Real Estate Information

While a short sale may be a last resort for many homeowners facing foreclosure, it also represents a great opportunity for potential Home buyers and real estate investors. This article is designed to help answer a few basic questions about the substantial risk and reward involved in this extremely complex and often drawn out process.

What is a Short Sale?

A short sale is a legally-binding agreement to allow a home to be sold for less than the amount that is owed. And, while short sales are not by any means common or easy, because of increasing inventory levels and foreclosures in some parts of the country, lenders are much more eager to negotiate with borrowers who are having trouble paying their mortgages. For potential home buyers and real estate investors, a short sale also offers a great opportunity to purchase property at a significant discount.

However, don't expect a lot of help from the lender without first providing a sales contract from a qualified buyer and all the information required by the lender's loss mitigation department.

Of course, lenders are not looking to bail out "flippers" or other borrowers who simply overextended themselves. In most cases, a borrower must have suffered a serious financial hardship that directly caused him or her to default on the mortgage: the loss of a job, a serious illness, or the death of a loved one.

A written declaration and supporting documentation demonstrating financial hardship will definitely be required by the lender. This may include pay stubs, tax returns, and liquid asset statements, among other documentation.

Key Considerations to Keep in Mind

The lender will likely issue a 1099 to the seller for the difference between what is owed and the final amount the lender collects after the costs of the sale, including real estate commissions and possibly other charges. This means that the difference or deficiency can be considered as taxable income to the borrower. Some lenders may even attempt to get the existing homeowner to sign a note for the remaining amount due.

If there are multiple liens against the property, all lien holders will have to be involved in the negotiation process, not just the first lien holder. Therefore, communication and patience are essential components of any short sale. This is why an experienced real estate agent and mortgage professional become so valuable to this process.

Loss Mitigation

Loss mitigation is the terms used by mortgage companies to describe their programs and department that can assist borrowers in bringing their mortgages current.

The number one requirement of Loss Mitigation is affordability of the mortgage.  To be able to assist you, the mortgage company must see a budget that demonstrates to them that the income coming into your Home is sufficient to support all of the household bills.

When speaking to your mortgage company, ask to speak to their Loss Mitigation Department, which is sometimes called the Loan Counseling Department.  These are the people that have the authority and knowledge to assist you with becoming current on your mortgage.  Request from them a Loss Mitigation Package for your loan.

Find out what type of loan you have (i.e. Freddie Mac, Fannie Mae, VA, or FHA).  When you contact your mortgage company, ask them who the investor is on your loan, or if you have mortgage insurance.

Options You May Have

         Repayment Plan

This is when the mortgage company can take the amount that you are delinquent and add it on to your regular payment, and spread it out over 3-12 months (some mortgage companies will allow longer).

         Loan Modification

This is when the mortgage company adds the amount that you are delinquent to the principal balance of your loan.  If they think that it is necessary, then they may consider extending your loan term to 30 years and/or adjust your interest rate.

         Partial Claim

This strategy is used on FHA loans or those with PMI insurance only.  This is when the insurer of your mortgage gives you a loan for the amount that you are delinquent.  This is a non-interest loan that does not require payment until the sale of the home or until you pay off the first mortgage.

For more real estate information, please call Tom Stachler directly at (734) 996-0000 or go to his web site.

First Month Missed Payment:  The first month your payment is missed your mortgage company is likely to contact you by mail and/or telephone to inform you of your delinquent status.  A late charge is assessed on the missed payment.

Second Month Missed Payment:  The second month your payment is missed your mortgage company is likely to begin calling the contact numbers they have for you, in order to discuss why you have not made a payment.  It is important that you not avoid their telephone calls.  Try to stay calm on the telephone and explain to them your situation and what you are trying to do to resolve it.  You still may be able to make one payment at this time to prevent yourself from falling three months delinquent.

Third Month Missed Payment:  At this point, you are likely to receive a letter from the mortgage company stating the amount you are delinquent, and that you have 30 days to bring it current.  This is called your “Demand Letter” or “Notice to Accelerate.”  If you do not pay the specified amount or make some form of arrangement by the date given, they are allowed at that time to refer you to foreclosure or accelerate your mortgage.  They are unlikely to accept less than the total due without prior arrangements if you have received this letter.  Foreclosure/acceleration means that they forward your account to their attorneys.  You still have time to work something out with the mortgage company.

Fourth Month Missed Payment:  Now you are usually nearing the end of the time allowed in your Demand Letter or Notice to Accelerate.  If this expires and you have not paid the full amount or worked out arrangements, then you will be referred to their attorneys.  At this time, you incur all attorney fees as part of your delinquency.  The attorney then schedules a Sheriff’s Sale, which is the actual date of foreclosure.  The Sheriff’s Sale will be scheduled for approximately six weeks after the attorney receives your file.  You will be notified of this date by mail, along with a notice taped to your door.  This is NOT a move out date.  The attorney publishes notice of foreclosure over four successive weeks in the local legal newspaper.  After the insertion on your property is published in the legal news, you have 4 weeks until the Sheriff’s Sale! Contact your lender NOW!

Sheriff’s Sale:  You have up until the date of the Sheriff’s Sale to work out arrangements with the mortgage company or to pay the total amount owed (reinstatement amount).  At the Sheriff’s Sale your house will be sold.  An outside party may bid on your Home.  If no bids are received, the home goes back to the lender.

Redemption Period:  If nothing is done to resolve the situation and the Sheriff’s Sale is completed then you enter the Redemption Period.  The redemption period starts from the date of the Sheriff’s Sale.  State Law requires that this period is not less than 30 days and no more than one year.  Most mortgages allow the homeowner six months to redeem property with the lender/bidder, paying the amount owed plus interest and fees.  If property is over 3 acres, you may have a 12 month redemption period.  You will be notified of your time frame on the same notice that states your Sheriff’s Sale date.  This is still your time to reside in the home.

End of Redemption Period:  If the homeowner has not redeemed the property, ownership is transferred to lender or bidder.  If the homeowner has not left, the new owner starts eviction proceedings.  An eviction hearing is held within two weeks, followed by a 10 day grace period for the former homeowner to vacate the premises.  When the grace period ends, eviction is certified.  Court bailiffs are notified and empty the premises.

What is the difference between the Assessed Value and the Taxable Value of my Home?

Each year the Assessing Office must calculate the SEV (Assessed Value) and Taxable Value of each property for the 31st of December.  You will ususally get your new tax assessment in early March.  In determining the SEV, the assessor identifies area neighborhoods and used to use a 2 year sales study to analyze market values within each neighborhood, comparing the sale price of a property to its assessed value.  That was just changed and the new 1 year sales study period for the 2008 assessments was 04/01/06 to 03/31/07.  A review of all arms length sales within each neighborhood for the required study period is used to determine individual Assessed Values on a global scale.

The Taxable Value is the value to which the millage rate is applied, thereby determining your taxes.  The Taxable Value on the property is said to be "capped" if the property owner has not had any additions or losses on the property or did not purchase it in the preceding year.  The Taxable Value is calculated by adding the CPI or 5% (whichever is less) to the prior years Taxable Value.  Proposal A intended to put a cap on the Taxable Value of property so that taxpayers wouldn't be as affected by a strong economy and significant increases in valuation, the intention was to make changes to the Taxable Valuation more gradual by tying it to the rate of inflation.

Sales prices in my neighborhood have been decreasing.  Will my property valuation decrease as well?

If you've owned your property for a significant amount of time, it is likely that your SEV exceeds your Taxable Value.  If this is the case, a decrease in market value as determined by city sales studies, would result in a decreased assessed valuation and SEV.  The Taxable Value however, is required by the Michigan Constitution to increase each year by the rate of inflation or 5%, whichever is lower.  In the case of a long time property owner, the SEV should decrease, while the Taxable Value would increase.  The Taxable Value cannot be higher than the SEV.

How does that impact my tax bill?

Because the taxes are based on the Taxable Value rather than the SEV, even with a decrease in the SEV, the taxes could still go up.

I just bought my house.  Will the assessed value automatically be half of what I paid?

By state law, a home's Assessed Value is not half its purchase price, but half of its market value.  The study period and process identified in paragraph 1 is used to determine market values.

I feel the taxable value on my tax bill is too high.  How can I get my taxable value and amount that I pay changed?  Is there a deadline to do this?

In closing, please note:  I have a pdf download providing even more information on property taxes that you can read by clicking here.  Don't forget that you can challenge your taxable value with the assessor by writing them a short letter  or call requesting to be be heard before the tax board of review.  .  Do this right away after you get your new assessment because you do not have much time to protest.  Should the determination they mail you fail to provide the intended results, then you can ask your assessor for an appeal letter bebore the State tax tribunal.  Call me if you have more quetions.  If you need comps showing the sale price of similar properties, just drop me a note requesting them.  I would be happy to safe you money on your property taxes or otherwise.  I also have new home listings or a free market or cma reports on your existing property.

SUBJECT:    The FHASecure Initiative

 The Federal Housing Administration is pleased to announce an initiative that will enable homeowners to refinance various types of adjustable rate mortgages (ARMs) that have recently “reset.”  This mortgagee letter describes how lenders and homeowners may refinance mortgages that, due to the increased mortgage payment following the reset, have become delinquent.  The mortgagee letter also reiterates guidance to lenders about making objective decisions regarding the underlying collateral in declining markets. The FHASecure initiative, which is a temporary program designed to provide refinancing opportunities to homeowners and to increase liquidity in the mortgage market, requires that the loan application be signed no later than December 31, 2008.

Refinancing Non-FHA Adjustable Rate Mortgages Following Resets 

FHA is currently doing a significant business in refinancing non-FHA mortgages for borrowers who are current under their existing mortgage.  This mortgagee letter extends eligibility to borrowers who became delinquent under their current mortgage following the reset of the interest rate. 

FHA recognizes that many lenders are engaged in a variety of loss mitigation activities to keep borrowers in their homes, and applauds these efforts.  This mortgagee letter explains credit policies for refinance transactions involving non-FHA adjustable rate mortgages where the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.

These instructions are designed to permit homeowners, who previous to their reset, demonstrated an ability to meet their mortgage obligations, an opportunity to refinance into a prime-rate FHA-insured mortgage.  In many cases homeowners may be permitted to include mortgage payment arrearages into the new loan amount, subject to existing geographical mortgage limits and the loan-to-value limit shown below. 

Eligibility Highlights of the FHASecure Initiative

·        The mortgage being refinanced must be a non-FHA ARM that has reset.

·        The mortgagor’s payment history on the non-FHA ARM must show that, prior to the reset of the mortgage, the mortgagor was current in making the monthly mortgage payments, i.e., the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.

• If there is sufficient equity in the Home, under additional eligibility instructions provided below, FHA will insure mortgages that include missed mortgage payments.  

·        Under certain conditions explained below, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2) either the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing if the indebtedness exceeds FHA prescribed LTV and maximum mortgage amount limits. 

·        Mortgagees must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the mortgagor’s inability to make the monthly payments and that the mortgagor has sufficient income and resources to make the monthly payments under the new FHA-insured refinancing mortgage.

Additional Information About the FHASecure Initiative

·        Maximum FHA loan-to-value ratios 

The maximum loan-to-value limits are shown below and are applied to the appraiser’s estimate of value, exclusive of any upfront mortgage insurance premium.  

I have to say, one of the smartest investments I have ever made has been to buy residential and commercial income property.  The earlier you buy it the better.  If you are not in a position to buy property on your own, I would suggest that you get together with family or friends and form a sub-chapter S corporation or LLC to purchase larger properties using your combined credit and purchasing power. Shares, estate planning or future transfers can more easily be accomplished without having to either cash out or divest of your investment property using these company investment shells.. 

So how does one get started finding and then selecting the best property available?  I have a rental worksheet that I have used for many years to help me reduce the prospective investment property to "bottom line" numbers.  This really helps in determining which is the best property for you.  I would suggest you download the form and make several copies of it.  Use the sheet while you are in the field looking at the subject property.  Fill it out as you walk through the property, asking questions, noting how many meters are present, who pays the utilities, and confirm what the current rental rates are for the different units.  If you have questions about terms like net operating income (NOI), internal rate of return (IRR), cap rate, gross Rent multiplier (GRM), sinking funds, vacancy factors, etc. please do not hesitate to contact me .  I also converted this rental worksheet to a excel file file as well should you want to use this medium later on.

So how do you get a list of the better properties?  Just click here to search for property and I can always help you find selections that have more potential for income and equity increase.  I most often find when doing a property search that whenever you can make a change in the subject's usage, you stand to increase your equity more that others without that option.  As an example, I once purchased a 4 unit apartment building that was made up of two bedroom units having their own private laundry rooms.  I converted the laundry rooms to bedrooms and was able to offer three bedroom units for rent at a greater monthly rental rate.  I spent about $3,000. to make the conversion and increased the buildings annual income $4,800. (100/mth extra x 12 mths x 4 units).   Using a 10% cap rate, my $3000 investment increased the value of the property $48,000 (4800. x 10%) and provided an equity increase of $45,000 ($48,000 less $3,000) so a good  management adjustment planned as part of the original property investment.  The numbers before this plan were only average which is why we have two sets of numbers on the property field sheet referenced above.  Contact me for more details because it is a Great Time to Buy!

        Are you looking for something fun to do in Chelsea MI on a hot summer day?  On July 25 and July 26, 2008, the annual Chelsea SummerFest will be here!  Here in the Ann Arbor area, this wonderful summer festival in historic Chelsea began over three decades ago and draws visitors from across the state and beyond.  Popular activities include fine art and crafts displays, merchant sales, vendor booths, live music, children's crafts and activities, a class car show, and tons more.  There is a wide variety of food, fun, live entertainment, fine crafts, art and more for everyone!
       The Food & Entertainment Court at SummerFest is located in parking Lot #2, which is behind the Common Grill restaurant.  There are other local restaurants providing delicious food and drinks including the Common Grill, Cleary's Pub, Thompson's Pizza and Zou Zou's Cafe.  Food will be served from 5:00 until 10:00 p.m. on Friday and Saturday.  There are also two stages, the Library Stage and the Main Stage in the Food & Entertainment Court, featuring a variety of live musical performances on both days that are perfect for the whole family.
       Don't forget to participate in the Pet Parade, hosted by Chelsea Farmer Supply, as it is a long time favorite tradition of Chelsea's SummerFest.  This year's theme will be "The Tropics."  To participate in this year's parade with your pet, please contact us.  The parade starts at Chelsea Farmer Supply on Saturday at 10:00 a.m.  The route continues as follows:  East on Jackson to East Street, South on East Street to E Middle, West on E Middle to Main, North on Main across train tracks and through the Clocktower entrance over to the Kid Zone area.  The parade wraps up at SummerFest's Kid Zone where contest awards will be given out.  Come out to the Chelsea SummerFest and enjoy this annual community celebration!  Chelsea is a terrific place to live and if you are searching for homes in Chelsea, please click here.

Submitted by Melissa Ralph