One thing I really like about the NOMAR MLS system is that they require every single MLS listing to include the disclosures. This means that anytime a broker inputs a listing into the system, they must also add the disclosures as an attachment to the MLS listing. Any broker that sees the property through the MLS database can print off the disclosures ahead of time and bring them to the initial showing. NOMAR enforces this policy by issuing fines to any broker who inputs a listing without the disclosures. I personally love this rule for a number of reasons. This eliminates any risk of the seller forgetting to provide the state mandated disclosures to the buyer in a timely fashion. In addition, it gives showing agents more information to provide their clients during showings. It’s a win-win for everyone involved.

Louisiana sellers can download the state mandates disclosures at:

http://www.lrec.state.la.us/forms/Residential%20Property%20Disclosure%2001-01-11.pdf

With the budget mess in Arizona, it is not clear whether Gov. Brewer would veto a revision to the new bill SB 1271, the anti-deficiency bill which allows banks to go after you for a deficiency judgement unless you lived in the house for 6 months.  Many experts feel this bill will have a negative effect on investment properties, second homes, and investing in general in Arizona real estate.

The Arizona Association of REALTORS is pulling out all the stops and most of the local associations (Prescott, Central Arizona – Payson, Tucson, Phoenix, etc.) have emailed us with an urgent Call to Action.  They want us to contact the governor and urge her to sign HB 2008.

Here are the talking points on why SB 1271 is bad:

• Removes any incentive for a lender to work with a borrower of a distressed loan
• Places the burden solely on the borrowers, allowing banks to conduct “risky” lending without consequence.
• Bankruptcy cases will increase dramatically since protection against deficiency judgment as been removed.
• Family owned property for children going to college or elderly parents may lose their anti-deficiency protection if the trustor did not occupy the home for six consecutive months.

We received a note from Western Security Bank in Billings that the FHA limits for Yellowstone County are going down to $271,050 in 2009 (from $292,250)  If your home is in the upper $200′s to low $300′s, you need to seriously consider listing your property now before the potential negative impact of this change.  There is still time to get a property listed, under contract, in escrow for around 30 days, and sold by the end of the year.

Review your Hud 1 very closely at COE, it is as simple as that.

Hud 1′s are produced by the escrow officer just before closing. This document breaks down the exact cost of the transaction between buyer and seller. In its most basic form, the Hud 1 is a list of debits and credits to both parties. (sim to a balance sheet) Every fee charged by the lender, brokers, escrow company, etc.. will appear on this document. You as the seller want to make sure this document is accurate before signing. It is very common for the Hud 1 to contain mistakes, thus, it is essential you review this document. A few things to watch out for on your Hud 1 below.

Overnight fees from Title - Many times you will see an overnight fee on your Hud 1, however, you very well may not have had anything overnighted to you.

Incorrect Commissions -Escrow Officers don’t always get these right despite receiving written instructions from both brokerages.

Tax Prorations – If you own the property free and clear, you may have already paid your property taxes directly.

HOA Fees – HOA’s are notorious for double charging buyers and sellers. Double check the Hud 1 and your most recent HOA bill to ensure your HOA is not collecting the same fee from both you and your buyer.

During the escrow period, your buyer will most likely have an inspection completed on the property. They will do this during the due diligence time period. Once the inspection is completed, the buyer will either accept the premises, reject the premises, or accept the premises subject to the request repairs being completed. A buyer will submit this information on the BINSR document. (this document is available to all AZ sellers through the private client area)

The BINSR is a document that allows the buyer to state their wishes. If the buyer accepts the property in its current condition, they sign the doc stating this and nothing more is needed. If the buyer rejects the premises, the escrow is cancelled. If the buyer accepts the premises subject to repairs, the seller then can negotiate through the form of the BINSR. A seller can choose to make these repairs, offer a credit instead of making the repairs, decline to make the repairs, etc… the buyer will then be able to respond to the seller accordingly. All of these negotiations are done through the 3 page document known as the BINSR.  If you have any questions on how to fill out the BINSR doc or general questions about Arizona procedures, give us a call at 480 471 9393.

What is an option period?

The option period is the time for which the buyer pays the seller to take the property off the market so that the buyer may complete inspections on the property. A typical option period in a 30 day escrow would be 7-10 days. During this time period, the buyer will complete their inspections and submit any request for repairs. After the option time has expired, the buyer no longer can back out of the deal based upon these inspections. Option periods in Texas are very similar to due diligence time periods in CA, AZ, NV, etc.. however, in TX, the option period must be bought by the buyer. Typically, this is a very nominal amount, such as $100-$200. The buyer actually makes the check out the seller directly. In the event the deal does not close for any reason, the seller will retain the option money for taking the property off the market. In the event the deal closes escrow, this money is applied to the purchase price at closing. Option money should not be confused with earnest money.

The term RESPA violation is thrown out often in the real estate world, yet most individuals have no idea what it really refers to. Real Estate Brokerages are not allowed to receive undisclosed illegal kickbacks from related service providers within the industry. For example, a RE Brokerage should not receive a kickback from a local Title Company for repeatedly sending business their way. The same holds true for loan officers. A loan officer can not pay a fee to a brokerage for closed mortgage transactions.

The Federal Government takes RESPA violations seriously because they are in place to protect the public and encourage free competition. RE Brokerages are in a position of trust with their clients. Clients take the suggestions of their brokers very seriously. As a result, RESPA wants to prohibit a brokerage from profiting at the expense of this trust w/out full disclosure. Look at it this way, if a broker is sending a buyer to a loan officer in hopes of receiving a kickback later, is the broker really serving the best interest of his/her client?

NAR repeatedly stresses to brokerages to keep up to date with changing RESPA guidelines. Despite this, new stories pop up regarding serious RESPA violations and the involvement of RE Brokerages month after month. In the real estate world, the relationships that are closely monitored are between Title Companies and RE Brokerages and Lenders and RE Brokerages. These two relationships are littered with opportunities for abuse by both parties.

I am seeing more and more agents simply pass up on showing short sales because they simply don’t want to deal with the headache. The first problem is that no one is training these agents on how short sales work. As a result, most agents do not understand how the process works and neither do their buyers. With the increasing number of short sales coming on the market, it would make sense for various associations to begin offering training in this field. The biggest complaint I hear from buyer agents is that many times the lender is completely unaware of what is going on. Basically, the listing agent is placing the property for sale at an asking price below what the seller owes on the property, the lender is clueless as to what is going on until the seller or agent notifies them after an offer is procured. As a result, you have a very unhappy buyer agent and frustrated buyer.

If you are a seller in a short sale situation, talk to both your attorney and lender, then talk to your agent about getting the property sold and how to go about this. Disclose to your agent and any buyer that any offer received will be contingent upon lender approval.

The Arizona Republic reported today on a couple that has been indicted for among other things fraud and theft of more than $1MM from real estate investors. They ran three different enterprises: 1031 Exchange Consultants LLC, Tax Management Consultants LLC and Executive Realty Group LLC.

In a 1031 exchange, an investor has proceeds of one sale wired to a qualified intermediary company that is supposed to hold the funds then wire them onto another escrow company when the investor closes on a purchase (this way taxes are avoided on the original sale). Unfortunately, there have been instances where this does not happen as planned. Southwest 1031 Exchange out of Las Vegas was shut down with $80MM to $90MM of investor money missing.

Dealing with reputable service providers in real estate is absolutely essential. Whether it is a real estate broker, a real estate attorney, a mortgage company, a flat fee MLS listing service, a tax preparer, or any other service provider, make sure that the company can be trusted. In the case of the investors who trusted these 1031 companies with their money, they may very well end up with a massive tax liability and an evaporation of the real estate equity that took years to build.

Short Sale FAQs

THERE ARE MANY TAX AND LEGAL ISSUES (FOR INSTANCE, IRS TREATMENT OF DEBT FORGIVENESS) RELATING TO SHORT SALES.  FIRST AND FOREMOST, PLEASE CONTACT YOUR ACCOUNTANT AND ATTORNEY BEFORE MOVING FORWARD.

What is a short sale?

A short sale is when the net proceeds from the sale of the property are not sufficient to pay off the outstanding loans on the property.  A successful short sale would only occur if the lender or lenders who hold the lien on the property agree to release the lien despite being paid less than owed.

When do they occur?

Short sales frequently occur when there is a sharp drop in market values of properties.  There are three types of people generally affected: people who bought the property before the decrease, and either never could afford the payments or can no longer afford the payments.  Also, people who refinanced their property at the inflated value taking cash out of the property.  Finally, people that have received a large lien on the property above and beyond the loan balance, for instance, IRS liens, mechanics liens, judgments, SBA cross collateralization agreements, etc.

Who needs to know the property might be facing a short sale?

If you have listed your property, you must disclose this fact to your listing broker so that they can place a disclaimer in the MLS that the property is in a short sale situation and any purchase contract is contingent on lender(s) approval of short sale.  You will also want to make sure the information is disclosed again in the purchase contract and in communication with buyers and buyers’ agents.Do not assume that everyone knows it is a short sale.  While you are aware of what you did with the property, there is no way for everyone else to know what is owed until the property is escrow and a title commitment has been pulled – and even then there could be unrecorded liens or other issues affecting the property.

Can’t I avoid a short sale by placing money into escrow?

Yes, you can.  Realize that a short sale can be devastating to your credit.  If you have adequate cash, you can deposit it into escrow and avoid a short sale altogether.  For instance, if the net proceeds of a sale came up $10,000 short of the amount needed to pay off your mortgage(s), you could deposit $10,000 into escrow and the sale would go through without destroying your credit while fulfilling the contract that you signed when you took out the mortgage.  Some lenders may even allow the deal to go through by you taking on an unsecured line of credit for the unpaid balance.

Can Congress Realty handle short sales?

Yes, we can.  We will clearly disclose the property is a short sale situation.  We can provide you with a CMA which you can show your lender as they consider the fair market value of the property.  Because you are saving money on commissions, it is quite possible (but not guaranteed) that the bottom line sales price they will accept would be lower than if they had to pay a higher commission, meaning a better sales opportunity for you.  Please remember, however, that lenders are under no obligation whatsoever to accept a short sale.  They can decide they want the full amount paid back or they won’t accept.  After all, it is their money.

What is a hardship letter?

A lender is going to want to know why you cannot make the payments you agreed to and why they should take a loss on the principal balance.  Sellers typically put together a hardship letter explaining changes in employment, income, etc. with pay stubs and tax returns in order to explain their situation.