Texas Land Attorney

Short Sales - Solutions and Investing Opportunities

As we near the end of a default cycle in the Real Estate market, there are a large number of unique opportunities available for those that are in need of assistance, as well as investors.

While foreclosures are still high, lenders are finding new ways to prevent an unmanageable increase in their REO portfolios. Initially, the options they selected were modifications, but these are also proving to fail in many cases. Because home prices are often lower than what is owed for those that fall behind, lenders are now becoming more open to the short sale alternative.

A short sale is defined as a sale of property by an owner in which the lender(s) agree to take less than what is owed. Historically, lenders have opposed this practice, as they felt as if the property value at a foreclosure sale would generate a better return. This school of thought is no longer part of the majority.

As a homeowner, if you cannot afford your payments, seeking a short sale may be a viable alternative to enduring the costs and embarrassment associated with an actual foreclosure. For investors, this is a great way to capture properties before the foreclosure fees are built into the REO sales price.

The key to obtaining solid short sale assistance is a good Realtor that is trained in this area. They will know how to help you negotiate with the lenders and other lienholders that impact the property. I recommend seeking out someone in your community to work with that holds the designation of Certified Distressed Property Expert. These individuals have received special training in dealing with short sales and other solutions for the deflating market conditions.

Recently, I had the privilege of discussing this option with Renee Hediger, who is a Realtor holding the CDPE designation at RE/MAX DFW Associates, Inc. When I have questions on this topic, she will be someone I seek out for advice.

Renee can be reached:

972-393-9656
reneeh@rmdfw.com

If she doesn’t service your area, I am certain she will help you find someone that can help.

Posted in Real Estate | No Comments »

HSA - Health Spending Accounts

A growing wealth planning tool, the Health Spending Account (HSA), was enacted by a Medicare bill signed into law December 8, 2003. Under this program, individuals are able to absorb some of their own health risks and lower their premiums as a result.

The HSA program works in conjunction with your health insurance, which must be a High Deductible Health Plan (HDHP). This type of insurance is useful for individuals who do not need regular medical treatment or medication. The drawback is that the deductible must be signficant ($2,200 for a family at a minimum). This means that the bulk of your medical expenses will need to be paid out of pocket until the deductible is met.

With a high deductible comes a much lower premium. With lower premiums, individuals can often afford to contribute money to their HSA.

HSA contributions are tax free (above line deduction if paid for with after tax dollars). The maximum contributions of pretax dollars as of 2007 is $2,850 for individuals and $5,650 for families. These values are adjusted upwards for inflation.

The money contributed to the HSA can then be invested or held in a higher interest savings account. Many Banks and Financial Companies have options for individuals wanting to set up an HSA.

If you do get sick or injured, you can take funds from the HSA and use them to pay for “approved medical expenses”. These expenses include co-pays, deductibles, and other uncovered expenses. When the money from an HSA is used for this purpose, there is no tax consequence.

For complete details on the HSA program and how to establish your own, visit the U.S. Treasury section on Health Savings Accounts (HSAs).

Posted in Estate Planning | No Comments »

REO Growing Inventories = Good Buys?

With the surge in foreclosures over the last year, Mortgage companies are beginning to gain large amounts of property. When property is sold at foreclosure, the Mortgage lender typically bids at or near the loan payoff amount. With historically poor underwriting decisions, lenders are now finding that many foreclosed properties do not have a fair market value equal to that owed.

When property is moved into a lender’s portfolio, it is referred to as Real Estate Owned (REO). As inventories grow, prices tend to fall. Currently, many lenders are being forced to take losses in order to move properties from their portfolio.

To find REO properties in your area, there are several avenues. Most Realtors can obtain this information through MLS. Also, you can consult the REO portion of each lender’s website. Below are some of the larger selections:

Countrywide
Bank of America
Fannie Mae
CitiMortgage

For a complete listing of REO properties, you should consult a local Realtor.

Posted in Real Estate | 1 Comment »

Free Credit Report and Score?

While often advertised, consumers find regularly that credit reports and credit scores are rarely free. Instead, they are provided as an incentive to encourage enrollment in monthly monitoring programs, which, of course, have a fee.

This issue could change with the recent Class Action Settlement involving Transunion. While admitting no fault, the settlement is designed to repay those who had their personal information sold to third parties. As settlement, Transunion is offering consumers a couple of options.

How do you qualify? If you had an open line of credit or credit account from January 1, 1987 to the date of the Preliminary Approval of the settlement, you will likely qualify for benefits under the settlement. The date under which you can file for benefits under the settlement is June 16, 2008

There are two options for recovery under the settlement - (1) Basic in Kind Relief and (2) Enhanced in Kind Relief. As the consumer, you will be able to elect either at your preference. What’s the difference?

Basic in Kind Relief - Benefits are for 6 Months
-Unlimited daily access to Credit Report
-Unlimited daily access to Credit Score
-24-hour email credit notification service
-Retail Value - $59.75
-Access to any remaining settlement funds

Enhanced in Kind Relief - Benefits are for 9 Months
-Unlimited daily access to Credit Report
-Unlimited daily access to Credit Score
-24-hour email credit notification service
-Suite of Insurance Scores
-Mortgage Simulator Service
-Retail Value - $115.50
-Full settlment (no access to any excess settlement funds)

To discover all of the details of this settlement agreement and how it can benefit you, please visit the Transunion Settlement Site.

Posted in Debt, Collections, and Credit | No Comments »

Should I use a Realtor to Sell my Home?

A question that I am often asked is if a Realtor is truly necessary to sell a home. The answer is almost always no, but you probably should.

Realtors provide a very important service to both buyers and sellers of real estate. The key is to find a Realtor that will work for you and assist you in buying or selling a property that fits your needs and your budget.

When selling a home, a Realtor can assist you in determining what properties are selling for in your neighborhood, as well as the timelines under which it takes for the property to move. They can help make recommendations on small, often inexpensive, changes that you can make to the appearance of your home that can bring significant value increases and increase your marketability. Through a talented Realtor, you will often be able to claim a higher sales price for your home in a shorter period of time than you would be able to on your own.

The commission is something that many individuals have difficulties with accepting. In Texas, it is customary for a seller to cover the Realtor commissions in a transaction. The commissions are normally 6% (split between the two Realtors if there are two), although the actual commission rate is negotiable. While 6% can seem high, the value obtained at this rate can often pay for itself and then some.

When shopping for a Realtor, you should consider their experience. Ask them how many homes they have sold in your area in the last year. Ask them for references from previous clients. If you are not satisfied with their experience or references, then keep shopping until you find one that you feel will meet your needs.

For more information on Realtors, their regulations, and requirements; you can visit the Texas Association of Realtors.

Posted in Real Estate | No Comments »

Credit Repair - Does it Work?

A question that many would be borrowers are finding themselves asking lately is if Credit Restoration is an option. The answer, often, is that it can be.

The Credit Industry is tied closely to three large Corporations known as Credit Bureaus (Equifax, Transunion, and Experian). Each of these companies, if you have ever borrowed money, will have your address, social security number, employment history, and credit records. Their actions are regulated by the Federal Trade Commission.

The FTC correctly states that “self help” may be the best option for consumers who wish to correct their reports. To be able to perform the necessary actions, one must spend time studying the free resources available on the FTC’s website. If a consumer has the time to invest in the process, I too agree that the FTC is accurate in their assessment of credit report challenges. Often, as with other services (i.e. yard work, oil changes, etc…), individuals do not have the time and/or desire to handle the repair process themselves.

For those that do not wish to do the work themselves, they can hire a Credit Repair Company (often referred to as a Credit Services Organization). Many of these companies have been lumped together with a bad reputation that was built by a number of scam artists. While there are still a tremendous number of companies that take advantage of uninformed consumers, there are still others that provide a great service at a reasonable price.

In searching for a reputable company, you should confirm that the particular business is licensed in the State they exist (each State typically has their own bond and licensing requirements). You should also compare the fees of the company with others in your area. If the fees are excessively high or very low, then it could be a good sign of a problem. As with all companies, you should look to see if there is a file with the Better Business Bureau.

Credit Repair Companies will typically issue challenges to the three credit bureaus using your name. The results will then be provided back to you directly. It is important that you provide them to the Credit Repair Company regularly, or else they will never know what the results of the challenges are. Also, it is crucial that you provide the Company with any supportive information that you may have related to the accounts that are appearing on your report.

An alternative to using a Credit Repair Company is to use a local attorney who handles debt negotiations and credit disputes. A benefit of this route is that the credit bureaus recognize an attorney as an individual who can issue challenges on behalf of another person. For this reason, the attorney acts under their own name and on your behalf. Further, should you have additional needs (i.e. debt reduction/negotiation), an attorney can often handle the multiple issues simultaneously.

Under any option that you choose, the most important thing you can remember is to always pay all of your bills timely. Simply by being enrolled in a credit repair program does not mean that a consumer can cease paying their bills. If you make a decision to work on your credit, paying your bills is the most important foundation.

Posted in Debt, Collections, and Credit | 3 Comments »

Divorce and the Hidden Credit Dilemma

Divorce is an unfortunate occurrence that is extremely common. Though much of the pain associated with a divorce occurs throughout the actual mediation and trials, there is often a dormant pain that can appear, sometimes years later. Unfortunately, many divorcees do not recognize this problem until it is too late.

With home ownership at record levels, most divorces involve the division of property where one of the parties will be receiving the community homestead. The homestead is often encumbered by a Mortgage and both parties are liable for it. The Mortgage would have been obtained, in most cases, by considering the combined incomes of the parties.

When a divorce occurs, the Mortgage company is not normally made a party. For that reason, the court cannot relieve the liability of either party to pay the Mortgage. Even if the property is awarded to one of the parties and a Deed of Trust to Secure Assumption is filed, the party “relieved” of the liability is still technically liable to the Mortgage company.

An extremely common side effect of a divorce is foreclosure. This is because the receiving party of the property is accustomed to managing the home with two incomes and now only has their own.

When a foreclosure does occur, sometimes the first notice of it to the relieved party is just prior to sale, a time when remedying the default may be impossible. A foreclosure can shatter ones credit scores for years.

Another possible addition to the foreclosure is a deficiency judgment. This type of judgment occurs when the property sold at foreclosure does not bring about a significant enough price to fully cover the indebtedness. When this does occur, a deficiency judgment can be sought against the debtors for the difference. This judgment can be applied against both parties, regardless of the fact that the Family Court relieved one of financial responsibility for the home.

The solution is simple. When the community holds real estate encumbered by a Mortgage, a relieved party should always insist on the sale of the real estate or the immediate refinance of the property by the receiving party.

Posted in Debt, Collections, and Credit, Real Estate | 3 Comments »

Becoming a Landlord

With the continuing struggles of the credit industry, it is becoming more and more difficult for individuals to obtain financing to purchase a home. As a result, leasing property is beginning to grow in both occupancy and rental rates throughout the country. This shift could result in a number of investor opportunities, but the returns do not come without their own levels of risk.

To begin renting property, a landlord must do the obvious - acquire property in a desirable area. With Real Estate Owned volumes increasing within banks and mortgage companies, an investor with excellent credit and cash for a down payment can find some great deals on properties that were recently foreclosed on. Because the inventory of properties is increasing for many lenders, they are beginning to sell their holdings at current market values (or less), which are generally lower than what the properties would have sold for a few years ago. Recently, Congress has been discussing adding some tax incentives to buying properties that are either in foreclosure or just out of foreclosure
(See CNN Recent Article) .

Another area that can be looked to in order to find value properties is in condominium complexes. The benefits of a condominium are that you have far less maintainence concerns, as the management company will likely handle all of the outside of the unit (including the roof). Condominium rentals also reduce your insurance costs, although you will have to pay HOA/Condo Association dues.

Once you have located the area and property types that you wish to invest in, you must then determine if you can qualify for loans in order to acquire the rental units. To do this, you will need to find a lender that is experienced in putting together loans for landlords. Often, loan officers are only knowledgable about products designed for homeowners, which can cause problems when trying to use the loans for business, rather than personal, reasons. Currently, you can expect to need a minimum of 10% of the purchase price for the down payment and 2-5% more for closing costs (assuming excellent credit).

With financing in order, you then must project revenue. If you have large cash reserves, you may be willing to purchase properties that will not have any cash flow at all. If you expect to need some cash flow, then you will need to be more particular about which properties you choose to purchase. Under either scenario, you will want to befriend a Realtor in your area to assist with obtaining the comparables (rental rate data for the properties you are interested in). With this data, you can project occupancy rates, estimate rental value and determine what your average monthly income will be. From this information, you should deduct your projected mortgage costs and repairs. A good Realtor can advise you on how much certain repairs will cost and which repairs are most common for the property type you are interested in.

A popular misconception for many landlords is that cash flow will be common. In most cases, properties do not generate much, if any, net cash flow initially. Instead, the purpose is to generate wealth by increasing your equity in the property over the period of time in which you are leasing it out. If generating monthly income is your goal, then becoming a landlord is probably not for you.

The final of the major concerns before purchasing the property is to put in place liability protections. While leasing to a tenant as an individual is perfectly allowable, personal liability risks can make this option very unfavorable. Most investors form Limited Liability Companies, Limited Liability Partnerships, or Corporations. The entity formed then takes ownership of the property and obtains liability insurance.

The costs associated with forming an entity to own your property may not make sense if you are only planning to obtain one rental property. But if your goal is to obtain multiple properties, the additional costs for each property for this protection is minimal. In making the decision, it is wise to consult not only your attorney, but also your accountant. Their combined input can help you reach the best balance in profitability and protection.

Posted in Real Estate | No Comments »

Current Mortgage and Real Estate Concerns…and Opportunities

If you have turned to the news at all in the last year, you have undoubtedly seen the large number of foreclosures and falling home prices throughout the nation. Due to previously booming years of housing price increases and easy credit underwriting, a bubble was created that was sure to burst. Now that the bubble has done just that, many are concerned about what to do next.

As with any major shift in the market, a number of great opportunities are created by the current state of affairs. If you already own Real Estate or are planning to buy, then the fact that rates are hovering between 5.5 and 6% for fixed rate 30 year Mortgages (see Freddie Mac) should bring refinance options to mind. With rates at these levels, refinancing may make sense, but you should do some research first. In order to determine if you will save money by refinancing at current rates, you should consider the terms of your current loan (interest rate, monthly payments, years into amortization schedule, etc…), the terms of the new loan (remember to evaluate all loan and related fees), and the amount of years you plan to reside in the home.

An investment opportunity may also exist in the current real estate market. Because many homeowners are now unable to qualify for financing under the new underwriting guidelines, they are forced to rent. If you have sufficient credit to qualify under the new standards, then becoming a landlord is becoming more and more attractive in some areas of the State.

Becoming a landlord has serious considerations though. Not only do you have to evaluate the projected monthly costs of maintaining the property, you must also be able to calculate the average rental rate (including vacancy periods). Additionally, there are a number of liability concerns when renting to a tenant that should be reviewed, although these liabilities can usually be controlled with proper entity formation and insurance policies. You should be able to answer all of these questions and have a solid business model before entering the landlord market.

Yes, the current market is troubling, but there are still opportunities for success. With careful planning, caution, and research, being succesful in the real estate market remains possible.

Posted in Real Estate | No Comments »

Coming Soon!

We are still working on configuration issues and template settings. Once we are comfortable with the layout and the features, we will begin posting on the issues. Thank you for your interest.

Posted in Uncategorized | 2 Comments »