Home Prices Rise for 14th Straight Month

U.S. home prices including distressed sales rose for the 14th straight month in April, posting their highest year-over-year increase in more than seven years, according to analytics firm CoreLogic.

"Increasing demand for new and existing homes, coupled with low inventory, has created a virtuous cycle for price gains, most clearly seen in the Western states with year-over-year gains of 20 percent," said Mark Fleming, chief economist for CoreLogic.

Home prices (including distressed sales) moved up 3.2 percent in April compared to March, and were up 12.1 percent year-over-year, the CoreLogic HPI found.

The streak of home-value appreciation is set to continue, the firm said, with the CoreLogic Pending HPI - which is based on price changes for the most recent month - predicting that home prices will register a 12.5 percent annual gain in May.

Nevada (up 24.6 percent), California (up 19.4 percent), Arizona (up17.3 percent, Hawaii (up 17 percent) and Oregon (up 15.5 percent) saw the highest price gains in April, CoreLogic reported.

Also to note: The business insider.com reported a dramatic decline in the number of single family homes for sale and saying the market is much leaner. In 2009, single family homes for sale inventory were approximately 3,600,000 - this year that inventory is approximately 1,700,000.


As reported from CoreLogic via Inmannews

Mortgage Debt Forgiveness Extended

The American Taxpayer Relief Act of 2012 was on January 1st, 2013. As a result, the Mortgage Forgiveness Debt Relief Act has been extended for another year. The measure will continue to exempt from taxation mortgage debt that is forgiven when homeowners and their mortgage lenders negotiate a short sale, loan modification (including any principal reduction) or foreclosure.   

When a homeowner experiences a debt reduction through mortgage principal forgiveness - such as through short sale, foreclosure, or even loan modification - the amount of debt forgiven is considered taxable income. In 2007, Congress passed the 2007 Debt Forgiveness Relief Act which exempted up to $2 million of debt forgiven on the home owner's principal residence as long as the debt was used to buy, build, or substantially improve their principal residence and be secured by that residence.  The Debt Forgiveness Relief Act has been an incredibly valuable tool in helping our nation's real estate industry recover.  However, the Act which was passed in 2007 had a 5-year sunset provision and was set to expire on December 31, 2012. The American Taxpayer Relief Act of 2012 extended the sunset provision until Jan. 1, 2014.

For the real estate industry and for upside down owners, especially those with short sales pending, they can now breathe a sigh of relief knowing that they won't get slammed with taxes and they can move on with their lives.

All indications are that we still have a long way to go to complete the resolution of the mess caused by the housing collapse.  But conditions are improving. The low inventory of properties for sale is causing price increases in many markets and, for the first time in many years, equity sales, ie: sales where the sellers actually receive some money, represent more than 50% of the market.

If you or someone you know would like to discuss this further than please contact us.

The information presented in this Article is not to be taken as legal advice. Every person's situation is different. If you are upside-down on your loan, especially if you're facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

Advantages & Disadvantages of Seller Financing

Seller Financing has been used in real estate and other transactions for thousands of years and still possesses the dual capacity to provide unique investment opportunities with equally unique risks for all parties. This Article is intended to introduce you to the benefits and detriments of Seller Finance. Of course, every transaction is unique as are the circumstances of every Seller and Buyer/Borrower.  Before making your decision concerning Seller Financing, be sure to consult with legal and tax professionals.

What's Great About Seller Financing

1.     No Lender Required - When institutional lenders tighten-up credit and loans become harder to get, Sellers with equity in their property can get their property sold by providing some or all of the purchase financing, also called "carrying back paper".

2.     Better Pricing - Unlike institutional lenders that must package sales commissions and other funding costs into the financing, Seller Financing generally avoids these added costs and can offer lower cost financing for which Buyers will pay more.

3.     Better Return on Investment - When a Seller carries back financing, they are acting in the place of an institutional lender by converting the cash that they would normally receive in sale proceeds (liquid assets) and converting it into a secured cash stream (hard assets). Cash in a bank today is earning less than 1% interest. Interest on loans is typically earning from 3-6%.

4.     Security - Seller Financing is generally secured by the real estate. If the Buyer/Borrower doesn't pay, the Seller can foreclose and either get paid or take the property back to rent or resell.

What's Not Great About Seller Financing

1.     Seller is the Lender - Normal loans are hard to get because lenders examine credit, and jobs, and income stability, and financial capacity. Seller financiers often lack the sophistication and access to provide the same level of "due diligence" as to the borrower's credit-worthiness. So Seller Financing may carry a higher risk of default.

2.     Loss of other investment opportunities - Because a Seller's sale proceeds are being loaned to the Borrower, those funds are not available to the Seller to make other investments which may be more lucrative.

3.     Income is at risk - If the Borrower defaults in repaying the Seller Financing, the Seller's income stream is cut-off and will stay cut-off until the Seller either forecloses or reaches some other agreement with the borrower. Foreclosure could take more than a year. Buyers sometimes seek to avoid paying Seller Finance by claiming that the Seller failed to disclose some defect that has cost the Buyer property value... often equal to the amount of the Seller Financing.

4.     Limited Recourse - If the Borrower fails to pay, the Seller must foreclose. In many States including California, Seller Financers are barred from suing the Borrower if they are not paid back in full. If the real property pledged as security has deteriorated or market conditions have fallen, the foreclosing Seller Financer may suffer the loss of their investment.

What Seller Financing Looks Like  

In most cases, real estate agents may be involved representing the Seller and the Buyer. They will provide the necessary Contract documents which explain the financing terms and, if required, will assist the Seller to provide any Seller Financing Disclosure. An escrow or title company will process the sale documents and may provide the Seller Finance loan documents for the Borrower to sign including: 1) a Promissory Note promising to repay the Loan to the Seller based on the terms set forth in the Note; and 2) a Deed of Trust (or Mortgage) giving the Seller a security interest in the real property which can be foreclosed if the Borrower defaults. The Deed of Trust would then be recorded establishing a lien on the Buyer's title for the amount of the Loan.

Alternatives to Seller Financing

While Seller Financing has a well-established place in real estate finance and investment, there are other alternatives when the Buyer cannot qualify for normal lender financing. The most common of these are:

1. Contract for Deed (also called Land Sale Contract)

This is very similar to typical Seller Financing except that the legal ownership of the real estate does not change from Seller to Buyer. There is no Grant Deed. Instead, Title to the property remains in the Seller's name until the Buyer performs some obligation. Typically, the Buyer signs a Contract to buy the real estate and pays the Seller a certain amount of money each month which the Seller then uses to pay any existing financing or other costs of ownership. When the Buyer obtains their own Loan, or pays off the Contract purchase price, or possibly even sells the Property, then the Contract amount is paid off and the Title transfer to the Buyer. Under current legal decisions, these arrangements are also considered to be a sale with Seller Financing.

    a. Pro's: This is fast and cheap and Seller retains ownership. Foreclosure is not needed.

  b. Con's: Although the Legal Title stays with the Seller, with each payment the Buyer gains "Equitable" Title, ie: they become a partial owner and cannot be evicted if they default in a payment. An expensive legal action must be brought. Further, this arrangement is typically a violation of any "Due on Sale Clause" which may be in any existing financing. If that Lender finds out, they could possibly start their own foreclosure which could wipe out the Seller's interest in the real estate and the Contract.

2. Lease with Purchase Option

This too may sound very similar to typical Seller Financing or Contract for Deed except there are major differences. The Seller actually leases (rents) the real property to the Tenant who pays the Seller a certain amount of money each month. The Seller and Tenant/Buyer also enter into an Option Agreement which provides a right (but not an obligation) for the Buyer to purchase the property at a future date on terms set forth in the Agreement and related documents.

    a. Pro's: The Buyer remains only a Tenant until the Buyer performs the obligations required to exercise their Purchase Option. If they default in paying, they may be evicted under Landlord-Tenant law which is fast (often 4-6 weeks). For a Buyer, the Option period may allow them to qualify for a purchase loan and even make improvements to the real property to increase it's value and gain the Buyer immediate equity.

    b. Con's: The Seller has not sold their real property and does not receive any money from the Property other than the promise of monthly rent payment which may not cover all of the Seller's costs in owning the property. Managing a rental property is not easy.

THE BOTTOM-LINE

Seller Financing offers distinct benefits and risks that should be considered when such an opportunity arises.  This Article is intended to introduce you to these issues but, of course, is limited in its scope. Entire books have been written on this subject but neither can specifically address your situation and the unique circumstances of your transaction. Before signing any Seller Financing agreement or any Contract providing for such financing, be certain to obtain the advice from legal and tax counsel of your own choosing.

 

If you or someone you know is considering using Seller Financing in a real estate transaction and would like to get additional information, than please contact us. 

The information presented in this Article is not to be taken as legal advice. Every person's situation is different. If you are upside-down on your loan, especially if you're facing a real estate or lender dispute, get competent legal advice in your State immediately so that you can determine your best options.

East Bay, CA Shortage of Homes

The current inventory of housing in the East Bay, CA is at least 20% less than last year. Therefore, creating a frency of qualified buyers which is resulting in shorter sale times and multiple offers. The economic laws of supply and demand tell us that this competition should push prices up but it's not happening. The other result is that, with so little purchase opportunities available, demand for rental housing has increased and rent is at an all-time high.

So what's going on? It appears to be a conflict between several varied market forces.

First - Buyers fear more price reductions to come - Market watcher Core Logic reports that there are currently 11.1 million borrowers underwater nationwide. Lender Processing Service (LPS) reports that 5.5 million borrowers are 30 days or more delinquent, over 2 million of which are already in the foreclosure process. And while statistically foreclosure rates are actually down, 56,258 new foreclosures were started in California in the 1st three months of 2012. Many call this the "shadow inventory": properties in trouble but not on the market for sale. With the recent National Mortgage Settlement resolving lender fears of possible blocks to foreclosure, most market watchers expect an increase in the 2nd quarter. If so, prospective buyers fear that increased foreclosure activity may push prices down further.

Second - Prospective Sellers hope for Loan Modifications - Despite the reality that success in obtaining a loan modification remains less than 10% and mods with principal reduction are even less, upside-down owners continue to hope that relief may be coming to enable them to keep their homes. The National Mortgage Settlement will eventually produce up to $25 billion in principal reductions, although it is still unclear who will qualify for these. The Settlement only applies to Wells Fargo, BofA, Chase, Ally, and Citi but does not apply to FNMA and Freddie Mac owned loans. Those two GSE's own 60% of the upside-down loans yet they refuse to participate in principal reduction.

Third - Lenders are tightening lending standards - According to a recent report in DS News, over 30% of residential mortgage lenders report an increase in demand. In response, lenders are actually tightening standards for residential mortgage loans. While the availability of loans remains better than it was immediately after the onset of the recession, prospective home owners are finding it more difficult to obtain purchase funds. This prevents them from competing with the large numbers of investors and others purchasing properties for all cash.

Fourth - REO holders are bypassing the real estate profession - Increasingly, lenders are offering to sell their REO (real estate owned) properties in bulk to investor groups at a discount. For lenders, this removes large numbers of properties from their non-performing inventory at a lower cost; and for investors, this provides a very significant opportunity to buy already devalued property at even further reductions. However, these properties never come on the market for Realtors to sell or prospective buyers to buy. This trend appears to be increasing.

Taken together, these market forces are likely to keep market inventory down for the foreseeable future.

The information presented in this Article is not to be taken as legal advice. Every person's situation is different. If you are upside-down on your loan, or would like to sell or buy a home, than please contact us by CLICKING HERE.

Bank - Settlement Means More Loan Modifications!

As reported in my February 9th Blog, the Federal and State Attorneys General entered into a Settlement of claims arising from the "robo-signer" scandals of 2010.  Under the Settlement which has come to be called the "National Mortgage Settlement", five major lenders - Wells Fargo, BofA, Chase, Citibank, and GMAC/Ally - agreed to pay $25 Billion in cash and credits which would then be spent on relief for upside down property owners with a small amount, $2,000, going to property owners who actually lost their homes as a result of the scandal.  What was unclear, was how would the lenders allocate their payment obligations. Wells Fargo has now given us a "road map" of what they intend to do.  This may be used as a model for the rest of the lenders to follow, but not guaranteed.

The Wells Fargo Settlement obligation is $5.3 Billion. Their plan to meet this was contained in their 2011 Annual Report filed last week with the Securities and Exchange Commission (Pg 74 of the 233 page Report).  What it does is identify three broad categories of payment:

1.  $1 Billion for Foreclosure Assistance Payments - These funds will be paid directly to Federal and State government agencies to use as they see fit for their own foreclosure assistance programs, including reimbursement of monies that such agencies may have already paid out.

2.  $3.4 Billion for Consumer Relief Programs - These funds are not actually "out-of-pocket" payments.  Rather, Wells Fargo will receive "credits" against this obligation in exchange for principal reductions on existing loans.  These will be made in two different categories:  

          (a)  1st Lien Principal Forgiveness - they will receive $1 of credit for each $1 of debt forgiveness on loans with a loan to value (LTV) ratio of 175% or less.  This must be a minimum of 30% of their credits.  If the LTV ratio is greater than 175%, they only get a 50% credit.  This would suggest that they will offer credits to keep loans in place when the property is more "affordable".  When it is not, ie: LTV over 175%, they probably will push these to foreclosure or short sale.

         (b)  2nd Lien Principal Forgiveness - they will receive a sliding scale of credits based upon how delinquent the borrower is:  Less than 90 days late = 90% credit; 91 to 179 days late = 50% credit; and 180+ days late = 10% credit.  We can reasonably expect that the bulk of these credits will go to those who are in default but not seriously in default.  Those who are not in default at all will presumably get no assistance.

3.   $900 Million for Loan Refinancing - These funds will be used to assist debtors in refinancing their existing loans.  There is a complex formula to follow that matches first the old interest rate against the new interest rate then multiplies that by a factor based upon the unpaid principal balance.  So, each loan can bring a different result.

The bottom-line in the above is this: Wells Fargo has a new incentive to offer principal reductions on loan modifications and refinances.  But these will most likely be used on loans where the credits will likely save the property from foreclosure.  Conversely, those that do not fit within this framework may be more likely targeted for foreclosure which will push the urgency of short sale to minimize the risk of judgment, tax, credit, and career damage.

Meanwhile, if you or someone you know is struggling with an upside-down property and don't know what to do, than have them please contact us to discuss options.  PLEASE CLICK HERE TO CONTACT US! Please make sure you provide a little description so we can contact you and address your needs.

The information presented in this Article is not to be taken as legal advice. Every person's situation is different. If you are upside-down on your loan, especially if your facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

Home Underwater? Need 300% or MORE LOAN TO VALUE!

New Refinance Program For Underwater Homeowners!

  

A new refinance program is going to be available in early March 2012 for underwater Homeowners. Per Fannie Mae, the estimated number of borrowers eligible to refinance under the new HARP 2.0 guidelines is an astounding 9 million homeowners. Below is an initial criteria as to who would qualify: 

1. It does not matter how much your home is underwater, you will be able to refinance at today's low rate.
2. Mortgage insurance will need to be obtained for underwater homes. 
3. No minim credit score
4. Eligibility - Owner occupied, 2nd homes and investment property up to 4 units.
5. Rate and term refinance only - NO cash-out
6. Mortgage should have been obtained prior to 6/1/09
7. Investor on the loan needs to be Fannie Mae. See if your loan is owned by Fannie Mae - Click Here. In order to find out when Fannie Mae purchase your loan- send an e-mail too resource_center@fanniemae.com.

More details to follow. Please check back.

Contact us for additional details- click here

To find out if your home is owned by Fa

HAMP ANNOUNCES INCREASED PRINCIPAL REDUCTIONS FOR LOAN MODIFICATIONS

As reported in DSNews.com, government officials have announced changes to the administration’s Home Affordable Modification Program (HAMP) which are expected to extend relief to a larger share of struggling homeowners as well as renters, according to federal officials.  One of the key adjustments to the program centers around principal reductions. HAMP currently includes an option for servicers to provide underwater homeowners who are struggling with their payments with a modification that includes a principal write down.

As we’ve often seen in the market, Fannie Mae and Freddie Mac remain obstacles to both loan modifications and short sales by refusing principal reduction in loan modifications and restricting short sale contributions to junior lenders.  Since these two GSE’s own or guarantee up to 80% of all residential loans, they have a significant effect on market recovery.

To encourage investors to agree to principal reduction modifications, Treasury is tripling the incentives for such restructurings, paying from 18 to 63 cents on the dollar, depending on the degree of change in the loan-to-value (LTV) ratio. The Federal Housing Finance Agency (FHFA) has prohibited Fannie Mae and Freddie Mac from employing HAMP’s principal reducing option for their borrowers. Treasury has notified FHFA that it will pay these same principal reduction incentives to Fannie and Freddie if they allow servicers to forgive principal in conjunction with a HAMP modification. FHFA issued a statement in response noting that it recently released analysis concluding principal forgiveness does not offer any greater benefits than principal forbearance as a loss mitigation tool. 

Among the other changes announced, borrowers who are struggling because of debt beyond their mortgages, such as second liens and medical bills, will be eligible for an alternative program evaluation with more flexible debt-to-income criteria. In addition, Treasury will expand eligibility to include investor properties that are currently occupied by a tenant as well as vacant properties slated for rental use.

The deadline for HAMP will be extended for an additional year through December 31, 2013.
Meanwhile, if you or someone you know is struggling with an upside-down property in California and don’t know what to do, our Consultation Program can offer knowledge of what to expect and form strategies to either keep the property or move on with as little financial risk as possible.  To schedule a Consultation, please contact us-Click Here.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.