Team Maxx January News Letters

In my last post, I gave homeowners a quick explanation of short sales.  This time, my post is for potential short sale buyers.

What’s a short sale?

A lender agrees to accept a sale of a property for less than the mortgage owed plus the expenses for having a short sale (realtor, appraisal & attorney fees, e.g.).   The homeowner owns the property and is selling it, but before the sale can occur, the bank needs to approve.

How do I know it’s a short sale?

If you’re looking at properties that have descriptions such as “subject to bank approval,” “subject to lien-holder approval,” or “as is,” these may be short sales.  Some listings will say, “short sale,” but not all.

How is a short sale different?

In a traditional real estate transaction, there are two parties - the buyer and seller.  With a short sale, add one more -the bank. Like any other real estate purchase, a buyer sees a property they like and submits an offer to the seller.  If the seller likes the offer, they accept it, contingent upon the approval by the bank.

The buyer can still perform an inspection, but since the sale is “as is,” neither the seller nor the bank are likely to make any repairs.  In addition, most lenders will not permit closing cost credits for repairs.

The buyer still pays for their own appraisal via their bank but the seller’s lender also has an appraisal done and it is this appraisal that matters.  The bank will base its decision to accept or reject the short sale based on their appraisal - and they have been known to reject offers that are lower than the appraisal.  They may even come back to the buyer and ask for the buyer to increase their offer before approving the short sale.

The time to close in a short sale is also different.  A bank can take anywhere from 4-6 weeks (possibly longer) to approve the sale and once they approve, they generally want to close ASAP.  So, before the sale is even approved, the buyer will have already had an inspection and had their appraisal done.

What are the risks for buyers?

As with any property owned by someone who is having trouble making payments, there is the issue of deferred maintenance.  If homeowners are letting their mortgage payments slide, what about their leaky roof, old furnace or overgrown landscaping.  Since short sales are sold as-is, a buyer can pay for an inspection but it’s really for information only - not to get repairs made or repair credits at closing. 

Another risk is that the buyer pays for the inspection and the bank does not approve the sale, or asks the buyer to come up in their offer.  If the bank says no, the buyer is then out the inspection costs and any other fees their bank is charging them.

There is also an issue with some companies that do foreclosure rescue.  These companies approach homeowners in distress and contracts to take title in a trust in exchange for negotiating a discounted payoff with the lender.  Meanwhile, the company lists the home for sale to secure a third buyer. The issue with this scenario is that the lender only approved the sale to the rescue company, not the third buyer.  And since the lender has not yet issued a release of mortgage and is still the lien-holder, they must approve the sale to the third buyer.  Short Sale are not always a better deal for the buyer.

A Short Sale is typically requested and initiated by a homeowner who is unable to make their mortgage payments for 2 or more periods, and where a loan restructuring is not possible. A short sale is an "arrangement" between the current owner of a home and the bank that lent them the money to buy their home to accept an offer for less than the total amount owed to pay off the home. In many cases, the lender forgives the remaining debt and accepts a mortgage payoff that doesn't cover the outstanding loan. This option is in place to help homeowners and banks, when foreclosure or bankruptcy is the other alternative.

For a lender, a short sale can be appealing because the process can be shorter and less costly than foreclosing, especially in a declining market. Lenders can avoid the costs of property maintenance, utilities and homeowners' association fees. Properties that go into foreclosure can take longer to sell, particularly in a declining market. There's also the chance that the property could be vandalized.

For borrowers, a short sale is the next worst thing on someone’s credit next to foreclosure or bankruptcy. It can be less of a black mark than a foreclosure on a borrower's credit record because it indicates that the borrower was working with the lender and once settled it’s listed on your credit record as SETTLED DEBT.

So if you are behind on your payments and only as a last resort a short sale is better than a deed in lieu, and certainly better than a bankruptcy or foreclosure.

Why should a seller consider a short sale?

A short sale is an option when foreclosure or bankruptcies are the other alternatives.  A short sale is still a negative mark on a sellers’ credit but not as bad as either foreclosure or bankruptcy. 

What are the downsides of a short sale?

If the lender absorbs the loss and allows the homeowner to walk away, the IRS looks at the value of that as taxable income.  And as mentioned above, a short sale will affect the sellers’ credit.  There is also the fact that the seller will not be able to stay in the home - it is a sale.  And, a seller may still owe the lender money after the short sale.

How does a short sale occur?

A homeowner would contact their lender and if no other options are available (negotiating a different payment plan, e.g.), the lender may agree to a short sale instead of foreclosing.  A lender may still choose to foreclose if foreclosure would result in a better outcome for the bank.  However if they agree, the lender would then require the homeowner to sell the house.  The homeowner hires an agent, who agrees to sell the house for a lower commission generally. 

If a buyer can be found for the property, the buyer submits an offer to the seller who, if accepts the offer, then forwards the offer to the bank.  The bank then either accepts the offer or does not depending on what the offer amount is and what the appraised value is determined to be, taking 4-6 weeks.   If the lender accepts the offer, a closing usually takes place very quickly. 

Team Maxx Real Estate

Team Maxx Real Estate

By Lauren Baier Kim

Team Maxx Real Estate

Think about the way model homes are packaged for display. There's so little in them; yet they look just perfectly appealing. Of course, that's not how any of us really live. But it's how consumers want to see the home. The fact is, maybe we could live with a little less -- at least while our home is on the market. After all, much of the clutter ends up collecting dust! And since you are moving, packing up some of your belongings before you actually move out (or even getting a tax credit for donating items to a charity) will help you when you finally sell your home and are ready to move.

Even if you're not in the market to sell, clearing clutter will give you a sense of freedom (and the ability to eventually accumulate more). Since the holidays just passed, you probably are already bombarded with stuff and maybe even wondering where to put it all.

The problem is many of us have a hard time letting go of things. So clutter builds up fast and furious and undoing the clutter becomes a frustrating task. But it doesn't have to be. Here are some tips on de-cluttering. Wouldn't it be nice to have a home that when you stepped inside you felt a sense of spaciousness -- everything seemed to have a place rather than items jammed into every last inch of the room? Cabinets and closets closed properly -- not like when you've gone on a three-week vacation to Italy and now you have to sit atop your luggage and tug roughly on the zipper to get it closed.

De-cluttering is a project that once you take the time to unload a few items, you often find they're never missed. And consider this, studies have shown that people waste several weeks a year looking for misplaced items that are buried beneath clutter. So let's get started.

First, don't de-clutter by making more room for clutter. As crazy as this is, true pack rats merely move their clutter from one location to another throughout the year without ever throwing anything out. When one area is too cluttered, they add shelves or even room additions to house their clutter.

Start with non-emotional items and rooms. You're less likely to have trouble throwing out things if you don't have an emotional attachment to them. Do you really need 12 different measuring cups? But here's a tip, I don't recommend throwing out your spouse's trinket collection (no matter how tempted you are) without first consulting him/her. Otherwise, you might end up listing your home by divorce default! Instead, start with your own stuff and lead by example.

Next go to the bathroom cabinets. Get rid of old prescriptions and products that you rarely use.

Clean out the clutter from under the bed. There are likely items that you haven't used in years underneath the bed just collecting dust. Nothings worse than viewing a home and the buyer lifts a corner of the bed's dust ruffle to reveal a mixture of clutter, dust, and pet hair -- yuck!

Walk-in-closets are so named because you should be able to move about in them. But some people have them overflowing. Buyers can't even squeeze inside, nor would they want to in that condition. So, the desirable walk-in-closet now becomes a negative for the buyer. Chances are there are clothes in your closet that probably haven't been worn in a long time.

Clearing clutter not only makes your home appealing to others, it's a richly satisfying feeling to create a sense of organization and space. And just think what you could do if you didn't have to spend weeks looking beneath clutter to find something you've misplaced.


Written by Phoebe Chongchua

Team Maxx Real Estate

Only borrowers who close loans during and after 2007 and make less than $100,000 a year will be eligible to deduct all the private or government mortgage insurance paid for the year.

A tax deduction reduces taxable income, leaving less income to tax. The new break with result in an average tax savings of between $300 and $350, according to Howard Glaser, a Washington lobbyist and former senior official in the Department of Housing and Urban Development.

During the past five years, about one in five new loans have included mortgage insurance, according to Jeff Lubar, a spokesman for the Mortgage Insurance Companies of America, a trade group for private insurers, but the number of new policies has fallen.

The group's "2006-2007 Fact Book &Membership Directory" reports nearly 1.6 million private policies and about 700,000 government policies (for FHA and VA loans) were written in 2005. In 2002 there were approximately 2.3 million private policies and about 1.6 million government policies written.

The growth in the use of piggy-back loans, down-payment assistance programs, other creative financing and rapid home price appreciation that allows home owners to refinance have all contributed to the declining number of policies.

Maligned years ago when two in five new loans were saddled with the coverage, and before laws mandated full annual disclosures and the right to cancellation, mortgage insurance has its pluses and minuses.

Because buyers with down payments of less than 20 percent have higher default rates, the insurance is typically mandated on low down payment loans or first loans that don't also come with a second or "piggy-back" loan to bring the down payment to 20 percent.

The insurance protects the lender from default, but the premiums are paid by the home owner.

The premiums can be $100 or more a month but the extra cost can help a home buyer qualify for a home that otherwise could have been out of reach. The insurance can also help a buyer buy a larger home, buy a home sooner and hold onto some cash after they've purchased a home with a smaller down payment.

Mortgage insurance has been around in some form since the late 1800s, but it wasn't until 1999 and the federal "Homeowners Protection Act of 1997" when home owners gained disclosure reforms and broader insurance cancellation rights.

Before the law, many borrowers could only cancel by refinancing to a loan with a balance 80 percent or less of the home's value, say, because the home's value had appreciated. Many who wanted to keep their current mortgage, but cancel because their home's value had jumped, were at the mercy of the lender.

Since 1999, private mortgage insurers must annually disclose the amount of insurance paid and automatically cancel mortgage insurance when a homeowner pays down the mortgage to 78 percent of the original purchase price.

A lender also must cancel the insurance if a home owner requests it and the mortgage balance is 80 percent of the original value of the house.

In both cases, the borrower must be current on mortgage payments and meet other requirements. Refinancing to a loan that's 80 percent or less of the home's value remains an option.

Unfortunately, the law doesn't apply to government insured loans and some others.

With a presidential signature, which is likely, the new law will allow the tax deduction for all mortgage insurance -- private and government -- paid by qualifying tax payers.


Written by Broderick Perkins

Team Maxx Real Estate

To qualify:

• Senior Citizen - 65 years or older
  or
  Totally Disabled - no age limit, $10,000 income exclusion
• Must reside in the Virginia Beach residence or a convalescent facility

Tax Exemption: Reduction of 20% to 100% based upon income

• Annual household income must not exceed $46,100
• Assets (excluding residence) must not exceed $350,000

Tax Freeze: Tax Remains Unchanged

• Annual household income must not exceed $52,000
• Assets (excluding residence) must not exceed $350,000

Tax Deferral: Tax will become due, upon ownership change in residence

• Annual household income must not exceed $52,000
• Assets (excluding residence) must not exceed $350,000

*Annual household income
Up to $10,000 of a live-in relative (other than spouse of an owner) is excluded.
Income of a live-in caregiver may be excluded.

*Income and asset levels are adjusted annually based upon average residential assessment increases.

For the Tax Year July 1, 2006 through June 30, 2007, applications for real estate tax relief are taken by appointment only from February 1st through June 30, 2006 in the Office of Real Estate Assessor located at the Municipal Center, Building 18.

Please call 385-8847 for an appointment. Your inquiries are welcomed.

Team Maxx Real Estate

 WASHINGTON, D.C. December 9, 2006 -- A new tax deduction will make homes more affordable next year by allowing many American home buyers to write-off premiums for private and government mortgage insurance.The deduction, which will help families who can’t afford the traditional 20 percent down payment for a home mortgage, will be effective for the 2007 tax year.  

            “Making the cost of mortgage insurance tax deductible helps those who need it most: low- and moderate-income Americans, primarily first-time home buyers, who are financially responsible but simply don’t have the means to amass a 20 percent down payment,” said Steve Smith, Chief Executive Officer of The PMI Group, Inc. and President of Mortgage Insurance Companies of America (MICA). “We congratulate Congress for taking this important step to address a key barrier to homeownership that so many Americans face.”

Borrowers closing loans to purchase homes in 2007 who have annual household incomes of $100,000 or less will be able to get a low down payment mortgage and deduct the full cost of their mortgage insurance premiums on their federal tax return.

“We are pleased that policymakers have recognized mortgage insurance as a cost of finance just like mortgage interest,” said MICA Executive Vice President Suzanne Hutchinson. “Mortgage insurance plays a crucial role in maintaining the stability and continued health of the mortgage finance system. In today’s climate of steadily rising interest rates and slowing home price appreciation, an insured loan is often the most borrower-friendly alternative.”

The legislation has been supported by a broad range of consumer, business, taxpayer, civil rights, civic and labor groups. Following are some comments on the new deduction from some of these groups:

“A tax deduction for mortgage insurance premiums will go a long way to help homeowners and potential homeowners who simply want to own a piece of the American dream,” said Marc H. Morial, President and Chief Executive Officer of the National Urban League. “I congratulate both the U.S. House and the Senate for doing what’s right to make the goal of affordable homeownership a reality for every American.”

 “This tax deduction will create important social benefits by offering relief to over-burdened taxpayers,” said John Berthoud, President of the National Taxpayers Union. “Finally, homeowners will have the ability to make all the costs associated with the ongoing financing of their home truly tax deductible.”

“Homeownership contributes substantially to social stability,” said Bruce Hahn, President and CEO of the American Homeowners Grassroots Alliance. “Yet homeownership remains just beyond the grasp of millions of Americans. Making the cost of mortgage insurance tax deductible helps put homeownership within reach for many more families.”

 “Currently, many Latinos need loans with private mortgage insurance because they are unable to afford the 20 percent down payment traditionally needed to buy a home,” said Guarione M. Diaz, President and CEO of the Cuban American National Council. “Policies such as this one help these families realize the aspiration of homeownership and fulfill an essential element of the American dream.”

 “With a U.S. Hispanic homeownership rate of 48 percent (20 points below the national average of 68 percent), this legislation would enable more hardworking Hispanic families and consumers to become homeowners,” said Manny Mirabal, President and CEO of the National Puerto Rican Coalition. “An estimated 33 percent of the families benefiting from this tax deduction would be minority homeowners.”

MICA is the trade association representing the private mortgage insurance industry. Its members help loan originators and investors make funds available to home buyers for low down payment mortgages by protecting these institutions from a major portion of the financial risk of default.

Team Maxx Real Estate

In 2007, the Internal Revenue Service will hold you accountable for accurately documenting the value of donated goods under a new tax edict tucked away in the Pension Protection Act of 2006, signed by President Bush this summer.

The broader act is aimed at curing the ailing defined-benefit pension system but it includes a host of unrelated provisions, including one that governs required, accurate documentation when you claim tax breaks for gifts, including household goods trucked off to charitable organizations.

Under the current law, the IRS pretty much takes you at your word when you claim a tax break for donations of money or items you've valued at up to $250. Documentation is required for larger amounts and, of course, if you are audited.

Next year, you might want to put a check in the Salvation Army's Christmas Kettle and make sure that futon is really worth $50 -- if you take the deduction.

Under the new provision, you won't have to file your receipts, canceled checks or other donation documentation, but you'd better have proof on hand.

IRS will keep tabs on you through a form that's already necessary when you give goods, IRS Form 8283, "Noncash Charitable Contributions" which comes with instructions, both of which you can download from http://www.irs.gov/.

Along with newly required documentation, the IRS will be beefing up enforcement of existing penalties that rain down on you if you overstate the value or adjusted basis of donated goods.

The penalty is 20 percent of the underpayment of tax related to the overstatement if the value or adjusted basis claimed on the return is 200 percent or more of the correct amount, and you underpaid your tax by more than $5,000 because of the overstatement.

The penalty jumps to 40 percent if the value or adjusted basis claimed on the return is 400 percent or more of the correct amount and you underpaid your tax by more than $5,000 because of the overstatement.

And of course you'll have to pay any taxes that were actually due.

The Salvation Army (http://www.satruck.com), Goodwill Industries (http://www.goodwillpromo.org) and other charities offer suggested values for a host of items, but it's up to you to make sure you get it right.

If you are a frequent household goods donator it makes sense to get more assistance from the source of the new rules. IRS Publication 561 "Determining The Value Of Donated Property" or theIRS Web page (http://www.irs.gov/) with the same name, both teach you how to value everything from aircraft and household goods and to real estate and stocks.


Written by Broderick Perkins

Team Maxx Real Estate