18. March 2012 by Kristian Alekov.

Imagine for a moment you are behind on your mortgage. Like so many others, you simply bought at the wrong time, became unemployed or under-employed, got sick, a disability, divorced or any combination thereof. It’s been 5 months [or more] and you just can’t catch up. You tried – started by cutting the premium cable channels, then it was the home phone, pool guy, internet, pretty much any luxury you used to enjoy – still, you can’t catch up.

You Did Everything You Could

You did everything right. When the problems started, you called your bank – you told them you were having trouble, you told them about your illness, disability, the divorce, job loss, reduction in hours – you told them, yet they really didn’t have any answer when you asked “what are my options?”. You didn’t qualify for a loan modification, or any of the other government programs that might actually help you avoid the “F” word – Foreclosure.

Ironically, while your bank is seemingly unwilling to help you, it seems like everyone else wants to, the phone won’t stop ringing from investors that swear they have a solution or REALTORS that contact you about the possibility of a short sale. It’s not just the phone either, your mailbox is full with letters, postcards, newsletters from everyone and seemingly anyone that says they have a solution to your problem.

Banks Pay Delinquent Homeowners To Avoid Foreclosure

Just when you think all hope is lost you get a letter in the mail from your bank – the same bank that didn’t have an answer for you a few months ago is now offering you money to sell your home and avoid foreclosure. Not just money but big money – 5 figures, to sell. You read the letter from your bank with enthusiasm, but that enthusiasm is quickly overcome with skepticism, is this a scam? The kind of scam you have heard about on the local and/or national news? You pick up the phone and promptly call your bank, turns out, it’s not a scam – it’s real!

Short Sale Better For Banks And Homeowners

Banks all over the country are learning what any seasoned REALTOR® could have told and/or showed them – short sale is a much better option for homeowners, and let’s face it – the banks bottom line – it makes more financial sense to allow struggling homeowners to complete a short sale than it does to foreclose. When a homeowner falls on tough times many stop paying their mortgages, not just their mortgages, many stop paying their property taxes, homeowners insurance and maintenance as well – landscaping, plumbing, roof and pool maintenance, painting etc. This property deterioration leads to further reduction in property value. By the time banks take possession through foreclosure, they’re out thousands of dollars in attorneys fees, lost mortgage payments, property taxes, HOA fees and more.

Foreclosure Costs Banks More Than Short Sale

In many areas, Arizona, California, Nevada, Florida [those states hit hardest by the foreclosure epidemic], foreclosures end up costing the bank a lot more than the 5 figure payment the bank is offering homeowners to complete a short sale. Short sale is a better option for all involved as short sales generally sell for more than foreclosed homes, which slows the decline in property value of neighboring properties or entire subdivisions/neighborhoods. According to the National Association of Realtors [NAR],

in December 2011, foreclosed properties sold for an average of 22% less than conventional sales, while the discount for short sales was only 14%.

The incentives to short sale over foreclosure were recently reported on by Bloomberg

No Silver Bullet For All Homeowners

While this is not a silver bullet for all homeowners [some have 2nd mortgages that may demand all or part of the payment from the 1st mortgage] I don’t think you will find many that wouldn’t agree this is a step in the right direction.

What should you do? Contact your favorite REALTOR®, REALTORS that work short sales – most do, at least they do here in the Phoenix Metro area – and ask him/her to keep you abreast of changes as they occur that could help you avoid the “F” word, foreclosure.

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12. March 2012 by Kristian Alekov.

Chapter 83 of Florida Statutes provides the steps to follow in an eviction case. The following information is to assist you with what documents must be filed and the costs involved in a simple eviction case.

The filing fee, payable to the Clerk of Court, is usually around $98.00, but varies between counties. Payment may be in the form of cash or personal check with proper identification.

Below are included the basic forms necessary for evictions for non-payment of rent. This short summary of the legal procedure is targeted toward regaining possession of your property. It does not address the payment or recovery of back rent and damages owed to you.

Step One: Prepare and Serve Three-Day Notice.

Before filing a Complaint to recover possession, a landlord must serve a Three-Day Notice demanding payment of rent or possession of the premises within three (3) days (excluding Saturday, Sunday, and legal holidays) after the date of delivery of notice. After the expiration time on the service of the Three-Day Notice you may proceed with filing the Complaint for Eviction. (Remember how we count the days.)

Step Two: Complaint  & Summons

Prepare Complaint: The landlord shall file the original Complaint and sufficient copies of the Complaint for each tenant with the Clerk. The Court must also receive a copy of the Three-Day Notice and a copy of the lease, if one exists. You must also attach a copy of the notice and lease to each copy of the Complaint. The Complaint must be signed in the presence of a deputy clerk or must be notarized by a notary public.

Issuance of Summons: After the Complaint is filed and the fee paid, the Clerk will issue an Eviction Summons/Residential. A copy of the Complaint, three-day notice, and lease (if one exists) will be attached for service on the tenant. The Sheriff or a private process server can serve this Summons.  The Sheriff’s fee is usually around $20.00 per tenant and must be in the form of cash or money order. Other Florida counties may vary. If paid by cash, you must personally deliver the Summons to the Sheriff’s Office, Civil Processing Department. Private process server fees vary and you would contact them directly.

Certificate of Mailing: If the tenant cannot be reached either personally or by substitute service, the summons can be served by posting (attaching to a conspicuous part of the premises). If this occurs, the landlord must request that the Clerk mail the notice to the tenant by Certificate of Mailing.

Step Three - Day in Court

Answer by Tenant: The tenant has five days (exclusive of Saturdays, Sundays and holidays) after service of the Summons to file an answer. If an answer is filed and monies are deposited, the landlord must contact the Court to schedule a hearing.

Default:

If the tenant fails to answer the Summons, the landlord may file a Motion for Default by Clerk/Default and proceed with obtaining a Final Judgment for Possession and obtain a Writ of Possession

The Clerk is authorized to enter a Default at the end of five days after service is obtained upon the tenant. Upon the default being entered by the Clerk, the Judge will then review the file and enter the Final Judgment for Possession and direct the Clerk to issue the Writ of Possession.

Furnish the Clerk with an original Final Judgment for Possession and a copy for each of the tenants and yourself. You must also furnish the Clerk with pre-addressed stamped envelopes to the tenant(s) and yourself for mailing the conformed copy of the Final Judgment. The Writ of Possession should be presented to the Clerk for issuance.

Step Four: Wrapping it up

After entry of the Judgment, the Clerk will issue a Writ of Possession to the Sheriff describing the premises and commanding him to put the landlord in possession after 24 hours’ notice conspicuously posted on the premises. The Writ must be served by the Sheriff. The fee payable to the Sheriff is around $70.00 by money order, check or cash. If cash, you must personally deliver the cash and the issued Writ to the Sheriff. The Clerk cannot accept cash payment for the Sheriff.

Please remember that RHOL and Court Clerks are prohibited from giving specific legal advice. If you have any doubts about your ability to file an Eviction on your own behalf, you should seek legal advice from an attorney.

The Clerk’s office is usually open Monday - Friday from 8:30 am until 5:00 pm. Check your phone directory for the direct phone number.

The County Judge’s phone number for setting any hearings is also listed in the phone directory Ask for the Judge assigned to your case.

Florida Forms 

You must furnish the appropriate number of copies as stated or your case cannot be filed. Copies may be purchased from the Clerk for a fee.

Three-day Notice to Tenant/Demand for Payment or Possession  PDF  Word

One tenant  - Original and 3 copies
Two tenants - Original and 5 copies

If there is a written lease

One tenant   -  Original and 3 copies
Two tenants - Original and 5 copies

Eviction Complaint  PDF  Word

One tenant  -  Original and 3 copies
Two tenants - Original and 5 copies

Eviction Summons-  Five (5) day/ eviction only  PDF  Word

Original Summons for each tenant and two copies for each tenantCertificate of Mailing  PDF  Word

Original and a pre-addressed stamped envelope for each tenant

Motion for Default by Clerk   PDF  Word
      to be used if tenant does not answer

Original only, no copies required.

Motion for Default by Court  PDF  Word
to be used if tenant files an answer and rent money only

Original Only,  no copies required

Notice of Hearing  PDF  Word

One tenant, 1 copy
Two tenants, 2 copies

Affidavit of Costs   PDF  Word

Original only -  no copies required

Final Judgment of Possession  PDF  Word

One tenant - Original and 1 copy
Two tenants - Original and 2 copies

Self addressed stamped envelopes to Landlord and all tenants

Writ of Possession  PDF  Word

Regardless of number of tenants -Original and 2 copies with $70.00 (varies from County to County) check or money order made payable to sheriff.

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12. March 2012 by Kristian Alekov.

Whether you are an investor that would like to get into buying foreclosed homes for your personal use or to flip the property or if you are having your home foreclosed on, you should know what to expect at a foreclosure auction. Of course, the actual steps that will be taken can vary a bit from state to state and from house to house, but it’s good to know what you will be getting into when you go to a foreclosure auction. Foreclosure auctions can be exciting, even fun, but knowing what to expect will help you make the most of the experience, whether you are an investor or a homeowner that is trying to get your house back.

Before the Auction

You’ll likely find out about the foreclosure auction in a local newspaper and on the flier may be information to pre-qualify for bidding. This will allow you to put down a deposit so that the auctioneer knows that you are a serious bidder and can fulfill your bid if you are the winning bidder. Being pre-qualified just sort of speeds up the process so that you don’t have to mess around with the deposit on the day of the auction. During this time you should also do some research on the house by looking into any liens that may be against the property, how much the property is worth, how much it has appreciated in the last few years, as well as property values in the area. If the home looks as though it will need some repairs, you should consider this as well when trying to come up with how much you will be willing to pay for the house. Without this research, no amount of knowledge about what goes on at a foreclosure option will help you because you won’t know where to start when it comes to actually making a good bid.

What Happens At the Auction

The auction will typically start with the auctioneer reading legal notices as well as a legal description of the property. The auctioneer will usually then begin taking bids on the property. If the auctioneer has pre-qualified bidders the process is more streamlined, if not, each time a bid is made the auctioneer will then ask for the bidders deposit check, which is typically right around $5,000 for residential auctions. After each bid the auctioneer will attempt to solicit bids for higher amounts. Each auction is different, but the auction increments usually are set by the auctioneer and may be by $100, $500, or $1,000 per bid. The auctioneer will continue to solicit bids by this increment until it is clear that the highest bid has been reached. Then, the auctioneer will announce, “Going once, going twice, three times, sold!” indicating that the auction is over and the property has been sold to the highest bidder.

Once the bidding has ended a foreclosure deed and purchase papers will be drawn up and validated by the new owner or purchaser and the mortgage holder. A grace will likely be given to allow the purchaser to find financing or to come up with the funds to cover the full amount of the bid. This grace period is usually 30 days unless the purchaser and the mortgage holder agree to other terms. After the grace period a closing will take place, so that the new owner can formally take the title to the property.

What Happens, Now?

The purchaser can do what he or she intended to do with the property, whether it is to move into the home or to sell it for full market value. The money paid by the purchaser will be distributed in order of priority, first of which would be taxes. After taxes money will be paid to the mortgage, then the second and third mortgage if applicable. If there is still money after paying these debts, remaining money will be paid to lien holders and creditors. There is a very slim chance that there will be money left over after all of the debts are paid, if this is the case then the monies will be paid to the former home owner.

What about the Original Owner?

The original owner will often be at the auction so that they can bid on their home, and this is legal as long as they have the deposit required. If the owner of the home that has been foreclosed does bid on the home they must remember that the deposit is not refundable and the deposit assumes that they will be able to finance the home within the grace period. Owners must also remember that if they buy the property back old debts may merge and become reinstated such as second and third mortgages that became void when the first mortgage foreclosed on the property unless one has filed bankruptcy and is truly free and clear of these debts. Owners will often drum up the funds to make the deposit so that they can have another 30 days to try to save their home. Owners may or may not be successful in their attempts to save their home at a foreclosure auction.

As you can see, there are a lot of things that go into a foreclosure auction, but none of them are all that difficult to understand, but knowing about them makes the auction more enjoyable. The auction itself is not all that complicated, but it can be very fast paced. At some foreclosure auctions there are a lot of people, at others there are only a few because of the location or just the debts attached to the property, or even the state of the property. If you are serious about the property you should pay close attention when bidding starts so that you are sure that you can get your bid in when you feel it’s time so that you have the best chance of being the top bidder.

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12. March 2012 by Kristian Alekov.

Next to declaring for personal bankruptcy protection, practically nothing damages your chances of getting qualified for a mortgage loan like a foreclosure.

And if you got out from under an overwhelming loan through a short sale, that is when the financial institution agrees to accept a lesser amount of what the property owner owes — loan providers can look upon you just as unfavorably.

It’s a simple fact that the previous owners of the far more than four million properties lost to foreclosure in the six years since the real estate bubble burst will have to deal with if they want to own just as before. But the passing of time can make all the difference.

That’s due to the fact mortgage-lending policies that most lenders follow restrict them from doing loans to individuals with foreclosure or a short sale in their credit history, generally for years. Never mind the hit that one’s credit score takes.

Still, many of the property owners who were foreclosed upon when the industry first started to dive are now wanting to purchase and obtaining loans.

They’re most likely going to spend a little higher interest rate, but with rates so very low, a higher interest rate of four percent is not a huge deal.

So how probable are financial institutions to accept your home loan application if you have a real estate foreclosure on your record? And can you do anything at all to spring oneself from the mortgage loan penalty box?

It will depend on various factors, but mostly on whether or not you had a foreclosure or a short sale.

FORECLOSURE

Usually, consumers who have a mortgage foreclosure in their credit record can anticipate to wait around between two to seven years before a financial institution will even take their mortgage application.

The waiting durations come from policies most lenders must adhere to in order to be ready to sell off their mortgage loans. That’s because prospective buyers, such as Fannie Mae and Freddie Mac, each have a unique set of rules for the loans they will purchase and requirements for whom they regard a capable debtor.

The reality is, a individual’s credit score, work history and other elements that make up one’s creditworthiness will take a back seat to these resale policies.

If a consumer with a previous foreclosure is searching for a government-backed mortgage, the waiting time can differ before they can qualify.

Consider the Federal Housing Administration, which insures approximately thirty percent of new mortgages. Within its policies, previous home owners will have to wait three years from the date of their foreclosure before they can are eligible for backing by the organization.

Assess the U.S. Department of Agriculture’s real estate program which demands three years, while the time penalty for a VA loan is two years. Fannie Mae and Freddie Mac, which own or guarantee about one half of all home mortgages, call for the longest stretch: seven years after a foreclosure.

In some situations, the waiting around periods for a foreclosure can be decreased.

Fannie Mae, for instance, permits a three year waiting period in the occasion the foreclosure was because of an extenuating situation. The organization describes this as an occurrence that was above the homeowners’ control and lead in a unexpected decline in salary or devastating increase in monetary responsibilities. Think job layoff, medical bills or divorce. F.H.A may allow an exception to this rule to its waiting period in the occurrence an income earner gets severely ill or dies. A separation and divorce may be considered an exception, but only in specific situations.

SHORT SALES

The hurdles for owning a short sale in your consumer credit history can be much less severe, and in some situations, waived completely.

FHA calls for credit seekers who were unable to pay their home loan when they sold their home to hold out three years before they can be considered for a home mortgage. That time punishment may be waived in specific cases, such as long term employment loss.

There are no FHA time penalty for property owners who made their home payments in the twelve months prior to their short sale.

The amount of a down payment will also decrease the waiting time. A down payment of twenty percent or more will reduce Fannie Mae’s time penalty on a consumer with a short sale down to two years from seven. Purchasers who put down ten percent can be eligible immediately after four years.

CREDIT SCORE

It’s no longer simply a waiting activity for people caught up in the initial periods of the foreclosure turmoil in 2007 and 2008.

Like most credit imperfections, foreclosures and short sales will remain in your credit history for seven years.

As a common concept, the greater your FICO score, the far more it will decline as a result of a negative debts.

FICO credit scores range from 300 to 850. In simulations, a foreclosure delivered a FICO score of about 720 decrease to as low as 570 and needed about seven years to recoup completely, assuming all else being the same.

However, there are methods a person can bring to polish one’s ruined credit rating.

– Whilst in the mortgage foreclosure penalty box, make certain to pay back all your debts on time.

– Get additional credit history. This might seem counter-intuitive right after a foreclosure, but beefing up your credit report of very good credit accounts can assist enhance one’s credit score. A car financing or a bank card will do. But if you get a bank card, pay it off every month.

– Be patient. A foreclosure’s drag on your credit score will decrease as time passes.

– Challenge any errors on your credit report, which can decrease your score.

– Don’t close your oldest credit accounts. Your ranking receives a boost from older credit lines.

– Cut back your way of living and pocket the benefits when it comes to a long term down payment.

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10. March 2012 by Kristian Alekov.

The word “short sale” has certainly been a buzz word in the distressed real estate market we are experiencing in the past years. However many Realtors and investors are still unclear on how to determine a real estate short sale offer that is acceptable to the lender.

The following steps are to be used as a basic guideline on determining what to offer the lender for a short sale acceptance.

1. Determine Fair Market Value (FMV). The FMV can be determined by evaluating sold, comparable properties in a similar or close proximity to the subject short sale property. A realtor will have access to the MLS (Multiple Listing Service) and can create a CMA (Comparative Market Analysis) for the subject property. This analysis will identify sold comparable properties with same square footage, bedrooms, baths, garage and other similar characteristics as subject property. Request the realtors use a sold time frame within 6-12 months when pulling properties in the immediate or surrounding areas. Usually the short sale lender will not consider any sold comparables that are older than 12 months and that are further away than 2 miles from the location of the subject property.

2. Evaluating sold comps systematically. Contrary to popular and often misguided belief, you can use a formulaic system to work in your favor when determining what to offer on the short sale property. This system has been around for years, but for some reason you may have not heard of it mentioned dealing with real estate. Here is the system. You will use the law of averaging. The way this works is like this. 

Let’s say you have eight sold comparables that are all similar in size, square feet, bedrooms etc. Here is how you apply the formula. You would take out the two highest comps and the two lowest ones and average the rest.

EXAMPLE:

You have a property you think is worth $145,000.

You have a realtor pull a CMA and you find eight sold comparable properties that match the criteria above.

The MLS shows the following:

$159,000
$154,000
$153,000
$161,000
$148,000
$143,000
$146,000
$151,500

Using our formulaic approach you would take out the two highest sold comparables ($159,000 and $161,000). Then take out the two lowest sold comparables ($143,000 and $146,000). This would leave four other sold comparables.

$154,000
$153,000
$148,000
$151,500
———–

You would then take an average by simply adding up the sum of all the sold comparables and dividing them by the total number of properties left. In this case, that number would be four.

Total: $606,500 divided by 4 = $151,625

You can reasonably justify the house may sell for $151,625 instead of the $145,00 you originally estimated.

3. Revealing the ARV (After Repair Value). This terminology is slang often used with real estate investors. It is similar to the FMV with a few differences made up by the amount of repairs the investor estimates the property needs in order to sell quickly on the open market using FSBO (for sale by owner) techniques and not using the MLS. It can be argued the ARV is more of a guess or suggested value derived by using sold comparables from houses that were NOT sold by a realtor. One way to explain the difference is a realtor will typically use a FMV and a real estate investor may elect to use an ARV. An appraiser can use both value methods, but generally sticks to the ones that come from off the MLS. In my opinion… the ARV is a less accurate and dependable value than what come off the MLS.

4. Figuring out the BPO. The BPO (Broker Price Opinion) is perhaps the single greatest value factor the lender will use to determine the acceptance of your short sale offer. The BPO is KING! BPO is a generalized opinion or value of a property the lender uses to determine what the short sale property is worth on paper. They are ordered by the lender and sent to a Third Party Company, such as BPO Direct, First America, LandSafe, etc. These companies have a list of realtors for each state. The BPO’s are ordered and conducted by realtors. The BPO can be an Interior or Exterior type. If an Exterior type BPO is conducted, it means the realtor (BPO agent) did not go inside the property to evaluate its condition. This could be due to the homeowner vacating the house or not being cooperative with the BPO agent when requesting a time to come appraise the house.

Dealing with “Pretty House” type short sales (categories later defined), you will find the BPO will typically come in 10-20% lower than FMV or ARV. Based on this, you might consider offering 60% of the ARV or FMV value for your initial purchase offer. Of course, this depends on the amount of repairs needed for the property. If you have what can be classified as a “Pretty House” short sale, which would show very little needed repairs, don’t expect to get a huge discount from the lender for it. If you cannot JUSTIFY a reason for the lender to accept either a small or large discount … don’t expect them to give one to you. This also dispels the myth that all houses heading towards foreclosure are good short sale candidates. They are not.

Here are some classifications and examples to make it easier to determine how much of a loss the lender may agree to accept.

Short Sale Classifications:

PRETTY HOUSE
UGLY HOUSE
SCARY HOUSE

EXAMPLES:
* Pretty House: (Generally in safe, desirable areas and houses selling fairly quickly)
ARV/FMV: $100,000
REPAIRS: $5-10,000 (5-10%)
BPO: $80-90,000 +/- 5%
* Ugly House: (Generally a light rehab or fixer-upper, handyman special house in fair neighborhoods)
ARV/FMV: $100,000 (With Ugly Houses this number tends to be the “as is” value instead of ARV.)
REPAIRS: $11-20,000 (11-20%)
BPO: $80,000 +/- 5%
* Scary House: (Generally in areas that are not desirable, massive repairs needed, lots of crime isn’t uncommon)
ARV/FMV: $100,000 (With Scary Houses this value tends to be the “as is” value instead of ARV.)
REPAIRS: $35,000 (21 - 35% +)
BPO: $65,000 +/- 5-10%

You can have a Scary House located in a great, fast selling neighborhood and combination of the others, but generally speaking Scary and Ugly Houses will not be located in excellent neighborhoods. Remember this is a guideline, not an exact science. The BPO agent will generally consider the “as is” value for both Ugly and Scary Houses.

Now let’s discuss the different loan types the lenders will consider a factor per short sale submission.

5. Learning the loan types. When you learn these, you can increase your closing rate for lender accepting your short sale by as much as 50%! Here’s why: if you know more about any property, it provides you better leveraging and ultimately negotiation strategies to target. Not all short sales are created equal.
* Conventional loans. These loans are found all over the place. They provide the most flexibility especially dealing with short sales. Using the $100,000 example, you might start out your offer submitting 60% x 100,000 (FMV) = $60,000… The $60,000 is actually 70% of the BPO Price. However it is very common to see the lender accepting around 80-85% of the BPO price, which would be around $68,000 - $72,250.

This model can fluctuate a little bit, but this is a common average. The BPO (value opinion also considered the PERCEIVED value of the property) to the lender is the MAIN FACTOR. Therefore in this example if you thought the BPO was going to come in around $65,000 … You would take 82% of THAT number, which would be $53,300. The lender may very well accept $53,300 based on their perception of the value of the property (their asset).
* FHA loan. I repeat: this is not a scientific grading scale. It is the model used by many short sale investors as a guideline. You can and will have other factors that make you stray from this. If you are dealing with an FHA type loan or any government backed loan, they are going to recoup a set amount if the foreclosure is completed. For example with FHA loans, the insurer will basically guarantee the lender 82% of an FHA Certified Appraisal amount. Notice I did not say BPO. For these loans, you will need an FHA Certified Appraisal for the lender to consider in their evaluation process on the property. The BPO will not suffice on these types of loans. You can massage the numbers 1-2%, but 82% is listed in their guidelines.

Here is a compiled list lst that I provide in my home study course. You can go online to find a similar list for free too.
o All FHA loans are insured by the federal government.
o As long as the lender follows FHA guidelines, they are guaranteed at least 82% of the “as is” appraised value.
o FHA-type loans will not use a BPO. Instead they will require an FHA Certified Appraisal. Use the same techniques on the FHA Appraisal that you would for a typical short sale deal.
o If the debtor is in bankruptcy, no short sale will be approved.
o If the property was used as a rental for more than 12 months, no short sale will be approved.
o If the homeowner does not occupy the property, no short sale will be approved. (There can be exceptions to this.)
o The cooperating lender is eligible to receive $1,000 from FHA for performing a short sale.
o Seller MUST fill out FHA specific forms for approval. This will include an Application to Participate and a Homeowners Counseling Certificate, all of which the lender will supply in their FHA Short Sale Packet.
o FHA loans must be at least 30 days past due for short sale consideration.
o The lender is required to give a copy of the appraisal to the homeowner.
o The homeowner can receive up to $1,000 directly from the HUD 1.
o FHA will not go after the homeowner for a deficiency once the short sale is accepted and closed.
* VA (Veterans Affairs) loans. These type of loans have a guarantee of 88% of the appraised value of the property.
o Designed for veterans.
o These loans are federally insured.
o VA guarantees the lender at least 88% of the “as is” appraised value.
o A VA appraisal is usually automatically ordered once the debtor becomes 60 days past due.
o The appraisal value can be appealed by the homeowner.
o The VA will work the homeowner and do everything possible for the homeowner to retain VA benefits.

Note: Absolutely NO BPO’s allowed. All VA loans require certified appraisers to determine value.
* Freddie Mac loans (FDMC).
o FDMC will not allow the buyer of a short sale property to be anyone but an individual. This means the buyer on the Purchase and Sale Agreement and HUD 1 cannot be a company, LLC, trustee, or anything of the sort. The purchaser must be an individual name.
o Freddie Mac will almost always require that the property be listed with a realtor, which means they are going to ask for a Listing Agreement. If the offer nets the lender less than 92%, Freddie Mac will require that the property is listed for at least 90 days before approval will be issued.
o The lender has the authority to approve short sales at a threshold of 92% or higher. Anything lower than 92% must be approved by Freddie Mac.
o Freddie Mac has a high customer service standard, which means that if the lender is not responsive to your offers, they are going to want to know about it. This creates another point of leverage to get your offer accepted.
* Fannie Mae (FNMA).
o Fannie Mae has a high customer service standard. If the lender is not responsive to your offers, they may actually step in and take over the short sale negotiation process.
o The lender has the authority to approve short sales at a threshold of 90-92% or higher. Anything lower than 90% must be approved by Fannie Mae.
o Fannie Mae rarely requires that the property be listed with a real estate agent.
o Fannie Mae will allow the lender the authority to approve short sales at a threshold of 90% or higher, but will also allow a heavier discount if needed.

For Fannie Mae, Conventional, VA and FHA short sales: The buyer can be any entity, company, person or trust (the bank may require written proof of the company or of the trust). Most of the loans that you come across regarding short sales are going to be conventional loans.

6. Memorizing the minimum accepted NET offers (of the BPO or FHA appraisal).
* VA 88%
* FHA 82%
* Freddie Mac (FDMC) 92%
* Fannie Mae (FNMA) 90-92%
* Conventional Loans 80% (no set limit)

IMPORTANT: Understand that these are NET percentages to the bank. If you have your offers padded with things like realtor commissions, closing costs and additional fees, these are NOT to be included in this percentage.

EXAMPLE: The BPO on one of your deals comes in $100,000. Offers that may be accepted based on the above criteria would be:
* VA 88% = $88,000
* FHA 82% = $82,000
* Freddie Mac (FDMC) 92% = $92,000
* Fannie Mae (MNMA) 90-92% = $90-92,000

Something else to consider is this: all LOCAL banks, usually the smaller ones, will almost always NOT ALLOW more than a 10%-15% discount off the property depending on the amount of repairs needed to fix. Local banks tend to be more conservative in their approach to discount the property. This is partly due to the network of local affiliates the bank can call to get more than one opinion of repairs needed or value of the subject property.

7. Dealing with second mortgages and junior lien holders. If you are dealing with a second mortgage holder, you are basically going to negotiate with them the same way. You will find that many 2ND Mortgage Holders will not require as much information to make a decision quickly on discounting their loan amount. They will generally order a BPO or have an appraisal on file. It could be older or current. Make sure and ask about it depending on the numbers you find out dealing with them. Sometimes a lender will actually tell you a BPO price. Now before you get all excited and think that is GREAT…think again! Typically, they will LIE to you about the price and actually inflate it. Yeah…I know… you never thought lenders lied, did you? Well…they do…and they do it a lot.

When you are dealing with the 1st mortgage holder, it is not uncommon to find out they will only allow $500 - $1000 towards paying off any 2nd Mortgages, Liens, Judgments etc. All lenders are a little different, but the norm is $1,000. This is another reason why you will deal with more 2ND position lenders that are willing to take pennies on the dollar to satisfy their loans with the homeowner. In fact, you will often negotiate for 80-90% discounts or get approval for 10-20 cents on the dollar! It is can be beneficial if you get the 1st to accept a short sale and then present that information to the 2nd IN WRITING! If the 1st is willing to take a hit, where does that leave the 2nd? This can be a powerful negotiation technique.

Remember any junior lien-holder who is holding an over-leveraged or nearly over-leverage asset (the house) is in a HORRIBLE position. They realize this and if you can build a strong case why it would be in their better interest to discount their holding position rather than risk losing EVERYTHING at the foreclosure auction sale. It will not only generally help them, but it can make you, the investor, a HUGE PILE OF MONEY. Why? You just created equity out of thin air. That is the power of short sale negotiations.

If you take the steps for preparing a short sale offer exactly as shown above and apply them to your real estate short sale business; the sky is the limit for your continued success getting them approved.

For more info or if you need help with a Short Sale, contact Affinity Title, Fort Myers, FL at 239.300.7030

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8. March 2012 by Kristian Alekov.

You’ve found a great real estate investment to purchase, signed on with the homeowners and gotten all of your information in order. All that’s needed is to approach the bank with a short sale offer and close the deal right? Maybe not.

There is an art to negotiation in the real estate investment industry. Negotiating a short sale isn’t simply approaching the bank with your packet of paperwork and your best offer to close the deal.

You’ll need to endure at least two rounds of negotiation with the banks most of the time. So, don’t approach them with your final offer right off. It’s probably best if your first offer to the bank is a price that’s lower than what you are willing to pay.

Send a Cover Letter
Submit to the bank an offer cover letter filled will all of your points to justify the discounted offer you are making on the bank. The banks you usually end up negotiating with get tons of offers for their properties. This submitted cover letter helps you stand out and makes you look a little more professional as a real estate investor.

The cover letter can outline your interest in the property, certain negative aspects you’ve noticed to the default property and your first offer on the property. Don’t be afraid to make a low offer on the property when negotiating short sales. You can always up your offers, but you can never lower them. So, if you start out by giving them the most you are willing to pay for the foreclosure property you are interested in the bidding could quickly enter a price range you aren’t able to afford.

Make it Personal
Making more personal offers, such as using the cover letter submission, will get you into more negotiations with banks and help you close more deals. You’ll waste a lot of time if you go out make a 100 low ball offers in a very impersonal manner. It just won’t make real estate investment worth the time.

Instead, go out and find ten default properties that you are interested in and make more personalized offers on them. Put together a nice cover letter for each that outlines the points above and you’ll find that you enter more deal in less time. Less time spent means you are making more money for your effort and you are more likely to make that real estate deal.

If you need help with your Short Sale negotiations, please contact Affinity Title, Fort Myers, FL at 239.300.7030

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6. March 2012 by Kristian Alekov.

Short sales are becoming more common, banks are becoming more accommodating, and the process has shortened up quite a bit…but that could change if the tax break that currently does not force homeowners who do short sales to claim the forgiven debt on their tax returns is not extended.

On December 31st, 2012, the Mortgage Debt Relief Act, also called the Mortgage Forgiveness Debt Relief Act, will expire if changes are not made to the legislation. When this happens, the “deficiency”, or difference between what your bank ‘nets’ on your short sale and what you owed, if forgiven, once again, will be viewed as taxable income.

This  will  make short sales far less attractive to nearly every distressed property owner. And it could slow down the short sale market long before the end of this year, because “short sales take a while to get approved. If there isn’t an extension of this legislation by June or July, there probably won’t be as much incentive to do short sales in the latter months of 2012 as short sales with some lender can exceed six months from start to finish.

Additional fallout could take the form of more strategic defaults once short sales are no longer an option, warn analysts. If homeowners stand to lose money in the form of additional taxes on the “forgiven” debts on their homes, they may simply opt to walk away from the property at some point. Of course, in the case of strategic defaults – or other forms of foreclosure as well – lenders can pursue the delinquent borrowers for the difference between the amount that they owed on the property when they stopped paying and the amount the lender was able to make when the property was sold. These debts are often difficult to collect, but some lenders opt to wait years before pursuing them in the hopes that former homeowners to get back on their feet and once again have some assets to go after.

Some banks sell the debts to third-party collections companies. Even if this part of the debt is ultimately written off, it can create tax problems years down the road for homeowners because when the debt is written off it may be considered income to the homeowner.

We are hoping that the Mortgage Debt Relief Act will be extended long before it expires on December 31 of this year. If the legislation is not extended, many homeowners may be forced to declare bankruptcy in order to avoid paying income taxes on their “forgiven” debts.

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6. March 2012 by Kristian Alekov.

Okay, so misinformation and confusion about the tax implications of foreclosure arising from the cancellation of debt seems to be piling up. In particular, folks seem most confused by the receipt of Form 1099-A from lenders who have taken property back in foreclosure.

First, remember the basic principle: Cancellation of debt MAY result in taxable ordinary income.

Second, because a foreclosure is viewed as a “sale of property,” if you let real estate go in foreclosure and it results in a cancellation of debt, then that foreclosure may be a taxable event.

There are three exceptions:

1. First, if the property lost in foreclosure is a principal residence-literally the home in which you live-then the cancellation of the debt (“COD”) generally won’t be taxable. This is a result of the Mortgage Forgiveness Debt Relief Act of 2007.

2. Second, if your are “insolvent” at the time that the debt is cancelled (not at the time of the foreclosure, but more on this below) then you will not be taxed. Insolvency is a simple balance sheet test: If your liabilities exceed your assets, you are insolvent. Don’t over think it. You will have to submit IRS Form 982 with the tax return in the applicable year in order to demonstrate that insolvency.

3. Third, if the debt is cancelled as a result of a bankruptcy filing, then there is also no tax. (This is one of the reasons I call bankruptcy “the ultimate mortgage modification tool.”)

So what about this Form 1099-A business? Form 1099-A is the form that the lender sends you (and the IRS) that documents that the lender has accepted real property in partial satisfaction of a secured debt. It does not create the tax liability. It is not documentary evidence of cancellation of debt. It is a tax neutral document.

The document that causes the problem is the IRS Form 1099-C. This is the one that tells you that the bank has cancelled the debt. It has two effects: First, it can be used as evidence in a later lawsuit by the lender to refute an allegation that the debt is still due and owing. It is not proof; it is just evidence, or as lawyers like to say, it is “probative but not dispositive.” Second, it will likely give rise to the possibility of a taxable event precisely because it constitutes a statement by the lender that the debt has actually been cancelled. (The above exceptions still apply, but how you need to deal with the problem will change.)

Remember: Foreclosure doesn’t ‘per se’ cancel the debt; it merely satisfies that part of the total debt which is equal to the value of the property.

Here’s the down and dirty of it: You are not likely to receive a Form 1099-C from a foreclosing lender on a recourse obligation because they want to hold out the possibility of recovering a deficiency for as long as they can. (Assuming, of course that the anti-deficiency laws allow it…But that’s a whole different topic that I won’t get into here.)

So since only part of the debt is paid by the foreclosure, and since you’ve only received a 1099-A, without that 1099-C, the claim stays alive until it dies by some other means. Prudent tax pros generally counsel that it is wise to provide some sort of estimated liability if the property has been lost to foreclosure, and you still haven’t received her 1099-C. I tend to disagree with that somewhat, because there is no COD tax until the debt is actually cancelled, and the debt isn’t cancelled until the lender or the law says it is. Estimating the liability based on an assumption that recourse debt will be cancelled eventually may create a need to amend the return later if the lender comes after you. Of course, if the debt is unambiguously non-recourse, meaning that no deficiency is possible, then it makes sense to go the estimate route because the debt is now cancelled by operation of law.

Last, an issue related to this is the difference in bankruptcy dischargeability status between a mortgage debt owed to a lender, and an income tax debt owed to the government. They are not treated the same in bankruptcy: If you owe the bank and you file, then the debt is immediately dischargeable. But if you wait until you have filed the tax return and income tax on the COD (cancellation of debt) is actually assessed, then it is no longer as easily discharged in bankruptcy. Because back income taxes are not dischargeable until two years after the tax return was last due and ten months (approximately…it’s actually 280 days) after the tax is “assessed,” if you wait to file bankruptcy until after you have filed your tax return, you have converted an immediately dischargeable mortgage deficiency owed to a bank into a tax debt owed to the government that you will have to live with through that waiting period before you can dump it in bankruptcy…

Because these problems involve the interplay between basic contract law, mortgage and anti-deficiency laws (all of which are state law issues), and federal tax law, these can be gnarly problems to sort out. Unfortunately, not many attorneys understand them, and not a whole lot of tax pros either. This is because no one’s ever lost money on a real estate investment before now. Well, that’s not really true of course, but we are seeing things that are changing history, and testing the limits of most general practitioners. If you think you may have a tax problem arising from a past or pending foreclosure, make sure you seek professional advice from someone who understands the issues. It will vary from state to state, due to the differences in anti-deficiency legislation.

Provided to you by Affinity Title, Fort Myers, FL.

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6. March 2012 by Kristian Alekov.

If a bank writes off debt in a short sale, it’s a “taxable event,” and the lender tells the Internal Revenue Service about the deal by submitting a “Form 1099-C, Cancellation of Debt” at the end of the year. Home sellers must acknowledge the amount when they fill out their federal taxes. Through Dec. 31, 2012, however, the federal government forgives any tax liability associated with forgiveness of a mortgage loan.

“In general, homeowners believe the government will extend this tax provision,” says San Diego Realtor Joy Bender. “However, as evidenced by the First Time Homebuyer Credit expiration in 2010, you can’t always count on the government to bail you out.”

The government generally considers forgiven debt to be income. If a seller has signed legal loan papers to take out a $200,000 mortgage and the lender accepts $100,000 in a short sale, for example, the seller received the equivalent of $100,000 in free money by government estimates. As a result, the IRS taxes it. For tax year 2012, however, the government still forgives the debt; in 2013, it might not.

The tax amount can be significant. On a debt of $100,000, a short-sale seller in the 25 percent tax bracket could end up owing $25,000 in income taxes.

Since short sales can take months and even fall through, homeowners considering a short sale may want to start the process sooner rather than later.

For more info contact Affinity Title, Fort Myers, FL.

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6. March 2012 by Kristian Alekov.

In an article featured in the New York Times, it was reported that the economic downturn that this country has faced has altered the migration habits of Americans.  Many Americans moving into the Sun Belt region and away from states like California, Massachusetts and New York among others.  This move is a slow trickle, however, as Americans are frozen and unable to sell their homes.

Click here to read the full article.

This post is brought to you by Affinity Title. We would love to connect with you on Facebook.

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