Good to know: Email Correspondence Could Be Binding!

In today’s modern and busy world it is safe to say that most of the correspondence between Client and Realtor is through email.  For example, your client has placed an offer on a house, negotiated the financing options and emailed you as the agent for a status update.  You reply back “We’re almost there.”  However in the meantime the seller receives another offer and decides to accept the second offer instead which of course upsets your client.

Be careful.  Email correspondence could be considered enough evidence to enforce the deal.  This was the case in a ruling in Massachusetts last year.

Feldberg, et al v Coxall attorneys representing the buyer and seller exchanged multiple emails about the deal including the above referenced email with an unsigned offer to purchase.  When the seller backed out of the deal, the buyer sued claiming the deal had been sealed in the last email.

The seller argued that the nothing had been signed as required under the Statute of Frauds.  This law varies form state to state but generally requires certain agreements to be signed.  Using this argument the seller sought dismissal of the claim.

The judge ruled against this dismissal.  Under a state law called the Massachusetts Uniform Electronic Transactions Act (and similar laws exist in other states) and email signature block or even the from portion of the email may constitute a valid electronic signature in cases where the parties are conducting the transaction electronically.  

The judge denied the seller’s motion to dismiss the case opening the door for the court to look at whether the emails can constitute as a binding agreement.

The buyer and seller settled out of court so the question was never brought before a judge.  But this something to consider.  

Agents, here are steps you can take to protect yourself against inadvertently binding your client to a deal.  

Here are two suggestions:

• Watch what you say in e-mails. If you’re representing the seller, always say that the terms of the deal must be approved by the seller and that negotiations are preliminary until an offer or contract is signed. Conversely, if you are representing the buyer, it’s prudent to push for confirmation that a deal has been reached, to avoid a situation, like the Massachusetts case, in which the seller jumps at a higher offer at the last minute.
• Use a disclaimer. You can insert a disclaimer in your e-mail signature that looks something like this: “E-mails sent or received shall neither constitute acceptance of conducting transactions via electronic means nor create a binding contract until and unless a written contract is signed by the parties.”

Watch what you say and remember that emails could become an exhibit in court!

Excerpt from RealtorMag
JANUARY 2013 | BY RICHARD D. VETSTEIN

1031 Exchange - What is it?

What is a 1031?

A 1031 Exchange is a swap of one business or investment asset for another.  Most swaps are taxable as sales, if you come within 1031, you’ll either have no tax or limited tax due to the time of the exchange.  

Let’s break it down to simple terms:  You can change the form of the investment without cashing out or recognizing a capital gain.  This then allows your investment to continue to grow tax deferred.  There is no limit to how many times you do a 1031 – you can roll over the gain from one piece of investment real estate to another to another to another and so forth.

You may have a profit on each swap but you’ll avoid a tax until you actually sell for cash many years later.  

Here comes the tricky part.

Special rules apply when depreciable property is exchanged in a 1031.  It can trigger a gain known as “depreciation recapture” that is taxed as ordinary income.  This is avoided if you swap one property for another.  But if you exchange improved land with a building for unimproved land without a building, the depreciation you’ve previously claimed on the building will be recaptured as ordinary income. 

Make sense?  If you’re still not sure – always contact professional help when you’re doing a 1031 Exchange since things can get a little complicated.

10 Things to Know About A 1031 Exchange

1.  A 1031 Isn’t for Personal Use – it is only for investment and business property.  You can not swap your primary residence for another home.  

2.  BUT Some Personal Property Does Qualify - Most 1031 Exchanges are of real estate.  Some exchanges of personal property can qualify – here is where it is best to contact a professional.

3.  ”Like Kind” is Broad - Like really broad.  Most exchanges must be of “like-kind”.  You can exchange an apartment building for raw land, or a ranch for a strip mall.  

4.  You Can Do A “Delayed” Exchange – Ideally, an exchange is a simple swap of one property for another between two people.  What are the odds of that??!  Small. Very Small.  And for this reason the majority of exchanges are delayed, three party exchanges.  In these delayed exchanged you need a middleman who holds the cash after you “sell” your property and uses it to “buy” the replacement property for you.  

5.  You Must Designate Replacement Property - There are two key timing components for a delayed exchange.  The first relates to the designation of replacement property.  Once the sale of your property occurs, the intermediary will receive the cash.  You can’t receive the cash or it will spoil the 1031.  Within 45 days you MUST designate the replacement property in writing to the intermediary specifying which property you want to acquire.

6.  You Can Designate Multiple Replacement Properties - The IRS says you can designate three properties as the designated replacement property so long as you eventually close on one of them.  You can designate an unlimited number of potential replacement properties as long as the fair market value of the replacement properties does not exceed 200% of the aggregate fair market value of all the exchanged properties. 

7.  You Must Close Within Six Months – The second timing rule in a delayed exchange relates to closing.  You MUST close on the new property within 180 days of the sale of the old.  It is important to note that the two time periods run concurrently.  Meaning you start counting when the sale of your property closes.  If you designate the replacement property 45 days later – you have 135 days left to close. 

8.  If you Receive Cash – It’s Taxed – Pretty simple.  You may have cash left over after the intermediary acquires the replacement property.  If this is the case, the intermediary will pay it to you at the end of 180 days.  This cash will be taxed as partial sales proceeds from the sale of your property.

9.  You Must Consider Mortgages and Other Debt - Here is where most people get into trouble.  You MUST consider mortgage loans or other debt on the property you relinquish and any debt on the replacement property.  If you didn’t receive cash back but your liability goes down, that too will be considered as income and therefore taxed.  

10.  Using 1031 Exchange for A Vacation House is Tricky - Yes, taxpayers can still turn vacation homes into rental properties and do 1031 exchanges. Example: You stop using your beach house, rent it out for six months or a year and then exchange it for other real estate. If you actually get a tenant and conduct yourself in a businesslike way, you’ve probably converted the house to investment property, which should make your 1031 exchange OK. But if you merely hold it out for rent but never actually have tenants, it’s probably not. The facts will be key, as will the timing. The more time that elapses after you convert the property’s use the better. Although there is no absolute standard, anything less than six months of bona fide rental use is probably not enough. A year would be better.

As with any tax related questions – if you’re considering a 1031 Exchange its best to contact your tax professional.  

Pros and Cons When Buying A Condo

Trying to decide whether to buy a Condo or Single family dwelling?

Here are some helpful tips to ensure a knowledgeable decision is made.

Pro’s:
~ Exterior Maintenance is handled by the condominium association
~ Parking space is deeded to you in a secure location
~ No upkeep to worry about, vacation at your leisure
~ Often condos are conveniently located around office buildings, entertainment and shopping districts.

Con’s:
~ Home owner dues are hard to keep low as maintenance cost are rising.
~ Dues are counted as part of your debt to income ratio.
~ All decisions are made in association with your neighbors.
~ Elevators are noisy, there may be poor soundproofing with in the condominium association.
~ Condos provide less privacy than single family homes

Is A Short Sale Right For You?

How do you know if a short sale is right for you?

How do I start the process?

Start your search for a real estate agent as soon as possible. Look for an agent who has experience working with mortgage companies on home sales.

Once you have found a real estate agent.  They will walk you through the short sale process.

What is a Short Sale?

A Short Sale is the sale of a home when you owe more on your mortgage then what the home is actually worth in the current sales market and your mortgage company accepts a discounted payoff to fully satisfy the loan.

Is a Short Sale right for me?

Mortgage Companies are increasingly willing to work with borrowers faced with a financial hardship to accept a discounted payoff on a mortgage.  If you are faced with a hardship that makes it likely you will be unable to meet your obligation on your mortgage, your mortgage company would prefer to settle the matter with you as opposed to taking the property through foreclosure.

As you consider the option of pursuing a Short Sale, remember your mortgage company is looking to limit any potential loss on your loan. By completing a Short Sale, your lender has arrived at a solution that is, for them, much better than a foreclosure.

If I do a Short Sale, how much will I have to pay to sell my home?

Nothing. It’s true, in most cases you will pay literally no sales costs if your mortgage company approves the Short Sale.  We will include the following clause in the contract.

“Seller’s agreement to sell is subject to approval by existing lender of a Short Sale at no cost to Seller. Seller shall not be required to deposit funds to close escrow.”

Remember, lenders approve Short Sales and accept the resulting loss in an effort to avoid bigger losses through foreclosure.

How do I get started on a Short Sale?

It’s easy.  Just contact one of our representatives at Chantel Ray Real Estate and we can get you started with the short sale process. Just call 757-717-1003 for more information.

Can I simply deed my property to someone else and avoid the hassle?

Deeding your property to someone without paying off the loan is nearly always a bad idea. In the first place, your mortgage company still considers you primarily responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will show on your credit.

Secondly, when you deed your property to someone else, you give up control of the property. Along with the deed goes the ability to control the property.

Do not deed your property to someone without paying off the loan unless you have consulted with an attorney.

What sort of hardship would my lender consider legitimate?

To some extent, that will depend upon the mortgage company considering the Short Sale request. Generally, so long as the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the Short Sale request will be processed by the Loss Mitigation Department. A big key to getting Loss Mitigation to accept a hardship is to submit a strong hardship letter. The hardship letter sets the tone for the entire file.

Below you will find a list of “hardships” that are common and frequently accepted by mortgage lenders.

• Family illness or injury
• Illness or injury in the extended family – particularly if it forces relocation
• Job relocation when the property is equity deficient
• Job loss or significant income loss
• Divorce or split of domestic partners
• Adjustment in mortgage payment or unforseen increase in living expenses

I am current on my mortgage, will my lender consider a Short Sale

The answer is, maybe. Some mortgage companies will accept a Short Sale file for approval on loans that are not behind. Other mortgage companies will not accept the file until the loan is delinquent. We can put your Short Sale file together within a couple days and submit it for approval during which time we will list your house for sale. (Remember, there is no charge for this). That is the best way to determine if your mortgage company will accept a file for approval on a loan that is current.

Why would a mortgage company agree to accept a Short Sale?

There are actually several reasons why a mortgage company would approve a Short Sale, including the following;

Legal Concerns – Mortgage companies have come under legal pressure to work with borrowers to resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution.

Asset Management Expenses- If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets. Keeping properties maintained, keeping utilities on, making repairs.  A successful Short Sale eliminates most of these costs.   

A successful Short Sale lets the lender put more money to work.
Should We Choose a Short Sale Over a Foreclosure?

In some cases, it might be easier to let a home go to foreclosure than endure the struggle and stress of a short sale. Whether you should consider foreclosure may depend on the financial and legal consequences of a foreclosure. You should always, without fail, get legal and tax advice because real estate agents, unless licensed to practice law, cannot provide it.

Do lenders approve all Short Sales?

No. That is why it is critical to work with someone that has extensive experience at getting Short Sales approved.  For more information on Short Sales and our companies experience please call 757-717-1003. 
I have two loans; can I still do a Short Sale?

Yes. We can work with both mortgage companies (many times the same lender hold the 1st and the 2nd loans) to put together a Short Sale transaction.   Even if the value of your home is below the balance of the 1st mortgage, we can normally get the two mortgage companies to cooperate.  In the end, neither mortgage company wants to own another home through foreclosure.

My property is in rough shape and needs work, can I still do a Short Sale?

Absolutely. In fact, mortgage companies are more motivated to do a Short Sale on a property that needs work than on a property that doesn’t. The mortgage company knows the risk of loss goes up when they foreclose on a property that needs lots of work.

Mortgage companies are simply not set up to get the work done. They are in the loan business, not the fix- it business.

I am concerned about my credit, how will a Short Sale affect my credit?

The big key here is to avoid foreclosure. By nearly any measure, a foreclosure is the most damaging event your credit status can encounter – worse than bankruptcy. In the course of getting your short sale approved you may miss your mortgage payments, and these will show on your credit.

By avoiding foreclosure, you will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such) relatively quickly.

My income problem was temporary. Do I need to sell my home?

You may be able to keep your home. You need to convince your mortgage company of two things:

The problem that caused the mortgage payment disruption was beyond your control – illness, injury, temporary disability or forced job change are a few examples.

What is a Forbearance Agreement?

A Forbearance Agreement is a written agreement with your mortgage company in which you arrange to keep your home. The agreement will normally include two primary elements:

The borrower’s promise to remain current on the mortgage going forward

Some plan for making up the delinquent interest and other charges. It may mean making additional payments to the mortgage company or the delinquent amount could be added to the loan to be paid later.

How Can a Seller Get Multiple Offers on a Short Sale?

One sure-fired way to get multiple offers is to price your short sale below market value. There are other ways to get buyers bidding over each other for your home. Beware of pricing your short sale too low because  the bank is unlikely to take a low bid and some buyers might get confused and make lower offers that are unreasonable.

Should We Stop Making Our Mortgage Payments to Do the Short Sale?

It is a myth that you must be in default, behind in your payments, to do a short sale. However, there are certain situations in which your payments must be delinquent. Most of those involve government loans because yes, in some cases, the government wants you to stop making your mortgage payment.

Do We Need a Lawyer for a Short Sale?

Ask your agent they will be able to guide you in the right directions.

Will the Bank Come After Us for the Difference?

One of the main reasons to do a short sale is to get a release of personal liability, yet not every seller is released. Some loans carry a personal guarantee in some states. Some hard-money loans in certain states allow for deficiencies. Absence of verbiage pertaining to a deficiency in an approval letter doesn’t necessarily mean the seller is released.

Why Would the Bank Reject Our Short Sale?

Banks look for crucial elements to approve a short sale but perhaps the biggest motivator is whether the bank will make more money by granting a short sale over pursuing foreclosure. Sometimes, the bank won’t tell you that it stands to profit far greater through foreclosure. It will simply state a price it wants that no buyer would ever pay.

Is a HAFA Short Sale Program Right For You?

The HAFA short sale program, effective from April 5, 2010, through December 31, 2015, is touted as the answer to every short sale agent’s nightmare. HAFA promises short sale approval within 10 days and gives the seller up to $3,000 in cash at closing. But because HAFA is a government-sponsored program, it’s a lot more complicated than that.

HAFA is an acronym for Home Affordable Foreclosure Alternatives, and it’s part of President Obama’s Making Home Affordable Program. The first step is for a borrower to apply to HAMP, Home Affordable Modification Program. Here are the rules to be eligible for the HAMP program:

• Only personal residences are eligible.
• The mortgage amount must be less than $729,750.
• The borrower suffers a hardship such as loss of income, an increased mortgage payment or an unexpected increase of expenses.
• The mortgage originated before January 1, 2009.
• The PITI mortgage payment, including HOA, is more than 31% of the borrower’s gross monthly income

What is a short sale negotiator?

A short sale negotiator is someone who provides assistance in negotiating with the mortgage company on the your behalf. The goal is to convince the mortgage company to accept less than the debt amount on them mortgage(s). There are currently several variations of the term “short sale negotiator.” Foreclosure consultants help a person stay in their home, typically by working with the mortgage company to lower monthly mortgage payments. Short sale negotiators engage in activities intended to result in the sale of the home.

How long does the process take?

Once you complete and send in your documentation, the next step is listing your home for sale. Once in a contract is written on the property the Short Sale Negotiating begins. This may take from 60 – 90 days for the bank to approve the short sale.

How will a short sale affect my credit?

Depending upon how the short sale is negotiated and the agreement made at the bank, it is possible that the short sale could have only a small impact on your credit score. However, missed mortgage payments (if there are any) will definitely have a negative impact on your credit.

What are the tax consequences of a short sale?  

You should always check with your accountant regarding the possible tax consequences of a short sale. President Bush did sign into law the Mortgage Debt Relief Act of 2007, which does have positive tax consequences for those who participate in the short sale of an owner-occupied property.

Why is a short sale better than a foreclosure? 

When you participate in a short sale, you will avoid the foreclosure ‘ding’ on your credit report. Additionally, the FHA has stated that those who participate in a short sale can purchase in as little as two years, whereas those who have lost their home to foreclosure will likely be unable to purchase for 5-7 years. Consult an attorney and/or an accountant to help decide what option is best for you.

Can I participate in a short sale if I have no late mortgage payments? 

The simple answer is ‘yes.’ If you have a significant hardship, then you can participate in a short sale.

My foreclosure date is 2 weeks away. Can I still participate in a short sale?  

Some mortgage companies will postpone a foreclosure date if they have a complete short sale package from the seller and the seller’s agent. This package must include a purchase contract as well as important financial information. Without these items, lenders will not postpone a foreclosure date.

For more information on short sales please contact Chantel Ray Real Estate at 757.717.1003 or email team@chantelray.com 

Short Sale Questionnaire

Short Sale Q&A

1.     Who is a short sale right for?

Those who have had a hardship, and are financially unable to pay for, due to said hardship(s), their current mortgage with a lender who is willing to agree to a short sale rather than go through the expensive process of foreclosure.

2.     What are typical hardships that allow for a short sale to be possible?

Common hardships include family illness/injury, loss of job, job relocation, unforeseen increase in living expenses, proof of insufficient income to pay current mortgage and divorce.

3.     Must there be a delinquent payment on mortgage to be eligible to qualify for a short sale?

It completely depends on the lender, and their policies. Some lenders require for a delinquent payment, where others do not.

4.     Why would a lender accept a short sale, if they know they will lose money in the deal?

Lenders want to work with the borrower to reach a compromise solution, in such they will do extensive calculations to see if it is more financially viable to accept the short sale and have the opportunity to sell the property, netting a smaller loss than with the other option of a foreclosure. The foreclosure process is usually time consuming, and expensive, not to mention, if the property goes to auction, it could bring significantly less than it would through a short sale.

5.     Do all lenders accept a short sale?

It completely depends on who the lender is, and what their level of experience they have in dealing with short sales. The larger the bank, the more likely they are to accept, and the smaller, “local” banks tend to be more hesitant, or may not even accept at all. The scenario may also, have a considerable bearing on the lender’s decision as well.

6.     In the event of a short sale, who is responsible for expenses necessary for resale?

Once a lender has accepted and approved the terms of the short sale, the lender then incurs all of the foreseen expenses involved in the resale of the property, often paying for most of the repairs necessary for resale. The lender has most likely taken these expenses into consideration in their calculations prior to acceptance.

7.     After a short sale, is the person responsible for paying taxes on the cancelled debt?

President Bush passed legislation which is still in effect, specifying if a primary residence goes into short sale, the previous owner is not responsible for paying taxes on the cancelled debt via a 1099 form.

8.     Does a short sale affect one’s credit?

The short sale itself does not directly affect one’s credit, it is a fair better solution than a foreclosure which is catastrophic to credit. The problem that arises with a short sale affecting credit comes in the form of delinquent mortgage payments while the short sale is in progress.

9.     What is an “Arms Length Transaction”?

Mandatory in a short sale, it is an agreement by the previous owner of the property in the short sale that they are at “Arms Length” from the Seller, meaning they are not related to, or friends with the seller in the deal.

10.  Why is a deed in lieu not recommended over a short sale?

A deed in lieu is basically viewed as a foreclosure, and carries significant damage to one’s credit, typically marring credit for 3 years. A short sale is a safer option, and is much easier to repair damages to credit.

Ghosts and Real Estate

The Commonwealth of Virginia is old.  Very old.  Our history textbooks told us of the original English settlement in 1607 at Jamestown but the land existed well before then.  That’s over 400 years of rich history including English colonists, battles with Native Americans, the Revolutionary War, the Civil War and their respective ghosts that continue to haunt Virginia.  That is – if you believe in that stuff. 

If you do – here is a scary fact: The Commonwealth of Virginia does not require any disclosure of ghosts, goblins or demons, along with most other states.  States and local governments do not recognize the existence of ghosts, haunting or spiritual beliefs along those lines. Also, Virginia does not recognize any religion or the belief of a soul and what happens to that soul upon death.  Therefore it is not required for a real estate agent to disclose a death or murder since it does not affect the property.  The only thing that Virginia DOES require is if the death or murder at a property leaves bodily fluid (eww) or a skeleton (eww) on the property is must be disclosed – because now it is a bio hazard or health hazard. Local authorities are required to take over for cleaning and hazard-clearance, but that certainly doesn’t make the process any less scary.

There is a strange fascination with the “other world” and the possible existence of ghosts and hauntings.  There are dozens of shows and movies every year that do their best to convince the non-believers. Take for example the 1973 film, The Exorcist – filmed in a home located in the Georgetown Neighborhood of Washington DC – which sold for over $2 million in 2003.  The actual location of the exorcism which the movie was based has been debated for years – but what if that Georgetown home was the real deal?  Would that stop buyers from making an offer or would buyers actually demand a higher sales price?  What if you bought a house but later found out a murder took place in your home 45 years ago?  What if your neighbor told you that your new residence was haunted by Confederate Civil War soldiers? 

Buying a home is scary enough – searching dozens of homes to find the right one, submitting an offer, surviving the mortgage process, getting through home inspections etc – let alone wondering who lived there and what happened in the house before you.  Here is the most important tip about the purchase process:  Find a real estate agent who is looking out for you and your needs. 

Lucky for you – you’re on the Chantel Ray Real Estate website – meaning your search for right real estate agent ends here.  We work for you.  Our mission is to glorify God by putting our clients’ interests above our own, providing the highest level of honesty and expertise before during and after each transaction.  Even if our client’s interest is checking for ghosts.