Banks, accelerating efforts to move troubled mortgages off their books, are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.

Lenders have routinely delayed or blocked such transactions, known as short sales, in which they accept less from a buyer than the seller’s outstanding loan. Now banks have decided the deals are faster and less costly than foreclosures, which have slowed in response to regulatory probes of abusive practices. Banks are nudging potential sellers by pre-approving deals, streamlining the closing process, forgoing their right to pursue unpaid debt and in some cases providing large cash incentives, said Bill Fricke, senior credit officer for Moody’s Investors Service in New York.

Losses for lenders are about 15 percent lower on the sales than on foreclosures, which can take years to complete while taxes and legal, maintenance and other costs accumulate, according to Moody’s. The deals accounted for 33 percent of financially distressed transactions in November, up from 24 percent a year earlier, said CoreLogic Inc., a Santa Ana, California-based real estate information company.

Karen Farley hadn’t made a mortgage payment in a year when she got what looked like a form letter from her lender.

“You could sell your home, owe nothing more on your mortgage and get $30,000,” JPMorgan Chase & Co. (JPM) said in the Aug. 17 letter obtained by Bloomberg News.

$200,000 Short
Farley, whose home construction lending business dried up after the housing crash, said the New York-based bank agreed to let her sell her San Marcos, California, home for $592,000 -- about $200,000 less than what she owes. The $30,000 will cover moving costs and the rental deposit for her next home. Farley, who is also approved for an additional $3,000 through a federal incentive program, is scheduled to close the deal Feb. 10.

“I wondered, why would they offer me something, and why wouldn’t they just give me the boot?” Farley, 65, said in a telephone interview. “Instead, I’m getting money.”

Tom Kelly, a JPMorgan spokesman, declined to comment on the company’s incentives.

“When a modification is not possible, a short sale produces a better and faster result for the homeowner, the investor and the community than a foreclosure,” he said in an e-mail.

A mountain of pending repossessions is holding back a recovery in the housing market, where prices have fallen for six straight years, and damping economic growth. Owners of more than 14 million homes are in foreclosure, behind on their mortgages or owe more than their properties are worth, said RealtyTrac Inc., a property-data company in Irvine, California.

Foreclosure Holdouts

Short sales represented 9 percent of all U.S. residential transactions in November, the most recent month for which data is available, up from 2 percent in January 2008, according to Corelogic. Bank-owned foreclosures and short sales sold at a discount of 34 percent to non-distressed properties in the third quarter, according to RealtyTrac.

As lenders shift their focus to sales, they are finding that some borrowers would rather risk repossession while they wait for a loan modification, according to Guy Cecala, publisher of Inside Mortgage Finance, a trade journal. In a loan modification, the monthly payment, and sometimes principal, is reduced to help prevent seizure. Homeowners facing foreclosure may live rent-free for years before they are forced out.

“That’s why the banks have got to pay the big bucks,” Cecala said. “The real question is why is the bribe so big? Is that what it takes to get somebody out of their home?”

Multiple Banks
Banks also pay a few thousand dollars to the owners of second liens, whose loans can be wiped out by a short sale, to encourage them not to block the deals.

While JPMorgan is giving the largest incentive payments, other banks and mortgage investors are also offering them, according to interviews with 12 real estate agents in Arizona, California, Florida, New York and Washington. Lenders also provide incentives on loans they service and don’t own when the mortgage investor, such as a hedge fund, requests it.

JPMorgan, the biggest U.S. bank, approves about 5,000 short sales a month. It generally offers $10,000 to $35,000 in cash payments at settlement, real estate agents said. Not all of the sales include incentives.

Borrowers also can receive payments from the federal government’s Home Affordable Foreclosure Alternatives program, which in 2010 began offering as much as $1,500 to servicers, $2,000 to investors and $3,000 to homeowners who complete short sales.

Quicker Resolution
For banks, approving a sale for less than is owed on the home can cut a year or more off the time it takes to unload a property. From listing to sale, the transactions took about 123 days on average at the end of last year, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

Lenders spend an average of 348 days to foreclose in the U.S. and an additional 175 days to sell the property, according to RealtyTrac. In New York, a state that requires court approval for repossessions, it takes about four years to foreclose on a home and then resell it, the company said.

Lenders can often afford to forgive debt, offer the incentive and still make a profit because they purchased the loan from another bank at a discount, said Trent Chapman, a Realtor who trains brokers and attorneys to negotiate with banks for short sales.

Chapman, who also writes a blog on TheShortSaleGenius.com, said he’s heard about 50 homeowners who have received incentives from lenders including JPMorgan, Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.

Wells Fargo
“My guess is they want to get rid of bad loans,” Chapman said. “If they short sale these types of loans, they have less of a headache and have some goodwill with the homeowner.”

Wells Fargo, based in San Francisco, offers relocation assistance of as much as $20,000 for borrowers who complete short sales or agree to transfer title through a deed in lieu of foreclosure “in certain states with extended foreclosure timelines, including Florida,” Veronica Clemons, a spokeswoman, said in an e-mail.

Bank of America Corp. sent letters to 20,000 Florida homeowners as part of a pilot program, offering incentives of as much as $20,000, or 5 percent of the unpaid loan balance, Jumana Bauwens, a spokeswoman, said in an e-mail. The program expired in December and the Charlotte, North Carolina-based bank hasn’t decided whether to introduce it in other states, she said. About 15 percent of the homeowners agreed to participate in the program, she said.

Citigroup Offers
“The bank is pleased with the response,” Bauwens wrote. “The state is experiencing higher foreclosure rates than other parts of the country and is therefore seen as a viable market to gauge incremental short-sale response and completion rates when presenting homeowners with relocation assistance at closing.”

Citigroup offers $3,000 to most borrowers who qualify for its program, but the “amount may increase based on the circumstances of each individual case,” Mark Rodgers, a spokesman for the New York-based bank, said in an e-mail. “Investor programs have different guidelines for relocation incentives, which we honor.”

Susan Fitzpatrick, a spokeswoman for Detroit-based Ally, didn’t comment specifically on incentives when asked about them.

Borrowers typically can’t negotiate the incentives, which arrive by mail, Chapman, the Realtor, said.

Tap on Shoulder
“It’s not really easy to identify the guidelines because Chase doesn’t tell you, they kind of tap you on the shoulder,” he said. “When I first saw it in January 2011, I thought it was a joke or a typo. I was convinced it must say $3,000, not $30,000.”

Offering enough for the homeowner to put down a deposit on a rental apartment is reasonable, said Sean O’Toole, chief executive officer of ForeclosureRadar.com, which tracks sales of foreclosed properties. Giving tens of thousands of dollars to delinquent homeowners sends the wrong message, particularly if they got into trouble by running up home-equity loans during the housing boom, he said.

“It may make sense for people to walk away, it doesn’t make sense for them to get rewarded for doing it,” O’Toole said. “It’s not the homeowner’s fault that house prices dropped so dramatically, but they have already received months of free rent, if not cash out.”

Cecala of Inside Mortgage Finance said he wonders whether lenders are making big payments on properties with underlying title problems. Evan Berlin, managing partner of Berlin Patten, a real estate law firm in Sarasota, Florida, said representatives of a large bank told him the incentives are primarily given to borrowers when it doesn’t have the proper paperwork needed to win its foreclosure case. He declined to name the bank for publication.

Incentive Disconnect
State attorneys general across the U.S. began investigating foreclosure practices in October 2010 following allegations that the nation’s top mortgage servicers were using faulty documents to repossess homes.

Berlin said his office negotiated about 400 short sales in the past year and about a quarter included an incentive, ranging from $3,000 to $48,000. In some cases, the payments aren’t incentives at all because they’re offered after the borrower has almost completed the short sale, he said.

“The idea is that this is relocation assistance,” Berlin said. “But when you’re offering $48,000, obviously it doesn’t cost $48,000 to relocate.”

Cooperation Sought
The size of the payment may have little to do with sales price. JPMorgan gave one Phoenix homeowner $20,000 after she sold her property in June for $32,000, according to Royce Hauger, the real estate agent who represented the seller and shared a copy of the settlement sheet with Bloomberg News. The bank also agreed to forgive more than $70,000 in debt, she said.

Kelly, the JPMorgan spokesman, declined to comment on the payment. Kris Pilles, a Riverhead, New York-based real estate broker who represents banks, servicers and hedge funds that own distressed housing debt.


The homeowners are getting the money in exchange for their cooperation, said Pilles is frequently dispatched to the homes of delinquent borrowers to explain the benefits of avoiding foreclosure, he said. His clients have paid as much as $92,500. In return, the lenders expect the seller to clean the house before showings, and trim the grass.

“Money talks,” Pilles said. “From the bank side, it’s anything to initiate a conversation with someone who may not be listening to them.”

To contact the reporter on this story: Prashant Gopal in New York at pgopal2@bloomberg.net

Happy Thanksgiving!

Bargain hunters helped home sales rise 1.9 percent across the Coachella Valley in October compared to the same month a year ago, even as sales declined through the rest of the inland region.

About 735 homes sold in the valley last month, San Diego-based real estate information provider DataQuick reported.

Sales were particularly brisk in Indio, Palm Desert and Rancho Mirage.
Riverside County, meanwhile, saw 3,026 homes sell, a 7.3 percent drop from a year ago. About 2,300 homes sold — a 1.8 percent decline — in San Bernardino County.
About 54 percent of single-family home purchases and 45 percent of condo transactions in the valley were bank-owned or other distressed properties — down 6 percent from October 2010 — the California Desert Association of Realtors reported.
Greg Berkemer, executive vice president of the group, said as distressed properties continue to comprise a smaller share of sales, it's a sign the market is slowly stabilizing.

Just over half — 52.5 percent — of sales in Southern California were distressed properties, DataQuick reported. Nearly one out of three homes in the Southland that resold in October was a foreclosure, while about one in five was a short sale.
As many buyers sought bargain prices, Coachella Valley's median price — half sold for more, half for less — fell 8.5 percent to $166,000, DataQuick reported.
CDAR, which compiles home sales figures somewhat differently, reported the valley's median price at $179,975 in October, with the average sales price at $281,360.
The median price in Riverside County was $187,000 last month, down 5.6 percent from October 2010. The median price in San Bernardino County was $150,000, the same as August and September, and the same as a year ago.

The inland region's median sales price hit its lowest level since January, which analysts said was due in part to Fannie Mae, Freddie Mac and the Federal Housing Administration lowering loan limits as of Oct. 1 for government-backed mortgages.

Mike Perrault
The Desert Sun

This is the season for travel and relaxation in the Coachella Valley. La Quinta, because of it's ambience and numerous Tour level golf courses, remains the most sought after desert city, followed by Palm Desert and Indian Wells.

I currently have two outstanding prioperties available for lease:

The Tradition in La Quinta:


The Master bedroom overlooks the spa, pool and golf course beyond. Two other bedrooms, both with private baths, complete this home.Fully furnished. $8,500.00 for a 6 month lease, $9,000.00 for a 3 month lease and $10,000.00 for a monthly lease from January through April.

Home is available from November 15 to May 15 with one month minimum rental. call for pricing. Former home of Mark O'Meara, there are fabulous views and a great pool and setting. Three large bedrooms and three and a half bathrooms.

Palm Desert:


4 Bedrooms, 4.5 Baths (Sleeps 8-10). Oct - Apr $5000/monthMay/ Sept $4500/monthJune - Aug $3500/month Cleaning Fee $225 Utilities charge (pool in winter, A/C in summer) $900/monthHoliday Rates: Christmas/New Years, Easter, Thanksgiving $3500/w

Call me for a tour of each property. 760.574.7676

USEFUL INFORMATION for Canadians:

For the past four years Canadians have been purchasing homes in droves in the desert cities that make up the Coachella Valley. Of my client base, 75% are Canadians, primarily from the western states of Canada. One of the many reasons Canadians are investing in a second home or investment property here in the desert is because it is fairly simple for a Canadian citizen to purchase property in the United States.
My goal is to make the purchasing process simple, straightforward and rewarding both in terms of value and long term investment potential for my clients. I regularly assist Canadian clients in finding excellent real estate opportunities, be it a condo, townhome, home or a prime lot for a custom home.

Canadian buyers generally do not need a U.S. Social Security number, unless you plan to rent your local property. You just need your valid passport. Additionally, there are a few forms that I will help you complete, but the process overall is straightforward and fairly simple. The services of an attorney, while always recommended, are not usually needed, since my team is trained to process all the escrow papers.

There are numerous reasons Canadians are choosing the Desert:

• A strong Canadian Dollar
• The best inventory selection of homes and condos in many years
• Historically low real estate prices in the United States
• A perfect sunbelt location for your dream home away from home
• A strong resort rental market for owners wishing to rent their property
• Phenomenal weather, numerous activities and the cultural attractions

Favorite desert cities are La Quinta, Indian Wells, Rancho Mirage, Palm Desert and Sun City Shadow Hills, especially La Quinta and Sun City Shadow Hills due to utility costs being 35% to 40% lower than the other desert cities.

Using a Buyer's Agent such as myself, will get you a home at the best possible price with the least amount of hassle.

Roughly forty percent of the homes for sale on today's market in the Palm Springs area are short sales and foreclosures! Distressed properties are well known for their value (a reputation which is sometimes accurate, and sometimes not), but they also have a reputation for causing buyers to become distressed, too!

Transactional snafus, last-minute surprises and long, drawn-out escrows that never close seem to be par for the course.

Instead of avoiding these properties altogether, get educated about the most common dramas that go down in these deals, and how you can avoid falling victim.

1. Run-on (and on, and on) escrows. When you’re buying a home (or selling one, for that matter), time is absolutely of the essence. And buyers reasonably expect that the big time suck in real estate is in the house hunting process itself; seems like once you find a home you want to buy and the seller agrees to your price and terms, things should move pretty quickly, right?

Not so much, when it comes to some distressed property sales. I’ve heard tell of the occasional, swiftly-moving escrow on an REO (real estate owned - by the bank). But for the most part, these transactions take anywhere from a few days to a few weeks longer than “regular” sales, because of the extra signatures, supervisor-level approvals and even investor involvement required to seal the deal. Banks don’t have the same sense of urgency individual home sellers do, and it’s not uncommon for the people who need to sign on the dotted line to be on vacation or scattered across the country, adding days’ or weeks’ worth of time to the escrow.

And short sales are also an entirely different animal when it comes to escrow timelines. While a standard sale from an individual seller to an individual buyer might take 45 days from contract to closing, a short sale can take anywhere from 45 days to 6 or 8 months (!) to get the deal closed, after the seller has accepted the contract.

Avoid the drama by: expecting your escrow to run long, and being pleasantly surprised if it doesn’t. Expectation management is everything. Make sure you take these extended timelines into account when you’re working with your mortgage broker on the issue of when to lock your interest rate, and how long your rate locks will last. You might even need to plan on and/or set aside an allowance for the cost of extending your low interest rate, if rates are rising rapidly during the time you’re waiting for the deal to be done.

2. Bank won't take lowball offer. If I had a dollar for every time I’ve received a question from an outraged reader to the effect that a buyer has had their short sale or REO offer rejected on grounds that it was too low, even though the bank has no other offers, I could buy a foreclosure myself (admittedly, it’d be one of those $150 foreclosures in some blighted town with tax liens and no plumbing, but still).

Banks owe their shareholders and investors a duty to get as much as they can for these properties. Just because you see it’s on the market and listed as a short sale or a foreclosure doesn’t mean they’re going to give it to you for a fraction of its worth. The bank’s goal is to get a purchase price as close as possible to the home’s fair market value, as determined by the recent sales prices of similar, nearby homes, with some adjustments made for the property’s condition. Fact is, many banks would rather see the listing agent reduce the price by a moderate amount, and wait to see what offers come in, than to accept an offer 30 percent below the asking price just because there are no other offers on the table.

Avoid the drama by: working with your agent to make a realistic offer, based on recent comparable sales in the neighborhood, not just on what you think you can get away with. You can waste a lot of time, spin a lot of wheels and lose out on a lot of properties making lowball offer after lowball offer on distressed homes. Sit down with your broker or agent, review the ‘comps’ and make a smart offer that reflects a good value for you, is within your budget and is not bizarrely out of the realm of the fair market value of the property.

3. Last minute postponements/cancellations. These transactions have an uncanny way of being delayed at the last minute - or never going through at all, through no fault of the wanna-be buyer. You signed docs yesterday, put your dog in the crate this morning and just hopped in the moving truck, only to get a text from your broker that the deal didn’t close because the escrow company which was selected by the bank flubbed the checkboxes on a single sheet of paper (it happens). Or, you’ve been in contract (with the seller) on a short sale for four months, and the bank refuses the sale entirely because the seller refuses to kick even $1 of their own cash into the deal, despite having a flush savings account.

Avoid the drama by: staying as flexible as possible with your moving plans as long as possible. Best practice is to plan on some overlap between the time you can be in your last place and your scheduled move-in date. Also, if you’re in contract on a short sale, you should take the point of view that you don't have a firm deal until you get the bank’s approval of the transaction. So don’t even think about starting to make moving plans or paying for home inspections and appraisals until you know the bank has greenlit the deal and that the purchase price and terms they’ve approved work for both you and the seller.

4. The bank’s black box. Make an offer on a normal home and you’re likely to know what the outcome will be within a few hours or a few days, at the outside. If things take longer because the seller is out of town or some such, the listing agent tells you that, and you at least know what’s going on.

Make an offer on a bank-owned property or a short sale? It’s a crap shoot - could be days, but could also, easily, be weeks or months before you know what’s going on. And no amount of calling, pleading, prodding or nudging is likely to get you much information on how your offer or the seller’s short sale application is being handled or what (if any) progress is being made. And that “black box” into which your offer disappears at the benk level is very frustrating.

Avoid the drama by: continuing your house hunt until you have an answer back. Maniacally pestering the listing agent for answers or harrassing your buyer’s broker into spending hours on hold with the bank is highly unlikely to get you any insight. (With that said, it does make sense for your agent to check in regularly - sometimes even daily - with a short sale or REO listing agent to stay updated on any developments with the property and to make sure your offer/transaction stays in the front of their mind.)

Most of the angst in these situations arises when a buyer feels they passed on properties that would have really worked for them when they pinned their hopes on a distressed home. You can only control your efforts and activities, not the bank’s. So, consult with your own broker or agent about staying proactive in viewing and even pursuing other properties until you have a firm “yes” from the bank on your short sale or REO offer. Until that time, and usually for a short time after you get the bank's approval, you have the right to back out of the transaction if you need to (make sure your broker briefs you on precisely when your right to rescind your offer or exercise contingencies - i.e., bail - will expire).

5. Double standards. In a “regular” equity sale with no bank involvement, both buyer and seller are obligated to meet various timelines. Seller has to provide disclosures by X date, open the property to inspections - with utilities on - by Y, and close and move out by Z. REO and short sale buyers, on the other hand, are often dismayed to find that even though the bank might take weeks or months to sign or handle its deliverables, the bank will insist that the buyer show up, sign or send a check quick-like.

Avoid the drama by: chalking it up to the (admittedly irritating) way things are - the price you pay to buy from the bank. Realize that working with the bank on the bank’s terms is unavoidable when you buy a distressed property. Then, go into the deal with realistic expectations - including the expectation that the bank will drag its feet, despite expecting you to keep every deadline - and you’ll be less frustrated, and less likely to make poor decisions out of frustration.

Also, make sure you do respond in a timely manner to the bank’s requests and your obligations under the contract. I’ve seen banks capitalize on buyer delays in returning signatures and removing contingencies to accept higher offers they received in the interim. Don’t lose your home on a technicality because you assume that the bank’s lackadaisacal timelines apply to you as well.

Trulia Tara

1. Myth: Buyers with bad credit can’t qualify for home loans. Obviously, mortgage guidelines have tightened up, big time, since the housing bubble burst, and they seem likely to tighten even further over the long-term. But just this moment, they have relaxed a bit. In the last couple of weeks, two of the nation’s largest lenders of FHA loans announced that they’ve dropped the minimum FICO score guideline from 620 (which allows for some credit imperfections) to 580, which is actually a fairly low score.

At a FICO score of 620, buyers can qualify for FHA loans at many lenders with only 3.5 percent down. With a score of 580, the lenders are looking for more like 5 to 10 percent down – they want to see you put more of your own skin in the game, and the higher down payment lowers the risk that you’ll default. However, if your credit has taken a recessionary hit, like that of so many Americans, this might create a glimmer of hope that you’ll be able to take advantage of low prices and interest rates without needing years of credit repair.

2. Myth: The Mortgage Interest Deduction isn’t long for this world. Homeowners saved over $85 billion in 2008 by deducting their mortgage interest on their income tax returns. A few months ago, the National Commission on Fiscal Responsibility and Reform caused a massive wave of fear to ripple throughout the world of real estate consumers and professionals when they recommended Mortgage Interest Deduction (MID) reform, which would dramatically reduce the size of the deduction.

Fact is, the Commission made a sweeping set of deficit-busting recommendations to Congress, a few of which are likely to be adopted. Fortunately for buyers and sellers, MID reform is not one of them. Very powerful industry groups and economists have been working with Congress to plead the case that MID reform any time in the near future would only handicap the housing recovery. Congress-folk aren’t interested in stopping the stabilization of the real estate market. As such, the MID is nearly universally thought of as safe – even by those who disagree that it should be.

3. Myth: It’s just a matter of time before loan guidelines loosen up. The US Treasury Department recently recommended the elimination of mortgage industry giants Fannie Mae and Freddie Mac. I won’t get into the eye-glazing details of it here, but the long and the short is that (a) this is highly likely to happen, and (b) it will make mortgage loans much harder and costlier to get, for both buyers and homeowners. It’s possible that loans are as easy to get as they’re going to get. So don’t expect that if you hold out, zero-down mortgages will come back into vogue anytime soon. Fortunately, Fannie and Freddie aren't likely to disappear for another 5-7 years, so you have a little time to pull your down payment and credit together. If you want to get into the market, the time to get yourself ready is now!

4. Myth: If you don’t have equity, you can’t refi. Much ado is being made about how stuck so many people are in their bad loans, because they don’t have the equity to refinance their way out of them. If you’re severely upside down (meaning you own much, much more than your home is worth), stuck may be the situation. But there are actually a couple of ways homeowners can refi their underwater home loans. If your loan is held by Fannie or Freddie (which you can find out, here), they will actually refinance it up to 125% of its current value, assuming you otherwise qualify for the loan. That means, if your home is worth $100,000, you could refinance a loan up to $125,000, despite the fact that your home can’t secure the full amount of the loan.

If your loan is not owned by Fannie or Freddie, you might be a candidate for the FHA “Short Refi” program. While most mortgage workout plans are only available to people who are behind on their loans, the Short Refi program is only available to homeowners who are current on their mortgages and need to refinance up to 115 percent of their homes’ value. So, if you owe $250,000 on your home, you can refinance via an FHA Short Refi even if your home’s value is as low as $217,000. If you think you’re a good candidate for a short refi, contact your mortgage broker, stat – there are some in Congress who think that this program is so underutilized (only 245 applications have been submitted since it rolled out in September – no typo!) that its funding should be diverted to other needy programs.

5. Myth: If you’ve lost your job and can’t make your mortgage payment, you might as well mail your keys in. Until recently, this was essentially true – virtually every loan modification and refinancing opportunity required that your economic hardship be over before you could qualify. And documenting income has always been high on the requirements checklist. But there are some new funds available in the states with the hardest hit housing and job markets, which have been designated specifically for out-of-work homeowners.

The US Treasury Department’s Hardest Hit Fund allocated $7.6 billion to the states listed below – all of which are now using some portion of these funds to offer up to $3,000 per month for up to 36 months in mortgage payment assistance to help unemployed homeowners avoid foreclosure. Contact the state agency listed below if you need this sort of help:


•Alabama: http://www.hardesthitalabama.com/
•Arizona: https://www.savemyhomeaz.gov/
•California: https://www.keepyourhomecalifornia.org/
•Florida: https://www.flhardesthithelp.org/
•Georgia: http://www.dca.state.ga.us/housing/homeownership/programs/hardesthitfund.asp
•Illinois:http://www.ihda.org/
•Indiana: http://www.877gethope.org/
•Kentucky: http://www.kyhousing.org/
•Michigan: http://www.michigan.gov/mshda/buyers/save_the_dream/helping+hardest+hit+homeowners+-+contact+your+mortgage+servicer+for+assistance
•Mississippi: http://www.mshomecorp.com/firstpage.htm
•Nevada: http://www.nahac.org/
•New Jersey: http://www.state.nj.us/dca/hmfa/home/foreclosure/homekeepers.html
•North Carolina: http://www.ncforeclosureprevention.gov/
•Ohio: http://www.savethedream.ohio.gov/
•Oregon: http://www.oregonhomeownerhelp.org/
•Rhode Island: http://www.hhfri.org/
•South Carolina: http://www.scmortgagehelp.com/
•Tennessee: http://www.thda.org/
•Washington D.C.: http://www.dchfa.org/

Courtesy Tara Nelson

Top Tax Deductions for Investment Property Owners

Since we are in tax season, I thought it best to review some of the top tax deductions for real estate investors. When filing your taxes, don’t forget to take full advantage of all the deductions available for owners of rental property.

Mortgage Interest – The interest owed on a loan used to acquire or improve an investment property is a tax deductible expense. In addition, interest payments on credit cards for goods or services used in rental activity is also deductible.

Depreciation – Residential income property can be depreciated over 27.5 years; commercial 39 years. Depreciation is often the largest deduction a real estate investor can take.

Repairs - The cost of repairs to rental property are fully deductible in the year in which they are incurred. The repairs must be ordinary, necessary, and reasonable in amount. Some examples of deductible repairs include painting and fixing broken fixtures. Replacing a roof would not be considered a ‘repair’, but rather a capital improvement and the cost associated with replacing the roof would increase the basis of the property.

Travel Expenses - Property owners are entitled to deduct the costs associated with traveling to and from the rental property. The drive to a property to deal with a tenant complaint would qualify as a tax deductible expense. Likewise, flying to Hawaii to repaint a rental property would also qualify as a tax deductible expense. For overnight travel, you can deduct your airfare, hotel bills, meals, and other expenses. If you plan your trip carefully, you can even mix landlord business with pleasure and still take a deduction. Please note however that IRS auditors closely scrutinize deductions for overnight travel. To stay within the law and avoid unwanted attention from the IRS always properly document long distance travel expenses.

Home Office – Landlords may be able to deduct home office expenses provided certain minimum requirements are met.

Employee, Independent Contractor and Professional Services Expenses – Fees paid to gardeners, painters, attorneys, accountants, property management companies, real estate investment advisors, and other professionals can be deducted as operating expenses as long as the fees are paid for work related to the rental activity.

Advertising – Any advertising costs associated with marketing the property for rent or for sale can be deducted.

Insurance – Insurance premiums can be deducted for almost any insurance policy related to the rental property. This includes, fire, theft, and flood insurance for rental property, as well as landlord liability insurance.

Vacant Property -Keep in mind: if the property is vacant either because the property is either up for sale or is waiting to be re-tenanted, the owner may still be able to deduct all ordinary and necessary expenses (including depreciation) for managing, conserving and maintaining the property while the property is vacant.

This is offered as information and not to be construed as legal advice. Always check with your CPA or attorney as to your needs.

The Desert’s high-end market has been much stronger than the previous year. For homes priced above $3 million, there were 25 reorded closings in 2010, compared with just 17 in 2009, an increase of almost almost 50%! However, looking back over several years, the sales are still way down: There were 38 closings in 2008 and 63 in 2007. I am anticipating 30-40 closings this year, which will get us back to 2008 levels. At this point in time there are currently 127 homes listed in the Coachella Valley above $3 million, which extrapulates to a 5 year inventory.

With regard to foreclosures, they are increasing, 1870 in total as follows:
676 foreclosures in Palm Springs, 170 foreclosures in Rancho Mirage, 54 foreclosures in Indian Wells, 477 foreclosures in Palm Desert and 493 foreclosures in La Quinta.

As for new listings, there are 555 new listings in the past 7 days:
171 new listings in Palm Springs, 57 new listings in Rancho Mirage, 127 in La Quinta,16 new listings in Indian Wells and 154 new listings in Palm Desert.

The average listing price, the median sales price and average price per square foot are still trending downwards.

What this means is simply that exceptional buying opportunities exist in all price ranges provided you spend the time to evaluate the opportunities. This is where I can be of service. I know the market inside and out.

If you are looking to build, I have exceptional opportuniies for lots in the Hideaway and La Quinta Polo Estates for under $200,000.00.

If you need your property to SELL FAST for whatever reason, or get out of your monthly mortgage payments; there are many conventional and unconventional options available for you. Although these options are able to help many sellers in a wide variety of situations, no one solution is perfect – they all have their positive and negative features. It is highly recommended that you are aware of them and seek outside professional assistance when deciding which route is best for you and your family.

Below is a brief overview of ALL conventional and unconventional options that are available to those who need to sell fast – not just the ones that the average real estate agent knows about. For more information on any of the programs below contact us; check out the supplemental articles to the right or contact your local real estate professional.

1. Conventional Sale

Putting your home for sale on the market is by far the most common solution for owners looking to sell their property fast. The seller can either do this on his own or hire a local real estate agent to assist him in the transaction. Whichever route he chooses to take, the owner is looking for someone with cash or approved for a mortgage loan to purchase his property for a certain price. In a good housing market, the home should sell within an acceptable amount of time in which the seller is able to walk away from the home while retaining most of his equity in cash. However, in a down market, houses can sit for months, declining property values can eat away at the seller’s equity and real estate commissions, and closing costs as well as other expenses can make selling a home pricey.

Here is an example to demonstrate the true cost of selling your home. The figures below are estimates based on a home that is listed for $100,000.

Sales Price Discount at 3% of the list price:
$3000
Realtor Commissions at 6% of the list price:
$6,000
Closing Costs at 2.25% of the list price:
$2250
Monthly Payments while the home is being marketed (Average time on market is about 90 days):
$2250 ($750 x 3 months)
Repairs requested by the buyer after a home inspection:
$1000
Adding up the numbers above, the total cost to sell is about $14,500. So, with a list price of $100,000 the seller can expect to net $85,500. If your loan to the mortgage company is more than what you expect to net, then you probably need to look for another option for your home to sell fast.

2. Investor Purchase

This is another conventional sale where an investor will come and make a cash offer for your home – many times in its current condition. Many homeowners think this is the best way to sell their home fast and solve their problems. This is rarely the case. The vast majority of investors follow a formula where they purchase homes at 65% of current market value minus any repairs that may be needed.

For instance, a home valued at $100,000 that needs $5000 in repairs. An investor will offer 65% of $100,000 – $5000 or $60,000. If you or your bank is going to need more than that, then you will need another option for your home to sell fast.

3. Renting Your Home

In a down economy or if you cannot sell fast, many people may choose to rent out their home until the market recovers and they can sell. This way, you are able to keep your home and find another residence while your monthly mortgage payments are covered. Keep in mind, renting takes time and can be expensive and demanding. You may have to pay an agent commission to help rent your home, cover any repairs needed to the property, and locate a property management company (usually a charge of 10% of the rent amount). If you would like more information on renting your home please contact us.

4. Short Sales

Short sales are technically not a way for homeowners to sell fast, but can be a real solution. Essentially, the bank agrees to accept an amount less than what the seller owes for the home. If a homeowner owes the bank $95,000, but the current market value of their home is only $85,000, the bank might allow the person to sell the home and pardon the remaining $10,000.

For sellers in a down real estate market trying to avoid foreclosure, short sales can be a resolution, yet carry significant consequences. Short sales take on average of 6 to 9 months to complete and have no guarantees of being successful. Also, in most cases the seller’s credit will be severely damaged enabling them to purchase another home through conventional methods for 2 to 7 yrs. Click here for our article explaining Short Sales in more detail.

5. Loan Modification

A loan modification is not considered a sale and is not a way for property owners to sell fast. However, this is a great conventional method that can give a seller relief from his monthly mortgage responsibility. If you are having trouble making your mortgage payments, many times the bank will drop your interest rate, move delinquent payments to the back of the loan, or use other methods to help you catch up and for the future. For home owners that have had recent financial difficulty or overwhelming mortgage payments due to high or increasing interest rates, a loan modification can help save a home from foreclosure and get the seller back on track. However, sometimes the banks may not allow a seller to modify his loan. In most cases, modifying your loan is a temporary solution to a bigger problem that will have many owners still looking to sell fast. For more information, click here to view our article explaining the loan modification process in more detail.

In many cases, the conventional options above can be extremely helpful; however, there are many home owners in unique situations who still need to sell fast. The unconventional options below can be helpful and applicable solutions because the buyer and seller are able to remove the bank from the process and work with one another directly.

8. Owner Finance

Owner financing is when the seller of a home agrees to lend all or part of the purchase price to the buyer. Whether there is an existing mortgage on the property or not, the owner is able to sell his home and the buyer is able to buy without having to go through a bank. Owner financing not only allows the homeowner to sell fast, it also allows him to save his credit, money, and equity. For more information contact us or click here for our article explaining owner financing in more detail.

9. Rent to Own and Lease Purchase

A Rent to own or lease purchase sale is a type of owner finance transaction that combines the basic elements of a rental agreement with an exclusive option to purchase the property at a later date. This is a cheaper option allowing a seller to rent out his property to a future buyer with less stress and responsibility. Many times, this method is the fastest way for a property to sell. For more information contact us or click here for our article explaining rent to own and lease purchase sales in more detail.

10. Mortgage Assignment

A mortgage assignment is when a seller transfers title to a buyer in exchange for the buyer to take over or “assume” the monthly payments. There are qualifying and non-qualifying assignments (meaning bank approved or non-bank approved) transactions, with non-qualifying assignments being the most common today. More often, the buyer is an investor that will agree to come in and start making mortgage payments on your behalf. For the seller that needs to sell fast, is not interested in making money on his home, would like to preserve his credit, and would like to just walk away from the property with the smallest amount of responsibility, a mortgage assignment is probably his best bet. Please contact us if you would like to receive more information about mortgage assignments and possibly having someone take over your monthly payments.

THIS INFORMATION ABOVE IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD BE CONSTRUED AS SUCH. SHOULD YOU HAVE ANY QUESTIONS CONCERNING AN OWNER FINANCE TRANSACTION, ASSOCIATED RISKS, BENEFITS, OR OPTIONS ON HOW TO PROTECT YOURSELF, SEEK COMPETENT LEGAL ADVISE FROM AN ATTORNEY OF YOUR CHOICE.

By Karlos Knox