Taxes When Selling an Inherited House in Greater Sacramento, California...

Inheriting a home can come with a lot of emotions and a lot of questions, especially as you try to piece together the puzzle of someone's financial affairs. One of the most common questions I tend to get asked when people inherit property in greater Sacramento is: “What are the tax implications if we sell the house?” or "Will we owe capital gains tax on the sale of this home?" The good news is that, in many cases, selling an inherited home in California may result in less tax than people expect because of something called a stepped-up basis. 

When someone inherits a home or become the administrator of an estate, the tax basis of the property typically adjusts to the fair market value at the date of the original owner’s death. This means that if the home was purchased decades ago for a much lower price, the heir does not inherit that original purchase price for tax purposes. Instead, the basis is “stepped up” to the value at the time of inheritance. (Side note: you may need a "date of death appraisal") 

For example, suppose a Carmichael home that was originally purchased in the 1970s for $80,000 but was worth $650,000 when the owner passed away. If the heirs later sell the home for around $650,000, there may be little to no capital gains tax owed, because the sale price is close to the stepped-up value. 

Of course, every situation is different. If significant time passes between inheriting the property and selling it and the home increases in value during that time, then capital gains could apply to the increase that occurs after inheritance. In addition, heirs should also consider property tax issues, especially if the property is kept as a rental or transferred between family members under California’s property tax rules.

Another important factor is how the property was held. Many Sacramento homes pass through living trusts, which often allows families to sell the property without going through probate. Others may require a probate process before the home can be sold. The tax implications can vary slightly depending on the structure of the estate and how the sale is handled. 

Because tax rules can be complex, I always advise you speak with a CPA or other qualified tax professional before selling an inherited home. They can review the estate details, establish the correct stepped-up basis, and help ensure everything is reported properly. 

If you’ve inherited a home and and are trying to decide what to do next, you’re not alone. Many families find themselves balancing legal, financial, and emotional considerations all at once. Having a clear understanding of the tax side of the transaction is one of the first steps toward making the right decision for your situation. I welcome your call to talk through different scenarios to the extent I can be helpful or connect you with an attorney or CPA to assist you. And if you would like some guidance relative to selling via a trust estate or probate estate, here is a link to some common Q&A's I encounter from clients and tips for some practical steps.

Home sellers, pro tip: turn the heat on...

I showed a few homes to some buyer clients earlier this week, and two of the three homes we visited were frigid inside. Let me tell you, we were in and out of those two chilly homes quickly! 

As a home seller, it's important to recognize that turning on the heat during these cold months can make a big difference in how potential buyers experience your home. While I am sure you are not excited to spend the money on utility bills heating a home you don't currently live in, I promise you it is worth the small investment.

Imagine stepping into a house that's colder inside than it is outside. It feels unwelcoming, uncomfortable, and uninviting—a stark contrast to a warm, cozy atmosphere that instantly makes you feel at home and want to stay. Buyers are likely to notice this right away, and it can leave a lasting negative impression. In fact, I think that the feeling of warmth and comfort plays a huge role in helping buyers envision themselves living in the space.

A heated and temperate home feels way more inviting and offers a much more pleasant experience for anyone touring the property. It helps buyers connect emotionally with the space, linger during the showing and appreciate the qualities of the home, and an emotionally connected buyer is much more likely to make an offer. Additionally, heating your home can ensure that important features, like plumbing and appliances, stay in good working condition throughout the cold months, avoiding any surprises during inspections. 

I'm not talking about heating your home to the point of hot yoga...keep the thermostat temperature around 68 or 70.

While the cost of heating a vacant home might seem like an extra expense, the return on investment can be significant. A welcoming, comfortable environment could be the difference between a potential buyer walking out of the showing quickly eager to leave, or lingering, falling in love, and making an offer. Don’t let the winter chill keep your home from showing its best side—turn on the furnace and create a space that buyers will want to call their own.

Article I wrote for this month's Comstock's Magazine: The Changing Landscape of California Real Estate: What Home Buyers and Sellers Need to Know...

This month's edition of Comstock's Magazine includes an article I wrote about the National Association of REALTORS® Settlement and recent real estate practice changes, which became effective last month…and I underscore higher level of transparency and the continued importance of REALTORS as trusted experts in transactions.

Effective August 17, these key practice changes include mandatory buyer representation agreements, requiring buyers to formalize their relationship with agents before home tours, and the elimination of buyer-agent compensation offers in MLS listings. Buyers will need to negotiate agent fees upfront, enhancing transparency and shifting some of the dynamics of negotiating offers and terms with sellers. Sellers may adopt new marketing strategies to appeal to buyers navigating these changes, highlighting the importance of skilled real estate professionals during the process.

Read the article here.

Listing, AND SAFELY SHOWING, property during the Coronavirus pandemic....

Last week, the Sacramento County Public Health Director modified the our local directive to allow the showing of occupied property. Many of my seller clients rejoiced! And then, after that initial "yay, I can finally sell my house!" excitement, literally all of them had the same realization: "Oh, now I actually have to have a parade of other people in my home."

After having to "Stay at Home" in Sacramento County for nearly 7 weeks, and having limited contact with other people outside of the household, for many sellers this is a scary proposition.

So I have been having the same conversation over and over again lately -- how do I safely show my home? And I thought it might be helpful to post how my seller clients and I are approaching listing and safely (as possible) showing homes.

Given our unique public health circumstances, it is probably pretty important not to let just anyone who wants to see your house inside for a showing. In consultation with my sellers, I came up with a few different types showing options for them to consider.

Again, this is something every Sacramento home seller must contemplate and implement per their own comfort level. As agents we can make no guarantees that these strategies will prevent the risk of getting sick, but sellers may wish to take as many precautions as they believe are necessary.

I listed an occupied property late last week and the method we used to control showings seemed to work pretty well. Most importantly, we limited the flow of people through the property to only serious buyers, AND we didn't impede our ability to show and get offers on it. Basically we required buyers and their agents to jump through some hoops before a showing appointment was granted.

First, the buyers were directed to thoroughly review all marketing photos, 3D tours, inspection reports, and disclosures available in MLS in advance. Then if they had significant interest in the property they had to sign a document called a PEAD (Coronavirus Property Entry Advisory and Declaration) where they swear that they have not been exposed to Coronavirus, have not had symptoms, etc and that they will follow best practices for viewing another property (wear personal protective gear, not touch anything, etc).

Second, they had to prove they were either pre-approved or had enough cash to purchase the home for at least the listing price.

Third, they had to sign and submit all showing instructions documents 24 hours in advance of scheduling a showing.

This seemed to do a pretty good job of vetting the looky-loos and we ended up with serious buyers only. A sample of the showing instructions is pictured above.

I drafted three alternate "showing instructions" scenarios for them to consider. These are of varying rigidity and can be modified based on a seller's comfort level.

Option A is what this most recent seller opted to do. It seemed to work well and seemed to successfully screen the looky-loos out while offering a little flexibility to buyers and agents to request showing days/times.

Option B is a bit more rigid -- I replaced the bullet points with spots for buyers to initial (which should ideally convey certain concepts more strongly). I added a section where the buyers/agent can indicate which showing day/time(s) they prefer, where in Option A we allow the buyers/agents to request times. I also added a requirement that the buyers are not making an offer contingent on the sale of another property -- which you may or may not wish to limit, as that will eliminate some showings/buyers.

Option C is very rigid and requires that the buyer actually makes an offer (relying on the virtual tour, photos, and reports) in order to schedule a showing...it also provides fewer appointment time options to see the home.

Of course all of these can be adapted for specific situations.

The California Association of Realtors published some COVID19 Best Practices that you may find useful as well.

While Option A is pictured in this post, if you would like the verbiage from Options B and C, I am happy to share via email. Shoot me a request at erin@erinstumpf.com. And of course if you are thinking about selling your Sacramento home, I am happy to discuss this and welcome your call to see if we are a good fit to work together.

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/

Adapting my real estate work and "social distancing" with my clients...

I am easily adapting to transacting real estate amid COVID-19 thus far. While docusign makes signing most paperwork convenient, sometimes it is difficult for some clients to complete everything virtually. My elderly seller doesn’t have easy access to a computer and printer, and we’re reluctant to make direct contact. So today I left documents she needs to fill out and sign in her front patio flower pot, as she instructed, and we’ll review them together on the phone later. Then once she completes them, I will pick them up to scan. So far, so good.

No sellers, you cannot swap out your fancy Nest Thermostat before the close of escrow...

As one of my seller clients was finishing the final move-out from his home recently, he called to ask me how he should plan to get the extra keys to the buyer at closing. Once we determined he would leave extra keys in the house for the new owner, he then said he "was leaving as soon as he removed the Nest Thermostat and replaced it with a standard one." 

UMM, NO. Thankfully he and I had this conversation, and thankfully it was before he removed it. This off-hand comment saved him and saved me a lot of trouble. A thermostat is a fixture and generally stays with the property. 

Ironically, about a week later one of my other seller clients asked me about removing a Nest Thermostat at a different property. Thankfully this was long before closing and he did not have a screwdriver in his hands. I explained that it needed to stay with the property. 

Paragraph 8 in the current version of the Residential Purchase Agreement addresses items included and excluded from the sale. It specifically states that existing "mechanical" systems stay with the property. It also goes on to say that "home automation" devices and "control units" are included in the sale. This is the default unless you specifically exclude those items from the transaction.

So no, sellers, please do no remove the Nest and ride off into the sunset with something that belongs to the new owner of the house. You will have to replace it with another Nest at your expense.

Now, if you are really attached to your Nest, you can take it with you -- if, and only if -- you do one of the following:

(1) Remove it and replace it with a regular thermostat before you put the house on the market. At that rate, the buyer will never know there was a Nest in the first place. 

--OR--

(2) Make a note in MLS that the Nest is not included in the sale. Maybe even put a little note on the unit in the house in plain sight for potential buyers to see. You will want the buyer to be aware of this at the beginning of the transaction. Then be sure that paragraph 8 in the purchase agreement specifically excludes the Nest from the sale. Then you may remove it at closing. If you make the comment in MLS, but the contract itself does not reflect the exclusion, then the Nest must remain with the house. (this confuses a lot of buyers, sellers, and agents alike)

And really, you can substitute a the same general two formulas for other items in the home that the seller wants to exclude from the sale. Like grandma's antique chandelier. Or your custom fish-shaped mailbox. Or the rose bush in the front yard that your mom gave you.

My suggestion? Remove whatever it is you do not want to include BEFORE the property goes on the market and replace it with something else. That way, the buyer does not know anything different and everyone has the same expectations.

Acceptable forms of providing an escrow company your initial deposit funds or downpayment for a real estate purchase...

So there is a first time for everything, and this week a client asked me something I have never before been asked: if he can send his downpayment funds via Venmo. In the age of money transfer apps, that is a totally legit question.

For those of you who don't know, Venmo is a popular money sending/transferring app. My husband and I have a Venmo account...and our most frequent use for Venmo? Loaning his 20 and 23-year old sons gas money every once in a while, or occasionally reimbursing a friend or colleague for a meal. There are other money sending apps -- PayPal is sort of the "old school" one, and some banks offer a feature called Zelle that essentially does the same thing. There are probably other ones too. 

These apps can be super convenient obviously, but will escrow companies (the neutral 3rd party that facilitates the transfer of title and handles the funds) accept funds transfers from them for initial deposits and downpayments for real estate purchases? The answer is -- NO. They will not.

And you might wonder why...well for one, you cannot just walk a bag of cash into an escrow company either. Escrow companies are themselves financial institutions, which in California at least are heavily regulated, usually by the California Department of Business Oversight. Venmo by its own admission is not set up for business transactions. Additionally, the amounts typically involved in real estate transactions to purchase homes or investment properties tend to be pretty large. Most of these apps have daily or weekly limits that prevent transfers in excess of a few hundred or a few thousand dollars. And with that, while I believe Venmo transactions may be free if linked directly to a bank account, many of these accounts charge significant transaction fees -- up to a few percent. If you were to send your $75,000 downpayment via one of these apps, the sender or recipient might be charged a couple thousand dollars in these fees alone.

These accounts are often linked with credit cards, so I am not sure it is advisable to "charge" your downpayment. In fact I am sure your lender would not like this at all as it could significantly change your loan debt-to-income ratio. Security of these transactions is potentially also a concern. While transactions are probably encrypted, it is not difficult for hackers to hijack a phone where the app lives, or what if you physically lose your phone logged into your app's account with a large fund balance awaiting transfer? Additionally, when sending or receiving funds via Venmo, your transaction history is public. Do you want the world to know you just sent a large sum of money to an escrow company? Also, funds on deposit at banks are FDIC insured and funds that live in these apps are not. 

Your best bet -- physically walk into your local bank or credit union branch and arrange for a wire transfer of your funds to the escrow company. Depending on your account type, these wire transfers may be free, or you may be charged a small fee of perhaps $25-$35. You may also obtain a cashier's check from your bank and walk that into an escrow company. 

While these bugs with money transfer apps may be worked out sometime in the future, for now I do not anticipate escrow companies to rush out and create Venmo, PayPal, Zelle, or other accounts. But perhaps this is something to consider as attitudes and culture shifts.

New flooring and fresh paint can be a huge improvement and help maximize your selling price when preparing a home for sale...

Often, I list property for clients where the home has been occupied for many years and then is vacated before the listing goes on the market. Perhaps the seller purchased another home first, moved out, and then listed the home. Or in other scenarios, the property was occupied by tenants who did not leave the home in stellar condition. Whatever the case, sometimes after a long term occupant, a vacant home will not look or smell its best.

Case in point: in an upcoming investment property listing, the tenants vacated the property after living there 8 years. I viewed the property while the tenants were still living there and thought to myself that once they moved out the unit would probably just need a deep cleaning and would ready for market. It became clear after they moved out though, that the unit needed more than a deep cleaning. Their possessions masked the rips and stains in the carpet, and there was a distinct pet odor that remained. Also, after 8 years the white walls were really dingy. 

My sellers live out of the area, so I met my go-to contractor at the home and he bid replacing the flooring and repainting the interior, among a few other repairs. The before and after differences are amazing! The unit is now ready for occupancy, whether by a new owner occupant or new tenant. 

It does not always make sense to make improvements to a home before listing it though...depending on numerous variables, such as the target buyer for the property, overall condition of the home, the location of the property, and overall market conditions, a seller might be better off selling the property in its current condition. I of course help advise my clients accordingly. It is my goal to maximize the return on any pre-sale repairs or improvements, and sometimes that means it does not make sense to do much, if anything. Or, as in this case, spending some money up-front should yield a three-fold return on the investment with a much higher selling price. 

Ask Erin: Should a home seller get inspections before listing a home?

Surprises during a real estate transaction are usually pretty expensive for someone. I hate surprises. This is why I suggest to sellers that it is a good idea to get certain inspections done on a home in advance. These inspections augment the disclosures that a seller fills out about their knowledge of a property.

I have a theory that I like to impart to my seller clients: it is better to provide "disclosure" before a the start of a transaction than give the buyer the ammunition that comes with "discovery" during the transaction.

Let me paint two similar, but remarkably different scenarios for you.

Scenario one: A nice Sacramento home is listed for $350,000. The house goes live in MLS, and within the first week or so they receive 3 offers. The seller accepts the best offer for $355,000. The seller is ecstatic. The buyer is thrilled! The listing agent provides the seller disclosure forms to fill out. The seller fills them out, and the listing agent provides them to the buyer's agent within a few days. The buyer does a home inspection and a termite inspection. The termite inspector finds dryrot and termite damage under the house and bids $10,000 to do the repairs. The buyer submits a Request for Repairs and asks the seller to repair the dryrot and chemically treat the termites before closing. OUCH. That's a $10,000 repair price tag that comes out of the seller's sales proceeds. The seller is faced with paying for this expensive repair, or putting the house back on the market and having to disclose this termite report to other buyers who wonder what scared the first buyer off. So the sellers repair the damage and ultimately get less money than what they had initially thought when escrow closes.

Scenario two: A nice Sacramento home is listed for $350,000. Before the home goes on the market, the seller does a termite inspection and fills out the disclosure forms. The termite inspector finds $10,000 in dryrot and termite damage under the house. The house goes live in MLS, and the listing agent has uploaded the disclosures and reports into MLS for buyers to review before seeing the house. Within the first week or so they receive 3 offers. These buyers have had the chance to review disclosures and reports, and are making an informed decision, during a competitive offer situation, to purchase the house as-is with full knowledge of the dryrot and termite damage. The seller accepts the best offer for $355,000. The seller is ecstatic. The buyer is thrilled! The buyer does a home inspection, and that inspector finds a few things that need repair, but that buyer has already agreed to purchase the house as-is. Escrow closes and the seller gets their $355,000. The buyer can then do whatever repairs they wish after closing.

Do you see the difference in these two scenarios? Both have many of the same variables, but vastly different outcomes. I have seen this dynamic play out again and again over time. The more disclosure a seller can provide to a buyer IN ADVANCE, the better.  A buyer can make an informed purchasing decision, know what they are buying, and the element of discovery and a secondary negotiation for repairs or a price reduction is eliminated from the equation.

I almost always suggest that sellers obtain inspections in advance for this reason.

What items are included, OR specifically excluded from a home sale?

I am frequently asked -- what items typically are included in the home sale? The answers may seem obvious, but you might be surprised how often buyers and sellers are not clear on what stays and what goes. What is considered personal property, and what is considered part of the "real property", meaning part of the house, or aka, a "fixture." A few years ago, I blogged about a seller who wanted to take a hard-wired fountain and an arbor that was rooted into the ground...

First, I generally refer folks to review paragraph 8 in the California Residential Purchase Agreement; "Items Included or Excluded from the Purchase Price." This paragraph describes what is included or excluded from the sale and formalizes anything out of the ordinary that is included or specifically excluded from the sale.

To quote the language in paragraph 8 of the contract:
"8. Items Included or Excluded from the Purchase Price
A) Note to Buyer and Seller: Items listed as included or excluded from the sale in the MLS, flyers, or marketing materials are not included in the purchase price or excluded from the sale unless specified in 8B or C.
B) Items included in the sale
(1) All EXISTING fixtures and fittings that are attached to the property;
(2) EXISTING electrical, mechanical, lighting, plumbing and heating fixtures, ceiling fans, fireplace inserts, gas logs and grates, solar systems, built-in appliances, window and door screens, awnings, shutters, window coverings, attached floor coverings, television antennas, satellite dishes, private integrated phone systems, air coolers/conditioners, pool/spa equipment, garage door openers/remote controls, mailbox, in-ground landscaping, trees/shrubs, water softeners, water purifiers, security systems/alarms; (if checked () stove(s), () refrigerators;
(3) The following additional items:__________________
(4) Seller represents that all items included in the purchase price are, unless otherwise specified, owned by seller.
(5) All items are to be transferred free of liens and without seller warranty.
C) Items excluded from sale: Unless otherwise specified, audio and visual components (such as flat screen TVs and speakers) are excluded if any such item is not itself attached to the property, even if a bracket or other mechanism attached to the component is attached to the property; and _________________."

Just to point out a few key items in that paragraph...first regarding 8A -- just because the seller and listing agent discussed excluding something from a transaction, that doesn't mean it's actually excluded from the sale UNLESS it is noted in your contract with the party buying the home. You might note in MLS that your antique dining room chandelier doesn't stay, but if it's not in your contract, you will have a problem.

Regarding 8B2 -- you would be shocked how many sellers think it's ok to remove these things after entering into contract with a buyer. Or perhaps they lease their alarm system and can't include it in the sale. Discuss these things with your Realtor up front, or the seller may end up buying out the remaining lease on the alarm system at the last minute so it can be included in the sale to the buyer. Yikes!

To add items into the contract that may not otherwise be included, they need to be specifically included on the fill-in line on 8B3. So for example if you want to include the washer, dryer, and refrigerator in the sale, or a free-standing hot tub, it should be written in there. Include specifics and if you run out of space, reference an addendum.

To exclude an item that would typically be included in the sale, it should be written into 8C. If you received that rose bush as a wedding present and want to dig it up and take it with you, make sure it is written into that space. Or your specially made curtains. Or your dog-shaped mailbox. Or your built-in kegerator. You get the idea...

My typical suggestion to buyers or sellers -- when in doubt, just put it in the purchase contract. It's awful to have to deal with these sorts of disagreements at the close of escrow.

Is that short sale listing owned by a Living Trust? This may be problematic...

If your home is held in a living trust, and you are seeking to do a short sale, you may have an additional hurdle to jump through when you list and try to sell your property. Why, you may ask?

Well...living trusts generally don't obtain home mortgages; individual people obtain mortgages, and then they transfer the title of the home into their living trust, while their mortgage remains in their names personally. There's no problem with doing this -- folks do it all the time and use living trusts for family estate planning and asset protection purposes. So what is the issue that occurs when a home that is held in a trust is listed for a short sale?

The title to the home is "Smith Family Living Trust", however the names on the mortgage company records are John Smith and Mary Smith. On the listing agreement documents, the seller is listed as "Smith Family Living Trust" rather than John Smith and Mary Smith. On the documents that the title company generates, the trust is listed as the owner, not the individuals who obtained the mortgage. Soooo....when the short sale lender receives the request for a short sale, and the name trust appears on all of the listing agreement, purchase contract, and escrow/preliminary title report documents -- this can be problematic.

When this information does not match, the short sale lender will probably ask why, and may request new documents that name the individuals as the sellers. So basically, the short sale lender may indirectly require that the title to the home be transferred out of the living trust and back into the names of the individuals. Simply providing a modified listing agreement and a new purchase contract with corrected names will not be sufficient...and is probably illegal. The title company absolutely WILL NOT be able to issue a revised preliminary title report and HUD-1 document unless there is proof of recording a transfer with the county recorders' office. Doing so often takes valuable time (document preparation, signing, notarization, filing with the county recorders' office, etc). Also, the seller really needs to get legal advice -- removing a home from a trust may have certain tax or legal ramifications.

Some short sale lenders will not care, however some will. If you are a homeowner with property in a trust, and you are considering doing a short sale, you may want to have a conversation with the attorney who prepared your trust in advance of listing the house to find out if it makes sense to transfer the title back to you (as individuals)...before listing the house. AND if you are a buyer, and you get into contract on a short sale and on your contract documents list the seller in a trust - you may wish to have your agent ask the listing agent if this may be an issue. It is best to be proactive before it becomes a problem!

How long after a short sale, foreclosure, or bankruptcy do you have to wait before getting approved for a new FHA mortgage loan??

I am frequently asked how long someone must wait to be able to buy a house and qualify for a mortgage loan after a short sale, foreclosure, deed in lieu of foreclosure, or bankruptcy? Over the next couple weeks I will post the current underwriting guidelines for different types of mortgage loans. Of course underwriting guidelines change from time to time, but these standards are current as of now.

I will start with FHA loan purchase requirements, since most of the buyers in Sacramento seem to be using FHA loans. FHA loans generally require a 3.5% downpayment, the property purchased must be used as a primary residence, and as of right now a buyer can make a purchase of up to $580,000 in Sacramento, Placer, El Dorado, and Yolo Counties. It is not just a loan for first time buyers...

After Foreclosure, or Deed in Lieu of Foreclosure:
-3 years from date the foreclosure was completed and transferred back to the bank.
-Less than 2 years, but not less than 12 months from the date foreclosure was completed and transferred back to the bank may be acceptable if the foreclosure was the result of "extenuating circumstances." Examples of extenuating circumstances for obtaining a new FHA loan are limited to serious documentable illness or death of a wage earner on the loan that was foreclosed. Unfortunately for the purpose of obtaining a new FHA loan to buy a home after foreclosure, circumstances like divorce or job transfer do not qualify as extenuating circumstances.

After Short Sale:
-3 years from the date the short sale closed and transferred to the new owner.
-No waiting period if the borrower had no late payments on any mortgages and consumer debts within the 12 month period preceding the short sale.

After Chapter 7 Bankruptcy:
-2 years from the date of discharge with re-established credit paid as agreed, or no new credit obligations incurred.
-Less than 2 years, but not less than 12 months from the date of discharge may be acceptable if the bankruptcy was caused by acceptable extenuating circumstances and the borrower has since exhibited a documented ability to manage financial affairs in a responsible manner.

After Chapter 13 Bankruptcy:
-1 year payout period under bankruptcy has elapsed and the borrower's payment performance has been satisfactory and all required payments are made on time.

Of course, you must speak to a loan officer in order to qualify for a new mortgage...I am happy to point you in the right direction to a great loan officer if you want to explore if you qualify after experiencing a short sale, foreclosure, deed in lieu, or bankruptcy.

If you are curious about the Conventional Loan waiting periods, click here.

Short Sales 101; a refresher course

It isn't a secret that there is no shortage of short sale listings for sale at the moment in Sacramento....in fact many of my listings are short sales.

I fielded a call today from a very nice woman who was just starting her home search, and she was looking for detail about one of my listings. She was unfamiliar with short sales...I found myself explaining exactly what a short sale is, the difference between different MLS listing statuses, listing price vs. offered price vs lender approved price, timeframes, etc. Since we are being teased with this nice weather, and new buyers are starting their home searches, I thought I'd post a little short sale refresher...

If you are not familiar with what a short sale listing is, basically the seller owes more on the house than it is currently worth, so they list the house and attempt to negotiate a lower payoff with their mortgage company so they can sell the house. Keep in mind that purchasing a short sale is A LOT different than a traditional re-sale real estate transaction with an traditional seller who has equity. I tell my buyer clients to take everything they think they know about buying real estate and throw it out the window. A few things to note:

-There are different statuses in MLS that will reveal a bit about the listing. An "Active Short Sale" status indicates that the home is offered as a short sale, and no offers have been submitted to the seller's mortgage company for review yet. An "Active Short Contingent" status indicates that one or more offers have been submitted to the seller's mortgage company for review (meaning, your offer would likely wait in line behind others). These statuses must be updated by the listing agent, and they are not always 100% up to date.

-The price listed in MLS may not be the price the seller's mortgage company is willing to accept. If the listing agent is competent, he / she will have listed it at its current market value, however sometimes you will see a price that is "too good to be true." The seller's mortgage company will do its own valuation or appraisal (often referred to as a BPO - or Broker Price Opinion) to validate the offered price. The bank may counter your offer. Heck, they may counter a perfectly reasonable market value offer too...

-In addition to the possibility of countering the price you offer, the lender may counter certain terms...meaning for example that they may not be willing to cover the costs of that $400 home warranty you ask for. So prepare yourself for the worst case scenario of paying for things like that yourself.

-The term "short sale" is often confused with a quick time period and close of escrow. Short sales are not necessarily quick. The average waiting period for the seller's mortgage company to approve the short sale is around 60-90 days. Some take less time...some take A LOT more time. The fastest approval I have received on one of my short sale listings was 11 days. The longest was almost 2 years. There are SO many variables that will dictate the length of time it takes to get approval...like which lender services the mortgage, which entity owns the mortgage, how many loans there are on the house, how knowledgeable the listing agent is, how cooperative the seller is with the process, if the seller is trying to use a government short sale program, etc.

So.......fasten your seatbelt. My advice to you is to find a competent Sacramento short sale agent to help you navigate the process.

Ask Erin: How does MLS define "Days on the Market" for Sacramento homes?

So I was asked twice this week by two different buyer clients about "days on the market." They were both a little confused about how our local MLS tracks length of time on the market, and what exactly it means.

The primary MLS for Sacramento county (called Metrolist) uses two different abbreviations to define with how long a property has been on the market; DOM (Days on Market) and CDOM (Cumulative Days on Market). Up until a few years ago, Metrolist just used DOM...but that method just counted the days of that current listing, meaning that the agent could cancel or withdraw the listing, and the re-enter it as a new listing...this would reset the DOM to zero.

Generally speaking, home listings get more attention then they have a lower DOM - for example 2 days vs. 180 days. Also, potential buyers will think twice about making an offer close to the listing price the higher the DOM.

So a few years ago Metrolist added the CDOM. CDOM counts the total days on the market - so if the property is re-listed by the same agent, another agent, etc. within 30 days of the cancellation or withdrawal of a previous listing, the CDOM continues counting days. CDOM tracks the property's parcel number, so even if the seller of a house lists the property with another Sacramento real estate firm, the CDOM still tracks the cumulative days. So, you may see a listing that has a current DOM of 2, but a CDOM of 182. Does that make sense?

In order for the CDOM to go back to zero, a property has to be off the market for 30 consecutive days.

Short Sales: Who pays for what...

I receive several calls per week from homeowners that are looking for information regarding Sacramento short sales, and aside from wanting to know about the process itself, one most common questions I get from them pertain to if the sale will cost them anything out of pocket, if so, then how much, and generally, who pays for what fees. Having successfully closed several short sales, I will tell ya'll what I know to be true based on my experiences.

-Who pays the real estate agent commissions? In a short sale scenario, the lender(s) who agree to forgive debt and allow a short payoff of the loan(s) pay for the real estate agent (or Realtor) commissions - generally by absorbing the costs of the commissions out of the proceeds of the sale. As a side note, often times these commissions are re-negotiated by the lender(s) during the process. Note: Real estate commissions are always negotiable and NOT set by law or local custom.

-Who pays title insurance, escrow fees, and transfer tax fees? These are negotiable between buyer and seller when the offer is initially negotiated (before it is submitted to the lenders for approval). For example, perhaps the buyer and seller agree initially that the seller will pay for 100% of title insurance and escrow fees, 100% of county transfer tax, 50% the city transfer tax. The lender(s) may negotiate that the buyer pay a different split of these fees...however the portion that is paid by "the seller" is absorbed in to the overall debt forgiveness and short payoff. Occasionally you will see a lender agree to pay one of these fees, up to and not to exceed a certain amount (for example, they may agree to cover up to $750 of the escrow fee that costs $1200). Generally then, the buyer would cover the unpaid portion of that fee. So basically, again, the lender(s) will absorb many of those types of fees.

-Who pays for a home warranty? This is negotiable between buyer and seller when the offer is initially negotiated (before it is submitted to the lenders for approval). Generally though, I would prepare any buyer of a Sacramento short sale property to expect to pay for this cost, even if you ask the seller or short sale lender to cover it. In my experience, this is paid by the short sale lender in less than 20% of my approved short sales.

-Who pays for inspections or certifications? These are negotiable between buyer and seller when the offer is initially negotiated (before it is submitted to the lenders for approval). Again, most short sale lenders will not agree to cover things like pest or termite inspections, roof inspections, sewer line inspections, or any corresponding certifications. A lot will depend on the circumstances with the condition of the property, how many loans are involved, the buyers' loan program, if the property is in default, the length of time of negotiation, etc. As a safety net - buyers, do not expect that lenders will grant these requests. Generally short sale properties are sold "as-is" and sellers can not afford to make repairs anyway.

-Will the lender(s) give the buyer credits for closing costs? These are negotiable between buyer and seller when the offer is initially negotiated (before it is submitted to the lenders for approval). I have seen this vary widely from the short sale lender(s) agreeing to pay up to 6% closing costs for the buyer (including an instance of seller-funded downpayment assistance...which is no longer possible thanks to past legislation), to the short sale lender(s) rejecting those requests. Again, much will depend on the circumstances surrounding the sale of the property.

-Who pays delinquent property taxes or liens? Sellers - if you have not been paying your property taxes or county utilities, you really need to let your agent know this ASAP! I work closely with the title company on this to make sure that we know of any lien issues in advance, but because it can take several weeks or months to get approval, new liens may pop up during the lender negotiation process. When I negotiate short sales, one of my worst fears is that after the short sale is approved an unexpected lien will pop up. This has happened to me before, and for lack of a better way of describing it - this sucks! If you can let your agent know in advance that these items are unpaid, it will save lots of headaches all the way around. IF WE KNOW in advance that these liens exist, there is a great chance that the short sale lender will absorb these costs into their overall debt forgiveness and short payoff. IF WE DO NOT KNOW in advance that liens exist, once the short sale is approved - this will halt the transaction until we can find a way to pay these liens. The seller is often financially unable to pay them, the buyer does not want to pay, the agents commission has already been reduced, and the short sale lender has already taken a loss on the loan. Sellers - please save everyone a headache and communicate with your agent.

To make a bit of a sweeping generalization, the seller usually pays nothing out of pocket to close the transaction unless specifically asked to by the lender(s).

In perhaps one instance out of every six short sale transactions I close, the lender will request that the seller make a cash contribution to close the short sale. In these instances that I have negotiated, the sellers have had cash in the bank and were financially able to make that contribution...in those instances, the lowest cash contribution one of my short sale sellers has contributed was $1,000, and the highest was $5,000.

Also, you should note that in some short sale scenarios, the short sale lender will actually pay the seller "relocation assistance" to close the short sale. I have seen this in the range of $1,000 - $5,000. Not every Sacramento short sale transaction will qualify though.

Hope that answers some frequently asked short sale questions...cheers!

Ask Erin: Can I do a short sale on my rental home?

Can I do a short sale on my rental home? I get asked this question all the time by folks who own investment properties, and contrary to what many people think - the answer is yes, you can do a short sale on an investment property (aka, non-primary residence, rental homes, rental duplexes, etc). Oh really, you ask in disbelief? Yes really. I have closed several short sales under these circumstances....and I have several of them underway right now.

Do the dynamics of these short sales change at all? A little. Mainly because occasionally tenants occupy these homes and we have to delicately deal with showings, the existing lease agreement terms, and a few other things. Or if the house is vacant, we may want to strategize the best way to keep the house secure and free from vandalism or burglary.

In terms of how a short sale lender or bank looks at these short sales, again they are still looking at potential seller hardship, loss of market value of the property, and the lender's total losses. Short sale sellers of investment property should ask themselves:

• Is the monthly rent covering the costs of the mortgage payment, in addition to other monthly operating expenses (like certain utilities, property taxes, maintenance, etc)?
• How big is my deficit every month, given the best case scenario of 100% occupancy? In other words, how much money am I loosing each month given the fact my tenants always pay their rent on time, and the house is always rented)?
  
• Has the property been vandalized by the current or former tenants? Is it 'rentable' in its current condition?
• Have you been unable to rent the house due to high area vacancy rates or other neighborhood factors?
  
• Were you an "accidental landlord?" In other words, for example did two people who owned homes individually get married, causing you to need to rent one of the homes in order to live together? Or perhaps did you inherit the home? Did you purchase the home for your college-age kids to live in, and now they have graduated and moved out? Did you co-sign for someone who now can not pay the mortgage?
  
• Did you suffer some other loss of income (loss of employment, pay reduction, etc.) and now have to choose between keeping your current, primary residence and letting your rental property go?

There are many reasons to short sale investment or rental property. If you are contemplating a short sale for your Sacramento area investment or rental property, I welcome your call to see if we are a fit to work together.

Sacramento Short Sale Tip Numero Uno - Ask your agent for references...

In the greater Sacramento area, short sales are extremely common. If you have followed my blog for a while, you may have read my recurring series of posts entitled "Erin's Sacramento Short Sale Experiment" where I compare the statistics and trends for the volume of short sales in some of Sacramento's different neighborhoods.

For those of you who are not familiar with short sales, it is the sale of a house for less than the amount that is owed to the bank/mortgage company. Occasionally, homeowners find themselves in positions in which they must to sell their home, but the reality is that their property is worth less than what they owe the bank...perhaps they did a "cash-out" refinance?...perhaps they bought at the peak of the market with 100% Financing? Many banks will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a costly foreclosure, and the owner is able to pay off the loan for less than what he owes.

I field dozens of calls each week from prospective sellers looking for information regarding the possiblity of doing a short sale...In the last couple years since short sales have really become prominent, I have successfully negotiated and closed 20+ short sale transactions for both buyers and sellers. These are extremely complicated transactions...if you are looking for a short sale agent in Sacramento, I have a key suggestion for you: GET REFERENCES. There are many agents who have obtained "certifications" (basically a piece of paper that states they sat through an online class about short sales) and proclaim themselves to be "short sale agents" but have never actually closed a short sale transaction.

A few myths about short sales:
1) "The seller must stop making payments on their loan." Not necessarily. I have negotiated several short sales where the seller has not missed any payments, and were not in default. In those instances, we were able to prove that future default was imminent and that the seller was trying to be proactive with the short sale.
2) "The seller is in foreclosure." Not necessarily. It is possible to have missed payments and not be in full-blown foreclosure. Generally most lenders will not file a formal "Notice of Default" until the seller is 90 days or more late. MANY lenders are so back-logged with past-due accounts that they literally do not have the manpower to file a NOD in a timely manner. Also, due to certain government programs, legislation, and generally just the mass numbers of homeowners in distress due to economic conditions, many lenders do not pursue filing a NOD until they have exhausted other attempts to allow the homeowner an opportunity to go through the process of an alternative to a foreclosure (for example, a short sale).
3) "Buyers will not want to make offers on short sale property." Not true. Occasionally buyer's agents are reluctant to represent offers on short sale property. Often times, listing agents will take on short sale listings when in reality they have no knowledge base or skill set to successfully negotiate the lower payoff. A shrewd buyer's agent will call the listing agent and make sure they are competent to complete the process, and then submit an offer. Also, because of the high concentration of short sale listings in certain areas, really in this day and age buyers do not have much choice but to consider attempting to purchase a short sale listing.
4) "Financial hardship is the only reason a lender will accept a lower payoff." Not true. There are many potential reasons a lender will allow a lower payoff. One such example is that the seller must relocate for some reason, such as to care for a sick relative, or due to employment requirements. Other examples include divorce, illness or injury, the birth of a child, death of a family member, etc. Of course the short sale lender will want some sort of proof of these circumstances.
5) "A short sale where there is a first mortgage and a second mortgage will not be approved." Not true. While this scenario requires diligent negotiation and tends to add complication to the transaction, many 2nd mortgage holders will accept as little as $1,000.00 in lieu of a full payoff. I have even successfully negotiated and closed short sales with three separate mortgage loans.
6) "A short sale means that the escrow period will be short." Generally no. Depending on how much negotiation can be completed in advance, a typical timeline for lender approval can be 2 weeks - 2 months. Once the lender approves the lower payoff, escrow is opened and the transaction timelines proceed from that date.
7) "Short sales are a bargain!" Banks do not give property away. They base approval on recent sales comparables, and actually retain the services of a local agent to perform a BPO (aka, Broker Price Opinion). While I do believe it is possible to get a lender approval for a property a few percent under its market value, purchasing at "wholesale" is just not reality under most normal circumstances.
8) "The seller of the property can make money from the short sale." Not true. The lender will REQUIRE that the seller nets $0 from the sale. Additionally, most lenders will require that the transaction be at "Arm's Length" - meaning that you can not sell it to a family member or business associate. No form of "enrichment" of the seller will be acceptable.
9) "The mortgage lender is the seller in a short sale transaction." Nope, the homeowner is still the seller! While the mortgage lender(s) must ratify the transaction and agree to lower the payoff so that the seller can sell, the lender is not a party or principal to the actual transaction. The purchase agreement is between the buyer and the seller.
10) "Once I get an offer on my short sale and submit it to the bank, I can stop showing the home to other buyers." This is not something I would advise a seller to do. Buyer offers on short sales are frequently withdrawn for one reason or another. Occasionally the short sale will take so long to negotiate that the buyer's circumstances may change (change in income, family, etc.) and they may decide not purchase the home. Many buyers will continue to look at other homes even after an offer has been accepted on a short sale listing. I do not personally condone this practice, but other agents encourage their buyer clients to do so. In light of this, it is a good idea to continue to show the home so all the seller's eggs are not in one basket.

These are just some of the common questions and assumptions I get from both buyers and sellers regarding short sales. In reality, most people (buyers, sellers, and even some real estate industry professionals) do not have a clear understanding of what they are and how they work. I have successfully negotiated short sales in the past for seller clients. If you are facing the reality that you have to sell your home, and you owe more than its current market value, I may be able to assist you with this transaction. I welcome your call.

More Information Regarding Short Sales in Sacramento


Find Out the Market Value of Your Home Here
Sign Up for Instant Notifications of the newest Listings via email