The government isn’t in the habit of giving away money to the average citizen who doesn’t have exotic tax loopholes, but anyone thinking about purchasing a house should contact a Realtor and begin looking as soon as possible.  It could be worth up to $8,000 to you.  The tax credits expire April 30.

    First time home buyers are eligible for up to $8,000 or 10% of the market value of the home.  Qualified repeat homeowners are eligible for up to $6,500.  Contracts must be executed by April 30 and closed escrow by June 30, 2010.

   What does this mean to you?  Depending upon where you live and the laws governing real property of your state, the speed with which your lender can act, and the timeliness of your Realtor, purchasing a house from start to finish can be done in as little as a week for a cash buyer, to two months for a buyer using financing. 

   Sitting down with a Realtor should be priority one.  He or she can guide you to a lender who will be responsive to your needs, and a lender who knows and understands the area in which you plan to purchase a property.  Internet  lenders have no idea about the peculiarities of individual areas; using a local lender is always the best choice.  Any problem can usually be resolved fast and competently.

    The lender will ask for all types of documentation and the faster the buyer provides this, the sooner the loan commitment can be made.  While this is transpiring, the Realtor and the buyer can determine criteria  and begin looking.  Finding a property can be accomplished in a few days if buyer and Realtor work full time during that period.

    Once the property is identified and a contract written, the response from the seller may take a few hours to several days.  Because short sales often take months, purchasing a short sale and trying to come in under the April 30 deadline is self defeating.  Time must be allotted for counter offers, or possible rejection, at which point the buyer must determine whether to submit another higher offer, or begin looking again.

     Assuming the offer has been accepted, and one week has elapsed, all inspections must be done.  In Arizona, the buyer has ten days in which to complete all inspections for the property which includes any and all inspections desired by the buyer, but usually the home inspection and a termite inspection.  The request for repairs is then made to the seller who has five days in which to respond.  

     We are now more than two weeks into the process.  Be aware, the seller may opt to decline to do any repairs.  These small challenges along the way should be explained to the buyer by the Realtor.  If we began today, the process so far would take us to the first week of March. 

    The repair addendum has been negotiated and now we must tie up loose ends.  In Arizona, the Realtor will review the commitment for title and make sure there is clear title to the property, issues such as how to take title, disclaimer deeds if needed, must be completed and provided to the title company, and any special documents such as septic certifications, well certifications or Affidavits of Disclosure must be completed properly and submitted to title.

    At this point, we are probably into the end of the second week of March.  The loan officer is completing his paperwork, submitting information to underwriting, and the appraisal has been ordered.  Now it is a waiting game.  The property can probably close escrow by the end of March.  But the process has easily taken more than one month. 

     There are many people working to make sure a buyer is successful purchasing a property.  Many work behind the scenes and are an integral part of a successful transaction.  It is the Realtor’s job to make sure all function seamlessly and that the buyer understand what is transpiring every step of the way.

   Call your Realtor today so you can take advantage of the $8,000 and if you are purchasing a second home, look at the $6,500 tax credit!

     For further information or to find a Realtor near you, contact Terry at terry@terrybishop.com

Questions and Information about the Tax Credit:

http://www.federalhousingtaxcredit.com/faq1.php

    Potential sellers who do not have a financial hardship sometimes change their mind when they realize the types of paperwork the bank needs in order to have a successful short sale. Much of this documentation is required to justify to the lender(s)  why selling “short” is the only alternative.  People who have assets which could be used to pay the mortgage note, but just want to “walk”, may be denied a short sale or face a deficiency judgment if a short sale is successful.

    In addition to the hardship letter which details why the seller cannot pay the mortgage, the bank requires an authorization letter from the seller authorizing the lender to speak with the Realtor or attorney.  The Realtor then must assemble the “package” for the lender which includes; income tax returns, pay stubs, bank statements including savings and retirement accounts, copies of bills, a list of assets and liabilitieis, monthly expenditures, and documentation of other unusual expenses.  Other information may be requested by the lender to support the case for short sale. 

      Up to date information must be obtained about homeowner’s dues, other special assessments, any other liens on the property, and property tax status.  Sometimes the seller does not have current information about these items and the Realtor must track down this information.

   Working  with a reputable agent is paramount.   The sellers’ information requested is private and confidential, and contains all of the necessary ingredients fora successful identity theft; another reason that propels “foreclosure scammers”.

    All of this information is considered by the lender(s) when determining if an offer on a property will be accepted.  The lender(S) needs to know if the seller can contribute any amount of funds to the sale of the property.  The seller should determine if they are in a “deficiency judgment” state, or “non deficiency judgement” state.  A deficiency judgement permits the lender(s) to collect from the sellers the amount of a specified “deficiency” after closing on the house.  If the property is a second home, often a deficiency judgment will be granted.  Sometimes a judgment will be granted to the lender holding a HELOC (Home Equity Line of Credit) if the funds were not used for the home, such as improvement. 

    Working with a competent Realtor and/or attorney and exploring options is one of the best things an “underwater” seller can do to get answers and help himself/herself.  A Certified Public Accountant can also be included in the team to discuss income tax consequences of any action. 

    Going to a short sale is a far better option for the seller than foreclosure.  Unfortunately many people who have their homes sold in foreclosure never asked for professional help and as a result, will suffer the consequences of credit deterioration for a longer period of time. 

    If you or anyone you know is having problems, consult a Realtor, an attorney, or a CPA as soon as possible. The more time to solve the problem, the better for the seller.  If you need help, contact me at terry@terrybishop.com, and I can provide you with the name(s) of someone in your area who can help you.

   Short sale and foreclosure scammers come out of the woodwork when opportunity presents itself, and in today’s market, when as many as one in four homeowners are underwater in some areas, “foreclosure expert” scammers see the tree ripe for picking.

   Understandably homeowners will buy in when a person or “company” says they can make the problem disappear.  That is human nature.  The first red flag is when the “foreclosure consultant” asks for money up front.  If you, or someone you know,  has been victimized by such a “forclosure consultant”, gather as much information as possible and report that to the Better Business Bureau, a local and state Consumer Protection office,  and the Attorney General’s office.

   These “experts” prey on people who have little understanding of the law and are adept at presenting a believable case.  Always ask for credentials and write that information down in case you need it later.  Ask for as much information as possible and if that information is not forthcoming, cease dealing with that person. 

      Many of these people are high powered salespeople, and they may present information to you which you thought was confidential.  Remember, many documents relating to real estate are public information. Any liens, late taxes, the date the home was purchased,  quit claim deeds and other documents are in the public domain. 

    If the homeowner is going to pay up front money up, he/she is better off hiring a competent attorney for up to the minute legal advice.  Many attorneys will not charge an “upfront” fee, but will bill when the problem is resolved.  An attorney on board, can advise whether filing for bankruptcy is prudent, and can direct the homeowner and often postpone have any foreclosure action postponed.  

    Several states have laws on the books, or are passing laws, banning upfront fees.  Consumer fraud divisions are rift with complaints and are burdened by cumbersome consumer fraud laws when apprehending and bringing these people to justice.

    A CDPE (Certified Distressed Property Expert) or a Realtor with the National Association of Realtors Short Sale, Foreclosure Resource (SFR) designation will not ask for up front money.  They will present their credentials and lay out a plan.  These are people licensed by the state, and in many instances, fingerprinted, and they do not get paid unless the transaction is consumated.  It is easy to check with the State Department of Real Estate to make sure the person is licensed which can often be done on line.

    The HUD.gov site has information about non profit organizations which are approved by HUD to give information about loan modificaitons, short sales, and foreclosures. 

    Know with whom you are dealing.  That is your best defense against fraud.

Resources:

Department of Housing and Urban Development - housing counselorshud.gov/portal/page/portal/HUD/i_want_to/talk_to_a_housing_counselor

Certified Distressed Property Expert:  http://www.cdpe.com/find-cdpe-results.html

National Association Realtors:   http://www.realtor.org/home_buyers_and_sellers/

Arizona Foreclosure Workbook from the Arizona Attorney General’s Office:

http://www.azag.gov/consumer/foreclosure/documents/StateTaskForceWorkbook.pdf

      Short sales and foreclosures are not always the best option for the homeowner.  If the situation which curtails income is temporary, the homeowner can ask for “forebearance”. 

     Forebearance involves negotiating a repayment plan for the amount of payments missed, usually with penalties and interest.  The missed payments can be put at the end of the mortgage amortization or an extra amount each month can be included in the regular mortgage payment.   The lender will want to be assured of the homeowner’s ability to repay the newly negotiated amount and will ask for evidence such as pay stubs.  The newly negotiated amount is in force until the deficiency is made current, and then  the payment will revert to the amount prior to the default. 

    Reinstatement can occur if the homeowner is expecting funds which can be used to bring the delinquent loan current.   An insurance settlement, an income tax refund, an inheritance, any anticipated source of funds which can be paid at one time to the lender to bring the loan current is called reinstatement.   The homeowner should talk with the lender and explain these funds are anticipated and will be used for the loan.  Reinstatement is a good option when one or two payments have been missed because of some extraordinary circumstance where restitution will be made.  Like all other plans, the lender will want documentation of the event. 

     If the homeowner has the funds available and can qualify in today’s market, a refinance can be a good option.  Rates are still very low and especially if there is an Arm (adjustable rate mortgage), very often a homeowner can cut the amount of payments.  Remember however, that if the homeowner has owned the property for six years and refinanced to another 30 year mortgage, the clock starts ticking again for another 30 year mortgage.  However, this option may provide the breathing room necessary but the homeowner should be sure to request a fixed rate mortgage to avoid further surprises.  Homeowners must provide all the documentation necessary to the lender including pay stubs, tax returns, assets and liabilities, divorce decrees, etc.

     A Deed in Lieu of Foreclosure also called deed in lieu, is another homeowner option.  The property must be worth more than the note on the property.  The homeowner negotiates with the lender and agrees to send the keys of the property and turn the property over to the lender so the lender will not foreclose on the property. 

    If you need additional information, contact me at terry@terrybishop.com.  If you are looking for a Realtor in your area who understands distressed properties, contact me and I will find you a competent, knowledgeable Realtor in your area.

Resources:

Department of Housing and Urban Development:   http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure

Freddie Mac:  http://www.freddiemac.com/singlefamily/makinghomeaffordable.html

Fannie Mae:   http://www.fanniemae.com/kb/index?page=home

   The new Mortgage Disclosure Improvement Act (MDIA) promulgated by the federal government is not much of a change for lenders who were ethical and disclosed costs initially;  but for those unscrupulous lenders who performed “bait and switch” during the home buying heyday, lamentations are rampant.

   “The purpose of the new Mortgage Disclosure Improvement Act is to insure buyers are fully aware of closing costs and interest rates which they will be charged on their mortgage loan,” said Courtney Walker, Vice President of Nova Home Loans.  “They don’t get to the closing table and are surprised by the numbers”, Walker continued.

   Within three days of applying for a loan, a full cost disclosure must be given to the applicant.  The cost disclosure must be given before any fees are collected, with the exception of any fee charged for pulling the consumer’s credit report, according to the amendment to Regulation Z, Truth in Lending.  Closing cannot take place for seven days unless specifically requested for an emergency.

   In the heyday, reputable lenders provided cost estimate sheets for their clients with the closing costs and loan costs spelled out, including the interest rate.  Good Realtors helped clients by providing clients with names of honest lenders and kept an eye on closing costs, making sure there were no pre payment penalties or other charges unless the client understood the terms of the loan. 

   This legislation comes as a result of the numbers of people who said they did not understand the terms of their loan and the loan costs, such as the option arm loans or the first 80% fixed rate loan with an adjustable rate for the second loan. 

    “The point of the MDIA is that whenever closing costs or interest rates change, the APR reflects these changes in the closing costs and interest rate.”  Walker gave the following example:  A person is offered a fixed rate and the APR is stated, and then offered a 2% rate with a $10,000 up front charge.  How does that person know which loan to choose?  ”How are they going to compare an apple with an orange?  The APR will help do that”, Walker said.

   Under the new legislation, if the APR moves 1/8 of a point either up or down, the lender must redisclose to the client “to insure that the buyer is fully aware”.  The borrower must be given a reasonable amount of time to review the new numbers.   “The buyer must receive, review and acknowledge in writing the new disclosure”  and if the new numbers are not approved, then the buyer must change courses. 

    Escrow fees are included in the APR so it is important that the Title Company named in the buyer contract documents is not changed.  Title companies in the Phoenix area charge different rates than the title companies here in Tucson.  For people purchasing foreclosure or short sale properties, any costs the buyer pays, such as allowable seller closing costs, must be included in the APR. 

    If the market moves tremendously, and interest rates go down, redisclosure is mandated, even if to the borrower’s advantage.  Lenders cannot collect upfront fees from borrowers at the time of application.   These include appraisal fees and lock in fees. 

    Lock in fees are relatively new and are similar to earnest money, Walker said.  The purpose of up front lock in fees is because investors (of the loans which the borrower is applying) are beginning to penalize lenders for not delivering on loans for which borrowers apply.  This is often due to borrowers shopping rates.  “Time, money, and effort is put into getting a loan approved” Walker said, and the lock in fee shows good faith on the part of the borrower.  The fee is remitted at the close of escrow as a credit on the closing statement.

    The new requirements do not add time to the loan process, Walker said.  “Nova underwrites locally, draws the docs locally, and funds from its own money,” she added.  “Even with FHA and VA loans, we have basically a 30 day turn around time”.

    Some lenders are recommending a 45 day closing time, so that if a contract is written August 1, closing should be stated September 15.    A Realtor who works closely with the lender is your best advisor, knowing the turn around times of lenders is even more important, and it underscores the need to use local lenders.

Resources:

Nova Home Loans    http://www.lancedickson.com

Federal Reserve Board Press Release

 http://www.federalreserve.gov/newsevents/press/bcreg/20090508a.htm

Federal Register:  http://edocket.access.gpo.gov/2009/pdf/E9-11567.pdf

     Many out of town people come to Tucson with the idea of purchasing property.  In today’s real estate market, they can cherry pick amongst bargain properties.  But now, with new requirements set forth by lending institutions and the federal government, a little planning goes a long way.

    From the comfort of one’s home in Anytown, USA, a future Tucson resident can use the websites provided by local lenders to apply for home loans.   It should be emphasized, local lenders, regardless of where you are moving, are the people who know and understand the quirks of the marketplace.   If  applying for a loan in Tucson, the lender in upstate New York has no idea what our market conditions are, nor should he/she be expected to know.  Conversely, a lender in Tucson does not know the market in upstate New York.  

    Many of the lenders advertised on television or the internet do not know the local market.  They sit in a huge room with a computer screen and sometimes the borrower does not even talk with the same person twice.  This may not be true for all internet and lenders advertised on television, but real estate agents have a bevy of horror stories because these lenders do not know or understand Arizona law.

    Using local lenders, (three are provided below) and talking with a Realtor who can make initial contact with these lenders, will get you the very best service.  A pre approval and  LSR (Loan Status Report) for the Realtor prior to looking at property, will insure the buyer of being able to make an offer without delay.

    A LSR is required for all offers.  This tells the seller and the seller’s agent, that the buyer has been preapproved for the loan requested and that the buyer has talked with a lender and provided the lender initial data requested.  Unless financial conditions dramatically change, the buyer should be able to consumate the transaction.  The purpose of the LSR is to prevent people from making offers on properties, (and tying up properties from future potential buyers) , which the original buyer cannot afford.

    While in the armchair comfort of home, the newcomer to Tucson can determine what documents will be needed by the lender and can either fax or mail copies of those documents.   Being pre approved streamlines the entire process, and in a market where interest rates jump from day to day, or from morning the afternoon, plus the new lending requirements regarding time frames and disclosures by lenders to the borrower, the soon to be new Tucson resident, sits in the cat bird’s seat.

Lenders:

Lance Dickson Nova Home Loans    http://www.lancedickson.com

Tom Heath   http://www.theheathteam.com

Jerry Sundt    http://www.sundtmortgagegroup.com

Realtor:    http://www.terrybishop.com  

                e-mail:  terry@terrybishop.com

   Purchasing real esate is one of the prirmary reasons the consumer should make sure the credit score does not contain errors.   A difference of 1 % between a 5.5% loan and a 6.5% loan is $128.56 a month.  At 5.5%, payments principal and interest are $1135.57 and and 6.5%, $1264.13 a month,   Over a 30 year loan, this totals $46,283…that is a lot of money!

    When information on a credit report is inaccurate, it should be corrected by the consumer as soon as possible.  The consumer can correct and request deletion of information. The Federal Trade Commission has a web page devoted to credit report including a brief online video.   According to the FTC, check the credit report annually

Resources:

The Federal Trade Commisison:    http://www.ftc.gov/freereports

Patrick Ritchie  http://www.TheCreditRoadMap.com

About credit cards and divorce:    http://www.creditcards.com/credit-card-news/dividing-credit-card-debt-divorce-1282.php

Equifax Credit Information Services, Inc.    http://www.equifax.com

P O Box 740256      Atlanta, GA   30374 -0241     (800) 685-1111

Trans Union Corporation    http://www.tuc.com

P O Box 2000  Chester, PA  19022    (800) 916-8800

Experian   Http://www.experian.com

P O Box 2104   Allen, TX  75013   (888) 397-3742

In this era of people tightening their belts, pulling back on many purchases, and the occassional missed payment, credit scores can be severely bruised.   A credit score can impact  many facets of life, from obtaining the job since many companies now look at credit scores as a component of evaluating risk, to getting the best rates for insurance policies.  

Naturally credit scores impact the amount you pay for credit;  the price of a interest on a mortgage, the price of interest on a car, or any loan at a financial insittution.   The best credit terms used to go to people with a score of 720 or better, but now lenders look at scores of 740.  

The law states that consumers are entitled to one free credit report which can be obtained from

           http://www.annualcreditreport.com

There is no charge for this report.  This is not the advertized site seen and heard on television and radio and in print media which is not the government sanctioned web site.  According to the U.S. Public Interest Research Group, approximately 70% of credit reports studied “contain errors of some kind” said Patrick Ritchie, author of The Credit Report Map.

Obtaining a credit report and keeping the credit report over a period of years to use as the basis of comparision is wise.  When disputing errors in the report, previous credit reports can be used as referral tools.  The Fair Credit Billing Act (FCBA) and the Electronic Funds Transfer Act (EFTA) set procedure for consumers to dispute items on the credit report.

The three main credit scoring agencies are Equifax, TransUnion, and Experian.   They take information from creditors regarding payment history of debt, balances, payments, high credit, as well as data from the public records.

Credit score components are 35% pyament history; 30% amount owed; 10% inquiries and new debt; 10% types of credit; and 15% length of history.  It is wise not to cancel a credit card, especially if it has been in use for a long period of time, since it will influence the length of history component. 

The three credit agencies give higher scores to people who keep credit card debt less than 50% of the maximum credit allowed, regardless of payment history.   It is better to have five credit cards with a $5,000 limit each carrying balances of $1,000 each (20% of the maximum allowable amount) than one card with a $10,000 limit carrying a balance of $5,000 (50% of the allowable maximum debt).   The amount owed is the same, but the scenario is viewed differently;  the assumption is made (accurately or inaccurately) that the person carrying the five cards manages debt better than the person carrying one card. 

It is also important to periodically use all credit cards, even if for a small $5.00 payment or for a monthly bill like Netflix or the gym.  This is construed as good money management.  If in a financial squeeze, at least make the minimum payment on every card, rather than trying to make a larger payment on one card at the expense of the others. 

Tomorrow:  More about Credit Scores

Resources: 

http://www.TheCreditRoadMap.com     -  Patrick Ritchie

Federal Credit Reporting Act:   http://www.ftc.gov/os/statutes/031224cra.pdf

The Credit Report - http://www.annualcreditreport.com

Equifax   http;//www.equifax.com

TransUnion  http://www.tuc.com

Experian   http://www.experian.com

    U.S. Representative Travis Chiders from Mississippi has sponsored with 37 co sponsors House Bill  3044 which calls for an 18 month moratorium on  the Home Valuation Code of Conduct.   The bill, sucinctly states:

SECTION 1. MORATORIUM ON THE HOME VALUATION CODE OF CONDUCT.

No one from Arizona has co sponsored the bill.   The bill effectively puts a moratorium on Andrew Cuomo’s call for Appraisal Management Companies (AMC) and allows time to develop rules and regulations governing the appraisal industry.

As well as lenders, Realtors, and Wall Street, the appraisal industry has also been cited as a cause of the economic melt down.  It is alleged that appraisers were given a “target price” to meet by lenders which over valued the property and contributed to “loan fraud”.   Ironically, many of the large Appraisal Management Companies are subsidiaries or sister companies of the large banks which are currently underwriting Fannie Mae and Freddie Mac loans.  These are the types of loans governed by the Home Valuation Code of Conduct.

Tom Heath, in his blog post Saturday, takes the Federal Housing Finance Agency to task and its Director, James Lockhart, for knowing little about the Home Valuation Code of Conduct.  Heath is President elect of the Southern Arizona  Mortgage Lenders Assocation and was guest blogger at this site last week.  With his permission, I am reposting Heath’s comments.

http://theheathteam.wordpress.com/2009/07/26/fhfa-is-out-of-touch-with-reality-and-hvcc-must-go-away/

Anyone concerned with real estate should take time to read this post and contact state representatives to support House Bill 3044 calling for the mortatorium on the Home Valuation Code of Conduct. 

Resources:

http://www.govtrack.us/congress/billtext.xpd?bill=h111-30

 http://www.govtrack.us/congress/bill.xpd?bill=h111-3044

The path taken by people trying to get out from under negative equity or mounting bills is littered once again with potential legal problems for Realtors, buyers, and sellers.  The passage of the Arizona Senate Bill 1271 emphasizes the need for people to seek legal counsel when contemplating a foreclosure or short sale.

The Arizona Association of Realtors  (AAR) requested that Governor Jan Brewer amend the call for a Special Session of the Legislature to review the issues resulting from the passage of Senate Bill 1271, otherwise known as the Anti Deficiency legislation.

This bill states that within 90 days of the sale of property under a trust deed, “an action may be maintained to recover a deficiency judgment against any person directly, indirectly, or contingently liable on the contract for which the trust deed was given as security…”

This does not apply to any property 2 ½ acres or less used as a one family or single two family dwelling by the trustor  for at least six months and for which has a certificate of occupancy was issued

The legislation continues that the deficiency judgment will be for an amount equal to the amount owned to the beneficiary as of the date of the sale, as determined by a court.  This can be for the difference in the fair market value, less the amount of liens owed, and includes any interest which may be incurred. 

The party seeking remediation must act within the 90 day period, and if no action is pursued, the proceeds of the sale are considered full payment of debt.

In the letter to Governor Brewer, Tom Farley, CEO and Cheif Lobbyist for the AAR,  points out this bill applies people with second homes, rental property, and family owned property.  Developers, Farley said, are not protected . The statute points to the “subtle difference” in the property “being utilized as a one or two family dwelling”  which is how the existing statute reads, rather than the amended version which specifies “the focus is on the trustor themselves utililizing the property instead of the property being utilized”.

Farley’s letter came as a result of researching case law and the consequences of this bill.  He substantiates the letter with case law from various jurisdictions.  Lenders receiving Troubled Asset Relief Funds (TARP) are authorized to seek deficiency judgments against property owners after foreclosure.  Deficiency judgments allow for the judgment creditor to garnish the wages of the judgment debtor, employ collection agencies, garnish non earnings such as bank deposits, take non-exempt property and sell it at a public auction to satisfy the debt, and place a judgment lien on real property owned or later acquired by the judgment debtor.

The legislation came as a result of lobbying from the Arizona Bankers Association.  Arizona is one of the highest foreclosure/short sale states and Arizona bankers would like to recover some portion of the millions of dollars lost.  The bill, as of this writing, is scheduled to go into effect September 30, 2009.  Unless rewritten in the special session, the courts may be filled with lenders seeking deficiency judgments against former homeowners, which will create another series of problems including a rush to file for Bankruptcy on the part of judgment debtor.

Resources:

Text of SB 1271:

http://www.azleg.gov/legtext/49leg/1r/bills/sb1271s.pdf

Arizona Association Realtors:

http://aarnews.com/

http://aarnews.com/?s=SB+1271&x=26&y=9 

Other Blogs about SB 1271:

http://en.wordpress.com/tag/sb-1271/