This just in.
The first time buyer tax credit of up to $8,000 is officially “monetized.”
Lenders making FHA mortgages to first time buyers are now allowed to make a bridge loans of up to $8,000 to apply as extra downpayment, toward closing costs or to lower the interest rate on the loan.
This should help get the first-time buyers rolling.
The attorney approval clause included in real estate contracts lets the attorney approve, disapprove or make modifications to the contract (other than price) within 5 business days after the contract is signed.
There’s one situation in which the attorney approval clause can be very dangerous. It’s this: Let’s say the Seller accepts an offer from Buyer 1. During the attorney approval period with Buyer 1, the Seller decides to accept another offer from Buyer 2 (almost always for more money than Buyer 1 offered). Seller tells his attorney to “kill” the contract with Buyer 1 under the attorney approval clause.
I don’t have many hard and fast rules in my practice, but here’s one that I do follow: I refuse to kill the contract with Buyer 1 using the attorney approval clause if the sole reason is to get the Seller more money from Buyer 2. The reason I do (or don’t do) this is that there is an implied element of good faith in the attorney approval process and you can’t just toss out Buyer 1 for no reason other than price. It specifically says in the attorney approval clause that modifications to price cannot be made. Plus, killing Buyer 1’s contract just invites litigation.
In the last two weeks, I have had two separate transactions in which the attorney for the Seller tried to kill the contract with Buyer 1. In both cases, Buyer 1 recorded the contract against the property and both parties filed lawsuits in court to stop the Seller from selling to Buyer 2. (I represented Buyer 2 in both cases.) In the first transaction, Buyer 2 dropped out as soon as they heard of the court fight. The parties are still sorting out the second transaction. So much for the “slow” real estate market.
Watching these two transaction unfold reinforced my belief that if a Seller uses the attorney approval clause in an aggressive manner like this, he or she is likely to end up in court.
I love the NY Times web site’s most emailed list. It was there that I clicked on a story called My Personal Credit Crisis. The story was actually a book excerpt from Times writer Edmund Andrew’s new book called “Busted: A reporter’s look inside the mortgage meltdown.”
The story goes into excruciating detail of how Mr. Andrews got series of “liar loan” to buy and then refinance a house, ran up $50,000.00 in credit card debt and used the $10 overdraft protection feature on his checking account almost daily. I would be embarrassed to admit doing some of this stuff, but he doesn’t seem terribly worried about it. Most of the comments by readers on this site are less than sympathetic.
The book provides a rear view mirror look at how easy it was to get “no doc” and “stated income” loans. My favorite part is when he tries to apply for a loan modification with Chase because he can’t make his payments no one from Chase will call him back. When he finally gets in touch with Chase, they can’t help him because he’s not 90 days in default on the loan. Now that’s real life for you.
This story in the Daily Herald talks about how foreclosed homeowners are taking fixtures like copper wire, appliances and toilets from homes before they leave (notice the fireplace torn out of the wall in the picture). The answer to this problem is “cash for keys.” The foreclosing lender offers cash that’s paid after the owner turns over the keys and the property is checked. A Phoenix real estate agent (who’s one gutsy hombre) was charged with selling fixtures from a foreclosed home on Ebay.
Short sales of real estate are everywhere now. A short sale happens when there are not enough funds to pay the existing mortgage holder, so the seller and the lender agree that the mortgage can be paid short.
After closing, the shorted lender can either:
1. Issue a 1099 to the seller for the amount forgiven (which is then taxable to the seller as ordinary income, unless it was a primary residence).
2. File a deficiency judgment lawsuit against the seller for the unpaid amount (this rarely happens).
This WSJ story discusses how many lenders are asking the seller in a short sale to sign a promissory note for the amount unpaid in a short sale. Then the lender files suit under the note for the unpaid amount. This is happening primarily in cases where the seller has other assets that can be used to pay the shortage and with investment properties.
I have not had a lender ask the seller to sign a note in a short sale. Nor have I seen a seller sued for a deficiency judgment. So far, lenders have 1099’d the seller for the amount unpaid.
The 1099 can cause a cascade of tax problems. The sellers only relief may be to file bankruptcy to get rid the income from this “cancellation of debt.”
This blog, foreclosurefish.com, has some good information on options for people facing foreclosure.
It’s turning out that first-time buyers, who obtain FHA loans, have a friend in the much-criticized Cook County Anti-Predatory Lending database. This database is an attempt to protect buyers from predatory lenders. A mortgage cannot be recorded in Cook County unless the buyer gets counseling on obtaining a mortgage or if an exception applies (thereby making the mortgage exempt from the database and making counseling not required).
So far, I have not had one Buyer go to counseling and the exceptions have always applied.
The borrower’s friend is this provision: If a mortgage has “points and fees that exceed five percent” (of the loan amount) then the mortgage must be reported in the database and the buyer must obtain counseling. Trust me, no one wants the buyer to go to counseling (including the buyer), so great efforts are now taken to keep the point and fees under five percent.
With FHA loans, there is an upfront MIP insurance premium charged on all loans that is almost 2% of the loan amount. Title companies have been including this in the “closing costs and points” so it is very easy to get to five percent in closing costs.
I have been at several closings during which the mortgage broker had to reduce the fees at closing so that the fees for FHA loans stayed under 5% of the loan amount. So in the end, the predatory database is protecting FHA buyers from excess closing costs.
Here’s a nice, clear explanation of the fair debt collection act.
It covers what debt collectors can and can’t do.
It also explains what you can do if they go too far.
The Illinois House passed, and the Senate is reviewing, a bill that would prevent estate tax from being owed on the first to die of a husband and wife with a large estate. It looks like it will pass the Senate easily.
Technically, the bill does this:
“Amends the Illinois Estate and Generation-Skipping Transfer Tax. Provides that the State tax credit for the estates of persons dying after December 31, 2005 and on or before December 31, 2009 includes a reduction for qualified terminal interest property. Effective immediately.”
That’s a mouthful, but it means that there would be no estate tax due on the first death of a married couple. The history of the bill is here. I previously wrote about this problem and advised couples with large estates to amend their trusts to include a state marital trust.
I’m glad to see that they are patching up this mess before tax is paid by too many widows/widowers.
Out of town for a week in Puerto Rico with no internet access, I decided to rent a wireless card before I left. I googled “rent wireless card” a company called Rovair popped up in the paid ads.
(The overarching philosophical question is why could I not go on vacation with “just” my Iphone and why does one really need internet access 365 days per year, but being self-employed I thought it wise to be connected. And of course the kids have to check FB daily at least.)
It was easy to sign up on the site. The card was about $9 per day and it arrived by federal express well before I needed it. It was a USB card from Verizon. Installation was easy and took about 5 minutes. I would say that the signal strength out of town was about 60% that of a dsl line. Usable, but slow.
When I was done, I fed-x’ed the card back to Rovair and that was it.The company was easy to deal with and everything worked perfectly. This is a good solution when you need short term internet access.