Archive for the 'Short Sales/Foreclosure' Category

Comments Off on Minneapolis Short Sale Duplexes: Who Gets The Rent?

home on a stack of cashBelieve it or not, some distressed duplex sellers have told me they would rather suffer the potential tax consequences and black mark of foreclosure on their credit report than save taxes and lessen credit damage through a short sale.

Why?

Because they want to pocket their tenants rent money until the property goes back to the bank.

The irony is, just because you’re selling your duplex as a short sale, or it’s in the foreclosure process, you’re still the owner of the property. As such, you are entitled to all the rights associated with it, including the collection of rent.

That is, unless the bank decides otherwise. See, when you signed your mortgage at the closing where you took title to the property, you likely signed an addendum that said in the event you defaulted, the bank resereved the right to collect rents from the tenants.

But this is true whether you’re being foreclosed upon or doing a short sale.

I’m getting mixed reports from sellers facing duplex short sales. Many are reporting their lender hasn’t requested the rents be assigned to them. Other(so far those who own bigger properties) report that they are.

Until you receive notice from the bank, however, you can use the rental income as you see fit; which may include continuing to pay for the utilities and maintenance of the property, or perhaps even trying to get caught up with the bank.

Of course, if you sell your duplex as a short sale, you will likely be responsible for transferring any tenants damage deposit to the new owner at closing. That money belongs to the new owner.

Short Sale Duplexes Require Strangers

said on September 30th, 2010 categorized under: Short Sales/Foreclosure

Comments Off on Short Sale Duplexes Require Strangers

Invisible manIs it possible to sell your owner occuppied Minneapolis duplex through a short sale, and never have to move?

Many distressed duplex owners have thought of this. After all, what’s to stop you from selling it to a friend or family member, then either renting your unit back or, ultimately, buying the property back?

The bank.

It’s important to remember that banks and government sponsored entities like Fannie Mae and Freddie Mac are losing tens if not hundreds of thousands of dollars on short sales and foreclosures.

To protect themselves from losing even more money via fraud, one of the the requirements to a short sale approval is that it be an arm’s length transaction.

What’s an arm’s length transaction? One in which two strangers are involved in the sale and purchase of a duplex.

The thinking goes that buyers and sellers who are strangers are more likely to agree to a sales price close to fair market value than are two friends or relatives. That’s because, of course, the seller wants to net as much for the duplex as possible, while the buyer wants to pay as little as she can.

Friends and family are likely to give each other a discount. I suppose the same could be said of a buyer and seller who are indeed unknown to one another, but agree to the seller staying on as a tenant; theoretically anyway, the seller would be inclined to offer an incentive so as not to have to move.

Of course, when it comes to short sales between strangers, I think that’s a difficult argument. The seller doesn’t have that much negotiating power, as it’s the bank that ultimately approves or disapproves the terms of the purchase.

Who enforces these things? In real estate fraud cases, usually the FBI. And I suppose renting back would fall under that category.

Then again, this might also fall under the jurisdiction of the mattress tag removal division.

Comments Off on How To Make Your Minneapolis Duplex Short Sale Go Too Fast

urban housing decayIf your duplex has been sold at the sheriff’s sale in the state of Minnesota, you still have six months to redeem or short sale the property, right?

Not necessarily.

In fact, it may be as little as five weeks.

While it may seem a little Big Brother-ish, when you fall sufficiently behind in your mortgage payments, the bank has people who drive by and check on your property. Don’t worry. They aren’t spying on you and they don’t work for the FBI.

In fact, it’s highly likely your duplex is being watched by a Realtor; the one who will eventually list the property once the bank has foreclosed on it.

They aren’t watching to learn what television shows you’re watching or if you’re having an affair. They’re simply making sure the duplex hasn’t been abandoned.

What constitutes abandonment?

According to Minnesota Attorney General Lori Swanson’s office, evidence of abandonment includes:

  1. Broken, unrepaired windows or boarded up or closed off entrances or windows.
  2. Broken, unlocked or smashed in doors.
  3. No gas, electric or water service to the property.
  4. Rubbish, trash or debris has accumulated on the premises.
  5. The police or sheriff have had two or more reports of trespassers, vandals or other illegal activities on the property.
  6. The building is deteriorating and is either below or about to fall below minimum community standards for public safety and sanitation. (This can include unmowed lawns and snow that clearly hasn’t been shoveled or walked on for some time.)

The Realtor and the lender they work for document any of these criteria. And, they may even go so far as to change the locks on the duplex and, if within 10 days no one who has a legal right to the premises as asked for access, then the court may take this as further evidence of abandonment.

When the lender has established to its satisfaction the property is abandoned, the lien holder may initiate a proceeding in district court to reduce the duplex owners redemption period. Failure of the property owner to show up in court is considered further evidence of abandonment.

If the lender sufficiently proves the duplex has been abandoned, the court will allow the redemption period to be shortened to just five weeks.

I suppose if you completely don’t care about your credit or capital gains tax it doesn’t matter if the bank takes the property back.

However, if you do, abandoning the property has made it virtually impossible to successfully negotiate a short sale and minimize the damage.

I had a buyer for exactly such a property over the summer. Had the duplex owner simply taken the recycling bin full of glass bottles out to the trash, odds are he could have avoided the permanent blemish of foreclosure on his record.

Comments Off on Duplex Short Sales: Where Plenty Of Time Might Not Be Enough

running out of timeI had a phone call today from a duplex owner in distress, wondering whether he still could do a short sale even though the sheriff’s sale had already taken place.

Of course, in Minnesota, the answer was yes.

This gentleman has six months before his redemption period ends; which is a long time in many respects. However, when it comes to short sales, it really isn’t.

Before a short sale can close successfully, several things need to happen as quickly as possible.

First, if the duplex is located in the cities of Minneapolis, St Paul, or any of the 12 metro suburbs that require a city housing inspection at or before the time the property goes on the market, that needs to be completed. Sorry, if your property is located in any of the cities where an inspection is a requirement, we can’t sell the place without it.

Next, the property needs to go on the market. And, as quickly as possible, we need to get an offer on it. That means pricing it to sell.  While it would be easy to simply put it on the MLS for a dollar, the bank does want to see we made an effort to get it sold for something closer to market value. We can reduce the price from there.

Once we have an offer, we have to submit it, along with a whole ream of paper documenting the seller’s financial condition, including two years of tax statements, recent pay stubs and bank statements, or documentation that those things don’t exist.

Of course, since the banks are getting thousands of these short sales a month, they usually lose the three pounds of paperwork once or twice before finally acknowledging it’s all there.

Keep in mind if there’s one mortgage on the place, we only have to do this once. If there are two, we get to do it all twice.

Then we wait while the bank gets various real estate broker’s price opinions (BPOs) on the value of the duplex, as well as an appraisal, until finally, the bank assigns us a negotiator who will tell us whether or not they’ll accept the price the property’s under contract for.

If there’s a second mortgage involved, the negotiator for the first will also tell us how much, if any of the proceeds they’re willing to share with the second lien holder.

Once everything’s in order, we move toward closing on the property. If the buyer is paying in cash, this can happen in a matter of days. However, if he or she is getting a new mortgage, this can take another 30-45 days.

If you’re in that window of time after the sheriff’s sale and this sounds virtually impossible, don’t despair. Banks are aware that on average, they net tens of thousands of dollars more on a short sale than they do in a foreclosure.

And through persistent effort on our part, we may be able to get it done.

Remember, keeping a foreclosure off your record benefits you in so many ways that it’s absolutely worth the effort.

Comments Off on Hennepin County Offers Help To Duplex Owners Facing Foreclosure

minneapolisIf you’re a duplex owner facing foreclosure and aren’t sure of your rights, where to find help, or the process, you can get answers at three free upcoming workshops offered by the Minnesota Home Ownership Center.

The Minnesota Home Ownership Center is a counseling agency that provides foreclosure prevention education in conjunction with Hennepin County Taxpayer Services and the Hennepin County Library.

People who attend can not only get their questions answered, but also get free, confidential advice from foreclosure counselors.

The workshops are:

  • Saturday, Sept. 18, 10:30 a.m.– Hennepin County Library, Brooklyn Park, 8600 Zane Ave. N, Brooklyn Park. (952)847-5325
  • Tuesday, Sept. 28, 6:30 p.m.- Hennepin County Library, Rockford Road, 6401 42nd Ave. N., Crystal. (952)847-5875.
  • Thursday, Oct. 7, 6:30 p.m. – Hennepin County Library, Maple Grove, 8001 Main St. N., Maple Grove. (952)847-5550.

Or, if you prefer, you can also watch a previously recorded workshop online.

As always, remember, short sales are a wonderful alternative to foreclosures. Call me if you need help.

Should You Insure Minneapolis Duplex Short Sale?

said on September 9th, 2010 categorized under: Short Sales/Foreclosure

Comments Off on Should You Insure Minneapolis Duplex Short Sale?

building fireThe other day a duplex owner facing a short sale confessed he didn’t think he’d be able to continue to make his mortgage payment.

He then asked if he couldn’t make the mortgage, did he need to bother with the insurance payment?

The answer, according to Frank Culbertson at Farmer’s Union Insurance, is yes.

While many duplex owners have their premiums escrowed as part of their monthly payment, some pay the insurance company directly.

According to Culbertson, several missed payments result in the insurance company notifying the lender. Guess what happens then?

Since the lender has a stake in the property, namely the money they lent toward its purchase, they would like their asset protected. And, by law, they have the right to buy insurance on the property, and they will.

These insurance premiums are typically at a rate three to four times higher than the rates the property owner was paying. And the cost of them is then passed on to the duplex owner.

So what does it matter if you can’t pay them back anyway?

Well, unless your Minneapolis duplex or duplexes are vacant, you still have tenants. Now let’s imagine there’s a fire where one or more of them is seriously injured while payments aren’t being made.

Do you think the tenant or his family will not pursue legal recourse simply because you were in the foreclosure process?

Personally? I’m not that optimistic.

And even though it’s possible you may not ultimately have any liability, your attorney will charge you to prove just that. Even if you’re broke.

Had you maintained your insurance policy, odds are, your policy would have covered the costs of attorney’s fees.

Just something to think about.

Why Bankruptcy Won’t Prevent Foreclosure

said on August 26th, 2010 categorized under: Short Sales/Foreclosure

2 Comments »

Financial CrisisI subscribe to a web site that tells me which duplexes in the Twin Cities are facing a Sheriff’s Sale.

Every now and then, I see a property listed where the Sheriff’s Sale has been delayed because the property owner is filing for bankruptcy.

I don’t know if the duplex home owners are doing this with the hope of avoiding foreclosure or not. But if they are, it won’t work.

Declaring bankruptcy may temporarily halt foreclosure proceedings, giving the property owner an opportunity to reorganize debt. However, it will not stop the foreclosure process.

Both bankruptcy and foreclosure stay on your credit report for a minimum of 7 years. Imagine giving yourself the double whammy of both.

For many property owners, mortgage payments are the biggest portion of their debt.  So when considering filing for bankruptcy, it may be useful to consider whether or not the financial strain would be eliminated or reduced if it were eliminated or reduced.

Duplex owners who can demonstrate a monthly financial shortfall may qualify for a short sale. While this too has some impact to credit, it is nowhere near as damaging or enduring as a foreclosure.

If you’re considering bankruptcy because of overwhelming debt, including your mortgage payments, give me a call. As a CDPE agent, I can help you explore your financial options.

You may discover bankruptcy isn’t inevitable after all.

Duplex Owners May Not Have Recourse

said on August 20th, 2010 categorized under: Short Sales/Foreclosure

Comments Off on Duplex Owners May Not Have Recourse

Bank owned sign posted on a boarded up house in ForeclosureIf you’re a duplex home owner facing a short sale or foreclosure, one of the most important items to consider in your decision-making process is whether your state is a recourse or non-recourse loan state.

A recourse loan is one in which the bank can obtain a deficiency judgement for any amount they can’t recuperate through a short sale or foreclosure.

For example, if you sell your duplex and are $25,000 shy of what you owe the lender, they can pursue you for the difference. Of course, if you lose the property to foreclosure, they can come after you for the total loan balance.

Sadly, most states are recourse loan states.

However, Minnesota, California, Mississippi, Montana, North Dakota and West Virgina are what’s known as non-recourse loan states. There, the property is the only collateral the bank can come after. Once it’s sold or foreclosed upon, they can’t pursue further judgements.

Of course, for duplex owners, that may not mitigate tax liabilities and it’s important that you consult with your accountant before making any decisions.

An Unnecessary Fourplex Tragedy

said on August 19th, 2010 categorized under: Short Sales/Foreclosure

Comments Off on An Unnecessary Fourplex Tragedy

philadelphia housesI looked at a familiar fourplex this morning.

I knew the building because I showed it to a client two or three years ago when the owner was trying to sell it herself.  At that time, my client liked it well enough to write an offer.

The offer was for $260,000.

The building is now on the market as a foreclosure for $135,000.

Sadly, I had another buyer for the building last summer. I’d called the owner and she never called me back.

She chose to be foreclosed upon. She had the option of a short sale. The latter would have greatly reduced her tax liabilities and alleviated many long-term credit issues.

But pride got in her way.

If you’re upside down in a duplex, triplex, or fourplex, remember you do have options. And almost all of them are better than foreclosure.

If you’d like help finding a way out, call me. As a Certified Distressed Property Expert, I can present you with options you may not have considered.

And remember, you’re not alone. We’re all in this housing crisis together.

Comments Off on For Some Duplex Owners Being Broke Is A Good Thing

Empty pocketsDo you always have to pay depreciation recapture and capital gains tax when you sell your duplex via a short sale or lose it to foreclosure?

I spoke with three accountants last week and the answer, as always, is circumstance dependent.

If a duplex home owner can prove insolvency, the tax obligations may be avoided.

What’s insolvency?

Basically, it’s when all of your assets don’t outweigh all of your liabilities. With a home mortgage, a duplex mortgage and credit card debt, for many that may be easy to prove.

However, as explained to me, you have to be able to prove you were not only insolvent before you sold or lost the duplex investment, but after as well.

For example, if you have a $100,000 in equity in your home, with a $50,000 mortgage, and no equity in your duplex that has a $200,000 mortgage on it, you owe $250,000 and only have $100,000 in assets. Therefore, you’re insolvent.

But, after you sell the duplex via short sale or lose it in foreclosure, you now have $100,000 in equity in your home and owe $50,000 on the note. In other words, you’re worth $50,000 more than you owe.

As always, be sure to speak with your tax chick for specific advice.