It's Good that FHA Suspended its 90-day Rule Against Flipping

Foreclosed and abandoned homes harm neighborhoods and delay a community’s recovery.

In order to help facilities sale of bank-owned properties, the Federal Housing Administration (FHA) has temporarily suspended its 90-day rule against flipping of properties.

Under that anti-flipping rule, the FHA does not insure a mortgage loan if the sales contract is executed within 90 days of the seller’s acquisition of the property. Effective June 9, 2008, the anti-flipping rule has been waived for one year for properties acquired by lenders, their subsidiaries, and their outside vendors.
The FHA still requires homes to be “safe, secure, and sound," which may not be the condition of certain foreclosed-upon properties.

Check out Federal Housing Administration. Also check out article about California REO Transactions at California Association of Realtors.

Posted by Harrison K. Long, Explore Properties Group

How To Manage Your HELOC Loan With Rising Rates?

Most HELOC loans (home equity line of credit) are indexed to the bank prime loan rate. When the prime rate changes, the rate on your HELOC will change also.

When prime increases 100 basis points (one full percent) the home equity line of credit borrower pays more in interest costs.

If you make monthly payments according to a fixed schedule, the rise in rates also means less of each payment goes towards reducing principal. So it will take longer to pay off the loan balance.

How to manage your HELOC loan?

One possibility is 0% Balance Transfer Offers. If you have good credit and are careful, transferring some or all of your HELOC debt to a 0% credit card can be a workable strategy.

You can ride the 0% offer until it expires. You can pay off the balance with a HELOC check (effectively transferring the balance back to the HELOC). However, there are limitations.

Be careful with this. It can be complicated. We recommend that you consult with a qualified Realtor or tax specialist in your area or jurisdiction.

Posted by Harrison K. Long, Explore Properties Group, May 21, 2008

Banks & Lenders Are Taking Less Than What's Owed At Trustee Sales After Foreclosure

It's interesting that in Orange County, California, during April, 2008, buyers took foreclosure homes off the bank and lender hands at trustee sales for 21.5% less than the amount owed.

One year ago during April, 2007, the banks and lenders weren't so interested in discounting at trustee sales.

Perhaps the banks are getting smart.

It was reported that 84 percent of properties sold at the OC, California, at trustee’s sales during April, 2008, were offered at a discount.

Posted by Harrison K. Long, Explore Properties Group, May 14, 2008
Source: Orange County Register, May 14, 2008

What To Do If You Are Upside Down and Unable to Make Payment on Notes Secured by First and Second Deeds of Trust on Your Home

You Are Upside Down and Unable to Make Paymentd on Notes Secured by First and Second Deeds of Trust on Your Home. What do you do?

You might owe more money on your notes secured by a first deed of trust and on the note secured by the second on your home than what the property is worth.

What do you do?

Here in California we have the ONE ACTION RULE, the law preventing lenders from both foreclosing and suing you on the note. If the lender chooses the non-judicial foreclosure process, he is then prevented from suing you on the note itself. However, if the lender fails or declines to foreclose on the note, he retains the right to file and prosecute a civil lawsuit and get monetary judgment against you.

This could happen to you. It is more common these days.

If you are here in California and upside down on both the note secured by the first and that secured by the second on your home, always make all payments on the first if possible. Do whatever it takes to prevent the first from foreclosing. If you are unable to make payments on the second note, always force that note holder to foreclose. Once the holder of the second starts non-judicial foreclosure, he chooses that route and is prevented from filing a separate lawsuit for monetary judgment.

What is happening here in California is that some folks with note obligations secured by a first and a second on their home decline to make payments on either note. Their thought is to allow the holders to foreclose and to let the property go.

WAIT A MINUTE.

In that situation, the holder of the first can foreclosure and wipe out the deed of trust that was the security for the holder of the first. However, since that second holder did not exercise his right to foreclose, he could then file and prosecute a lawsuit against you for damages, the monetary amount of the note.

Think about this carefully. It is complicated. Seek and retain the advice of qualified counsel in your state and jurisdiction.

Posted by Harrison K. Long, Realtor and Broker, Explore Properties Group, www.ExploreRealEstate.net.
Also a lawyer licensed by the State Bar of California since 1976.

Is A Home Buyer Equity Sharing Arrangement a Good Thing in This Market? -- Part One

A man contacted us a week ago about his predicament. He and his wife had entered into an EQUITY SHARING AGREEMENT with a mortgage broker during 2006 to buy a home in South OC. This family made payments to the mortgage company as rent on the agreement. The mortgage company in turn made some payments to the lender on the note. The mortgage company went out of business six months ago and is not now making payments. This family could be facing foreclosure and evication? Was this EQUITY SHARING ARRANGEMENT a good thing?

...........

Investments in real property can take various forms, such as syndication, partnership, limited partnership, or LLC, where none of the parties live in the property and the property is rented to tenants.

An EQUITY SHARING ARRANGEMENT involves one party (the owner-occupant) occupying the property and the other (investor) putting up the bulk of the financing. Both the owner-occupant and the investor can receive tax benefits and share in the profit according to their investments as described in their equity sharing agreement. First-time homeowners are the typical owner-occupant while the investor can be a family member, a seller, or any real estate investor.

EQUITY SHARING is a form of ownership and investment that allows two or more parties to share an interest in real property. It is frequently used in situations where, because of the high cost of housing, one party, the investor, puts down the bulk of the downpayment, and the other, the owner-occupant (also caller the "occupier") puts down little or no downpayment but agrees to pay a monthly amount consisting of "rental payments," mortgage payments, taxes, and other specified charges, and lives in the dwelling. The owner-occupant may pay all of the mortage costs as "rent" or may pay two different amounts, one portion representing the rent and the other representing mortgage, which would include interest for which he or she could receive a tax deduction.

Depending on the specific terms of the contract, there are tax and ownership advantages to EQUITY SHARING.

Be very careful. There are potential tax and financial pitfalls in an equity sharing agreement that is loosely worded. Since the owner-occupant does not own 100 percent of the property, he or she must pay a "fair market rental" to the investor for living in the dwelling. The rent paid by the owner-occupant should be proportional to the percentage interest that the owner-occupant has, and should be based on the fair market rental value determined in good faith. Ideally, they have both signed the note and trust deed and are also on title. The rental paid to the investor is taxable income, and the interest paid on the mortgage is tax deductible. On the other hand, the investor also pays the remaining fraction of the mortgage each month based on his or her proportional share of ownership and can deduct the interest as an expense of the property, subject to passive loss and other restrictions.

Be careful with EQUITY SHARING AGREEMENTS. Consult a qualified Realtor and also with an experienced real estate lawyer in your area and jurisdiction.

Posted by Harrison K. Long, Explore Properties Group, May 3, 2008
Source: California Association of Realtors, March, 2008

Reinstatement of Your Home Loan or Mortgage After Default?

You don't have to be a bum or a deadbeat to get into a foreclosure position with your home. It can be as simple as missing some days of work or having a mortgage payment late. You are in over your head with your lender. Now your lender's threatening you with foreclosure. The last thing you need is the stigma of foreclosure and are seeking a way out.

If it's possible, the best way to get out of this mess is to come up with cash and go for reinstatement of the loan.

This could be difficult. The lender requires you to catch up with payments and late fees in a lump sum. If you can work this out, get it in writing. The only chance you have of making it happen is if you satisfy the lender that conditions that led to this situation will not be repeated.

Be careful with this. Hire a qualified and professional Realtor, someone to trust who will look out for you during tough times. Get sound advice from an objective advocate who will be in your corner.

Then decide for yourself whether reinstatement of your defaulted mortgage is a possibility and/or the best course of action.

Posted by Harrison K. Long, Explore Properties Group, May 2, 2008

Do Lower FED Rates Signal That Mortgage Rates Will Fall?

Do Lower FED Rates Signal That Mortgage Rates Will Fall?
That depends.
The 30-year fixed rate mortgage is not tied to short-term treasuries. Fixed mortgage rates are tied to long-term bond yields that move based on anticipation of the economy and inflation. Fixed rates usually come down when there is outlook for slow economic growth. Long term mortgages are securitized and sold on the global market, and investors now demand a higher risk premium on these mortgages.
If you have 7 and 5-1 Adjustable Rate Mortgages (ARMs), there is good news, and it's tied to the treasury index. If the FED cuts rates, it usually signals better rates for ARMs.
If the FED cuts rates, those with Home Equity Lines of Credit (HELOC) will be pleased. HELOCs are mostly pegged to the prime rate, which moves in step with the Federal Reserve.

For good mortgage information, rates and products, contact Tim Sibley, First Capital Mortgage, 949-718-1511.

Posted by Harrison K. Long, Explore Group, Coldwell Banker Previews, April 27, 2008.

At The Center of Our Housing Crisis Is That Many People Have No Equity Or Are Upside Down on Loans

At the center of our housing crisis is that many people here in California and the United States have no remaining home equity or that they are upside down on their loans.
Too many people purchased homes during the past five years with no or little down payment, based upon no document loans, and with lending practices so relaxed that mortgage agents and brokers participated with at least some knowledge that loans should not be approved and funded.
Whose fault is that? Is it possible that mortgage brokers and lenders are at least partly responsible?
Even if it is determined that mortgage brokers and lenders are partly responsible, the individual borrower and homeowner has no comfort. Their primary focus would be on pressuring the mortgage broker or lender to assume the loan back and take over the property. The homeowner would ask that they be cleared of responsibility for the loan.

Posted by Harrison K. Long, Explore Properties Group, April 26, 2008

Tags: Lending, Mortgage, Ethics & broker practices

Is Cancellation of Debt Always Income Taxable?

Is Cancellation of Debt Always Income Taxable? What does IRS say? Not always. There are exceptions. Some situations when cancellation of debt income is not taxable involve:
A. Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
B. Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. Insolvency is complex to determine and the assistance of a tax professional is recommended for consideration.
C. Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income. The rules applicable to farmers are complex. The assistance of a tax professional is recommended.
D. Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. In this situation, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.
We provide this for information only, and these are complicated issues. We recommend you hire a qualified income tax professional.
Posted by Harrison K. Long, Explore Properties Group, April 18, 2008

Bush Administration & Lending Industry Correctly Oppose Giving Bankruptcy Judges More Power

The U.S. Senate passed legislation April 10, 2008, that would provide billions in tax cuts for home builders, banks and other businesses. However, the U.S. House of Representatives is considering other legislation that would provide more help for individuals, but no breaks for businesses. The Senate's bill is compromise that didn't include a provision to allow bankruptcy judges to reduce the principal on in trouble borrowers' mortgages. The Bush administration and the lending industry correctly opposed giving bankruptcy judges power to force "cram downs" of loan principal on lenders.
Posted by Harrison K. Long, Explore Group, April 10, 2008

Proposed FHA Expansion of Loan Guarantee Program Got Help Today

Proposed Expansion of FHA Loan Guarantee Program Got Help Today
It's good that proposed expansion of FHA loan guarantee programs got help when U.S. Senate Republicans agreed to include the idea in a compromise bill. Some Democrats agreed on April2, 2008, to drop their controversial proposal to allow bankruptcy courts to "cram down" the mortgage debt of troubled borrowers. We could now have congressional debate over the planned FHA expansion. The Bush administration has made FHA loan guarantee programs part of its foreclosure prevention concept. Democrats apparently are dropping their idea about changing of the U.S. bankruptcy code. That idea was bad anyway.
Posted by Harrison K. Long, Explore Group, April 2, 2008.