Short sales, mods give investors grief
Multiple assets make qualifying for help a challenge
By Bernice Ross, Friday, September 25, 2009.DEAR BERNICE: I have two investment properties in Hawaii. I paid $500,000 for them and now they're worth $725,000 ($350,000 and $375,000). I owe about $379,000 on one and $399,000 on the other. The rental income has gone way down (from $6,500 per month to $3,500 per month.) The dues are very high. Do you suggest trying to do a short sale or should I go for a loan modification? --Rich S.
DEAR RICH: To obtain a short sale, you generally have to demonstrate hardship. Since these are both investment properties, it's highly unlikely that you will get a loan modification from a lender. According to the U.S. Department of Housing and Urban Development, less than 3 percent of all applicants are approved for a loan modification.
The most important step that you can take right now is to talk to a certified public accountant (CPA) or a tax attorney. Since these are investment properties, different rules apply to their sale and how the losses are treated. There are a variety of issues that you need to address. First, how much is your cost basis in each property? Have you been claiming depreciation?
Have you taken any cash out of the properties by placing additional financing on the properties? Each of these issues must be taken into account so you can make the best decision possible about your choices. Please review the situation with a CPA or tax attorney before you do anything else.
Even if a short sale appears to be a viable solution, you will need a seasoned real estate professional to conduct the sale. Interview multiple agents and ask for references on the last five short sales that they did. If they can't supply those then look elsewhere.
You will also have to demonstrate hardship. If you have other assets, the likelihood of the lender taking a short sale is also slim. Depending on the laws in Hawaii and the type of loan you obtained, the lender may have a legal right to attach your other assets to obtain the money you owe. Speak to an attorney who understands this part of the law; it is illegal for your real estate agent or broker to give you this type of advice.
Depending upon your current financial situation, you may be better off selling the properties outright and taking the loss. For instance, one of our limited liability companies (LLCs) had an operating loss for 2008. Our CPA advised us of a change in the tax law that allowed us to apply that loss against the income we had in an earlier year.
We chose a year where we paid the maximum amount in taxes and carried back that loss. The result was a healthy refund for 2006. Again, it will take a CPA or tax attorney to determine which way will net you the most money in the long run. ...CONTINUED
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Submitted by Wenceslao Fernandez Jr, BS, Realtor, CDPE on September 25, 2009 - 9:09am.
Mr. Rich S (HI), I'd like to invite you to visit http://www.CDPE.com to find out What is a CDPE and how can one of these experts help you with your situation in HI (we are almost 12,000 strong and there are several in HI).
If the result of your investigation and consultation with the professionals Bernice suggested leads to a property sale solution (i.e.: Short Sale), hiring a qualified Realtor (remember - only members of the National Association of Realtors who adhere to a strict Code of Ethics can use the term Realtor), who is additionally trained in matters relating to Distressed Property Sales as part of your team will be
key to your success.
All the best and remember that Luck, Is When Preparation Meets Opportunity.
Taking Bernice's advise, you can prepare to meet the many opportunities this market offers.
--
Wenceslao Fernandez Jr, BS, CDPE
Certified Distressed Property Expert (http://www.CDPE.com)
Keller Williams Realty Miami Beach
Serving Eastern Miami-Dade & Miami Beach, Florida
Seach Florida Properties in YOUR language: http://www.Immobel.com/MiamiRealEstateKing
http://www.ISellMiamiBeach.Info
Submitted by William Metzker on October 1, 2009 - 1:49pm.
Mr. Rich S--I do not necessarily concur with the advice given here. The first thing I suggest is balancing loan modification versus short sale. In the first instance, you keep the house, and in the second, you don't. That's a decision you need to make.
While it's true that investors are not being helped much--in fact, they are excluded in the Help for Home Owners and Making Homes Affordable federal programs--it's less true than it was a few months ago.
I don't know how the market is in Hawaii--I suspect pretty bad--and I'd bet a dollar to a dime that your lenders do not want to take back your property. Small as that sounds, it does give you more leverage than you think.
If you haven't done so, call your lender and lay it out. You can do this, believe me. The answer you get will determine your course of action.
In the S & L crisis days, lenders were writing off parts off loan balances in a process called "loan workout." Today, in states hard hit by foreclosures, lenders are doing it now in a very selective basis. If you can't get a good loan modification over the phone, spend a few hundred dollars on a lawyer who's up on this stuff. I'd suggest you retain the attorney who represents the local National Association of Realtors branch, because they're on top of what's being done like nobody else. For as much money as you're talking about, a few hundred in legal fees is cheap.
Calling a real estate agent is the LAST thing you should do. In general, real estate agents only get paid if they sell a house, so their advice will gravitate towards selling. That may not be your best course.
If it comes to a short sale, don't necessarily choose an agent who's done a lot of them. You don't need someone who was saying what a great buy a place was at $500,000 a couple of years ago and who's now saying you have to short sell it at $375,000. You need someone who understands loan servicers and the loss mitigation process. This person might be a short-sale experienced r.e. agent and it might not. You'll know when you talk to them.
My website, www.mortgagerescuecafe.com has a lot of information. It won't all pertain to Hawaii, but you'll know more than you do now.