1.) Who is the bank and/or lender?

Some banks are simply better at the short sale approval process than others.  Wells Fargo, Chase, and Bank of America have seemingly put the most effort into streamlining the process. Bank of America utilizes EQUATOR (an online transaction management system) and this has definitely helped in reducing the amount of duplicate requests for paperwork.  Wells Fargo and Chase have implemented fast track processes where they don’t require complete financial package documentation if the seller has already attempted a loan modification.

2.) Has the seller submitted all the paper work?

Some sellers are not at good at record keeping and many times, bank statements, pay stubs, and tax returns take time to locate and submit to the lender.  The lenders want all pages and sometimes sellers simply throw documents away.  Requesting back statements and copies of tax returns can take time.  Sellers may also have to provide copies of divorce decrees, alimony and child support statements and all of these documents must be updated at the time an offer is presented to the lender for approval and every 30 days after.

3.) How many loans and/or liens are there?

Every lien must be negotiated in a short sale.  This can be mortgages, HOA (Home Owner Association) dues, tax liens, personal tax liens, mechanics, and utility liens (like garbage or electric).  Liens are negotiated by position.  The senior lien holder gets to decide how much the junior lien holders will receive from the short sale.  This is where conflicts can arise.  Property tax liens take seniority over mortgages as do personal tax liens, child custody and the like.  Many lenders will not pay back HOA dues or penalties and attorney fees related to delinquent bills. The higher the number of liens, the harder and longer a short sale approval can be for all involved.

4.) Is/Are the mortgage(s) is a portfolio lien or an investor(s) held lien?

Many loans were made and then sold in bulk to 3rd party investors.  If the bank/lender actually kept the loan and did not sell it to another bank or investor, it is considered a portfolio loan.  If the loan is held by the lender you only need the lender management to agree to the short sale.  If there is an investor, state entity like Cal HFA, federal entities like Fannie Mae or Freddie Mac, or mortgage insurer involved, approvals can take longer.

5.) Has the lien been discharged?

If the lender or investor has already “written off” the loan as bad debt it is typically sold to a credit collection agency for pennies on the dollar.  Collection agencies are very common for HOA past due amounts.  Since the collection agency has paid for the debt based on a recovery amount in mind they can be challenging to negotiate with when it comes to short sales.

6.) Does the short sale seller qualify for HAFA?

HAFA is a great government program attempting to bring some standardization and incentive to the short sale process.  HAFA (Home Affordable Foreclosure Alternative) provides cash to the lender and the seller to complete a short sale but the program is voluntary.  Many of the big lenders like Bank of America have outsourced the HAFA files to third parties and unfortunately they are not always as organized and appropriately staffed to handle the volume.  Again, it is a voluntary program and investors do not have to accept the HAFA terms of a short sale.  Sometimes the question; Does it qualify as a HAFA short sale? – takes longer to obtain than the actual standard short sale approval.  However, it does provide a $3,000 relocation assistance to the seller and this can be very important to help sellers move out of the home they are losing.

7.) Are the real estate agents involved experienced, organized, diligent, communicative, and polite?

It is so very important the agents involved in a short sale are the very best professionals.  It takes solid experience to know which short sales are likely to succeed and which ones will not.  If the listing agent is not upfront about the sellers situation and poorly organized in the short sale package, the buyer can be waiting a long time simply to find out there is no deal.  Equally, if the buyer’s agent is encouraging buyers to write multiple offers with no real intent to work the deal, sellers can find themselves pulling all of it together for the lender only to find the buyer cancels before a short sale approval is issued.   The short sale process takes commitment from everyone involved to be successful.  Short sales make up nearly 30% of all homes for sale in the Bay Area and only 3 out of 10 actually close.  Ask your agent a lot of questions about their experience, their strategy, and their commitment to the short sale process before selling or buying a home.

8.) Is the buyer’s agent  setting proper expectations with AS IS, market value, and timeline?

Short sales are almost always AS IS.  Many buyers obviously do not want to invest in inspections before knowing their offer has been approved by the short sale lender.  However, an experienced real estate agent can help a buyer anticipate items like termite repairs, roof age, broken furnaces and the like before inspections are ever complete.  Do a thorough walk through of the home before writing an offer on a short sale and calculate a guesstimate on repairs.  Have a contractor walk through with you if possible.  Check light switches, flush toilets, turn on the furnace or AC, look for damaged wood and the like to get a good idea of repairs.  Make your offer based on the current market value minus repairs cost.  Take pictures, write it up and have the agent submit with your offer.  All good short sale agents should be supporting listing price/offer price with market activity, photos, and repair lists.   Nothing is more wasteful then to have a offer fall out because of repairs that could have been anticipated and written into the offer prior to submission to the lender for approval.

9.) How many humans are involved with the file?

People make mistakes, lose paperwork, make the wrong decisions and all can go to Hades in a hand basket. The volume of short sales is staggering with any of the major lenders.  Short sale agents that are good may have taken on too many short sales and can’t keep up with the volume of paper work and constant contact needed to take each sale to close. Fax machines are still in use by many of the lenders and we all know how it goes when faxing 25 pages and page 6 doesn’t make it.  Electronic faxes and files are helping but there are lost pages out there.  Departments don’t always talk to each other and I have seen homes foreclosed upon when the short sale approval was in process and even approved.  Short sale approval letters seem to come by slow boat and many times the anxiety of waiting can challenge the most zen-like person’s patience.  Some agents use 3rd party vendors to “manage” their short sales.  They charge the buyer or the buyer’s agent a fee to do this and I totally disagree with this practice.   A short sale listing agent can either pay the fee for shifting the work of phone calling everyday to someone else or handle the process themselves.  But charging the buyer or buyer’s agent is wrong in my book.  In my humble opinion, those who manage their own short sales are better and more motivated to make it happen and all incentives should be provided to keep the buyer committed to the process.

10.) How many months has the seller missed paying their mortgage?

This is a big one that is many times over looked.  Latest statistics tell us that the average home owner has lived in the home 375 days without making a payment before foreclosed upon.  The more payments missed, the less likely the short sale will be approved.  The more payments missed, the more steps are taken toward foreclosure.  Notice of Default and Notice of Trustee sales are legal actions taken against a homeowner in default.  Sometimes, the train has left the station and is there no way to stop the foreclosure.  Buyers and buyer’s agents should always find out which if any of these notices have been served and whether or not they have been placed on hold.  Some lenders will not approve a short sale within 20 days of a Trustee Sale.

There are many questions to ask when pursuing a short sale. Whether you are a buyer or seller considering a short sale, make sure your agent can give you the right information to make the right decision.  As a Certified Distressed Property Expert (CDPE), Certified Short Sale Negotiator (SSN), HAFA Certified Specialist (CHS), and an experienced, committed professional with success closing short sales transactions for sellers and buyers, I am here to answer any of your questions about the short sale process.  If you would like to talk about your options regarding the selling or purchasing of a short sale home, contact me for a no-obligation consultation.

Tracy Lee is also the founder of Dish Crawl, a wonderful food adventure where people collect and experience various tastings provided by local restaurants and chefs in a quasi flash mob fashion.  I have also attended several of the Dish Crawl adventures and have enjoyed each one.  Not only did I enjoy the wonderful food, but also the chance to meet new people while walking between food spots.  If you haven’t experienced Dish Crawl, check it out and join us next time!

Last night was Pitch Crawl and the concept was to bring together people with ideas and people with money and see what happens.  At the same time, having the opportunity to see new spaces in downtown San Jose and enjoying more great food offered by Tracy’s food partners.  We first began at the San Jose Tech Shop.  From the outside, I thought this was simply a bunch of work benches where people could come and tinker with their toys.  However, the tour showed me so much more.  They offer classes, they offer computers that you can design and print posters, wood working equipment, plastic mold injectors, CAD conversion systems, a machine shop, and even an area to pull out a motor of a car!  If you haven’t had a chance to see this space, stop by and take a tour.  There is no doubt one day you will be reading how the next great thing was started on one of these benches.

Next, we visited Next Space a collaborative work space located at the corner of 2nd and San Fernando Avenue.  Gretchen Baisa, hostess for the evening and Next Space member explained how Next Space worked with open space, private offices, and conference rooms available to members.  Fees vary for space needed and the concept and tag line is simply, “Working alone sucks”.  The concept provides a professional space with utilities, internet, etc and a group of entrepreneurs, free-lancers, consultants with a variety of experiences which creates an environment of support, networking, and a potential referral source.  The membership is growing rapidly and as a member you also have access to other Next Space spaces in Santa Cruz, San Francisco and anywhere else a Next Space  location is present.

Onward to the Irish Innovation Center on Santa Clara Street.  Another incredible space where connecting businesses in an open work space is blossoming. How can you argue with Gigabytes and Guinness, the name of the networking event held routinely at the center?  You can rent a desk, cube, office, or conference room.  Rates are reasonable and also provide you access to funding, legal, and human resource support.  This is an idea past due for the brilliant minds of Silicon Valley.

If you haven’t been downtown lately, check it out.  Not just the Christmas Park or the Shark Tank  but the restaurants like Morroco’s and Vino Vino, visit San Pedro Square Market and the entrepreneurial spots like The Tech Shop, Next Space, and the Irish Innovation Center.  Visit the San Jose Museum of Art, take a moment to sit in the pews of Saint Joseph Cathedral where Pope John Paul II is quoted, “Every city needs a soul if it is to become a home for human beings.” , walk around the campus of San Jose State and enjoy a cup of coffee at Philz coffee shop.   Tour the high rises; The 88 (my favorite), Axis, City Heights, and  then visit the Martin Luther King Library and ponder what you have seen.

Walking back to my car last night, I thought about downtown San Jose and how I have watched it grow.  In spite of these strange economic times, there is a palpable energy pushing up from the sidewalks, busting out of the corporate cubes; a force that is clearly determined to succeed.   Much like our small orchard valley history, this new generation believes in hard work and an attitude to change the world.  There are so many brilliant, beautiful people attracted to our valley, to our downtown, and San Jose is reaching out with open arms to provide them space.  Welcome.

But this is not simply an issue of value and square footage.  It can be a safety issue.  What may seem like simple updating regarding new electrical receptacles, newly re-plumbed baths with nice new tile, or more extravagant kitchen remodels can look good but have hidden issues.  I see this more and more with “flipped” foreclosures.  Investors comes in, applies granite to the kitchen, and new tile to the bath but disclosure indicate no permits and many times, no documentation the work was completed by a licensed contractor.

The debate goes on regarding the cost of permits for “simple” work but the rules are the rules and sometimes buyers are more concerned with “updated” than permitted work.  There are not enough inspectors to keep up with the number of foreclosed flips and many times non-permitted work has been a part of the house for several decades without any issues.  The obvious converted garage is not the only type of non-permitted work but commonly San Jose residents have made their homes larger without properly following easements, square footage to lot limitations, and many did not use licensed contractors.

If you are buying a house, you can find out about permits through the local municipalities building department.  Some cities in Santa Clara County have online searches and others require a written request.  Not all permits are online and sometimes you will need to go down to the building or planning office and request to see the plans or documents.  Plan to spend anywhere from 1 hour to a day depending on the nature of the building change.  Sometimes the online files are not clear on whether or not the permit was inspected and given final approval.  If it doesn’t have a final sign off, it is not a completed permit.  Ask questions and understand the impact to you as the new owner of the property.  Even if it didn’t effect value ten years ago, it may now, or may in the future.

Here is a list of links for permit searches in Santa Clara County. Also, don’t hesitate to ask your real estate agent to help you.

San Jose
Campbell
Santa Clara
Sunnyvale
Milpitas
Palo Alto
Los Gatos
Mountain View
Morgan Hill
Gilroy
Saratoga

It is now 2 ways past escrow. Since the neighbor does not want to sign the easement, the seller wants to move a portion of the driveway. This house is on a hill, with a steep driveway. We are concerned that if we move the driveway, then fire trucks or any delivery person will not be able to reach the house (the movers, with the existing curvature of the driveway could not reach the house). What are our options if we want to get out of this contract and still get our full deposit back? Thank you.

Answer:
1.) This issue is best resolved before close of escrow.  Understanding the cost, the implications, and possible solutions is critical to making a decision on whether or not to follow through with the purchase.  Since you have already move into the house and I assume some money has been exchanged it is best to resolve it instead of cancelling the deal.  Work it out with the seller to find an acceptable solution to all regarding the easement and/or the driveway.

2.) If a newly disclosed issue and its possible solutions effect the value perception of the property, this could be a solid enough reason to cancel and retain your deposit. However, the only way to be sure that you are not at risk for breach of contract is to consult with an attorney.

3.) If there may also be other methods of keeping the easement under adverse possession and certainly an attorney can help evaluation the situation to see if it applies in this case.  A true survey may be needed as well help from the chain of title via the title company used during the transaction to understand where exactly the property line resides and how it has transferred with either lot.

4.) If the previous owner wants to move drive way it would seem most appropriate to make sure it is a drive way that does not create safety hazards.

I would highly recommend you consult with a real estate attorney immediately before proceeding with close of escrow or canceling the contract.

HIGHLIGHTS:

For the general housing market of Silicon Valley and Central Coast:

The median price of existing single-family homes decreased to $510,000 down -1.0% vs Sep-11.
Existing single-family home sales decreased -13.9% from Sep-11 for a Oct-11 total of 1,722 sold units.
Condos decreased in price to $310,000 down -2.5% vs Sep-11.
Existing condo sales decreased -8.6% in Oct-11 over Sep-11 for a total of 489 sold units.

When you look at San Jose specifically:

San Jose Median Price = $485,000 which is up 2% when comparing October ’11 to Sept ’11
but down 2% when you compare October 2011 to October 2010.
Total volume of sales up 4% for October when compared to Oct 2010.

But San Jose Neighborhoods are the real deal:

Here is a pie graph showing neighborhoods by Sales Volume.  Fairly proportion to neighborhood size except Willow Glen.  Evergreen sales are up mainly due to Silver Creek average price. Total Dollar in Sales since July 2011:

Another graph -  More desired the neighborhood, the higher price and the lower the avg days on market (since July 2011):
Guess where the deals might be?

Finally- in preparation for holiday shopping – increasing inventory.  But remember, this time 2008, we had nearly 4700 home for sale.  (nearly 2x what we have now.)
Amazing how consistent total closed sales run.

I hope these numbers give you a quick glance of our market place.  If you have questions about specific neighborhoods, email CJ@TalkToCJ.com

You have probably heard the saying, “all real estate is local”.  Believe it or not, this is not simply a National Association of REALTOR® tag line.  I know, you don’t believe me.  But really, real estate is so very local you must understand the market neighborhood by neighborhood and more importantly, street by street.  Neighborhood boundaries don’t exactly follow zip code lines.  School boundaries do not follow neighborhood lines. All of those don’t follow generic San Jose reports.  To understand current conditions and/or even attempt to predict where a particular group of housing prices will go in the future, is extremely hyper local and can not be wrapped up into averages.  Speaking of averages, medians, and the like, the one statistical component that the real estate market predictions rarely include is standard deviation.  In my very humble opinion, this is where the rubber hits the road in regards to how a true real estate professional can help buyers and sellers understand the local market.  You need someone seeing homes come and go, understanding how many are distressed, how many are not, how many are positively effected by optimal commutes, high API school scores, pride of ownership, and local amenities to have a chance at predicting stabilization or appreciation of any home’s value.  A real local full-time professional can help you define the standard deviation related to any home’s value.

So with shadow inventory, I argue the information you are hearing and reading does not take into play neighborhood dynamics or more importantly the standard deviation related to the specific market of the home you might be looking to buy or sell.  Shadow inventory, simply defined, are the homes distressed not yet a part of the active real estate market.  They are the homes where the seller is not yet behind on their mortgage but soon will  be and they are the homes the lenders/investors are holding on to for various reasons and therefore have not become  a part of the active housing market.

How do we predict the impact of shadow inventory on a specific housing market? The ideal would be to identify all distressed homes and request the lenders to publish the homes within their portfolios with a projected release date to the open housing market.  Not easy to find this information.  Imagine the speculation that would come from such a report. However, we can get a general picture from looking at historical data from our very limited statistical resource tools offered by our very expensive local MLS board and see a pattern of predictions based on neighborhoods and zip codes with a sprinkling of lifestyle influences such as schools, jobs, and conveniences offered to predict the future housing depreciation or appreciation.  I am confident this idea will play out no matter what the result of the Greeks role in the European Union or who the president will be in 2013.

Two neighborhoods:

Cambrian Park, known for its high API scoring schools within the Union School District, reasonable commute to the technology hub of Mountain View and Palo Alto, and nestled in between the very desirable communities of Los Gatos and Willow Glen.  Highly desirable, highly likeable, and highly competitive when it comes to home sales.  Here is a chart indicating the year-to-date active and sold listings and the amount of distressed homes in this market both short sales and REO (foreclosures).   On average, 20% short sales and about 5% bank owned properties are actively on the market.  No definitive increasing trends and this is true even when I went back to late 2008.   It appears that REOs move fast in the Cambrian market which keeps the overall active percentage low.

(Blue-Active Pending Short Sales as % of whole, Maroon Sold Short Sales % of whole, Yellow – Active/Pending REOs as a % of whole, and Green – Sold REOs as a % of whole)

Click on the image to enlarge.

Alum Rock, known as the “East Side” of San Jose, not very well performing schools, extremely limited in jobs as well as commute opportunities to the tech hub, inconsistent pride of ownership, and one of the last neighborhood markets to see an increase during the boom years.  Crime rates are higher and shopping, dining, and entertainment are more inconvenient.  This market provided the last opportunities for lower income families to buy a home and unfortunately, many bought with no money down, many with adjustable rates, or negative amortization loan products.  Of course, these home owners where the first home owners to face trouble when the housing values began to fall.   Consistently, 50% on average of distressed homes sales occur in this neighborhood.  The highest rolling average since the bust of foreclosures and short sales.  Longest days on market, lowest average sales price, and many reasons to believe there is more to come.  If you take the simple statistic that only 7 out of 10 short sales close, this large percentage of short sales are very likely to feed the foreclosure pipeline for many months to come.  As market values come down, home owners that did not participate in “exotic” loan products see their home values drop so much that it no longer makes sense to pay on a home worth 50% less than they owe.  The snowball continues.

Click on the image to enlarge.

There is a logical component in predicting how shadow inventory will impact housing prices.  But what percentage of a local San Jose neighborhood market is at risk to shadow inventory?  If you are looking to purchase a home in Cambrian Park, with less that 20% of the homes sales being distressed sales, you can understand why prices are at less risk to go down.  There is actually more opportunity for the average home price to go up because of supply and demand.  As the market prices stabilize or go up even a small percentage, the risk of new distressed homes goes down as well.

For Alum Rock, look for a triple if not quadruple dip between now and 2015.   So many of these home owners bought with riskier loans, are most impacted by job loss, neighborhood housing values will absolutely be further damaged when the banks release any inventory they are holding simply because the distressed market is already such a large percentage of the zip code sales.   However, banks selling bulk REOs to investor could potentially stabilize the neighborhood faster but as a rental neighborhood, may not have a positive effect on appreciation.  Herein lies the standard deviation of housing statistics not discussed on the evening news.  Herein lies the truth to the statement all real estate is local.

What do you think?  Do you think rising interest rates will tip the scales and make all neighborhoods equal?  Do you think expunging shadow inventory in the current weaker zip codes like 95127 will set them up for stronger appreciation later?  Do you think the bottom will never come?  I would love to hear your comments.  Understanding how buyers and sellers see the market helps me understand what tools are best to help them in the buying or selling of their homes.  Oh, and just for the record, I like Alum Rock and believe more local involvement by city government to reduce crime and stronger neighborhood initiatives by long time residents could help turn this area around.  We need to keep this neighborhood an affordable, safe option that provides the best education as any student can obtain in Santa Clara County.

So now, some data to back all these ideas up.

From the LA Times report, “home prices are projected to turn around in 2012 — jumping 11.5% to $321,138 next year, then rising 10% more in 2013 to $353,411. The recovery is expected to run through 2017.”  Here are graphs they showed on their post regarding California Home Price Recovery.

From the California Association of Realtors Economist Leslie Appleton Young’s prediction for 2012, “The California median home price will increase 1.7 percent in 2012 to $296,000 in 2012, according to the forecast.  Following a double-digit increase in the median price in 2010, the median home price will decrease a projected 4 percent in 2011 to $291,000.”

According to The Economist Magazine’s writer Kari Smith, “My concern is over Owner’s Equivalent Rent. The data suggest to me that there is a shortage of housing in the United States. We should expect rents to begin rising in the near term. This will push up Owner’s Equivalent Rent which accounts for somewhere around 35% of core CPI.”

Interest rates are expected to begin creeping up between 0-.25% per month in 2012 according to the the November 2011 Federal Reserve Update.  If you have questions about a specific housing market around San Jose, contact me. If you have questions about real estate, ask me now via my online chat link to the right of this post.

How much are Santa Clara County transfer fees? There are fees related to the transfer the property and in Santa Clara County these are paid by the seller.  However San Jose, Mountain View, and Palo Alto also have a city transfer tax and this is typically split 50/50 by buyer and seller.  Other counties such as Santa Cruz, Contra Costa and Napa do not have city transfer fees.  Normally the transfer tax is calculated by multiplying the rate by sales price per $1000.

An example of  Transfer Tax:

A home with a $500,000 sales price in San Jose would have the seller paying $1.10 per $1000 or $550 for the county transfer tax.

The city transfer tax for this example would be split 50/50 by the buyer and seller and would be at a rate of $3.30 per $1,000 which would equal $825 each.

There are also document recording fees, courier fees, electronic copy fees and miscellaneous fees such as notary and FedEx normally adding up to less than $500.

Lender fees include the cost of completing the loan and can include points, processing, and document prep fees.  Extra fees paid can also include appraisal(s), credit reports, and certifications.   A point charged is normally considered an origination fee and represents 1% of the loan amount.  Buyers can pay points to help lower their annual percentage rate (APR).  Each lender and each type of loan can vary in cost and it is best to shop fees for different lenders.  However, the percentage rate of a loan varies mostly by point of time related to the “lock” and not the lender.  Why?  There are major players in the lending industry that set percentage rates for borrowing money.  These rates dictated by a point in time and for the most part, if there is a loan product out there offering 4.0% interest rate on any given hour of the day, almost any loan officer can obtain it.  So when trying to shop your loan product, shop the fees around that loan rate and the lenders services.  Do you want to compare loan products and fees? Here is a downloadable PDF to help you compare side by side loan products and related fees.

What is Mortgage Insurance? This is an insurance policy purchased by the lender on behalf of the borrower to protect the lender against a borrowers default.  This insurance typically has an upfront fee (which can be financed into the loan) and a monthly fee (charged as a part of the monthly house payment).  Mortgage insurance is in play for any home where the borrower is placing less than 20% down or utilizing an FHA loan.  Lenders consider any borrower placing less than 20% down a risk for default in a dynamic free market and therefore insure against default.  There are some lenders who will loan at 10% without a monthly MI but they charge an upfront MI.  Having to carry  mortgage insurance  is a common criticism of FHA loans.  All FHA loans, irregardless of the amount financed will require mortgage insurance; either upfront or monthly.  However, it makes logical sense if a borrower is only able to place 3.5% down it may very well be the only way to buy a home.  If you want to find out more about mortgage insurance check out local mortgage professional, Shashank Shekhar, blog posts on MI FAQs and FHA mortgage insurance qualifications.

Escrow fees charged by a neutral 3rd party to manage the transfer of title and money involved within the transaction.  In Santa Clara County , the seller pays for escrow fees and therefore reserves the right to choose with escrow company is used.  In contrast, Alameda County the buyer chooses and pays for escrow fees.  Most of the companies are only dollars off of each other on what they charge for services but buyer or seller can shop around if they want.   Escrow fees in general range from $800 – $1500 dollars per transaction.  It can vary depending on the sales price and type of sale involved.

Title fees charged to the buyer and seller to secure the title is free and clear of liens and is transferred with no other claims to the property.  This is an insurance policy to protect the seller in the transfer of title from seller to buyer.  A second policy is purchased by the buyer for the lender (unless the deal is all cash) to protect the lender’s collateral; the property.  Title insurance for the seller is paid by the seller and title insurance for the buyer or buyer’s lender is paid for by the buyer.  Policies are priced based on sales amount and loan amount.

HOA Fees can be charged when buying a condo, town home, or PUD (Planned Urban Development) home.  The Home Owner Association can charge for transfer fees, document preparation fees, and certifications.  A recent bill signed by Governor Jerry Brown limited the amount Home Owner Associations and related 3rd party vendors can charge buyers and sellers during the transfer of ownership.

Additional fees can come in form of repairs or inspections billed to escrow.  Some companies who complete inspections are willing to bill to escrow so that the seller pays out of proceeds or the buyer pays at closing.   For the most part the inspection companies will charge more to bill escrow and most real estate agents and loan officers prefer these fees stay out of the escrow to keep the purchase as clean as possible.  This is the same for repairs.  If the seller replaces the roof and doesn’t want to fork out cash until the deal closes, some companies will charge escrow and the seller can then pay out of the proceeds received from the sale at the time of closing.

It is important to understand your cost no matter which side of the deal you are on.  Commissions to the real estate agents are typically paid by the seller or in the case of a short sale the short sale lender(s).  Loan fees are based on your lender, if you don’t have one, find one and they can provide a good estimate on fees related to the loan you qualify for as a borrower. As a seller or buyer you can ask your real estate agent to prepare an estimated cost sheet.  Keep in mind, this is estimated.  Prorated items such as insurance, property taxes, and interest on the loan are determined by the closing date.  The buyer will initially pay a prorated property tax based on the seller’s rate and then receive a supplemental tax bill after the deal closes at the new rate.  For Santa Clara County we use 1.25% of sales price as an estimate for new property tax rates.

Buying a home can be a bit overwhelming to some and it is always best to consult with a professional in the local area to understand all your considerations.  If you have questions about closing costs or other real estate matters, contact me for a no-hassle, no-obligation consultation.

The HARP program has been around for awhile but one of the biggest limiting factors regarding its application is the loan to home value ratio could not be greater than 125%.  In other words as long as your home only lost 25% of its value in the last 4 years you could qualify.  Obviously, many home owners have lost more than 25% and some took out second mortgages that decreased their value up to 50%.  With the revised guidelines, there is no loan-to-value ratio limit.

To qualify for the program you must meet three basic requirements:

1. You must be current on your mortgage and have not been over 30 days late in the last year.
2. Your loan must have been initiated prior to May 31st, 2009
3. Your loan  must be backed by Fannie Mae or Freddie Mac

The biggest challenge to the program for Bay Area homeowners is few of the mortgages made prior to 2009 were backed by Fannie Mae and Freddie Mac.  You can determine whether or not your loan(s) is owned by Fannie Mae or owned by Freddie Mac by entering your loan account number on these web sites.  Also recognize this must be your primary residence and the program only replies to senior liens not home equity lines or second mortgages.  Also, recently maximum loan limits for the Bay Area were reduced from $729,750 to $629,500.  There are efforts to revert this back to the higher limits but the bill currently faces the House of Representatives and many do not believe it will pass.  This means your first loan can not exceed $629,500.  There are also alternative programs if your home is not owned by Fannie Mae or Freddie Mac to refinance or reduce your monthly house payments.

Also, items to consider when refinancing any loan.  You want to protect yourself by maintaining a non-recourse loan if possible.  Also make sure you understand the cost of refinancing any loan verses the benefit.  Finally, if you are behind on  your mortgage and have exhausted all possible solutions to refinancing  current loan(s) you may want to consider short selling the home to avoid foreclosure.  If you want to learn more about short sales or want to discuss your options with no obligation or cost contact me.

Here are some of my questions, if you don’t mind helping me sort this out:

1. Are there any advantages to owning these “special” 8 acres of land in this subdivision if you cannot build on them?
2. What can you do with these 8 acres, if anything?
3. Can this increase my tax liability (now or in the future), or is tax liability based purely on the property’s purchase price?
4. Are there other liabilities that I should consider but haven’t thought of?
5. Is there any value to this non-buildable land?
6. I have considered creating a community garden or public project of that sort.  If possible, are there any tax advantages that I can gain from doing this?  Are there any arrangements that I can make for public benefit in order to receive a tax benefit in return?
7. Basically, is this vacant land more likely to be a liability (e.g., clearing brushfire shrubs & maintenance) than it is to be an asset (value)?

Answer:

Great questions and you have thought of many of the right considerations.

1.) The best advantage of owning “open space” is not having a view of anything but open space.  If behind this open space there is a warehouse and therefore even though you have have open space you are still looking at a warehouse in the distance; does it matter?

2.) What you can do with the 8 acres is dependent on its zoning.  It is not uncommon that these open spaces are set aside by city/county requirement when the builder purchased the entire plot(s) to make sure that there is room for “nature” and it is a municipalities way of keeping California from becoming a complete concrete jungle.  The seller should be able to pass on CC&Rs (Codes, Covenants, and Restrictions) that tell you what you need to know about usage.

3.)  The open space tax-ability will be dependent on zoning and will also be determined on whether it is considered a combined parcel (therefore 1 parcel) with your home/lot or a separate parcel.  Tax rates are mostly determined by zoning and structures so you will have to consult with the city/county municipality to understand the tax application and costs.

4.) The liability that comes to mind is two fold – a.) Upkeep b.) planned usage  Again, look at the CC&Rs and zoning to answer these questions.  For example, if the land is deemed agriculture are you ready to farm or raise goats?  Can it be leased?  Will you be required to keep so many healthy trees on it?  Are there mineral/water rights that are known/unknown about the property?

5.) Open Space in California is one of its treasure. Many have purchased land and then donated back to the state with the expressed requirement of keeping it open.   The value can be to you as an individual (protecting your view – having a place to ride your quads -if so allowed) or to the general public.  Comes back to zoning and CC&Rs.

6.) I am not a tax professional but assume there could be tax benefits based on the usage.  Best to consult with a tax professional.

7.) Again, refer to CC&Rs, zoning, and local municipalities about what your responsibilities are for maintaining and “protecting” the land.

Do you have a real estate question?

As the number of family members providing care for aging parents increases, the solutions to find help with loss of income because of time off from employment for caregiving has become a major concern for many.

The demands on both the time and energy needed to provide the needed care can make it impossible to maintain both a full time job with full time caregiving.

Seeing a need to give support to family caregivers the federal government Administration on Aging created the National Family Caregiver Support Program.

State Area on Aging division manages this program on the state and community level to offer support services that include:

• Information to caregivers about available services;
• Assistance to caregivers in gaining access to supportive services;
• Individual counseling, organization of support groups, and caregiver training to assist caregivers in making decisions and solving problems relating to their roles;
• Respite care to enable caregivers to be temporarily relieved from their care giving responsibilities; and
• Supplemental services, on a limited basis, to complement the care provided by caregivers.

Medicaid Cash & Counseling Program

A Medicaid approved assistance program called Cash & Counseling may be used to provide funds to hire personal care aides as well as purchase items or services, including home modifications that help them live independently.

The PayingForSeniorCare.com website gives the following information about the program:

“For Medicaid eligible seniors, the process begins with an assessment in the home to determine the senior’s home care needs; this includes interviews with caregivers and possibly the senior’s physicians. A determination of how many monthly care hours are required is made. The benefit amount is calculated using that determination and cost of care for that geographic area. This amount can be increased or decreased as the senior’s needs change. A family care giver may need to qualify as a home health aid by the state to receive these funds.”

This program is executed by each individual state Area on Aging Services division. It is a relatively new program and is not yet available in all States. Check with your state Area on Aging Services department for availability.

Using the Veterans Aid and Attendance Pension Benefit

A totally overlooked source of money to pay family caregivers to provide care at home is the Aid and Attendance Pension Benefit. This money is available to veterans who served during a period of war. Pension money is also available to the widows of these veterans. This benefit, under the right circumstances, can provide up to $1,949 a month in additional income to pay family members to provide care at home.

Getting the aid and attendance benefit to pay for family caregivers is not an easy task. This is because there must be a caregiver contract in place, a physician medical evaluation done, income and asset qualifications met and proof of medical expenses provided. Submitting the correct forms and documentation can easily be completed with the help of a VA Accredited Consultant who understands the process.

Long Term Care Insurance Benefit

If the senior being cared for has a long term care insurance policy that covers home care, payment to the care giver from this source could be arranged. Some policies require the care provider to be through a licensed home car agency, but others will pay for individual aides certified as such. This would require some training by the family member to become certified. There are policies that pay a daily benefit amount to the insured to use as they want to pay for their care. Check with a long term care insurance professional about types of policies.

Caregiver Contract

In some cases the senior parent has the funds to pay for care. If a family member is giving care it is very important that a caregiver contract be in place. A signed and dated agreement will outline the services provided as well as the amount of pay for these services. The contract will eliminate questions about what is expected from both parent and caregiver as well as providing a legitimate contract and payment record of services to qualify for Medicaid.

Attorney John L Roberts, in his article titled “Caregiver Contracts that Protect Elders and Their Family Members” states:

“A written Caregiver Contract is a good idea for every family that wants to protect family harmony, and make sure everyone in the family understands how care is being provided to an elder.

The family member who provides care can save an elder from needing nursing home services, and may also protect assets if nursing home care is needed in the future. Elders who want to cover all of these bases must have a written Caregiver Contract. Whenever adult children and other family members are providing valuable care, only a written agreement will protect assets from nursing home care costs and qualify the elder for Medicaid.”

In having the parent pay a family member for caregiving, it will be an employer/employee situation and payroll records must be kept with payroll taxes paid.

This can also be set up by an elder law attorney at the time the contract is done.

Final Note

Taking the time to create the caregiver contract, research the government and state services that are available to caregivers and using community resources will make the family caregiving experience less stressful.

No wonder the consumer is confused about where our real estate market is heading.  One headline reads “More Foreclosure Activity”, another reads “Home sales up 19% year to year”, and don’t even bother listening to the news because everything is negative, negative, negative!
That is why you need local market information!  Thank goodness, you know me!

So here is the local scoop.

Out of 27 zip codes within San Jose:

SIX had an increase in price per square foot in July and August over 2010.

NINE had an increase in median sales price on average 15%! Highest increase by zip?  95112 – downtown with a nearly 23% increase over last year! (#2 Willow Glen, #3 Santa Teresa)

ELEVEN had an increase in volume of sales with 95130 increasing nearly 50% over last year.

Some of you have heard me say it but here it is again;  Investors are buying homes.  Willing to buy without leverage, all cash because they believe the potential upside is there.  With nearly 30% of them paying all cash, it is hard to believe this is the whim of speculators.  Consider the fact that your leveraged dollar is now at or below 4% because of interest rates, and that affordability is at a 30 year high for  San Jose. There are opportunities for those who truly want a home.  You will either be a home owner building equity or you are a renter building equity for these investors.

“Last month absentee buyers – mostly investors – purchased 21.3 percent of all Bay Area homes sold, up from 20.5 percent in July and 17.8 percent a year ago. The peak was 23.4 percent in February this year, while the monthly average since 2000 is 13.8 percent. Absentee buyers paid a median $242,818 in August, up from $240,000 in July but down from $260,000 a year ago.
Buyers who appeared to have paid all cash – meaning no corresponding purchase loan was found in the public record – accounted for 27.5 percent of sales in August, up from 26.3 percent in July and up from 25.6 percent a year ago. The record was 30.5 percent this February, while the monthly average is 11.9 percent since 1988. Cash buyers paid a median $245,000 in August, the same as in July but down from $272,727 a year earlier.  – DataQuick”
Here is the link to the August report.  Recognize, even a report on the BAY AREA is not a good local gauge.  If you have questions about specific neighborhoods, please let me know.  I am here to help!

Some more interesting charts for the San Jose area (Click on image to enlarge!)

“More than 30,000 California families will face higher down payments, higher mortgage rates, and stricter loan qualification requirements if conforming loan limits on mortgages backed by the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac are reduced beginning October 1, 2011.

Regionally, Marin County would be impacted the most, with more than 12 percent of home sales rendered ineligible under the lower GSE loan limit, followed by Contra Costa (11.5%), San Mateo (10.7%), San Francisco (9.9%), Monterey (8.8%), San Diego (8.2%), Sonoma (7.9%), and Santa Clara (7.8%) counties.  Under the lower FHA loan limit, San Francisco County would be impacted the most, with more than 14 percent of home sales rendered ineligible, followed by Santa Cruz (13.9%), Orange County (13.3%), Marin (13.2%), San Mateo and Ventura (both at 12.7%), Santa Clara (12.2%), San Diego (11.9%), Alameda (11.8%), Riverside (11.5%), and Contra Costa (11%) counties.  (According to analysis by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).  )”

If you agree that FHA loan limits matter to our housing market and the future of Bay Area home affordability, will you take a moment to let Congress know?
Please contact your elected representative in Congress today and ask them to co-sponsor HR 1754 the “Preserving Equal Access to Mortgage Finance Programs Act.”  This legislation enjoys bi-partisan support in the House and is our only chance to preserve the existing loan limits that are so important to stabilizing the housing market.
Please click here to send your message to Congress today!
For more information on the data collected.

Click on image to enlarge.

#1 – The listing agent is working for the seller to help them avoid foreclosure not the buyer. Desperate times, desperate measures.  When an agent needs to stop a TRUSTEE SALE, they will lower the price under market, creating a bidding frenzy so they can submit an offer to the short sale negotiator as soon as possible to stop the trustee sale.   This tactic also applies when an agent has an unreasonable negotiator or a BPO (Broker Price Opinion – mini appraisal)  that is too high.  The agent will price the home slightly under the BPO and try to demonstrate to the negotiator what the buyers are willing to pay.  As a buyer, your agent should be able to demonstrate what is fair value through their assessment of the home and the comparable sales in the area.  Don’t be teased into a multiple offer crazy price war over a short sale.  Whatever home you are placing an offer on, have a good feeling for the market value before writing the offer.  Always know your highest bid before you write the offer and you will not have to worry about buyer’s remorse or second guessing yourself when you didn’t get the home because someone paid more.

#2 – Always request to see the preliminary title report  before writing an offer on a short sale. Any good short sale agent has a copy of the prelim before they place the house on the market. The prelim indicates the current liens on the property.  I can’t tell you how many times, an agent has told me there is only one loan and I find out there are three.  With that said, don’t ever believe the preliminary title report to be accurate.  The preliminary report is only good for the date it was issued and if it is over 30 days old, request an updated one.  Not that this guarantees anything either.  Why?  As you probably already know, not all notes transferred (sold) within the MERS system, are recorded at the county.   Therefore, if Bank of America sells its note to GreenPoint Financial, the original Bank of America loan  may be on the preliminary title report but not the GreenPoint.  This also means that the amount owed for Bank of America may not be the exact amount of the loan balance.  Sometimes the only way to know the liens is by the seller providing mortgage coupons and utility bills.   Home Owner Association delinquencies are another surprise that come in late in the game.  There is no standard for what an HOA will charge in late fees and penalties.

#3 – Request to see the seller’s current HUD when the short sale approval letter is received. You and your agent can double check to make sure the approved amount matches the bottom line.  With the approval letter comes a closing date.  Make sure the pro-rations for taxes and HOA fees are dated in accordance with the short sale approval letter.  This can be very tricky as the many times the escrow officer will only request a demand at the beginning, when the offer is accepted by the seller, and if the short sale approval took longer than that pay off date, there may be significantly more late fees and penalties added. This is a hard one to manage as I have found very few HOA groups that are easy to work with.  Sometimes delinquent HOA fees are passed on to collection agencies and they are even more difficult to work with when it comes to settling on a short sale.

#4 – Make sure you do everything you can not to become a landlord on the day your agent hands over the keys. It is not uncommon for short sale sellers to think  selling their home  is never going to happen and they can become complacent about the moving date.  Write into the contract that the seller vacate the property 3 days prior to close of escrow ( 5 days even better).  This way, your final walk through can confirm they have found another place to live.  My rule for my clients, if the beds are gone, get ready to close.  If the beds are still there, your only option is to hold up the funding and not close escrow.  No agent wants to get this close and not have their sellers out of the house.  I have personally hired movers to make sure sellers are out before close.  Realize many short sale sellers have bad credit and can find it hard to find another place to live.  My comments are not to be cruel but realistic as the moment the buyer takes ownership, if the sellers are not gone, they are now tenants.  Read more about the California Eviction Process here. The fact is any seller staying over close of escrow becomes a tenant.  However, in a short sale, there are no proceeds to hold until the seller vacates.  During the buyer’s walk through, it should be very clear the seller is moving.

#5 – Don’t be surprised if the buyer, is asked to pay for something that is commonly paid for by the seller. Don’t be surprised if this happens within five days or less of closing.  Taxes, garbage liens, title fees, and HOA document preparation fees have all been examples of nasty surprises in the final hour of closing on a short sale.  Generally speaking, it is less than $1000.  However, the patience of buyers, sellers, negotiators, and agents has been exhausted and the buyer should be prepared for the fact that the  seller and the short sale negotiator will not pony up.  However, the gap must be covered and it either gets paid or the deal doesn’t close.  Most agents and buyers want the deal to close and so we chip in to make it happen.

In my humble opinion, the only reason anyone should buy a short sale is if it is the home they really, really want.  Don’t write an offer just because you think it is a deal (the feeling you got a deal can slip away quickly with unknown repairs and surprise closing costs).  Make the offer because you think it is the best home for you.  Only then will it be worth “hanging in there”  and only then will you be willing to do what it takes to make the deal happen.  Buying a home in a short sale takes patience, more patience, and a little bit more patience to make it happen.  If it is not your personality type (or your agent’s) to keep working the deal and not let the speed bumps derail your desire for the home, then don’t write an offer on a short sale.  It is not my intent to make you an anti-short-sale buyer but to give you just a wee bit more insight on what to prepare for when buying  a short sale home.  As someone once told me, “Prepare for everything and nothing will happen.”.

If you have specific questions about short sales  email me or call me at 408-406-6035.

Here is a step-by-step guide to how to replace a wax ring on a toilet.  Below you will also find a video from Joe Schmidt at the Home Remodel Workshop You Tube Channel  to help you walk through this simple home maintenance item.  There are great videos on this channel for home maintenance do-it-yourself tasks.

If you listened to the debates, why should property taxes go to big developers? Pet projects like parking garages in Los Angeles and high rises in San Jose, were considered foolish in a time of economic recession. Makes sense to stop providing subsidies to wealthy builders. Or so it seemed at first glance. But redevelopment money is not just for big developers.  Redevelopment money was  intended to rebuild neighborhoods by providing encouragement to builders to take a risk. Redevelopment money was meant to fuel jobs in areas of the county where there were very few jobs to be had. Redevelopment money was meant to provide an opportunity for lower income families to own a home. Redevelopment money was meant to support public servants like teachers and firefighters the ability to afford a home in Silicon Valley when their salaries alone where not enough.

The Governor was successful at making sure developers did not get subsidies. But what he also did is gave teachers and other public servants no choice but to accept foreclosure. Why? If a teacher is facing a hardship, loss of job (teacher cuts), divorce, or health issues and can no longer pay their mortgage they would normally have the option of a short sale. However, many teachers and other public servants like fire fighters, police, and paramedics, utilized redevelopment funds to provide down payment assistance through low interest loans when buying a home. But now, the redevelopment agencies are closing and per the San Jose short sale manager for these loans, there is a moratorium on these negotiations for short sales or loan modifications normally processed through the department. Which directly leads anyone who has one of these loans into potential foreclosure. In a short sale, all lien holders must be willing to approve a short pay off of the note. So even though the senior lien holder might approve the short sale, if the second lien is owned by the City of San Jose through redevelopment funds, there will be no approval.

Even more illogical is the fact that the closure of redevelopment agencies was meant to save the state money. But if a teacher is forced to accept foreclosure over a short sale then not only does the state loose any potential chance to recoup money on the junior redevelopment funded lien but now they have a public servant who has damaged credit and more likely to sink further into financial challenge and need welfare help. This simply does not make sense.

When a home owner submits for short sale approval they must provide every possible financial statement to support the fact they can no longer afford this home.  Two year tax returns, bank statements, monthly bills, 401k, pay stubs, and a personal letter describing their hardship.  Too bad we as tax paying citizens are not provided the same full disclosure when decisions like ending redevelopment agencies are made.  This is not a decision that only effected “fat cat developers”.  This decision effects many more average Americans than any of us most likely realize.  This public policy change has now landed on my and my clients’ doorstep and this blog post is the first step to my response to our state government in regards to this issue.

In the beginning
When short sales first returned to our housing market in 2008, the lenders were reluctant to approve and many times proceeded to foreclosure.  Over the last three years we have seen a change in the approval process and more short sales are being approved every day.  The second challenge to selling a short sale was the amount of time it took to process the short sale.  The banks were overwhelmed and simply did not have  the staff to keep up with volume of short sale requests.  Third, the banks did not really have a process in place for how to approve a short sale in this current market and arbitrary decisions were being made in regards to which seller/borrowers qualified.

The initial short sale packets required by the short sale lender included pretty much every piece of documentation they possibly think of from the seller/owner and all via fax. Pages were missed, packages were deemed incomplete, and the clock kept ticking along for months.  Now, the packages have been reduced and many banks allow for electronic uploads through systems like EQUATOR.  This has allowed the process of qualifying the seller quicker and the process of obtaining approval has been improving.   Further improvements come in the government program HAFA.  This program sets timelines for approval and provided incentives to the short sale lender and to the seller via $3000.00 for relocation.

Complicating the short sale process
The complications of short sales normally come in the manner of additional liens on the property.   If there is one loan and one bank to deal with, many times the approval process is fairly straightforward and reasonably quick.  The challenges to short sales come when there is more than one loan on the property, further exaggerated when it is a different lender than the first or senior lien holder, un-paid property taxes, and unpaid HOA (Home Owner Association) dues.  In this situation, instead of asking one lien holder to take less than what is owed, you are asking multiple lien holders to approve the short sale.  Multiple lien holders equals complexity around the approval and time.

Who gets paid?
Lien holders are ranked in order of pay off position.  Taxes are always first.  Therefore, back taxes must be paid prior to any other lien being satisfied.  The “first position” loan lien is normally called the senior lien holder and after taxes, they are paid first.  Lien holders after these two, are considered subordinate lien holders.  In a foreclosure, these subordinate liens will most likely receive nothing.  But their approval in a short sale is required.  The senior lien holder (1st position lien) will typically offer the subordinate lien holders a small pay off to obtain short sale approval.  The thinking is with a short sale they will receive something in comparison to a foreclosure subordinate liens will receive nothing.   It is fairly common to offer $3,000 to remaining lenders but more recently, subordinate lenders are requiring 10% of unpaid balance to approve a short sale.

Lenders are very reluctant to pay delinquent HOA dues in conjunction with a short sale.  From the lender’s perspective the  borrower may not have been able to pay the mortgage but surely they could pay the HOA fees as they are normally less than $500 per month.  Only in extreme circumstances do you see a lender include delinquent HOA dues in a short sale payoff.  The hardship must be clear and convincing.  Therefore it very important that as a seller, HOA dues are paid if a short sale approval is the goal.  From a buyer’s perspective, always know how delinquent the HOA dues are and who intends to pay for them.  It is not uncommon for the seller or short sale lender to come back and ask for someone else to pay the delinquent dues in order to approve the short sale.  Also included in the pay off are the seller’s closing costs.  This includes escrow fees, title fees, transfer taxes, and commissions.  The short sale lender must approved these charges as well.

How do know what liens are on the property?
Your agent should be able to obtain a preliminary title report which outlines all liens and balances as of the date the report is issued.  Make sure it is the most recent preliminary report.  Your agent can also request to see a HUD-1.  This is an estimate cost and proceeds sheet used by the short sale lender to approve the deal.  The agent can write this into the contract under “additional disclosures” .  This allows the buyer to understand during the contingency period whether or not all liens are included and can help prevent surprise seller or buyer contribution request late in the game.  It is great if your agent can get these items prior to writing an offer but sometimes it is difficult to do so.  Always worth asking.

Overcoming challenges to purchasing short sales:

1.) Know the lien holders involved.  How many? Same bank? Back taxes? Delinquent HOAs?   The fewer lien holders, the better chance of a straight forward approval.

2.) Patience is key but the file should be progressing or someone is not on top of it.  It takes constant communication with the lender to keep a file moving.  The listing agent should be providing your agent weekly updates. Your agent should be providing you weekly updates.

3.) Property is sold AS IS. Very, very rarely will banks consent to any repairs.  Only in extreme conditions will they allow a credit for repair.  Do not assume, as a buyer, anything will be fixed or credited.  If you find something you are not happy with during inspection you can ask for a repair/credit but don’t be surprised at all if the lender says no.   Sellers typically have no money or motivation to make repairs.

4.) Don’t become a landlord.  Your agent can write into the contract the property must be vacated 5 days prior to close of escrow with a 40 day close of escrow.  Sometimes short sale sellers have not been making payments for over a year.  With bad credit and no rent, they sometimes have a hard time find motivation to move out.  If they are there after close of escrow, you are now a landlord.  Eviction laws prevail and it can cost money to hire lawyers to facilitate the vacancy.

5.) Just because it is a short sale does not mean it is a deal.  The banks are becoming more and more savvy about market conditions and market value.  They are attempting to obtain as much of a repayment as possible.  The short sale lender will complete a BPO (Broker’s Price Opinion) or an appraisal to know whether or not the offer price is competitive for the market place.

More and more, we are seeing listing agents for short sales require a deposit from the buyer and they want the buyer to complete physical investigation prior to short sale approval.   In certain situations, this may be appropriate.  However, if the buyer signs a short sale addendum stating they will wait for 45 days for short sale approval and deposit money into escrow, it sets up for a challenge if you cancel early.  If money is spent on inspections prior to short sale approval and for some reason it is not approved, the buyer is out that money.  There are contractual ways to protect the buyer and the buyer’s agent should share these options with you.

In the San Jose market, nearly 35% of all sales are short sales.  With 1/3 of the market being short sales, your agent can not avoid showing you these homes.  Short sale knowledge helps the transaction go smoother and can help keep the stress down for all involved.  Understand with short sales, there are speed bumps.   Ask your agent about their experience and how they work to avoid the pitfalls of short sale purchases.  Experience, investigation of title, tenacity, patience, and contract management are keys to a successful short sale transaction.

For reference here is a short sale process flow chart.  If you have questions about short sales, contact me.

click to enlarge

Because the home is the largest asset a couple can keep while still qualifying for Medicaid, it is also usually the main target of estate recovery.

Sidney and Rachel’s Story:
Sidney and Rachel had lived in their home since it was new. They built it just after Sidney got a promotion to regional sales manager for a shoe distributor. Through the years, the house was remodeled twice and expanded to add a loft bedroom. Even when their children were grown with families of their own, they all remained close, with frequent family gatherings for holidays and birthdays.

Sidney and Rachel had paid off the mortgage and two second mortgages before Sidney retired. So in addition to being the center of family life, the house had also become the couple’s biggest asset.

Rachel always hoped the house would remain in the family when she and Sidney were gone. She often talked about leaving it to their oldest son, Mark, who promised that he and his wife would continue the tradition of hosting the family for holidays and birthday dinners. However, as Sidney’s Alzheimer’s disease progressed, Rachel worried that Sidney would need to move into a nursing home. With the high cost of long-term care, Rachel knew their savings wouldn’t last long. Sidney would eventually need to qualify for Medicaid to pay the bills.

Her biggest question was, “Will I lose my home?”

A Common Question Indeed

For a great many people who need Medicaid benefits for long term care, the home makes up most of their life savings.  Often, it’s all a couple has to pass on to their children.

You may not know that the home is an exempt asset according to Medicaid. It continues to be exempt as long as the community spouse lives there.  However, after both the ill spouse and the healthy spouse pass away, the property may no longer be protected.

What Is Estate Recovery?

According to the Omnibus Budget Reconciliation Act of 1993 (OBRA-93), the state has the right to take back whatever it paid for the care of a Medicaid applicant. And because you have to be “broke” to qualify for Medicaid, usually the only property of substantial value that a person on Medicaid is likely to own when they die is their own home. When OBRA-93 was passed, each state established an Estate Recovery Unit (ERU) to go out and find what assets they can take back from those that received Medicaid benefits!

Because the home is the largest asset a couple can keep (while still qualifying for Medicaid), in most states it is also the main target of estate recovery.

After both the community spouse and the ill spouse die, the state’s estate recovery unit has the authority to take just about any property that the Medicaid recipient had their name on.  In most cases, that means going back to the house.

For example, if Sidney dies before Rachel after living in a nursing home for two years and Medicaid has paid the nursing home $3,000 per month, the state will have paid $72,000 for Sidney’s care ($3,000 per month times 24 months). If the family home where Rachel lives is worth $100,000, the state would have a claim for the first $72,000 that comes from the sale of the house.

So, the house is protected while Rachel is alive. However, when she passes, the state may force the sale of the house. Whatever’s left over after Medicaid is paid back ($100,000 minus the $72,000 taken out to repay Medicaid) would go to their children.

A Married Couple Strategy For Protecting The Family Home From Recovery

According to federal law, a married Medicaid applicant is allowed to transfer the home to his or her spouse – without any penalty. Once the transfer is made (meaning the ill spouse no longer has any interest in the house), the community spouse may be able to make some changes to that asset. In some states the community spouse can even give the house away!

That sort of gift, of course, would create a period of Medicaid ineligibility if the community spouse needs nursing home care within the five-year look-back period.

The family home remains one of the most difficult assets to protect because of timing, but there are proven strategies that make it possible to protect the home from Medicaid Recovery.

The Society of Medicaid Planners offers a free download of their report “Medicaid Secrets Revealed by Dan Stemen. The report offers information on qualifying for Nursing Home Medicaid without losing the family home to recovery or spending down your life savings.

The National Care Planning Council provides a resource for long term care planning with educational information and lists of professional elder care service providers.