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Charlotte Real Estate Investment and Short Sale Opportunities

The time has never been better to take advantage of the many Charlotte real estate investment opportunities.  According to FinestExpert.com, Charlotte is a Top 10 Market for Real Estate Investments.

The FinestExpert data would confirm that Charlotte is an ideal buy-and-hold real estate market.  For the first-time homebuyer, a property could be found for less than it would cost to rent if the cash flow is right.  For the investor, a strong buy-and-hold market could be an ideal starter property.

But before moving to invest in this undervalued market, make sure you understand the basics of a real estate short sale, and then get the help of a licensed Realtor in the Charlotte area.

Essentially, a short sale involves purchasing a home for a sum that is less than the amount owed on the home.  Why would someone want to sell a home for less than what is owed?  The reasons are sound.

A bank may be able to save a lot of money by letting a house go in a well structured short sale. If the property ends up on the court house steps, they could lose much more.  That does not count the costs of staff, legal work, etc. The trick is being able to do two things well: 1) negotiate a good price for both parties involved in the deal, and 2) be able to keep the paperwork moving through the bank in a speedy manner.

This is where a licensed Realtor can help.  A qualified Realtor can help you navigate the waters quickly and easily, and make a challenging process seamless.  A realtor can also save you money.  A well negotiated short sale can allow you more money to put into improvements, especially those qualifying for tax credits under the economic stimulus plan for 2010.

This is a great time to find Charlotte real estate investment opportunities, whether you are a soon-to-be home owner or an investor looking for properties to add real estate to an investment portfolio.

Short Sale NC: Advantages of Working with a Local Realtor During a Short Sale

In the current real estate market, the purchase of a home by a short sale transaction can make a lot of sense. Buying the home at a less inflated price can save you money. If you really want to succeed, you might want to consider working with a Realtor when completing a short sale in NC.

If you were not going to work with a Realtor, what other options would you have? You may or may not get lucky enough to find a home owner smart enough to negotiate such a deal on their home, but they will NOT be looking out for your best interests. It is not necessarily going to be an easy task. At best, you will still need some legal representation.

You might also end up talking to a real estate investment company or specialist. In this case, you may be working with someone who has the expertise to negotiate with your lending company, and guide the transaction through to closing. You gain some legal and technical expertise here, but there is a catch. The real estate investor is not required to be licensed, and therefore does not have to abide by the same code of ethics as a Realtor. These folks are strictly in the deal to turn a quick profit. They can have a buyer waiting for your house, as the property is closed. The REI route has also become quite the “get rich scheme.” There are lots of people that teach the basic concepts of real estate investment to anyone.  Chances are, you may end up working with someone with little to no experience negotiating a short sale transaction.

The final thing to consider is that, most of the time, banks like working with Realtors for short sale NC transactions. They realize the Realtor will be paid a fairly consistent commission for their work, versus the type of profits that real estate investors can often turn. If they know they are working with someone licensed, with a good reputation in the local community, you will often get a better deal from the bank.  Working with a Realtor during short sale can make the transaction a win-win for you and your lending institution.

April 7, 2010

Charlotte Short Sale and Impact of HAFA

In this difficult economic environment, many Charlotte homeowners find themselves underwater on their mortgage.  Many homeowners have heard about a short sale, and ask if this is a better option than a foreclosure.

The simple answer is Yes.  A short sale is a much better option for a homeowner than  a foreclosure. Here’s why:

1) Credit:  If your house goes into foreclosure, this could negatively impact your credit for up to 10 years.  A short sale on the other hand is less severe.  A short sale may only impact your credit for up to 2 years.  If you short sale your home and maintain your financial worthiness, then you can re-establish good credit in a shorter amount of time.

2) Another consideration is how long you need to stay in your home.  If your house if foreclosed upon, then you will be forcibly removed by local law enforcement.  Yet, with a short sale, you can remain in the house during the sale negotiations.  Clearly a short sale is a much more practical option.

3) There are additional financial considerations of a short sale versus foreclosure.  In a foreclosure scenario, you will get a deficiency judgment for the entire amount you owe.  This amount will need to be declared on both federal and state taxes.  If your lender agrees to a short sale, you might have to pay income tax on any resulting deficiency.  But there are some exceptions that will allow you to avoid paying this tax.  According to the Mortgage Forgiveness Debt Relief Act, you may qualify for an exemption if the loan was secured by your primary residence.  Under this act, you can exclude up to $2 million in forgiven debt.  In this scenario, you do not have to pay income tax on the deficiency.

It is best to get the most amount of money for your property in a short sale to cover any deficiency judgments.  One way to do this is to work with an experienced real estate professional who can get you multiple offers on your property.

Now is a great time to consider a short sale if you are a homeowner.  The Home Affordable Foreclosure Alternatives Program (HAFA) aims to make short sales easier for homeowners and the banks involved in structuring the loans.  Not only will HAFA make it easier to complete a short sale, but borrowers can get a $3,000 “relocation incentive” and servicers (ie- banks) will get $1,500 for handling a short sale.  This program will go into effect on April 5th, so if you are a Charlotte homeowner behind in your mortgage, this could be a great time to consider a Charlotte short sale.

Disclaimer:  For all financial issues or concerns, it is advisable to consult with a tax attorney and/or CPA.  Content in this article is not tax advice, and is only a representation of possible outcomes during a short sale or foreclosure situation.

Owner’s Choices: Short Sale versus Loan Modification

Recent legislation encourages loan modification in an effort to decrease the number of foreclosures. If you are meeting with homeowners, see if one of their goals is to keep their home.

The new rules on loan modification provide relief for people who have had financial difficulty, but remained current on their payments. There are also some new programs for those in imminent danger of foreclosure, and those who are already up to 60 days late on their payments.

These programs are only for a family’s principal residence. It does not apply to second homes or investor owned properties. Loans that were originated before January 1, 2009 are eligible for modification.

Loan servicers will follow a series of steps specified in the programs to reduce the homeowners’ monthly payments in order to first bring the amount of the payments down to 38 percent of gross monthly income. As a second step, the government will share in the obligation to lower the payments even further to 31 percent of borrowers’ income. The first step in the process involves reducing the interest rate down to as low as two percent. Next, the term of the loan can be extended to up to 40 years. As a last resort, the principal of the loan can be reduced. The homeowner’s monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner’s association dues and/or condominium fees.

There is a payment to the loan servicer from the government to encourage the completion of this process. Also, if the borrower makes the mortgage payments on time for three years, there is a principal reduction payment by the government to the lender as a reward to the borrower for staying current on the financing.

To qualify, the borrower must still be employed and show the ability to make the payments after the adjustment. The loan can be well over the 80% of the value of the home that is required for refinancing. In fact the loan can be over 100% of the value of the home, so that people who want to keep their homes, even if it is worth less than the amount of the loan, can get their payments in line and stay in their home. The borrower gets only one loan modification, so it better be right the first time, because there will be no second time.

Loan servicers will use a net present value (NPV) test as a standard to judge each loan that is at risk of imminent default or is at least 60 days delinquent. The NPV test compares the net present value of cash flows with and without modification. If the test is positive – meaning that the net present value of expected cash flow is greater with a modification – the servicer must modify the loan. If the NPV test returns a negative result, loan modification is optional.

To see the Guidelines issued by the US Treasury, click here. For details on the Making Home Affordable Plan with all of its modification opportunities, click here. For all the details on the Financial Stability Plan that is part of this initiative, click here. Executives from Housing and Urban Development emphasized that access to the loan modification program is free and they warned homeowners to beware of rescue scams that claim to charge a fee for a government modification

For owners who have lost their jobs, this program will not work. If the owner needs to sell the home to move to another area, or if there are other personal issues such as divorce, these programs will not change the choice of pursuing a short sale. But for families who want to refinance out of a bad loan but have been prevented from doing so because the value of the home has fallen or the loan qualification requirements have become too severe, this new program should work well. In the next few weeks the loan servicers should be set up to review applications for loan modification.

For people who want to stay in their homes, this could be a godsend, if they qualify. There is no moving, no tax consequences, no effect on credit scores and no emotional trauma. For those who have to move, the short sale, deed in lieu of foreclosure or foreclosure itself are still the choices.