My mother and I own our home together. I want to move because we just can’t afford it any longer but my mother doesn’t. How do I go about this situation since the house is in both our names?

-Schrone

I am assuming there is a mortgage on the property. That means you will have to obtain a partial release from your lender in order to take your name off the note. That is easier said than done. Contact your lender and explain the situation to find out exactly what their process is. Your mother will have to qualify for the debt on her own in order for you to be released. I am not a lawyer, so there may very well be other legal options for you if you are willing to pursue them against your mother. It sounds like you are in a tough situation.

David Welch specializes in residential re-sales and new home construction at RE/MAX 2000 Realty in and around Orlando, FL.

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By Bob Stahl, MyPhoenixMLS.com For REALTOR.com®

In my last post here on REALTOR.com® Blogs, I blogged about the value of homeownership – both the touchy-feely (like the pride that comes with having a place to call your own) and the financial (like how leverage can make an investment in a home more beneficial than a stock market investment).

But if homeownership is so great, why are an increasing number of people walking away from their homes? The answer is short-term economics, which have made homeownership a financial drag for some people. For homeowners who owe much more than their homes are worth (more than 50 percent of homeowners in the Phoenix real estate market), making that mortgage payment every month can feel like a waste.

Several economists and academics have made good cases for the economic logic behind what they call strategic mortgage defaults – walking away from the obligation to pay one’s mortgage. I see how defaulting can make economic sense for some homeowners in some cases.  But I say that with two huge caveats:

 1) Even homeowners who feel like it makes economic sense to default on their mortgage should only do so with eyes wide open to the potential consequences of a mortgage default. Those consequences almost always include:

• A significant decline in the homeowner’s credit score. A person with a foreclosure on his record should expect to wait at least 3-4 years to purchase a home again. If the homeowner can negotiate a short sale, the negative effects on his credit score are initially about the same, though his score will recover more quickly, and he might be able to buy a home again in 2-3 years.
• In some states, the mortgage lender can hold the homeowner liable for mortgage debt not covered by the sale of the home (the deficiency). Arizona is an anti-deficiency state, which means that lenders cannot hold homeowners liable for mortgage debt after a default as long as that debt was used to purchase the homeowner’s primary residence.  Homeowners considering default should consult a real estate attorney to learn about the laws in their state.
• Depending on how long the homeowner lived in the home and whether the mortgage was used exclusively as purchase money, a homeowner who defaults may owe taxes on any debt that the lender forgives (typically, the difference between what is owed on the mortgage and what the lender sells the home for). The Mortgage Forgiveness Debt Relief Act does exclude forgiven mortgage debt from taxable income in certain cases.

 2) The second caveat is that, while I understand U of A law professor, Brent White’s point that social norms impose guilt on people who default on their mortgages (but not, say, on businesses that do the same), I do think that there are important moral considerations at play here. Furthermore, mortgage defaults can depress housing values in a neighborhood, which imposes hardship on neighbors and on the real estate market as a whole (keeping real estate mired in the depressed-prices rut).

The bottom line is that of course I don’t advocate for deeply underwater homeowners to walk away from their mortgages. I do believe that there is a moral component to the issue. I also acknowledge that for some homeowners, in some situations, a strategic mortgage default is a smart financial decision. I just hope that the trend doesn’t spread – after all, homeownership has tremendous value, far beyond motherhood and apple pie.

 I have to mention that I’m neither an attorney nor a tax professional and nothing I’ve written here should be construed as advice.  If you’re considering mortgage default, please consult an attorney and a tax advisor.

Bob Stahl is a REALTOR® at Keller Williams Arizona Realty in Phoenix, AZ.

So it would appear that now is a great time to go ahead and buy the house of your dreams. The only catch is, banks are still reeling from the past couple of years, and the sharp economic downturn, and as a result, it still appears to be very difficult to get a mortgage.

Bob Phillips gives us the breakdown on the numbers, and what the banks are thinking when it comes to giving you that loan.

“The economy’s improving but lending standards are not. Nationally, banks are making mortgage approvals harder to come by.

So if you’re on the fence about whether now is a good time to buy a home, or make that refi, consider acting sooner rather than later.”

It  may come down to a matter of time. You may not be able to acquire the loan you need at the first bank you approach. Or the second. But be sure you are working with a trusted REALTOR® or financial advisor, and theymay be able to secure you that all-important mortgage after all.

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If you have any hesitation or questions, be sure to find an experienced REALTOR® or financial advisor with whom you can discuss your situation. Everyone’s financial situation is different, and while it may be a good idea for one person to refinance, it may not be for someone else.

Ki Gray explains the process of refinancing, and tells us about some things to consider before deciding whether or not now is a good time for you to refinance.

“Keep in mind that if your goal in refinancing is either to obtain a lower interest rate or lower your monthly payments, you will restart the clock on your mortgage.

All things considered, do you still want to refinance? If you can save money, there’s no reason not to.”

Ki Gray gives homeowners considering whether or not now is a good time to refinance a lot to think about. What are your current payments? How long do you think you will stay in your current home? With interest rates as low as they currently are, now is a great time to take a look at your current mortgage and see if you can save yourself some money.

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 Would it be possible to purchase a foreclosure or short-sale home and then rent out the remaining rooms to pay the mortgage?

-Jeanette

Buying a home as a short sale or foreclosure has no impact on your decision to live in or rent the property after the close of escrow, just like a regular private sale. What will affect your ability to rent, will be the type of loan you arrange with your lender (eg. Owner occupied or investor purchase) and the laws in your town or homeowner’s association agreement.

To clarify that last statement, check the zoning laws to make sure you can rent multiple rooms, and if you live in a condominium, make sure the HOA allows you to rent the unit and does not have restrictions on doing so.

Allan Glass is a real estate broker at ASG Real Estate Inc and a consultant in the Los Angeles market specializing in REO, foreclosures, and short sales. Over the past 17 years he has sold over $1 billion in commercial and residential real estate.

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Rather than go through the process of selling or foreclosing, they are simply walking away and leaving their home behind to take the pressure off their shoulders. But when you look at the repercussions of this act, walking away is actually not so “simple.”

Beverly Meaux blogs about the implications of walking away from a mortgage, and shares some potential alternatives.

“One in four homeowners in this country today is underwater on their mortgage- they owe more to the bank then their home is actually worth. A million people last year simply got up and walked away from their mortgages.

Do you stick to your commitment and pay your mortgage until you can get a workout with the bank to keep the home, do you do a short sale, or do you just walk away, ruin your credit and help ruin your neighborhood by helping bank-owned foreclosured properties increase, which decreases value on the block? It’s a hard question for many to answer. What would you do?”

Everyone has their own situation, and for some it may be more grim than for others. But “simply walking away” from a mortgage may not be so simple after all. Although the immediate problem may be taken care of, the repercussions that follow may not be worthwhile.

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I’ve written before about the growing trend of what’s become known as “strategic defaults” – when a homeowner can afford to pay his mortgage, but decides to walk away (typically because of a huge gap between what he owes on the mortgage and what the home is worth).  Allan Glass wrote an incredibly detailed blog about the issue.

While every homeowner’s, seller’s, or buyer’s situation is different, the rise of strategic defaults – which, before last year had been practically unheard of in residential real estate – has got me thinking about the value of homeownership.  With an increasing number of people jumping ship (though still a very small percentage of homeowners), is it time to reevaluate the value of homeownership?

The short answer is yes, maybe.

First let’s look at what we typically consider to be the value of homeownership:

• Mortgage interest and property tax deductions.  Depending on the size and terms of your mortgage and the amount you pay in property taxes, you could end up deducting tens of thousands of dollars from your income at tax time – that could mean thousands of dollars in tax savings.
• Monthly payments build equity.  If market-rate rent payments are comparable to your mortgage payment (they should be, provided that you have good credit), then the money that you pay toward your mortgage (which you would otherwise use to pay rent) actually works for you – it helps you build equity in your home.
• Stability.  Most landlords won’t sign leases longer than 3 years (and some much shorter) because they want the flexibility of being able to raise rent, find new tenants, or sell. While it’s certainly possible that you could rent the same property for years and years, there’s no guarantee.  When you own a home, it’s your home forever.
• Pride of homeownership.  Paint the walls pink (or purple, or green, or any other crazy color that suits your fancy).  Build a tree house in the backyard.  Let your kids go crazy painting a “mural” in the hall.  When you own your home, you can do whatever you want – no frowning landlord to say “no.”
• Home value gains.  I know as well as anyone that home values have plummeted since the high-flying real estate boom busted.  But home values are still right around pre-boom levels (meaning that people who bought before the boom or after/during the bust should be just fine).  The chart below shows the trend in home price values nationwide – still clearly up.

The homeowners who are hurting most now are those who either bought at the peak of the real estate bubble or did cash-out refinances then to tap the equity that those rising prices had created.  These are the homeowners who are now underwater – owing more than their homes are worth. But as home values continue to rise, most underwater homeowners will eventually recoup their equity losses.

Last, but typically most important, is the investment value of your home.  The average annual rate of appreciation in the U.S. housing market – since the 1970s – is 5% (that includes booms and busts).  That may not sound like much, compared to the stock market, for example (which has yielded 10% per year on average) – until you consider the power of leverage.

For most of us, when we buy stocks, we only earn a return on the amount of cash we can put into the market. With a home, in contrast, you earn a return on a giant investment even if you only have a little cash to put forward. Let’s consider an example:

Say you make a 10 percent down payment on a $250,000 house. Assume an average annual rate of appreciation of 5 percent.  By the end of the second year your house is worth $275,625, for a gain of $25, 625.  You’ve already seen more than a full 100 percent return on your initial $25,000 cash investment, in only 2 years!  If your home continues to appreciate at 5 percent a year, at the end of five years your home will be worth $319,070 – $69,070 more than its value when you bought it. You’ll have nearly tripled your initial $25,000 investment.

If you had invested that same $25,000 in the stock market and it grew at a compound annual rate of 10 percent, at the end of five years your investment balance would be $40,263 – for a total gain of $15,263 – not even a quarter of the gain you’d see in your home investment.  That’s the power of leverage – and the value of homeownership.

So, I said that it may be time to reevaluate the value of homeownership.  A few years ago I went on a river rafting trip with some friends in Colorado.  We stayed at a KOA where they had a huge (like, three-story) slide.  You had to sit on a burlap sack to keep from sticking to the metal slide.  One of my friends had been having great fun, until she slipped off the sack.  She was wearing short shorts and the result was not pretty.  It was the “screech heard ‘round the KOA,” we joked.  She had, literally, second-degree burns.  I think that a lot of homeowners have felt that same way as they’ve been taken for a ride down, down, down the slide with no burlap sack to protect them.

In other words, homeownership hasn’t turned out so hot for some homeowners in the last three years or so.  But prices have already begun to rebound, and they will continue to rebound.  It will be a long haul back to boom levels, but we’ll get there.

And, once-in-a-lifetime boom and bust notwithstanding, anyone who bought a home before the boom or during/after the bust is still in great shape to reap all of the rewards of homeownership – not least of which is the incredible returns homeowners see because of the power of leverage.

Bob Stahl is a REALTOR® at Keller Williams Arizona Realty in Phoenix, AZ.

I am currently looking to purchase a home, and I found a property that has been on the market for over 180 days. It has fallen out of escrow twice, according to the listing agent. There is a first mortgage on the home for $580,000 and a second mortgage for $135,500.  The home is being offered for $490,000. It originally came on to the market at $450,000 over 6 months ago, but after falling out of escrow, the price has begun to go up.

The listing agent has told me that the second has been purchased by Wachovia and that they are getting “cold feet” about selling at a loss because they won’t recoup much of the money. He would like to set up the purchase as a $470,000 cost. Then, he would like us to write a check for $20,000 “on the side.” As for Wachovia, I have checked the county recorder, and there is no documentation showing Wachovia bought the second. What should I do? Is this a normal practice? Is it a scam?

-Ben

  I would be careful about writing a second check on the side. The second lien holder does typically want to receive some money, and it is often in the 20K range. The previous owner is usually asked to sign a note for that amount, but I can guess they are not having any luck on that. I would have an attorney, and a REALTOR® help you with this. If it’s the home you want, it is worth the expense of the attorney. If not, just move on, and find another home.

Brad Anderson is a REALTOR for Keller Williams in Wayazata, MN.

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Scott Voak has taken a long hard look at the facts and figures and gives us his prediction of what could happen in March.

“I was looking at numbers over the last year as they related to sales values to try and figure out what effect that Fed’s purchases of Mortgage Backed Securities has been. A major problem of getting accurate numbers is that housing prices are reported as an average or median price.

In markets that are consistent, this is a good method to use. However, when the market changes (as it has recently) the median price especially becomes less and less meaningful.”

Scott Voak predicts that if and when the Fed stops buying mortgages, rates will rise rather quickly. We will just have to wait and see how high they will get and how fast this will happen.

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Susan Jenkins gives us the ins and outs of the new “Good Faith Estimate” form.

“The new regulations require that lenders disclose these fees uniformly and then stick to them. For example, if you are quoted a $300 appraisal fee on a Good Faith Estimate form, you cannot be charged more than 10 percent of the price quoted.

The idea, HUD says, is to make it easier for consumers to do an apples-to-apples comparison of different loan products. In fact, on the third page of the three-page form, there is a place to do a side-by-side comparison of up to four different loans and recognize what is the best deal.”

So take a look at the new forms, and become the experts on them. Know them inside and out, because no doubt your clients will be coming to you for help, guidance and advice, and they know that they can trust you to be up on the latest developments.

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