Real Estate News & Commentary by Chris McLaughlin, October 23, 2009

http://www.shortsalesriches.com

* Follow me on Twitter: http://www.twitter.com/mclaughlinchris

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The next collapse

If there’s another real estate collapse on the way, it’s in commercial real estate, and the FDIC closing Chicago’s Corus Bank last month may have signaled the beginning of it. Corus, whose balance sheet full of bad construction loans, was just one of many banks that have this type of debt on their books, and refinancing the $2 trillion in commercial mortgages is going to be tough as property values decline. In this new age of cautious lending, few banks are willing to refinance loans. Michael Haas, a real estate attorney at Jones Day, says, “There is a hesitancy to extend credit when there is a real possibility that the real estate may be worth less than it was a few years ago.” In a situation similar to the subprime crisis, we may be looking for a wave of foreclosures and loan defaults that could, in turn, trigger a collapse in the market of the structured bonds backed by commercial real estate and construction debt.

MBA objects to new legislation

The Mortgage Bankers Association (MBA), like most of us who believe government has no place in the nation’s business, objected to legislation passed by the House Financial Services Committee that would create a consumer financial protection agency. The bill continues the patchwork approach of state and local laws that present challenges for lenders in multiple states, and ultimately lead to increased costs for consumers. MBA’s Chairman, Robert E. Story, Jr. says: “MBA has also expressed concern about the creation of a new government bureaucracy that could result in financial institutions facing conflicting regulatory guidance from two regulators – the CFPA and their existing prudential regulators. A better approach would be to create a national regulator for mortgage banks that would regulate for both consumer protection and safety and soundness. Existing federal regulators could then be empowered to enforce consumer protections on the financial institutions they oversee. Moving forward, MBA will continue to work to make these and other improvements to the bill in the hope of finding common ground on a consumer protection bill that we can support.”

2010 is shaping up for a weak recovery

The Federal Reserve is in no rush to pull back its extensive economic life support measures. Chicago Federal Reserve President Charles Evans said: “We have to think about our exit policy and are looking at it very carefully, but at the moment, that’s not our first order concern, at the moment, its policy accommodation. I think that the recovery is going to be very unsatisfactory in 2010.” Evans, who will vote on the Fed’s policy-setting panel in 2010, said he expects unemployment to rise above ten percent. The Fed has cut rates to near zero and pledged to hold rates there for an extended period. Its next policy-setting meeting is Nov. 3-4 and it is not expected to signal any movement toward an exit then. High unemployment and low inflation rates both indicate that policy accommodation is in order, and with economic growth, household spending will be restrained and businesses will face weaker demand for their goods and services, Evans said. “It is not going to feel like a recovery for some time.”

Freddie Mac – increased delinquencies

Freddie Mac announced today that its mortgage investment portfolio grew by an annualized 7.3 percent rate in September, while delinquencies on loans it guarantees accelerated. The portfolio increased to $784.2 billion, for an annualized 3.4 percent decrease year to date, and delinquencies, which increase stress on the company’s capital, jumped to 3.33 percent of its book of business in September from 3.13 percent in August and 1.22 percent in September 2008. The multifamily delinquency rate accelerated slightly in September to 0.11 percent from 0.10 percent in August. A year earlier it was 0.01 percent.

IRS gives Homebuyer Tax Credit to aliens and minors

Ok, we knew it would happen, right? We all love the tax credit – if only the government didn’t have to be the one administering it. The Treasury Inspector General for Tax Administration (TIGTA) believes the Internal Revenue Service (IRS) may have paid out millions of dollars in first-time homebuyer tax credits to individuals not eligible to receive the $8,000 credit. Nearly $4 million of incorrectly paid credits were due to both alleged fraud and filing errors on claims by 580 taxpayers less than 18 years old. The youngest of these was 4 years old, TIGTA head J. Russell George said in prepared testimony to the House Ways and Means Oversight subcommittee. TIGTA also found 3,200 taxpayers with Individual Taxpayer Identification Numbers (ITIN) claiming the credits. ITINs are used to track income tax for resident aliens, in lieu of a social security number, and it’s possible that as much as $20.8 million in tax credits was paid to resident aliens ineligible for the credit. As of August 22, 2009, more than 1.4 million taxpayers claimed the tax credit for homes purchased in 2008 and 2009, representing total foregone tax revenue of about $10 billion, according to estimates presented by Government Accountability Office (GAO) director of strategic issues James White.

Now on to our real estate investing educational arena …

Who’s Your Seller?

By far, one of the surest signs of a novice short sale investor is the tendency to think of the homeowner as the actual seller. While s/he certainly has a legal right to the property and therefore a “say-so” in whether or not to accept an initial offer for a short sale, when it comes down to the hard and fast fundamentals of the deal, more often than not the actual lender is closer to what most people would consider the actual “seller”.

If this seems counter-intuitive, chances are you are not alone. Many homeowners actually believe they are the “sellers” as well; in fact, it’s not uncommon to hear things like “Send me an offer and I’ll consider it” or “How much will you pay me for the property?”. Of course, that is understandable since most homeowners never really realized they didn’t truly own the property to begin with…the bank did (and still does). However, what is forgivable among distressed homeowners seeking financial relief is unforgivable among short sale investors; you simply must know and understand your seller in order to work a successful transaction.

Take time to consider a few facts; first, the lender is the only party able to make the final determination on whether or not to accept the short sale offer, subject of course to the homeowners’ approval. They can determine what constitutes an acceptable net and even change their mind when it suites them to do so – make it your business to understand what the seller needs and wants to make the deal work …the real decision maker, not the homeowner. For example:

Have you used the correct state commission form containing all required disclosures for both buying and selling?
If you are using your own purchase and sale contracts/option etc, have you verified each includes all necessary verbiage and disclosures?
Do you have appropriate contracts in place with agents specifying the working relationship?
Do you have appropriate disclosures, verbiage and properly positioned details of each transaction when buying/selling a property?
Does the BPO accurately reflect the property?
Have you verified all the “math” so the Net is properly attributed? Don’t make it harder than it needs to be for the seller to approve your deal!
Do you understand all legal requirements related to “double closings”? If not…learn them. This is a major cause of confusion and loss of confidence when purchasing short sale investments!

Serious about short sales? Get to know your seller then adopt a tried and true system that works rather than spending all your time talking about investing. Interested in learning more? Attend a free webinar to learn more about short sales in less time than you ever thought possible.

See you at the top!

Chris McLaughlin

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About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month
   * Long-time authority on real estate investing
      and rapid reselling of distressed homes. Owns
      portfolio of nearly 100 high-value, high-profit
     properties
    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     400 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!
   * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building
  * Follow me on Twitter: http://twitter.com/mclaughlinchris
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