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.

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.

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.

The real estate slump has been tough on homeowners. Because of falling property prices, many now owe more on their mortgage than their house is worth.

How does this happen? Say you purchased your home for $300,000 and take out a mortgage amounting to $260,000. But then forces beyond your control knock down your house’s market value to $220,000. At this point, your home is “underwater.” You owe $260,000 on your mortgage yet your home is worth only $220,000.

Other people refer to this as “negative equity.” In this particular instance, you would have a negative equity of $40,000 ($260,000 minus $220,000).

Zillow.com reports that of those who bought homes in 2005 and 2006, 42 and 50 percent are currently underwater, respectively.

Underwater homeowners behind on their payments are ineligible for mortgage refinancing and will find it harder to sell their home given the bleak market conditions. But it’s not all gloomy. There is an upside to underwater mortgages, depending on how you plan to wait it out, and even some surprising “perks.”

Lower property taxes

You might not realize this just yet but the plunge in home prices has brought down property taxes. Compare your annual bills and you’ll see how much yours has decreased.

Affordability of payment is not affected

If you have a steady source of income, you can still easily deliver on monthly payments for your underwater home.  To ensure you stay on track, you can take on a second job, allocate money from your bonus for the mortgage or cancel memberships or subscriptions that are not of use to you anymore.

Some mortgage companies offered free refinancing during the housing crisis. If you locked in at a low-interest fixed rate loan, then you’ll find it even more manageable.

Think home for life

You’ll find more peace if the home you’re staying in right now is the one you intend to grow old in. You won’t have to worry about fluctuating values or the cost of moving. Just stay put and concentrates your energies on paying off your mortgage.

History repeats itself

Your home may be underwater today but it is bound to regain or even surpass its value soon enough. Remember housing values are never static. Be patient. A housing recovery might just be around the corner.

Fix it up

It may sound odd to be pumping in money on an underwater home, but this can turn out to be a strategic move. Fix-ups will work to your advantage —boost the market value of your house — as long as you play your cards right.

Consider first how far underwater your home is. A 5 to 10 percent decline is pretty safe, a 60 percent plunge is risky. Take in account as well the market in your location. If there are lots of old houses in the area, a renovation is sure to set yours apart. If your area is filled with new properties, sprucing up your space might be a waste of time.

Should you need to move out, this kind of investment will not only pay off when you sell the property. By increasing the market value of your home, you can also rent it out at an amount higher than your monthly mortgage.

Your home going underwater is beyond your control. But how it will affect your future depends entirely on you and the actions you take. Look at the bright side. There are many opportunities to tap even as an underwater homeowner. The key is in knowing where to look.

How is this beneficial to you?

Simply put, a house for short sale is sold at an amount that is lower than its remaining loan balance.

A house for short sale offers a triple benefit:

• The current owner avoids many of the damaging effects of foreclosure, including lasting impact to their credit reports, and future problems on government sponsored loan programs.

• The lender avoids the exorbitant fees and considerable legwork involved in foreclosing and satisfactorily disposing of a foreclosed home.

• The buyer benefits financially, obtaining a quality home at a reduced price. This is a very unique opportunity in the current real-estate market.

Are you a buyer?

Considerable savings may be in store with a house for short sale, as the lender is willing to allow the home to be sold at less than its current loan balance.  In other words, buy your dream home for less!

Are you a borrower?

A house for short sale will impact a homeowner’s credit far less than a foreclosed home. Foreclosures remain on public record permanently and can impact borrower credit as long as 10 years or more. Also, the foreclosure must be disclosed when applying for government funds such as Fannie Mae, mortgage or investment mortgages for up to 7 years!

Once the sale is over, late payments will show on your credit report. However, a house for short sale typically shows as ‘paid as agreed’, ‘paid as negotiated’, or ‘settled’.  Therefore, a short sale is an ideal option if loan modification is not available. The impact to your credit will be much less severe.

What about lenders?

The lender is often willing to unload the house for short sale because this allows them to minimize costs associated with foreclosure.

It really does come down to the bottom line!

1. Look for a California-licensed real estate agent to represent you. A competent realtor can help you move from one step to another smoothly and manage any roadblocks along the way. Well-connected agents can even refer you to qualified lenders, contractors and other professionals that can provide the specific services you will need. Plus, California’s consumer-protection laws require realtors to hand buyers a written disclosure about their duties as agents, so you can set your worries aside.

2. File an application for a mortgage loan. Check with different lenders first to compare terms and rates that apply to short sale homes in California. This way, you can find the best match for your needs.

3. Make an offer on the house you are eyeing. Have your agent check out average rates for short sale homes in California. Try to get an estimate of the property’s market value. Refer to these figures when deciding on the price you’re going with. Note that your offer will be submitted to the lender for review and evaluation alongside offers from other parties. So your offer needs to be reasonable and realistic.

4. Your agent will have you fill out a California Association of Realtors Form SSA or Short Sale Addendum, which serves as your acknowledgement that the property is being sold as a short sale. The form also specifies the number of days the lender has to consent to the sale. By default, it’s 45 days. But if you want this process to be completed sooner, there is space on the form where you can indicate your preferred time period. Remember that this covers only one phase of the transaction when buying short sale homes in California. There are a number of other steps that need to be completed before you can close the deal, steps that could prolong the process still.

5. Wait it out. Wait to hear the lender’s feedback on your offer. Lenders often have the property appraised for a broker’s price opinion, which they use in assessing offers. The lender can do one of three things: approve your offer, reject it or pitch in a counteroffer.

You will also be waiting to hear from the loss mitigation department upon completion of their review of the seller’s short sale packet.

6. While short sale homes in California are often sold “as is,” it is recommended that you inspect the property first. Hire a California-licensed contractor to make sure you have everything covered during the inspection.

Most sellers are new to the short sale process, which is more complicated than normal transactions. If you are among those entering uncharted waters, here are some tips to keep in mind when handling short sale homes in California.

Take initiative

With short sale homes in California, it pays to be proactive. Contact your lender as soon as you can. Keep a record of all your conversations. Stay on your toes. Ask for updates when necessary.

Conduct research

Find out the short sale requirements of your lender beforehand so you know what documents to prepare.

Submit a complete package

When submitting applications for short sale homes in California, make sure the package is complete and presented in an organized manner. A basic short sale package usually includes financial statements, paycheck stubs, income tax returns, sales comparables, listing and sales agreements, a hardship letter, an estimated HUD-1 Settlement Statement, and CAR’s standard form Authorization to Release.

Get a good offer

A reasonable and realistic price is the key to getting lenders to sign off on short sale homes in California. Coordinate with prospective buyers to make sure they write a clean offer. 

Work with a real estate agent

Ask friends, relatives or colleagues if they know of a realtor experienced with short sale homes in California. Screen thoroughly for candidates. Interview more than one agent for the position. Don’t forget to request for references.

Seek legal and tax advice

Short sale homes in California can have significant consequences on a seller’s tax, credit and personal liability. Consult with an attorney and accountant to make sure you’re on the right track.

Being well-prepared and proactive and having the right support system are essential to successful transactions involving short sale homes in California. While the lender controls the outcome, remember that you can always stack the odds in your favor.

The article titled ‘Lenders won’t get off easy’, written by Jeff Collins, sets out to show how inadequate the proposed $20 billion settlement to compensate homeowners for the foreclosure robo-signing scandal might be. Lenders have been facing a lot of heat after the report which came out in the Washington post in October 2010 about how lenders were responsible for homeowners losing their homes because someone in the lenders office didn’t even bother to read the foreclosure letter before signing it.

The article speaks about the possibility of a prosecution in case the ongoing investigation discovers any criminality on the lenders part. Ever since the irregularity was uncovered attorney generals from all the 50 states have been having regular meetings with the five major banks notably Bank of America, JPMorgan chase, Wells Fargo, Citigroup and Ally financial to come up with a compensation plan. But it has not been smooth sailing as growing rebellion by few attorneys has created a situation where a deal does not seem to be imminent.

However, Iowa Attorney general Eric Schneiderman, the person who is leading the negotiations has recently issued a statement that the negotiation is moving in the right direction. But the California attorney general, Kamala Harris feels that the negotiation is not reaching the point where all the affected will be compensated appropriately. She also feels that the settlement might be too lenient by excluding the lenders from any future claims or criminal liability. The investigation, she said will not be limited to robo- signing but will also look into the allegations that the lenders provided incorrect information to the investors which ultimately lead to the collapse of the housing market and the global economic meltdown. Harris has been the forefront of this negotiation not just on the compensation part but also to include provisions to lower the interest rates and to reduce the balance loan amount.

Harris believes that many homeowners who have still not lost their house may benefit greatly by this settlement. As it turns out that few irresponsible people in control have lead to the housing bubble which has impacted millions of homeowner. And what waits to be seen is if all the negotiations and a possible settlement will bring any relief to all the people who are harmed by the actions of a few. It all depends on the willingness of these banks to come to the table and talk.