Real Estate Investing 101

Can I Buy A Home With An IRS Tax Lien, Maybe

We've seen a few deals come by where an IRS tax lien showed up during our due diligence.  Our mortgage friend, Ron Hall, from BNC National Bank just sent us this article that explores this subject. If you have more questions, give Ron a call at 623-293-6970 or pop him an email at rhall@bncnationalbank.com. Here is what Ron has to say:

Many home buyers and real estate professionals find out they are dealing with a tax lien and assume that this buyer is done and move on to the next client.

I am here to tell you that is a HUGE mistake. In FHA lending the rule of thumb is that if the collection can affect title it has to be paid off, well that’s a guideline not a rule.

A couple of things come into play that most people are not aware of: First, is there a payment arrangement? In this case can you show that you have set up a payment plan with the IRS and have made those payments in a timely manner? The gold standard here is 12 months of canceled checks as proof.  If the answer to that is yes the second and very little known tool is… Will the IRS subordinate the lien to the mortgage? We’ll most of the time that answer is YES. Think about it for a minute, you owe the tax guy some money, you want to buy a home, so you ask the IRS to subordinate the lien so that you can accumulate an asset that they can collect against in the future if you default. Is there really a downside for them?

Hope this info helps provide some options and clarity to those who face buying a home with an IRS tax lien.

Gene Urban
www.UrbanTeamAz.com
602-234-5777

Information is deemed accurate but not guaranteed.

Should I Buy A Foreclosure or a Short Sale?

Many investors are asking the big question... should l be looking at buying foreclosures or short sales.

The answer is not cut and dry. However, in many cases short sales may be the right choice for three reasons. First, they are priced similarly to foreclosures. Second, at this time there are more short sales to choose from than foreclosures. Third, they are often better condition since the home owner usually lives in the home and can augment your inspection with full property disclosures.

The third factor is important since most investors are not general contractors and have to pay retail or near retail for fixing up a property. The lack of disclosures and AS IS condition of a foreclosure can lead to some ugly post close of escrow problems. This simple factor can make a big difference to your bottom line. 

The BIG downside to short sales is time. It still takes a long time to close escrow on a short sale. The other caution is the seller's lender may come up with some surprise fees at the end like back HOA dues.

We all know investing in real estate is a gamble. That's part of the fun for many hard core investors... throw the dice and see what come up.  Short sales are simply one of the games you can choose to play.

We have a lot more information about short sales on our dedicated short sale web site... www.Short-Sale-Phoenix.com. 

Best to you,

Gene Urban & Ron Urban
The Urban Team at Realty Executives Phoenix
602-234-5777

Short Sales In Phoenix... Questions, Answers, Negotiation Help

Short sales are quickly becoming one of the main options investors have when buying a property in the Greater Phoenix and Scottsdale real estate market. In response, the Urban Team has launched a short sale specific web site. We'll tell you a bit more about that in a minute. Let's take a look at short sales first.

Some ask why short sales are becoming more prevalent when they have a reputation for being difficult to buy or sell. In the Valley of the Sun, the answer is pretty simple.

According to the Attorney General's office, 82% of Maricopa country homeowners with mortgages are upside down. If you are upside down on your mortgage, you have few options to sell your home. You can find a cash buyer who doesn't mind overpaying a lot (good luck with that one), you can sell your home and pay off the balance due on your mortgage (provided you have a lot of cash lying around) or you can do a short sale.

The good news is that short sales are getting easier to buy and sell. Many of the lenders have their act together and actually make decisions in under 60 days. What a concept!  In addition, new short sale guidelines are coming down the pike from Treasury that sound pretty good and will help the process immeasurably. We'll let you know when and what they do.

I just pulled some stats on the active listings in a few parts of towns and the data is pretty clear that short sales are on the rise. A couple months ago short sales comprised about 10% of the listings in Phoenix; Today the number is 31%. If we look at the NW Valley we see even higher numbers with short sales coming in at 35% of the active listings. Conversely, bank owned homes in the NW valley are way down with only 16% of the listings being REO properties. 

If you would like to learn more about short sales, the process and such, we have created a site just for you. Shot-Sale-Phoenix.com has lots of current information including: FAQ's, what goes into a short sale package, negotiating short sales, buyer questions as we ll as answers to those selling by short sale.

If there are areas of interest or questions not covered on the site, please let us know and we'll go hunting and foraging for the info.

Best to you on this beautiful November day.

Gene Urban
The Urban Team at Realty Executives
602-234-5777

Why Won't My Lender Work With Me on a Loan Modification or Short Sale?

BREAKING NEWS: The Urban Team has launched a site dedicated to short sales. We have the latest news and information for those needing to know more about short sales in the Phoenix area. Just go to www.short-sale-phoenix.com. 

Yesterday, attorney and mortgage mediation specialist Doug Farnam spoke with us about loan modifications and short sales. Doug is with the Mortgage and Mediation Group at Thomson Conant PLC and works in the trenches on loan mods and short sale negotiations. The theme of his talk was "Why won't the lender work with me on my short sale or loan modification?"

We felt his talk was of great interest to both investor and regular home buyers trying to purchase short sale properties as well as homeowners trying to negotiate a loan modification or short sale.

We learned a great deal during Mr. Farnam's talk, especially about the role of a little known or understood player called the mortgage or loan servicing company. Although I was familiar with the term "mortgage servicing company", I was not aware of their involvement with loan modifications or short sales.

Let's look at what a mortgage servicing company does. According to the people at the financial dictionary, a mortgage/loan servicing company does the following:

The collection of monthly payments and penalties, record keeping, payment of insurance and taxes, and possible settlement of default , involved with a mortgage loan.

Some lenders service the loans they sell themselves, however, a large number contract with an outside vendor to perform this function. This is especially true of loans sold in the secondary market.

According to Farnam, some servicing companies have little incentive to help homeowners with short sales or loan modifications. It often depends on whether the loan servicing company provides debt collection as part of their service.

The contract between lenders/investors and servicing companies generally covers fees for processing payments, paying insurance & property taxes and some or all of the foreclosure process. Thus, they may not be contracted to perform the work required for loan modifications or short sales.

This is not true of all servicing companies. Some, like Litton Loan Servicing, do offer debt collection, short sale and loan modification services. However, the logistics, infrastructure, staffing, IT and understanding of the rapidly changing regulations can make the job daunting at best.

I had a nice chat with the people at ILS, Investor Loan Services, this morning. They specialize in servicing real estate loans backed by investors rather than banks. They discussed the many hurdles their industry has faced while trying to deal with the ever rising number of loans in default. One of the problems was simply software. Each bank or investor has their own set of rules on how to handle a loan in default. This requires industry specific software developers to customize modules that drop into the accounting software a servicing company uses. In addition, the Federal Government, Fannie Mae and other involved parties constantly change the regulations creating even more havoc. 

The bottom line, as I am coming to understand things, is banks and their loan servicing companies would love to help homeowners in trouble; They simply lack the resources and even control to do so.

Politicians publicly promise help, yet do not understand the complexities of providing solutions. There are several dozen variables that can impact the success or failure of a loan modification or short sale. Just because Bank of X sold a homeowner the loan doesn't mean they still own the loan and each investor who does chooses how they want to handle loan modification or short sales.  I believe it will continue to be a slow case by case process with more standards of practice coming into play over time.  

Hope this information helps demystify a very confusing problem in our industry.

Gene Urban and Ron Urban
The Urban Team at Realty Executives
602-234-5777

Short Sale Real Estate ... How long does it take to buy or sell a short sale home?

BREAKING NEWS: The Urban Team has launched a site dedicated to short sales. We have the latest news and information for those needing to know more about short sales in the Phoenix area. Go to www.short-sale-phoenix.com.

We get asked a lot of questions about short sale buying and selling. The most common question is: "How long does it takes to complete the transaction?"

We recently posted an answer to this question on our sister site, Urban Life. In this article we provide a lot of information about the short sale process and a look at the time line to complete a sale in the Phoenix, Arizona market. Just go to Urban Life to learn how long it takes to buy or sell a short sale home in Arizona.

Have a great weekend.

Gene Urban & Ron Urban
The Urban Team at Realty Executives
602-234-5777

Urban Team Hosts Sucessful Real Estate Investor Seminar & Discussion

Just a quick post on last night's Arizona residential real estate investor panel discussion. First, let us thank all those who came to the gathering. It wasn't a huge crowd, just the right number to have valuable discourse.

Gene Urban led things off with an update on the Greater Phoenix residential real estate market. The focus was on REOs and short sales. The fundamental market shift has been diminishing bank-owned listings with  a rise in short sale listings and actual closed transactions.

If you've read our blogs for a while, you know we have not been big fans of short sales. The odds of closing escrow have been pretty miserable and there are a lot of variables. That said, we are looking at them a bit more favorably. Many of the banks have finally gotten their act together on short sale transactions and more are closing escrow. There are still a lot of loose ends and concerns,  but the odds of closing escrow are much better and may be worth the hassle.

The stats on closed short sale transactions for the Greater Phoenix market are very interesting. During the first three months of 2009 only 1527 short sales made it through the bumpy process to completion. However, this past month, July 2009,  1304 short sales were reported "Sold" on ARMLS... that's a big performance shift.

Next up on the panel was Jennifer Ridenour, a ten year veteran of property management. She talked about the current state of the rental market. Her main topics were tenant acquisition and retention.

One area of concern is amateur landlords who are taking tenants without background checks and waiving part or all deposits. This puts a lot of pressure on the pros who have learned better. Oh well... the times are a changing. She recommends continuing tenant screening and perhaps be more open to tenants whose credit issues are primarily foreclosure related.

Tenant retention was another topic. Landlords are having to be more accommodating than in times past. A little honey helps keep happy tenants. We wrote a blog post on this topic a few weeks back you may want to take a look at...how to reduce vacancy rates on rental properties. 

Judy Giel with MetLife Home Loans was next up and talked about changes in lending practices. The focus of her talk was on condo loans. Last March Fannie Mae changed the loan guild lines on condos and FHA has fallen in with the tougher standards. The most problematic area has to do with HOA's. Fannie Mae won't buy loans on condos where over 15% of the homeowners in a complex are behind on HOA dues. As you can imagine, a lot of properties have more than 15% of the home owners behind on their dues.

Judy's take on the condo market is that loan aquisition will continue to  be difficult, resulting in a softening of condo sector. Cash investors may be able to pick up some incredible deals in Q4 2009 and into 2010. She advises very strong due-dilligence on HOAs.

The evening ended with a general Q & A session. A lot of good questions and answers where shared.

Best to you our loyal readers... we appreciate the time you spend with us.

Ron Urban & Gene Urban
The Urban Team at Realty Executives
602-234-5777

Short Sales Can Come With Surprises... HOA fees, Back Taxes, Mechanics Leins

Short sales are one of the many sales vehicles investors use to purchase residential real estate. Unlike traditional transactions, short sales have unique problems and variables. We contacted a number of short sale specialists to better understand some of the issues that can arise for the investor/buyer. Below is a list of the predominant concerns the experts voiced.

THE PURCHASE OFFER: Shorts sale purchases come with a number of special addendum. The property is generally offered in AS IS condition as well as being a short sale. Addendum to the contract for these special circumstances are generally required. Most banks have additional special addendum the buyer will be expected to execute. Experts say that many offers are rejected because all the required documents are not included in the original offer package. Make sure all the required addendum and documents are included at the time you make your offer.

HOA FEES: Unpaid HOA fees are often an issue at COE. Homeowners tend to stop making their HOA payments, thus accumulating late fees and penalties in addition to the unpaid dues. Most banks are refusing to contribute to this deficiency. The burden is placed either the homeowner or the potential buyer. We advise short sale buyers to be aware of this possibility when buying a home that resides in an HOA and expect to be asked for a contribution. It may not happen but it is better to be prepared.

PROPERTY TAXES: As with unpaid HOA dues, property taxes must be brought up to date in order to close escrow in most transactions. Buyers should be aware that some banks feel it is the responsibly of the home seller to bring these current. If that homeowner/seller does not have the funds, you may need to participate in order to complete the transaction.

DEFICIENCY: If you are buying a short sale, know the bank may require the seller to sign a note for the deficiency amount; This occurs most often if the home is 2nd home or investment property or if the 2nd lien is a home equity line of credit.  This can be a last minute deal killer.

THE REAL ESTATE AGENT: The listing agent for a short sale is a very important player. Make sure they know what they are doing and have had success in closing short sale transactions. Good negotiation skills, knowledge of the players and keen record keeping are needed skills.

TIME TO CLOSE ESCROW:   Short sales, on an average, take a longer period of time to close escrow than most transactions. We reviewed 300 closed short sale deals in the Greater Phoenix market and found it took the average transaction 100 days to complete; This was the average and many took much longer.

CYA STATEMENT: The aforementioned items do not constitute all the possible concerns and problems one can experience during a short sale transaction. Please seek the advise of your real estate agent/broker and legal counsel during a real estate transaction.

We hope this has been of help and please feel free to contact us with additional questions and concerns. Be advised that our expertise lies in the Greater Phoenix Arizona region and may not be applicable to other states and countries.

If you would like to search the short sale and bank-owned home market in the Greater Phoenix area, please give our always up-to-date search tool below a try. Everyone says it is the best!!

Gene Urban & Ron Urban
The Urban Team at Realty Executives
602-234-5777