a full price offer.   Roll with the punches and understand that this is business and not to take it personal.  You always have final say when it comes to the actual accepted price.

Sell Your Home Quick: Tip 1

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Price it right. The No. 1 thing that will sell a house quickly is price.  Of course you want to make sure that it is out there and people know it is for sale.  But all the marketing in the world won’t sell an overpriced house.

OK, so just how do you play the home-sale version of “The Price is Right”? That crackerjack agent you hired should have a good sense of what price will help sell your home sooner rather than later. As the owner, your objectivity is diminished, so give your agent free rein, within reason, to set the price. The broker will look at the average days a home in your neighborhood is on the market, how your home compares to others in the area and its condition.

Keep in mind too that even if you are able to find a buyer at above market value, an appraiser will have to “approve” the price if the buyer is financing the home.   This can be a deal killer and is becoming more and more prominent.