What The Purchase Offer Contains

Lately, I have been getting asked many questions about what it takes to buy a home and how to start the process.  So, today, I thought I would write on what exactly an "offer" is comprised of.  This year, the California Realtor Association has re-vamped the "offer" form, also know as the "Residential Purchase Agreement."  I thought it would be particularly helpful to go over some of the key components and aspects an offer to purchase a property.

In real estate, oral contracts are not legally binding. If you wish to bid on a property, you must make a formal, written offer or proposal.  Your Crestico sales professional is experienced with the offer/counter-offer process, and will know which of a variety of standard proposal forms are suitable for your area. Once written, your Sales Professional will present your offer to the seller. (In some cases, this is all handled by the respective parties' lawyers.) We have provided the basic information needed during this critical phase here.

What the Offer Contains - Your written proposal may include, but is not limited to, the property's address and legal description, sale price, terms, earnest money, expiration date of the offer, prorating (adjustments) of utility bills, real estate taxes, insurance, contingencies, repairs and any other terms that you deem important.

Earnest money - Earnest money is a deposit given when making an offer. It demonstrates sincerity—"earnestness"—on the buyer's part. If the offer is accepted, it becomes part of the down payment. If not, it is usually returned.

Contingencies - A contingency means that the purchase is subject to certain events occurring, such as the buyer's loan being approved, or the property passing the termite inspection. If the contingencies aren't met, the offer is void.

Response - If the seller accepts the offer, and signs an acceptance, you have a deal. If not, you are free to walk away, and cannot be held liable for the contract. The seller may make you a counter-offer, and you are free to accept it or not, or make your own counter-offer. Only when an offer is accepted and signed by both parties is the contract binding.

Withdrawing an offer - In most cases you can withdraw your offer up to the point when it is accepted. If you do wish to cancel the offer, it's a good idea to consult with a real estate lawyer. You don't want to lose your deposit, or be sued for damages perceived by the seller.

 

Mitra Karimi
Crestico, Inc.
http://www.crestico.com
mitra.karimi@crestico.com

Distressed Homeowners: Fannie Mae is Offering Help!

Fannie Mae is beginning to implement some changes to its policies regarding distressed homeowners. The institution is now moving towards helping currently distressed homeowners maintain their ability to own a home, by giving them second chances. Intended to support the housing market and incentivize homeowner cooperation with lenders, Fannie Mae will now offer homeowners who grant a "deed-in-lieu of foreclosure" a shorter waiting period before they will be able to qualify for a new Fannie Mae mortgage.

Historically, this waiting period has been at least four years, which is to say that if you, as a Fannie Mae borrower lost your home to foreclosure, you would not be eligibly for another Fannie Mae mortgage for at least four years from the date of foreclosure. Now, however, this waiting period is being reduced by half.

With the new two-year waiting period, homeowners will be required to put at least twenty percent of the purchase price as a down payment, however. This new policy will begin to take effect on July 1 of this year. Fannie Mae is hoping that offering such incentives to these homeowners will be helpful to the country's recovery as well as setting forth a policy that homeowners who work with lenders are less risky to deal with and better than homeowners who simply abandon their mortgage obligations or fight the lenders for short sales.

Fannie Mae's policy may be, in part, a reaction to Obama's HAFA program which is aimed at homeowners who do not qualify for modifications and other foreclosure alternatives. Industry expert are predicting a dramatic increase in "pre-foreclosure" activities this year and next year, which Fannie Mae is hoping to alleviate through its new policy.

 

 

Mitra Karimi

Crestico, Inc.

http://www.crestico.com

California Homeowners Considering Short Sales: Good News Regarding Tax Liability on Forgiven Debt

California state income tax on forgiven debt resulting from a short sale, foreclosure, or loan modification will no longer be imposed on homeowners in California. Senate Bill 401 makes California's tax treatment of mortgage debt relief income the same as federal law. Be advised, however, that only the debt stemming from the loan secured by a "qualified principal residence," will be exempt from both federal and state income tax consequences. While the federal exemption amount is up to $2 million, the California exemption is up to $800,000 and forgiven debt up to $500,000.

Now, I know you're thinking … what is a "Qualified principal residence." This means that only the debt incurred in connection with acquiring, constructing, or substantially improving a principal residence is the subject of this legislation. Principal residences are where you actually reside, receive mail and inhabit for all intents and purposes. This new debt forgiveness exemption will include first and second trust deeds, as well as debt incurred in connection with a refinance loan to the extent that that fund from said loan were used to payoff a previous loan that would have also qualified under Senate Bill 401's guidelines.

These "tax breaks" are applicable to debts that are discharged from 2009 through 2012. Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment. Taxpayers who do not qualify for the exemptions (for example, those homeowners with second or third homes and/or rental property or properties) may potentially also claim an exemption, through other provisions in the law, however.

A very important thing to note is that taxpayers who are bankrupt are exempt from debt relief income tax. This means, that they have no liability. Also, taxpayers who are insolvent and have no assets may also claim exemption from debt relief income tax to the extent their current liabilities exceed current assets.

For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board's Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service's Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage. The full text of Senate Bill 401 is available at www.leginfo.ca.gov. Also, remember to consult with an attorney before taking any steps that may impact your tax and/or legal liability.

California Homebuyers: Limited Time Only: Tax Credit!

Californians have a brief window of opportunity to receive up to $18,000 in combined federal and state homebuyer tax credits.  To take advantage of both tax credits, a first-time homebuyer must enter into a purchase contract for a principal residence before May 1, 2010, and close escrow between May 1, 2010 and June 30, 2010, inclusive.  Buyers who are not first-time homebuyers may use the same timeframes to receive up to $16,500 in combined tax credits if they are long-time residents of their existing homes as permitted under federal law, and they purchase properties that have never been previously occupied as provided under California law.

Under the federal law slated to soon expire, a first-time homebuyer may receive up to $8,000 in tax credits, and a long-time resident may receive up to $6,500, for certain purchase contracts entered into by April 30, 2010 that close escrow by June 30, 2010.  Additionally, under a newly enacted California law, a homebuyer may receive up to $10,000 in tax credits as a first-time homebuyer or buyer of a property that has never been occupied.  The new California law applies to certain purchases that close escrow on or after May 1, 2010 (see Cal. Rev. & Tax Code section 17059.1(a)(4)).  California law generally allows buyers of never-occupied properties to reserve their credits before closing escrow, but buyers seeking to combine the federal and state tax credits will not be able to satisfy the timing requirements for such reservations (see Cal. Rev. & Tax Code section 17059.1(c)(1)(A)).  Other terms and restrictions apply to both tax credits.

Good News for California Homebuyers!

Governor Schwarzenegger signed Assembly Bill 183, the Homebuyer Tax Credit legislation, into law today. This is a law that will allow for approximately $200 million for home buyer tax credits,. Of this $200 million, about half will be set aside for first-time home buyers who qualify and purchase existing homes. The other half will be set aside for qualified buyers who purchase new, or previously unoccupied, homes.

Under this program, eligible taxpayers purchasing personal residence and who qualify for the credit must purchase the property between May 1, 2010, and Dec. 31, 2010, unless they purchase the property after Dec. 31, 2010, and before Aug. 1, 2011, but have an enforceable contract executed on or before Dec. 31, 2010, will be the individuals who will be allowed to take the tax credit.

The amount of the credit is equal to the either 5 percent of the purchase price or $10,000 ( taken in equal installments over three consecutive years); whichever is less. Additional requirements in order to be eligible for the credit include the fact that buyers MUST live in the home for at least two years. If this last requirement is not met, the credit will be forfeited, and any portion previously claimed will immediately be due, payable to the state.

Historically, programs such as this one have led to a positive increase in home purchases. Many buyers describe themselves as being more willing to purchase a home when they know they are eligible for a tax credit. A prime example of the impact of credits on the housing market can be seen by the impact the Federal credit has had on the housing market.

Industry professionals are hoping that this state tax credit will result in just the push that the housing market in California needs to stimulate sales, motivate rehabilitation and create employment for construction and contractor-related jobs.

HAFA Under HAMP: What It Means For Buyers of Short Sales

Earlier I wrote about how the federal government was going to institute the Home Affordable Foreclosure Alternatives ("HAFA") program that is aimed at streamlining the short sale process specifically for properties with mortgages owned or guaranteed by Fannie Mae or Freddie Mac.

As it currently stands for most buyers considering short sales, they have had to wait weeks and even months before hearing back from lenders regarding whether or not short sales will be getting approved. HAFA intends to change that. Even though, for the most part, HAFA impacts lenders and homeowners of the subject properties, buyers will also be affected by these new rules.

For example, as a buyer, you will now need some sort of proof of funds in the form of a verification or pre-approval letter, that will need to be provided to the lender within three days of the lender's receipt of your offer. Additionally, lenders will now be required to approve or deny an offer made on a short sale within 10 business days of receipt. The impact of this is huge! This means no more months of waiting.

Furthermore, buyers will be affected by HAFA in that the new program will require settlement to take place within a reasonable period of time after the offer is made. More specifically, a lender may not require less than 45 days from the date of the sales contract for a closing, without the home seller's consent. This again will be reducing the total time spent on a "short sale deal."

As a buyer of a short sale, you will also be required to maintain ownership of the property for at least 90 days. This "seasoning" period is intended to avoid "flipping" and inflated prices for these properties. Finally, as a buyer of a short sale property, you will not be able to be related to, have a close personal or business relationship with the seller. Violation of these rules and guidelines may result in the loss of the property as well as other legal ramifications.

All in all, HAFA is hoping to achieve the end result of preventing foreclosures from inundating the market and facilitating the process involved in buying, selling and approving short sales. In doing so, it is hoped that we will be once again on a steady road to recovery. Once the process is streamlined and simplified so sellers, buyers and professionals can work together with greater ease, the real estate market will necessarily begin to grow and experience the health that it once did.

HAFA under HAMP.. watch out!

In December, I wrote to you about the Home Affordable Foreclosure Alternatives ("HAFA") program under the Home Affordable Modification Program ("HAMP"). In March 2009, President Obama introduced the Home Affordable Modification Program in connection with his Making Home Affordable ("MHA") plan. These plans and programs represented the Obama Administration's efforts to allow borrowers who are eligible (according a specific set of standards and guidelines) to avoid foreclosure by modifying their loans to a level that is affordable and sustainable for the long-term.

Now, I write to you again to bring you some more information about this program and the potential benefits and pitfalls of this new HAFA program set to roll out in April. HAFA intends to help the homeowners that HAMP could not. Basically, if you did not qualify for assistance under HAMP, you may now use HAFA to attempt to avoid foreclosure. How? Through a short sale or Deed-In-Lieu ("DIL") of foreclosure. Seems easy enough, right? Since you can no longer pay your mortgage, the government is now incentivizing it for a buyer to come along and make an offer on your house allowing you out of your mortgage obligations while still recovering some money for the bank that owns your house. The DIL basically allows you to present a Deed to the bank in lieu of foreclosure, that means, instead of the bank foreclosing, kind of like a surrender. Now, you still lose your home, but under these circumstances, your credit will be less adversely affected and you may remain eligible to potentially purchase another home. It has been reported that of the almost 1 million borrowers who were given HAMP assistance (essentially, loan modifications) only about 67,000 (about 6.5%) were provided with a permanent solution to their problem. So that means that about 93% of the people who received loan modifications are STILL struggling with their mortgages.

HAFA is seen as a potential solution to this problem. Read the next few paragraphs and decide for yourself.

Eligibility – the eligibility requirements for HAFA are extremely similar to HAMP in that the home must be a primary owner-occupied residence with the lien originating before 2009 provided that default is reasonably foreseeable and that the owed balance is not more than $729,750 (for single family residences). Additionally, the borrower's total monthly payment must exceeds 31% of his/her gross income.

Proponents of the program are saying that it is intended to streamline the short sale process by creating an alternative situation for homeowners that HAMP could not help (even though, technically if you were not eligible for HAMP, you probably won't be eligible for HAFA since the requirements for eligibility are substantially similar). Also, this program is meant to streamline the process of a short sale in that it hopes to use the documentation submitted under HAMP (again running into eligibility questions) and also hopes to create an environment where short sales will be pre-approved prior to listing the property for sale.

Now, there are some benefits, as I see them, in the HAFA program. One certain benefit is that HAFA works to ensure that the homeowner is fully released from liability from their first mortgage and sometimes even their second mortgage (depending on the acceptance of initiatives). Also, HAFA will aim to standardize the short sale process, which anyone who ever tries to work with the government knows is not a small task. The Federalist nature of our government creates a lack of uniformity by its nature.

Also, HAFA will provide monetary incentives like relocation assistance for the homeowner, recoupment of loan servicer costs, and up to a $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis; up to 3% of the unpaid principal balance of each subordinate loan).

However, as a homeowner considering assistance through this program, there are things you should know. First, the property that is being listed can not be listed or sold to anyone that the borrower has a personal or business relationship with. The new owner can not sell the home for at least 90 days, the surrendering homeowner will have to list the forgiven debt as INCOME on his/her tax return, and the loan servicer will report to the credit reporting agencies that the mortgage was settled for less than full payment, which will have a negative impact on the homeowner's credit score.

All in all, make sure you consult with your tax and real estate professionals when considering any major decisions with regard to your home. We are professionals and take your needs into consideration and may be able to provide you with insight and information that is not readily available to you.