Bush Urges Congress to Reform Tax Code Provision Regarding Relief of Debt

Bush announced today some government initiatives to aid low income people in foreclosure, including some revisions to FHA loan regulations. 

You read about it here. 

All of this talk is merely lip service to a problem that will only be solved by a complete market correction, which will take a few years to pan out.  However, there is one specific initiative which will directly benefit people in foreclosure.  Bush is urging Congress to revise a provision of the tax code that currently treats relief of mortgage debt as income earned.  In doing foreclosure short sales, the only snag for the homeowner is that if the lender agrees to take a $50,000 discount on the debt owed, this means the homeowner could get an IRS 1099 form showing $50,000 in taxable income.  There are exceptions to the rule, but the new proposed legislation would eliminate this burden for the homeowner.

Your Loan Has Been Sold… Again!

You just received notice that one of your loans will be serviced by a new company – the third in 2 years. Many of you know how aggravating it can be dealing with loan servicing companies, particularly when the newest servicer has incorrect records.

Your rights are governed by a federal law known as “the Real Estate Settlement Procedures Act” (RESPA). If you have questions or problems with the servicing of your loan, the servicer is required to respond to you. Write to your servicer and call it a “qualified written request under Section 6 of RESPA.” It should be a separate letter and not mailed with your payment. The mortgage servicer must respond to you within 60 business days of receipt.

Your loan servicer is required to notify you in writing at least 15 days before the servicing of your loan is transferred to a new servicer. During the 60-day period beginning on the effective date of the transfer, the payment may not be treated as late if you mistakenly send it to the old mortgage servicer instead of the new one.

RESPA does not require or prevent a lender from maintaining an escrow account for the payment of taxes and insurance. However, if a lender does escrow for taxes and insurance, RESPA limits the amount that can be escrowed. It also requires that you are provided with an annual detailed disclosure about amounts paid on your behalf.

—>>> More info on maximum amount a lender may escrow.

Work a FARM Area for Your Investing

Real estate brokers generally have particular neighborhoods in which they work, rather than an entire city. Brokers refer to this as a “farm” area. You’d be wise to adapt a similar approach to your real estate investing business. The goal is to become an expert on one specific farm area, roughly 3,000 to 5,000 homes. In some locations, this will be easy because the homes are divided into subdivisions or developments.

You’d be wise to learn the neighborhood inside and out and become familiar with every detail about it, including home values, schools, zoning, homeowner association restrictions, local shopping and developments, and failed communities.

Values—Become familiar with the high and low range of the neighborhood. If all the homes are similar and were built in the same time period, this task should be quite easy. You should be able to rattle off value estimates almost instantly upon hearing a few pertinent details about a particular property in your farm area, such as the style and size of the home. In older neighborhoods (usually 50 years or older), a particular geographical area may have a wide variety of homes, making it difficult to determine values. Novice investors should avoid these areas until they have more experience.

Schools—Schools are an important factor for people with families who are considering moving to an area, particularly elementary and middle schools. Get to know the choice of local schools and which ones are most desirable

—>>> Rest the rest at legalwiz.com

 

Scripting Common Objections from Foreclosure Sellers

Foreclosure lists are a great resource for finding motivated sellers, but the competition for these deals is substantial.  People in foreclosure are inundated with mailers and calls, so the investor who can answer the seller’s questions and make him feel good will likely get the seller’s trust and ultimately the deal.

Every investor needs a script, that is, a pre-defined set of words to respond to a seller’s common objections.  All good sales people work from scripts, and everyone has a script already in their head.  Remember, a script is nothing other than a predefined set of words in response to a question or situation.  So, if you don’t refine your script, the default one in your head will take over, and often lead to saying the WRONG things! 

Here are some of the things from our script we teach at the Foreclosure Investing Boot Camp: 

OBJECTION:  ANOTHER INVESTOR SAID THAT THEY WOULD GIVE US $5,000.00

COUNTER OBJECTION:  “Really?  I’d take that offer in a heartbeat if I were you!  But, here’s the thing… based on my experience, I’m not sure how another investor can promise you $5,000.00 if they haven’t spoken with the bank and haven’t received a commitment letter from your lender yet, so that tells me that this other investor may be just telling you what you want to hear.  Is that possible, Mr. Seller? Here’s a tip, Mr. Seller – ask the other investor to sign a $5,000 promissory note for the money, due at closing.  If he won’t sign the promissory note, then you will be able to know how trustworthy he is, does this make sense?  I can’t promise you any money right now because I honestly don’t know what I can work out on this until we meet, review your details and I speak with your lender. Regardless of whether or not you’d want to work with us, do you think you should be working with someone who will be honest with you and not ‘sugarcoat’ it?  Are you with me?”

—->>> Read the rest at Legalwiz.com

Foreclosures Up 97% From Last Year, But…

Here’s the latest headline:

“July foreclosures up 9 percent from June – LOS ANGELES – The number of foreclosure filings reported in the U.S. last month jumped 93 percent from July of 2006 and rose 9 percent from June, the latest sign that homeowners are having trouble making payments and finding buyers during the national housing downturn”.
 
Here’s the fine print:
 
“The national foreclosure rate in July was one filing for every 693 households”.

Perspective?  Trying to figure that one out, but Realtytrac’s data doesn’t seem to go back far enough.  In other words, what is REALLY a scary foreclosure rate? 3%? 5%?  In my town, there’s some areas with 1 in 10 houses in foreclosures and it’s not falling into the earth.  It’s not real pretty either.  However, a foreclosure rate of 1-2% seems pretty harmless overall, am I missing something?  Sure, if you are vested in a fund with 50% subprime loans, you’d got a little more pain.  But does a 2% vs. 1% foreclosure rate really bring down the whole thing?
 
Would love to know what the foreclosure rate was in the last three booms and busts as a matter of comparison, wouldn’t you?  If someone can find reliable data, please comment!

Bronchick Quoted in Denver Post Article

Interesting article in Sunday Denver Post about how sellers are turning to renting or rent-to-own when they can’t sell:

—>>> Denver Post Article

Interestingly, the Seattle Times and Milwaukie Journal ran a similar article on this past weekend about rent-to-own :

—->>> Seattle Times Article

Know Your “D.O.M.” – Days on Market

Before you can nail down the price of a home you want to buy, or price a home you are looking to sell, you need to look at comparable sales or “comps”.  However, most novices don’t look at comps in their proper context, that is, in relation to the amount of time it took to sell (“Days on Market” or “D.O.M.”).

For example, a market in which a house sells for $250,000 in three weeks is quite different from a market in which the same house sells in six months (the latter is known as a “soft market”). In a soft market, sellers can either drop prices, give concessions, or wait longer for their houses to sell. The concessions factor is important because it will allow you to calculate the “net” sales price.  This is particularly important if you are using new builder homes as your comparable sale.

You can find out the days on market for a home, as well as the average time for similar homes in a neighborhood by asking a real estate broker to search through the multiple listing service (“MLS”).  Make sure you’re comparing apples to apples—that is, the average days on market for houses in the same area and in the same price range. If the broker has access to the right information on the MLS, you can compare renovated versus non-renovated homes to get a more detailed analysis, as well as concessions offered on the comparable sales.

Warning: Watch for this Listing Trick

Because an old listing can spell trouble for a seller who doesn’t want to appear too motivated, real estate brokers often cancel listings, wait a few weeks, then re-list a property that hasn’t sold. Make sure you take this possibility into account when you’re analyzing days on the market data.

 Once you know you know your DOM for your comparable sales and for the neighborhood in general, you can get a realistic idea of what your house is worth and will sell for within that same time period.  The more information you have, the more accurate your assumptions about the market will, and thus your investing plan will be more solid.

Excerpt from “Defensive Real Estate Investing” Available from Amazon.com

Subprime Fact vs. Fiction

I’ve been hearing all kinds of bogus stories about subprime and the foreclosure rates.  What’s fact vs. fiction?

FICTION: Subprime is a huge part of the market
FACT: Only 10% of loans are considered subprime

FICTION: Most subprime loans are in default
FACT: Only 8% of suprime are in default.  That’s .8% of the total market

FICTION: The foreclosure rate nationwide is very high
FACT: Only 1.28% of loans are in foreclosure

FICTION: Yeah, but there’s a lot of loans paying late
FACT: 97.4% are paying on time.

Source: Foxnews.com

Stop the Crying!

I am hearing a lot of crying lately from investors who can’t get loans approved.  No more subprime for buyers, no more no-docs for investors, banks are making it tough again.

STOP CRYING!  In the early 90’s when I got into real estate, we borrowed at 9.5% with 3 points, full doc, 20% down.  No stated income, no “liar loans”, no B.S.  We still made money.  We wrapped loans at 12% interest.  We borrowed hard money at 15% or more and we still made money.  The market was weak, and we still made money.

Dry off those tears and face facts: there’s always an opportunity in every market! Sometimes the market just makes it harder for something – rentals, loans, buying, selling, there’s never a perfect combination of “easy street” for all the pieces.  Stop whining and start hustling! 

Somebody is making money in EVERY market… will it be you? 

Dopey News Story on Today Show

“Trapped in the bubble” is the angle, people with adjustable-rate mortgages who can’t afford their payments.  The cover story?  A woman who bought her home in 2002 and is complaining about her payment going up.  She doesn’t want to sell and doesn’t want to do a rehab.  Who’s the editor in charge at NBC?  I threw a shoe at the T.V. and screamed, “Lady, you had FIVE years to sell or refi, what are you waiting for????”

Luckily, Barbara Corcoran, a realtor who is very savvy, jumped in with some good advice - negotiate with your bank.  “Lenders don’t want the home back, they just want to get paid”, says Corcoran.  Agreed, if you have problems paying, the WORST thing you can do is ex-communicate the people who are owed the money.  Call and work something out – they are usually pretty fair about a payment plan.