Got an FHA Loan? Want to do a short sale on your Sacramento home? Here are the steps...

I have been doing a bunch of FHA short sales lately, and I have to say I enjoy doing them. No, I'm not crazy! It just so happens that the US Department of Housing and Urban Development (HUD), the federal agency that handles the FHA programs, has created a short sale process that loan servicers are required to follow...

Loan servicers (think Bank of America, Wells Fargo, Chase, GMAC, etc) must follow the steps of the HUD "Pre-Foreclosure Sale" process. That's right -- they MUST. Which is really nice for me...as a real estate agent that does A LOT of short sales, predictability in what is generally a pretty unpredictable process is a luxury.

A few general criteria if you have an FHA loan on your Sacramento area home and are contemplating selling via a short sale;

• FHA usually requires that the home be owner-occupied. If you must move out of your home because of a hardship that requires you to relocate, such as a job transfer, divorce, to care for a sick relative, etc, there are some exceptions.
• Theoretically, the seller must be at least 31 days delinquent on the loan. Let me clarify that in order to negotiate the short sale, the borrower can be totally current with the monthly mortgage payments. It is when escrow closes on the sale that you must have missed one payment...and (shh!), I have gotten an FHA short sale completed where the seller wasn't technically 31 days late.
• There is a FHA Pre-Foreclosure Sale application that must be completed and filled out. The borrower will need to know the FHA "case number" for the property. This can be found on the original loan documents. If those aren't handy, you can call FHA's help line at 800-225-5342 and find out.
• You will also need to collect your bank statements, paystubs, write a hardship letter, write an explanation regarding the occupancy status, and if utilities are on and being paid, etc.
• FHA conducts a full-blown appraisal of the house to determine value.
• Once all of the document and appraisal conditions have been satisfied and hardship determined, FHA issues a form 90045 -- Approval to Participate in the Pre-Foreclosure Sale.
• FHA Form 90045 will disclose the appraised value. The NET proceeds to the loan servicer generally must be greater than 88% of this value, taking into account paying all of the costs associated with the sale, including real estate agent commissions, title insurance, escrow fees, transfer taxes, etc.
• Often times, with a timely close of escrow, the seller can receive a "relocation incentive" of up to $1,000 at the close of escrow, paid from the sales proceeds of the house.
  

The seller MUST be approved by FHA for the pre-foreclosure sale program before the loan servicer can review or approve any offers...so keep that in mind. Approval timeframes after receipt of the 90045 vary per the loan servicer, but I'd estimate 1-3 weeks.

Also if you are a buyer of an FHA short sale property, FHA does not approve any seller credits to the buyer of an FHA short sale UNLESS the buyer is obtaining a new FHA loan -- and in those cases the credit for closing costs is limited to 1% of the purchase price. Also, the property is sold as-is, and the FHA will not cover the cost of any buyer home warranty. So buyers, prepare yourselves for that reality.

So...if you are contemplating doing a short sale on your Sacramento area home and have an FHA loan, be sure to select a real estate agent that is intimately familiar with all of the steps of the process. I would be happy to explain the process in more detail for you and assist you with your transaction. Of course I am happy to do the same for any non-FHA short sale you want to do as well.

Am I getting new neighbors in Land Park?

I saw this in Land Park while on my way to the office today. It kinda made me smirk, like these guys want to rent this place!? This isn't my first odd encounter with turkeys. A couple years ago a buyer client and I encountered about 40 turkeys in Citrus Heights while looking at homes. They wouldn't move when I tried to drive down a street, so we got out and filmed them. Ahh, good times!

New Listing - 2929 42nd Street, Sacramento, CA 95817

Great opportunity awaits you! This 2 bed, 1 bath, 685sf house near UC Davis Med Center in Sacramento is a blank canvas awaiting your personal touches. You will appreciate the new siding, dual pane windows, new electrical panel, new doors, and rebuilt front porch area. Interior has been taken down to the studs and is ready to be finished. Offered at $30,000 -- NOT a short sale. For more photos and info please visit 2929 42nd Street, Sacramento, CA 95817.

Fun at the Furnace Creek 508 Bike Race!

If you follow me on Facebook or Twitter, you will already know that I had quite the adventure this last weekend! I was a crew member supporting a solo cyclist for a 508 mile bike race in southern California!

My boyfriend Greg and I supported Dan Westergaard, who has successfully completed the Furnace Creek 508 ride for the last 4 years -- this was his 5th attempt. He finished in roughly 36 hours and 37 minutes (based on our stopwatch...and there is a 48-hour time limit). He didn't stop to sleep at all. The ride went through Death Valley, the Mojave Desert, and some really remote towns that looked like something out of a movie and did not at all resemble Sacramento in any way.

So as crew members, we followed him in a fully-stocked minivan for the entire 508 miles...Dan only stopped for supplies or to change clothes a few times. Generally we would leap-frog a couple miles ahead of him, get supplies ready, and hand them off as he rode his bike by us. At night race rules required us to follow directly behind him. Greg and I slept for maybe 90 minutes total from Saturday morning - Sunday night.

It was a great experience. Greg is an avid ultra-distance cyclist and wants to enter the Furnace Creek 508 as a rider next year, so I am excited to be his crew!

Quoted in USA Today article -- about buyers who receive downpayment "gift" funds from family members...

If you follow me on Twitter or Facebook, you will already know that a couple weeks ago I was interviewed by a USA Today reporter about my experiences with buyers who receive monetary "gifts" from family members toward a home purchase -- usually for a mortgage downpayment or closing costs.

Well the article was on the front page of today's edition of USA Today! Kinda neat...the couple that I refer to in the article bought a nicely remodeled 4 bedroom house in Sacramento in a revitalized area. They were married a few years ago, the husband had just graduated from law school, they just had their first child, and relocated here from San Diego for employment. They were paying $1200 per month in rent for a 2 bedroom house just a few miles away from the home they purchased. Their total mortgage payment is about $250 less than the rent they were paying.

I would estimate that 1 out of 4 of the buyers I work with receives gift funds, usually from a parent. These financial gifts generally do not constitute the entire downpayment, or all of the cash needed to make the home purchase. What I typically see is mom and dad (or a sister, uncle, grandparent, etc.) will gift a few thousand dollars to augment the downpayment from the buyer.

If you are giving or receiving a financial gift to make a purchase, there are a few things you should do BEFORE any money changes hands. I would highly suggest NOT just writing your kids a check...the funds must be "sourced and seasoned." This essentially means that the lender must be able to verify who the funds came from, what their relationship with the buyer is, from what account the money came from, how long the money had been in the account, and how the funds were earned. There are some easy ways to do this, but speak with a loan officer first...you might make a well-intentioned gift but delay or adversely affect the buyer's loan underwriting. If you have any questions about this, or need to speak with a good loan officer, just contact me and I can assist.

Ask Erin: How does an IRS Tax lien affect a short sale?

If you follow me on Twitter, you will know that today I discovered that the seller of one of my Sacramento short sale listings has IRS Tax liens from 4 separate tax years. What exactly does this have to do with my short sale, you ask?

Liens of this nature attach to real estate owned by the seller. When that property is sold, the liens are then paid in full out of the net proceeds of the sale. In short sales, where there are ZERO dollars in net proceeds from the sale -- this creates a potential problem! The liens have to be paid off in order to transfer the title of the property to the new owner, but there is a lack of money to pay the liens...so what happens?

Well, luckily, both the Internal Revenue Service (IRS) and the California Franchise Tax Board have processes to request that the liens be "partially released" so that the properties in question can be sold and the liens go unpaid. The liens still exist and stay with the seller, and could attach to other property he or she owns or comes to own at a later time, but they are released from the subject property being sold.

If you are selling a property and have unpaid state or federal income tax, it is critical that you let your Realtor know about it, even if you have not received notice that any actual lien has been filed. Liens can pop up at any time, so even if a lien doesn't officially exist today, it might be officially recorded between now and the time you get your short sale approved and try to close the escrow.

The process with the IRS can take several weeks to complete from application to approval, and subsequent close of escrow. The approval of your application is only valid for 30 days. Timing of your request is tricky, especially if you are trying to do a short sale, since you do not always know exactly when the short sale lenders will approve the transaction, nor do you necessarily know the final selling price!

To apply, you must fill out IRS Form 14135 "Application for Certificate of Discharge of Property from Federal Tax Lien." The form requires A LOT of information and supporting documentation that your Realtor and escrow officer can assist you with -- including things like a title report, a copy of the estimated HUD-1 settlement statement, a copy of the recorded tax lien itself, a property appraisal, etc.

Then, depending on the location of the property within the state, you will mail the application and supporting documentation. You can follow up via telephone at 800-829-3903. The IRS has actually prepared videos to assist sellers with this process -- view them by clicking here.

Next week I will post about the process for making the same request of the California Franchise Tax Board...