How To Avoid the 10 Most Common Mistakes Sellers Make

If you are thinking of selling, you should keep these things in mind. They are not new, but sellers often overlook things they think are not important, when nothing could be further from the truth!

How Does an Owner Cope with a Coastal Property Near Rising Water Level?

If you live in California, and Southern California in particular, your property may be near the coastal areas and at or near sea level--and therefore closer to the water table levels. At certain times of the year there are annual high tides, i.e., the one seen almost up to the asphalt level of Pacific Coast Highway through Huntington Harbour.

Houses with basements, or more likely crawl spaces under the raised foundation, may show signs of moisture or even flooding. This is dealt with by creating sumps--or holes in the ground to collect water--and installing sump pumps. The pumps may be set up with connectors (i.e., a hose) to carry the water off the property, via drains, or whatever method complies with local codes.

While a buyer should obtain professional assistance about the best type and system to install, if you're buying property almost level to the water, don't be surprised to find out you may have to deal with this.

In more extreme cases, you may want to find out about subsidence and call in another expert. You will want to review the natural hazard disclosure reports, and even local flood zone reports available online through FEMA. Also, be aware that if the property is in a specific FEMA flood zone, additional insurance may be required before your lender will fund your new loan, or otherwise require you to obtain the additional insurance if you already own the property. You may be able to obtain an elevation certificate issued by a qualified surveyor if your property sits at a high enough elevation.

For more information about contacting an appropriate local professional, please feel free to give me a call.

Are You Looking Into Selling Your Property as a "Short Sale"?

Although the terms "short pay" or "short sale" are heard frequently, some people are still asking what they mean: It means the property owner owes more on his/her property than it can be sold for, or sold for after paying all the standard closing costs. In other words, the seller is "under water". Briefly, the mortgage holder(s)--there may be more than one loan on the property--must agree to accept the lower payoff amount, which means the bank is losing money on the seller's outstanding loan amount. The owner must "apply" for that approval by submitting financial information and a written statement about the reasons for their situation. As more and more properties are involved in this situation, some banks are finally, at long last, gaining some level of efficiency at dealing with all the short pay applications. Guidelines for the seller include submission to the bank of a signed and dated financial worksheet (usually in a standardized format), and signed and dated hardship letter, as well as a copy of the listing agreement, and letter of authorization for the party helping you with your short sale to communicate with the bank about your loan.

The sale generally must be an "arms-length" transaction; you cannot sell to someone you have a close personal relationship with, i.e., family member, personal friend, even a neighbor.

Different banks have different approaches about when to best receive submission of the seller's package for approval; and these approaches have changed from one time period to another, even in the last several months, so it may be difficult to know what to expect. Some mortgage holders will want the seller's package up front; other banks seem to respond faster when an offer has been obtained and is sent with the seller's package so that the seller's package does not "sit" at the bank and get lost.

The contract terms between the buyer and seller is negotiated as if it were a normal sale, but it's important to note that all disclosure about the short sale status must be given, and the buyer must in almost every case be willing to wait at least 60 days for the entire process. Even though the bank is not the seller, its role is key in whether the property gets sold and for what price. And, the bank will want an accounting of all costs of sale, and may not approve certain costs in order to preserve its bottom line. Banks have also been known to "approve" in advance a certain amount as the selling price, hoping that a buyer will be found at that price and they will therefore lose less money, but the market may decline, so the actual selling price may be less the longer it takes to find a buyer, or the approved price may not be realistic for the specific area of the property.

The Obama Administration will soon be issuing short sales guidelines and standardized forms--the outcome for all lenders to participate is yet unknown. It is hoped these guidelines will prevent future unrealistic negotiations among all parties, and faster treatment of short sales to assist stabilizing the real estate market.

As more loans entered into 2-3 years ago come up for their reset dates, the short sale process will continue to be a "staple" in the market, making a more uniform process mandatory. Some areas are completely dominated by either short sale/pre-foreclosure properties on the market, or bank-owned properties that have already been through foreclosure.

Any seller contemplating this as the only possible way to sell their property should also seek any legal and tax advice at the same time, especially if also contemplating bankruptcy.

Short sales generally have less impact on one's credit (assuming there are no or very few missed mortgage payments) than does a foreclosure, which will stay on the credit report for a much longer period of time and be a more severe "hit". Even with the FICO hits of missed mortgage payments, a short pay may be preferable for several reasons, including that the IRS has allowed debt forgiveness on mortgage amounts involved in the short sales. Foreclosure carries a longer period of impact on one's credit, something to think about when FICO scores are used in insurance applications, employment promotions, and of course, credit application.

There are many related and complex issues with these situations, and much confusing information which seems to change or modify on a monthly basis, and even legal and tax advisors are not totally familiar with impacts on credit scores in these two situations. For the most accurate information and opinion, contact a reliable loan professional who is in contact with borrower's credit reports on a regular basis.

More recently, per National Association of Realtors website:

On May 14, 2009, the Obama Administration announced its upcoming Foreclosure Alternatives Program, expected to launch in late July. Among other things, the new program:

Establishes financial incentives for servicers, sellers, and second lien holders to encourage the completion of short-sale transactions.

Requires that a timeline, of no fewer than 90 days, be set to allow a homeowner to sell a home, without threat of foreclosure action.

What's For Sale in Long Beach under $300,000?

This is a popular price range for many 1st time buyers, the group of people who are among the most active and largest group of buyers looking on the market now.

In 2007 in Long Beach, there were less than 350 residential condos, own-your-owns, coops, and single family properties in this price range. Last fall, the inventory doubled to more than 700 listings in this group.

As of June 16, the MLS is showing 430 properties in this category: 185 active listings are single family homes under $300,000 in various zip codes (but not 90803 or 90814). In a sampling of the first 25 on the list, 19 of them are short pay or REO properties. In the last 25 on the list, 23 out of 25 are short pay or REO properties.

For condos, co-ops and own-your-owns (lofts excluded), there are 241 condos, etc., with about the same percentage of REOs and short pays: 21 out of first 25 on the list. The difference with condos is that they also represent many areas of town, including 90803, 90815, 90814. But not all condo opportunities are alike: Be prepared to face monthly HOA dues of as much as $600 for Marina Pacifica, where there have been several such sales. The price may be low, but the monthly payment must be able to accommodate the association expenses.

For the buyer who is heading out on a home search with their REALTOR, and with a valid mortgage pre-approval in hand, be prepared, because due to shrinking inventory, lower sales prices, and many other first-time buyers, you may have severe competition and deal with many multiple offers on the property you would like--some houses in particular have seen over 30-50 offers--and only one will be chosen. And, a frustrating fact is that that buyer may be an investor with lots of cash, or all cash. Also, the qualified FHA buyer, with 3.5% down payment, may have a much harder time competing, not just because of their lower down payment, because FHA offers must be appriased by an FHA appraiser who is required to report on certain property conditions according to government guidelines.

If the FHA buyer is considering a condo, which will probably be somewhat less competitive than a house, there are still HOA requirements to be met under FHA guidelines. Ideally, the buyer will select a property in an association that is already FHA-approved under the HUD guidelines. (Ask me, I can help you find out.) Otherwise, the buyer must hope for a "spot" approval, and that may have a more uncertain outcome until the transaction is further along in escrow and underwriting approval is obtained.

So what can the buyer do in this situation? Try to find a property that will work for you and with your loan, maybe a property that is getting less attention from other buyers. It may be your golden opportunity. It may require patience, it may require imagination, and it may not have granite countertops in the kitchen to start, and it may require some compromise on some of your criteria, but in the end if you want to be a homeowner, you have to start somewhere, and the gains could be very great in the end.

For a specific list of properties to be sent by e-mail, please contact me, OR go to http://www.juliahuntsman.com/ to see various current property searches from the MLS.

What's In An Appraisal for All Parties?

You might think "HVCC" refers to a heating system, but no, it refers to property appraisals performed under the new Home Valuation Code of Conduct. This Code came about through the New York State General Attorney Andrew Cuomo's agreement with FNMA and Freddie Mac and the Federal Housing Finance Agency, those agencies that create the rules for loans that buyers need.

What it means for the buyer and the seller both is that conventional loans obtained for single family homes fall under this new appraisal code. (Not for FHA loans.) Appraisals have always been important: the lender did not want to loan on a property which did not match a true market value. Diligent Realtors have always advised sellers to price their properties realistically, and advised their buyers of a realistic selling price according to local market comparables, in essence, the property had to be sold twice, once to the buyer and again to the lender. The subprime market blurred this picture for quite a while, but sometimes the cure is just as bad as the problem.

To counter the effects of the subprime market, effective May 1, neither lenders nor their staff are allowed to select the appraiser, nor are they allowed to have "substantive" communication with the appraiser or the appraisal management company (AMC) which now is the new level of bureaucracy managing the assignment of appraisers. The new system may have started more problems than it ended.

Some assigned appraisers may not be familiar with an area--coming from a different county even--have no particular vested interest as to the outcome of the appraisal, consumers are being advised their appraisal will cost about $100-$150 more and they may have to lock in their rates for a longer period of time, which will also cost them more. If the consumer changes lenders, they must pay for an additional appraisal. The AMCs pay low fees, thus attracting only the inexperienced appraisers, some of whom are failing to adequately appraise a home. See The Wall Street Journal's article on this.

The AMCs are unregulated, and do nothing the reduce fraud (the reason they were established in the first place), and transactions are being cancelled in some instances, at a great cost and inconvenience to both the buyer and seller. One professional association estimates that HVCC will cost consumers 2.8 billion dollars a year in extra fees.

These issues make an already form-and-disclosure-intensive transaction even more challenging and difficult under increasingly stringent legal and professional standards, especially in California which has the reputation of being a very litigious state. But I'm sure professionals in Michigan, for instance, probably feel the same way.

Now is the time to know your market, and be prepared to address a possible appraisal gap as a "Plan B" to closing escrow, which could mean that if the difference is not too great between appraisal and contract price, that buyer and seller split the difference. Not great, but it could be an option to not meeting the closing date.

The Cost of Waiting to Buy Revisited

Six months ago (they've passed quickly), I covered this topic via an article by Pat Zaby complete with payment scenario.

Last week's upset in the Treasury bond market , a more complex subject, ultimately sent mortgage interest rates up, with higher payment impact, that the earlier post referred to:

Let's make an assumption that the prices may still decline 5% more before they start appreciating again. If while a buyer was waiting for the price on a $250,000 to go down 5% to $237,500, and the interest rate goes up one percent from 5.25% to 6.25%, which is entirely possible, the buyer's monthly payments will increase almost $79 per month.

Or putting it another way, some buyers who qualified before last week may now have lost as much as 10% of their original buying power. In fact, some mortgage professionals feel that because of the current economic forces driving the purchase of bonds vs. mortgage-backed securities, the edge on low interest rates--below 5%--is gone, and maybe gone for good. If you're just starting in the market, figure it's the luck of the draw. But if you've been looking for a very long period of time, or renewing your search after being away from it for a long time, your loan information probably needs to be updated.

One brighter spot is that the procedure is being put in place for the imminent start of a statewide down payment assistance program offering a "silent second" for first time homebuyers (up to 3% of purchase price, income restrictions apply, FICO score over 680) and which may be used in conjunction with the FHA 3.5% down payment. If you're in that category, you might still be ahead if you fit this program.

See my earlier post on waiting to buy.

$8,000 Tax Credit is Once Again a Help With Costs for 1st Time Buyers

There has been much confusion in the past several weeks about using the credit for a down payment, as HUD announced a tax credit but then rescinded the offer.

Now, the latest information from HUD (May 29th) is now that the $8000 tax credit for FHA borrowers "may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs." The HUD credit may not be used in place of your 3.5% down payment, but you may use it to cover closing costs, or as a loan through specified programs set up by lenders.

This is a great opportunity for first time buyers to buy real estate in the Long Beach area with additional some financial assistance!

Give me a call to learn how to utilize this program to your best advantage!

Back to Reality--No Using the $8000 Tax Credit for Down Payment

This has already been addressed in many other quarters, but just for the record, I'm including it here: Apparently, the HUD letter ML 09-15 has been rescinded as of last Thursday morning because it violated a federal law effective as of October 1, 2008, and now there's just a big blank space on NAR's site where the announcement used to be. The fact is, FHA loans do not allow for down payments that in themselves are loans, but may allow for gift down payments from certain sources as spelled out in FHA guidelines.

So the $8000 credit-as-down-payment is NOT going forward. And, for the ML 09-15 proposal to occur, there would have to be in place:

--State agencies approved WITH MONEY for the downpayment
A change to the HUD guidelines on the timeframe that is allowable for a loan….currently must be amortized over 10 years with no balloon.
--A change to the IRS guidelines allowing your refund to be assigned to a state or non-profit entity.
Source - Tara Ryan, Primacy Mortgage

In the meantime Buyers, you have until December 1, 2009 to otherwise utilize the $8000 tax credit.

California's New Home Tax Credit for $10,000

Announcement from California Association of Realtors: (NOTE: As of this morning, well over half of the $100,000,000 funds for a new home purchase are now committed, although not paid out. Buyer must close escrow, and then apply with 7 days after close of escrow.)

"This tax credit is available for qualified buyers who on or after March 1, 2009, and before March 1, 2010, purchase a qualified principal residence that has never been occupied. The buyer must reside in the new home for a minimum of two years immediately following the purchase date.

"The FTB began accepting applications for allocation of credit by fax only (916.845.9754), on March 1, 2009. They began processing the applications on a first-come, first-served basis, on May 1, 2009. The processing delay was necessary to allow them time to develop a system to capture and verify the application information, allocate the credits, and send the credit allocation letters. It will take at least a few weeks to process all the applications they received and mail credit allocation letters. Please be patient and do not send applications more than one time.
California allocated $100,000,000 for this tax credit. Buyers must apply for credit allocation from the FTB. They will review applications and allocate credit on a first-come, first-served basis. Once $100,000,000 has been allocated, the tax credit will no longer be available. They expect to report total credit allocations allowed beginning May 15. Until then, they will continue to report data on applications received. "

Doesn't the fact that over half the funds are now committed since March 1 show the increase in buyer purchases?

First Time Buyers: $8,000 Credit May be Used as an FHA Loan Down Payment

First-time homebuyers: Get the fast road to your $8,000 tax credit. Shaun Donovan, secretary of Housing and Urban Development (HUD) announced on May 12 that Federal Housing Administration (FHA) will allow its FHA lenders to allow homeowners to use the $8,000 tax credit as a down payment.

Secretary Donovan said.

'We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment.' According to Donovan, the FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

Rather than waiting for refunds after the closing, funds will be available at the closing. A second mortgage will be filed and repayment terms will vary. It is important to keep the home as a primary residence for at least 3 years.

Q&A summary of other requirements for this credit:

Who Qualifies?
First-time home buyers who purchase homes between January 1, 2009 and December 1, 2009.
To qualify as a "first-time home buyer" the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

Which Properties Are Eligible?
The 2009 First-Time Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

How Much Will the Credit Be?
The maximum allowable credit for home buyers is $8,000. Each home buyer's tax credit is determined by two factors:
a) The price of the home-the credit is equal to 10% of the purchase price of the home, up to $8,000.
b) The buyer's income-single buyers with incomes up to $75,000 and married couples with incomes up to $150,000-may receive the maximum tax credit.

If the Buyer(s)' Income Exceeds These Limits, Can He/She Still Get a Credit?
Yes, some buyers may still be eligible for the credit.The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income-over $95,000 for singles and over $170,000 for couples are not eligible for the credit.

Will the Tax Credit Need to Be Repaid?
No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during the three-year period, the credit will be recouped on the sale.