Seller Market Update – No Contingency Offers May Equal Trouble

Sellers May Be Creating Additional Risk By Accepting No Contingency Offers

In this sellers’ market

Seller Market Update – No Contingencies May Equal Trouble

, one of the recent trends has been for selling agents (those representing buyers) to write up offers with NO contingencies – no loan, no appraisal, no inspection. Most of the time the listing agent and seller deem that the “highest and best” offer includes no contingencies.

With so many cash offers we understand the logic behind waiving the loan and appraisal contingencies. Sellers do not wish to wait for loan approval or have a transaction slowed down by the loan process. For a buyer, a solid pre-approval should be good enough from a knowledgeable loan officer or loan broker. For the appraisal, the seller certainly will not wish to haggle over the amount determined by an appraiser.

But (and as Pee Wee Herman said in Pee Wee’s Big Adventure, “Everyone I know always has a big But…” eliminating the inspection contingency can be risky.  In some cases the seller and listing agent have provided a package of inspection reports and they expect that to suffice for the buyer. Other sellers do not even provide basic termite or contractor reports. The listing agent will say that the property is being sold “as is.”

Certainly, in this market, most buyers will expect the property to be sold “as-is” with no repairs or repair credits however, when the seller doesn’t give the buyer any time to conduct their own inspections then they may lead to trouble down the line.

If a seller gets into a transaction where they have accepted a non-contingent offer, then they may be setting themselves up for a possible lawsuit. Let’s say that the seller accepts a non-contingent offer but later in transaction or after the transaction the buyer discovers some material defect. If the disagreement ends up in court the buyer will claim that he was forced to buy the house without the opportunity to inspect. The seller will claim that it was the condition of the market. Who is a jury going to side with? Do you want to take that chance?

Selling “As-Is” Still Means Allowing The Buyer Time For Due Diligence

Some real estate attorneys have mentioned that by accepting non contingent offers sellers and listing agents may be put themselves at risk even though the CAR contract (as are many real estate contracts) are “as-is” contracts.

How to solve the problem? Even if a buyer submits a non-contingent purchase offer, a smart seller and listing agreement will counter the offer with three day inspection. In other words the smart seller and listing agent want to give the buyer some opportunity to do their due diligence so later on the buyer can’t claim that they were “forced” into the terms dictated by the “market conditions”.

Have We Reached Real Estate Tipping Point Here in the San Francisco Bay Area?

Have We Reached Real Estate Tipping Point Here in the San Francisco Bay Area?

San Francisco Home Prices Overvalued By Two Percent and San Jose By Three Percent

For those who have read Malcolm Gladwell’s “The Tipping Point” in which he defines a tipping point as “the moment of critical mass, the threshold, the boiling point” it seems that for real estate prices here in the Bay Area the Tipping Point may be happening now.

We’ve seen a few economists  (like one from Trulia) who state that prices are overvalued in the California cities such as San Jose (+3%), and San Francisco (+2%). The speculation rises much like the San Francisco home prices which remain the highest in the country. What causes this “irrational exuberance”? Is it investors and flippers or is the rise in prices due to solid job growth, start-up IPOs, high incomes, and limited local housing supply?

Multiple Offers Still Common But In Fewer Waves

Whatever the cause, Bay Area real estate may have hit a peak. In the past few months we’ve seen listing agents report that it has been commonplace to have offers escalated $100,000-plus over asking price. Consider that these offers have risen more than $50,000-$75,000 over fair market value or apprised value. However, those offers used to come in waves of 15-20 offers, now they come in at 6-8 offers.

Areas such as Fremont and across the bay in San Mateo have seen offer prices hold but the overall number of offers appears to be declining. What is the cause for this drop? We see more inventory, some buyers becoming frustrated and dropping out of the buying process, for other buyers the loan process remains taxing which causes them to bow out, and of course affordability. Make no mistake, in most Bay Area regions the pendulum still sits in the sellers’ corner but with each passing day it inches slightly back toward the middle of the scale.

The $25 Billion AG Foreclosure Settlement Was A Big Dud

The $25 Billion AG Foreclosure Settlement Was A Big Dud

New Reports Conclude That The Banks Continue To Break The Terms Of The Settlement

Remember several months ago when people made a big deal about the $25 billion AG Bank Settlement for homeowners?

We’re talking about the National Mortgage Settlement, the $25 billion deal agreed upon a year ago between 49 state attorneys general, federal agencies like the Justice Department and the Department of Housing and Urban Development, and the five largest mortgage servicers: Bank of America, JPMorgan Chase, Wells Fargo, Citi and GMAC/Ally Bank.

Many homeowners and the general public had the impression that foreclosed and distressed homeowners would reap the benefits of the settlement. Homeowners would receive checks. The banks would chop away large amounts of principle. Banks would stop robo-signing. And money would grow on trees. As it turns out it may be more likely that money will grow on trees rather than the other items occurring.

What Happened To The Settlement Money?

It takes talent to make $25 billion seemingly disappear away from the homeowners who need it but that appears to be what has happened. One non profit counselor in San Francisco mentioned how the banks apply their principle reduction for the second lien which counts toward their settlement requirements however it does little to help the homeowner. It essence the banks are cherry picking in order to full their obligations.

According to new evidence disclosed by the Center for Investigative Reporting and NBC Bay Area and another recent article the banks continue to break the terms of the settlement without being punished. The story highlights brave county recoding clerks who have examined mortgage documents in their offices and found massive fraud. The story also mention one case of  a mechanical engineer who made a last-ditch effort to save his home, as he delivered a cashier’s check for $27,777.85 to Bank of America, which promptly lost the payment, and foreclosed anyway.

When the AGs made this settlement, they along wit numerous politicians stood up and said how this settlement would stop the abusive practices that have taken place against homeowners. Unfortunately, that doesn’t seem to be the case.

Return Of The Predatory Loan

Return Of The Predatory Loan

Subprime And Alt-A loans Rise Again

It had to happen again.

Even though just a few years ago banks swore off creative loans like the “ninja” loan, now we find them slowly rising from the meltdown ashes.  Like a baseball player coming back from a long stint on the DL, we find at least a couple banks have quietly started offering alt-A loans and other related sub-prime loans.

With so many people not being able to qualify for loans from the major banks due to overly tight guidelines, some smaller banks and credit unions have started offering loans for people who recently recovered from a short sale, bankruptcy or foreclosure.

For now, the subprime and alt-A business remains small, roughly $8 billion total, according to some experts but consider that that amount comprises less than half of 1% of the $1.8 trillion in U.S. home loans last year.

The subprime lenders continue to jump back into the game such as Citadel Servicing Corp. of Orange County and Carrington Mortgage Holdings of Aliso Viejo. These two firms hold the loans on their books rather than selling them to investors.

The Price Is Steep

Many clients have good jobs and have shown that they would be a good risk to take advantage of the hot real estate market. These institutions require 25% to 40% down, depending on credit scores that can drop as low as 500 on an 850-point scale. The customers, who pay a minimum of 7.95% interest, include high income as well as low income borrowers.

With so many eager customers out there, we wonder who will be the next banks to jump back into the subprime circus.

Top Tax Tips For Homeowners and Home Sellers

Top Tax Tips For Homeowners and Home Sellers

Top IRS Tax Tips For Sellers In A Hot Market

Even though April 15 recently passed, many homeowners applied for extensions and some failed to file. Those same homeowners may wish to jump into the hot real estate sellers market, but before doing so homeowners might wish to consider some of these top IRS tax tips.

Of course, it may be best to consult a CPA, tax attorney, or Enrolled Agent to discuss any possible tax consequences before diving into the market.

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.
2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
4. If you can exclude all of the gain, you do not need to report the sale on your tax return.
5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.
6. You cannot deduct a loss from the sale of your main home.
7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.
8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
9. If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.
10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

Short Sale Tax Consequences

Of course, if you are not fortunate enough to have oceans of equity and you find you home underwater, then a short sale may be the best option. The same consideration should be given to any possible tax consequences or a short sale or foreclosure. Not all tax professionals have specific knowledge of dealing with short sales, foreclosures and the like.
Feel free to hit us up for professional tax referrals.

FHFA Extends HARP For Another Two Years

FHFA Extends HARP For Another Two Years

The Federal Housing Finance Agency (FHFA) Granted The Home Affordable Refinance Program (HARP) A Two-Year Extension

Oh, the sweet sound of the government (in this case the FHFA, Fannie Mae and Freddie Mac’s regulator) extending the HARP program. The HARP program had been due to expire at the end of the year but with the extension will live until a least until December 31, 2015.

Like the Mortgage Debt Forgiveness Relief Act, the government determined that many homeowners would benefit from the extension of the program and that letting it lapse would cause a severe impact among still struggling or underwater homeowners.

To date, more than 2 million homeowners have refinanced through HARP. Those HARP numbers include hundreds of thousands of underwater borrowers. The FHFA reports that 252,443 borrowers with loan-to-value ratios over 125 percent have been able to refinance through the program.

The FHFA stated that many additional homeowners can still qualify for HARP.

Updated HARP Guidelines

For the most updated guidelines, FHFA outlined the following eligibility requirements for the HARP program:

• The loan must be owned or guaranteed by the GSESs
• Loans must have been sold to the GSEs on or before May 31, 2009
• The mortgage can’t be one that was previously refinanced under HARP unless it is a Fannie Mae loan that was refinanced under HARP from March to May, 2009
• LTV must be greater than 80 percent
• Borrower must be current on their mortgage payments with no late payments in the last six months and no more than one late payment in the last 12 months

Settlement Money Finally Comes To Foreclosed Borrowers

Settlement Money Finally Comes To Foreclosed Borrowers

The Settlement Replaces The Failed Independent Foreclosure Review

Many homeowners who were the victim of questionable practices by the banks and servicers will soon see settlement checks. As part of the settlement by federal regulators 13 lenders will soon shell out $3.6 billion to more than four million distressed homeowners who found their homes in foreclosure proceedings in 2009 and 2010.

According to regulators most of the homeowners will receive $300. That amount won’t go very far here in the Bay Area or anywhere else for that matter.  The maximum amount of $125,000 will go to would go to t 1,135 borrowers who had their homes foreclosed on while they were serving in the military or were current on their payments.

This settlement replaces the failed Independent Foreclosure Review that flopped both with homeowners and independent researchers.

Checks To Be Sent Shortly

The checks will be sent in various stages. The first  stage totaling $1.2 billion will be sent today, with 90% of the payments to be made by the end of April, according to the Federal Reserve and the Office of the Comptroller of the Currency, the Treasury Department agency that regulates national banks.

According to the Fed and the OCC, the second stage of payments, to be made after borrowers provide additional information, will go out in mid-July, with the recipients scheduled to receive about 4.2 million.