A two pronged stopgap for real estate

by Dan Krell © 2009

Last week was indeed historic for events in Washington, DC. However, two important developments that directly affect real estate should be highlighted. You may have already heard that the home buyer tax credit was extended and expanded. However, you may not have heard that Fannie Mae announced another program to assist home owners facing foreclosure.

On Friday November 6th, the President signed HR 3548 into law which extends the home buyer tax credit through next year; home buyers must have a ratified contract for a principle residence (up to a purchase price of $800,000) by April 30th 2010 and close by June 30th 2010. A tax credit up to $8,000 will continue for first time home buyers who purchase their home before the sunset date; other home buyers who purchase their home before the deadline may be eligible to receive a tax credit up to $6,500. Home buyer income limits have also been increased to $125,000 for individuals and $225,000 for those filing joint returns (prorated amounts may be available for those who earn more than the stated limits). For additional qualifying information, please refer to the guidelines posted by the IRS (www.irs.gov/newsroom/article/0,,id=206293,00.html).

Additional good news came last week from the mortgage giant Fannie Mae, which issued a press release announcing the “Deed for lease” program. The “Deed for Lease” program is designed to assist struggling home owners to stay in their homes by allowing them to pay “market” rent. The program requires home owners facing foreclosure to give the home to their lender via a “deed in lieu of foreclosure” (also known as a friendly foreclosure).

The rental period for the “Deed for lease” program may be up to twelve months. The program may also be available for investment properties that are currently occupied by tenants. A rental application fee of $75 per unit is required. If the home is occupied by tenants who want to stay in the home, those tenants must cooperate with the property manager through the process. Any disruption of the process may result in disqualification from the program. Once initiated, the home owner may not be eligible for the ”Cash for Keys” program (a relocation assistance program for those who are forced to leave their homes). Eligibility requirements and further assistance can be obtained from your Fannie Mae servicer (www.efanniemae.com/sf/servicing/d4l/).

This two prong approach may stem further eroding residential real estate values, which may be due to foreclosures, by increasing demand while reducing inventory. Providing incentives to all home buyers will add additional home buying activity, while allowing home owners facing foreclosure stay in their homes may decrease the negative events associated with foreclosure, such as: lowering the number of displaced home owners who are forced to move, reducing the number of vacant homes; and decreasing the inventory of distressed properties that have the potential to lower neighborhood values.

Alone, programs such as these have drawn criticism pointing out statistics indicating that the money is wasted. However, increasing demand through incentives, while decreasing distressed property inventory may be the combination needed to hold off further eroding home values while strengthening the overall economy. Time will tell if the one-two punch is successful and if there is a need for further expansion of one or both of sides of the equation.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of November 9, 2009. Copyright © 2009 Dan Krell

Don’t be pushed into a short sale

by Dan Krell © 2009

A tale of three Home Owners

The real estate market downturn is becoming reality for many home owners as they realize their home’s value is less than their mortgage balance. Not all home owners, who currently have negative equity, are behind on their mortgages or need to sell at all. If you feel the need to sell or leave your home, weigh all your options by getting all the facts.

Consider these three short sale scenarios from three real home owners; after consulting qualified professionals, including attorneys, Realtors, and housing counselors, they chose and had different outcomes. The fist home owner decided that she needed to relocate to another state. Although she was not late on her mortgage payment, she quickly realized she was in a pickle because she owed more than the amount she could net after a sale. Her Realtor recommended that she consult an attorney to discuss other available options other than a short sale. After her consultation, she decided that the best move was not a short sale but to file a Chapter 7 bankruptcy and get a fresh start in her new home state.

The second home owner was divorcing and (like the first home owner) was unaware that the market had changed such that they were in a negative equity position. After consulting their attorneys, they moved forward to sell their home through a short sale. Since there were two mortgages on the home, both lenders needed to approve the short sale. The first lender agreed to the short sale, however the second lender did not. To make this long story short, this seller filed a Chapter 7 bankruptcy.

The third home owner was also divorcing and was three months behind on his mortgage. To make it easy for himself, he tried to have his lender accept a “deed in lieu of foreclosure” (sometimes called a friendly foreclosure). He consulted his attorney after his lender refused the “deed in lieu,“ and decided to move forward with a short sale. His lender was motivated and the short sale was quick and successful.

Many real estate agents are soliciting home owners to sell their home as a short sale. Unfortunately, not all of these agents are presenting all the facts and alternatives. Some homeowners may find that they may not need to sell at all; among their choices are attempting a mortgage modification or a bankruptcy filing.

Don’t allow a real estate agent push you towards a short sale without considering all of your options; consult an attorney and a housing counselor. Everyone’s needs and situations are different, it is important to consider all aspects and impacts of your decision. Even if you have a security clearance, consult your attorney to understand what and how derogatory credit items may affect your clearance and employment.

Be wary of solicitations to help you in your time of need, including those by “foreclosure consultants.” Foreclosure consultants (which may include real estate agents soliciting you if you are in foreclosure) must follow local and state consumer protection laws. Don’t be fooled by an “expert certification” given to professionals after attending a seminar or online course. If after considering you options, you decide that a short sale is appropriate for your situation – seek a qualified and experienced Realtor.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of November 2, 2009. Copyright © 2009 Dan Krell

Fannie Mae in the Rental market?

Although the new “Deed for Lease” program may not be considered nationalized housing, it comes close to the scenario I envisioned back in March:
“Rather than the Government entering the mortgage servicing arena, the ideal nationalized housing program (through Government controlled lenders) would allow struggling home owners to pay what they can afford. In return the home owner would give up some (if not all) of the future equity stake in their home when they eventually sell.”
https://dankrell.com/blog/2009/03/03/nationalize-housing/

 

Yesterday (November 6), Fannie Mae announced the “Deed for Lease Program.” The program is designed for homeowners who are in foreclosure and do not qualify for a mortgage modification. The home owner is supposed to give their home to their lender via a “deed in lieu” (also known as a “friendly foreclosure”) and be allowed to rent back from the lender. Program guidelines and other information can be obtained from Fannie Mae’s news release: http://www.fanniemae.com/

Senate passes home buyer tax credit legislation

bungalow

Yesterday (November 4th), the Senate passed legislation to extend and expand the home buyer tax credit. The $8,000 first time home buyer tax credit continues; AND adding a “move up” buyer tax credit of $6,500 (both to sunset April 30, 2010). The new legislation is certainly going to continue helping first time home buyers, as well as helping many move up home buyers who are struggling with their own liquidity.

Surely, many home buyers will take advantage of the tax credit to assist them in their purchases. Although there is a direct and immediate effect of the home buyer credit, many continue to debate its affects. Many have voiced their opinion about the pros and cons.

By Dan Krell
Copyright © 2009

Get proactive to sell your home!

by Dan Krell © 2009

Proactive home selling

The 2008 edition of the National Association of Realtors “Profile of Home Buyers and Sellers” indicates that a home’s condition and environmental impact are important to many home buyers. In a market where home buyers are hard to come by, your home may stand out from the crowd if you can demonstrate that your home is solid and energy efficient.

Some believe home buying to be an emotional process that is rationalized by making decisions on perceived value. Conducting pre-sale inspections, such as a home inspection and a home energy audit, can not only provide home buyers with the rationale for choosing your home, the physical data may provide home buyers an additional boost of confidence that can make their decision process easier.

NAR surveys indicated that home buyers are more apt to compromise on the price than the condition of a home (NAR Profile of Home Buyers and Sellers 2008). Be prepared by conducting a pre-sale home inspection. The inspection can provide information on the general condition of the home by examining the age and functionality of the home’s major systems including (but not limited to) roof and gutters, heating and cooling, plumbing, electric, and possibly point out any visible structural defects that may need attention. Some home sellers may also decide to conduct additional environmental tests (such as radon and lead) to possibly alleviate further concerns.

As energy prices continue to rise, home buyers are increasingly aware of home energy efficiency. NAR surveys indicated that 43% of home buyers consider a home’s heating and cooling costs important factors in their home search (NAR Profile of Home Buyers and Sellers 2008). You may allay home buyer fears of purchasing an inefficient home by conducting a home energy audit. Besides revealing the energy efficiency of your home’s furnace, A/C, and major appliances, conducting a home energy audit will also provide information on the home’s efficiency of maintaining temperature. Professional home energy auditors use state of the art equipment (such as infrared cameras and blower doors) to identify often hard to detect air loss or penetration from walls, windows, and doors.

Although some home sellers have the financial resources to make major renovations to their homes to attract home buyers, most do not. The pre-sale inspections can provide you with useful information that may assist you in preparing your home prior to listing by allowing you prioritize the items that need attention. The pre-sale inspections can identify the strong and weak points of your home; you can be prepared for making repairs and/or updates of any unsatisfactory conditions that are identified. However, if you are selling your home “as-is,” the inspections can help you price your home by accounting for any necessary repairs or updates.

By proactively attending to necessary repairs, you can limit the amount of negotiating a home buyer may initiate from their home inspections; or avoid having a home buyer walk away from the deal due to an unsatisfactory home inspection. However, you must remember that although you may be enticing a home buyer by providing pre-sale inspection results, you are still required to disclose any known latent defects in your home (defects that would not reasonably be expected to be observed by a careful visual inspection and pose a health or safety threat).

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 26, 2009. Copyright © 2009 Dan Krell