How to Tell the Fixer-Uppers From the Flops
Not all “fixers” are the same, and not all of them are going to be right one for you.
Buying a place that needs some upgrades is a tried-and-true formula for getting more house for your money — especially if you’re pretty handy and willing to trade in some “sweat equity” for a great deal that just needs a little TLC.
However, not all “fixers” offer the same value proposition, and not all of them are going to be the right one for you. How do you know which house is a potential moneymaker and which house is a money pit?
Most fixer properties generally fall into one of these three categories, which can help you tell the difference between a worthwhile fixer and a flop.
1. The cosmetic fixer
This is the house that just needs a bit of cleanup. The sellers didn’t want to invest any more time or money in the house prior to listing and have slightly discounted the sales price. New paint, carpet, countertops, lighting, landscaping, and a few new appliances will give this cosmetic fixer the face-lift it needs. A few dozen trips to the home improvement store should do it!
2. The downright ugly fixer
It may be ugly, but it’s beautiful to you! This house has all the right things wrong with it. This is the fixer that needs more extensive repair and remodeling work than the cosmetic fixer.
If you can see its hidden beauty, and are willing to commit to the work, you will get the deal that others overlook. These are some of the hallmarks of a downright ugly fixer:
No curb appeal It’s easy to create curb appeal with a freshly painted front door, new house numbers, mailbox, flowering plants, and fresh landscaping.
Great bones in bad shape Quality construction and architectural lines that have been underutilized or unaccentuated.
Dark interiors cloaked in ugly decor Ugly decor is a huge turnoff to most buyers. But remember that this issue disappears as soon as the moving vans pull away with the seller’s possessions.
Outdated kitchens Upgrading your kitchen will be one of your biggest remodeling expenses. However, it also gives you the biggest return on your dollar.
Outdated bathrooms There are so many great options for bathroom upgrades now at your local home improvement store. You may need to bring in skilled professionals for more nuanced plumbing projects, but it will be worth the effort.
Downright foul odors Whether it’s from pets or cigarette smoke, or just plain smelly, an odoriferous home will turn off the average buyer. Since you’re above average, you know that a revamp of carpets and drapes plus a fresh coat of paint will usually take care of that issue.
Leaks in the roof and a water-stained ceiling These can really turn away potential buyers — but you will most likely be putting on a new roof, so that will usually eliminate the source of the problem.
Small rooms that create a choppy or claustrophobic feeling Look for potential to remove a non-load-bearing wall that could open up a kitchen to a living room or den, providing a desirable open floor plan.
3. The fixer teardown
When it’s said “a house with the wrong things wrong,” this is what is meant. This teardown house has broken bones (so to speak) and is a money pit.
If a house has major structural, geological, or severe foundation or environmental problems, you don’t want it. Repeat: you don’t want it.
Even if you purchase the house on the cheap, some problems never go away and are sometimes impossible to fix, no matter how much money you invest. This is a Pandora’s box you do not want to open, because you will never see a return on your investment.
Below are some telltale signs of a fixer teardown:
- Structural problems that are beyond repair economically
- Major shifting caused by poor foundation work
- Unsolvable drainage issues and flooding of the basement
- Illegal room additions that appear to not adhere to building codes, especially bathrooms
- Major fire, earthquake, or flood damage
- An unstable hillside near the house or slipping/shifting of the house due to soil erosion or flooding
- Overwhelming asbestos or severe mold issues
Buying a fixer home is a great real estate tactic and can be extremely profitable. How did you spot the right fixer when you saw it? Are you on the fence about buying a fixer-upper or a turn-key? Leave your feedback in comments, or on Facebook or Twitter an don’t forget to subscribe to the Patrick Parker Realty monthly eNewsletter for more tips, guides and articles like this delivered straight to your inbox.
From the Patrick Parker Realty Tax Season Blog Series:
Tax Tips for Short Sales
If you are in a position where you have to sell your house for less than the amount you owe on it or have to restructure your mortgage with the lender in order to avoid foreclosure proceedings, you may face tax implications on the transaction. Understanding how a short sale or restructure will be viewed by the Internal Revenue Service can help you plan your tax situation ahead of time.
What is a short sale?
A short sale happens when you sell your property for less than what you owe on its mortgage(s). A short sale has to be approved by your lender because it will not receive the full amount of the outstanding loans.
After the sale, the loan will still have an unpaid balance, called the deficiency. Depending on the lender and the laws of your state, a short sale can result either in you owing the deficiency to the lender as unsecured debt, or in the lender forgiving the deficiency. A short sale is often negotiated as an alternative to foreclosure, as it often involves fewer costs and fees.
Tax implications of forgiven debt
If your lender forgives the balance of your mortgage after the short sale, you may not be out of the woods yet. You may have to include the forgiven debt as taxable income in the year of the short sale. The Mortgage Forgiveness Debt Relief Act of 2007 exempted that income through 2014 from taxation, up to $2 million, if it was your principal residence, or main home. However, the tax still applies to second or vacation houses as well as rental properties. Beginning in 2015, the exemption is no longer available unless it is reinstated.
Before seeking a short sale or being forced into a foreclosure, you may be able to negotiate a mortgage restructuring to allow you to stay in your home and to be more able to afford your mortgage’s terms and interest rate. These types of loan modifications can take many forms and may include:
• Reduced interest rates
• A reduction of the loan principal
• Stretching out the payments over a longer time frame to make payments smaller
Of these options, only a principal reduction may have income tax implications. The principal reduction may be considered taxable income to you in the year of the restructure. If the property is your main home, it will fall under the provisions of the Mortgage Forgiveness Debt Relief Act and will be excluded from taxable income.
Dealing with incorrect 1099-C forms
If your lender has reduced or eradicated your debt under a short sale or mortgage restructure, it will send you IRS Form 1099-C at the end of the year, showing the amount of the debt forgiven and the fair market value of the property. Review the document carefully and compare it to your own figures. If it contains misstatements, contact the lender and attempt to have it correct the form. If it is not able, or not willing, to do that in a timely manner, recalculate the correct figures and provide the IRS with documentation showing how you arrived at your figures when you file your income tax return.
Keep in mind that this is general information designed to help you put these valuable deductions on your radar. Patrick Parker Realty Agents and Realtors are not certified accountants. Please be sure to check with your tax adviser to see if you qualify for a particular credit or deduction.
The Patrick Parker Realty Tax Season Blog Series will cover many topics as they relate to real estate and increasing your income tax refund. Such topics will include Home Ownership Tax Breaks, Hidden Tax Deductions, Deductions on Mortgage Interest, Reporting on the Sale of Your Home, Home Purchase Tax Credits and more. In addition, our Blog Series will explore Tax Incentives as they relate to major transitions and lifestyles; Marriage, Birth, Divorce, Death of Spouse, Health Insurance, Caretaking of Dependents, Business Owners, Commuters and more.
Check in to The Patrick Parker Realty Blog each Tuesday, Thursday and Saturday through Tax Day for new posts. You can also follow The Patrick Parker Realty Tax Season Blog Series on Facebook and Twitter using #taxseasonblog.
For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.
From the Patrick Parker Realty Tax Season Blog Series
Tax Aspects of Home Ownership
This post will address some of the most common topics:
• Do I have to pay taxes on the profit I made selling my home?
• How do I qualify for this tax break?
• How do I qualify for a reduced exclusion?
• Deciding whether to take the exclusion
• Do I have to report the home sale on my return?
• Figuring the gain on the sale of a home
• What is the original cost of my home?
• What is the adjusted basis of my home?
• Postponed gains under the old “rollover” rules
• Converting a second home to a primary home
• At the bottom of this post we refer you to many helpful IRS Publications and Forms
Tax Aspects of Home Ownership
Though most home-sale profit is now tax-free, there are still steps you can take to maximize the tax benefits of selling your home. Learn how to figure your gain, factoring in your basis, home improvements and more.
Profit on home sale usually tax-free
Most home sellers don’t even have to report the transaction to the IRS. But if you’re one of the exceptions, knowing the rules will help you hold down your tax bill.
Do I have to pay taxes on the profit I made selling my home?
It depends on how long you owned and lived in the home before the sale and how much profit you made. If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.
If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you “exclude” this much otherwise taxable profit from your taxable income. (If you sold for a loss, though, you can’t take a deduction for that loss.)
You can use this exclusion every time you sell a primary residence, as long as you owned and lived in it for two of the five years leading up to the sale, and haven’t claimed the exclusion on another home in the last two years.
If your profit exceeds the $250,000 or $500,000 limit, the excess is reported as a capital gain on Schedule D.
How do I qualify for this tax break?
There are three tests you must meet in order to treat the gain from the sale of your main home as tax-free:
• Ownership: You must have owned the home for at least two years (730 days or 24 full months) during the five years prior to the date of your sale. It doesn’t have to be continuous, nor does it have to be the two years immediately preceding the sale. If you lived in a house for a decade as your primary residence, then rented it out for two years prior to the sale, for example, you would still qualify under this test.
• Use: You must have used the home you are selling as your principal residence for at least two of the five years prior to the date of sale.
• Timing: You have not excluded the gain on the sale of another home within two years prior to this sale.
If you’re married and want to use the $500,000 exclusion:
• You must file a joint return.
• At least one spouse must meet the ownership requirement, and both you and your spouse must have lived in the house for two of the five years leading up to the sale.
Even if you don’t meet all of these requirements, there are special rules that may allow you to claim either the full exclusion or a partial exclusion:
• If you acquire ownership of a home as part of a divorce settlement, you can count the time the place was owned by your former spouse as time you owned the home for purposes of passing the two-out-of-five-years test.
• To meet the use requirement, you are allowed to count short temporary absences as time lived in the home, even if you rented the home to others during these absences. If you or your spouse is granted use of a home as part of a divorce or separation agreement, the spouse who doesn’t live in the home can still count the days of use that the other spouse lives in that home. This can come into play if one spouse moves out of the house, but continues to own part or all of it until it is sold.
• If either spouse dies and the surviving spouse has not remarried prior to the date the home is sold, the surviving spouse can count the period the deceased spouse owned and used the property toward the ownership-and-use test.
Members of the uniformed services, foreign service and intelligence agencies
You can choose to have the five-year-test period for ownership and use suspended for up to ten years during any period you or your spouse serve on “qualified official extended duty” as a member of the uniformed services, Foreign Service or the federal intelligence agencies. You are on qualified extended duty when, for more than 90 days or for an indefinite period, you are:
• At a duty station that is at least 50 miles from your main home, or
• Residing under government orders in government housing
This means that you may be able to meet the two-year use test even if, because of your service, you did not actually live in your home for at least the required two years during the five years prior to the sale.
How can I qualify for a reduced exclusion?
In certain cases, you can treat part of your profit as tax-free even if you don’t pass the two-out-of-five-years tests. A reduced exclusion is available if you sell your house before passing those tests because of a change of employment, or a change of health, or because of other unforeseen circumstances, such as a divorce or multiple births from a single pregnancy. So if you need to move to a bigger place to find room for the triplets, the law won’t hold it against you.
Note: A reduced exclusion does NOT mean you can exclude only a portion of your profit. It means you get less than the full $250,000/$500,000 exclusion. For example, if a married couple owned and lived in their home for one year before selling it, they could exclude up to $250,000 of profit (one-half of the $500,000 because they owned and lived in the home for only one-half of the required two years).
Deciding whether to take the exclusion
Would it ever make sense to turn down the government’s generosity and not claim the exclusion?
Although it’s very unlikely, paying tax on a home sale can make sense if it preserves the exclusion to protect more profit on another home that you plan to sell within two years. Remember, although you can use the exclusion any number of times during your life, you can’t use it more than once every two years.
Do I have to report the home sale on my return?
You generally can skip reporting your home sale on your income tax return, as long as you did not receive a Form 1099-S: Proceeds from Real Estate Transactions from the real estate closing agent — a title company, real estate broker or mortgage company.
To avoid getting this form (and having a copy sent to the IRS), you must give the agent some assurances at any time before February 15 of the year after the sale that all the profit on the sale is tax-free. To do so, you must assure the agent that:
• You owned and used the residence as your principal residence for periods totaling at least two years during the five-year period ending on the date of the sale of the residence.
• You have not sold or exchanged another principal residence during the two-year period ending on the date of the sale or exchange of the residence.
• No portion of the residence was used for business or rental purposes by you or your spouse.
• At least one of the following three statements applies:
o The sale price is $250,000 or less
o You are married, the sale price is $500,000 or less, and the gain on the sale is $250,000 or less
o You are married, the sale price is $500,000 or less, and:
You intend to file a joint return for the year of the sale or exchange.
Your spouse also used the residence as his or her principal residence for periods totaling two years or more during the five years ending on the date of the sale.
Your spouse also has not sold or exchanged another principal residence during the two-year period ending on the date of the sale or exchange of the residence.
Essentially, the IRS does not require the real estate agent who closes the deal to use Form 1099-S to report a home sale amounting to $250,000 or less ($500,000 or less for married couples filing jointly).
You should not receive a Form 1099-S from the real estate closing agent if you made these assurances. If you don’t receive the form, you don’t need to report your home sale at all on your income tax return.
If you did receive a Form 1099-S, that means the IRS got a copy as well. That doesn’t necessarily mean you owe tax on the sale, though. It could be a mistake, or the closing agent might not have had the proper paperwork. If you qualify for the exclusion to make all of your profit tax-free, don’t report the home sale. But make sure all your paperwork is in order to show the IRS if it asks.
Figuring gain on the sale of a home
You have a gain if you sell your house for more than it cost. Ah, but how do you calculate the real cost? For tax purposes, you need to pinpoint your adjusted basis to figure out whether or not you have gained or lost in the sale.
The adjusted basis is essentially what you’ve invested in the home; the original cost plus the cost of capital improvements you’ve made. Capital improvements add value to your home, prolong its life, or give it a new or different use. They don’t include expenses for routine maintenance and minor repairs, such as painting. Examples of improvements are a new roof, a remodeled kitchen, a swimming pool, or central air conditioning. You add these expenses to your original cost to increase your adjusted basis (which in turn decreases the amount of gain on a sale).
On the other hand, you need to subtract any depreciation, casualty losses or energy credits that you have claimed to reduce your tax bill while you’ve owned the house. Also, if you postponed paying taxes on the gains from selling a previous home (as was allowed prior to mid-1997 for homeowners who used the profits to buy a more expensive replacement house), then you must also subtract that gain from your adjusted basis. Let’s say you bought a house for $50,000 in 1993, sold it for $75,000 in 1996, and postponed the tax on the $25,000 profit by purchasing a new home for $110,000. The basis of the new home would be $85,000 (the $110,000 cost minus the $25,000 of non-taxed profit on the first sale).
What is the original cost of my home?
The original cost of your home, for most people, is the amount you paid for it.
If you purchased your home from someone else, the price you paid is your purchase price (plus certain settlement and closing costs). Your closing statement should list all of these costs. Don’t include items from your closing statement that are personal and routine expenses, such as insurance or homeowner association dues, and don’t include the prorated amounts for property taxes and interest.
If you built your home, your original cost is the cost of the land, plus the amount it cost you to construct your home, including amounts paid to your contractor and subcontractors, your architect fees, if any, and connection charges you paid to utility providers.
If you inherited your home, your basis in the home will be the number you use for “original cost.” For death’s in any year except 2010, your basis is the fair market value of your home on the date of the previous owner’s death, or on the alternate valuation date if the executor of the estate elected to value the estate’s assets as of six months after the owner’s death. If the person died in 2010, special basis rules apply depending on your relationship to the deceased. Check with the executor of the estate, who should be able to provide you with information about the basis of your home.
What is the adjusted basis of my home?
The adjusted basis is simply the cost of your home adjusted for tax purposes by improvements you’ve made or deductions you’ve taken.
For example, if the original cost of the home was $100,000 and you added a $5,000 patio, your adjusted basis becomes $105,000. If you then took an $8,000 casualty loss deduction, your adjusted basis becomes $97,000.
Here’s how you calculate the adjusted basis on a home:
Start with the purchase price of your home (as described above)
• Or, if you filed Form 2119 when you originally acquired your old home to postpone gain on the sale of a previous home (back in 1997 or earlier), use the adjusted basis of the new home calculated on your Form 2119. (See Postponed Gains Under the Old “Rollover” Rules section.)
To that starting basis add:
• The cost of any improvements that added value to your home, prolonged its useful life, or gave it a new or different use
• Any special tax assessments you paid
• Amounts spent after a casualty (a disaster such as a hurricane or tornado) to restore damaged property
From that upwardly adjusted basis subtract:
• Certain settlement fees or closing costs
• Depreciation allowed for any business use portion of your home
• Residential energy credits claimed for capital improvements
• Payments received for easements or right-of-ways
• Insurance reimbursements for casualty losses
• Casualty losses (from accidents and natural disasters) that you deducted on your tax return
• Adoption credits or nontaxable adoption assistance payments for improvements added to the basis of your home
• First-time homebuyer credit
• Energy conservation subsidies excluded from your gross income
• Any mortgage debt on your principal residence that was discharged after 2006 but before 2014, if you excluded this amount from your gross income
The result of all these calculations is the adjusted basis that you will subtract from the selling price to determine your gain or loss. This adjusted basis is what’s considered to be your cost of the home for tax purposes.
Basis when you inherit a home
If you inherited your home from your spouse in any year except 2010 and you lived in a community property state—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin—your basis will generally be the fair market value of the home at the time of your spouse’s death.
If you lived somewhere other than a community property state, your basis for the inherited portion of the home in any year except 2010 will be the fair market value at your spouse’s death multiplied by the percentage of the home your spouse owned. If your spouse solely owned the home, for example, the entire basis would be “stepped up” to date-of-death value. If you and your spouse jointly owned the home, then half of the basis would rise to date-of-death value.
If you inherited your home from someone other than your spouse in any year except 2010, your basis will generally be the fair market value of the home at the time the previous owner died. If the person you inherited the home from died in 2010, special rules apply. Your basis generally is the same as the person you inherited the property from. However, the executor has the option to increase the basis of property passing to a non-spouse by $1.3 million and property passing to a spouse by $3 million. To find out the exact basis of any property you inherit, check with the estate’s executor.
Divorce and tax basis
If you received your home from your former spouse as part of a divorce after July 18, 1984, your tax basis generally will be the same as your basis as a couple at the time of the divorce. So if your former spouse was the sole owner of the home, his or her basis becomes your basis. If the place was jointly owned, you now claim the full basis.
If you divorced before July 19, 1984, your basis will generally be the fair market value at the time you received it.
Postponed gains under the old “rollover” rules
In the past, you may have put off paying the tax on a gain from the sale of a home, usually because you used the proceeds from the sale to buy another home. Under the old rules, this was referred to as “rolling over” gain from one home to the next. This postponed gain will affect your adjusted basis if you are selling that new home. The tax on that original sale wasn’t eliminated, just deferred to some future date.
You can no longer postpone gain on the sale of your personal residence. For sales after May 7, 1997, you normally must choose whether to exclude the gain on the sale of your personal residence or to report the gain as taxable income in the year it is sold. You no longer have the option to postpone paying taxes on the gain by purchasing a more expensive residence.
To see how a rollover of gain prior to the change in the law can affect your profit, consider this example: Let’s say you bought a house for $50,000 in 1993, sold it for $75,000 in 1996 and postponed the tax on the $25,000 profit by purchasing a new home for $110,000. The basis of the new home would be $85,000 (the $110,000 cost minus the $25,000 on non-taxed profit on the first sale).
Converting a second home to a primary residence
Although the rule that allows homeowners to take up to $500,000 of profit tax-free applies only to the sale of your principal residence, it has been possible to extend the break to a second home by converting it to your principal residence before you sell. Once you live in that home for two years, you have been able to exclude up to $500,000 of profit again. That way, savvy taxpayers can claim the exclusion on multiple homes.
Note: Congress has clamped down on this break for taxpayers who convert a second home into a principal residence after 2008. A portion of the gain on a subsequent sale of the home will be ineligible for the home-sale exclusion, even if the seller meets the two-year ownership-and-use tests.
The portion of the profit subject to tax is based on the ratio of the time after 2008 when the house was a second home or a rental unit, to the total amount of time you owned it. So if you have owned a vacation home for 18 years and make it your main residence in 2013 for two years before selling it, only 10 percent of the gain (two years of nonqualified second home use divided by 20 years of total ownership) is taxed. The rest would qualify for the exclusion of up to $500,000.
For more information
For information on figuring out whether you have a gain or loss on the sale of your home, see IRS Tax Topic 703: Basis of Assets. For general information on the sale of your home, see IRS Publication 523: Selling Your Home, and Tax Topic 701: Sale of Your Home.
Keep in mind that this is general information designed to help you put these valuable deductions on your radar. Patrick Parker Realty Agents and Realtors are not certified accountants. Please be sure to check with your tax adviser to see if you qualify for a particular credit or deduction.
Follow The Patrick Parker Realty Tax Season Blog Series on Facebook and Twitter using #taxseasonblog.
Check back in with the Patrick Parker Realty Blog each Tuesday, Thursday and Saturday for more Tax Season Blog Series’ Posts and sign up for the monthly Patrick Parker Realty eNewsletter to have updates delivered to your inbox.
The Blog Series will cover many topics such as How do I qualify for a home seller break?, How do I qualify for a home buyer break?, Do I have to report the home sale on my return?, What is the gain on the sale of my home?, What Are Home Renovation Tax Credits?, Deducting Mortgage Interest, Taking the First-Time Homebuyer Credit, How to Avoid Taxes on Canceled Mortgage Debt, Tax Incentives as they relate to Life’s biggest transitions, such as Marriage, the Birth of a Baby, Divorce, or the death of a Spouse and much more. New posts in this Blog Series will be published twice weekly.
For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.
5 Home Buying Deal Breakers
While a house may look in pristine condition on the outside, there can be costly repairs hidden beneath its walls. Even in a seller’s market, it’s still important to get a home inspection. A home inspection is money well-spent – it can help you avoid buying a “money pit” that could end up costing you thousands of dollars in repairs. Here are 5 Home Buying Deal Breakers you should seriously consider walking away from.
1. A Sinking House
You don’t have to be a certified home inspector to notice a home is sinking. If you see large cracks in the basement concrete walls, it’s a telltale sign of costly repairs. The house could be sinking into the ground for any number of reasons, including poor soil or water drainage issues. Sometimes foundation problems are so obvious – if the windows won’t open properly, it’s a clear sign something is wrong. While hairline cracks aren’t a reason to walk away from a home, if you notice a wide crack you should get an estimate from a contractor to see how costly it would be to repair.
RELATED: 5 Questions to Ask Home Inspectors
If the home you’re thinking about buying has a septic system, it’s important to get it tested to make sure it’s functioning properly. An inspector can test the septic system by sticking a dipstick into the soil to make sure it’s not oversaturated. If the wastewater isn’t draining properly through the pipes, it can cost between $10,000 and $30,000 to move the drain field.
3. Old Wiring
If you’re buying an older home, it’s important to make sure the wiring is up to code. Not only can rewiring your home be expensive, some insurance companies won’t cover your home until you’ve upgraded the wiring. Knob and tube is prevalent in older homes and can cost you an arm and a leg to upgrade. You should also watch out for DIY wiring; poorly done wiring can be a fire hazard and will need to be replaced. You should make sure the home has at least 100 amps – anything less means you might blow a fuse by simply running your electric range and dishwasher at the same time.
RELATED: 5 Myths about Buying a Home
Mold is most common in damp places like basements, bathrooms and fruit cellars. Not only is mold unappealing to look at, it’s unhealthy to inhale. Many people are allergic to mold, especially those with repertory problems. Unfortunately, cleaning up mold won’t solve the problem – you’ll have to uncover the root case. Mold can be as simple as poor venting in your bathroom, while sometimes it can require a complete gut job of your newly-renovated basement.
A roof is one of the most costly things to repair on a home. While a roof that needs re-shingling shouldn’t necessary be a deal breaker, if the roof sags that’s another story. A sagging roof can mean the roof line isn’t straight. Replacing the rafters can put you back several thousands of dollars.
Working with a real estate professional will help identify these deal-breakers. Contact a Patrick Parker Realty Buyer’s Agent today to help avoid these home buying money pits.
Navigating Short Sales: What to Do When the Sale Price Leaves You Short
If you’re thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won’t cover your total mortgage obligation and closing costs, and you don’t have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.
1. Consider loan modification first
If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home. Your lender may agree to a modification such as: Refinancing your loan at a lower interest rate; providing a different payment plan to help you get caught up; or providing a forbearance period if your situation is temporary. When a loan modification still isn’t enough to relieve your financial problems, a short sale could be your best option if:
- Your property is worth less than the total mortgage you owe on it.
- You have a financial hardship, such as a job loss or major medical bills.
- You have contacted your lender and it is willing to entertain a short sale.
2. Hire a qualified team
The first step to a short sale is to hire a qualified real estate professional and a real estate attorney who specialize in short sales. Interview at least three candidates for each and look for prior short-sale experience. Short sales have proliferated only in the last few years, so it may be hard to find practitioners who have closed a lot of short sales. You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won’t try to take advantage of your situation or pressure you to do something that isn’t in your best interest. A qualified real estate professional can:
- Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
- Help you set an appropriate listing price for your home, market the home, and get it sold.
- Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).
- Ease the process of working with your lender or lenders.
- Negotiate the contract with the buyers.
- Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval. You can’t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.
3. Begin gathering documentation before any offers come in
Your lender will give you a list of documents it requires to consider a short sale. The short-sale “package” that accompanies any offer typically must include:
- A hardship letter detailing your financial situation and why you need the short sale
- A copy of the purchase contract and listing agreement
- Proof of your income and assets
- Copies of your federal income tax returns for the past two years
4. Prepare buyers for a lengthy waiting period
Even if you’re well organized and have all the documents in place, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take several weeks to months. Some experts say:
- If you have only one mortgage, the review can take about two months.
- With a first and second mortgage with the same lender, the review can take about three months.
- With two or more mortgages with different lenders, it can take four months or longer.
- When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back at square one. (Your real estate attorney and real estate professional, with your authorization, can work your lender’s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.)
5. Don’t expect a short sale to solve your financial problems
Even if your lender does approve the short sale, it may not be the end of all your financial woes. Here are some things to keep in mind:
- You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about your options.
- Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount. Under a temporary measure passed in 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify.
- Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will impact your credit score less than foreclosure and bankruptcy.
Foreclosure Defense: The First and Most Important Step When Your Loan is Overdue
Pursuant to federal law, a borrower may request from a mortgage lender, information as to whether the mortgage was assigned. This means that the lender who you borrowed money from sold off (or assigned as the legal term is used), your loan to another bank who now services (or collects your mortgage payments) on your loan.
As a borrower, you are entitled to question the proper amount you owe. Most people think that just because it is done by computer, there are no mistakes. A “Qualified Written Request” (QWR) must be sent to the servicers address copied from beginning letters of delinquency or from the mortgage statement. If any doubt, send a copy to everyone, signed by all borrowers and keep a copy. The servicer is required by law to write back to you in 20 days that they have received your letter and within 60 days to properly answer. There are more than 10 items you can request and please call our office if you wish us to represent you and for the defense of any legal action.
It is generally estimated that it now takes approximately one year from initial notice to Sheriff Sale in New Jersey if the borrower does absolutely nothing, but if the borrower contests it by submitting a legal defense, it is at least over two years for the banks to get you out of the house.
Disclaimer: This is not official legal advice offered by Patrick Parker Realty. It is only a summary of general foreclosure practice. For true legal advice we recommend you consult with a skilled New Jersey Real Estate attorney. A simple Google Search will yield many results where you will find lawyers offering free consultations. Or you can call us at 732.455.5252 or contact us online and we can refer you to a qualified professional.
NJ Storm Victims Scrambling to Find Rental Homes
TOMS RIVER, N.J. (AP) – Residents displaced by Hurricane Sandy are having a hard time finding a temporary place to live.
Thousands of people are calling real estate offices, looking to rent apartments or homes.
People are also looking for hotel rooms. Most are sold out. Many are occupied by out-of-state utility workers.
Real estate agents say there are more people looking for rentals than units available. Agents are asking sellers to let displaced people live in their vacant homes.
About 960 rentals are on the market in Monmouth and Ocean County, according to the Monmouth County Association of Realtors, but the number is fluid and probably lower.
Nearly two weeks after Sandy hit, more than 150,000 homes and businesses in New York and New Jersey are still waiting for the lights to come back on. The Long Island Power Authority in New York has the most customers out at about 130,000. Most of the rest are in New Jersey.
The totals don’t include the tens of thousands of homes that are too damaged to have electricity turned back on.
Patrick Parker Realty is here to Help
Patrick Parker Realty has dedicated personnel on hand to take your calls if you have been displaced by Hurricane Sandy. In addition, with the launch of our new website, we want you to know about our property search feature that can email you rentals or homes that meet your specifications automatically once you register.
Jennifer Pricci, a Highlands resident displaced by Sandy, was recently placed in a rental unit similar to what she was already renting, in price and amenities.
“I spoke to many realtors after the storm hit. If it weren’t for Patrick Parker and the diligence of his team I do not think I would have found a new home so quickly. I really got the sense that his office dropped everything to take care of me. While juggling so much in the wake of the storm, Patrick Parker Realty helped make this transaction as smooth as possible taking care of the many peripheral details so that I didn’t have to.”
The registration process takes about 5 minutes. To register for automatic property email alerts:
1 – Go to the home page of the Patrick Parker Realty website
2 – On the Top Right of the Page next to PROPERTY ALERTS click “SIGN-UP”
3 – Click on Advanced Search
4 – Make sure you choose from the dropdown menu what kind of property you are looking for such as “Single Family Residential” or “Rentals”
5 – You can refine your search by checking boxes in the “Select type…” area
6 – Choose the City in which you wish to search
To choose multiple cities hold down your “Ctrl” key as you make your selections. The “Ctrl” key must be held the entire time as you click. All cities you select will highlight. If you make a mistake you can
simply unclick the city name but continue to hold the “Ctrl” key
7 – Select the county
You likely want to hold down “Ctrl” and select Monmouth and Ocean unless you are considering moving outside the immediate area
8 – Tip: Disregard Zip
9 – Enter your Low Price and Enter your High Price
10 – Enter desired number of Bedrooms and Bathrooms
11 – Choose how you’d like to Sort your results
12 – Tip: Disregard Days Listed
13 – Tip: For Renters, Disregard Min Sq Ft
14 – Click “Next Step >”
15 – Complete the registration from by entering your First and Last name, email to which you want your property alerts sent, phone number, email format, and select a password that you will remember to log back into the system so you can save properties and return to them at a later date.
16 – Click “Save my Search”
17 – You will receive a notice that an email has been sent to the email address you registered for confirmation and verification instructions. You will also then be brought to a page with your search results. Click “Save Search”
If you need further assistance with the registration process Contact Us so we can help
NOTE TO RENTERS: Be aware that some rental properties are seasonal. As of this time there is no tool available to filter seasonal rentals out of search results. If it seems too good to be true, look to see if it is a winter rental, if the price is excessively high, it might be a summer rental. Perhaps a seasonal rental might meet your needs at this time if you are looking for temporary, but if you are looking for permanent this is something to watch out for.
Renters Rights After Hurricane Sandy: What You Need to Know
In New Jersey, you are protected under a warrant of habitability, which mandates that a landlord provide a livable space. The property owner has an ongoing requirement to keep the dwelling in shape and make sure that essentials like heat, hot water and indoor plumbing are all operational.
If the landlord refuses to make repairs, you can take it on themselves to “repair and deduct,” i.e. make the repairs yourself and deduct the costs from the rent, as long as they give notice to the landlord and the expenses are reasonable and documented.
Note: repairs to hurricane damage should not come out of your security deposits.
What if my Landlord won’t make repairs, my rental is uninhabitable and I “repair and deduct” is not an option?
If your rental was damaged by Hurricane Sandy and your landlord refuses to make repairs this is called “constructive eviction.” You can move out before the lease ends and not be responsible for rent for the time left on the lease. You are also entitled to have your security deposit returned to you.
Just some of the conditions that fall under “constructive eviction” include no heat, no water, a broken toilet, a broken elevator, flooding and excessive and constant disturbances. It is important to have proof of the bad conditions. You can get this proof by having a building inspection done and taking pictures before you move out.
To arrange an inspection:
- If you live in a building with three or more apartments, you may arrange an inspection by calling the State Inspection service at 609-633-6241, or visit http://www.nj.gov/dca/divisions/codes/offices/housinginspection.html
- If you live in a building with two or less apartments, call your municipality to arrange for a building inspection
- It is important that you first give the landlord written notice of the defective conditions and a reasonable amount of time to make repairs. Send your notice by certified mail, return receipt requested, and keep a copy for your records
What if I receive an Eviction Notice?
You do NOT have to leave. The only person who can legally evict you is a judge. In fact, a lockout or eviction is illegal if it is not done pursuant to a court order. A judge can order your eviction only after a hearing, and the landlord must show one of 18 possible bases for eviction under the Anti-Eviction Act.
Any landlord who illegally evicts a tenant has committed a disorderly persons offense. For detailed information about the eviction process, contact New Jersey Legal Services at 1-888-576-5529 or visit LSNJ Law to learn more about Renters Rights.
If you are searching for a new rental you can register for Automatic Property Alerts on the Patrick Parker Realty website to get desired listings delivered directly to your inbox. Or call us at 732-455-5252 to speak with a dedicated Hurricane Sandy displacement specialis
Requesting Tax Assessment Reduction
Sample Letter to your Tax Assessor
Taxes are based on the market value of your property, or some percentage of the value, less any state deductions or exemptions; the remaining amount is then multiplied by the local millage rate. A millage rate of 7.5, for example, means you pay $7.50 for every $1,000 of taxable value; if you had $100,000 in taxable value after all adjustments were made, you’d pay an annual $750 tax.
Since storm damage to a home can significantly drive down its value, not just due to the damage to that home, but also as a result of damage to approximate derelict properties and the community at large. For example, if a storm wrecks the roof of a neighboring home, another home in the community could have its value negatively impacted. Or if you have invested in a second home in one of the popular summer rental areas on the shore as a means of income or plans for future retirement, the demand for your area has plummeted.
So what do you do?
It is worth submitting a letter to your local tax adjustor requesting a property tax adjustment as a result of major depreciation to the value of your property.
1 – You need to find out the name of your local tax adjustor. A simple Google Search of the term ‘Tax Assessor Town Name’ should yield great great results. This should also help you find where to address your letter, which is generally to your Township.
2 – You should compose a letter requesting a reassessment due natural disaster citing a New Jersey Statute that allows for these kinds of contingencies. Below is a template you can use to write to your Tax Assessor. Please keep in mind your letter should be specific to your situation.
Your Permanent Address
Town, State Zip
Tax Assessor Name
Town, State Zip
Re: Hurricane Sandy Storm Damage – Assessment Reduction
Property Address: Address to where damage occurred
Dear Mr. ,
My wife _______ and I own the above property, and have been impacted by Hurricane Sandy. Pursuant to the following NJ statute, we are hereby requesting that our property taxes by adjusted accordingly to account for the massive devastation to our area.
N.J.S.A. 54:4-35.1 provides that in the event of a major depreciation in value of property that occurs between October 1 and January 1 , occurring through a fire or natural disaster, the assessment may be reduced to take into account the damage.
Not only did our home sustain damage, but our community has experienced massive flood damage that will surely impact the value of our homes. Given the fact that our homes may not be livable for at least a year, the demand for these homes will certainly plummet. Potential buyers will know such damage has occurred, and property values will surely be negatively impacted.
Please consider this letter an official notice that we are requesting that our assessment be reduced to account for the damage caused to our area by this tremendous natural disaster. Kindly confirm receipt of this letter, and inform us of any additional action that we must take to receive the reduction in our assessment.
I can be reached at 123-123-1234, of via email at email@example.com
One of the key drivers of homes sales, the employment rate, is beginning to show promising signs of a turnaround. The four-week average for jobless claims, as of November 19, was 394,250, a drop of 3,250 from the previous four weeks, and at the lowest levels since April. Consumer confidence also rose 15 points in the last month, and is now at its highest point since July of this year. Eric Green, Chief Market Economist at TD Securities Inc. said, “The trend remains very constructive. Jobless claims are back below 400,000, which seems to be the pivot point in terms of a strengthening labor market as opposed to a weakening one.”
In addition to improving employment conditions, home affordability also improved as interest rates fell further, opening the door for more first-time home buyers who accounted for 34% of the sales in October, an increase from 32% last month and over last year. The western United States saw the greatest increase in home sales, which were up 4.4% month to month and up over 15% from last year.
A strengthening job market, along with encouraging signs from the housing sector, including a 10% jump in pending sales for October, are strong economic forces. While mortgage lending still remains a challenge, these forces may send a signal to banks to relax lending regulations and allow for a more rapid recovery.
Mortgage rates continue to push lower, dropping to 3.98% from 4.23% in October of 2010, offering historic affordability to today’s home buyers. While mortgage lending conditions continue to be a challenge, more and more people are seeing the advantage of buying a home sooner rather than later. Lawrence Yun, NAR chief economist, said, “Home sales have been plodding along at a sub-par level while interest rates are hovering at record lows and there is a pent-up demand from buyers who normally would have entered the market in recent years. We hope this indicates more buyers are taking advantage of the excellent affordability conditions.”
Interest rates are at record lows these days, and this 4th Quarter appears to be much busier then the first three, which I believe is a direct result of affordability conditions.
Existing homes sales improved 1.4% in October, or to an annual pace of 4.97 million, a 13.5% increase from October of last year. Even more dramatic, was the jump in pending home sales, which surged in October by 10.4% from September, and were up 9.2% from October 2010. This jump in pending sales could lead to a strong fourth quarter as signs continue to point to a pent-up demand brought on by current lending conditions of mortgage providers.
The national median home price in the U.S. saw a small decline in October to $162,500, from $165,800 in September. This number can be affected by the sale of distressed properties, which typically sell at discounted prices. Distressed properties accounted for 28% of homes sales in October. Yet despite a drop in the median price from last September, the Federal Housing Finance Authority reported that seasonally adjusted prices rose 0.2% in the third quarter from the second quarter in 2011, which could be an early sign of appreciating home prices.
By the end of October, the total number of homes on the market had fallen 2.2% to 3.33 million homes, which represents 8 months of inventory at the current sales pace. Since a record high of 4.58 million homes in July 2008, the inventory of homes for sale has been steadily declining. When homes sell faster than they come on the market, the market comes from its current favor toward buyers into balance or in favor of sellers. This can trigger an appreciation in home prices and lead the way to a stronger recovery.
Deciding to Buy
When first-time home buyers decide they are ready to buy, it is important for them to begin the process by carefully assessing their values, wants, and needs—both for the short and long term. This is a critical step since consultation sessions normally start with the buyers’ values. Afterward, buyers can explore their wants and needs and, once defined, determine actual criteria.
A recent study shows how important the following home-buying factors were to buyers:
• List Price: 72%
• Location: 69%
• Neighborhood: 55%
• Floor Plan: 37%
• Square Footage: 28%
• Schools: 22%
By having the home-buying criteria in mind before walking into a consultation, buyers are off to a better start when meeting with their real estate agent. The consultation allows buyers to fill in any missing gaps within their values, wants, and needs. Typically, I find that most buyers which meet with me have a much clearer vision as to what they want.
Wishing you a Happy Holiday Season from the Patrick Parker Team!
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