The value of investment housing commitments rose again in June, following increases in each of the previous three months, the number of first home buyer commitments as a percentage of the total also declined, according to the ABS.
Now could be the time to put more value into your property.

According to local real estates agents, the most common renovation that gives the most value to a property is the kitchen and bathroom. A few dollars spent in these areas can really make a difference in valuation for lending purposes or for re-sale value. Most buy – reno – sell investors also focus on giving the home extra features like built-in cupboards.

Some trade businesses , like Emporio Kitchens, have caught onto this trend and offer a one stop shop to take care of the electical, plaster & plumbing if required, for inquiries made on their website. Take advantage of their no obligation free quote service, what have you got to lose ? You might be surprised what a few dollars spent on key areas can do to the value of your home or investment property.

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I was reading more about deficiency questions with short sales and I thought I would elaborate a little on the subject. When you get a lender to accept a short sale the amount of debt forgiven becomes a taxable event.

Example: Homeowner owes $250,000 on a house. The lender accepts $170,000 for it. The homeowner is responsible for paying taxes on the $80,000 forgiven amount.

First thing that is important to realize is this.

Not ALL states have the option to file/collect on a deficiency judgment You may want to do some studying or contact a Real Estate attorney to find out which states have the ability to file/collect on a deficiency judgment.

Second is this. The homeowner is typically facing this REGARDLESS of your involvement. For a better understanding of a deficiency judgment let’s define it.  {continued}

Deficiency judgment (understanding their are different types and this is a generic definition)

Legal action sought by a lender who wants to recover any losses on a foreclosure

If you default on a mortgage, the lender can not only sell your property to get their money back, but they can also sue you if the money from the sale isn’t enough to cover the loan. For example, if you owe a lender $100,000, but the lender only gets $90,000 in a foreclosure sale, they can take you to court for the remaining $10,000. If the lender wins, they can attack your assets, income, credit and peace of mind until you pay this amount. If you have Private mortgage insurance, a lender can use this money to offset any losses instead of getting a deficiency judgment. Keep in mind that only SOME STATES give the lender the right to a deficiency judgment.

OK… now that makes everything as clear as MUD…eh?

So…let’s put it in perspective for working a short sale…shall we?

The lender may choose to seek a deficiency if:

1. The state laws allow it
2. The loan type is “recourse” compared to “non-recourse”

How do you know what type of loan you own and what is the difference? The original loan documents should state what type of loan you are dealing with. It is common to see first mortgages (loans put in place to actually buy real property) are “non-recourse” type loans. That means the lender does NOT have a recourse option to come back to the borrower to collect for owed debt to them.

On the other hand, second mortgages from refinances, Lines of Credit, HLOC’s, Equity Loans, ANYTHING with “cash out” type programs are usually considered “recourse” type loans. That means the lender CAN exercise the option to collect on any debt owed to them from the borrower.

When you are working with a homeowner and putting together the short sale option for them. You will need to deal with the deficiency issue if you want them to be informed about it. Contrary to the opinion of many “self proclaimed gurus”; I think it is a good idea to address the issue and not avoid it. Saying that, I also think it is very important to re-emphasize that you are not providing a legal opinion on the matter. You could state…

“Mr/Mrs. Homeowner if I were in your shoes, I might have a question about….” You get the picture. If you are not an attorney don’t portray one.

The homeowner can be faced with either a possible deficiency (if their state law and loan type allowed it), or the lender may choose to write off the debt and send the homeowner a 1099 at the end of the year. It would be the homeowner’s responsibility to claim the money as income. You can also get that amount reduced, but that is another conversation saved for a later article.

The fact that you will be dealing with the lender for the homeowner puts you in control position. You can tell the homeowner that you will submit your short sale offer to the lender with a contingency that all deficiencies are waived upon acceptance. You can make this a benefit for the homeowner agreeing to work with you. Typically homeowners will let the property go to sheriff sale and hope for the best. You are working with the lender in the short sale and can request they waive all deficiencies for the homeowner. Will they agree? Most of the time “yes”, sometimes “no”. You can tell the homeowner that you will do your best, but ultimately it will be up to the lender for rules of acceptance. Remember, the bigger the issue you make of this topic, the more concerned the homeowners will be about it. Speak with confidence to them and move on to the next topic as quickly as possible. If they have specific questions tell them to consult legal authority on it.

I hope this helps.

Cory Boatright
Loss Mitigation Specialist
http://www.shortsalefundamentals.com

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Sometimes, when a foreclosure action is taken, the government takes possession of that property. It is now their property, with which they can do whatever they wish. So before doing an investment in government foreclosures one must be familiar with HUD homes. HUD is an acronym that represents the Department of Housing and Urban Development, a United States government agency.   {continued}

The government often sells some of those properties at reduced prices. These foreclosure homes are usually listed on special Web sites that are contracted to the government. Once they are listed, almost anybody can buy one, providing they can either afford it or qualify for a sufficient loan. Although people buying the house to live in have priority, eventually anybody can purchase government foreclosures. The buying process is done by foreclosure auctions.

Housing websites, not to be confused with HUD, are different for each state. You can find a list of houses available and details and information on every house. The details usually include the number of bedrooms and bathrooms, cost, list date, priority and bid deadline. Picture of the houses are also displayed. After going through the information on a house that interests you, you can have a look at it by a personal visit.

When foreclosure properties is listed for sale, they are first appraised for their cost as is, and then listed at whatever the market price would come out to be. Now these costs of HUD housing can vary among themselves because there is often possibility of repair work needing to be done. The price factors all repairs into account.

It is a matter of personal judgment but still people will give you differing advice on weather you want to turn the property around without fixing repairs, you may do that; however, you might find that if you can repair the house fully without too much expense, you might reap better profits if you repair first. So once you have bought your property, it is best to get it inspected to check for any and all repairs.

Listing your foreclosure property means you may now come up with a substantial profit. The price of hud foreclosures can often be lower, meaning there are good opportunities to be found in the market. With a little creativity, the profits can be yours.

About the Author

Real estate investment has provided many of history’s great accumulations of wealth over the centuries. Those with ordinary incomes want to make investments,but lack the big money to do so. HUD foreclosures provide an answer.

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Homeowners usually face foreclosure on their properties for failing to pay their mortgage payments. Because the homeowner has been delinquent their mortgage, they are now in a position to entertain offers by investors. Depending on your state, the lender will issue this notice when the homeowner has been 3 months delinquent on the mortgage payments. In order to buy during this period, you first have to make a deal with the homeowner. Buying a pre-foreclosure means dealing and working out an agreement with a homeowner, attempting to buy the property from them before it has been foreclosed on.  {continued}

Buying foreclosures can be lucrative, but smart investors get plenty of advice from CPA’s, Real Estate Professionals and mortgage brokers before they buy. Buying foreclosures involves four ways to purchase – from the seller in foreclosure also known as a pre-foreclosure, you can also negotiate a short sale. Buying from the lender at a public auction or purchasing a REO. Buying a foreclosure property can be risky, especially for the novice, but it can have its rewards too. In the end it usually turns out to be a wise investment.

Buying foreclosures at the auction is a great way to purchase. They typically attract investors looking to flip the property and others who’ve been involved in the foreclosure market for a while. Auctions can be held on courthouse steps, in the county clerk’s office, or in front of the foreclosed house. Buyers who bid at public auctions will benefit from getting as much information as possible beforehand.

Real Estate Owned properties or (REOs) represent another way to buy foreclosures. REO just means the lender reclaims the property and attempts to decrease losses. REO sales are often handled by real estate agents. They will be a major thing in late 2007 and 2008 over parts of the country that have experience abnormal amounts of appreciation over the last few years.

Short Sales for sellers clarifies how to transfer title to a buyer before the foreclosure redemption period ends by persuading the lender to accept less than the unpaid mortgage balance. So a short sale is something of a win/win situation for lender and borrower. Potential Home Owners and investors want to buy short sales and foreclosures because they want to obtain a home for less than the current market value. Sometimes both parties can come to a conclusion and enter into a profitable transaction for both parties.

By now, you’ve discovered that there are several options when it comes to buying foreclosures and after reading this general overview, perhaps you’ve discovered the choice that’s right for you. The pros of buying foreclosures in many cases outweigh the cons. The pros of buying foreclosures can be summed up by the fact that the properties can be purchased by an investor at a price below market value. By buying foreclosures you are making it easier on yourself and your bank account in the long run. There are many different resources out there to help you get started in buying foreclosures.

About the Author

Learn the Secrets How to Buy Foreclosures www.Foreclosure-Money-Review.Info

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What is the US sub prime market?

The “US sub prime market” is a part of the residential mortgage market in the US and is characterised by low income borrowers who have a bad credit history in servicing their home loans. In 2005, the United States real estate market experienced an all time high and as part of this, financing became more creative to make owning a home more accessible to the wider population – in particular, to those who may not have otherwise been able to afford to do so.

Characteristics of the changes in lending practices included:

• Credit became available to low income members of the community with a poor credit history, who are known as ‘sub prime borrowers’.
• Low-start and teaser rate loans – the ‘catch’ to these types of loans was that they included an interest rate reset condition that doubled the initial loan rate after a short period of time.
• Honeymoon rates – Some initial interest rates were as low as 1% to 2% for the first two years then they increased to the standard rate of 7% pa. This caused sub prime borrowers to default as they could not keep up with the repayments on their loans.
• High Loan to Value Ratios (“LVRs”) – some as high as 140%. Traditionally, LVRs do not usually exceed 80%. As property prices began to fall, this made the position of the sub prime borrower even worse.

Therefore, as the interest rates increased on these types of loans, many sub prime borrowers could not meet on their repayments, and so defaulted on their loans. It is now believed that up to 7 million people in the US have taken out sub prime mortgages.

Why has this fallout in the US sub prime market affected other markets around the world?

The crisis spread because many sub prime mortgages in the US have been “packaged” by lenders with the help of investment banks and sold around the world to financial institutions and hedge fund managers. These packages are often referred to as ‘Collateralised Debt Obligations’ (“CDOs”).

In basic terms, as the value in the US real estate market began to decrease and the level of defaults began to increase, the investments in these CDOs became non viable to the point where many major investors lost substantial amounts of money. Two Australian fund managers who have been affected are Basis Capital and Macquarie Bank through its Fortress Products.

There has been some concern that the Australian mortgage market may follow suit. However in Australia there are significant differences, so that it is unlikely that the negative impact will flow into Australia.

What  are the differences for most Australian Lending Institutions?

Because the approach to lending by the majority of Australian Banks and mortgage lenders, the problems experienced in the US sub prime market should not affect Australia, for the following reasons:

1. The basis of funding the underlying loans is different     Most home loans in Australia have neither been packaged in the way the US loans have been nor have they been funded by the US capital markets, so most lenders are not directly exposed to this specific risk in the broader financial markets. In the US, most mortgages are issued on a fixed 15 or 30 year mortgage basis, while the underlying funding is from short term capital markets debt paper.
2. Borrower capacity testing      Australian lenders that do lend to sub-prime borrowers assess the capacity of borrowers to service their loan commitments by obtaining (depending on the circumstances) a combination of:
   • an independent credit check on the borrower;
   • a letter from the borrower’s accountant confirming the borrower’s repayment ability; and
   • a repayment declaration from the borrower.
3. In the US, they have been lending to borrowers who are known as NINJAs – No Income, No Jobs, No Assets.
4. Loan to Value Ratio (“LVR”)    Generally, the LVR that Australian banks apply is 65%, up to a maximum of 80%. In the US, LVRs frequently exceed 80% and can be as high as 140%.
5. Honeymoon Rates or Reset Clauses    Australain home loans do not use any borrower ‘reset clauses’ with deep discounts causing repayment shock to borrowers. Some Australian Lenders offer to some borrowers a Honeymoon Rate loan which is currently only 1.5% below the standard rate and is limited to the first 6 to 12 months of the loan. But a compelling difference is the borrowers repayment capacity is tested on the full interest rate rather than the discounted or honeymoon rate. We find therefore that borrowers are more than able to cope with this increase in interest rates at the end of the honeymoon period. In the US, borrowers were assessed on the lower discount rate and the discounts were often 3% for the first two years (a much longer discount rate than Australia). After 2 years, the rate increased substantially. These loans are known as “2/28” loans, where the first 2 years was on the discount rate and the next 28 years were on the much higher rate.
6. The proportion of loans that are sub-prime   The proportion of loans in Australia that are sub-prime remains very low, in the order of 1-2% of all mortgages in Australia. In the US, the sub-prime mortgage market constitutes 17% (up from 4% in 2003) of the current US mortgage market.
7. Delinquency rates are very low in Australia    Mortgage delinquency rates in Australia still remain very low. According to a recent Moody’s report on the Australian residential mortgage market, delinquency rates, defined as mortgages 30 days past due, for all mortgages are currently at 1.26% for “full doc” lending and 2.03% for “low doc” lending. In the US, sub prime 30 day past due rates are currently 9.45%.
8. Recourse to the borrower    Lenders in Australia have direct recourse against the borrower in the event of a default of the loan. Lenders can obtain legal orders to declare the borrower bankrupt and seize other assets belonging to the borrower to recover any shortfall. In the US, significant difficulties exist to prevent lenders obtaining the bankruptcy of borrowers and many mortgages do not have personal covenants allowing lenders to proceed directly against borrowers and their assets.

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