Last week I closed an escrow on a home in Sugarloaf CA and had an unusual situation come up.  I thought I would share it with you today as I feel that we can all learn something from it that may help you in the future.

I listed a home in the Big Bear Valley a few months ago as a short sale.  When the seller came to me and asked for help in selling her home, it had been almost a year since he had made a payment.  At first, I was afraid that they came to me too late as the sale date was only 14 days from when they called me.  The first thing that I told the seller was that unless the bank was willing to put a hold on the sale date, there was nothing I could do in 14 days. There was no way I could list the home, get an offer, present it to the bank, negotiate with the Shore Sale Negotiator and close all within the 14 days.  To make a long story short, the bank agreed to give me some time to sell the home as a short sale.

It wasn’t long before I received a full price offer from a local Big Bear agent and the seller accepted the offer in writing. Selling a home as a short sale in Big Bear is no different than selling a home owned by a typical seller. The only difference between the short sale and a retail sale is this.  Once a retail seller signs the offer, we can go right to escrow and open the escrow.  In a short sale offer, the seller signs off on the offer and there is a binding contract between buyer and seller.  The offer is then sent to the bank and it is contingent on the bank’s approval of the offer.

In the situation that I want to discuss with you, the seller read through the offer, noted that the buyer was asking for all appliances and in fact, listed the appliances that they wanted left in the house as part of the offer. Once the seller signs the offer, then we have a binding contract between buyer and seller.

What happens if the seller, after agreeing in writing doesn’t leave all of the appliances?

The buyer was very upset when they took possession of the property and found that some of the appliances were no longer there.  What can the buyer do in a case like this?  The buyer can ask that the seller return the property and point out that it was in the offer and it was signed and agreed to.  That might work if the seller simply over looked the appliance.  But what can the buyer do if the seller refuses to return the said appliance.

The Purchase Contract is between BUYER and SELLER!

The purchase contract is between buyer and seller and if the seller refuses to meet his obligations that are spelled out in the Residential Purchase Contract, then the buyer would have to take the seller to court and get a judgment forcing the seller to abide by the terms of the contract. 

Walk Through

This is a great example of why the buyer needs to do a walkthrough of the property BEFORE escrow closes.  Once the escrow has closed, you lose your leverage with the seller.  You can’t threaten to hold up the escrow if the terms of the contract have not been met because the sale has closed.  I know that Big Bear is a bit of a drive for a number of people who buy cabins up here.  But if you want to do everything in your power to avoid problems like this, then you need to put a day aside and to the walk though about a week before escrow closes

If you have any questions about this blog article, or anything that has to do with Real Estate in Big Bear, please get in contact with me.  It makes no difference if your questions have to do with short sales, REO listings, or retail sales, give me a call or shoot me an email.  I am here to help you!

Most people that I speak with are of the mindset that the Real Estate market in Big Bear is a Buyer’s market.  That is far from the truth.  The inventory of homes for sale in Big Bear is over 600 residential units.  Out of that 600 homes, 50 homes are priced right and it is those 50 homes that all of the buyers are looking at.  Because most of the buyers are concentrating on this small list of homes that are priced right, you are going to see multiple offers on them. 

By the time you get round to making an offer on a Big Bear property, you should have a good idea as to what the homes are worth.  It should not matter if the home is being sold by the owner or it is a bank owned REO, you want your offer to stand out as being the strongest offer.  How do you do that?

1)      Cash Offers always stand out!

Banks and home owners like to see cash offers.  There is much less chance the deal will fall through on a cash offer.  If you have the cash, then make a cash offer.

2)      Offer a good price.

Most banks are making very aggressive offers on their bank owned, REO listings.  If you have the mentality that you’re going to be able to buy the bank owned, REO property for 10% off of asking price, you will never get the property.  If you are looking at buying a REO, you are going to have to offer them asking price if not more if you want to be in the running to get the home.

3)      Shorten Inspection Time Frames

While the California Residential Purchase Contract states that the buyer has 17 days to do his inspections, the bank is going to cut your time periods down to anywhere from 5-10 days.  When you make the offer on the REO property in Big Bear, cut your inspection time frames to a shorter number.

4)      Offer to pay some of the closing costs.

Banks are already losing money and so they are looking at the bottom line.  When you make the offer on the Bank Owned REO in Big Bear, you might offer to pay for things like the NHD, Title Report, and even escrow fees.  The bottom line is all the banks are looking at.  The offer that presents the least amount of risk and provides the highest net is generally going to get the deal.

Because banks like the offers that provide the least amount of risk, they will often take a cash offer over an offer that needs a loan. 

5)      Don’t get Discouraged

You may not get every home that you place an offer on.  But no matter what, don’t get discouraged.  Hang in there, make strong offers and you will find yourself in escrow before you know it.

April 30, 2010 is going to bring an end to the Federal Housing Tax Credit. However, in cases where a sales contract is signed by April 30, 2010, and the home purchase is completed by June 30, 2010 you will still be elegible for the tax credit.

There are always a ton of questions asked whenever I am discussing the Federal Housing Tax Credit with my clients.  So, I thought I would try and answer six of the more common questions asked.

1)     Who is elegible to claim the $8000.00 tax credit?

        First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and on or before April 30, 2010.

2)     What is the definition of a first-time home buyer?

         The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, neither husband or wife owned a home within the last three years

3)    How is the amount of the tax credit determined?

       The tax credit is equal to 10% of the homes purchase price with a maximun value of $8,000.00

4)     Are there any income limits for claiming the tax credit?

        Yes. For sales occuring after November 6, 2009, the income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return.

5)     The income limits for claiming the tax credit were raised when the tax credit was extended. Are the higher limits retroactive?

        NO.  The new income limits are only applicable to purchases occurring after November 6, 2009.

6)    How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?

         You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns.

You may have a number of other questions  that pertain to this

I read this article on CNN/money this morning and thought that the information was worth sharing with you.  There are a lot of misconceptions pertaining to who will and who will not get a tax bill after being party to a short sale or Foreclosure.  While this article helps explain a lot of this, I still recommend that you speak with a tax professional and get his or her advice if you are thinking about selling your home as a short sale or you go through a foreclosure.  

Did you lose your Big Bear cabin to foreclosure this year? Did your lender forgive some of your mortgage debt because you sold it for less than it was worth? If so, you could be facing a big tax hit.

It is IRS policy to tax forgiven debt you are personally responsible for as if it is income. Say, for example, your credit card company settled a $10,000 debt for 50 cents on the dollar. You'd have a debt forgiveness of $5,000, which the IRS would count as income, just like your wages. The same policy held true for most mortgage debt until 2007, when Congress passed the Mortgage Forgiveness Debt Act. That ended the liability for many homeowners -- but not all.

In general, if you lose your home in Big Bear, or anywhere else for that matter to foreclosure or short sale, where you sell your home for less than you owe, the IRS won't add insult to injury by counting the difference as income. At least until 2012.

There are four major exceptions to the rule:

1. You did a cash-out refinance and splurged.

Many homeowners took cash out when they refinanced their Big Bear cabins and used the extra dough to pay for new cars, boats or vacations. Say you did that and then got into trouble, losing the house through a foreclosure or short sale. Even if your lender waived the remaining debt, the IRS will treat as income the portion of the forgiven debt that you took out as cash and spent. Only the funds used to actually improve your home won't be taxed. Yes, even if you spent the money on paying off your student loans or credit cards.

The IRS' reasoning is that only the money spent on home improvement actually added to your home's value. And that, presumably, diminished the difference between what you owed on your mortgage and the value of your home when it was foreclosed.

Beware: Some lenders made refinancing offers contingent on homeowners paying off credit card debt, according to Kent Anderson, a Eugene, Ore.-based attorney and tax expert. If you took one of those deals, the refinance money will be reported to the IRS and you will owe taxes on it.

2. You have a home-equity line of credit.

During the boom years, many homeowners tapped soaring home equity to make all sorts of consumer purchases. But the same rules that apply to refinancing also apply to home-equity loans: The IRS will only forgive the tax liability if the loan money was spent improving your home. And, tax experts advise, you'll need to show receipts to prove you did.

3. You lost your vacation home or investment property.

So the market tanked and you lost your vacation home in Big Bear. Unfortunately, if you didn't use it as your primary residence for at least two of the previous five years, you're going to pay the tax man.

More common, however, may be the case of investment properties gone sour. During the housing boom, buying homes for investment purposes soared, accounting for 28% of all sales during 2005, according to the National Association of Realtors. (Vacation homes made up 12%.) And many of these purchases were made with little down payment.

When the bust hit, second home prices cratered. The median price paid for investment properties fell 43% to $105,000 in 2009, from $183,500 in 2005, according to NAR. For vacation homes, the median price paid dropped 17% to $169,000.

If an investor bought a property in 2005 at the median price and sold it in 2009, he could have run up $75,000 or so in forgiven debt. If the investor is in the 25% income tax bracket, that would add nearly $19,000 to their tax liability. Ouch!

4. You owned a multi-million-dollar home.

It may be hard for Americans struggling in this weak economy to sympathize with anyone wealthy enough, at one time, to afford a multi-million-dollar home. But owners losing one could be on the hook for a huge tax bill.

Only the first $2 million in forgiven debt will be voided under the relief act; all the overage is taxable as income.

So, say, for example, you're Scarlett Johansson. You paid $7 million for your Hollywood Hills villa in 2007. (With a 100% mortgage; this is hypothetical, remember.) But now, you have it on the market for $4.59 million.

Say you can't unload it, your movies tank and you have to a short sale. (Hey, it happened to Nicholas Cage; he went into foreclosure.) If you sell it for $4 million, leaving a $3 million balance, the IRS would forgive the first $2 million. But the remaining million? You better hope you have a good accountant and a lot of deductions.

The good news? Even if you fall under any of these four scenarios, you may have a way out, according to Anderson. "If the taxpayer was insolvent at the time of the foreclosure, the forgiven debt can be excluded for tax purposes," he said. "It can also be discharged in a bankruptcy and approved by court order."

And then there is California

While most states follow the IRS lead and don't tax most forgiven mortgage debt, California still makes you pay. The state legislature hopes to change that before April 15, but right now California taxpayers are legally liable for paying state income taxes on forgiven mortgage debt.

The state, which has endured some of the worst price declines and foreclosure rates in the nation, did follow the federal lead when it passed the original debt forgiveness bill, but the state only authorized the relief for the 2007 and 2008 tax years. There have been successive legislative efforts to extend relief through 2009, but none have succeeded.

One attempt at passing an omnibus "conformity" bill resulted in a veto by Gov. Schwarzenegger for reasons having nothing to do with mortgage debt forgiveness. The governor objected to a different provision covering erroneous tax reporting by businesses.

Confusion and anxiety is running high, according to Rocky Rushing, chief of staff for democratic state Sen. Ron Calderon, who is spearheading new legislation. His office has fielded many calls from unhappy taxpayers.

"We've heard about tax bills in the thousands of dollars," he said. 

This article was taken from CNN this morning.  Here is the link to the article.

http://money.cnn.com/2010/04/08/pf/taxes/taxes_mortgage_debt/index.htm

 When you buy a cabin in Big Bear Lake CA. you not only have to come up with the money to make the purchase, but you have some extra expenses in closing costs.  It’s amazing at how quickly these fees’s can add up and many times, you will find a client who is paying cash for a Big Bear property wanting to cut the Title Insurance Expense.  This is the one fee that you do not want to cut...  In most cases, you don’t see this fee being cut, but I have seen it happen.  Don’t cut this expense!

In December of 2009 I closed an escrow on a home that I had listed in the Sugarloaf area of the Big Bear Valley.  While a few issues came up during the escrow, it wasn’t anything to worry about and the deal closed as scheduled.  The buyer was happy; he took possession of the property and moved in and enjoyed Christmas in his Big Bear cabin.  A few weeks after the escrow closed, the new owner received mail from the county of San Bernardino Assessor’s office.  The letter was to inform him that the property could not be placed in his name as there was a deed that had not been signed off by the previous owner. 

How could this happen? 

That was the first of many questions that was asked of me.  How could this have happened?  Wasn’t a title search done on this property when it was in escrow?  Why didn’t this deed show up then?  What is being done to correct this problem for the new buyer?  Again, I asked, how could this have slipped through the system? 

No matter what the excuse was for what happened, the bottom line is that there was a Title Insurance policy in place.  You might ask, “What is Title Insurance?”  Whenever you buy a home in Big Bear, or anywhere else for that matter, you normally pay for the Title Insurance policy.  A Title Insurance company will guarantee the title to be free and clear of any liens, clouds on title, or any other encumbrances when you take possession of the property. 

Title Insurance

This is just one of many examples of why you pay for that title insurance policy.  While the Title Insurance companies normally do a very good job, every now and then something slips through.  When something like this does happen, the Title Insurance Company step up and takes care of the situation, no matter what the cost.  While this can be a source of contention, the new property owner can rest assured that the title insurance policy that he paid for will take care of this problem.

One of my clients is a major bank and they have a lot of bank owned, REO properties in Big Bear that they need to sell.  Whenever this bank lists a property for sale, they always list the home at a very agressive price.  Juist last week I listed a home for this bank for $215,000 that had a value of $300,000.00  Within the first 24 hours of listing the property, I had five offers

Easter Sunday I was relaxing in my favorite recliner when all of a sudden I felt the chair move a little bit.  At first I thought one of the dogs was lying next to the chair and moving around a bit.  Within just a few seconds, I realized that we were feeling an earthquake.  The earthquake went on for some duration and before it was all said and done, the ceiling fans were all swinging and a few things fell off the walls.  The earthquakes normally felt in Big Bear are hard jolts with the epicenter just a few short miles away.  But this one was different.  It was more of a rolling type of feeling and it the duration made me think that it was a large earthquake and it was some distance away.

As we all know now, this was a 7.2 magnitude earthquake out of Mexico that killed 2 and injured hundreds.

This got me thinking about my own insurance coverage and whether or not I should look into buying earthquake insurance.  Most people you talk to will say that the cost of Earthquake insurance is high and the odds that they will be affected are so low that it’s not worth the expense.  It is true that the premiums can be expensive, depending on where you live in comparison to a major fault line as well as the age of the home.  The deductable on the earthquake insurance is going to be either 10% or 15%.  In other words, if you have a 10% deductable and there is a major earthquake that does $100,000 worth of damage to your property, you are going to be responsible for the first $10,000.  If you have a 15% deductable, then you’re paying the first $15,000.00.

Here is just some food for thought.  While you may feel that the deductibles and premiums are too high and the risk is low.  Without any earthquake insurance, your deductable is going to be 100% should you suffer a large loss as a result of the earthquake.  You do the math!