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Short Sale or Not to Short Sale?

by Mick Marsden

Short Sales: An education

 

Short sales in real estate are here for the foreseeable future. To serve both buyers and sellers well in the current market you have to stay educated on all aspects of short sales and REO (Real Estate Owned) homes. I recently took my second class on the subject in the past 6 months because rules and procedures to make a short sale happen are constantly in flux. If you're a professional reading this blog you may wish to consider taking a short sale class that the Dares Institute, one of the best continuing education providers to the real estate and lending sectors in the business (visit: www.dares1.com for course schedules and more information). Down in the Fairfield area, I just enjoyed a course presented by Atty. John Hoffman of http://www.loansolutionassociates.com/

 

 

 

What is a short sale.


There are many who conflate a short sale with a bank owned home. They're mutually exclusive and different topics so this blog is dedicated to the short sale. 

 

The news media reports often about how many homeowners are "underwater" with their mortgages. This means that the current market value of the home is worth less than the outstanding aggregate loan balances (1st mortgage, 2nd mortgages or HELOCs [Home Equity Line of Credit). A short sale occurs simply when the lender accepts less than what is owed and releases the liens that secured the debt.  A simple example: House value= $450K; Loans balance on home = $500K. Negotiations with lender allow for the sale to take place accepting the current market value of the home, or less in some cases to close the deal. 

 

Short sales are not easy and present challenges which can take weeks and months sometimes to even get a response to an offer, but the net results are positive for all involved: The homeowner avoids foreclosure and avoids the sometime public display and embarrassment of a foreclosure and/or bankruptcy, the lender relieves itself of bad debt and can now place that capital into their reserve, and the buyer gets a good deal in most cases as well. 

 

What you should know?


The more I learn, the more I know you need to work with a team who is skilled, licensed, and equipped to facilitate such a transaction. Those individuals whom claim to help home owners navigate and facilitate these kinds of transactions in the State of CT for a fee must now be licensed. As of this blog the State has only issued 6 licenses and one of those belongs to a law firm whom we work with on these types of deals. So be sure to have that firm or representative present their license. Chances are the firm you're talking to won't have that needed license.


A broker or agent whom is being paid only a real estate commission can negotiate a short sale legally but most aren't as equipped to do facilitate such a negotiation as well as an attorney with a staff who does this kind of transaction regularly. 

 

You should also be aware that you cannot consider a short sale for your underwater house if you are current on your mortgage. You must be in arrears on your payments. Your agent and broker should not be telling you to stop making payments, rather you should seek this sensitive and important advice from your attorney and financial advisors. 

 

Learn as much as you can about the process and how it may benefit you. Here are some great links to sites that may be useful resources:

 

Connecticut Fair Housing Center

Connecticut Judicial Branch - jud.ct.gov

Connecticut Law About Foreclosure

Making Home Affordable - Home

CTShortSaleInfo.com

 

Foreclosure vs Short Sale


Many people ask me what difference is it to me to do a short sale? Why not just walk away? No doubt your credit is pretty much trashed either way, right? Not quite. For sure your credit score will take a nose dive either way.

Some experts I talked with about this blog told me that a short sale can lower your credit score 50-130 points on average whereas a foreclosure can lower your score 200-400 points. There are lots of variables so it's tough to nail it down to specific number.

 

Doing a short sale under the new HAFA guidelines (covered below), a seller is now guaranteed to be released fully from the debt (at least from the banks that agree to HAFA). This means credit recovery will be sooner and a deficiency judgement won't follow you around for the next 20 years. (NOTE: the HAFA guidelines will NOT apply to Fannie Mae or Freddie Mac. They are in the process of developing their own set of rules and guidelines. Can't wait, eh?)


Up until now it was a crap shoot whether doing a short sale would really benefit you. The reason was that some banks did not release the debt and carried over the deficiency making the buyer liable for the short. I reached out to Attys Tavano and McCuin to ask about their opinion on HAFA's impact and he replied: "On the HAFA program starting 4/5, not every bank will participate so well need to see how it's all going to work out." Atty. Lou Tavano,  http://www.shortsaleatty.com, sent over this great link that has info everyone has been waiting for. (Atty's Tavano and McCuin are also Dares Institute instructors on this Short Sales and more).: http://bit.ly/dr2AmG

 


In the government's tireless pursuit of naming programs and alike with a catchy acronym, HAFA (Home Affordability Foreclosure Alternatives), with its Supplemental Directive 09-09, that fear is over. Lender's will have to fully release the borrow when the short sale is accepted and closed. Lenders will also be pre-approving short sales. Many short sales fail because the listing brokers didn't have a clue to what would be acceptable. Another reason is that some of the banks would take weeks and weeks to even get a response. 2nd Lien holders won't be asking you to bring cash to a closing. A payment cap of $3k will be the max for 2nd lien holders. Borrowers may even be paid $1,500 at the closing to reimburse your moving expenses.  A maximum response time of 10 days will be imposed on lenders. Agents can now count on being paid! How about that!

 

To qualify you have to prove the home in question is your primary residence, so investors take note. Your first mortgage would have to be older than 1 January 2009. Your hardship must be unavoidable now and in the near future. The delinquent balance must be south of $729,750. And lastly your debt to income ratio must be greater than 31% of your gross income. 

 

You will have to first see you you're a fit for the HAMP (here we go again with the alphabet soup: Home Affordability Modification Program) to see if you can keep your home, but you still can do the HAFA program nonetheless. 

 

This is all live on 5 April 2010 and we're still getting our arms around all the details to help our sellers in this situation. 

What you need to know to get your 1st Time Home Buyer Credit

by Mick Marsden, Chris Burdo

Ok, so you bought your first home and instead of being freaked out about it being tax time, you're excited. Why? Because you're expecting a big fat refund or reduction of your tax owed by as much as $8,000. 

But what to you have to present to the IRS and what do you have to know to actually collect that bounty you've been looking forward to? As I don't practice law nor have CPA credentials, I reached out to my colleague at the Riverside BNI, Chris Burdo, tax consultant extraordinaire at Ed Muenzner CPA, LLC , to give me the blow by blow so that all of my first time home buyer's and blog readers will have a leg up before they walk into their tax preparation meeting. 

Chris Burdo, Tax Consultant Extraordinaire with Edwin R. Muenzner, CPA, LLC 

Everything you need to know to collect your up to $8,000 tax credit by Chris Burdo

There has been much coverage over the “First-Time Homebuyers Credit but I’d like to review not only the basics of the credit but also go into the finer details that may be of interest from a tax perspective.  It should be noted that this credit originally started out as a loan a couple of years ago and has evolved into the First-Time Homebuyers Credit so my discussion relates to the changes that took effect in November, 2009. Furthermore it should be noted that under the IRS Circular 230 Notice that any tax advice provided in this blog or any attachments cannot be used for the purpose of avoiding penalties that may be imposed on any taxpayer. 

From the amount of press that has been generated about the FTHB credit most potential homebuyers are probably aware that for a first-time buyer the tax credit is a maximum of $8000.00, unless they file as married-filing-separately in which case the tax credit would only be a maximum of $4,000.   Furthermore there is the maximum $6,500 tax credit, maximum $3,250 if married-filing-separately, for long-time residents that have owned and lived in the same residence consecutively for five years within an eight year period.  

There are some restrictions attached to the FTHB credit which are:

  • The credit cannot be claimed on homes costing more than $800,000.00
  • Taxpayers can only receive the full credit if their modified adjusted gross income is up to $125,000.00 for single filers and up to $225,000.00 for married filing jointly.  There is a reduced credit for taxpayers if single their modified adjusted gross income falls between $125,000.00 and $145,000.00 and for married filing jointly $225,000.00 to $245.000.00. 
  • The taxpayer, and spouse if married, must be 18 years of age on the date of purchase.
  • The credit is not available if the taxpayer is purchasing the home from a relative of linear descendent which would be from grandparents, parents, or children for example. 
  • The taxpayer may not claim the tax credit if they are gifted the property or if it is inherited.  

With the tax filing deadline of April 15th looming close by the FTHB credit offers taxpayers that have purchased their homes in 2010 the unique opportunity to take the tax credit in either 2009 or 2010.   Discuss with your CPA the impact that this credit would have for both your 2009 filing as well as a 2010 tax projection and decide which is best for your situation.   

To receive the FTHB credit the taxpayer must attach a copy of the settlement statement, usually form HUD-1, which should show all the parties signatures, the contract sales price, and the date of the purchase.  If the home is newly constructed and a copy of the settlement statement is unobtainable than a copy of the certificate of occupancy will generally suffice which should include your name, address, and the date the certificate was issued. 

As this tax credit also applies to mobile homes settlement statements do not apply in this case but its place the taxpayer would have to provide a copy of the retail sales contract, signed by all parties, the purchase price and the date of the purchase. 

For taxpayers claiming the credit as a long-time resident they will have to provide additional information.  A 1098 mortgage interest statement, the homeowners insurance statements, property tax records for five consecutive years in an eight year period. The eight year period should end on the date that the purchase of the new home is made.

This tax credit is set to expire on the stroke of midnight April 30th, 2010 with the only caveat being a buyer that has a binding contract prior to May 1st to purchase a property prior to July 1st, 2010.  Members of the Armed Forces as well as qualified federal employees serving outside the U.S. borders are given an additional year to take advantage for the First-Time Homebuyers Credit and will be required to be in a binding contract by April 30th, 2011 to purchase the property by the latest of June 30th, 2011.  If you’re pondering a new home purchase please speak with Mick or any member of his capable staff to take advantage of this tax credit.  

Who's doing your taxes?

Don't leave money on the table, or worse yet, on the IRS's table. Have your taxes prepared by a competent tax specialist. The money spent on such a service is often more than paid for by deductions you may have been totally unaware of. 

Roses for Autism

by Mick Marsden

Roses for Autism, a New England rose farm, provides inclusive employment opportunities for adults on the Autism Spectrum. They provide training for individuals with Autism to work on our farm and prepare them to be a successful workforce in the community. You can support this fabulous and dedicated organization and put a smile on your wife or partner's face simultaneously. 

Unlike roses found at your florist that are imported from South America, you'll find these roses to be extraordinary in their beauty, fragrance, and longevity. You'll not only be supporting a worthwhile organization you'll be doing your part in supporting local business while lowering your carbon footprint at the same time. 

Roses for Autism was the inspiration of a father of a teen with autism. Like many parents of children with disabilities, Jim Lyman dreamt of a future where his son, Eli, would have a meaningful job and continued opportunities to grow as an individual. 

Through his work in agriculture Jim knew that local farmers were struggling to find qualified workers to keep their businesses alive. He had the vision to see a perfect opportunity for an innovative program that would meet the needs of both the autism and agricultural communities. 


Roses for Autism not only provides individuals on the autism spectrum the chance to learn the skills necessary to maintain meaningful employment, but also serves as a model that can be replicated nationwide to develop unique opportunities for them as a whole new competitive workforce. 

Started in 2009, Roses for Autism is the first business endeavor for Growing Possibilities, a nonprofit social enterprise founded by Ability Beyond Disability that is dedicated to growing independence in the business world for individuals with Autism and other disabilities.

You can buy these roses at CT Farm Fresh Express by clicking here and they'll deliver them to your door. The online store is open from Friday evening until Tuesday noon. 

Visit the Roses for Autism website to see how you can get involved to support this organization other than by just purchasing roses. 

The River to Shore Group March Newsletter Update.

by Mick Marsden

This is a quick update to the our March Newsletter. At the time I published our newsletter we didn't have the February numbers in at that time. The trend continues to be positive as we note 107 closings for all price points in the 23 town service area we track. That represents a 21.59% increase over Feb. 2009. The luxury market lost a bit of ground and reported only 1 closing for February compared to just 2 last year.

 

Sales volume actually reported a 28.59% which is encouraging. As you'll recall from past reports, sales volume had been lagging closings which indicates a market that is beginning to stabilize. Because this is from all price points this is heavily waited to the $400K and under price bracket. 

 

The number of new listings that came on in Feb. 2010 was 414 across the board, slightly higher than the 364 reported in 2009. 32 of these new listing were luxury listings adding to the already heavy, 64 months of inventory we have based on the current sales pace. 

 

What's happening to listings above $1M?

 

Most luxury listing clients are quite anxious. Everyone wants to sell and they're asking "where are the buyers?"  The answer is complex. Some of these luxury homes on the market are 2nd and 3rd homes and many with water features: direct waterfront, views, docks, beach, etc. My research and reading blogs have turned up a consensus that the 2nd home markets are going to face some downward price pressures as many can no longer afford or justify maintaining a second home. Some luxury sellers are keeping those vacation homes they use most and selling the ones that aren't making sense. That puts the supply and demand curve more in the favor of buyers. 

 

For the primary residence market the sales are occurring on homes that are under market value unless the home is simply that unique or its location a no brainer. It's very much a beauty contest and a price war for both primary and second home sellers.

 

So, if you're a luxury seller and your home is a gorgeous specimen with little in the way of showings and offers in spite of great marketing, you must simply get your arms around the idea of pricing your home to shine brighter in a sky crowded with other stars. Pricing your home 10-15% below market will win that one buyer that is now statistically far and few between. 

 

Take a look at the spreadsheet where we track the closing activity going back to 2007. It's a scary decline in the number of closings: 

 

Thanks for reading. I will report in next month and update you on the Q1 for 2010. 

 

Spring is just 3 days away…and it's beginning to feel like it!

Moodus, the old days

by Mick Marsden

I didn't realize when I visited Snowdoggies and met the owner, Ron Snow, that he was in fact so connected to East Haddam, more specifically the village of Moodus, CT. There's another blog here about his great hot dogs, ice cream, steamed cheesburgers, and more, so don't miss reading and going to try them out. In the meantime, please visit this gallery of photos that shows the old Moodus Center going under the radical changes that began it's transformation. 

Here's a couple of sample photos. 

Most don't realize that the hilltop where Hilltop BBQ and Steakhouse is not located was created by this project. 

 

Old, unremarkable building unsuitable for commercial uses were demolished. 

There's many more in the gallery. Click here to see them all.

Do you source new business from word of mouth?

by Mick Marsden

Word of mouth is one of, if not the best, way to find new, loyal, customers. BNI (Business Network International) has one focus: To gather groups of dedicated professionals in every field imaginable and meet once per week to refer new business. How many times have you asked someone: "Do you know a good plumber?"  It could easily be a photographer, REALTOR®, insurance pro, boat mechanic, etc. It's how we help friends, family, and acquaintances to get their job done with someone they know will work out. 

 

Stephen Shaw, Chapter President speaking with a new member


The new Essex, CT chapter of BNI that just formed is off to a great start with 25 new business members and that's just the beginning. Would you like to expand your business this way? Imagine having the help of 25 (and constantly growing) members each week giving you more of how you already grow your business? If so, consider this your invitation to attend as my guest this Tuesday morning at 7:30am at the Essex Town Hall auditorium. You'll be finished by 9am so you can get on with your day but with one difference. You'll be charged with the energy of the 25 people who absolutely love what they do who'll come to know you and your business so they can begin sending new customers to you. 

 

Here are some examples of what types of business we're looking for that aren't currently represented: 

 

• Business Lawyer

• Photographer

• Home Appraiser

• Payroll Service

• Personal Trainer

• Restauranteur

• Civil Lawyer

• Florist

• Bookkeeper

• Business coach

• Credit Card Merchant

• Plumber

• Office supplies

• and many more. 

 

 

If accepted into the chapter you will be the ONLY business person in that genre. What do you have to lose? Come visit, come join this Tuesday. We meet every week and we're building new business now. Don't miss out!

 

I, as the chapter's REALTOR®, am there to find new buyers for my existing selling customers, more selling customers. It also helps me source great services for both customer types with the comfort of knowing they'll get a great job done at a great price. My first experiences have been stellar. Yours will too.

 

I also serve in a leadership role as the chapter's Educational Coordinator. It is my job to help members communicate about their business message with greater clarity, understand the BNI process, and much more. My goal is to help everyone get the most for the time spent at meetings and their membership. 

 

I hope to see you at the next meeting. 

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