Credit

Beware of the Dangers of the "Short Sale"

As the real estate market has slowed down, you are faced with two different types of sellers. There are those who want to sell, whether they think they are at the “peak” of the market or simply want to move on to another home. Then, there are those who MUST sell for a variety of reasons. Perhaps they have been laid off their job, been transferred or the adjustable interest rate on their loan just skyrocketed, and they cannot afford the payments.

What happens to those in the last group if their loan amounts, along with selling expenses, exceed the value of the property they are selling? They have two choices: either write a check for the difference or get the lender to authorize a “Short Sale”.

What is a “Short Sale?”
A short sale occurs when there are not enough funds available from the sale of the property to pay commissions, selling costs, property taxes and the amount due on the loan. It requires that the lender (or lenders) accept less than full payment on their notes that are secured by the property. Obviously, the lenders do not want to do this, so you can’t just call them up the week before escrow is going to close, and ask them to accept less money for their note. There is a process that one must go through in order to obtain an authorization for a short sale.

Generally speaking, the lender will not even consider a Short Sale when the loan is current. So, if the seller has been making their payments all along, but now needs to sell the property, a phone call to the lender will be fruitless. He can tell them his problem until he is blue in the face, and they will just ignore his request. Basically, the lender is saying “Call me when you have missed two payments!” The reason for this is that if they made it easy, everyone would do it, and no one would take the responsibility of paying the difference between market value and the obligation amount.

Danger Number One
Obviously, the first problem that will face the seller is the fact that their credit will be ruined. In order for the lender to consider the request for a short sale, the seller must have missed at least 2 payments by 30 days. This means they have two 30-day late's reported on their credit report, which will make it difficult for them to purchase another home in the near future.

Danger Number Two
Time is always a factor in negotiating a short sale. The lender will require that the seller supply detailed information regarding their finances, including wage statements, bank statements, verification of their other obligations, opinions of value of the property, etc. After reviewing this information, they may or may not accept a short sale amount that was requested, or they may come back with a different amount that they will accept. This process could go on for as much as 2-3 months before a dollar amount is agreed upon. In that time, the seller has received additional late payments reported to the credit reporting companies, and perhaps a Notice of Default being filed as a start of the foreclosure process. The bottom line is that their credit is further destroyed by the delay.

Danger Number Three
There are many loans that have been generated through “stated income” loan processing. A stated income loan is actually designed to help people who may show lower income levels on their tax returns because of depreciation and other deductions, than they actually receive. A “stated Income” is supposed to be an amount that actually reflects the income at the time of purchase, rather than what was needed to qualify for the loan. If, during the review of the various documents requested, the lender determines that the “stated income” was blatantly false, there could be accusations of lender fraud at the inception of the loan, which could make the seller criminally liable.

Danger Number Four
The final danger, and perhaps the biggest of all, has to do with our friends at the IRS. If a lender loses money through a Short Sale, they will want to deduct that loss from their income for the year. The IRS requires a balancing of this loss for the lender to be charged to someone else as income. The lender, therefore, will issue a 1099 to the seller in the amount of the loss the lender experienced. The seller will then be required to report that as ordinary income on their tax return for that year. This amount is called “debt relief” by IRS, and is considered to be income to the seller of the home.

Let’s say that Seller purchased a home for $600,000 one year ago with 100% financing. Unfortunately, that market slowed, and he needs to sell, but the most he could hope to receive is $585,000. Now we add selling expenses of about $35,000, and we have a shortfall of $50,000. If the lender agrees to accept $550,000 against their loan of $600,000 (assuming no reduction of principle), they will send a 1099 to the seller in the amount of $50,000. The seller will need to add that to his income for the year when he does his taxes and that could result in additional state and federal tax obligation of $15,000 to $20,000. Now he is suffering from a huge tax obligation and horrendous credit. He may be in worse shape now than he was before.

There are ways to avoid the short sale through the creative financing ideas. Before recommending a Short Sale to your clients, I would suggest that you have them obtain legal and tax advice as to the ramifications that they may be facing.

Konrad Young
Real Estate Gold Group

http://companies.to/regg
http://www.realestategold.easyhomehelp.net

Why Investors Need To Network Market!

Networking is one of the most essential parts of a well-crafted marketing campaign. The reason networking can be such an effective avenue is because people you deal with can associate the business with a face and a personality. This is where your individual charisma makes all the difference in the world.

People like to work with individuals they know and like. Therefore, let your best qualities shine and establish a level of trust. The primary way to accomplish this is by showing sincere interest in people - who they are, and what they do. The overall goal of networking is to promote the business and to educate the widest possible audience on services offered by your company. Broader exposure often leads to new opportunities, prospective clients and new ideas and there's no better way to achieve this goal than through networking.

Networking opportunities are truly endless and only limited by your imagination and the willingness to interact with people around you. There is virtually no one you come in contact with that you shouldn't make aware of what you do and what services you have to offer. One of the great aspects about real estate investing is that it naturally relates across all types of social, economic and professional backgrounds.

Shelter is one of the core human needs, so you should have no trouble initiating a conversation about real estate and finding a common ground for a conversation. Whether it's a prospective home buyer, seller, renter, real estate investor, or a private lender, you should let them all know what business you are in and how you may be of service to them. All these contacts are a valuable asset to your business, and if you take advantage of opportunities that present themselves from networking, they can also become a significant source of revenue for your business. You will find that in most instances you are offering a service which is sought after among the people in your close social circles.

Konrad Young
Real Estate Gold Group
312-217-9088

Website: http://www.realestategold.easyhomehelp.net
Follow me on Twitter: http://twitter.com/RealEstateGold
Facebook Page: http://companies.to/regg

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Real Estate Gold Group

realestategold@usa.com

312-217-9088

President Obama's Homeowner Recovery Plan

The President's Homeowner Recovery Plan encompasses not only financial stability in credit markets, but tax incentives and credits to buyers to stimulate the economy and the housing industry.

Financial Stability in Credit Markets

The Treasury Department has implemented a series of programs to help our economic recovery including refinance plans to lower interest rates for homeowners, a capital program to provide banks with safeguards to allow them to start lending again and to help borrowers avoid foreclosure and a new lending program with the Federal Reserve regarding the securitization markets.

Financial Products and Securitization

Treasury Secretary Geithner wants the government to have authority over all financial products that are marketed to consumers including mortgages and credit cards. The government also wants tighter standards for mortgage lenders and stricter enforcement of lending rules. The government would like the Federal Reserve to have authority over monitoring extremely large hedge funds.

The plan also calls for changes to require that lending institutions hold more capital as reserves to avoid credit freezes in recessionary times, and stricter laws allowing regulators to take over any financial institution that may collapse and could threaten the entire financial market.

Also called for are tighter standards for U.S. mortgage lenders and stricter enforcement of mortgage lending rules.

In addition, an overhaul of the way the government monitors the procedures of clearing how banks lend and borrow money from each other is expected to avoid repeating the Bear Stearns and Lehman Brothers fiascos that took place last year when those companies ran out of funds to keep their businesses running.

The Home Affordable Refinance Program

Under the new Home Affordable Refinance Program millions of homeowners who were not eligible to refinance can now take advantage of lower interest rates as a result of the new plan.

Eligibility Requirements

· The property must be an owner occupied of one to four units. Investment properties or vacant properties are not eligible under the program.

· The loan must be owned or securitized by Fannie Mae or Freddie Mac.

· Homeowner must not be in default on their payments and all payments must be current.

· The balance owed on the borrower's first mortgage must be approximately the same or slightly under current market value of the home.

· Borrower must show proof of income that they can make the new mortgage payment.

· Program is available now until June 10, 2010.

Home Affordable Modification Program

These program is strictly for homeowners who are about to be in default or who are already delinquent on their mortgage payments. It is designed to help homeowners save their homes from foreclosure by modifying their existing loans by decreasing the interest rate, increasing the loan term and possibly forgiving the arrearage on their loans so that the homeowner can afford their mortgage payments.

Eligibility

· Property must be owner-occupied one to four units. Investment or vacant property is not eligible.

· The unpaid first mortgage must be equal to or less than $729,750 (note that there is a higher limit for two to four unit properties.).

· Only loans that originated on or before January 1, 2009, and are first liens are eligible. Second lien mortgages do not qualify.

· If your mortgage payment including insurance, taxes and any homeowner association dues is more than 31% of your gross (pre-tax) monthly income you qualify.

· Borrower has a financial hardship such as a job loss or wage reduction, illness, etc. which will not allow them to make their current mortgage payment because it is no longer affordable to the borrower.

· Loans can only be modified once under the plan.

Tax Stimulus and Credits

With the President's stimulus plan that was recently passed in February, first time home buyers can qualify for a tax credit on their federal income tax returns of up to $8,000 for qualified buyers who purchase homes between January 1, 2009 through November 30, 2009. The credit can be taken on the 2008 or 2009 tax return. There are some other requirements such as the homeowner must purchase the property as their primary residence and stay in the property for 36 months after the sale in order to avoid having to repay the money back to the government. A first time home buyer is considered anyone who has not owned a home in the past three years.

Short Sales

The success rate of short sales depends largely on the listing agents involved. Well trained agents who truly understand the process, communicate well with the bank, provide thorough and complete paperwork, keep complete records, and frequently ask the bank how they can help the process rather than demand the bank help them... they have a success rate of 90-100%. Some well trained agents get bank approval in a mater of days on a regular basis.

Without this the numbers drop off dramatically. Banks really do want short sales to work out, but are so understaffed and overwhelmed that without quality information from the listing agent the deals can flounder, or take months.

Fixing your credit

The June 2004 study by the consumer advocacy group, U.S. Public Interest Research Group (U.S. PIRG), revealed that as many as 79% of credit reports have errors – 25% of which are serious enough to potentially result in a credit denial. More than half of the reports had information that was either outdated or belonged to someone else.

Why is Your Credit Score Important?

At this point in time, you better consider the wellbeing of your credit score as the lifeblood of your current and future financial stability—and that's no exaggeration on anyone's part. There are many reasons why you need to keep track of your credit score, and among them is the fact that about 85% of all credit bureaus have misinformation in them.

These errors are unfortunate because credit reports tell a story of a person's life in regards to his finances. Therefore, to have embellishments on your credit report—to get multiple inquiries for it or to get false charges in it—will definitely affect your ability to get loans in the future. Moreover, fixing this problem requires expertise in credit legalese that the average person simply does not have.

Plainly put, when you get in trouble in the law, you go to a law firm to get a lawyer to help you. In turn, when you get in trouble with your credit score, you go to a credit repair company to get a financial expert to help you. Fixing your credit score is a bit too important and complicated for you not to leave it in the hands of a professional.

Keeping Away From the Frauds

You shouldn't just hire just any company to do the tasks of obtaining and maintaining a high credit score for your sake. Also, you need to avoid fly-by-night credit repair companies or risk wasting your money on the pipe dream of getting your credit history cleared of erroneous or detrimental debt and unpaid loans that you never even applied for.

As such, check the testimonials found in a credit repair company. Moreover, be wary of companies that "over-promise." Understand that even the best credit repair companies can probably remove only about 90%-95% of "bad" credit on your report. Finally, don't expect this service to be cheap. The rewards and the money you'll spend in the long run are more important than availing of a, say, $300 credit repair service that does absolutely nothing to your credit rating.

Tips for Getting and Maintaining a Good Credit Score

Pay your bills in that thirty day period. Cash flow, understandably, is very crucial in a lot of households. It's a safe bet that you'll have fewer credit troubles by eliminating the possibility of a late payment, barring of course the occurrence of identity theft. A late payment is one of the most avoidable pitfalls of a bad credit score, and it incidentally hurts your score the most as well.

Don't go out and buy more than you can handle. Always take into consideration the fine print, the interest rate, the payment, and all the other miscellaneous fees and headaches that you'll go through before making your purchase.

Really decide if you'll get a deal before you go to worry about financing it. Don't be so irresponsible as to cosign willy-nilly on various loans you're not responsible for, and don't overstep your boundaries when it comes to deciding if a deal is worthwhile. If you don't need it or can't afford it, then avoid it altogether.

Protecting Yourself from Identity Theft

Pull your credit report regularly. You have to check your credit every so often. If you're already with a competent credit repair company, you'll be consistently inspecting it with them anyway for any errors and suspicious loans.

Don't give your social security number out to anybody. This is self-explanatory, but to elaborate, it doesn't pay to be naive during these days of economical turmoil. Play it safe, and keep your private information to yourself.

Add a fraud alert. A fraud alert is your best friend when it comes to identity theft protection. You can apply to the credit bureaus for a fraud alert so that if someone else is pulling your credit without your authorization, you'll be immediately notified by the bank for confirmation before it even goes through.