Real Estate Information

Answer: In some areas of the country, and from time to time, real estate values decline.

In such situations it sometimes happens that owners need to move but the value of the mortgage is greater than the value of the property. The owner is said to be financially "upside down."

If the property is sold at a loss, the owner is still responsible for repaying the entire mortgage nationally (a purchase money mortgage in California may be an exception -- see an attorney for details). But, sometimes owners do not have enough cash to re-pay the loan and so they try to work out a deal with the lender to pay less than is owed -- a short sale.

The lender, of course, wants back every dime loaned to the borrower. That was the deal. And lenders point out, properly, that if the value of the property rose the borrower would not turn around and be required to offer some of that profit to the mortgage company.

Lenders will sometimes allow a short sale if it is a better alternative than a foreclosure sale in a down market. However, before making such a decision, a lender will want to see how such a deal can be structured. Perhaps the borrower has other assets, or perhaps the short-fall can be made up with a note to the lender.

If the lender takes a loss, that loss may be reported to the IRS as income to the borrower -- money not actually received by the borrower, but money that is taxable.

In the event that a borrower faces a short-sale situation, the best approach is to have an attorney contact the lender on your behalf. It may be possible to work out a different monthly payment, an interest rate lowered to current levels, a long extension, etc.  

See a tax professional and realty attorney for details before making any decisions.

Some of the more difficult listing appointments our group encounters these days are ones that involve short sale conditions. In this situation, the seller owes more on the property than what it is worth in the current market.

A year or so ago, we were having to explain how short sales worked to anguished sellers. These days, sellers call us, say they are underwater with their mortgages, and ask if we can help get them out from under crushing and/or mounting debt. And contrary to popular belief, short sales are not only occurring in condo conversions and lower end properties, but in the luxury home market as well.

How and why do short sales present such potential for real estate investors and home buyers? Most short sales situations we encounter in San Bernardino county involve homes that were purchased in the last two years with 100 percent financing, or homes that had been refinanced—often a number of times. Many of these properties are also encumbered with Option ARM mortgages, whose rates have reset to unaffordable rates and may have negative amortization. 

No well-advised buyer would pay an inflated price for a home to accommodate a home seller’s inflated mortgage debt.

In fact, we routinely check the outstanding mortgage debt on properties we show to home buying clients to check short sale potential. Many buyers don’t want to go through the protracted hassle of waiting for lenders to respond to offers. Others are willing to trade time for opportunity. Regardless, we feel compelled to advise buyers of the possibility.

It may be anecdotal evidence, but we seem to be encountering more homes at the low end of the luxury market that will likely be sold under short sale conditions. In the San Bernardino market, many of these properties are newer tract homes that are in the $500,000 to $1,000,000 These sellers have also had the added burden of having to compete with builder’s inventory that is/was being sold with ultra-generous incentives.  

And what does the near-term future hold for short sales in the luxury home market? Difficulties will arise with some of the luxury home purchases and refinances that were accomplished with Option ARMs and their “teaser” entry rates. A million dollar mortgage that originated 30 months ago and had payments starting around $2600 per month could now be readjusting to just under $7000 per month. And refinancing out of these products is often daunting, because of hefty prepayment penalties.   

It is a story that is still under development.  – Roberta Murphy

Organizing the Garage
TIPical Mary Ellen : Episode TIP-237

Brett Dunne at DayBreak Group

agrees with Pam:

Organization expert Pam Hix offers tips on getting your garage in tiptop shape.

• To organize small tools in the garage, tack an old belt to the edge of a shelf or cabinet at two-inch intervals. Slide tools into the slots for easy retrieval.

   

• Hang an old tire against the back wall of the garage. This way if you come into the garage too fast, you will hit the tire, not the wall.

   

• Hang old cabinets on garage walls. Use them to lock up harmful substances.

   

• Mount a fold-down table on the wall for repair work and other tasks.

   

• Hang a net across the ceiling of the garage to hold large and light items. Make sure the net does not interfere with the garage door.

   

• Utilize used glass jars such as jelly or baby food jars, and screw the lid into a 2-by-4 piece of wood. Hang the piece with lids facing down so that you can grab the jar and twist on or off. This is a great way to store nails, screws or bolts.

   

• Install wire shelving instead of wood. The wire shelving is easier for you too see what’s on higher shelves, and it’s virtually dust free.

   

• Use a piece of plywood for hanging tools, shovels and brooms. Magnetic strips screwed into the plywood will hold lightweight tools. The others can be hung with nails.

• Clean or replace the AC filters monthly. Dirty air filters cause the AC unit to work harder than necessary. The energy bill can act as a monthly reminder to do this—change the air filter before sending out the bill.
• Keep the grass around the AC trimmed, being careful not to blow debris or grass clippings into the AC. Make sure landscaping does not block the outdoor air conditioner components. Four to five feet of open air between any shrubs or trees and the AC unit will ensure proper airflow. Blocked AC units have a harder time taking in air to cool the home, which means higher energy costs.
• Shade the outdoor AC unit. Air in a shaded space is typically five to six degrees cooler than the surrounding air, which means the AC will have an easier time cooling the air before pumping it into the home. Air conditioners with proper shading can be up to 10 percent more efficient over a cooling season, according to the U.S. Department of Energy.
• Insulate ducts. Sealing ducts will save energy and money year round. First, seal the duct joints and leaks with mastic tape or sealer. Plain duct tape is not recommended because it will dry out and peel off over time. Wrap the ducts with low-cost, foil-faced R08 rated fiberglass insulation (recommended for cold climates like Iowa), and seal the insulation seams with regular duct tape. According to the U.S. Department of Energy, insulating ducts in the typical American home costs about $250, but the improvement will pay for itself in energy savings in two and a half years. Even the added cost of hiring a professional to install the insulation will be repaid with the energy savings.
• Clean off dirt buildup on the indoor and outdoor coils of the central AC system. These heat exchangers between the refrigerant and the surrounding air can quickly build up impurities will hinder the coil's performance by as much as 8 percent. Both indoor and outdoor coils can be cleaned with warm, soapy water, but need to be treated gently. Before performing any maintenance, be sure to consult the manufacturer's recommendations to answer any questions about an AC unit's care.
• Recirculate air. It is far more economical to recirculate and cool the indoor air than to draw in hot air from outside, cool it down and remove the moisture in it.
• Raise temperature settings. Each degree of temperature can represent up to 9% savings or added expense in cooling costs.
• Keep the unit fan on “AUTO.” IT is not necessary to run the fan constantly when the air conditioner is turned on.
• Use ceiling fans. Moving air with ceiling fans can increase the comfort range.