If you bought your home a year or two ago - you might be in the situation many homeowners are. You owe more than your house is worth. Because of the market slowdown, homeowners are seeing houses in their neighborhood sell for less than they did a couple years ago. This can become a scary prospect when you are forced to sell your home due to relocation, a lost job or death in the family. That's why the president and congress passed House Bill 3648 - the Mortgage Forgiveness Debt Relief Act of 2007. More commonly known as Program 3648.
Prior to program 3648, here is what happened. Lets say you fell behind in your mortgage payments, lost your job or just couldn't keep up with the bills. You decided to sell your house and get out from under the mortgage. You bought the house for $200,000 but could only sell it for $150,000. The bank would then issue a 1099 to you at the end of the year for $50,000. That meant that you would have to report $50,000 on your tax return and pay taxes on it. Can you imagine? What a tax bill.
Thankfully, congress and the president reacted to the market and created program 3648. The Mortgage Debt Forgiveness act means you are no longer liable for taxes on that difference you didn't pay the mortgage company. Now, there are some rules that apply to this program. It has to be your primary residence for instance. And you also need to make sure the mortgage company isn't going to come after you for the difference. If you have questions - you should always ask your accountant or the person who prepares your taxes.
As I talked about earlier this year, when you sell your house for less than you owe the bank it's called a short sale. Nationwide, only about 10-15% of short sales are actually approved. In order to make this kind of sale work it's important to know what you're doing. Recently, I partnered with a processing company that works with most of the banks in getting these kinds of sales approved. There are other options you can persue and I would be happy to discuss those with you anytime.
Wednesday, April 9, 2008
Tuesday, April 8, 2008
You know...the house with the purple bathroom
It was a beautiful weekend for showing houses this past saturday and sunday and I had the pleasure of working with a family from Pennsylvania that is moving to the area. Because they are from out of state - just remembering what town we were in was a challenge. They are moving here for a job in naperville, so we were looking at houses in the surrounding area - Oswego, Montgomery, Naperville, Plainfield, Aurora & Bolingbrook. On Saturday we viewed 10 or 12 houses in a matter of a few hours. It can be hard enough for someone locally raised to remember what house was in what town and which subdivision. An even more daunting task for someone not familiar with the area.
One of the tricks I use to help buyers remember each house is what I call the TripleR . That stands for Rating, Room & Remember. First off- after viewing the house I like to ask the buyers to rate the house on a scale of 1 to 10. This rating might change after viewing another house - but it really helps both buyers and the realtor to remember just how interested they were in that house. The second R stands for Room. In every house one room usually stands out. Was it a small master bedroom? A luxurious master bath? Or an amazing finished basement. By keying in on one room it will help remind you of something that really stood out in that house. Finally, the third R is Remember. Pick one thing overall that stood out about the house. Maybe it was the purple bathroom. Maybe the house with 2 rabbits in the basement (seriously, that's one of the houses we looked at), or maybe just the house that said "WOW". Later when you are talking about the house you can say "you know...the house with the purple bathroom" and everyone will know what you are talking about!
One of the tricks I use to help buyers remember each house is what I call the TripleR . That stands for Rating, Room & Remember. First off- after viewing the house I like to ask the buyers to rate the house on a scale of 1 to 10. This rating might change after viewing another house - but it really helps both buyers and the realtor to remember just how interested they were in that house. The second R stands for Room. In every house one room usually stands out. Was it a small master bedroom? A luxurious master bath? Or an amazing finished basement. By keying in on one room it will help remind you of something that really stood out in that house. Finally, the third R is Remember. Pick one thing overall that stood out about the house. Maybe it was the purple bathroom. Maybe the house with 2 rabbits in the basement (seriously, that's one of the houses we looked at), or maybe just the house that said "WOW". Later when you are talking about the house you can say "you know...the house with the purple bathroom" and everyone will know what you are talking about!
Monday, April 7, 2008
Spring is here-again! Time to make a decision.
Yes, spring is here again! It seems like we got a teaser back in february with a few warm days and we all though spring was here! Well, with the warm weather the last few days I have seen a definite increase in phone calls and home viewings. Warm weather signals a time of change - and that brings home ownership to the forefront. People thinking of buying or selling usually get off the fence in the spring and start getting serious. For buyers, the decision is a little easier. They decide it's time to buy - and they start looking. But for sellers - there is a process involved. That's why it's important to get off the fence now and get your home listed. Lets say you are thinking of listing your house next week - mid April. You list the house and wait for an offer. At the very least - you can expect your home to be on the market a month. If you are priced aggresively, it will sell quicker. After a month on the market - if you get an offer, then you are typically another 30 days from closing. That is if nothing goes wrong. If the buyer doesn't ask for an extension for financing. If there is nothing to repair. If all goes well and you can close 60 days from next week - great. But as someone once said "I believe in hoping for the best but preparing for the worst".
What if you don't get an offer in the first 30 days? And then you reduce the price and sell for 60 days? And then you get a buyer in June - but they want to wait until the end of July because they are taking a family vacation. Or, heaven forbid - they have to sell their house first. You can see how quickly time can spiral out of control. Yes, you get to decide whether you take that offer. But sometimes these things don't come up until after the deal is signed. We have 4 months of summer and then fall will be here. In many areas - 90 days is the typicl market time. Add another 30 days to close - and you are 4 months out. Think of it this way - every month you wait to put your home on the market brings you a month close to Christmas. And you don't want your home to still be on the market this christmas do you ;)
What if you don't get an offer in the first 30 days? And then you reduce the price and sell for 60 days? And then you get a buyer in June - but they want to wait until the end of July because they are taking a family vacation. Or, heaven forbid - they have to sell their house first. You can see how quickly time can spiral out of control. Yes, you get to decide whether you take that offer. But sometimes these things don't come up until after the deal is signed. We have 4 months of summer and then fall will be here. In many areas - 90 days is the typicl market time. Add another 30 days to close - and you are 4 months out. Think of it this way - every month you wait to put your home on the market brings you a month close to Christmas. And you don't want your home to still be on the market this christmas do you ;)
Friday, April 4, 2008
Foreclosures & Short Sales - Part 3
Okay - I was a little late getting part 3 finished! But the nice weather is definitely helping the market so things are getting busier! In the final installment of Foreclosures and Short Sales - lets look at what happens when the bank finally forecloses. When the bank takes your house - it's called foreclosure. In Illinois - it requires a "Judicial Foreclosure". That means the bank must take you to court and basically SUE to take the house back. They cannot just file paperwork and take your house because you didn't make your payment. Once the bank has filed all the necessary paperwork for the foreclosure, the bank goes to court and the judge awards a "foreclosure" which means the sale of your property is ordered in order to settle the debt with the lender/mortgagor. The judge in the case schedules a date for teh sale of your home at auction. In Illinois - the county sheriff's department actually handles the auction/sale. Sheriff's department auctions are typically handled on the same day every month, and often weekly. On the day of the auction anyone can bid on the property.
After the auction - sometimes you have what is called a "redemption period" where you can buy the property back by paying the bank what you owe. To see if you have a redemption period you must check your mortgage paperwork. If you are still living in the house after the auction sale - don't worry. They aren't going to knock on your door that day and tell you to get out. But your days are numbered. It's usually a good idea to be out by this time if you can. Within a day or two of the auction, someone will probably come by the house to verify if the property is occupied or vacant. If the property is occupied - they may ask you to leave or try to intimidate you. If that doesn't work - they will have to go back to court for an eviction. within 2 weeks to a month they will most likely get an order for possession. At that court date - the judge will set a date for possession and you will have to be out that day. If you aren't - the sheriff will forcibly remove you from the property. The party is over.
So...after all that back and forth in court - the house is gone. Now the bank owns the home. Because of the court costs involved in a foreclosure - it often makes financial sense for the bank to do a short sale before going through all this legal mess. Because the work has just begun. Now that they have the property back - they have to sell it. First they hire a property management company to check the property for repairs, make sure utilities are on, winterize the property if it is winter and perform any other necessary maintenance. Then the bank orders an appraisal to see what the property is worth. Then they put the utilities in their name- more monthly costs. Finally, they hire a realtor to list and sell the house. Now they have commissions, utilities, property management costs, closing costs, repair, maintenance and upkeep costs. You can see how all this quickly adds up for the bank. Very rarely is the bank actually going to make money off taking your home. Banks are in the lending business - not the property business. They dont' want your house.
Now that the bank has all these added expenses - they are also going to try and get as much as possible for the property. When a bank owns a home it is called "REO" or "Real Estate Owned". Banks will negotiate on the sale of a property just like any other homeowner. But they also want to get as much as possible. Typically they are looking for 75-85% of market value. What is market value? That's a pretty hot topic these days. If everyone could agree on what market value is - I think we would all be better off!
If you are someone interested in buying a foreclosure -you actually have a better chance of getting a good deal in a short sale situation. I hope this discussion has helped shed a little light on the foreclosure, pre-foreclosure and short sale process. I am by no means an expert - but I've been doing it long enough that I think I've learned a thing or two!
After the auction - sometimes you have what is called a "redemption period" where you can buy the property back by paying the bank what you owe. To see if you have a redemption period you must check your mortgage paperwork. If you are still living in the house after the auction sale - don't worry. They aren't going to knock on your door that day and tell you to get out. But your days are numbered. It's usually a good idea to be out by this time if you can. Within a day or two of the auction, someone will probably come by the house to verify if the property is occupied or vacant. If the property is occupied - they may ask you to leave or try to intimidate you. If that doesn't work - they will have to go back to court for an eviction. within 2 weeks to a month they will most likely get an order for possession. At that court date - the judge will set a date for possession and you will have to be out that day. If you aren't - the sheriff will forcibly remove you from the property. The party is over.
So...after all that back and forth in court - the house is gone. Now the bank owns the home. Because of the court costs involved in a foreclosure - it often makes financial sense for the bank to do a short sale before going through all this legal mess. Because the work has just begun. Now that they have the property back - they have to sell it. First they hire a property management company to check the property for repairs, make sure utilities are on, winterize the property if it is winter and perform any other necessary maintenance. Then the bank orders an appraisal to see what the property is worth. Then they put the utilities in their name- more monthly costs. Finally, they hire a realtor to list and sell the house. Now they have commissions, utilities, property management costs, closing costs, repair, maintenance and upkeep costs. You can see how all this quickly adds up for the bank. Very rarely is the bank actually going to make money off taking your home. Banks are in the lending business - not the property business. They dont' want your house.
Now that the bank has all these added expenses - they are also going to try and get as much as possible for the property. When a bank owns a home it is called "REO" or "Real Estate Owned". Banks will negotiate on the sale of a property just like any other homeowner. But they also want to get as much as possible. Typically they are looking for 75-85% of market value. What is market value? That's a pretty hot topic these days. If everyone could agree on what market value is - I think we would all be better off!
If you are someone interested in buying a foreclosure -you actually have a better chance of getting a good deal in a short sale situation. I hope this discussion has helped shed a little light on the foreclosure, pre-foreclosure and short sale process. I am by no means an expert - but I've been doing it long enough that I think I've learned a thing or two!
Thursday, April 3, 2008
Foreclosures & Short Sales - Part 2
Continuing the dicsussion on short sales & pre-foreclosures - why would the bank let you sell your home for less than you owe them? In the long run - they save money. Banks are in the business of lending money. Not managing real estate. As any agent who ever listed a bank owned property can tell you - the bureaucracy at a bank is nearly impossible to deal with. They make managing and selling a property harder. Despite what many people think - the bank does not want to keep your house. They want their money. And if they don't get it - they want to make sure the "asset" is protected and doesn't lose value.
As a Realtor, it isn't uncommon to look at a vacant house that is in the process of foreclosure - and it's trashed. Holes in walls, appliances all missing, garbage everywhere. The banks see this too - and it costs them money. So, again- why a short sale? Foreclosing on a house costs time and money. Months to complete the foreclosure process, attorney fees, lost interest on their money. Then, after they foreclose - property management fees, repair fees, utility fees, sales costs, etc. The list goes on. So if the bank can get a reasonable amount for the property - it just makes financial sense. That doesn't mean they will take "Any" offer. A lot of investors walk in with offers that are 50 cents on the dollar. My experience has been they don't take those offers. But every now and then they do - and tha'ts what investors are hoping for! But if the bank can get 75 cents on the dollar? 85 cents on the dollar? That's good for them.
So what does that mean for buyers? It means they have a chance of getting a home under market value. In a market where real estate prices are declining - they have a little cushion. It also brings a "perceived value" to the table. When buyers hear foreclosure- they automatically think they are getting a good deal. I always caution buyers that we still have to look at recent sales to determine if the property is a good price. Many times buyers will list pre-foreclosures for the amount they owe the bank. Many times - it is overpriced. So it's important to look at recent sales - I'm talking the last 3 to 6 months. Not a year ago - last year was a different market.
Tomorrow I will conclude this series as I talk about Foreclosed homes - or properties the bank has already taken back and is ready to sell.
As a Realtor, it isn't uncommon to look at a vacant house that is in the process of foreclosure - and it's trashed. Holes in walls, appliances all missing, garbage everywhere. The banks see this too - and it costs them money. So, again- why a short sale? Foreclosing on a house costs time and money. Months to complete the foreclosure process, attorney fees, lost interest on their money. Then, after they foreclose - property management fees, repair fees, utility fees, sales costs, etc. The list goes on. So if the bank can get a reasonable amount for the property - it just makes financial sense. That doesn't mean they will take "Any" offer. A lot of investors walk in with offers that are 50 cents on the dollar. My experience has been they don't take those offers. But every now and then they do - and tha'ts what investors are hoping for! But if the bank can get 75 cents on the dollar? 85 cents on the dollar? That's good for them.
So what does that mean for buyers? It means they have a chance of getting a home under market value. In a market where real estate prices are declining - they have a little cushion. It also brings a "perceived value" to the table. When buyers hear foreclosure- they automatically think they are getting a good deal. I always caution buyers that we still have to look at recent sales to determine if the property is a good price. Many times buyers will list pre-foreclosures for the amount they owe the bank. Many times - it is overpriced. So it's important to look at recent sales - I'm talking the last 3 to 6 months. Not a year ago - last year was a different market.
Tomorrow I will conclude this series as I talk about Foreclosed homes - or properties the bank has already taken back and is ready to sell.
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