For Buyers

Looking for a deal buying a foreclosure? Learn the basics here.

Are there any foreclosures I can buy for cheap? It’s one of the questions people ask me the most. As with most things, every type of foreclosure sale has a catch. Before even answering it, we’ll need to define what a foreclosure is and to do that we’ll need to explain the timeline.

First, there’s a couple of different types of properties that are commonly referred to as a foreclosure sales:

1. Pre-Foreclosure or Notice of Default - A person who hasn’t paid their mortgage in awhile. For whatever reason, the owner of the home can’t or hasn’t paid the mortgage in awhile. About 3 months after not paying the mortgage, the bank that owns the note will file a Notice of Default or a formal notice that states the bank is beginning the foreclosure process.

2. Short Sale - Most of the time, owners who can’t afford to pay the mortgage are also short sale candidates.  This just means that even if they sold the property, the money left over would not be enough to re-pay the bank what they borrowed, so they’re “short”. Many refer to these sales as short-pays. Not all short sales are pre-foreclosures and not all pre-foreclosures will be short sales. For example, an owner who loses his job and is unable to pay his monthly mortgage might still have money left over if he sells his or her home. The majority of the homes classified as an NOD or Short Sale will be either put on the open market or will eventually be auctioned off. The catch with short sales is that they often take months and months to complete, if they close at all. To keep an eye on short sales, please contact your local real estate agent.

3. Auction - If the owner of the property fails to pay the mortgage long enough, the bank will end up trying to auction the property off to the highest bidder. This is where most buyers who purchase properties in foreclosure get the deals. So why doesn’t everyone do it? There’s 3 catches. First, if the auction is a standard Trustee Sale, the property must be purchased with all cash. There’s no option to take a loan to purchase the property. The minute the auction is over, bidders hand over cashier’s checks for the full amount, and the property or possibly the note is deeded to the bidder. The second catch is that the bidder must have done research into the chain of title of the property, meaning which loans take precedent over the others. If this is done improperly or there’s a hidden lien, the bidder can risk buying a worthless note rather than buying the property. Third, there’s no opportunity to actually view the property unless it was listed on the market previously. That means bidders are buying without knowing the condition, floor plan, and amenities of the property. I’ve heard stories of buyers buying one of these properties to discover missing kitchen cabinets, counters, bathroom cabinets, sinks, toilets, windows, doors, and even air conditioning units. The owner had removed them prior to vacating the property.

4. Real Estate Owned, Bank-Owned Property - If for some reason the property fails to sell at the Auction (also known as Trustee Sale), the bank who owned the note will take ownership of the property. These types of properties are called REOs or bank-owned properties.   Eventually the property will be brought into marketable condition and listed with a real estate agent.  This type of sale process takes the standard amount of time, can be financed, and can be easily found. These are probably the easiest foreclosure property to purchase but also the most competitive. Sometimes the properties can get bid up to market value, defeating the whole purpose if you were looking to buy at a discounted price.

It might sound like I’m trying to steer you away from purchasing a distressed property but I’ve actually helped many clients sell and buy through some of these types of transactions. Just be aware that with so much to think about, it’s vital to get the right advice when looking to buying a property, whether it’s a standard sale or one of the types of sales above. So make sure to speak to a local Realtor when you’re ready to buy.

Should the City Allow Arcadia Residents to Change Street Numbers?

A few years ago, changing your address was easy for Arcadia residents – a few pieces of paperwork, a fee of about $500, and it was done. You could even change which street your house belonged on if your house was on a corner, if your home met the right conditions. Now, residents aren’t allowed to change street numbers because it creates too much burden and confusion for city officials who maintain many of their records, many that date back a few decades, using street addresses.

So why do residents care about numbers and street names? In today’s Arcadia real estate market, many of today’s buyers are foreign or immigrate buyers who either are coming directly from or originate from China, Taiwan, and Hong Kong. In these cultures, numbers play a significant role, specifically the number 4 which in most Chinese dialects, sounds like death, and 8, which sounds like prosperity. In fact, many buildings in these areas don’t have a 4th floor for this reason.

The reason residents care is that having an unfavorable number may affect resale value. With the importance of numbers being so deeply rooted in these cultures, the street number becomes part of the decision making process for these buyers, who are often the most qualified and quite often pay for homes with cash. And anytime you lose any buyer, for any reason, you lose an opportunity to attract the best possible price for your home.

But it doesn’t just affect the owners of these homes ending in the number 4. If a home down the street from you recently sold for less because of the number, an appraiser, who’s not trained to account for this fluctuation in value, may incorrectly assume that property is equal to your home, and may appraise your home for lower.

And the problem doesn’t just occur for buyers purchasing from these backgrounds. Certain numbers in American culture also have a stigma, like the number 666. Homes with this number are hard to sell for the exact same reason.

Currently, the city is evaluating a proposed solution and looking into the true cost of actually doing the street address change and if they decide to pass it, may allow homeowners to take on this expense for the city to perform the change. According to some estimates, the cost of changing the number could be as much as $2500, which in a community where most homes range from $700,000 to $2,000,000, may be a small price to pay for a chance to sell to the pickiest buyer with the highest offer.

California State Tax Credits for First Time Buyers and New Homes

Many home buyers were rushing in the last days of June to close escrow and qualify for the federal tax credit of $8,000 for first-time home buyers and $6,500 for repeat home buyers. If you were one of many buyers who were under contract on a home purchase by April, 30 2010, and waiting to close escrow, you still have hope. The U.S. Senate has passed a 3 month extension to allow buyers additional time to close, moving the deadline to close escrow to September 30, 2010. However, if you’ve missed these deadlines, you’re not out of luck, you may qualify for a California State Tax credit.

California State Tax Credits

In addition to the federal tax credit, the California Franchise Tax Board (FTB) is offering tax credits of its own to first-time home buyers and new home buyers in 2010. California has set aside a fund of $100 million for first-time buyers, and another $100 million for new home buyers. Those who qualify in both categories will receive their tax credit from the new home buyer fund, which is expected to last longer.

Even though the CA tax credits are still available, time is running out. As of June 29, 2010, the first-time buyers fund is estimated to have reached almost $106 million. The new home buyers fund is estimated to have reached $50 million. As a first-time home buyer, you still have additional time if you are purchasing a new home. These figures are only estimates, as the California Franchise Tax Board assumes that there have been multiple duplicates sent in, and continue to accept up to 28,000 applications (currently at 20,760) until further notice.

The amount of tax credit you can receive is equal to 5% of the purchase price or $10,000, whichever amount is less. It must be applied over 3 successive tax years, with a maximum of $3,333 per year. They are nonrefundable and cannot  be carried over.

To qualify for these tax credits, a buyer must have completed a purchase of a qualified principal residence on or after May 1, 2010, and before January 1, 2011. As long as escrow closes on or after May 1, 2010, you qualify, even if you entered into a contract before that date. For the purposes of both tax credits, a “qualified principal residence” is defined as:

1. A single family residence, either detached or attached. This can be a single family residence, a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home. A home constructed by the taxpayer is not eligible since the home has not been “purchased.”
2. Be eligible for the California property tax homeowner’s exemption.
3. Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.
4. NEW HOME ONLY: Have never been occupied. Sellers must certify that the home has never been occupied in order for a taxpayer to receive an allocation of the credit.

You are NOT eligible for these tax credits if any of the following apply:

• The taxpayer was allowed a 2009 New Home Credit.
• The taxpayer is under 18 years old. (A taxpayer who is married as of the date of purchase will be considered to be 18 if the spouse/registered domestic partner (RDP) of the taxpayer is 18 or older on the date of purchase.)
• The taxpayer or the taxpayer’s spouse/RDP is related to the seller.
• The taxpayer qualifies as a dependent of any other taxpayer for the tax year of the purchase.

New home buyers are also allowed to make a reservation on a New Home Tax Credit if they have entered into a contract on or after May 1, 2010, and on or before December 31, 2010.

The following steps must be taken to apply for the tax credits. Applications are accepted by fax only.

Within two weeks (14 calendar days) after the close of escrow:

• The seller must complete Parts II, III, and also Part IV (if the home has never been occupied) of Form 3549-A, Application for New Home / First-Time Buyer Credit, and provide a copy to the buyer or escrow person.
• The buyer will complete Parts I, V & VI of Form 3549-A.
• Fax the completed Form 3549-A and the final settlement statement (generally the buyer’s HUD-1 statement) to FTB at 916.855.5577.

California FTB recommends that the escrow company, on behalf of the buyer, fax the completed application and settlement statement to FTB and provide a copy to the buyer. The buyer retains ultimate responsibility to ensure the completed application and settlement statement are submitted timely to the FTB.

After applying, to claim the tax credit, you must have received a Certificate of Allocation from FTB.

An important thing to note: Special rules apply to married/registered domestic partner taxpayers filing separately, in which case each spouse/registered domestic partner is entitled to one-half of the tax credit, even if their ownership percentages are not equal. For 2 or more taxpayers who are not married/RDP, the tax credit amount will have already been allocated to each taxpayer occupying the residence on their respective tax credit allocation letter.

Please see http://www.ftb.ca.gov/individuals/new_home_credit.shtml for more details.

Good luck to all the first-time and new home buyers out there! And remember to always contact your CPA about any tax questions as we’re not tax professionals.

Over 55 and Moving? Save on Your Property Taxes

One of the most common obstacles I run into when working with clients over the age of 55 to find a new home is their property taxes. Many retirees over the age of 55 rely on fixed income or need to be cautious with their money. So when they want to move, either downsize, move to a different area, or move closer to their kids, they can usually afford the home but sometimes they can’t afford the property taxes that are associated with it. Property taxes are usually assessed when you purchase your home at the market price at the time you complete your purchase. Since home prices are so much higher than they were decades ago, this can mean a huge jump in property tax expense. Luckily, there’s Proposition 60 and Proposition 90 that allows homeowners over 55 to transfer their previous property tax basis to their new home. Here are the requirements:

1. You or your spouse must be 55 or older when the original property sells.
2. Your new property must be your principle residence.
3. Both properties must be eligible for the homeowners’ exemption or disabled veterans’ exemption.
4. The market value of the new property must be lower than the original property. Only 1 to 1 exchanges are allowed. Even if only a partial interested in the new property is purchased, the whole property value will be used for this test.
5. The original property closing date must differ from the construction completion or purchase date by two years or less. You can purchase the new property before selling the original property and vice-versa.
6. You must file within 3 years of purchasing your new property.

This is only a one-time benefit and if you transfer between two counties, make sure the county your new home resides in accepts intercounty transfers. As of the time of this blog article, only Alameda, Orange, San Mateo, Ventura, Los Angeles, San Diego, Santa Clara counties allow this type of transfer. Please check with the county you’re moving to verify. I have personally worked with clients transferring their taxes to their new Pasadena and Arcadia homes but every situation is different so please check with your tax accountant or appropriate professional for more information about your particular situation. For more information online, please see this site.

$8,000 Tax Credit for First Time Buyers (2009)

Update: The $8,000 federal tax credit for first time buyers is still available in 2010, but only if you entered into a contract on or before April 30, 2010. The new deadline for closing escrow is now September 30, 2010, a full 3 month extension from the original June 30 deadline. Repeat home buyers also will still qualify for the federal $6,500 tax credit as long as they have entered into a contract on or before April 30, 2010.

Some people have been asking me about the recent $8,000 tax credit for first time home buyers and I thought I should address it here. If you are buying or will buy a home in 2009 as a first time home buyer (see below for definition), you will be eligible for an $8,000 tax credit that you will not have to pay back. This is part of Obama’s Recovery and Reinvestment Act and will replace the $7,500 credit that was previously in effect. So below are some of the qualifications necessary:

1. First Time Home Buyer Purchasing in 2009
A first time home buyer is defined as an individual or a couple who has not owned a home in the past three years. The purchase, or recording date needs to be between or on January 1, 2009 to December 31, 2009. If you’re not sure about the dates, contact your real estate professional, if you have one, or you can always contact me.

2. Income Under $75,000 for individuals and $150,000 for couples
Your taxable income must be under $75,000 if you file as an individual or $150,000 if you file as a couple. You are still eligible for the tax credit if your income is higher than that but it phases out quickly to $20,000 over the limit.

3. Primary Residence for 36 Months
The home you buy must qualify as a primary residence for 36 months following the purchase date or else the credit must be repayed.

These are just the basic rules for the law. If you need the form, you can download it here. Also, I’m not a CPA or tax expert so don’t rely on just this information. I have a really great tax planner if you need tax advice as well.

Low-Cost Ways to Save Money and Go Green

With energy prices on the rise and global resources diminishing, more and more people are making efforts to conserve energy, water, and other resources. While some of the ways you can conserve can be expensive, below are some great, low cost ways to reduce your consumption.

1. Compact Fluorescent Light Bulbs – $3.50/bulb
Compared to traditional incandescent light bulbs, compact fluorescent light bulbs use 75% less energy, produce 75% less heat, and can last 10 times longer. According to Energy Star, if each household replaced just 1 light bulb in their home, we could save enough energy to power 3 million homes for a year, save more than $600 million in annual energy costs, and prevent greenhouse gases equivalent to the emissions of more than 800,000 cars.

2. Use Water-Saving Faucets, Showerheads, and Toilets – Free to $350+
Water-saving faucets, showerheads, and toilets can all help conserve water usage. Many cities now require faucets, toilets, and showerheads to conform to their water usage standards, with some even offer low cost solutions for homeowners. A water-efficient toilet can save between 8,000 to 18,000 gallons of water per year. And a water-saving showerhead alone can save up to 3,000 gallons of water, eliminate 1,000 lbs. in carbon dioxide emissions, and reduce your water bill by $50 per person per year.

3. Install a Water Heater Blanket, Lower the Water Temperature – $20
Traditional water heaters keep a large amount of water inside at a certain temperature, usually 140 degrees Fahrenheit. In order to reduce the amount of work required to keep hot water in the system, you can reduce the standard temperature to 130 degrees and install a water heater blanket. A water heater blanket wraps around the water heater to reduce heat loss by 25-40%. Be sure to keep important information regarding maintaining the water heater visible when you install one of these.

4. Change Your Air Filter – $10/filter
Dust and dirt that clog air filters can reduce their effectiveness and make your heating and cooling system work harder. A system with a clogged filter consumes more energy and has a shorter lifespan. Recommendations of how often to change your filter range from one month to three months depending on how often you use your air conditioning and heating system and how fast dust accumulates on the filter.

5. Programmable Thermostat – $40
Heating and cooling can be as much as half of your energy bills. A programmable thermostat that has multiple time settings can help you reduce your bills by turning off your heater or air conditioner while you’re at work and can reduce their usage during sleeping hours. This feature alone will help you reduce your heating and cooling bills by $150 a year.

6. Weather Stripping and Caulking Around Windows and Doors – $20-$50
Some older windows and doors don’t have proper weather stripping and some estimate that this can account for 46 percent of annual heat loss. Applying weather stripping and caulking around windows and doors can serve as a cost-effective way to keep your home cool in the summer and warm in the winter.

While these methods can help you conserve energy at your current home, you may want to put green features into considering when searching for your next home. If you need help locating an already green San Gabriel Valley home, you can always email me or visit my website.