REAL Talk with ROBERT ALDANA

Despite Laws in California which Prohibit Advanced Fees for Loan Modifications, Agents and Attorneys are Still Doing it

Despite laws that have been put into place in California which prohibits the collection of Advanced Fees for loan modification services by real estate agents, their offices and attorneys, they continue to collect Advanced Fees.

Click here to read my article for DeadlineNews Group...

Do a Short Sale or Foreclosure past 2012 and you Could Owe the IRS Tens of Thousands of Dollars

All good things must come to an end, right? 2012 is the year of countless predictions of our world as we know it coming to an end. But here's one fact of a good thing coming to an end - The End of The Mortgage Debt Relief Act (MDRA) which forgives your loss in a short sale or foreclosure from being taxable income. Without it, you could owe tens of thousands of dollars. In fact, the Sacramento Bee just came out with an article that confirms what I have been saying since last year, time to fish or cut bait.

The Dangers of Lease Options and Loan Assumptions

Q: Hi Robert, I am looking to rent a home in the Willow Glen neighborhood of San Jose, CA. On Zillow and Trulia, where I search for homes, I see homes listed for rent that are lower in monthly payments than others in the same area. The descriptions say, “Take over payments, rent for six months to two years and get the deed in your name.” Are these rent-to-own homes legit? - Carolina in San Jose, CA.

A: Carolina, you are probably referring to a “lease with the option to buy” or simply, “lease option.” It is one of a host of home-buying alternatives sellers are offering as an opportunity for those who can’t get a home loan because they have credit problems or don’t otherwise meet underwriting guidelines.

These alternatives can open the door to homeownership, but they can also be risky ventures that set you back.

Let’s take a look at your options.

Lease option – The best lease options benefit both the seller and the buyer. The seller typically wants to keep up on mortgage payments until the home appreciates sufficiently and can be sold for a profit or break even amount. The buyer is often cash-rich but savings-poor and wants a alternative way to put a roof over his or her head.

The seller and buyer contract to allow the buyer to move in and lease the property for a predetermined rent, term and selling price. At the end of the term, the buyer can exercise the option to buy the property — or not. Typically, a small portion of the rent goes toward the down-payment and/or closing costs, the larger amount continues to help pay the sellers’ mortgage.

If the buyer decides not to or can’t exercise the option to buy, all monies paid to the owner — including the amounts set aside for the down payment — are forfeited to the seller. Much must be negotiated upfront so that there are no misunderstandings.

Setting the price today for a sale in the future can be tricky. The price should be comparable with or lower than what the buyer would expect to pay for a similar home at the time he or she is ready to exercise the option to buy. At the same time, the seller doesn’t want to take a loss and will likely want to set the price as high as possible.

Locking in any price today, in a market that could experience another dip in real estate prices, could leave the buyer with the short end of the deal. Home prices today may not appreciate much if at all in the next few years. You may instead want to wait a little longer, clean up your credit, save money and put yourself in a position to buy outright in a few years.

If prices do rise, the seller may lose some profit and the buyer will win, but either way, its a gamble.

Land Contract of Sale – In this transaction, the seller retains title but records the contract so that the parties cannot sell the property without the buyer’s consent. The buyer usually makes the payments directly to the seller and the seller, in turn, makes the payment to the lender if there is still an outstanding loan or loan(s) on the property.

Subject To – This may be one of the easiest alternatives, but it is not necessarily the best alternative. With this type of transaction, a property owner transfers title to the new buyer and records the change with the county recorder’s office for minor transfer costs. After the transfer, property rights belong to the buyer. Keep in mind, the existing lender or lenders also have a claim on the property.

As a buyer, taking title “subject to” can also mean you are assuming a bad debt if the property is worth a lot less then the mortgage amount. You’ll also assume any delinquent tax bills and other liens on the property.

There are also dangers for the seller. Even though the seller transferred the title, the seller remains liable for the mortgage. If the buyer misses a payment, the lender won’t go after the title holder. The lender will go after the seller and the seller’s credit report will suffer. If the title holder misses payments throughout the life of the loan, that’s how long the seller’s credit will suffer.

Loan Assumption – With a loan assumption, the buyer assumes the loan and the seller is usually relieved of his or her liability to the lender for the remaining balance because there is now a new buyer/owner on the loan.

Be aware, loans typically have a “due on sale clause” or “acceleration clause” that allows the lender to make the loan immediately due in full if the seller transfers the title without the lender’s consent. A transfer without the lender’s consent could trigger a foreclosure.

And not all loans are assumable. Federal Housing Administration (FHA), Veterans Administration loans, and a few adjustable rate mortgages (ARMs) are, but you typically can’t assume any of them without qualifying for the mortgage, just as you would apply for a mortgage the conventional way.

Sellers should avoid both “subject to” and mortgage assumption alternatives unless the buyer can fully qualify for the existing mortgage and guarantee you in writing that you will be relieved of any future liability on the mortgage.

Bottom line

In today’s market, buyers shouldn’t consider these alternatives if the seller is “underwater” — holding a mortgage that is greater than the home’s value.

If the mortgage is equal to or less than the value of the home, a lease option or land contract could be good options.

However, buyers are better off renting until they are fully qualified to buy their own home at current or near future prices and interest rates.

Little price and interest rate movement is expected in the near future. There’s no need to rush into a home using potentially risky alternatives.

***Have a real estate or finance question? Send it to robert@robertaldana.com.

 

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Looking for Something to Do with the Family?

Good Time to Buy? Yes and No... Read On

I have been discusing whether it is a good time to buy or not in today's real estate market. For the past three years I said it was not a good time to buy because we have not bottomed out yet and we had no idea when we would be at the bottom of the market.

The Top 15 Short Sale Questions

Most Popular Video: The Top 15 Short Sale Questions Answered

 
 

Another Amazing Loan Mod Testimonial - You Need NOT PAY For Loan Mod Help

How to Do Your Own Loan Mod - Part 1 of 4 - Docs You Need BEFORE You Start

How to Do Your Own Loan Mod - Part 2 of 4 - How to Fill Out the Applications

How to Do Your Own Loan Mod - Part 3 of 4 - Loan Mod Facts & Tips

How to Do Your Own Loan Mod - Part 4 of 4 - The Trial Mod

Cash Investors Moving to the Front of the Line & Hurting Property Values

Another great and right-on-the-money article was just released on ERate by award winning writer, Broderick Perkins on how investors are moving to the front of the line and paying cash for homes.

Great Article. This is exactly what is happening. I guess money talks, huh?

I do think however that something needs to be established where lenders can sell only a certain percentage of homes to non-owner occupied buyers to preserve some of the "opportunities" for hard working first-time buyers. For example, make it a rule that 25% of inventory can be sold to investors. It would and could work, and SHOULD work because investors are buying many of these properties at a discount because they have cash and lenders, being the greedy lenders that they are, don't care about the families wanting to buy and what it eventually does is hurt property values by lower prices and more rental properties.

Hey, I'm just sayin'...

New Treasury HAMP Mod Online Evaluator Not What the Doctor Ordered

The Treasury Department has just released a new online HAMP Evaluator/Calculator tool called CheckMyNPV.com to help people determine why they may have been denied for a HAMP loan modification.

The online evaluation tool is confusing and asks questions that 99% of homeowners do not know such as if their loan is a Fannie Mae or Freddie Mac loan. Overall it is a clumsy tool that is too complicated for most and is just as confusing as the loan modification process itself.

It is no wonder that the loan modification process continues to be a thorn in the side of the housing market. The apple really does not fall too far from the tree.

Celebrating 25 Years in Real Estate - My so-called "Legacy" - Part Four of Four

Celebrating 25 Years in Real Estate - The Truth Needs No Defense - Part Three of Four

California Attorney General Forms Mortgage Fraud Strike Force

The California AG has formed a 25 person strike force to go after mortgage and mortgage foreclosure rescue fraud. Let's hope that this has some teeth and is not another public relations act because the communities who are continued to be affected by this crisis which happens to be ALL COMUNITIES, really need someone to take action against the people and companies who continue to defraud homeowners. Lenders should be on top of this list!

Click here to read story.

FREE Loan Modification Help is REAL and it is HERE

Underwater on Your Home? How Long Will It Take to Recoup the Value? I Can Show YOU in 5 Minutes!

From the "Who Are You Kidding?" Department; Obama Asks Lenders to do More

In what is clearly a public relations move, President Obama (whom I am a fan of actually) put together a town hall meeting to talk to lenders about doing more loan modifications. Excuse me while I yaaaaaaaaawwwwwwwwnnnnnnnn...

Haven't we heard this before? In fact; years later you are still begging the crooks called the lending industry to do more? Mr. President, please, you are embarrassing yourself. You, me and all of America knows lenders have no intentions of helping people. By the way, why aren't some of these crooks in jail?

Click here to read the story on DSNews. And please pass the extra strong coffee...