In a recent article in the New York Times, the federal government has taken new steps to beef up the Home Affordable Refinance Program (HARP). The revisions to the existing program broaden the qualifications for homeowners who have an upside down mortgage; a loan whose principal balance exceeds the market value of the property.

The Administration has set viable standards and included incentives for homeowners and lending institutions who participate in the refinancing option rather than foreclose.

The governments newest program is dubbed HARP2. The first major change is that the government has raised the debt ceiling on the upside down mortgage for applicants.  Under this new program, homeowners whose mortgage is as high as 125% of market value can now apply for refinancing.  In the original HARP, the rates ranged from 97% to 125%.  Banks were hesitant to go beyond 100%.  However, the government’s support has changed the minds of participating lenders.

The factor that is affected by this change is the Loan-To-Value (LTV) ratio.  Under HARP2, the LTV for fixed rate mortgages can be 125% greater than the market value.  For Adjustable Rate Mortgages (ARM), the LTV can be 105% and for the first five years, the mortgage must be fixed rate.

The government projects this change will permit more than one million homeowners to refinance in 2012.  The government’s enthusiasm is spurred by the very favorable interest rates available on fixed rate mortgages.

There are three basic criteria for homeowners seeking refinancing through HARP2.

• The mortgage must be owned by Fannie Mae or Freddie Mac and must have originated before May 31, 2009.

• Applicants must have been current for six months straight.  Also, the homeowner can only have been late on one payment in the past 12 months.

• For a fixed rate mortgage, the LTV must be greater than 80% and less than 125%.

Some lenders are already working with applicants for HARP2.  However, most lenders are waiting until January 1, 2012.  For example, Bank of America is committed to the new program and will start receiving applications on January 2nd.

HARP2 has other benefits.  The government has streamlined the application process and has developed closing guidelines that are significantly lower than in the past.  Homeowners who have struggled to make payment can also capture lower monthly payments by extending the fixed rate mortgage to 30 years.

We experience in assisting homeowners refinance.  To learn more about all the options available to underwater homeowners, please give us a call or send us an email.

The answer to this question is much easier, if you deal with a regular real estate transaction.  Here it is: the seller is responsible for all the fees until the house is sold.  The Escrow will prorate all costs. However, when it is a short sale transaction, it is more complicated. The reason for this is that most homeowners are already having hard time paying their mortgage payments. Most homeowners will not pay their property tax and HOA. Some of them will not even pay their IRS tax.

Property Tax

Property tax should be paid twice a year. The property tax is due on November and February of each year. It becomes overdue on December and April of each year. If a homeowner doesn’t’ pay the property tax on time, the house will not be sold right away, but the county assessor office will put a lien on the property. When the house is sold, it is necessary to pay off the tax first, otherwise the title can’t be transferred to the next owner. When the house is on short sale and there are rear property taxes involved all lenders have to pay off their property taxes. It is because even if the lender forecloses the house, when the lender wants to sell the house again, the lender still needs to pay off the property tax.

HOA

HOA means Home Owner Association. When a homeowner doesn’t pay the association’s fee the HOA will either add a lien on the house or hire an attorney to sue the homeowner. Each association has a different policy. HOA charges money to prepare HOA package, when someone is buying the property.  Lenders pay the HOA package preparation and transfer fees.  But, when it comes to rear HOA fees, it depends on the lender. Some lenders will pay homeowner’s rear HOA fees and some won’t. When the homeowner’s lender doesn’t pay rear HOA fees, they will be added to the buyer’s costs. Most homeowners don’t have money to pay anything.

IRS Tax

If the homeowner doesn’t pay their IRS tax the IRS can impose a lien on the homeowner’s property.  When the property is sold, the next buyer needs to pay off that lien at first. We did help a homeowner to have his lender pay off his rear IRS tax in a short sale transaction. Today, lenders have become smarter. They might ask for evidence that there is a lien on the property before they help you pay off your IRS tax.

Feng Shui Investment is a full-service real estate brokerage specialized in short sales and loan modification. We will NEVER ask a homeowner for a penny for our short sale or loan modification service. We will NEVER ask you to give us your grant deed either.  If you need someone to help you analyze whether a short sale or a loan modification is better for you, feel free to give us a call at 800-692-1688 or E-mail us your questions.

The decision to short sale your home or property is never an easy one. If you are considering a short sale, you are most likely already in default. Simple defined, a short sale is an agreement between you and the lender(s) to sell the house for less than what you owe on it. As you are probably already aware, short selling a home can be very emotional … but, it could be the only option you have.

The housing market has absolutely tanked over the past few years, and because of this, buyers are getting great deals from those who are in over their heads. Some people have lost their jobs, while others just purchased too much too soon. However, it does not really matter why you are considering a short sale; all that matters is that you find a way to relieve yourself of some undue debt.

Some lenders are in over their heads in foreclosures, and they are more willing to consider a short sale. When you short sale a home, you are selling the home for less than it is “worth”, or less than what you owe. Some lenders are very unwilling to accept a short sale proposition, choosing rather to go into foreclosure. In most cases, this is very expensive for them. It is important to make sure your lender is willing to consider a short sale before attempting to do such.

So, how do you short sale a home? Well, the absolute first step is to contact a real estate agent that has previous success in short sales. Real estate agents are highly experienced in selling homes, no matter what the market. However, you are going to want someone who has already handled short sales before and can help you quickly move your property.

Secondly, you should be ready to move quickly when you short sale a home. If you have a lot of possessions in your home, you should try to either sell them or store them. It is so much easier to move out of a home on short notice, especially if you have already completed most of the move. Basically, the reason that you want to be able to move quickly is so that you can close on the short sale fast. If someone is interested in your property, and your lender agrees to the terms, you do not want a hiccup to slow down or stop the sale altogether.

Finally, you should close on the short sale. When you short sale a home, your real estate agent is probably going to be your best ally. They have conversed with your lender in great detail, they know all of the necessary paperwork to streamline the process, and they are working for you. If all goes well, you will sign a lot of paperwork, and then the house will be out of your name. Sometimes, there are some unforeseen problems that might arise, but overall, if you have a good real estate agent short sales are not too complicated.

Are you looking into buying homes in short sale? The short sale market can be a goldmine for first-time investors and homebuyers. When owners cannot meet financial obligations or when the debt surpasses the home value, they put their properties in short sale to avoid foreclosure. This allows them to forgo the costs, anxiety, and credit-damaging effects that come with foreclosure. But to sell a property more quickly, they offer it at a very, very low price, much to the pleasure of any buyer seeking for a discount.

It sounds simple, right? It’s not. Buying homes in short sale is trickier than acquiring properties the traditional way. To help you get through with this sans the pressure and the pitfalls, follow these insider’s tips.

Get pre-approved

Being pre-qualified and getting pre-approved are two different things. Getting pre-approved for a home loan is a standard initial step in any loan process, whether short sale, foreclosure, or even traditional mortgage. Buyers looking into investing in homes in short sale would be required by the bank to have a 100 percent pre-approved loan before an evaluation of the potential transaction would take place. Some lenders wouldn’t even consider you if you don’t have pre-approval letter.

To do this, look for a reputable mortgage lender that offers terrific service and low interest rates. Start the application one to two weeks prior to making an offer for homes in short sale. Getting pre-approved takes a longer process than prequalification since the former means deeper probe into the buyer’s repayment capabilities and assessment of income, credit history, and debts.

Find a good real estate agent

This is especially true for first-time homebuyers who are not yet that familiar with the rudiments of purchasing homes in short sale. A reputable real estate agent is one who will work you through the entire process to make it easier and less taxing for you.

He/she will negotiate to land you a better deal, help you obtain financing, and present a wider variety of options. Find a real estate agent experienced in handling homes in short sale by asking recommendations from family and friends. Be sure to inquire about the agent’s credentials, experience, and qualifications, as you would want an expert on homes in short sale to be on your side for this situation.

Request for inspections

If you’re going to buy a home that’s not in a good shape, don’t let the extremely low price lure you into buying it without first having it inspected professionally. The last thing you’d want is to spend more money than what you’ve actually saved buying homes in short sale.

Spending extra money on professional home inspection would prove to be a worthy investment. If you insist on doing the inspection on your own, be sure to assess thoroughly the interiors of the home including the plumbing, wiring, leakages, cracks in the foundation, and possibility of termite infestation, among others.

Be patient

Despite the term, the process of buying homes in short sale can take as long as 60 to 120 days to complete. Some can even take more than a year. Make sure that you and your family will have a place to live in while you are waiting for the process to finish.

At a time when many people are losing their homes because of their inability to pay their mortgage liabilities, owners are constantly looking for ways to minimize their losses through various means. One of these is making short sales.

 What is short sale?

A short sale happens when the loans against a property are greater than the property’s selling price. Many homeowners resort to short selling to avoid foreclosure on their homes and at the same time still be able to pay off the loan to the lender through settlements.

 Short Sale Tax

The amount of debt that is canceled by the lender may become part of the borrower’s taxable income.

Nevertheless, not all canceled debts will result in taxable income. The exceptions include bankruptcy, insolvency (when total debts exceeds the fair market value of the taxpayer’s total assets), and certain farm debts (those directly incurred to operate a farm where more than half the income from the previous three years was from farming and the indebtedness was to an individual or an agency engaged in lending). In addition, non-recourse loans and qualified principal residence indebtedness under the Mortgage Debt Relief Act of 2007 are also part of the exceptions.

 Mortgage Debt Relief Act of 2007

Generally, if you owe someone debt on your property and the lender forgives or cancels your debt, you may be taxed on the amount of loan pardoned.

However, through The Mortgage Debt Relief Act of 2007, taxpayers are allowed to exclude income gained from the discharge of debt on primary residence. The Act is applicable to all debts forgiven in the calendar years 2007 until 2012. The eligible amount for exclusion is up to $2 million of the forgiven debt and up to $1 million if the taxpayers are married but filing separately.

The exclusions are subject to some conditions. Before anything else, the cancelled debt should have been used to buy, build, or improve the principal residence. The exclusions do not apply if the discharge of the debt is because of the taxpayer’s performance of services for the lender or any other cause not directly related to the decrease in the value of the principal residence or a decline in the financial condition of the taxpayer.

In the past, the IRS used to treat the pardon of debt as a taxable income. However, taking out a mortgage is an obligation because you need to pay it back. When the loan indebtedness is removed or when it is reduced, such as when the lender forgives the loan, then the amount of the returns become reportable as income since the obligation to repay no longer exists. Upon the cancellation of debt, the lender should report the amount of the cancelled debt to the borrower and the IRS on a Form 1099-C, Cancellation of Debt. Qualified homeowners must complete IRS form 982, which must be passed together with the Federal tax return for the mortgage relief to be claimed.

Every short sale transaction is different. If you are planning to explore this avenue, you must have a clear understanding of everything involved in short sales, especially the short sale tax consequences, if any.