Feds try to boost short sales

Big rollouts of new government programs to help struggling borrowers have an almost predictable quality about them. The results tend to disappoint, and the foreclosure crisis grinds away.

So, it’s hard to judge what might result from the Obama administration’s new short-sale initiative that starts Monday.

The Treasury Department plan is basically this: Pay banks and struggling homeowners to sell houses for less than is owed on them – and avoid more costly and ruinous foreclosures. The government will pay lenders $1,000 to complete a short sale and another $1,000 to the secondary lender that made the down payment or home equity loan. And taxpayers will pay a homeowner up to $1,500 to find a new place.

It’s all voluntary, just like earlier loan modification efforts that have fallen short.

Yet here on the ground in Sacramento, agents who do short sales say it’s becoming ever easier. And they’re growing more confident that short sales are finally going to play the role they did in the 1990s housing crash.

“At one point that represented half our sales,” said Mike Toste, a Roseville-based Coldwell Banker agent who did them then – and now. “That’s going to happen,” he said this week.

Sacramento Association of Realtors statistics show that short sales are almost 25 percent of home sales now in Sacramento County and the city of West Sacramento.

The beauty of the Treasury Department’s new program, Toste said, is it puts people that banks reject for loan modifications on a faster track for short sales. The lender’s modification unit simply hands them over to the short-sale unit.

“They’re saying the response times will be quicker. They will have already done the due diligence,” he said.

That offers hope in a market where short sales represent a huge percentage of the houses with for-sale signs out front.

“They dominate our marketplace. They far outnumber the bank repos and con- ventional sales,” said Erin Attardi, a Sacramento-based Lyon Real Estate agent.

Toste and Attardi say Bank of America can still be difficult on short sales, while Wells Fargo and GMAC are getting better. The best, said Attardi, is the Wells Fargo subsidiary Wachovia: “Wachovia has a person in Sacramento who pays visits to the homeowners.”

Short sales are often the best way out for homeowners who bought or refinanced during the boom and now owe $100,000 or more than their home is worth. The credit damage isn’t as bad as foreclosure or a walkaway. And it’s cheaper for the bank to accept a short sale than to foreclose and resell the house in a market where prices have barely stabilized.

Toste said Sacramento’s housing market floundered for about three years in the 1990s before banks finally got comfortable with short sales.

“This is about the same timing of the cycle,” he said. “They’ve now got the proper staffing at banks. … and they have new (technology) platforms to work with.”

It’s not the first time a pre- dicted wave of short sales has failed to materialize. As the newest government pro- gram arrives, plenty of people hope this one’s for real.

California tax law unsettled on home sellers’ short sales

Sacramento-area accountants say rising numbers of taxpayers who did short sales or received loan modifications in 2009 now fear they’ll be walloped anew by a cash-starved state government intent on taxing their forgiven debt.

It’s impossible to ease the fears or specifically answer many questions, these accountants say.

“We’ve had quite a few clients fall into that category,” said Jennifer Neronde, office manager at Rocklin-based Cramer and Associates CPA.

Uncertainty reigns with less than six weeks before the April 15 filing deadline because the forgiven debt question has gotten caught up in a larger tussle over business taxes between the Legislature and Gov. Arnold Schwarzenegger.

It’s headed for a Capitol showdown next week.

Monday, the Assembly is scheduled to vote on SB32 X8, a bill by Sen. Lois Wolk, D-Davis, that would ban the state from taxing mortgage debt forgiven in 2009.

But Schwarzenegger is threatening to veto the bill over an obscure clause opposed by business groups. That clause establishes new tax penalties on firms that file unfounded claims for refunds. Business associations believe it will unfairly punish them for tax withholding decisions they claim are difficult to calculate. The clause, along with forgiven mortgage debt, is among dozens in the bill to align California’s tax codes with federal codes.

The governor wants the business penalty provisions stripped from the bill, said his spokesman Mike Naple.

“The governor would prefer that the provision be taken out of the bill and addressed in separate legislation,” Naple said.

The state gave homeowners who occupied their homes a pass on forgiven mortgage debt in 2007 and 2008. The federal government, meanwhile, has backed off on taxing forgiven mortgage debt through the end of 2012. In the past, both branches of government treated forgiven debt as taxable income.

In a short sale, for instance, a lender might accept a sales price of $200,000 on a home where it’s owed $325,000. The $125,000 left unpaid is classified as forgiven debt, which used to qualify as new taxable income. The Bush administration, backed by the real estate industry, blocked the IRS from taxing forgiven debt in 2007. It’s a temporary measure to encourage borrowers to call lenders and negotiate alternatives to foreclosure.

In many cases, borrowers try short sales after they fail to get loan modifications, say real estate agents like Larry Henderson, of Prudential Norcal Realty in Carmichael. He said he gets frequent questions about the complicated tax implications of short sales.

“I make it clear to my clients they should talk with a lawyer or a CPA,” he said.

http://www.youtube.com/watch?v=BCCg6XK3lCs

Use of short sales on rise in Sacramento housing market

By Jim Wasserman
jwasserman@sacbee.com

http://www.sacbee.com/business/story/1933643.html

For years real estate agents have steered buyers away from “short sales,” labeling them a mind-numbing, difficult experience that could exhaust the patience of the biblical Job.

Now buyers can hardly avoid them.

“When it’s 50 percent of the inventory you don’t have a choice,” said Scott Williams, a Roseville-based ReMax broker. Williams specializes in a complex transaction that may be the next evolution of the real estate market in Sacramento.

Banks, with their balance sheets battered after 40,000 capital-area foreclosures since early 2007, are finally warming up to short sales, a traditional marker of soured real estate markets. Increasingly, so are buyers. Some analysts believe short sales – those transactions in which banks accept offers below what they’re owed to avoid the higher costs of foreclosing – may help avert a few thousand new foreclosures in the capital region.

“I still see a ton of defaults coming down the line … but a large percentage, 50 percent or more of these, will get done as short sales and keep the flow of repos to a manageable level,” said Williams. “I don’t see us getting flooded.”

Industry analysts say half the for-sale signs in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties that aren’t bank repos are short sales. They’re especially prevalent in newer suburbs built during the housing boom. According to Sacramento-based Metrolist Services Inc.:

• 56 percent of Lincoln homes priced between $200,000 and $250,000 are short sales.

• 55 percent of Rancho Cordova homes priced between $200,000 and $300,000 are short sales. In Folsom, 46 percent of homes in that price range are short sales.

• 44 percent of Elk Grove houses priced from $300,000 to $325,000 are short sales.

All their owners owe more than their homes are worth. (Online evaluator Zillow.com says 68 percent of Sacramento-area households that bought in the past five years are in that boat). And most are believed to be in some stage of the foreclosure process.

Currently, nearly one in four sales pending – those expected to close escrow within weeks – are bank-approved short sales, according to Williams’ analysis of Metrolist data. That’s a rise from a January-through-June average of one in seven.

Bank repos, by comparison, are about 60 percent of area sales this year. But their share is falling now as the region’s short-sale market share rises.

“It’s a more cooperative solution,” said David Sunlin, senior vice president with Charlotte-based Bank of America Home Loans. He said the firm is adding staff and streamlining procedures to do more short sales more quickly as an alternative to foreclosing.

“It allows the borrower to leave on their own terms. It’s a more dignified exit strategy and the credit reporting is less negative afterward,” he said. “It’s a win for the lender as well. It’s going to shorten the recovery cycle, which is important to all of us.”

The firm, which bought Countrywide Financial last year, services one in five U.S. mortgages and is a top lender in the capital region.

Agents such as Williams hope the new BofA approach brings results. They complain that Countrywide has been among the industry’s most difficult servicers for short sales.

Buyers say short sales make great deals – if you’re patient.

“It probably saved us $50,000″ said Helen Martinez, who, with her husband, Robert, closed escrow two months ago on a short-sale property in Davis. It took almost four months, she said.

“If you need something right away it’s not going to work out,” she said. “You’ll sit around and wait forever and find something else.”

Jamie Trussell also expects to go into escrow soon on a short-sale property in Elk Grove. He and his wife, Tricia, made an offer on the house in February, then sweetened it by $10,000 when others bid on it.

“We fell in love with the house so we remain dedicated to it,” he said. The two checked out other houses while waiting, including bank repos, but Trussell said, “It’s been tough to beat the house we have with everything we want.”

Their long wait has had consequences, however. Higher interest rates are adding to their expected borrowing costs.

“The last few weeks I’ve been watching the interest rate climb,” said Trussell. “It was 4.8 percent in May, and now, it’s at 5.2 percent.

“Our greatest concern when we started was ‘how long is this going to take?’ It’s really pushing to the wire for us.”

Williams said many short sales fall apart between the offer and acceptance because people find other properties.

Short sales take so long because lenders must negotiate permission from other parties, such as investors and private mortgage insurers. Most recent home loans also have so-called “seconds,” an extra loan that financed the down payment. Other short sales involve home equity loans or homeowner associations seeking restitution for unpaid dues.

“That can make the process more complex,” said BofA’s Sunlin. He said BofA also asks some borrowers to contribute funds to ease the lenders’ losses “or sign a promissory note for a later date.”

“We see this every week,” said Scott Thompson, principal at Carmichael-based Mortgage Resolution Services, a short-sale specialty firm. He said such lender requests scuttle many short sales, prompting homeowners to instead “walk away” from the house.

Thompson said homeowners often prefer to walk away than request a short sale.

“Now, banks are ready to do them,” he said. “But many homeowners are so far under water on their mortgages that they’re disinclined to participate at all.”

Sunlin concedes the difficulties on both ends in a still-unraveling housing market.

“These are tough times,” he said. “But we are committed to make the process work better … By doing this we should see more private sales instead of bank-owned sales.”

Home Front: First-time buyers reap reward of median price in Sacramento County

By Jim Wasserman
jwasserman@sacbee.com

http://www.sacbee.com/business/story/1863568.html

For all the pain and trouble associated with this housing bust, one thing is clear: It’s getting better and better for first-time buyers.

And few places beat Sacramento, according to a new report from the California Association of Realtors.

CAR says 80 percent of Sacramento County first-timers could afford a median-priced entry-level home in the first quarter of 2009.

The same quarter in 2008 it was 65 percent – considered then to be amazing.

Only the high desert region of Southern California and the San Joaquin Valley’s Merced County – which has seen a median entry-level price tumble to an astonishing $89,040 – were more affordable than Sacramento County. (Median is where half the homes cost more and half less.)

In California, 69 percent of buyers could afford a median-priced entry-level house at $213,040, CAR said.

The report, issued Thursday, pegged Sacramento County’s entry-level median at $143,870, requiring a qualifying income of $25,720 based on 10 percent down and a 4.96 percent interest rate. Sacramento County tends to do well in CAR’s affordability index with its relatively good public-sector salaries and its inland California home values.

Median sales prices for all existing homes sold in Sacramento County have dropped by a third in the past year to $160,000, according to researcher MDA DataQuick. They’re off 57 percent from an August 2005 high of $374,000.

Roadblocks still abound for first-time buyers, including qualifying for loans. Many of these great prices, too, are attached to beat-up bank repos that account for two-thirds of sales and reflect the stresses of their previous owners.

Yet there are lots of first-timers out there, say real estate agents, and they’re scoring. It’s the happy corner of a market still greatly suffering from its many excesses of 2003-2007.

Stagers losing their role

Remember when people “staged” their homes to sell, and an entire industry of stagers grew up around them?

Home Front, wondering what happened to them all, checked in with Placer County real estate agent Lisa Morris, who staged many of her own listings in those good times.

Staging, it appears, is largely another casualty of a market heavy with repos, short sales and price-cutting.

“I just think the Sacramento and Placer area has been hit so hard, there’s just no money for that,” said Morris. She’s working a lot now in San Mateo County, where “almost any normal sale is staged.”

Staging still happens in the capital region. But Morris told a story about trying to unload some accessories and spare furniture used to turn houses into showcases.

“Some of the stagers I called were out of business,” she said. Many of the rest had their own extras taking space in storage.

A small anecdote tells a big story. There were few takers.

Protect yourself from scams

Chalk up three months between Home Front warnings to dodge loan-modification scams. This one is prompted by a ripped-off caller who urged a new reminder, saying, “These guys are getting rich on other people’s heartaches.”

An e-mail writer, “under water,” also wonders about calls from 800 numbers, hawking a new “bailout program” for Sacramento County residents.

Once more: Be wary of those who call or ring doorbells offering help, and especially wary of those with a friend or relative who can help you.

The California Department of Real Estate says this is what borrowers should know before dealing with someone offering to get a loan modified:

• If your lender has issued a notice of default against you (after you missed numerous payments), loan-modification companies cannot collect an advance fee, even if they have a real estate license.

• Lawyers are exempt and can charge an upfront fee if they are rendering legal services and operating under the scope of their licenses.

• If you haven’t received a notice of default you can be charged an advance fee. But the firm must provide an agreement for you to sign that explains what services will be performed, when they will be performed and what they will cost.

• Before you sign it, the agreement must have been sent to the Department of Real Estate for review and permission to collect upfront fees. Those fees then must be held in a trust account and spent only on agreed-upon services.

A look at real estate agents

Finally, here’s a new National Association of Realtors survey with a quick, interesting look at real estate agents.

The typical agent is 54 years old, registered to vote, and voted in the last national and local election.

Six in 10 are women and 14 percent are fluent in more than one language. About 40 percent own at least one investment property and 16 percent have a vacation home. Nine in 10 use a computer and e-mail daily and 42 percent use phones with wireless e-mail and Internet capability.

The findings are from responses of 8,113 NAR members.

http://www.inman.com/buyers-sellers/columnists/tara-nicholle-nelson/are-short-sales-ruining-home-values

Q: My neighbors bought a home for their mother, who has since passed away. They owed $125,000 on the mortgage. The bank allowed them to do a short sale for $56,000. The three daughters who bought the home for their mother have considerable assets. How can they be forgiven for this debt by the Internal Revenue Service if they are not distressed?

The people who are doing the short sales are ruining the values of our homes, yet we have always made our payments on time, and owe much more than these short sales. Can you please explain this to me?

A: A month ago, I wrote about the Mortgage Debt Forgiveness Act, under which some folks who sell their homes for less than they owe on it (e.g., a short sale) are exempt from being charged income tax on the debt that is forgiven by their lender(s), if the short sale is completed before the end of 2012. Many upside-down homeowners who are staying on time with their payments, like yourself, have cried, “That’s just not fair!” This took me back to my childhood, the days when I would say those same exact words — “it’s not fair” — only to hear my Dad, a former Marine, deadpan, “Life isn’t fair.”

I won’t be so gruff as my Dad, but I submit to you that (a) your diligent on-time payment history has and will be rewarded; (b) life, and the situation are not fair, but fairness is beside the point here; and (c) your interests are better served by this law than they would be without it.

Mindset Management

First things first. The level of detail you have provided isn’t sufficient to fully understand your neighbors’ situation. Was the property owned by one daughter, all the women, the mother’s estate or a trust? That would have a bearing on why a short sale would have been allowed. Also, many people who appear to or once did have “considerable assets” are actually drowning in credit-card debt, upside down on their homes, and taking a bath on the stock market — looks can be deceiving. My point is that there’s a lot about that scenario that may not be as it appears, so don’t assume that they are in an enviable position.

On the other hand, don’t assume that your position is unenviable, or that you are a sucker for being the nice guy and paying your mortgage and other bills on time. The algorithms used to calculate FICO scores were recently revised to render short sales about equally as damaging to the seller’s credit as a foreclosure. In the credit-crunched market we’re facing these days, having a stellar credit score is a very valuable currency, which you can obtain only by doing what you are doing and paying your bills on time. Those who have done short sales or lost their homes to foreclosure will simply not have the same access as you do to credit and even certain employment opportunities, which require a strong credit history.

Need-to-Knows

When it gets down to your question of why the IRS would allow this to happen, first let’s be clear — it is a mortgage lender who actually forgives debt; all the IRS is doing right now is refraining from charging income tax on debt that is forgiven by the lender. And let me tell you what — it may not seem fair, but it is actually somewhat slowing the hemorrhage in your home’s value.

Homeowners facing the distress of a “short sale” got some good news last week. The House approved new legislation that would provide relief from the controversial practice of imposing tax on borrowers whose lenders forgive a portion of their debt. The IRS would normally demand income tax on the full amount of debt relief. For example, if a short sale designed to avoid a foreclosure produces $50,000 less than the balance owed to the lender, the IRS currently requires the lender to report the $50,000 debt forgiveness on a Form 1099-C. The IRS then treats the $50,000 as ordinary, taxable income.

The house passed bill (HR 3648) would prohibit income tax levies on forgiven mortgage debt. Similar legislation is pending in the Senate (S 1394). The bill is retroactive to Jan 1, 2007. It would not include transactions that took place in 2006. The question still remains as to how to cover the lost tax revenues.

Steve Siegel, Coldwell Banker
Email: steve.siegel@cbnorcal.com
mobile: 916.212.5066
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