Unforeseen Tax Issues Triggered by Foreclosures & Short Sales

 SURPRISE! SURPRISE! SURPRISE!  Individual homeowner's facing foreclosure, short sale or a Deed in Lieu of Foreclosure would be wise to check with their income tax professional to determine what income tax impact they might face down the road.  There are two tax situations (which can get quite involved...Principal residence? Business or Investment Property?, Recourse or Nonrecourse debt?) to review when looking at giving back a property to cancel or release debt.  


(1)  Recognition of gain or loss on the transaction


(2)  Recognition of cancellation of debt income (COD)



Only your tax professional can really determine how this affects you personally so spend a few dollars up front to determine your course of action.  It's like adding insult to injury...first you
lose your home and then you get zapped with an unexpected tax bill.


 Linda Shank is a Broker/Owner & Certified Residential Specialist in the Southeast Phoenix Valley who has been selling real estate since 1978.  She is experiencing her third down market cycle.

Buy a Fixer Upper with A FHA 203K Loan

The FHA 203K loan is a little known tool that many real estate and loan professionals have been using for many, many years.  A FHA 203K is very similar to the traditional FHA 203B loan...the only real difference is that with the FHA203K the home buyer is adding money upfront to their loan amount to finance any repair/improvement costs.  The traditional FHA203B loan requires that certain repairs to be done before the loan is made and the FHA203K loan allows the home buyer to purchase their fixer-upper and complete the repairs/improvements after the transaction closes. The other traditional FHA qualifications...appraisal guidelines, seasoning rules...still apply.  However, with the FHA203K loan the home buyer can fix up his/her home and not have to worry about the additional out-of-pocket expenses for the repairs/improvements.  A Fantastic Way to buy a Fixer-Upper!  Contact me on my blog site if you would like more info or check with your lender as there are two types of FHA203K loan programs.

BEING SUED BY YOUR LENDER

Some Arizona homeowners who have walked away from their homes have found themselves as defendants in lawsuits filed by one of their lenders.  These unfortunate borrowers wonder how that could have happened since Arizona has Anti-Deficiency Statutes.  Such lawsuits revolve around a type of loan called an 80/20 loan where one or two different lenders would lend the borrower an 80% first loan which would be secured by the residence.  The remaining 20% of purchase price was also financed & secured by the home in a second lien position.  The lenders that made these type of loans to borrowers were basically financing 100% of the purchase price of the home.  

When real estate values declined, homeowners stopped making loan payments and began walking away from their homes.  As one would expect, without payment, the holders of the first mortgage foreclosed on the homes.  Holders of the second loans were left with none or a small fraction of their 20% loan being repaid due to the declining value.  These lenders began filling lawsuits against the borrowers for the full amount of the second loan.  SURPRISE! SURPRISE!

While these homeowners should otherwise be protected from the deficiency lawsuits, their 20% second loans may not be the type that fit within the "Arizona Anti-Deficiency" laws...such as home equity loans that are made for some other purpose than to purchase a home.  Seeking legal advice to determine whether or not the lender has a valid claim against the borrower/homeowner is a MUST as many lenders are unaware of Arizona's "Anti-Deficiency" statutes.

WHY DO LENDERS CHARGE POINTS?

Whenever governmental regulation, state usury laws and/or competitive practices prohibit the lender from charging a rate of interest which would make the real estate loan competitive with other fields of investments, the lender must seek some other method of increasing the yield for their investors.  By charging "points" (a percentage of the loan amount being borrowed), the lender can bring the real estate loan up to those other investments.

Are Points Called by Different Names?  Yes.   Commitment Fee, Discount Fee, Warehousing Fee, Funding Fee

Do the Number of Points Charged Fluctuate?  Yes.  If rates on mortgage loans are lower than other investments (such as stocks, bonds, etc.) then funds will be drawn away from mortgage market.  Also when there is heavy demand upon the money market because of business needs, military requirements or other government borrowing, the result is that money for home mortgages becomes scarce and more expensive.  When this occurs, more "points" (a percentage of the amount being borrowed) can be charged.  Points balance the market.  Points are not set by government regulation but by each lender individually.

FOR MORE INFORMATION CONTACT ME AT MY I Sell AZ Sunshine website.

What Does the Title Company Do?

Here's what the title company does in a nutshell:

*Opens the escrow and assigns a Escrow number.
*Requests a Title Commitment to determine the status of title to the property.
*Comply with the lender's requirements as specified on its instructions to escrow.
*Receive and handle purchase funds from the buyer.
*Prepare or secure the deed and documents related to the escrow.
*Prorate taxes, interest, insurance and rents.
*Secure releases of all contingencies or other conditions stated on the escrow.
*Record the Deed and any other documents.
*Request the title insurance policy.
*Close the escrow per the instructions supplied by the seller, buyer and lender if any.
*Disburse funds as authorized by the instructions including charges for title insurance, recording fees, loan 
  payoffs and real estate commissions.
*Prepare final statements for all parties involved that account for the disposition of all funds held   the escrow account.

NEED MORE INFO CONTACT ME on my I Sell AZ Sunshine website.

WHAT HAPPENS TO EARNEST MONEY?

A earnest money deposit is made to show the seller you are serious about buying their home.  The Realtor will inform you of the amount that is usually given in your area.  The seller doesn't actually receive the earnest money.  A third neutral party like the Title Company holds the amount in a special trust or escrow account until the sale is closed or the contract is canceled.


If you go through with the sale, the money is usually applied to your down payment or other closing costs depending on what is agreed to in the contract.  If you fail to buy the home, the seller has the right to keep the earnest money.  However, you can get your money back until the point at which you are notified that the seller has accepted your offer.  And if the seller fails to fulfill their obligations, the money is yours.  Other contractual contingencies can also come into play so ALWAYS have your Realtor explain the contract and it's contingencies to you thoroughly prior to signing.

FOR MORE INFO CONTACT ME AT MY I Sell AZ Sunshine website.

WHAT IS A BUYER'S MARKET?

Almost everyone has heard the term"Buyer's Market" and wondered what that meant.  This term means what it says...it's a good time to buy.  Here are a few factors that helps to make it that way:

*High Inventory of homes for sale

*Lower interest rates

*Unstable or weak economy (no kidding)

*Less population influx into the areas

*Lower home prices (ya think?)

*Narrow area economic base

*Decreasing area employment base

Some of the factors which help to predicate a Buyers' Market include:  Weather, special interest areas by specific groups of people like retirees, expanding employment, spiritual affiliations, special recreation availability, artistic activities or just a heightened interest in the area.


One important statistic that buyers need to know is that nationwide more homes are sold between May and September than are sold in the other seven months of the year.

NEED MORE INFO CONTACT ME AT MY I Sell AZ Sunshine website.