Author: Giang Hoang-Burdette

Mortgages, negative equities, and foreclosures

This article discusses the history, purpose, and present application of anti-deficiency laws. Rational owners have nonrecourse options Consider a home buyer who obtains a purchase-assist loan from a lender to fund the purchase of a one-to-four unit residential property he will live in. The homebuyer puts up only the minimum downpayment required by the lender to buy the property. A few years later the local economy becomes depressed, causing the fair market value of the property to drop below the amount of the loan balance, a financial condition called negative equity. Concerned about continuing to own a home with a negative equity and being a rational person, the homeowner considers his financial options. They include: sell the property in a short sale arrangement, contingent on the lender accepting the net proceeds of the sale in full satisfaction of the loan and cancelling the remaining unpaid loan balance [See first tuesday Form 150-1]; continue to pay on the loan and retain ownership, maintaining his credit score but drowning under a debt which is no longer supported by the value of the mortgaged real estate; or default on the loan and force the lender to foreclose on the property, bruising his credit but freeing himself of a dead-end debt, with payments greater than the rental value of the property (known as implicit rent which the lender cannot collect). The homeowner knows...

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FDIC Loss Sharing Proposal

On November 14, the FDIC announced that it will be increasing efforts to promote loan modifications to as low as 31% of a borrower’s monthly income through IndyMac Federal Bank. Approximately 2.2 million loan modifications are expected to be covered under this effort. This enhanced modification plan includes: · paying servicers $1,000 to cover expenses for each loan modified under its terms; and · sharing up to 50% of losses on modified loans that re-default. For information on eligibility requirements and more details on the loan modifications, see the official FDIC release at The government will continue to prop up homeowners who are qualified only to be renters, not homeowners. As first tuesday has noted before, government interference in homeownership is only going to prolong the bust phase of the current housing cycle by attempting to stave off the inevitable foreclosure of massive amounts of property. Remember, we’re only at the beginning of this economic downturn. The more time they spend trying to stop the downturn in property prices which will occur to correct the market, the less time they have to focus on stabilizing the economy to keep the recession we’re already in from growing...

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October 2008: Ten Things Brokers and Agents Should Consider

1. Due diligence disclosures have never been more important. The real estate industry is under intense public scrutiny in the existing economic climate, with politicians eager to place blame. Brokers and agents need to protect their deals and look out for their clients’ best interests by reviewing all aspects of the subject property. Opinions and concerns should be explained to the client as soon as possible. Getting information and counseling clients takes time, but better time spent during the agency than later as a defendant in a lawsuit. Silence becomes dangerously noisy in the current market environment. For the next three or four years, principals will be fast to blame any professional involved in the transaction for the effect any lack of information or oral advice may have had on their proceeding with a transaction, be it a listing, a purchase agreement, a loan, or a lease. 2. Know how the plans for a Federal bailout will affect real estate. An informed agent will be ready to adjust to the changing market environment. Watch and determine what Congress is doing for real estate, not what the market is doing for real estate. For the next three or four years, real estate will be driven by what Congress does to cover for what the Federal Reserve and US Treasury allowed to happen over the past decade. Wall Street got into...

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91-day T-bill rate added!

We’ve added the 91-day T-Bill rate to our list of monthly rates reported. This rate determines the minimum interest rate a seller must report and impute in a delayed §1031 transaction when he is not receiving interest on §1031 monies held by a facilitator or accomodator. The rate also sets the amount of ordinary income the facilitator must report. You can find this, and all the other rates reported monthly, in our August edition of the first tuesday journal...

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