Short Sales 1-2-3

Per the IRS.gov website, you may qualify to receive this credit if you meet the following qualifications

“… qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.

For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.”

The credit itself:

Applies to purchases that close after April 8, 2008, and before Dec. 1, 2009.
Applies only to homes used as a taxpayer’s principal residence.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed. You just need to fill out a form to get the credit.

So if you were considering buying a home this year – be sure to talk to your accountant as you may also qualify to get $8,000 extra dollars for buying your first home !



Understanding How the $8,000 Homebuyer Tax Credit Works
by Bob Boog

The new Obama homebuyer tax credit has launched out of the starting gate and rather than get left behind, I thought I might find out more about it. Like a lot of real estate people, I don’t quite understand it. So I asked my friend and mortgage broker professional, Eric Larsen to help clear up some of the mystery. And maybe my stupidity and his answers will make things clearer for you!

Bob Boog: From my understanding, homes purchased in 2008 are eligible for a $7,500 tax credit, right?

Eric Larsen: Yes, but unfortunately, this 2008 credit has to be paid back over 15 years.
Homes purchased in 2009 are eligible for the new $8,000 tax credit and the 2009 credit does not have to be paid back as long as the buyer lives in the home for at least 3 years.

Bob Boog: So, are we gonna go back and forth between 2008 and 2009, or just talk about 2009 here?

Eric Larsen: Sorry, all of the rest of this information pertains to the 2009 credit:

Bob Boog: Let’s think backwards for a second, cuz that’s me. I always do things that I’m not supposed to do first and then people will say, um, you don’t qualify for this. You didn’t read the fine print. So what is the fine print? What CAN’T a buyer do?

Eric Larsen: A buyer may NOT file a tax return BEFORE they close escrow, hoping to get the credit to use for the purchase they are about to make. This would be filing a false tax return! A buyer CAN file an amended tax return AFTER closing to get a quick refund from their 2008 tax return.

Bob Boog: So I guess it pays NOT to do your taxes and file for an extension?

Eric Larsen: Not really. I’m just referring to an amended return.

Bob Boog: Okay, so here is the link for the necessary form to file from the IRS. But here’s the million dollar question, the one that people keep asking me. Can I use the $8,000 credit for my down payment?

Eric Larsen: Yes and no. By this I mean that No, at this time, you cannot hope to use it directly for a down payment, however, FHA is allowing buyers to get a loan for the $8,000 credit from FHA approved lenders and non-profit organizations (think Nehemiah type agencies) which then can be used for down payment and closing costs (so yes, it CAN be used for down payment). However, while FHA has said it is OK, implementation at the lender and non-profit level is lagging. I am sure plenty of agencies and
lenders will be jumping into this “short term financing” option of the tax credit soon!

Bob Boog: So this is a good thing, right?

Eric Larsen: Yes definitely. This is the final piece we need in our industry to really make
this tax credit “pop”!

Bob Boog: So how exactly will it work?

Eric Larsen: The loan can either be paid back when the borrower
gets their refund or the small loan can have monthly payments (if the loan
does have monthly payments it has to be included in the qualifying debt
ratios!).

Bob Boog: Are there any other stipulations?

Eric Larsen: Yes, the home purchase MUST CLOSE prior to December 1st, 2009!

Bob Boog: Why do they call this credit “refundable?” This confused the heck out of me. Doesn’t it mean the buyer has to pay it back some day?

Eric Larsen: No, but that’s a good question. Refundable does NOT mean a buyer has to
pay it back, it means a buyer gets the full tax credit even if they have no tax liability (WHY they use the word “refundable” for this is beyond me. Must be government speak).

Bob Boog: What if I make $300,000 a year? Can I still get the tax refund?

Eric Larsen. Sorry, but NO. The tax credit phases out if a buyer makes more than $75,000 per year and disappears entirely if they make more than $95,000 per year ($150,000 to $170,000 is the phase out range for married couples).

Bob Boog: How about if I buy the house from my Uncle Harry?

Eric Larsen: That’s another thing. A buyer CANNOT use the credit if they are buying a house from a close relative.

Bob Boog: Okay, what else haven’t you told me?

Eric Larsen: That’s it. Oh, if you are doing business in some lower-priced areas ($40,000 – 80,000 homes) keep in mind that the tax credit is $8,000 or 10% of the sales price, whichever is LESS!

Bob Boog: See? I knew there was a catch. Holding out on me again. You bastard.

Bob Boog: Let’s get back to having somebody do your taxes…

Eric Larsen: You mean filing an amended return?

Bob Boog: Right. My question is, how long does it take?

Eric Larsen: How long does it take for the accountant to file the return, or how long before your buyer gets the money back from the Treasury Dept.

Bob Boog: Um, do I really have to answer that?

Eric Larsen: Knowing you, Bob, you want to know how quickly a buyer can expect to get their money from the Treasury Dept. So to directly answer your question, it takes about three to four weeks.

Bob Boog: Wow. That’s pretty fast!

Eric Larsen: I even made a copy of the check, so I’m pretty confident that it can be done in that time frame.

Bob Boog: So here’s another question for you, and it’s not really a question, more of a proposed scenario. You know, one of those “what if” scenarios?

Eric Larsen: Oh not, not one of those.

Bob Boog: Well, I’m just thinking aloud here, ok so what if I’m a buyer and I borrow $8,000 from one of my solvent friends or family members, then I might be able to pay them back pretty quickly, couldn’t I? I mean provided that I can get my accountant to file the amended return right away?

Eric Larsen: Sure, I don’t see why not.


I recently read a blog discussion about new-fashioned “style” methods of real estate vs old fashioned “substance”. For example, should one do the cool new stylish thing – Twitter, Facebook, texting or the old reliable door-knock to prospect for short sales?

In a time when many people (including realtors like yours truly) are facing the largest financial challenge of their lives, I think it’s more important to be effective, than just efficient. So I would suggest that agents do the thing that makes the most effective use of their time. Door-knocking, for example, is probably the single most inefficient method of prospecting that has ever been invented, but probably the most effective. I can still remember getting five listings one afternoon as a result of handing out bags of corn on the cob to my farm area the day before. It’s highly inefficient to buy a bunch of corn, bag it, and then knock on doors and hand it to people. But what a rewarding smile you can get. And what an effective impact it can make.

If your market has heated up recently, you may find that personally delivering a contract may be less efficient than email or fax, but believe me, begging in person is so much more effective. .

Technology is great at being efficient, but as others have pointed out, most realtors nowadays will find a marriage between the two works best. And sometimes you just have to stop and ask yourself, “Wait, am I being effective right now or just efficient.”

short sale contract page01

The Cleanest Short Sale Contract is Often the Best
by Bob Boog

When writing a short sale contract, try to make it as “clean” as possible. By clean, I mean that it should be typed and/or easy to read and as uncomplicated as possible.

Uncomplicated? No garbage fees. Naturally you will send a HUD-1 with the contract and most bank negotiators will line-item-veto costly inspections such as septic report, pest control inspection, home warranty and “clue” reports. These inspections are deemed unnecessary by a bank who prefer to sell property in “as-is” condition.

So why include them in the first place? Purchasers with “cleaner” offers will have a much better chance of gaining approval from the bank.

Listing agents should also include a Short Sale Addendum (SSA) that states certain time limits. For example, how long the buyer will wait to get lien holder approval, when the purchaser will perform their due-diligent inspections, what will happen to the initial deposit, etc. The Short Sale Addendum form helps untangle some of the uncertainties involved in a short sale transaction.

As a listing agent, I will often ask the selling agent if the purchaser is willing to wait three months to get an answer. Why? Because unfortunately, that’s how long it’s currently taking to get an answer back from the bank! Or I will ask the selling agent if his buyers are making offers on ten other properties hoping that he will get one. If so, then not to bother with submitting a bid on our property. There is nothing worse than wasting three months only to have a buyer walk out at the last minute!

If there are multiple offers on the property, the strongest offer is usually seen as the “cleanest” one–a buyer who, perhaps doesn’t have to give notice to a landlord, is willing to deposit money into escrow and is willing to be patient.

Short sales can become tricky transactions when it comes time to close. Purchasers may suddenly have to give notice. The seller’s tenants may fail to move out on time. And sellers may not have sufficient funds for required repairs.

Real estate agents have to be attentive to all of the terms and conditions of the real estate purchase contract–perhaps even more so now than ever before.



Though a mortgage modification may sound complicated, it’s not. It just requires
completing some financial forms. It’s kind of like qualifying for a home loan in
reverse. After all, you already own the home. The time-consuming part of a loan
modification is usually just the follow up.

The first step is to call your lender. Most banks
will require you to input your loan number and social security number, so have
that information ready. Some banks are set up for the Making Home Affordable Program,
others you will be asking for the Loss Mitigation Dept.

Next, request that a Making Home Affordable loan modification package be mailed to you.
Eventually you will have a specialist or “negotiator” assigned to your file, and you
will want to get that person’s direct phone number and email address, so it’s a good idea to purchase a spiral notebook and keep it close to your telephone.



Have you seen the fine print in the new Bank of America/Countrywide short sale approval letter?  It is kind of hard to read here, but believe me, it’s sending shockwaves to some unsuspecting short sale sellers.  Here is a portion of the new approval letter:

 
(I told you it was hard to read!) The key statement that concerns people is this: “Bank of America may pursue a deficiency judgment for the difference in the payment received and the total balance due…”  WTF? It appears that there are contradictory elements:

1. The letter states that Bank of America has “agreed to accept a short payoff”.  Now, how can they “accept” a short payoff, then state they “might” collect the rest?  They either are accepting it, or they are not.

2.  It states “there may be tax consequences for entering into a short sale“.  Again, the statement mentions the words ”short sale”, and alludes to the 1099-C, where cancelled debt is reported to the IRS.  Again, either the debt is cancelled or it is not.  Why would Bank of America reference short sale tax consequences if they were, in fact, cancelling all the remaining debt?

Neither contradiction supports their reference to collect the deficiency in the future.  Since I have had several concerned sellers who have received this approval letter, I emailed a Bank of America senior negotiator to get an official explanation.  Here is what they said: 

Countrywide/Bank of America cannot remove the deficiency verbiage from the approval letter. We must reserve the right to collect the unpaid balance of the loan for the benefit of our investors and mortgage insurance companies that insures payment on the loan. The purpose of the short sale letter is to properly disclose this to the borrower so they may consider all of their options with respect to their mortgage loan.

In my experience with short sales, I have never known anyone to pursue the deficiency once the short sale has closed.

So, how can you alleviate concerns when receiving this letter?  Of course, suggest that the homeowner consult with an attorney, but consider the alternatives if you do not accept the short sale.  Deed-in-lieu of foreclosure, which will produce the same deficiency, and be worse on future borrowing ability?  Or foreclosure, with severe future borrowing constraints, liabilities and consequences?  None of the choices are that palatable, but short sale is still clearly your best option.

Wendy Rulnick, Broker, CRP, CRS, GRI, ABR     Rulnick Realty, Inc.

Destin FL Real Estate



Recently an appraiser wrote on a blog that he had paired the online foreclosure databases (found at either Realtytrac.com or ForeclosureRadar.com ) against the statistics found in the local Realtor MLS (multiple listing system) inventory and noticed something rather sinister: the datasets didn’t reconcile.

He discovered that the number of foreclosures posted in Online sites far exceeds the sum of listings and sales found in the realtor multiple listing system by about 70%.

Does this really mean that 70% of foreclosures posted in online databases ARE NOT listed or sold? If so, what might be happening to these homes? Are Lenders holding the foreclosures back from being sold because these Zombie banks are insolvent and can’t afford to take the losses?

Or is something else happening? Well, here are three other scenarios which may help to explain the data disconnect.

1.Erroneous Foreclosure Data. The numbers reflected by Realtytrac.com and Foreclosureradar may not be giving a true and accurate picture of foreclosures. Internet companies are great at tracking raw data, however, they may be counting a property as a foreclosure twice: once when the homeowner has missed three payments (as in a Notice of Default) and twice: when the property has been sold at auction. Also a homeowner who reinstates his loan months earlier will often still be counted as a foreclosure on an online site.

2. Short Sales. A short sale takes place when the owner wishes to sell the property at fair market value, but owes more than what the home is worth. After finding a purchaser and collecting his financial data, the homeowner then makes a request to his lender(s) to reduce the principal balance of the loan(s) so that the sale can be consummated. Because a Lender often takes about 9 weeks to review the owner’s application and purchase contract, the Lender can appear to be acting like a Zombie. The auction date for a short sale may be waived by the lender or extended in order to close escrow, and for this reason it can appear that the house may be at eminent risk of foreclosure on an online site ” yet not show up as either a listing or sale on the realtor’s database.

3. Loan Modifications. To an online Foreclosure website, someone trying to modify their loan might appear to be in foreclosure because they may have missed making several payments. The online site will show a property as being in foreclosure even if the lender has agreed to postpone the late payments. And the property will not show up in the realtor’s MLS database because the owner has no intention of selling.

Naturally this does not explain everything. There will still be homes that fall through the cracks; damaged properties with toxic mold for example, that will be placed on hold while the lender settles with a knuckle-dragging, insurance company.

There may also be a logic explanation for the disconnect that might have more to do with the government regulations that banks have to follow than anything else. But the idea of a Night of the Living Dead scenario, filled with understaffed zombie bank personnel walking the earth while they are doing the best they can under these current challenging circumstances, that uhmmmm, that could never happen, could it?

Every short sale support center is different. One thing that I’ve noticed about the GMAC short sale support department is that each employee that you talk to will have an ID number. Be sure to note this number in your journal. Remember: the lender can and will record your telephone calls because they are attempting to collect a debt. So if there is a discrepancy, and many times there will be one, you’ll want to recall who you spoke with and what the conversation was about. Having a pen and notebook handy can really help out!
BTW: if you’re looking to make money online, a friend of mine suggested this system. You won’t make millions but he’s made a few hundred bucks. Click Here!

One thing I’ve learned with when doing a short sale or loan modification with GMAC, or any second lienholder, is not to give up! 

Here is what I mean by not giving up. We were doing a short sale with WaMu and GMAC. Washington Mutual held the first trust deed and GMAC had the second. The first lienholder was owed $345,000 and the secondholder $65,000.

Our purchase contract was for $306,000 with $6,000 of costs.

$306,000 vs $345,000 + $65,000 =$410,000
-6,000
$300,000 $410,000
- 22,480 of sellers closing costs
$277,520

So WaMu was being asked to take a shortfall of $67,750
and GMAC was being asked to take a shortgage of $65,000.

As a second lienholder, GMAC would stand to lose $65,000 if the house was sold at a foreclosure sale, however, they still held an interest in the property. That interest would have to be extinguished before the property could be sold. So in order to do the short sale, we needed to get a “lien release” from GMAC.

WaMu claimed that according to their internal bank policy, they could only pay GMAC the amount of $2,000 for a secondary lien release but this amount was not enough for GMAC; and they refused to reduce their lien.

The foreclosure sale date was scheduled for April 22. And though we continued to call GMAC to accept a total payment of $6,000 and they refused.

Two days after the foreclosure sale, April 24, GMAC said that they would accept the $6,000. But it was too late, right? The sale date had already passed!

At this point, most people would have given up hope. The deal was dead. The first had extinguished the claims of the second lienholder. Stick a fork in it. The turkey was cooked.

We called the first lienholder to see if they would still give us another chance. After all, what did we have to lose? It was then that I discovered that WaMu had postponed the sale date for one month. Why? Maybe because we had called so many times and they knew that we had worked so hard on this file.

To make a long story short, we resubmitted the paperwork, including the GMAC lien release and everything went through. YAY!

Moral of the story: don’t give up hope. Even when times look dark there is still a ray of hope somewhere, if you keep looking for it.