Ask Erin: What type of hardship must I demonstrate in order for my lender(s) to consider my request for a short sale?

I received a call today from a very friendly man seeking information regarding the possible short sale of his house. When I asked what his hardship scenario was, he informed me that he had no hardship, but just wanted to dump his home because he owed more than it was currently worth. I asked a few probing questions...and he made plenty of money, could afford his payments, and was not pinched financially. Hmm...

Generally speaking, in order for a lender to consider a home owner's request for a short sale, the home owner must be able to demonstrate that there is some sort of pressing hardship. Hardships do not necessarily have to be financial in nature, but there usually must be some substantial burden that affects the homeowner's ability to continue to make the monthly mortgage payments.

• Loss of earnings. With state/local government employee furloughs, reduction of hours, cutbacks, layoffs, etc, this is probably the most common hardship for short sales that I negotiate. Loss of earnings is pretty simple to document through providing bank statements, or unemployment benefit statements to the lender(s).
• Interest rate adjustment. Many borrowers purchased or refinanced with adjustable rate mortgages (ARM's) or negatively amortizing loans, and simply can not afford the inflated mortgage payments once the resets occur. Many lenders are willing to modify the terms of ARM or Neg-Am loans, but many home owners opt to short sell due to this hardship. This is also a very straightforward hardship to document to the lender via bank statements and paystubs.
• Dissolution of marriage. When spouses separate, and one household becomes two, it is common that neither spouse can separately afford to keep the house. Often times this hardship must be proven to the lender(s) by providing a copy of any applicable court filings.
• Relocation. Often times families must relocate for one reason or another; for employment opportunities, education, etc. Often times this hardship must be proven to the lender(s) by providing copies of education or employment welcome letters.
• Disability or death. Perhaps one of the co-borrowers passed away, or was disabled, leaving the other borrowers or heirs to deal with the mortgage payment. Often times this hardship must be proven to the lender(s) by providing copies of death certificates, or other documentation from qualified medical professionals regarding the disability.
• Birth of a child. Perhaps you had a child, and had to take time off from work. Perhaps you have additional childcare expenses, another mouth to feed, etc. Often times this hardship must be proven to the lender(s) by providing copies of birth certificates.

There are many other reasons that lenders will consider allowing a short payoff of a property too. Please keep in mind that if you are merely upside down in your house, but do not have some external circumstances that affect your ability to make your monthly payment obligations - your request for a short sale may be rejected by your lender if you have the ability to pay, or you could be asked to contribute cash to close your sale, or you could be asked to repay a promissary note over time.

How to avoid mortgage default

I read this article by Jim Wasserman in the Sacramento Bee recently... if you have missed a mortgage payment or two, he provides some valuable suggestions.

How to Avoid Mortgage Default
By Jim Wasserman

Trouble begins with a slow-motion descent toward your first missed mortgage payment. It's a queasy feeling thousands of homeowners know too well as their houses slip away. So what should you do if you're in trouble? Put off car payments to make the house payment? Max out credit cards and exhaust the savings account? Stop eating out and drop cable TV? Foreclosure? Bankruptcy? Short sale?

Increasingly, these are the questions of real. Experts say how you deal with impending loan trouble goes a long way to ending it in the best way possible. Most important: early contact with the lender and being wary of the mail and phone offers of help that follow public posting of a default notice, which usually come after a couple of months of missed payments.
Alternatives to foreclosure are many, and banks prefer working with you to taking back the house.

"Sometimes it's necessary, but it's a last resort," said Tim McGarry, spokesman for Washington Mutual Inc. "Foreclosure almost always represents a loss for the lender." Not every homeowner in trouble has an escape route. Some homeowners have mortgages that charge thousands of dollars to change the loan terms. Others with adjustable rate loans may face still higher monthly payments in the future.

But experts say that there are some key steps homeowners facing mortgage trouble can do:
- Get moving on a solution or get help before it's too late. Many people burrow their head in the sand and wait until they've missed two or three payments to start a workout plan.
- Write a hardship letter to your lender putting your situation in writing. It should be specific about what caused the delinquency with dates and a time frame. Make it detailed, but be concise.
- Don't give up and walk away from your house before trying to find some kind of solution. And don't assume a short sale - a process by which the bank agrees to sell your home for less than you owe - is your only way out.
- Be polite and work with the lender to find a solution you both agree on, whether it be extending the repayment period, suspending the need for payments for a few months, borrowing from family members or tacking the missed payments on the back end of the loan.

Derek Kirk, a real estate agent who specializes in short sales, said too many people have a misconception they'll be approved automatically for a short sale. Banks largely aren't saying yes unless the hardship is related to a lost job, bankruptcy, divorce, death, medical crisis, relocation or some other financial difficulty, he said. "It's got to be something that involuntarily happened to the person to put them into a worse financial position," he said.

That usually eliminates homeowners who have seen their interest rates adjust higher or took a loan they couldn't afford. It rules out people who didn't read their loan papers before signing and investors who bought a house expecting to flip it for a quick profit. In involuntary hardship cases, Kirk said, banks typically want "two years of tax returns, pay stubs and bank statements, the divorce decree, the bankruptcy filing. For medical hardships, they want letters from doctors."

"It all goes to the bank, and they review it and if you have a legitimate hardship, nine out of 10 times they'll move forward with the deal."

Troubled sellers should ask about potential tax implications of the deal. In some cases sellers can be taxed on the loan amount forgiven by the bank. Still, short sales usually aren't as hard on an individual's credit rating as foreclosure, experts say. Foreclosure stays on a record for seven years, and it may be four years before a buyer can use regular interest rates again. Missing up to three mortgage payments also stays on a credit record for seven years. It may be several years before a borrower can buy again without getting the higher-cost "subprime" loans given to people with spotty credit records.

Refinancing, a common option when markets are rising, is tougher when they're falling. Many borrowers don't have enough home equity to refinance, lenders say. Refinancing also could become more difficult as government regulators press lenders for tighter standards to prevent still more defaults. McGarry said Washington Mutual considers short sales, forbearances up to 12 months when conditions warrant and reworking loans into 40-year payment schedules.

If nothing works, bankruptcy protection may be the ticket to keeping your house, said Sacramento attorney Peter Macaluso. A bankruptcy specialist, Macaluso said owners who used 100 percent financing with an 80 percent first loan and 20 percent second loan for the down payment can sometimes avoid obligations to pay the second, depending on how the bankruptcy filing is structured. "In the last five years I didn't do but one or two," he said referring to home-related bankruptcies. "In the last six months I've probably done 10, and I know my fellow cohorts are doing the same."

Link:
http://dwb.sacbee.com/24hour/real_estate/story/3580441p-12834361c.html

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.

Bank of America is conducting a "Borrower Outreach" event in Sacramento -- you MUST register in advance!

Bank of America will be holding a "borrower outreach" event this week at the Sacramento Convention Center starting Thursday, November 17th - and going through Saturday, November 19th. Hours of the event each day are from 8am - 8pm. They are encouraging their borrowers to register online and schedule an "appointment" time rather than just dropping in.

Their goal is to help Sacramento Bank of America mortgage customers who are experiencing hardships to find alternatives to foreclosure -- such as loan modification, short sales, etc.

There is a list of documents you must print from their website and bring with you:

• A "Request for Modification & Affidavit" --
• A Hardship Letter -- explains your hardship and why you are seeking assistance
• An IRS Form 4506-T -- this allows Bank of American to request your income tax information from the IRS.
  
• A Dodd-Frank Certification form -- this certifies that you have not been convicted of a financial crime in the last 10 years (among other things, be sure to read it before signing)

There are also other financial documents they want you to bring:

• Recent Utility Bill
• Copies of your 2009 and 2010 tax returns
• Copies of your most two recent bank statements for all accounts
• A summary of your monthly expenses
• Recent HOA bill (if applicable)
• Copies of your most recent two months of paystubs (or profit and loss if self-employed)
• Copies of your rental lease (if property is tenant occupied)

In order to register for your appointment time for the Sacramento Bank of America Outreach Event, visit the Bank of America Events Registration page on their website by clicking here. If they advise you to consider a short sale as an alternative to foreclosure, I am happy to provide you more information regarding the process and assist you as well.

Five reasons I like doing GMAC short sales...

I love doing Sacramento short sales with GMAC for a couple reasons...the first reason is that they generally use the online system Equator to facilitate their short sales, which makes transmitting documentation and information to the short sale negotiator pretty simple and (relatively) painless. The second reason is that I usually receive the direct contact info for the short sale negotiator employed by GMAC. The third reason is that they are usually pretty fast to respond to the initiation of the short sale process with a few proprietary documents -- for example they usually send an "Affidavit of Arm's Length Transaction" document with buyer and seller names within a week or so of receiving all of the info. The fourth reason is that GMAC is generally pretty quick to order their BPO's (Broker Price Opinion -- essentially a type of appraisal / valuation of the property used to validate the price that has been offered by a buyer)....AND the fifth reason I like to work with GMAC short sales is that they generally overall seem to approve their short sales in less than 60-days. I even once received one GMAC short sale approval within 2 weeks! So, if you are going to be selling a short sale in Sacramento with GMAC, here is what you need to gather;

GMAC Mortgage

Loss Mitigation / Short Sale Tel: 214-874-2500

Seller's Documents Generally Required for a Short Sale:

-3rd Party Authorization Letter

-Hardship Letter

-Last 2 months of bank statements

-Last 2 months of pay stubs

-Last year's federal tax return

-Most recent quarterly Profit & Loss Statement (ONLY if self-employed)

-GMAC Financial Analysis Packet (includes an IRS 4506-T, Dodd-Frank Certification, and Hardship Affidavit)

Ask Erin: What is an "Arm's Length" Short Sale Transaction?

In any given week, I receive a dozen calls or emails from folks seeking more information about the possibility of doing a short sale for their Sacramento home. Most folks are just doing fact finding to weigh their options (short sale, vs. foreclosure, vs. loan modification, etc.)...often times they know someone in the process of a short sale, or perhaps they are nearing default on their mortgage and their lender has suggested they try a short sale, or they have just suffered a financial hardship. These folks are on information gathering missions...cool - I am happy to answer questions about the procedural ins and out of short sales. I refer these folks to qualified professionals to answer their tax and legal questions since I can not address those issues.

About a quarter of the inquiries I receive take on a much different tone...they tend to start something like this..."I bought my house in 2005 when it was worth $X. Now in 2009, its worth substantially less. I married my spouse in 2008 and he/she is not on the loan or on the title for my house. I would like to do a short sale and sell my house to my spouse."

SORRY!

Number one...doesn't a scenario like that sound like fraud? Sorry, but I will not participate in that. Number two...I did not hear anything about a hardship necessitating a short sale. Number three...most lenders entertaining short sales require that the transaction be at "Arm's Length." A short sale lender I have worked with several times requires a document to be signed called an Affidavit of Arm's Length Transaction." It reads - "All parties to the contract on the premises dated ______ hereby affirm that this is an “Arm’s Length Transaction.” No party to this contract is a family member, business associate, or share a business interest with the mortgagor. Further, there are no hidden terms or special understandings between the seller or buyer or their agents or mortgagor. The Buyers and Sellers nor their Agents have any agreements written or implied that will allow the Seller to remain in the property as renters or regain ownership of said property at anytime after the execution of this short sale transaction. None of the parties shall receive any proceeds from this transaction except the sales commission."

I hope this clears up any confusion regarding this issue...the seller can NOT benefit in any way from a short sale transaction.

It's August 1st...Have you started your short sale yet? Time in 2012 is running out...

No, I am not referring to the 146 shopping days left until Christmas. I am referring to the time left (152 days) in 2012 that short sale sellers can still take advantage of some of the state and federal debt forgiveness tax laws. Many short sale sellers who occupy their home as a primary residence and meet other criteria will have little or no tax consequence from completing a short sale in 2012. Many short sale sellers have benefited from legislation in place protecting them that will expire December 31, 2012. The difference in closing a short sale in December 2012 and January 2013 could cost a distressed homeowner several thousand dollars in taxes. I am not a CPA and refer my clients to tax professionals to seek advice in this regard to make sure these laws apply to their situation.

In a nutshell (and completely over-simplified), if a homeowner does a short sale and owes $300,000, and the NET proceeds from the sale that a bank will accept in a short sale equal $200,000, the seller of the property receives a 1099 from the bank for $100,000 (the amount of the "forgiven" debt). You will get this 1099 regardless of when you close your short sale, BUT for short sales closed in 2012, many sellers will not have to pay income tax on this "forgiven debt." If you close in 2013, if the current legislation in place remains un-extended to a later expiration date, you could have a very large tax bill to pay when you file your taxes the following year. Again, speak to a CPA regarding how this affects your situation. If you need a referral to one, contact me and I am happy to give you one.

Given the length of time that short sales take, if you want to complete a short sale in 2012 you need to start the process NOW.  Think I'm exaggerating? Assuming a seller doesn't have some odd circumstances, the lifespan of a typical Sacramento short sale looks something like this:

-Listing the property, preparing for showings, gathering financial and hardship info to submit to short sale lender: 7-14 days. My vast short sale experience tells me that most folks can't (or won't want to) list the house tomorrow and start showing it by this weekend. If your average seller called an agent today, met with that agent tomorrow, then spent time gathering their financial info and making the house presentable making arrangements for pets, extra house keys, etc., the house would realistically hit the market within 2 weeks.

-First on market day, showings, and seller accepted offer to submit to lender: 7-10 days. Let's face it, if a property is priced correctly and the seller is flexible with access to the house for showings, given the current lack of homes on the market, this process should be relatively quick.

-Lender receives all financial and hardship information from the seller, purchase contract and supporting documentation, assigns a negotiator and orders BPO valuation of the property: 7 - 14 days. Some short sale lenders are faster than others. Most of the larger banks (Chase, Wells Fargo, BofA, GMAC, CitiMortgage, HSBC, etc) have pretty streamlined processes for getting the files assigned to folks and the initial BPO values established.

-BPO agent/appraiser visits property and returns value analysis report to short sale lender: 7-14 days. For the sake of defining it, a BPO essentially an appraisal ordered by the short sale lender. This is their method to best validate the buyer's offer received and determine the fair market value of a property. The folks who do these BPO's are unaffiliated 3rd parties who might have 20 other BPO's to do at the same time. Once the assignment is received, it might take them a few days to fit visiting the property into their schedule (longer if the house is occupied and they must coordinate access to the house with someone else), then visit the property, then complete the report and submit back to the short sale lender that ordered the BPO.

-BPO received by negotiator, analysis of file: 7 - 45 days. Yikes. This can take a long time...the file could be re-assigned to a new negotiator and it could go to the bottom of that person's stack.

-Submitted to investor or management for final approval: 3 - 30 days. Again yikes. Depending on who actually controls the decision-making process of the loan, this could be super fast, or painfully slow. Best case scenario is that the loan is owned by the short sale lender itself and it's just making a management decision if the short sale fits within its internal guidelines, OR, perhaps Fannie Mae or Freddie Mac must approve the short sale. Or perhaps the loan is owned by a Hedge Fund, or a Retirement Fund. If it turns out that the Missouri State Teacher's Retirement Fund owns the loan for example (not to pick on them, if they even exist LOL), and Margie in Accounting is the ultimate decision-maker, you might be in for a longer wait.

So then approval issued! Yay! Now what...well depending on the offer you received from your buyer, you will be looking at 21-45 days to close your escrow, barring no additional surprises with the buyer's loan or inspections, of course.

So on the fast end of the normal timeline spectrum from the day the house hits the market to the day the short sale is approved -- you are looking at about a month if all the stars align, plus the time it takes for the buyer to close escrow. If you are this fortunate and have a very straight-forward short sale and no surprises, congratulations you still have plenty of time to complete your short sale before the end of 2012.

On the longer side of the normal timeline spectrum from the day the house hits the market to the day the short sale is approved -- you are looking at 3-4 months, plus the time it takes for the buyer to close escrow. This timeline is more realistic for most short sales, AND it will push you to the very end of 2012. It'll be stressful, but you have time to get your short sale closed.

So...if you need to do a short sale and can benefit from the tax laws that will expire at the end of 2012 - what are you waiting for? I welcome your call if you have questions I can answer or to see if we are a fit to work together.

Bank of America Short Sale Forms Advisor

While short sales in Sacramento are not nearly as common today as they were a few years ago, there are still some of them out there. And thankfully after nearly a decade, Bank of America has made it easy to determine just which forms are necessary to submit to request a short sale.

In order to obtain a complete checklist of documents necessary for a Bank of America short sale, you will need to know a couple of things:

• What entity owns or insures the loan? It could be Fannie Mae, Freddie Mac, FHA, VA, USDA, or none of the above;
• Is there anyone in the household that pays household expenses who is not a borrower on the loan? That should be easy enough -- a non-borrowing spouse, domestic partner, boyfriend/girlfriend, parent, child, roommate, etc.

Bank of America will require income, expenses, asset and hardship documentation from the borrower(s). This usually involves providing recent bank statements, paystubs, tax returns, etc. and possibly consenting to a credit check. Additionally, they now require similar documentation from any non-borrower who contributes to the household expenses.

The Bank of America forms advisor is here: https://homeloanhelp.bankofamerica.com/en/document-checklist.html 

Wachovia Short Sale - What Sacramento Buyers or Sellers can expect...

So I have gotten to the point where I have closed so many Sacramento short sales, I figured I would share my experiences with different lenders. The last short sale lender profile I did was for Bank of America. I figured this time I would profile a lender at the opposite end of the spectrum: Wachovia.

Let me just tell you - if you are a Sacramento buyer or seller dealing with Wachovia Bank on a short sale, you have stumbled upon the golden goose!

Wachovia has one of the smoothest short sale approval processes I have witnessed. They actually have a local representative that personally meets with the short sale seller and the listing agent, who personally views the property, and issues short sale approval in a short time - usually within 3-5 days. Wachovia commonly offers the sellers incentives to move out and leave the property in good condition. Ocasionally a Wachovia short sale can be "conditionally" approved before it is listed in MLS. The seller generally does not have to supply much financial documentation - rather the seller must be prepared to discuss their financial / hardship situation with the local rep during their in-person meeting.

I would post the local Wachovia short sale rep's name, telephone number, and email address, however since I have her direct contact information, I am going to refrain from posting it so that she does not receive an onslaught of communication.

Click here if you are thinking about doing a short sale of your home. Click here if you are thinking about buying a short sale home.

Are you a "Move-Up" Buyer? How to sell your current Sacramento home and buy another one...

With home values on the rise again in the Sacramento area, I have gotten several inquiries in the last 12 months from folks who want to sell their current home and purchase another one. WHAT!? This is a huge change from the demographic of the Sacramento home buyer in 2006 - 2011. That Sacramento home buyer was typically either an investor or a first time home buyer...but what we Realtors refer to as "move-up buyers" had been scarce. Let me tell you -- move up buyers are back, and have been back for a while now.

Many Sacramento area homeowners have some newly discovered equity. Sacramento home values have increased 30%+ in the last year and a half, and many folks who had the luxury of waiting out the market, who didn't have a financial hardship, and have patiently made their mortgage payments during the roller coaster Sacramento real estate market are ready to sell. Many folks are selling that starter home and moving into something bigger and better, out to the suburbs, or perhaps in a better school district, closer to work, etc. Many are now "empty nesters" and selling the home they raised their children in, and would like to downsize, or move back out of the suburbs into the central city. Whatever the case, now has turned into an opportune time for many to sell their homes.

So how do you pull this off exactly?

Well, some people who want to do the sell-and-buy tango are lucky enough not to absolutely have to sell their home in order to buy another. If you are in the position to be able to purchase your "replacement home" before you sell your home -- this is an enviable position to be in. This requires some strong financial positioning...you will need to be able to qualify to obtain your new loan, while maintaining your current house payment and other debts. You will need to have your downpayment funds in hand, and have sufficient income to make all of your payments under the lender's "debt-to-income ratio" guidelines. So this is relatively simple -- get pre-approved for your loan, find an agent to assist you, purchase your home, move, and then list your other home for sale. Or keep it as a rental (though many people don't want to be landlords). You have the luxury of waiting until the right house comes on the market and buying it. If this is you -- congratulations! But you will be in the vast minority of "move-up buyers."

If you are the other 95%, you will need to sell your current Sacramento home in order to qualify and have the downpayment to purchase your new replacement home. I have helped several sellers/buyers with this lately. And you have some options...and decisions to make.

Option A: Make a "contingent offer" on your replacement home, then simultaneously list your current home. Finalize the new purchase and sale concurrently.

Option B: Sell your home, do a "rentback" and then purchase your replacement home.

Option C: Sell your home, find a temporary home, and then purchase your replacement home.

Rather than write a novel here, over the next week or so I will write individual posts to elaborate on Options A, B, and C. Each has many pro's and con's, certain contractual implications, and certain financial ramifications that sellers should be keenly aware of. So stay tuned...and if you have questions, feel free to ask them. You can comment here, call or email me.

November 19, 2013: How to make a "Contingent Offer" on a Sacramento home. AKA, how to concurrently sell and buy a new home...

What does the new Tax Reform Bill mean for home buyers, sellers, and homeowners?

A few weeks ago, right around Christmas and just before the end of the year, the president signed the final version of the Tax Cuts and Jobs Act of 2017. The legislation -- two separate bills -- was advanced in both the United States House of Representatives and the United States Senate pretty quickly, then elements of the two bills were blended together (via a process known as "conference"), resulting in a final bill...

Regarding tax implications for homeowners, several items were on the table for pretty significant changes in both bills. And for a while it was difficult to determine what actually made it into the final bill that was signed into law.

Now that the chips have landed -- here is a summary of what is in the final bill that will affect residential home buyers, home sellers, and homeowners.

Capital Gains Exemption on the Sale of a Primary Residence
The good news here for sellers is the final bill had NO CHANGE. For as long as I can remember, the law has been that up to $250,000 (for individuals) or $500,000 (for married couples) of  the gain (aka profit) from the sale of a primary residence is exempt from capital gains tax, provided that you have lived in the home for at least 2 out of the last 5 years. Both of the original House and Senate bills sought to change this timeline for exemption to 5 out of the last 8 years. This would have placed a huge hardship on many homeowners. Life happens, and many people look to sell and move into larger homes, downsize, or relocate after a short time in a home...so thankfully that change was not part of the final bill, and homeowners can still sell and take their equity with them, untaxed to those amounts, after 2 years.

Mortgage Interest Deductibility for Primary Residences
The good news here is that the final bill only capped tax write-off for mortgage interest at loan amounts of $750,000 or less. The original House bill sought to cap the mortgage interest deduction at loan amounts of $500,000 or less (in fact you may recall I made an appearance on the KCRA News when the original bill was announced). Overall this is still a reduction from the $1,000,000 cap that had been in place for as long as I can remember...though at $750,000 that will not affect too many people purchasing homes in the greater Sacramento region. Our current median home price in Sacramento County is in the mid-$300k range. For those with pre-existing home loans between $750,000 - $1,000,000 -- you are grandfathered in and may still write-off that mortgage interest. Also of note is that interest on home equity lines of credit (HELOCs) is no longer deductible, however it is still deductible on home equity loans (aka, second mortgages). Clear as mud, yes?

Mortgage Interest Deductibility for Second Homes
The good news here is that the final bill did not eliminate the mortgage interest deduction for second homes! The original House bill would have completely eliminated the mortgage interest deduction for second homes (aka vacation homes).

So that is enough information to use as a guideline. The National Association of Realtors also published a detailed Q&A which you can refer to here. Please be sure to confer with your CPA to determine how these things apply specifically to your situation.

Sacramento City Council approves a temporary moratorium on tenant evictions relating to hardships caused by COVID-19

Our local elected leaders, responding to calls from tenant advocates to provide relief to renters experiencing hardship related to our current public health situation, enacted an ordinance aimed at preventing renter displacement.

Last night, the Sacramento City Council approved a temporary moratorium on tenant evictions relating specifically to COVID-19. Keep in mind, this applies to all residential rental units within the city limits of the City of Sacramento.

Details of the new ordinance:

• Effective Immediately, but not retroactively applied if tenant was already delinquent in rent
• Moratorium applies to evictions due to nonpayment of rent due to COVID-19
• Tenant was sick or caring for COVID-19 family member 
• Tenant experience layoff or other income reduction associated with COVID-19 
• Tenant’s compliance with a recommendation from a government agency to stay home, self-quarantine, or avoid congregating 
• Tenant needed to miss work to care for a home-bound school-aged child 
• Tenant must do all of the following: 
• Notify landlord in writing before rent is due that the tenant has a valid reason for delayed payment 
• Provide verifiable documentation of a covered reason 
• Pay the portion of rent the tenant is able to pay 
• Tenant has 120 days after the termination of the Sacramento County public health emergency order to pay landlord all unpaid rent. 
• Landlord and Tenant may voluntarily agree to an alternate timeline for payment of rent due in arrears. 

Here is a link to a Delay in Payment Notification Form provided by the City of Sacramento.

The County of Sacramento has not taken similar action as of now, nor have the other cities within Sacramento County.

Doing a Sacramento-area short sale with HSBC? Here is what you need...

Well...it's not a secret that I do A LOT of short sale transactions in the Sacramento area...and I have done several with HSBC Mortgage. I like HSBC's short sale process. It's generally (and of course, relatively speaking) on the faster side of the spectrum for negotiating approval, and their loss mitigation negotiators seem to be on top of their game and different short sale programs. So if you are looking to do a short sale on your Sacramento-area home and have a mortgage with HSBC, here is a list of the documentation you need to gather as you get ready to list your home with a Realtor;

HSBC

Loss Mitigation / Short Sale Tel: 800-395-3489

Seller's Documents Generally Required for a Short Sale:

-3rd Party Authorization Letter

-Hardship Letter

-Last 2 months of bank statements

-Last 2 months of pay stubs

-Unemployment stubs and award letter (if applicable)

-Proof of Homeowner's Insurance

-Most Recent Property Tax bill

-Last year's federal tax return

-Most recent quarterly Profit & Loss Statement (ONLY if self-employed)

-Evidence of SSI, Pension, Disability Benefits (if applicable)

-Rental Lease (ONLY if investment property)

-IRS 4506-T

I welcome your call if you have any questions regarding an HSBC short sale in the Sacramento area.

California AB 1404: Neighbors and adjoining landowners must now share the cost of fencing...

Have you ever heard the expression that "good fences make good neighbors"? Well thanks to California Assembly Bill 1404, starting January 1, 2014, good neighbors will now legally have to share the expense of good fences.

The legislation makes the assumption that adjoining property owners share an equal benefit from any fence dividing their properties, and unless otherwise agreed to in writing, are  equally responsible for the reasonable costs of construction, maintenance, or replacement of the fence. So if one neighbor decides repair, build, etc. a fence, there is a process to notify the neighbors. A property owner must give each affected adjoining owner a 30-day prior written notice of any intent to incur costs for a division fence. The notice must include the following:

1. A notice of the presumption of equal responsibility for the reasonable costs of construction, maintenance, or necessary replacement of the fence; 
2. A description of the nature of the problem with the shared fence; 
3. The proposed solution for the problem; 
4. The estimated construction or maintenance costs to address the problem; 
5. The proposed cost sharing approach; and
6. The proposed timeline for addressing the problem.

Sounds reasonable, right? So if you have a house and the fence is in need of being rebuilt, just send your neighbor a letter with all of that info. Building a regular 6-foot pine or redwood fence with 4x4 posts and 2x4 rails? Sounds like what typical fences are made of in the Sacramento area...BUT, what if your neighbor wants to build an expensive masonry wall with a mural that's 10x the cost of a regular wood fence, and they want you to pay half??

An adjoining property owner can dispute the assumptions mentioned above by demonstrating by a imposing equal responsibility for that kind of fence would be unjust. To determine whether equal responsibility for the reasonable costs would be unjust, a court will consider the following:

1. Whether the financial burden on one property owner is substantially disproportionate to the benefit conferred upon that property owner by the fence;
2. Whether the costs of the fence would exceed the difference in the value of the property before and after its installation;
3. Whether the financial burden to one property owner would impose an undue financial hardship given that party's financial circumstances as demonstrated by reasonable proof;
4. The reasonableness of a particular construction or maintenance project, including the extent to which the costs appear to be unnecessary, excessive, or the result of one landowner's personal aesthetic, architectural, or other preferences, and;
5. Any other equitable factors appropriate under the circumstances. 

There are some exclusions to this law -- it does not apply to a city, county, political subdivision, public body, or public agency.  This new law is known as California Civil Code section 841.

Doing a Sacramento-area short sale with Homeward Residential (formerly AHMSI / American Home Mortgage Servicing Inc)? Here is what you need...

Well...it's not a secret that I do A LOT of short sale transactions in the Sacramento area...and I have done several with American Home Mortgage Servicing Inc (aka, AHMSI, and recently re-branded "Homeward Residential"). Their negotiation process generally (and of course, relatively speaking) on the more "straight-forward" side, and their loss mitigation negotiators seem to be on top of their game and different short sale programs. So if you are looking to do a short sale on your Sacramento-area home and have a mortgage with Homeward Residential / AHMSI, here is a list of the documentation you need to gather as you get ready to list your home with a Realtor;

Homeward Residential / AHMSI
Loss Mitigation / Short Sale Tel: 877-304-3100

Seller's Documents Generally Required for a Short Sale:

-3rd Party Authorization Letter

-Hardship Letter

-Short Sale Financial Worksheet

-Last 2 months of bank statements

-Last 2 months of pay stubs

-Unemployment stubs and award letter (if applicable)

-Most recent 6-months Profit & Loss Statement (ONLY if self-employed)

-Last year's federal tax return

-Evidence of SSI, Pension, Disability Benefits (if applicable)

-Copy of most recent property tax bill (can be obtained online if you don't have it)

-Rental Lease (ONLY if investment property)

-IRS 4506-T

I welcome your call  or email if you have any questions regarding an Homeward Residential short sale in the Sacramento area.

Sacramento Short Sales - Ok...so I really am a bit of a specialist!

If you follow me on Twitter, you will already know that I had a chat over lunch today with the Director of Training for Lyon Real Estate, Michael Gray. He told me some pleasantly surprising news...I have the highest success rate at closing short sales of any agent at Lyon Real Estate! Yep, little old Erin Attardi. WOW! Not sure just how many agents are now at Lyon, but I think it is hovering around a thousand or so. We have 120 agents in my office in Sierra Oaks alone, and there are 18 offices!

So what are the secrets to my short sale successes? I will tip you off to a few...

The first thing, is that I am very selective when I choose to list a short sale. The seller MUST have a legitimate hardship. The seller must be prepared and willing to provide ALL of the documentation (like paystubs, bank statements, tax returns) the short sale lender will require. I turn down about half of the prospective short sale sellers who contact me - most of which do not have hardships, or they indicate to me they want to help them commit fraud, or they indicate they are not willing to provide documentation. I always look to see if the listings I decline end up on the market, and they almost ALWAYS do with other agents...those short sales have little likelihood of actually closing successfully.

The second thing, is that I am really NICE to the lender loss mitigation reps I deal with. These are people who get yelled at repeatedly every day, over and over again by frustrated borrowers and agents. I joke around with them, ask them about the weather, say please and thank you, etc... this works really well!! I have convinced certain lender loss mitigation reps to give me their direct phone numbers, fax numbers, email addresses. These guys actually LIKE to deal with me!

The third thing, is that I have developed a systematic method for negotiating short sales. I follow directions set by the short sale lenders really well and accurately. I am great at time management, and often find myself working with the same short sale lenders over and over again. The system itself is not one I am willing to share...and yes, I personally negotiate ALL of my short sales. I do not farm them out to a 3rd party.

I do lots of things to make my short sales successful...

Doing a short sale with Chase? Here is what you need to gather...

Well...it's not a secret that I do A LOT of short sale transactions in the Sacramento area...and many of them lately have been with Chase. I like Chase's short sale process. It's pretty predictable and their loss mitigation negotiators seem to be on top of their game and different short sale programs. So if you are looking to do a short sale on your Sacramento-area home and have a mortgage with Chase, here is a list of the documentation you need to gather as you get ready to list your home with a Realtor;

-Last 2 paystubs or other proof of income
-Most recent bank statement
-If self-employed, your profit and loss statement
-If self-employed, last 4 months of bank statements
-Most recent tax return
-A recent utility bill in your name showing the property address
-Rental Lease Agreement if the property is occupied by tenants
-Chase Request for Consideration of Short Sale Form
-3rd party authorization letter (allows your Realtor to speak to Chase on your behalf)
-Hardship Letter
-IRS 4506-T

I welcome your call if you have any questions regarding a Chase short sale.

FHA Shortens the Waiting Period for new loans after Short Sale, Foreclosure, Deed-in-Lieu of Foreclosure, or Bankruptcy...

Well, I will be emailing many of my past short sale seller clients shortly. Last week, FHA issued Mortgagee Letter 2013-26, which in a nutshell, shortens the waiting period to get a new mortgage loan for folks who did a short sale, deed-in-lieu of foreclosure, foreclosure of bankruptcy. This waiting period to obtain a new FHA loan for a purchase for these folks has generally been about 3 years after a foreclosure or short sale. Now, for potential buyers who had a "defined Economic Event" can get a new FHA loan for a purchase as soon as 12 months after a short sale, deed-in-lieu of foreclosure, foreclosure, or bankruptcy. This create a huge opportunity for folks who suffered hardship during the recession.

To quote part of Mortgagee Letter 2013-26 directly:
"As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage. 

To that end, FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that: 

• certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
• the borrower has demonstrated full recovery from the event; and,
• the borrower has completed housing counseling.

Housing counseling is an important resource for both first-time home buyers and repeat home owners. Housing counseling enables borrowers to better understand their loan options and obligations, and assists borrowers in the creation and assessment of their household budget, accessing reliable information and resources, avoiding scams, and being better prepared for future financial shocks, among other benefits to the borrower."

So what does this mean? A Sacramento borrower who can now qualify for an FHA loan under this Mortgagee Letter STILL must meet other standards of credit-worthiness. You must have solid income, no recent delinquent (late) payments, meet the "debt-to-income ratio" requirements, etc. BUT if you did a short sale, deed-in-lieu of foreclosure, foreclosure, or filed bankruptcy 12+ months ago you may now qualify much sooner for a new mortgage.

Some examples of "defined Economic Events" include things like loss of employment (layoff, company closed,  for you or a spouse, ex-spouse, etc), loss of household income (like in the case of a furlough, reduction of hours for you or a spouse, ex-spouse, etc.), and others.  You will need to prove you had good credit before the economic event took place, and you will need to document this.

One thing I will point out, is lenders may not be super quick to adopt the new guidelines in this Mortgagee Letter...so if you call your favorite lender right this very minute, they may not be prepared to give you a loan right away. These new guidelines were just released on August 15, 2013 -- so it may take weeks or months for lenders to start actually lending based on these guidelines. If you need a referral to a good loan officer who can help you navigate this, email me and I am happy to point you in the right direction.

COVID19 Temporary Mortgage Payment Relief Toolkit

As you may have heard, the federal government has directed Fannie Mae, Freddie Mac, and HUD to provide borrowers experiencing a COVID19-related financial hardship with temporary mortgage payment relief. This is indeed true, however in order to take advantage of any suspension of mortgage payments, homeowners must apply directly with their loan servicers (aka, the mortgage company).

Since we in Sacramento County have been directed to "stay at home" I have had a little extra time on my hands as I avoid meeting with people face-to-face. I wanted to put  that extra time to a productive use.

I have created a detailed DIY Mortgage Relief Toolkit to help my clients through the process of asking for a forbearance or suspension of payments. If you would like a copy for yourself or for anyone you think may need it, please shoot me a quick email to erin@erinstumpf.com or text me your email address at 916-342-1372. I will forward you a copy. It's FREE. And it is my hope this toolkit will aid those seeking mortgage payment relief as we all go through this crazy time together.

Here are some links to federal government directives:

Fannie Mae Assistance Options for Homeowners Impacted by COVID-19

https://www.fanniemae.com/portal/media/corporate-news/2020/covid-homeowner-assistance-options-7000.html

Freddie Mac: COVID-19 Response

http://www.freddiemac.com/about/covid-19.html

HUD/FHA: COVID-19 Q&A

https://www.hud.gov/sites/dfiles/SFH/documents/SFH_COVID_19_QA_03_18_20.pdf

VA: Special Relief for those Potentially Impacted by COVID-19 

https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_20_7.pdf

USDA: Foreclosure and Eviction Relief in Connection with Presidentially Declared COVID-19 National Emergency

https://www.rd.usda.gov/sites/default/files/USDA_RD_SA_Foreclosure_and_Eviction_Relief_COVID19_NationalEmergency.pdf

Consumer Financial Protection Bureau: Protecting your credit during the coronavirus pandemic

https://www.consumerfinance.gov/about-us/blog/protecting-your-credit-during-coronavirus-pandemic/

Find a HUD-approved housing counselor:

https://www.consumerfinance.gov/find-a-housing-counselor/