How You Can Transfer Your Lower Property Tax Basis To Your New Home -Rina Podolsky -Carmel Valley Real Estate Homes For Sale

For some people, the idea of buying a NEW HOME sounds appealing. They have their finances in order, qualify for a loan and have the Down Payment ready to go, but if they purchased their current home many years ago, they might end up paying a much higher property tax, and that might be stopping them from going forward with the purchase. For example, lets say a couple purchased a home in Rancho Santa Fe in 1995, they might have paid $800,000.00  and now they want to sell their Rancho Santa Fe property and  buy a home in Del Mar. The new home has a price of $1,500,000.00 and their current home will be selling for $2,500,000 so even though they are downsizing the property tax that they will be paying on the new house is almost double of what they are currently paying.

There are two Propositions in the state of California that allow you to transfer your current tax base to your new property, those are prop 60 and prop 90.

Now there is a catch, actually more than a catch there are several restrictions in order to qualify for either one of this propositions.

1. One of the owners must be 55 years or older at the time of the sale of the original Property

2.Both Properties have to have been or will be your principal residence.

3.The Replacement property must be of “Equal or Lesser current market value” than the original property. You are not allowed to combine two separate properties as a total value even if both of you are selling two homes to purchase a new one together.

4.The replacement property must be built (If new construction) or purchased, within two years of the sale of the original property (This may be two years before or after)

5.The owner has to complete and file an application within 3 years of the purchase of the replacement property, or new construction completion date.

This benefit can only be used once in your lifetime, unless you become severely disabled in which case there is a different exemption that applies (Proposition 110).

So what is the difference between proposition 60 and Proposition 90?  Proposition 60 allows the tax transfer benefit only within the same county(intracounty). Whereas Proposition 90, will alow  transfers from one county to another county in California (intercounty) It is however at the discretion of the county to allow such transfers. Not all counties will accept applications for this proposition and you are required to fill out a form and follow a process, this transfer will not happen automatically.

For more detailed information you can go to the California Board of Equalization Web Site http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm#2 or ask your trusted CPA or Real Estate Lawyer.

For any other questions or comments please feel free to contact us at www.SanDiegoExclusiveProperties.com

How to buy a Short Sale….Succesfully Carmel Valley Real Estate

In past posts we have talked about the different type of sales, covering Foreclosures, Short Sales, Deed in Lieu, and regular Sales. However we have done so from a seller’s perspective mainly.

I very often work with buyers and in this market, most people who initially approach me to help them find and purchase a home, will bring up the idea of snatching a great Short Sale for them to purchase at an amazingly discounted price. Some of them will have already heard some of the horror stories of people waiting months on end for the bank to approve the sale, yet many have no idea what it really implies and all the emotional and labor intensive process that a short sale can be. As an agent, a very important part of my job is to prepare my clients to what lies ahead, so when any new client approaches me, I ask them to give me at least 20 minutes of their time just so we can go over what I consider the ABC’s of buying : 1) A Short Sale  2)Foreclosure  3)Regular Sale. Only after they have heard what each of them entitles will we come up with a specific search plan for them.

So when it comes to the Short Sale portion, there are basically 6 points that I consider crucial for them to understand and be aware:

First, The timeline is what we call a moving target, it is NOT set in stone and will shift as we move along, so if they are in a situation where they have a set date by when they have to be living in their next home, short sales might not a good choice. Banks are taking anywhere from 60 to 130 days average to approve a short sale. Although some lenders like World Savings have set up faster programs where they are able to approve a short sale in as little as 7 days, and then on the other end of the spectrum I have seen others take as long as 9 months to approve a short sale, specially in the higher end loans where the bank will be forgiving a considerably higher amount of  debt.

Second, although it varies greatly in each case, I have seen a trend lately of banks not covering closings cost of a short sale and most of the time they will not pay for money owed to the Home Owners Association So it will be up to you as the buyer to bring some extra cash to the table and cover those extra expenses, this sometimes makes that initial price you offered and got an acceptance on, not such a great deal after all. Be very careful that you ask all the  necessary questions before you open escrow, have the listing agent disclose to you what the bank has agreed to pay for as soon as they know and most of all, ask them if there are any back payments to the HOA, any other liens, back taxes, etc.

Third, Don’t assume that because it is not a foreclosure the home will be left in good shape. Many of the short sales will have delayed maintenance issues, some will come up during the inspection face, and some will come out a little while after living in the home so it is highly advisable to buy a service insurance policy at least for the first year after purchase. Also, you will need some extra cash to fix up the property once you buy it, it is a house that has been lived in and that will need some repairs.

Fourth, Don’t fall in love with this property, an acceptance of your offer does not mean it is yours. Although your chances of buying this home did increase by getting an acceptance, it still has to go thru a long approval process and then there is the pending auction date you have to beat, many people assume that since the bank has approved the short sale, that means that they have cancelled the foreclosure proceedings and that the home is now ready to close. Sadly, one is independent of the other, sometimes the bank will grant you an extension on the auction date just so you can close a sale however more and more lately, banks have started to be less agreeable to grant extensions, they will allow one but no more than that and they WILL sell it in auction two days and even one day prior to the closing escrow date, so be very vigilant of those auction dates and if there was an extension on the auction date, make sure that it has gone into effect.

Fifth, On a typical transaction you have 17 days to complete all of your inspections before you are required to remove your contingencies, in many short sales situations, since ironically you are running against the auction date clock and some times because the bank has requested it so, you only have 5 days to do all your inspections, so make sure you have all your inspections ready to go in a moments notice as soon as you open escrow and know beforehand what you are willing to accept and what will make you pull out of the deal.

Sixth, Expect to be making offers along with people who are looking for investments and are all cash. If a short sale is looking like it is a good deal, there will be some competition so make sure that along with your agent you know how to write an attractive offer that will increase your chances of getting accepted. There are some key points that banks and therefore listing agents are looking at to select the offer that will get the house.

Probably right about now you are ready to give up on short sales altogether, however, the fact is that many of the homes that are for sale in today’s market, are short sales and they will be around for many years to come still, so it is not the best idea to discard any short sales as an option unless you are really pressed for time. Short Sales are a reality so it is wiser to learn how to deal with them and what to expect, it is also smart to have an experienced agent guiding you to the process and even better yet if there is a solid qualified short sale negotiator dealing with the short sale part of the process, one that knows exactly how to deal with the specific bank that holds all of the loans on this property and that has a proven track record of succesful closings. Be aware that sometimes, the agents will have NO information from the bank for a long period of time, so bear with them but stay on top of it.

The one thing that I tell my clients is to keep their emotions in check and to keep looking, hope for the best but don’t close your options just yet. Once you are in escrow and have a clearer picture you can stop actively looking but don’t start mentally placing the furniture just yet…keep a clear head and be realistic that this deal might not happen.

And last, please, whatever you do, DON”T make any big purchases that will disqualify you or affect your income debt ration making your own loan a new issue to deal with, this sometimes only comes up at the eleventh hour when there is not enough time to correct it, so help and don’t hurt your chances when you are trying to close an escrow on a short sale.

Short Sales and Foreclosures

In today’s Real estate market, this are two terms that have come to be part of the every day Jargon, however many people get them confused or used them as interchangeable. They are not. They are very different  from each other.

 

At this time I will try to give a very brief overview of what is a Short Sale and will leave the Foreclosure process for a later post. I will only mention it as to make a clear distinction between the two.

Short Sale:

When the market value of a property is less than the outstanding balance on the mortgage. The lender(s) come to an “agreement” with the property owner to accept less than what is owed on the property in order to avoid a possible foreclosure situation.

Let’s be very clear, it is NOT a short sale just because the sale of the home will be less that what the owners originally paid for this property, If the sale covers any and all loans it is not a Short Sale.

Now Short Sales are Not for everyone and are definitely not free of possible implications and consequences, be very clear on this right from the start. Not all short sales will be approved by the lenders, and the ones that are vary greatly from one another in their terms and arrangement.

One of the first questions I get when talking about Short Sales is, Do I have to be behind in payments for the bank to approve the sale? Sadly, there is not one correct answer, it depends on the bank(s), your personal situation, and well frankly…the day the person in charge of approving it is having. There have been some cases where the short sale is approved without the owner being behing=d in payments, however those are very few. We have to always be clear that what the lender is trying to do is recoup the most amount of money possible. At this time they are overwhelmed with the amount of cases they are having to process, so they will work on the ones with the greater urgency first, that means the ones that are already costing them money because the owner is not paying and therefore the ones closer to being foreclosed upon. So although this is not the “official” policy, it is the reality out there that your chances of getting the short sale approved will increase if you have already defaulted in a couple of payments. At this point I have to say that I am not advising anyone to stop paying their mortgages, actually the thing that will hurt your credit the most, is not the Short Sale itself but rather being behind on your payments is what hurts your credit the most.

So, let’s say you are behind on payments and have decided to go ahead and Short Sale your property…sounds like an easy way out, right? Well, not so fast, not so easy….again it will all depend. Part of the Short Sale negotiation will be cumbersome to say the least, they will ask for so many letters and papers that you will feel you are being audited completely, and you are, just be ready for it, get yourself prepared.

Then there is still the matter of the Deficiency.The deficiency will be accounted for. The deficiency can be 100% loaned to the seller in the form of a promissory note, which they then must repay down the road.

Each lender has a different policy. The best you can hope for is to get one that actually “writes off” the deficiency. In other words, the seller has some minor derogatory credit reporting, but doesn’t actually owe the bank any more money.

In some other cases the lender will do a promissory note for the deficiency, the terms of this note will vary greatly.

In other cases you will be asked to bring some money to cover some of the closing costs.

Another important thing to take into account is that the deficiency can be reported by the lender through a 1099 as income for the seller. Which means that the seller has to pay taxes on that income. Depending on one’s situation, it could mean that people that are dependent on some form of aid because of “low income” will have some explaining to do come tax time.

Another way that the deficiency can be written off is in the form of a judgment.In conjunction with the 1099 reporting. It would look something like:”judgment filed against  Mr. XYZ in the amount of $xx,xxx by “Y”  lender.” This will appear in the “public record” section of the seller’s credit report . It can either show up as satisfied or unsatisfied. Satisfied is obviously better because it means that the worst thing that can happen is that the lender will report 1099 income.

When it appears Unsatisfied , beware, it means that the  court has filed judgement  in favor of the investor (lender) awarding them the right  to collect the deficiency. Lender might still decide to go just for the 1099 , or they might try to collect the deficiency after all. Until they get it. They can garnish your wages. Your only hope then is that you qualify for a chapter 7 bankruptcy. This is the worst case scenario and it is not the most common one by any means. But it is important to understand that you should get every detail of the settlement in writing! Always, no exceptions. And never just assume anything because you were told so at some point during the negotiation.

Regarding the time that a short sale will take…It will probably feel like it is taking Forever……The process will be lengthy and even though some lenders are trying to cut their response times, from the time you have a formal offer on the property it will take at least 45 -60 days just to get a response from the bank. Then add extra time if you need to renegotiate any terms that are not acceptable to you and assuming that the interested buyer that made the offer is still interested at that time, you will now open escrow and wait whatever escrow time is needed which is typically around 30-45 days.

There is a certain order to go about doing the short sale and there are some very specific steps and information you will need, this is why it is so important to work with a reputable agent that has a professional negotiator assigned to your case, even when the agent knows how the process works perfectly well, the negotiator is someone who knows not only the process but each lender and even has contacts  that help him make things go forward much more smoothly, that allows your agent to take care of what he does best which is service the listing and you the client.

One last word of caution when speaking on the subject of short sales that also applies to Loan Modifications. Please beware of any company or individual that promises to help but require you to pay any considerable amount of money upfront. Sadly there are many people who are simply taking advantage of others.

You might find some more information in any of the following links.

http://www.ftb.ca.gov/aboutftb/newsroom/mortgage_debt_relief_law.shtml

http://portal.hud.gov/portal/page/portal/FHA_Home/consumers/hope_for_homeowners

If you have any questions please feel free to contact me.

You can also find me on Facebook and in Twitter or simply go to our web site.

WWW.my858realtor.com

 

This information is not meant to be taken as advice to any particular case and you are highly encouraged to contact your Real Estate Lawyer and Tax advisor to ask about your personal circumstances.