Challenges for Real Estate Investors In This Declining Home Value Market

Some losers in this residential real estate declining market are buyers of second homes, investors who are now involved with income tax debt challenge.

Some of these people will lose their properties through short sale or foreclosure and make it to bankruptcy under the weight of a income tax bill.

While U.S. Congress has granted some tax relief to people who lose their primary homes, there is no such aid for investors who fall behind on payments on 2nd homes.

If a person buys an investment home, and it they are unable to make payments and forced to short sale that property, or if they lose it in foreclosure, the difference between the amount they borrowed and the rental home’s sale price in short sale or foreclosure will ultimately be considered by the IRS to be taxable income as forgiven debt.

Under the U.S. Mortgage Forgiveness Debt Relief Act, which is effective from Jan. 1, 2007, through Dec. 31, 2009, a homeowner does not have to pay ioncome tax on debt forgiven by a lender, as long as the loan is backed by the property the homeowner lives in.

According to the National Association of Realtors, there are about 7.5 million vacation homes in the country, about 10 percent of the number of owner-occupied homes. From 2002 to 2007, the number of vacation homes rose 18 percent, more than three times the growth in the number of owner-occupied homes and the growth in investor-owned units.

For investment property owners with a potential income tax bill, there is one possible way to minimize the damage. Negotiating with a lender could prove to be good. The lender needs to agree that foreclosure fully satisfies all obligations under the loan. With that statement, there could possibly be no outstanding unpaid debt reported by the bank that the Internal Revenue Service could treat as income. However, it is still unknown whether that tactic will work with the IRS and the US tax courts.

Posted by Harrison K. Long, Explore Properties Group, June 6, 2008
Source: California Association of Realtors, National Assoc. of Realtors

NAR Approves New Model Rules For MLS About "Short Sales"

The National Association of Realtors (NAR) board of directors has recently adopted new policy for disclosure of short sale listings in a multiple listing service.

The NAR directors “approved new model rules for Multiple Listing Services (MLSs) that would enable practitioners to alert one another to potential short sales and put them on notice about the sharing of any reduction in gross listing commission required by a lender. MLSs are given the authority to decide whether or not their participants have to disclose reasonablyknown short sales."

All MLSs must provide their members with the means to disclose that a given listing is a short sale.

For purposes of the new rule, short sales are defined as “a transaction where title transfers; where the sale price is insufficient to pay the total of all liens and costs of sale; and where the seller does not bring sufficient liquid assets to the closing to cure all deciencies.”

Agents for buyers in short sales must advise the buyer clients that a proposed short sale price accepted by the seller might not be approved by the lender. Buyers should be careful and not get too excited about a possible bargain at short sale.

It's not the easy road for a real buyer.

Posted by Harrison K. Long, Explore Properties Group, June 5, 2008
Source: Bob Hunt.

It's Good that NAR Will Consider New Rules for Listing & Advertising of Short Sales & Distressed Properties

The good news during April 2008 from the National Assoc. of Realtors is that it is considering new rules for listing and advertising of short sale and distressed properties.

It's about time.

Rules must be made and followed regarding listing of these properties with the MLS services. The rules should bind owners and sellers, listing agents, and lenders, through the short sale process.

The health of our real estate market is dependent upon buyers having sufficient and accurage information on which they can rely for truth about the properties.

Regarding distressed properties, the market and folks who buy need MLS listings to identify whether there is lender approval of offers on short-sale.

The market needs to have MLS rules on advertising of commission offered by the owner and lender to the broker Realtors for the buyers. Buyers and their agents are dependent upon accuracy of information provided to them in order to make informed decisions and protect value.

The market and buyers deserve to know from the MLS whether the property will be tied up in a lengthy process of lender determination of eligibility, whether there is non-judicial foreclosure in the works, and what is exactly being offered.

After the rules are established, the NAR, California Association of Realtors, and local MLS groups, must enforce those rules, and not allow listings that don't comply.

Banks, lenders, and holders of notes, must not be allowed to set rules and information to be provided in the MLS listings.

Posted by Harrison K. Long, Explore Group, Realtor and Broker, Irvine, CA, May 8, 2008.

Labels: Ethics and business practices, marketing, Realtors and Brokers, short sales

Homeowners Who Are Upside Down on Loans Should Be Careful When Considering to List a Short Sale

Upside Down Homeowners Should Be Careful When Considering to List a Short Sale

With home loan foreclosure or deed-in-lieu of foreclosure, sellers will take a hit of 200 to 300 points on their FICO scores. The exact penalty on FICO will depend on overall condition of credit.

The effect of a short sale on a seller's credit FICO score is the same as a foreclosure. The penalty on a credit report will appear as a pre-foreclosure in redemption status and result in a loss of 200 to 300 points on FICO.

With a foreclosure or deed-in-lieu of foreclosure situation, a seller who wants to buy another home later will end up waiting about 36 months before a lender will offer a reasonable opportunity.

With a short sale, the notation on a seller's credit profile of 'settled for less than owed' (short sale) prevents the consumer from obtaining an institutional loan for about 24 months, depending on the lender program (Fannie Mae guidelines).

More bad news is that the short sale seller could be subject to lawsuit and deficiency court judgment for the difference between the loan amount and the amount paid.

In California, purchase money loans are not subject to lawsuit and deficiency judgments. However, hard money loans, equity loans and refinances are subject to lawsuit and deficiency judgments. Other states have laws regarding personal guarantees on loans, which could also result in lawsuit and deficiency judgment against the owner.

This is complicated. Homeowners considering to list for a short sale should be careful and consult a qualified real estate or tax attorney in their state and jurisdiction.

Posted by Harrison K. Long, Explore Properties Group, April 30, 2008

Good News that NAR Will Consider New Rules for Listing & Advertising of Short Sales

News is that the National Assoc. of Realtors is considering new rules for listing and advertising of short sale and distressed properties. That's good. We need strict rules to bind owners and sellers, listing agents, and lenders, int the short sale process. The market needs all such MLS listings to identify whether there is lender approval of offers on short-sale. The market needs to have specific MLS rules on commission offered by the owner and lender to the broker Realtors for the buyers. The market and buyers deserve to know by MLS whether the property will be tied up in a lengthy process of lender determination of eligibility, whether there is non-judicial foreclosure in the works, and what is exactly being offered. After the new rules are established, the NAR, California Association of Realtors, and local MLS groups, must enforce those rules, and not allow listings that don't comply. Banks and lenders must not be allowed to set all rules and information to be provided in the MLS listings.
Posted by Harrison K. Long, Explore Group, April 24, 2008.

The Market Needs More Control Over Information on MLS Listings for Distressed Properties

The Market Needs More Control Over Information on MLS Listings for Distressed Properties.
Consumers and buyers need more accurate information on distressed property listings. The markets and MLS should have better control over listings of distressed properties, including foreclosures and short sales.
On a short sale, the owner lister should be responsible for accuracy of information and sign to certify it. The owner and their agent should be contractually and legally responsible to pay the buyer's broker the amount of commission set forth on the listing.
On a bank owned property, the bank should certify its contractual agreement to pay the buyer's broker the set commission prior to the property being listed by the MLS.
These and other simple measures would help Realtors provide better service, assure the consumer a better handle on whether and how to purchase such properties.

As of April 19, 2008, distressed properties, short sales and foreclosures, were 35.1 percent of MLS listings in Orange County, California.

Posted by Harrison K. Long, Explore Properties Group, April 22, 2008

In Short Sales, Lenders and Loan Servicing Agents Should Make It Easier for Buyers

In Short Sale situations, lenders and loan-servicing institutions should make it easier for buyers and Realtors. Lenders should help the market and provide sellers and agents with location of online department and person responsible for processing the short sale applications. Lenders should use a single industrywide short sale application and list of supporting documents that all lenders and servicers would agree to accept. The Uniform Loan Application is an industry standard. Lenders should agree to use a Uniform Short Sale Application. Lenders and servicers should update the listing agent and seller information on the status of the short sale application throughout the process. Lenders should deliver a clear answer, in writing, yes or no, within a reasonable time, to buyers, perhaps 30 days from receipt of the complete application.
Posted by Harrison K. Long, Explore Group.
[source: David Silver-Westrick]