- Mortgage Rates Could Soar

Mortgage Rates Could Soar, Predicts Economist
by Blanche Evans
Sunday, February 17, 2008

There are few real estate economists more respected than Mark Dotzour, chief economist of the Real Estate Center at Texas A & M University. He says the time to refinance is now, and that there may not be a better time for years to come.

- Truth About Home Prices

Seller Incentives Skewing Numbers
Sunday, February 17, 2008

It's common and perfectly legal — homeowners give buyers cash back at closing to cover expenses such as closing costs, mortgage payments, taxes or even home improvements.

Take, for example, a recent home sale on Rosemont Avenue in Bristol. Agent Charlie Kaylor said the three-bedroom, ranch-style house sold for $193,000, but the sellers gave the buyer $5,000 at closing. The price was recorded as $193,000 — that is what the buyer paid — although the true sales price after the cash giveback was really $188,000.

Such givebacks, along with throw-ins such as sellers paying for new roofs and driveways, are a sign that it's a buyer's marketBut they're also artificially propping up home sales prices, which helps explain an economic oddity that Connecticut is seeing these days: The median price of homes keeps rising in the midst of a housing slowdown, as the number of homes sold each month keeps dropping and the number of homes for sale is creeping up.

The artificial prop-up means that the downturn in Connecticut's real estate market, and that of the rest of the nation, is deeper than it appears.

"It's a big deal because prices are, in fact, falling; we know they are falling, but that is not reflected in the numbers we see," said Ron Van Winkle, a West Hartford economist and town official.

It's impossible to tell how much seller incentives and givebacks affect those numbers. But cash givebacks of even $2,000 to $5,000, if they are typical across the board, could skew the overall sales price data by 1 to 3 percent.

That small margin means Connecticut's median sales prices actually are flat or falling — not rising, as the data have shown.

A recent report from the Greater Hartford Association of Realtors said sales of single-family homes in the region dropped 34 percent, from 831 in December 2006 to 550 in December 2007. At the same time, the median sales price of single-family houses increased 2 percent, from $250,000 to $254,000.

Another factor that can skew the data is simply that more expensive homes are selling. For example, if Fairfield County records a gain in the number of $1 million-plus houses on the market, the whole state median rises.

But cash givebacks, upgrades and improvements are, by many accounts, growing as a factor in bending the data. Late last year, a newly constructed home sold in Granby for $550,000, but the buyers received $25,000 in upgrades they wouldn't have gotten in a better market two years ago, including granite counters, upgraded appliances and hardwood flooring.

When the home sale was completed, the final sales price recorded was $550,000. But the $25,000 in upgrades given to the buyers wasn't recorded. In reality, the sales price of the house was $525,000.

"Instead of knocking down the price, they got the house they really wanted with the upgrades," said Kaylor, the agent RE/MAX Advantage in Avon, who represented the buyers on the deal.

Almost unheard of a decade ago, cash givebacks have become common — one Middletown agent estimated that half of all his home sales have some sort of seller incentive that doesn't show up in the final sales price — especially in a slowing market where homeowners are more willing to negotiate in order to sell their homes.

The advantage to buyers is that they can take out a slightly larger mortgage, based on the recorded sale price, leaving them with more money in hand. Givebacks are especially attractive to buyers who are scraping together enough money for a down payment, closing and moving costs, and for renovations or upgrades to their new homes.

And sellers like givebacks because they help lure in a buyer without dramatically reducing asking prices.

"There's no question that if sellers are giving something, even if that doesn't show up in the final sales price, it is still from the buyer's perspective a price reduction," said Lawrence White, an economics professor at the Stern School of Business at New York University. "But in terms of what is going to get reported in the sales price data, that isn't going to show up. Which means the sales prices are softer than the data are telling us."

The seller incentives have become so common that the multiple listing service, where real estate agents list and track home sales data, now has an entry line for seller concessions. For instance, in the last four months of 2007, 35 of the 191 homes that sold in West Hartford had seller concessions. (Agents, though, said that number is probably higher because there is no requirement that incentives and concessions be listed).

"It's very common, especially among first-time home buyers and any buyer who doesn't have a lot of cash in hand," said Tom Abbate, an agent with William Raveis Real Estate. "Buyers like to walk away from a closing and still have cash in their pocket."

The givebacks are legal, as long as they are disclosed to lenders. They become sticky if the sales price of the home, with givebacks, exceeds the true value of the home as determined by an appraiser.

- Why is this “Credit Crisis” Affecting Mortgage Rates?

January 2008

While TV’s talking heads are screaming about a mortgage meltdown, it’s pretty clear on closer examination that most of the problems — so far — are confined to a fairly narrow segment of the market. However, there has been a real affect on Jumbo mortgage rates. In order to understand the impact, it’s useful to understand where the money comes from that institutions lend to borrowers.
Most mortgage money comes from three places: government agencies, Wall Street investors and depositors in so-called portfolio lenders.
The first and largest pool comes from the quasi-governmental agencies known as Fannie Mae and Freddie Mac. Fannie and Freddie, along with the FHA buy or guarantee close to half the mortgages originated in the United States each year. But those agencies only buy loans that are no larger than $417,000 and conform to a strict set of underwriting guidelines governing the collateral and the borrower’s ability to repay. Consequently, these loans are called Conforming loans. 

 The second big source of mortgage money comes from Wall Street, and indirectly, from individual investors like you and me, when we invest money in mutual funds, money market accounts, insurance policies or hedge funds. Those investors have a larger appetite for risk (and return) than Fannie or Freddie, and are willing to invest in securities backed by riskier mortgages. That might be a loan larger than $417,000, called a Jumbo mortgage; one made to a borrower with spotty credit, called a Sub Prime mortgage, or a loan to a credit worthy borrower that doesn’t meet traditional underwriting guidelines, called Alt/A loan.
The third source big source of mortgage money is so-called Portfolio lenders. Portfolio lenders originate mortgages one at a time, and underwrite them for the long haul, because they intend to retain them in their own portfolio until they’re paid off. 

So, back to the crunch. What’s happening today has little to do with the Conforming market. Fannie Mae and Freddie Mac are well capitalized and have very little exposure to the type of products that is giving Wall Street heartburn. The loans they sell to investors in the form of mortgage backed securities are guaranteed or insured against foreclosure and have been underwritten to stricter standards.
Likewise, smaller, traditional portfolio lenders are in good shape. While they too make a lot of Jumbo loans, they do it one loan at a time, and generally have a very good understanding of what they own. 

That leaves Wall Street, and indirectly individual investors, holding a large bag of Jumbo, Alt/A and Subprime loans. In a functioning market, those loans are packaged, or pooled, by big Wall Street firms and resold to investors in the form of mortgage-backed bonds and other securities. In the past those pools were made up of like kind loans. In other words, the borrowers of these individual loans within the pools were all of approximately the same credit profile… say 30 year fixed rate loans with credit scores above 680. Over the past few years though, that practice has changed.
The big Wall Street firms that “pool” or package these loans began to add Subprime/Alt/A loans to the mix in order to enhance the interest rate the ultimate buyer would receive. And although in general, most pools have a very small part of the total loans as Subprime/Alt/A, foreclosures on those loans within the pool have a huge effect on the final yield the ultimate buyer will get. So what has happened?
Basically, insurance companies, banks, and hedge funds have decided to not buy these loan pools until they better assess the risk associated with the loans within the pools they already own. The end result is that the big lenders supplying these individual loans have raised rates substantially in order to curb loan production. They have also toughened up on their underwriting standards in order to bring up the credit quality of their loans. Many of these large lenders currently have massive pipelines of loans that were originally slated for pooling that they can no longer readily move off their books. To use a familiar analogy, think of this situation as a clogged drain (or maybe another familiar home fixture would better fit). 

The good news is… the plumber is already here. Markets do work, and Wall Street is well on the way to re-assessing the risk associated with these loans. I am sure companies will be designing mortgage pools with only Prime A loans as well as other types of pools related to Prime A ARM and Subprime loans. There will be less mixing of products w/in the pools and the Subprime loans will carry higher rate loans underwritten to tougher standards, lower LTVs, etc...
The bad news is… this will take time. How much time remains to be seen. The press has certainly played a huge roll in vamping up the problems associated with these Sub-prime loans. Rightfully, lending practices need to be monitored and revised. Consumers need to be protected. And illegal or predatory lending needs to be discovered and stopped. Certainly there are many Americans with potential problems looming in their future, but I think it is pre-mature to say that the Sub-prime market woes will affect all mortgage borrowers. To be sure, markets are driven by “expectations” despite the actual size of the underling problems which move them. Panic is never a good thing, but it is also something that doesn’t last. Why? Because, it is rarely warranted.  

The question is “What does this mean for me and my mortgage?” Here are two examples of situations that might require a little “action” on your part. If you have an adjustable rate mortgage that is still in its “fixed” rate period, you need to know when it is going to adjust; what would the potential rate change be and how that will effect your monthly payment. If you are thinking of buying a property that will require you to get a Jumbo loan you need to look closely at the options available in the market place today. In either case we would suggest that you contact your trusted mortgage professional. Rates are still very competitive and there are still many flexible programs available to suit a variety of needs. Don’t wait until the last minute… it is much better to be proactive in this market place and arm yourself with all pertinent information relative to your situation.
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- Short Sale Mortgages

Do you have a Short Sale? Do you want to purchase a Short Sale?. 877-745-4063 we can help

Mortgage Short Sale - An Exit Strategy or an Investment Opportunity?

In our comments section we mainly hope to get a healthy conversation going among readers, but one reader recently asked a question we really wanted to answer.

On June 28, " Anderson" responded to HUD Pushes Mortgage Lenders to Avoid Foreclosure Loses. The article was about the FHA Loss Mitigation Program which gives lenders the authority and responsibility to assist homeowners in financial trouble with their home mortgages. HUD/FHA lenders have options in dealing with distressed homeowners to stop foreclosure and HUD has recently pushed them to pursue these including a pre-foreclosure short sale where the borrower sells the property for its appraised value even though this may result in a "short sale."
What, Anderson asked, is a short sale? "I'm familiar with the term in stocks, but not real estate or mortgages."

 Stocks are sold short when an investor sells securities that he does not own in anticipation that the price will plummet so that he can buy the stock back at a lower price and "cover" the sale. A short sale in the mortgage world amounts to an accommodation on the part of the lender in hopes of avoiding or mitigating an impending loss.  

Let's say that, during a short-lived housing boom, Joe buys a real estate investment property in Arizona for $150,000. He puts down $30,000 and takes a $120,000 mortgage loan from Sunburn Bank and Trust (SBT) and, immediately after closing, a second mortgage loan for $10,000 from his credit union to make improvements to the property.
He rents the property out for a year or two, nicely covering his mortgage payments then, just as he is about to sell and take his profit, the local economy hits the wall. First Joe has trouble renting the property for enough to cover his mortgage payments and then loses his own job, runs through his savings, and begins to fall behind both on his home mortgage and the first and second mortgages on the investment property.

 The banks are calling him weekly but Joe claims he can do nothing. His unemployment insurance is gone, both houses are for sale with no takers, and his last tenant left owing two months rent after virtually trashing the place.

 SBT hires an appraiser to inspect the investment property and he reports that it appears to be in bad shape and probably not worth anywhere near the $120,000 that Joe owes the bank. The bank's loss mitigation specialist estimates that a non-judicial foreclosure will cost about $4,000 and there are property taxes due in the amount of $800. The appraiser estimated repairs in the amount of $5,000. With the second mortgage still outstanding, the bank is looking at a substantial loss. The bank has several options. Foreclosure is the most obvious recourse. While it seems unlikely that the bank can sell the house at auction for enough to cover the mortgage amount and legal fees, foreclosure would at least wipe out the second mortgage.

 If there is a shortfall following foreclosure the bank could seek a judgment against Joe for the balance owed. It looks, however, that he might be the proverbial turnip out of which one cannot extract blood.A workout or restructure of the loan also looks futile. Joe is clearly underwater so it is unlikely that he would be able to pay any restructured amount that the bank might propose. The bank could accept a Deed-in-Lieu-of-Foreclosure in which Joe would sign over all rights to the house. The bank, in return, might promise to forgive Joe the balance of the debt owed. This, however, still leaves the bank faced with the outstanding tax bill, some legal fees, and the second mortgage.

 Or they could search (or encourage Joe to search) for a private party who would buy the property possibly even before foreclosure begins.
Joe has had the property on the market for some time so apparently the amount needed to pay off the first and second mortgagees and the back taxes (and possibly a real estate commission) is more than the market will bear. It looks like everyone in this deal, except for the city which will collect its taxes no matter what, is going to get burned. And that is where a real estate short sale comes in. We have painted an unusually complicated scenario in order to demonstrate some alternatives that might take place.

 Let's say that Joe's friend Carl has had his eye on the investment property and is willing to pay $115,000, even in the current depressed market. He approaches Joe with this offer.

 Joe has already given up on the idea of recouping his original $30,000 investment and just wants to get out with his credit history somewhat intact and without the possibility of a summary judgment against him for any shortfalls on the payoff to first and second mortgagees.

The $115,000 offer that Joe presents to Sunburn B&T looks like the answer to both their dreams. Granted, the bank is owed around $120,000 on the original loan along with several months' unpaid interest and some appraisal and collections expenses, but it is still facing $4,000 in legal fees and, if the property does not sell at auction, a second mortgage (which may have to be paid off immediately after the new deed is filed) $800 in property taxes, and untold future expenses managing and marketing the property and making needed repairs to keep the property from deteriorating any further.

The bank might be delighted to take the $115,000 offer but there are still the issues of the second mortgage and the tax bill. Carl will have to pay the taxes before closing on the house so the big problem is the second mortgage. Carl however, can negotiate that just as he has the first mortgagee. SB&T will probably encourage Carl to approach the credit union with a nominal offer to release its second mortgage and might even offer to reduce its payoff a thousand or two to assist in the negotiation. The CU is not in a position to argue as a foreclosure by SB&T will wipe out their lien position although a deed transfer in lieu of foreclosure would put them in the catbird seat. Any pre-emptive strike by the CU to foreclose would force them to pay off Sunburn's senior $120,000 mortgage to recoup its $10,000 second - not a smart move to explain to your shareholders.

Both lenders will have to jump through some regulatory hoops to prove that the deal is the best they can do - a formal appraisal of the property, financial statements and possibly an asset search to prove that Joe is in financial extremis - but basically such a real estate short sale can ultimately work to everyone's satisfaction.

 So it is possible that Carl will buy the property for $115,000 to $120,000, Joe will walk away a free man with only the remainder of his financial collapse to worry about, and Sunburn Bank and Trust will clear somewhere in the vicinity of $113,000 to $115,000, a loss of only $5,000 - 7,000 to explain to their stockholders and federal regulators.

 And that is the story of not one, but two short sales. And, if you see a possible creative real estate investing opportunity here - well good luck to you.

 The Definitive Short Sale Article

This article will attempt to address the following:

Define a short sale

Talk about the different ways it can come about and be structured

Talk about how it's different that foreclosure or bankruptcy

Talk about the implications for the seller

Talk about the implications for the buyer

 Address investor related questions on capitalizing on short sales (which you will soon find based on the definition is not really what you investors are looking for)

 If your question is not answered in the article, see the Short Sale FAQ. Below

Definition:
A short sale is an "arrangement" between the current owner of a home and the bank that lent them the money to buy their home to accept an offer for less than the total amount owed to pay off the home. The "deficiency" is the difference between the amount owed and what the bank collects at the short sale.

 Although, the "arrangement" can take many different forms, there is no other definition of a short sale. I say this because many realtors and some investors simply throw the term around as if it meant "a sale under market value." No. A bank owned (foreclosed) house is not a short sale. A seller deciding to lower their price and take less profit is not a short sale. An old lady that owns her home free and clear, selling a $150k home for $75k, IS NOT A SHORT SALE. For it to be a Short Sale, someone must be getting "shorted." Either the seller, or the bank. I will explain how both of those happen in more detail presently.

Another important definition of a short sale is how it differs from foreclosure. In foreclosure, the homeowner falls way behind on their payments and the bank repossesses the house and sells it. In almost all cases, THE BANK PURSUES THE HOMEOWNER FOR THE DEFICIENCY!!! No one seems to know or believe this, but just ask someone who has gone through foreclosure, they will tell you the only way out of this was to file bankruptcy.

 How It Can Happen -
The Arrangement
Most short sales arise when a seller owes more on their house than they can sell it for (upside down). The owner of the home then attempts to make an arrangement with their lender to sell the house for less than is owed.

 The term "arrangement" was used in the definition and is intentionally broad because the arrangement depends on the bank that holds the loan. Though there are general practices, every bank does it differently. This article will give you the most common arrangements, but if you take part in a short sale, it's crucial you assume nothing until you have the bank's policies in writing.
 

There are some overriding principles:

There is no such thing as a free lunch. This is not some dream come true alternative to foreclosure where the money you owe magically disappears. The deficiency will be accounted for. The deficiency can be 100% loaned to the seller in the form of a promissory note, which they then must repay. If any portion of the deficiency is "written off" meaning that the bank eats it, you can be sure that they will report it as 1099 income to the seller or even as a judgment which will show on your credit for 10 years (not 7 years, 10 years).

It is a cumbersome process. If you are entering into a short sale as a buyer or seller, don't expect it to go as quickly as any other sale. There's a lot of "back and forth".

The employees of the lender that are negotiating the sale ARE NOT there for the benefit of the seller. Their only goal is to collect as much money possible for the lender and they will use whatever means necessary. You can be sure they will misrepresent their own policies and flat out LIE to the seller in order to intimidate and scare them into paying more money. If you think I'm exaggerating, the joke will be on you.

, I was once told by a lender negotiating a short sale that, as a policy, they don't "write off" any of the deficiency and that the seller would have to have a promissory note for $40,000. This lender also told the seller that their hands were tied and this decision came directly from the investor who provides the money for the lender. The lender also said there is absolutely no negotiation on the amount owed, either pay the deficiency, or they will foreclose. The lender made the promissory note very manageable (20 years 0%) so that the seller would be more enticed to just roll over.

But the seller called the lenders bluff. The seller then provided a letter from an attorney stating they would qualify for a bankruptcy, thus rendering the lender incapable of collecting anything. That same day, the lender called the seller saying they would reduce the promissory note and write off $30,000 of the debt! It would have to be reported as 1099 income, but it would not have to be paid. Amazing change of policy! Then the seller saw what was happening and just said, "no thanks, we don't want to owe you anything, we'll just go ahead with the bankruptcy." Two days later the seller received a written offer that the lender would completely forgive the debt and simply report it as 1099 income! Wow!

The moral of the story is that the lenders will LIE to obtain their money. Many of the managers of the collections departments are paid on COMMISSION on how much they collect. Just imagine if that seller had rolled over on the first offer! That employee would have been responsible for keeping $40,000 of his company's money with one five minute phone call!

One other important thing to remember is that if the lender gets the property back (i.e. short sale doesn't go through), they have to put it up for auction. This creates the risk that additional money will be lost if the house doesn't sell for what it's worth. In the case of the example, the short sale offer was for $550,000, and the amount owed was $590,000. The seller faxed in evidence to the lender that most similar houses in the area were now selling for $480,000. So this enabled the seller to make the argument that it was a much more prudent risk to write off $40,000 instead of running the risk of losing $110,000. This enabled the seller's representative to intimidate the employee of the lender asking him "did he really want to be responsible for losing his company $110k, when he had the option, right now, to settle for 40k?"

 If it seems like I know a lot about "this example" it would be because I was the mortgage broker for the people making the offer and seller of the property happened to be my wife.

The Details of the Arrangement
Different banks have different policies. The best case scenario is to get a bank that actually "writes off" the deficiency. All that happens here is that the seller has some minor derogatory credit reporting, but doesn't actually owe the bank any more money. This credit reporting can consist of anything from "creditor settled for less than the amount due" all the way to "foreclosed."

As the example noted, many banks will do a promissory note for the deficiency.

 Some banks are stupid enough to require that the deficiency be paid at closing. Think about it. This does no good because it's the same thing as the seller selling their house without doing a short sale and simply bringing cash to the table. If a bank tells as seller they need to bring cash to the table in a short sale, they are either idiotic, or more likely LYING.

In cases where the money is "written off" it's important to understand that the lenders will never actually "write something off." In most states (I don't know the law in every state), the lender has the ability to show any deficiency as 1099 income for the seller. All this really means is that the seller has to pay taxes on that income. Depending on one's situation, it could mean that people that are dependent on some form of aid because of "low income" will have some explaining to do come tax time.

Another way that the deficiency can be written off is in the form of a judgment. This will often occur in conjunction with the 1099 reporting. It might say something on the seller's credit report such as "judgment filed against John Doe in the amount of $xx,xxx by ABC lender." This will appear in the "public record" section of the seller's credit report for 10 years (7 years is only for late payments, 10 years for public record info, don't argue, trust me). It can either show up as satisfied or unsatisfied. Satisfied is obviously better because it means that the worst thing that can happen is that the lender will report 1099 income.

Unsatisfied could be a problem, because it means that a court has found in favor of the lender to collect the deficiency from you. Now they still might simply do the 1099 thing, or they might try to collect it from you. They can keep trying to collect it from you until they get it. They can garnish your wages. Your only hope then is that you qualify for a chapter 7 bankruptcy.

This brings up an important note. NEVER EVER ASSUME THAT A DEBT THAT YOU OWE A LENDER IS GONE UNLESS YOU HAVE THE DETAILS OF THE RELEASE OF THAT DEBT IN WRITING. For instance, someone who had done a short sale had a first and a second loan. The bank agreed to the short sale, which ended up being enough to pay off the first loan, but not the second. The seller had assumed that because the bank agreed to the short sale that they wouldn't have to worry about the deficiency from the second mortgage. Now they are surprised that they are being pursued for the deficiency. REMEMBER, the lender(s) will always want ALL their money accounted for somehow. NEVER assume something is written off unless you have a formal, signed, written, unconditional release of lien and/or judgment from the lender specifically stating that no further action to collect this debt will be taken.

How did we get to this point in the first place?

 A short sale can come about for many different reasons. In my wife's case, she was the owner of the house and had been making payments. We bought an investment property and put it solely in her name to protect our family in the event that the market took a turn for the worse. It did. We owed 590k, but the best offer we had after 6 months was 550k.

Despite popular belief, YOU DO NOT HAVE TO BE BEHIND ON YOUR MORTGAGE TO REQUEST A SHORT SALE. You just have to demonstrate that your house can't be sold for what you owe.

 In other cases, short sales happen when a seller can't afford to make their payments and is nearing foreclosure or bankruptcy. It makes life much more complicated if you are living in the house in question. The bank's ability to scare you is much greater in that case. In this case, a short sale is only slightly better than the alternatives. You will still lose your house, and your credit is still destroyed just because you've made 4-5 late payments on your mortgage.

 Despite popular belief, A BANKRUPTCY, FORECLOSURE, OR REPOSSESSION DO NOT HURT YOUR CREDIT AS MUCH AS THE MULTITUDE OF LATE PAYMENTS THAT OFTEN LEAD UP TO THEM!!!!! I just cannot stress this enough. People think that a bankruptcy damages their credit beyond repair in and of its own accord. I've had many clients file bankruptcy with 750 scores and no late payments only to have their score drop to 680. It's the clients with 20+ late payments that are having their credit hurt.

A final note on how the short sale can come about... Most banks will not agree to a short sale in writing until you have a formal offer. You can simply call your bank and ask them if you could do a short sale at a certain price and they might say "sure, no problem, we'd be happy to facilitate that offer." BEWARE. That doesn't mean a thing. Before your short sale is APPROVED, you'll have to submit an application, hardship letter, financial statements, tax returns, pay stubs, the purchase agreement from the buyer, a HUD statement from the pending transaction, payoff letters from all lenders involved, and several other things depending on the lender.

 Once this huge packet of information is submitted to the lender, you will most likely hear back in 1-4 weeks on the TERMS of their "approval." Be warned their approval will most likely be thinly disguised attempt to collect their debt and will almost never be the "write off" you were hoping for Investors

 If you're an investor, by now, I hope I've scared you off. Short sales are not some magic way for you to find properties under market value. They are a tool for sellers that owe too much on their homes to sell them at market value. What you are looking for (or should be if you're not) are sellers that owe far far less on their homes than what they're worth. Sellers who don't care how much they earn because they're either desperate or have so many houses they don't care.

 Still if you see a house you want, there is one way that a short sale could come into play. Say there's a distressed property that you'd pay 100k for that you know would be worth 180k if it was fixed up a bit. The seller doesn't have the money to do it and the house is either vacant or they want out of their situation. In this case, if the seller happens to owe 130k (around there), and you will only pay 100k, AND the seller hasn't had any viable offers because of the level of distress on the property, then a short might be just what the doctor ordered.

 Don't be unethical and take advantage of people. You're only going for short sales if the person WANTS to sell their house and no one else but you will buy it because you're not afraid to rehab a house that's smells bad and is falling apart.

Conclusion

 Again, a short sale is not a magic cure. It's also not some mystical solution that only an elite few know about. If you're curious about selling your house as a short sale, you should contact your lender and get information in writing. It's usually not easy, and hardly ever will truly "win." But in some cases, it can leave you much better off than the alternative of foreclosure and bankruptcy. If you're an investor, there are much better ways to obtain undervalued homes.

 Remember that this is a complex process and you should always seek the help of a professional when considering a short sale.

Short Sale FAQ's

Note: This FAQ is meant as supplement to the full article "The Definitive Guide To Short Sales". Most questions will be answered in that article.

Will I have to pay capital gains taxes if I sell a property as a short sale?
No. If your bank suggested that, they are ridiculous. Capital gains would indicate that you are in some way "better off" financially because of money you have made. In a short sale, you lose and owe money. The only thing the bank could possibly mean is that the deficiency will be reported as 1099 income and you WILL have to pay taxes on that, but not as capital gains.

 We are about to buy a short sale from the bank and are wondering if the bank is responsible for ridding the house of mold or are we?

First of all, if you are buying a house from the bank, it's not a short sale. Second of all, in almost every case where there is a bank-owned property, it will be sold AS-IS. Check the verbiage of your purchase agreement with the bank (or seller). Any purchase agreement should contain a clause referencing who is liable for what. If you signed a purchase agreement that didn't reference the mold or "items required by the home inspection to be completed," then you will be liable.

 If I pay mortgage insurance and default on my loan, why wouldn't that cover the deficiency amount?
In some cases it will and in some cases it won't. It depends on the amount of the deficiency. Usually the mortgage insurance only covers a certain amount. Moreover, the lender will try to collect from you before they file a claim with the mortgage insurance company. The mortgage insurance is not there for your protection, just the lenders.

We had a first and second loan and went through foreclosure. The first was paid off and we were told the second would be forgiven. Now a collection company is coming after us for the second, what do we do?
The bank will never forgive one dime of debt unless it is explicitly stated in writing and you have it reviewed and confirmed by an attorney. The fact is they probably lied to you verbally. You're only recourse now is to engage in a legal dispute against them or file bankruptcy.

What are the implications of unpaid judgments?
Worst case scenario, your wages can be garnished.

How long does the foreclosure process take?
Complicated question depending on what you consider the start of the "process" to be. Generally, the Bank will send and NOD (notice of default) to the Title Company and trustee. From that time it takes between 3-9 months for the house to go up for auction, during which, you can pay the delinquent amount to "cure" the foreclosure proceedings.

Will I still have to pay taxes if I do a short sale?
This is a broad question depending on whether we're talking about property taxes or federal income taxes. You'll always have to pay extra income tax if the bank sends you a 1099 for the deficiency. SOMEONE will always have to pay property taxes. Whether its you or the lender depends on their policies and the specific agreement you reach while negotiating the short sale.

 I made a loan to a person buying a house as a second mortgage. Now that person is going through foreclosure.

Do I have any way of getting paid?
You Bet! You have just as much right to get paid as the lenders referred to in my article about short sales and you have all the same legal recourses they do. You can write off the loss as 1099 income. You can hire a collection company to obtain the debt. You can file a judgment against them. If they file chapter 7 bankruptcy, there are some cases where you would not get paid, unless the attorney did not include your lien in the bankruptcy. 1099 is the worst case scenario.

I owe more than my home is worth.
Am I eligible for short sale or is my only option foreclosure or bankruptcy?
Always consult your lender as to what your options are. They are usually short sale, deed-in-lieu of foreclosure (basically an accelerated voluntary surrender), and foreclosure. The banks like to prevent foreclosure when at all possible. They've even been known to lower people's rates and payments because of all the new defaults in '06 and '07. Either way, your first stop should be to get information from you lender on what options they provide.

Does a good credit score help the seller trying to do the short sale?
Only inasmuch as their credit score will stay high as long as they don't make any late payments leading up to the short sale. Some lenders may call the deficiency a judgment though, which will hurt the score a bit.

Where can I get information on investing in short sales and foreclosures?
First of all, there is no magic listing place for short sales. If a seller has gone to the trouble of asking their lender if they can do a short sale and the lender has given them a verbal approval, then the short sale will show up much the same as any other property for sale, only it will take you five times as long to close it.
Foreclosure investing is a whole different ballgame. There are numerous theories, books, websites, and other forms of media often that charge you for their knowledge. It's mostly garbage. The only real way to get a leg up in the real estate investing marketplace is to align yourself with other people that are doing the same thing and are successful at it.

You have to ask yourself, if there are secrets to making money in foreclosure investing, why would someone give them away?
Offer yourself as an apprentice to real estate investors. The good ones start to get overloaded and could use the help. Then you have better education than any book or article could ever give you. I could tell you exactly how a client of mine built her net worth by 2 million dollars in two years, but there is no guarantee the same strategy would work for you. Furthermore, if I really do know strategies that allow people to increase their net worth 2 million dollars in one year, I wouldn't sell my course, or e-book, or whatever for $39.99. I'd charge well over $1000.

Bottom line. Learn by doing. Expect mistakes. Try to connect with PEOPLE not with books and articles. Just be sure the people you connect with really are successful. That's why I suggest the apprentice pitch. No one could afford to hire an apprentice unless they were making enough money to do so.

Is a short sale still an option if a foreclosure has taken place?
By definition, no. However, if depends what you mean by "taken place" and whether you are the owner or the buyer. If you are the owner and you haven't been evicted yet, there is always a dollar amount called "cost-to-cure" that, if received by your lender, will cure you default. If you're a buyer, it's all the same to you. All you do is make an offer.

How can I get referrals from lenders that have clients wanting to do short sales?
As an investor, it doesn't make sense to browse short sales. If the owner has had to ask the lender for approval on a short sale, it's usually not going to give you a very big equity position if you come in to buy it. Again short sales are usually situations where the owner owes more than the market value. A short sale is not a distressed enough situation to get a good enough deal for an investor. You're looking for foreclosures, distressed homes, bank-owned properties, etc.

How does a realtor profit from a short sale?
When formally requesting a short sale commitment from the bank, realtor commissions are usually included if a realtor was involved in the deal. The bank may counteroffer to lower the commissions. Realtors can also "hunt" for short sales by talking to clients that have had their homes listed for a long time with no success. The realtor can explain the short sale process and help the owner negotiate with their lender to get it sold and the realtor gets their commission.

Will I have a higher interest rate on future mortgages or will they be harder to obtain?
It all depends on the arrangement between you and the lender. If you pay them a promissory note for the deficiency, then the damage to your credit will be minimal and you shouldn't have a problem obtaining loans in the future. If the lender shows "settled for less than the amount due" on your mortgage trade line, some future lenders will look at that as a foreclosure. Some lenders even report short sales as foreclosures. Here's what to do: Obtain, in writing, your lenders policies on short sale credit bureau reporting. Then ask your mortgage broker how that affects your ability to qualify in the future. Generally, when you get a new mortgage, as long as you don't have a foreclosure, bankruptcy, or unsatisfied judgment, your ability to qualify will be the same as it is now (and your credit score needs to stay the same).

I'm interested in this house, owners divorced and walked away. The bank that holds the second is trying to short sale the house. 2 offers have been placed (500k, 550k). I planned to offer a bit more than the offers, but the realtor called and said the lender (countrywide) will not take any less than the appraised amt that just came in (approx 750k).

What next?
Does it go to auction?
I'm confused why the second mortgage company is doing the short sale and not the primary?
Suggestions?
First of all, if the bank owns it, its not a short sale. Furthermore, if they already own it, chances are it has already been up for auction and they bought it back. Second of all, if the bank says they won't take less than the appraised value, they are lying. If their lien is only for 620k for example, they would take it in a heartbeat, unless some loss mitigation manager at Countrywide is absolutely convinced that the house will fetch well over appraised value at auction (which it won't). So make an offer of $560k. Or make an offer of "$10k higher than any other offer up to a s specified amount." The second mortgage company handles the sale because the first mortgage company will be paid off (most likely) by the sale or auction of the home. If Countrywide doesn't agree to any offers by a certain time, and it hasn't already then yes, it goes to auction. The people that bid won't show up, but a representative from Countrywide will. They will bid what they owe on house. If they already own the house, there won't be an auction, it has already been foreclosed, and Countrywide will just try to sell it for as much as they can.

 I want to do a short sale and have a 2nd mortgage, does this make me ineligible?

No. Both of your lenders will need to be satisfied in some way to complete the short sale. If your first lender will be paid off by the sale, then you just negotiate the terms with the second lender

I have a home that is worth $560,000.00. 1st is $442,000.00, 2nd/HELOC is $130,000.00. Taxes say $10,000.00. Broker fee $10,000.00. Net $540,000.00. $572,000.00 less $540,000.00 $32,000.00 Short. What will happen? Can it happen? What will the 1st lender take and what will the HELOC lender take? Looking forward to your response!
Yes it can happen. The first lender will be paid off completely and then you and the 2nd lender must make an "arrangement" for the deficiency. Best case scenario is they write off the deficiency and simply report it as 1099 income to you or a satisfied judgment.

I purchased a new home in February, with a first loan of 80% and a second loan of 20%. I listed my old home with the plan of paying my second loan as soon as the old home sold. This home has been listed for over six months and has not sold and the price has been reduced substantially. I have been paying for mortgages on both homes. I am using my savings and I cannot afford to keep paying both. I cannot afford my new home without paying my second loan. Can I short sell it?

You and the rest of the country! Yes! You can do a short sale. The problem you face now is time constraints. Talk to the lender on your old house about their options such as deed-in-lieu of foreclosure. Find out what their short sale requirements and policies are.

I have put an offer in on a home that is a short sale. It took months to get a preliminary acceptance from Wells Fargo, but they said it doesn't have final approval yet. We are 2 weeks from closing and no one from Wells Fargo will call me or my agent back. Any suggestions to get an answer, so I know if my family has a home?
Great question and a common problem. It takes a long time for these things to go through usually. You are only two weeks away from closing if Wells Fargo has all their stuff taken care of by then. The only way to get more information is to call the department of Wells that handles short sales and request the information. They probably won't talk to you unless the seller authorizes you to talk to Wells. When my wife went through a short sale, we called up our lender and authorized the buyers to talk to them. Then our lender gave them all the info they wanted and they buyers were actually able accelerate the process. So ask the appropriate party if the sellers will add you as authorized to discuss the progress of the short sale with Wells Fargo.

Connecticut Multiple Listing Services

Hello, I am interested in purchasing foreclosures for investment reasons. I have been warned of second mortgages being what is foreclosed, not the original mortgage. How can I tell which mortgage is being foreclosed?
Don't buy anything until you get a preliminary title report or Lien and Encumbrance report showing who all has a claim to the property. This way you will know who is expecting to be paid off before you can own it.

 Does the mortgage company HAVE to 1099 us on our short sale? Is it a law? What is the difference in a 1099 and a 1099A?

The answer is no, the mortgage company does not HAVE to do anything when you have a short sale. It is very likely however, that they will not simply "charge off" or write off the loss of deficiency money.

They can account for this in several different ways, one of the most popular of which being a 1099a. 1099 is a blanket term used to refer to non-tax-withheld income. A 1099A is likely what the lender will file as it pertains specifically to the acquisition or abandonment of secured property.

- >All the right moves: Profit in 2008

The 22 best ways to keep safe, spend smart and make your money grow in the year ahead
Wednesday, January 02, 2008

Tumbling home values. Soaring energy prices. A topsy-turvy stock market and a gazillion other financial worries, not the least of which is whether we'll spend the coming year mired in recession.
Considering all the black clouds hanging over the economy, you probably think there's no way you can really expect to prosper in 2008. It will be all you can do just to hang in there. If that is what you're thinking, we're happy to tell you that you're wrong. There will be plenty of opportunities to
make money next year - yes, even in real estate - as well as ways to insulate your finances from the most serious economic challenges ahead. Your home The real estate slump isn't going away soon, so whether you're buying, selling or staying put, deal with it.

Make your house look like a bargain
For sellers: Forget what the ugly house next door sold for last year or even what comparable homes are listed for today. Instead, use the going price of houses that have recently sold as a guide - then price your home even
lower so it looks like a great deal. (Ask your real estate agent for help with this assessment or go to homegain.com or zillow.com for guidance.) Best case: Your aggressive pricing attracts more than one bid, pitting buyers against one another and ultimately lifting the final sale price.

Pay a little to look good
For sellers: You'll pay around $150 a month for a 10-foot-by-15-foot storage unit, a piddling amount compared with the $5,000 more your house might fetch or the three months faster it might sell.
The quickest, most effective way to increase curb appeal: Apply a fresh coat of paint, says Dave Liniger, co-founder of Re/Max International, the real estate franchise.

Offer the right incentive
For sellers: Covering closing costs is a biggie because it may help a buyer who's short on cash pay for a home he otherwise couldn't afford. Or you might offer to kick in homeowners association dues or provide a home warranty covering repairs for the first year.

Lowball your offer
For buyers: If ever there was a time to drive a hard bargain, this is it. Don't be distracted by small stuff like whether the current owners will leave behind their appliances and window treatments.
Focus instead on what's really important: getting the lowest price. Do a little homework and find out what comparable houses have sold for lately. Then start the bidding at 10% to 15% below that recent sale price. Note: This strategy works best if there are several homes on the market in your area around the same price.

Look like a good risk
For buyers: You'll have an easier time getting approval from a lender if you have enough money set aside to put down at least 10% to 15% of a home's purchase price (no- or low-money-down deals have largely disappeared).You'll also need plenty of documentation to prove you can afford a home in the range you're looking at. What lenders will want to see: Your total debt payments shouldn't eat up more than 36% of your income, says Keith Gumbinger of HSH Associates.

Don't jump at a jumbo
For buyers: These days $417,000 is a magic number: If your mortgage exceeds that amount, it's
considered a jumbo, and your interest rate will be about six-tenths of a percentage point higher
than you'd pay on a standard 30-year fixed-rate loan vs. just two-tenths of a point normally.
The gap expanded last summer when the credit crunch hit, and it's likely to remain unusually wide next year. To avoid paying the extra interest, try to come up with a big enough down payment to bring your mortgage below $417,000. Or simply hold out for a less expensive house. Getting a $400,000, 30-year fixed-rate loan instead of a $425,000 jumbo will save you about $325 a month
and more than $92,000 in interest over the life of the loan.

Put down your ARM
For owners: If you have an adjustable-rate mortgage that's due to reset next year, consider refinancing into a fixed-rate mortgage now to avoid future payment shock. Similarly, if you have borrowed heavily against the equity in your home and are feeling squeezed, refinance
your home-equity loan and mortgage into one new fixed-rate loan. A $200,000 mortgage at 6.5%, plus a $100,000 home-equity loan at 8.2%, works out to monthly costs of about $2,500. Roll that entire $300,000 into a 30-year fixed-rate loan at today's rates and your payment will be $1,900 or so, a savings of about $600 a month

Know your home's future
Is a neighborhood you're interested caught up in the housing bust? How do the schools rate?
This information is a few clicks away, click here for public school reports. Whether you're thinking of moving to a new city or just want to know more about what's up in your own backyard, the Web lets you see a town from countless angles. Click here for that information

Scope out the houses
You can start your neighborhood search from miles up at Trulia.com. Type in a town and you can choose a satellite view or street map of the place. You can also choose a "Heat Map" that breaks down the city by neighborhoods and shows you how hot (red) or cold (green) each area is, based on prices, sales or popularity among Trulia users. Click on the map to see homes listed for sale in each nabe. You can also ask other users a question about the area - or just read the discussions.
Curious about the value of your home or the neighbors'? Then check out the similar Zillow.com for an estimate of every house on the block. REMEMBER IT’S AN ESTIMATE NOT MARKET VALUE Satellite maps give you a great look at roofs and backyard pools, but at Microsoft's Maps.Live.com you can often get a bird's-eye view - that is, it's at an angle, so you can see the sides of houses too. And in some neighborhoods Maps.Google.com can even give you a 360° street-level view. (It's cool and a little creepy.) Walkscore.com shows in one screen all amenities - such as coffee shops, drugstores and schools - within walking distance of an address, and scores the neighborhood for "walkability."

Check out the schools
Standard & Poor's SchoolMatters.com has all the basic data on public schools - test scores, school and district demographics - in a clean, easy-to-use interface. NOTE: YOUR LOCAL MULTIPLE LISTINGS SERVICE’S DATA WOULD BE MORE ACCURATE. To request that data click here The not-for-profit GreatSchools.net is less streamlined but does more. It has info on private schools, its own school-rating system and its own writers. Both sites also have parents'
reviews of schools, though GreatSchools seems to have more to read now. Search for local online discussion forums at NeighborhoodBlog.com Parents' groups are often the place to get the real block-byblock 4-1-1 and can be a great way to meet new people. Find groups by searching on keywords like "parents," "kids" or "SAHMs" (as in "stay-at-home moms"). You may have to send a message applying for membership to get in on the discussion. 
 

- Timing the housing market

You want to buy a home but are scared to take the plunge in a crumbling market. Here's how to think it through.
Tuesday, February 19, 2008

Question: At some point I plan to buy a house in the $250,000 to $400,000 range. I have generally good credit and plan to make a down payment of 20 percent or more. But given the instability in the housing sector and generally tightening credit landscape, I'm wondering whether I should buy now or wait several months, maybe even a year, to see where the market settles. What do you think? - Daniel Akers

Answer: I don't recommend trying to time the housing market any more than I would timing the stock market. So if your aim by holding off is to try to get the best deal by buying just as prices have hit their low, I think that's unrealistic. After all, even assuming you can figure out the ideal time to buy - that is, when prices have hit not only hit a trough but are on the verge of rebounding - by the time you find the house you want, line up the financing and close the deal, the "best" time may have already passed. That said, given current state of the housing market, you certainly don't need to be in a rush. As my Money Magazine colleague Amanda Gengler pointed out in our December cover story on the outlook for 2008, house prices are already down more than 4 percent from a year ago. And given the huge inventory of homes already for sale plus the ones likely to come into the market as more homeowners default on their mortgages and go into foreclosure, prices are forecast to tumble another 6 percent or so in 2008.

Perhaps the Bush administration's subprime plan or some other proposal to help borrowers facing foreclosure may be able to limit the damage somewhat. But I don't think anyone believes prices will rebound in a significant way until 2009 at the earliest. So how do you factor all this information into your plans for buying a house? I recommend that you start looking around in different areas where you may be interested in living to get a sense of what the market is like and where it may be headed.

The forecast I referred to above is the broad-brush picture. But the national housing market is really a collection of many local markets, and the prospects can vary considerably from one locale to the next, depending on such factors as how hot the market got, the local employment picture and the volume of inventory and potential foreclosures. You can check out prices online and take the pulse of the market in different cities and neighborhoods by going to Superior Home Living.com as well as other sites that are featured in the "Know Your Home's Future" section of Money's January cover story, "The Best Money Web Sites."

But you'll also want to take time to do plenty of real-world legwork. Drive around different neighborhoods to see how many "for sale" signs you see and then talk to agents at several real estate offices to get an idea of how long homes are sitting on the market before they sell, how much below asking price they're going for and what kinds of concessions sellers are offering.
While you're at it, you should also contact a few mortgage lenders to see what size of loan you can likely qualify for given your income, expenses, assets and liabilities, credit rating and the size of the down payment you plan on making.

Part of the fallout of the subprime debacle is that lenders are now more stringent about the documentation they require before making a loan. You'll want to be sure you'll have access to documents like recent pay stubs, tax returns and savings and investment account statements so you'll be all set to apply for a loan when you're ready to buy. As I said before, you shouldn't feel under any pressure to make an immediate move. But when you eventually do see some houses you really like and feel you're ready to join the ranks of owners, you want to make the most of what is now most certainly a buyer's market. Find out what comparable houses have sold for recently and then consider starting your bidding at 10 percent to 15 percent below that price. Don't be surprised if the owner doesn't fall at your feet and thankfully accept your offer.

Even in a down market, many owners have inflated notions of the value of their home and will stubbornly stick to an unrealistic price. So if you want to pick up a real bargain, you've got to be ready to walk away and go on to another listing. Generally, you'll have the most leverage when the owner is under some pressure to sell - a looming foreclosure, a job relocation, a commitment to purchase another house, an investor looking to escape burdensome carrying costs, etc. On the other hand, you don't want to overplay the haggling game and end up losing out on a
great house for the sake of a few thousand bucks. For more advice on how to get the best deal, I suggest you check out the "Your Home" section of Money's 2008 outlook story. (This story also has tips on how sellers and owners can best cope in today's market.) And if you're considering buying a new home, you should also check out my colleague George Mannes's story in Money's January issue, "Boy, Have They Got Freebies for You," which explains how to evaluate the
discounts, upgrades and other incentives homebuilders are tossing around to entice you to buy a newly built home. This kind of opportunity doesn't come around very often in the housing market. So take your time, do your research and make the most of it.

- Five Banks Launch Mortgage Relief Initiative for New England

Tuesday, February 19, 2008

Every day we hear more and more about families facing rising mortgage costs and the very real possibility of losing their homes. To help prevent that from happening, five banks in New England have partnered together - with the encouragement of the Federal Reserve Bank of Boston - to provide assistance to homeowners before the threat of foreclosure becomes a reality.

Five banks are working together to reach out to some of the New England Homeowners who have been affected, or may soon be affected, by the recent mortgage crisis. The banks’ initiative, called the Mortgage Relief Fund, should make it easier for some homeowners who are paying high rates, and those who face a reset of an adjustable-rate loan, to refinance into a more affordable mortgage, avoiding delinquency and ultimately foreclosure.

The banks, Citizens Bank, Sovereign Bank, TD Banknorth, Webster Bank and Bank of America are stepping forward to play a positive role in the challenging situation facing many New England homeowners. The banks have together committed an initial $125 million for mortgage loans.

Introducing the Mortgage Relief Fund
Citizens Bank, Sovereign Bank, TD Banknorth, Webster Bank and Bank of America have committed $125 million in funds to create the Mortgage Relief Fund. Our goal is to help eligible homeowners in New England refinance into more conventional fixed-rate loans that will better meet their needs.

Who is this Fund for?
This Fund is aimed at helping homeowners who are in good standing with their current mortgage loan(s), but who may be experiencing difficulty making payments now and who expect to have greater difficulty making payments when their rates reset.

Part of the Solution, not the Problem
As corporate citizens that care about the communities where our customers live and work, Citizens Bank, Sovereign Bank, TD Banknorth, Webster Bank and Bank of America think it’s important to offer this Mortgage Relief Fund to homeowners during these difficult times.

This particular program is not designed for borrowers who are delinquent on their mortgage payments or facing imminent foreclosure. Borrowers in that difficult situation should contact the servicer of their mortgage as soon as possible, or a mortgage-counseling service such as Homeownership Preservation Foundation at 888.995.HOPE. To learn more, contact one of the banks below.

- Home Permits In The Basement

The Good News: Cutbacks By Builders Mean Less Inventory Is Left Over
By ROBIN STANSBURY
Tuesday, February 19, 2008

Permits for new housing construction plummeted throughout most of Connecticut in 2007, marking the fewest permits issued in more than a decade, according to a state report released Monday.
But some experts said the drop contains some good news: Builders apparently cut back their construction plans as the housing market slowed, meaning the inventory of unsold houses is lower in Connecticut than it might be.
There were 6,619 housing permits issued in 128 Connecticut towns last year, a 17 percent drop compared to the almost 8,000 permits issued in 2006, according to the report from the state Department of Economic and Community Development.
The permits are issued for all new residential home construction, including single-family houses, apartments and condominiums.
The number of permits issued has not been lower for the 128-town region surveyed by the U.S. Census since 1996, when 6,582 were issued. The number of permits issued for all 169 Connecticut towns is not expected until May.
"With the credit crunch, the economy on the way to recession, soaring energy prices — all of this combined following a boom of several years resulted in this correction," said Kolie Sun, a senior research analyst for the state. "It's a very low number and not a good sign about the overall housing market."
Some housing experts said the drop in the number of houses being built — permits issued are down 35 percent since 2005, when more than 10,000 permits were issued — could indicate an impending housing recovery. It usually takes about nine months from the time a permit is issued until a house is built.
"The good news is builders cut back early. They saw the slowdown and wisely cut themselves back," said Ron Van Winkle, a West Hartford economist. "It's a good sign for the market because it says there isn't going to be a lot of inventory to sell off — certainly not as many homes on the market as there could be."
Permits varied widely by town. In Manchester, 326 permits were issued in 2007, an increase of 63 percent compared to 2006.
In Farmington, there were only 53 permits last year, a decrease of 48 percent. Stamford permits jumped by 87 percent, from 273 in 2006 to 512 last year.
In Hartford, permits dropped 62 percent, from 312 to 116.
Bill Ferrigno, president of the Home Builders Association of Connecticut, said that builders are simply responding to the market.
"We are building at a rate that is sustainable for the economy we're in," he said. "In the old days it was build, build, build. Now a lot of us are responding as we should."
Those "old days" were the boom years of the 1980s, when Connecticut's housing market was soaring and prices increased statewide by 25 percent two years in a row. Then, more than 20,000 permits for new construction were issued in one year, many built on speculation without a buyer lined up.
Following the crash in the early 1990s, new home construction came to a virtual halt. In Bridgeport, for example, only one residential building permit was issued in the first three months of 1991. In 1986, 633 had been issued.
"Builders are far more cautious. Even if you pull a building permit builders are cautious about starting construction," Greg Ugalde, president of Torrington-based T&M Building Co., said Monday.
Ugalde said his company has six subdivisions under construction, in Bloomfield, Ellington, Colchester, East Granby, Windsor Locks and Torrington, but plans to build between 15 percent and 20 percent fewer homes in 2008 than last year.
"We're still signing contracts, but not at the pace of those record years in 2004 or 2005," he said. "We are better off than most parts of the country, without a doubt, but we are influenced by that."
Ferrigno, however, who owns Sunlight Construction in Avon, said he plans to build more this year. He has two projects under construction, a modestly priced active-adult community in East Hartford and a 14-unit luxury development in Avon with homes priced between $1.5 million and $2 million. He even plans to build two spec houses there before he has buyers.
"I think there's pent-up demand," Ferrigno said. "In the past two months we've talked to more people than in the last four months before that. Are they more cautious? Yes. They are seeking more options. But we're planning on 25 percent more

- Sellers Sweeten The Deal

Tuesday, February 19, 2008

Real estate flipper Val Tatasciore last year offered a classic blue Mercedes two-seater sports car as an incentive to anyone who paid full price for his Madison beach house, then on the market for $1.44 million. But the Mercedes, valued at $26,000, failed to entice a buyer, so Tatasciore withdrew the offer.

His real estate agent, Lili Mastronardi of H. Pearce Real Estate, said Tatasciore has been paying the mortgage on this investment property while the house stays on the market and can no longer afford to sweeten the deal with the Mercedes. It is in the garage and also for sale — separately from the house.

Home sellers are using incentives like cash bonuses to the buyer's agency and gifts of personal property to the seller at closing, such as a pool table, dining room set or entertainment unit. But sellers aren't as desperate as the public may think, agents say. While incentives may bring more lookers to a home, ultimately it's all about the price, and many sellers are holding firm.

"I'm seeing more credits [than in previous years], like a $2,500 credit for decorating or a carpet allowance," said Marie Mansolillo, an agent with William Raveis in West Hartford. But, she added, "I haven't seen boats or cars or vacations."

Offering cash bonuses to agents has become increasingly popular, and amounts from $1,000 to $10,000 aren't uncommon. The seller of a $1.2 million home in West Hartford offered $7,500 to the agent who could bring a buyer in the door by the end of 2007, said Kara Flanagan, an agent for Coldwell Banker in West Hartford. When the bonus was advertised to agents, Flanagan noticed that traffic at the house did pick up. But the house is still on the market, and the bonus went unclaimed.

Flanagan said she had heard of a Windsor couple who successfully sold their home, offering two free plane tickets. They believe the incentive helped.

Some agents take a dim view of incentives; others think they can help, but only a bit.

"Offering plane tickets to buy a $500,000 house cheapens the transaction," said Evan Berman of ERABroder Group in West Hartford. He also said a cash incentive offered to him would not motivate him to sell a house.

"I am looking out for my client's best interest, and I'm in the business of building long-term relationships," Berman said. "A large percentage of my business comes from referrals."

Real estate agent Joe Kelly said one of his clients owns a car dealership and is thinking about offering a free three-year lease on a car to the person who buys his home.

The come-on might help create additional visibility, said Kelly, of Page Taft Real Estate in Essex, "but I don't think anyone is going to buy the place because of it."

Kelly has been experimenting with "value range pricing": Instead of offering one set price, the seller offers a low and a high price, indicating a willingness to negotiate. One of Kelly's listings is an unusual 1850 federal colonial on the Connecticut River in East Haddam, with a swimming pool and a deep-water dock. It has been on the market for more than a year, so the client decided to list it from $999,000 to $1.125 million.

"We're trying to create more activity, and to turn casual buyers into serious buyers," Kelly said. "If we just listed it at the $1.125 million, we wouldn't get as many people to look. It's a marketing strategy. The property owner is not required to take the low offer."

Buying down the mortgage is another incentive that can appeal to a home buyer. Mortgage broker Scott Beckwith of East Shore Mortgage Co. in Madison said a seller can offer the buyer a discounted rate through the mortgage company. If the buyer's mortgage would be $250,000 at 6 percent and the seller agreed to pay 2 points, that would effectively lower the mortgage rate to 5.5 percent. The monthly payment would drop nearly $80 a month, for a savings of more than $28,000 over the life of the 30-year mortgage.

This option isn't pushed by many real estate agents, because they don't know how to present it, said Karen Stephens, owner of Page Taft Real Estate in Guilford.

"If interest rates rise in 2008, you will see it more, because it can get a buyer into a house that they would otherwise not be able to afford," Stephens said. "It's all about the monthly payment. If the buyer can save $100 or $200 on the monthly payment, it may be enough."

Although mortgage rates are favorable, homes are staying on the market longer than last year, Mansolillo said. Many sellers believe their home should sell for the same price their neighbor's sold for a year ago, but the market has changed.

"If houses are priced correctly, they will get moving," Mansolillo said. "If the house is in good condition and just needs decorating, buyers are willing to jump, but you don't see the frenzy of multiple offers that you would have seen in years past. Houses are not flying off the shelf; you have to be realistic."

- Bush, House pen rebate blueprint

ANDREW TAYLOR and JULIE HIRSCHFELD DAVIS Associated Press Printable Version
Tuesday, February 19, 2008

WASHINGTON — If you get a pay envelope, Uncle Sam's about to put a little something extra in it. And he wants you to go out and spend, spend, spend.
Starting around May, most taxpayers can expect a $600-$1,200 rebate from the federal government under a deal announced Thursday by congressional leaders and President Bush.

The deal came together with unprecedented speed as Congress and the White House moved to begin rushing the tax rebates to most tax filers by spring, hoping they will spend the money just as quickly and jolt the ailing economy to life. Rebates would be even higher for families with children.

The one-time tax rebates are at the center of a hard-won agreement to pump about $150 billion into the economy this year and perhaps stave off the first recession since 2001. House Speaker Nancy Pelosi, Republican leader John Boehner and Treasury Secretary Henry Paulson worked out the details in negotiations that stretched into Wednesday night at the Capitol.

Approval by the Senate is needed, too, but pressure is strong for quick action by all concerned.

About two-thirds of the tax relief would go out in rebate checks to 117 million families beginning in May. Businesses would get $50 billion in incentives to invest in new plants and equipment.

Individual taxpayers would get up to $600 in rebates, working couples $1,200 and those with children an additional $300 per child under the agreement. In a key concession to Democrats, 35 million families who make at least $3,000 but don't pay taxes would get $300 rebates.