Do I have to Sell my Home to Qualifty for the Homebuyer Tax Credit

Here's a question that keeps popping up:

I'm already a homeowner.  If I buy another home ofter Nov. 6, 2009 to use as my principal residence, do I have to sell my home to qualify for the home buyer tax credit?

Answer:

No.  If you meet all of the requirements for the credit, the law does not require you to sell or otherwise dispose of your current principal residence to qualify for a credit up to $6,500 when you buy a replacement home to use as your principal residence.  The requirements are that you must buy, or enter into a binding contract to buy, the replacement principal residence after Nov. 6, 2009 and on or before April 30, 2010 and close on the home by June 30, 2010.  Additionally, you must have lived in the same principal residence for any five-consecutive-year period during the eight-year period that ended on the date the replacement home is purchased.  For example, if you bought a home on November 30, 2009, the eight-year period would run from December 1, 2001 through November 30, 2009.



Information courtesy of Jay Starks, Bell America Mortgage, www.jaystarks.com

Five Big Impact Low-Cost Remodeling Projects

Here are a few things you can without spending lots of money:


1.  Tidy up kitchen cabinets---people do look inside to see how much room there is.


2. Add or replace tile---Every city has stores that offer $1 to $2 tile so homeowners only have to pay only for low-cost tile and labor to replace a dated backsplash or add a new one.


3.  Add a breakfast bar---When a wall separates a kitchen from a family room try cutting out an opening to create a breakfast bar.  Add an over sized piece of finished granite and put chairs in front of the bar.  Costs around $600.

4.  Install granite tiles instead of a slab---Homeowners can put in 12-inc granite tiles for about $300 in materials and get very high impact for little money.

5.  Tech-up the garage---Replace the garage door opener with a remote touch-pad entry system.  Costs around $425 and looks like a high-end system.

Five more ideas in my next blog.
 

Designing Your Home Office

First step is to draw the line between work and play with the computer.  A dedicated business-only computer will help you keep your office a business atmosphere only.  You might also have professionals install additional electrical, phone or cable outlets to accommodate your various office equipment.

Next divide your new office into three sections:  the work center, the reference center and the supply center.  The work center includes your desk, computer and things that you use on a regular basis.  The reference center includes dictionaries, books, binders, etc.  Consider placing  a small filing cabinet or installing shelves behind your desk for easy access.  Lastly, the supply center of your workspace holds all your office supplies.  Consider using shoe boxes for holding note cards and other small items and/or jars for keeping pens and pencils to save money on storage solutions.

How to Select Window Coverings

A popular TV decorating show recommends that you focus on the four main options:  blinds, shutters, shades and curtains.  During Winter months, window treatments can affect the temperature in your home.  According to the US Department of Energy, using close-fitting drapes with a cornice can reduce airflow around your windows by 25% .  Mount your shades or blinds inside the window casting and you'll be able to minimize drafts and keep the room much warmer.

Color and pattern are important when deciding what window treatment to use.  Lighter colors will make a smaller room appear larger while darker colors tend to shrink a room.  Mix it up by playing with different textured shades such as rattan or bamboo.

Shades and curtains made from lighter fabrics allow more light to filter into the room.  A heavier fabric can look more elegant which longer drapery will look more formal.  Buy an amount of fabric two to four times the width of the window to make sure you have enough for overlapping.

You can spend anywhere from $16 for a light sheer to $400 for wood shutters.

Utilities - To Shut Off or Not to Shut Off

Almost every landlord has wanted to shut off a tenant's utilities for one reason or another.  Unlawfully shutting off utilities can result in severe consequences to the landlord except for a few unusual circumstances.

Normally utilities cannot be shut off and Arizona State Statute allows the tenant to sue for damages and/or terminate their rental agreement.

Here is the statute that protects the tenant:

A.R.S. 33-1374  Recovery of possession limited

A landlord may not recover or take possession of the dwelling unit by action or otherwise, including willful diminution of services to the tenant by interrupting or causing the interruption of electric, gas, water or other essential service to the tenant, except in the case of abandonment, surrender or as permitted in this Chapter.

How to Hold Proper Annual Meetings

To hold and have effective and by the book annual meetings, the HOA needs to consider the following issues:

Does your annual meeting have to be held on a certain date?

Which members are entitled to notice and/or entitled to vote?

When must notice of the annual meeting be given?

What is the quorum requirement for the annutal meeting?

Is Cumulative voting required or allowed, and if so, what does that mean?

What matters must be part of the meeting other than the elections of directors?


Must certain documents be included with the notice of the annual meeting?


Do the governing documents require the election to be held in a certain manner?


Is a nominating committee required?  If so, who appoints the members and when?


How many members need to be on the board?


What is the length of term of the board members?


Does your board have staggered terms?


If Board members have been appointed, when does their term expire?


Do board members need to be members of the association?


Do board members need to be members in good standing?


Are members of the architectural committee elected or appointed, and if elected, who elects them?

 If the association fails to follow the proper requirements for all of the above issues, a member could challenge the results of the annual meeting.  The association can change the requirements by amending the articles or bylaws.  If the association is violating any of the requirements, it should consider changed the requirements or changing the way in which it holds its annual meetings.

HOMEOWNERS CUT BACK ON REMODELING

Homeowner spending on home improvements will continue to trend downward into the first half of 2010, according to a recent Leading Indicator of Remodeling Activity report issued by Harvard
University's Joint Center for Housing Studies.

The study forecasts annual decline in remodeling activity to hover at approximately 11% for the next several quarters.  While there are some positive developments in the industry, such as low financing costs for home improvement projects and rising home sales in some markets, the study finds that the overall outlook going into 2010 remains bleak due to weak home prices and decreased cost recovery for some types of remodeling projects.

Could you Be Prevented from Renting Your Home?

In Arizona many people buy residential property as an investment and then rent out the the home full time or at least some portion of the year.  Additionally with the current declining market and the inability to sell a home, renting it until the market improves has become increasingly popular and necessary.  But, WAIT A MINUTE....could your Homeowner's Association Covenants Conditions & Restrictions (commonly known as CC&R's) prohibit you from leasing your home??? Maybe so. CC&R's regulate the homeowner's use of their property restricting everything from the color of the home, awnings, holiday decorations, pets, outdoor basketball hoops and landscaping.


During the recent housing boom builders included restrictions prohibiting homeowner's from renting their properties to limit the number of rental units in a community.  These builders/developers and their lenders believed that the number of rentals in a community affected the value of the property because of crime that often occurs in rental property.  Now many Homeowner's Associations are seeking to amend their CC&R's to include a restriction preventing rentals. While these associations might find this to be a difficult process as there have been no case law that addresses this issue...but you never know what can happen. 



The law in Arizona clearly states that if you choose to live in a HOA (Homeowner's Association) that has CC&R's you have a binding contract with the HOA and are accepting the restrictions associated with your property.  There is a contingency in the Arizona Associations of Realtor's resale purchase contract that allows the Buyer a period of time to review, accept or reject the CC&R's after their offer has been accepted.  ALWAYS carefully review the CCR's (provided by the Title company) to determine whether or not you must occupy the home and not rent it out.  REMEMBER CC&R's can be amended.  A HOA that doesn't have a rental restriction today may have it arise as an issue at a later date.


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.

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.

Bankruptcy Won't Necessarily Save Your Commerical Property

A Chapter 11 bankruptcy may buy some time for commercial property owners facing a loan foreclosure, but it may not be the best option for those who are hoping to hang on to their property.

Why not? Chapter 11 was designed to help businesses continue to operate but not necessarily to protect the interests of the borrower.  A bankruptcy affords little protection for a property held as a single asset in a special purpose entity.  Also, continual attorney and advisory fees during a bankruptcy can impose an additional financial burden that may outweigh any benefit from the reorganization plan.

Best option is try to do all that you can to arrive at a workout option with your lender. Remember that there needs to be some justifiable reasons for the lender to consider giving concessions.

Try working with the lender in second place to reach an agreement with the first lien holder.  This strategy is very useful when the property's value has fallen below the amount of the first lien and a workout provides a better option for the secondary lender to be repaid.

Most lenders don't want to foreclose. A workout that lets owners and lenders ride out the downturn is often the best option for all parties.

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

"I'VE FOUND A BARGAIN!" OR HAVE YOU???

It's try that affordability is at record levels today but many buyers need help putting price into perspective.

Buyers, especially first time buyers, think they can get a really really nice home for $60,000 but the average home in the Queen Creek, Arizona area (where there is an abundance of bank owned homes for sale) is running around $105,000. The closer you get to the center of the Phoenix valley then the average sales price is $150,000.  Buyers perceive that there are really great deals which is true.  But a lot of homes are stripped of all of their fixtures.  While a home maybe listed for $75,000, buyers are going to need $20,000 to $30,000 in cash to replace the plumbing and restore the kitchen and bathrooms.  The prudent buyer will look at some of the really low-priced homes first and decide if they want to do all that work.  Know what your costs will be up front by making a list of all needed repairs before making an offer....no Surprises!!!  You might even decide to spend a little more and not have to do the home repairs.

FLIP THIS HOUSE? MAYBE NOT?

FNMA, FHMLC, and the banks such as Wells, Chase, etc. continue to warn lenders to apply extra scrutiny on transactions where the seller has owned the home less than 90 days.  It is possible that they may soon adopt a 90 day rule similar to FHA's rules, but in the mean time, Bell Mortgage in Phoenix Arizona is continuing to process these transactions on a case by case basis.  They still have two investors who will accept these loans, and there are currently two mortgage insurance companies who will insure them up to 90% LTV, provided the borrowers have strong files with solid home appraisals.

 

Here are some areas of concern:

 

1)  The seller must have clear title to the property when they sign the purchase contract.  All liens must be paid off.  Short sale middlemen do not have clear title. 

 

2)  The title company must supply the lender with a 24 month chain of title.  We may need to obtain copies of the Trustee Deed in order to determine who is actually on title.

 

3)  Multiple ownership changes in a short period of time (other than between financial institutions and their agents) can be a cause of concern.

 

4)  Large changes in value with little or no improvement to the property may trigger additional scrutiny of the loan file.

 

5)  Sales that are not arms length (sale to a relative) may cause the transaction to be denied.

 

Courtesy of Jay Starks, Bell Mortgage, Phoenix, Arizona

AZ HOME BUYER -REO's MAKING AN OFFER PART 5

Making an Offer

Have your agent contact the the listing agent and ask the following before submitting a purchase offer:

• Are there any inspection reports?
• Has the bank agreed to make any repairs?  Will they offer a seller's concession for the buyer's loan costs?
• Is there a special "as is" form?
• How long does it take the bank to accept an offer? Are there any other offers?  If so, how many?

Offers are usually FAXED or emailed to the Bank's agent.  There is no formal presentation.  Keep in mind---nothing happens evenings and weekends (banks are closed).  It's a good idea to expect a response time of 4-5  business days to your offer. Since there is no face-to-face presentation to the bank you should provide the listing agent with a Loan Status Report (LSR) plus proof of funds. Make your offer straight forward and easy to accept.
Remember that REO's are selling very close to full list price and often thousands over the asking price---depending on the location of the property and multiple bidders.  REO's are not always the deals presented on late night television.

SEARCH FOR A BANK-OWNED (REO PROPERTY) NOW

AZ BUYER -- "AS IS" REO PROPERTY CONDITION PART IV

Property Condition

Banks always want to sell a property in "AS IS" condition. Most will provide a pest inspection but not unless you include it in your offer and insist upon it. They will allow you to all the inspections you want (at your expense) but generally do not agree to do any repairs unless required by the buyer's lender.
Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unforeseen damages that the bank will not correct.
Even though you've agreed to “AS IS" always give the bank another chance to make repairs or give you a credit after you’ve completed your inspections.  Occasionally banks will re-negotiate to save the transaction instead of putting the property back on the market---just don’t count on it.
Most banks will not provide financing on their REOs but they may give a seller concession for the buyer's loan costs.  Many banks will also include a One-Year Home Warranty on the property but you have to ask for it in your purchase offer.

AZ BUYER--HOW BANKS SELL REO'S PART III

How Banks Sell REO's

Each bank/lender works a little differently but they all want to get the best price possible and have no interest in giving away the property. If the bank is very large they will have an entire department set up to manage their REO inventory.  After you make an offer to purchase, banks usually present a "counter-offer" and/or ask for your "highest & best" offer especially when there are several bidders on a property.   The Bank's counter may be at a higher price than you expect (especially the first week a REO is listed for sale) but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer but when multiple offers exist you may not get the opportunity to make an additional counter offer.
Additionally, your offer will have to be reviewed and approved by several individuals and/or mortgage insurance companies.  Although an offer is accepted the bank may insert verbiage like “contingent upon corporate approval within 5 days" plus include there own "AS IS" addendum.

What is a Foreclosure & REO (Real Estate Owned)? Part 1

A Foreclosure sale begins with a minimum bid that includes the loan balance, all accrued interest plus legal fees and any costs associated with the foreclosure process. In order to bid at a foreclosure auction, you must have a $10,000 cashier's check in your hand and the full amount of your bid is due within 24 hours after the sale has ended. As the successful bidder, you obtain the property in "as is" condition and that can include a tenant still occupying the property.  Recent legislation can prevent you from having the tenant removed and you may have to honor their lease with the previous owner so do your homework on this one before bidding.
In today's real estate arena the amount owed to the bank is almost always more than the value of the home resulting in very few successful foreclosure auction sales. Hence, the property "reverts" back to the bank and becomes an "REO" or "real estate owned" property.