From the Massachusetts Office of Consumer Affairs and Business Regulations
For most of us, shopping is a necessary fact of life. By knowing some of the general laws that protect consumers, you can safeguard your rights. (Please note, unless otherwise stated these consumer protection laws apply to businesses and not to private party sales.)
Warranties: Express & Implied
A warranty is a two-part pledge to you. First, it promises that the merchandise sold is as represented. Second, it promises that you will receive repairs, a replacement, or a refund if it is not the quality or condition represented. A seller does not have to use formal words such as "warranty" or "guaranty," for a warranty to exist. There are two types of warranties: express and implied.
Express Warranty:
Sellers create an express warranty when they make a promise, show a sample or model, or describe goods to you. The written warranties provided by some manufacturers are express warranties. Express warranties can be oral or written, but you should try to get all promises in writing for your protection. (M.G.L. c. 106, § 2-313 (1)).
Implied Warranty of Merchantability:
Under the implied warranty of merchantability, the merchandise must do what it was designed to do with reasonable safety, efficiency and ease, and for at least a reasonable period of time. For example, a toaster must toast, a TV set must have a picture and a clothes dryer should not overheat and catch fire when properly operated.
Every item sold by a merchant in Massachusetts automatically comes with the implied warranty of merchantability. There is no warranty of merchantability if the seller is not a merchant, or if the seller is a merchant but does not ordinarily sell goods of that kind. For example, a computer purchased from a restaurant that does not usually sell computers will not have this implied warranty.
Under this law, a merchant cannot sell merchandise "as is", "with all faults", or with a "50/50" warranty. (M.G.L. c. 106, §2-314)
Implied Warranty of Fitness for a Particular Purpose:
If you ask a salesperson to recommend a sleeping bag for camping in sub-zero temperatures, then the recommended bag should keep you warm. If it does not, then the merchandise is not fit for its particular purpose, and the seller had failed to follow this implied warranty. The implied warranty of fitness for a particular purpose arises when all three of the following conditions are met: 1) the seller has reason to know your particular purpose for buying a product; 2) you rely on the seller's skill or judgment in selecting or providing a product to meet that purpose; 3) the seller has reason to know that you are relying on his/her skill and judgment. (M.G.L. c. 106, §2-315)
Breach of Warranties:
Under state law, it is an unfair or deceptive act or practice to fail to honor a warranty. (M.G.L. c. 93A, §2(c), 940 CMR 3.08 (2))
Refund, Return & Cancellation Policies:
Massachusetts law requires that a merchant clearly and conspicuously disclose the store's refund, return, or cancellation policy. A merchant cannot misrepresent the store's policy or fail to honor it. Generally, clear and conspicuous disclosure means that the merchant must display a written return policy that the buyer can see and understand before the purchase is made. As long as the product is not defective, a merchant can chooseany return policy, provided the merchant discloses this policy to the buyer before the purchase. Stating the policy on the receipt would not satisfy this disclosure requirement, because it is not provided until after the sale. (M.G.L. c. 93A, §2(c), 940 CMR 3.13(2)).
Defective Merchandise:
A store, however, cannot use its disclosed policy to refuse the return of defective merchandise. When the item purchased is defective, you can choose a repair, replacement or refund. This right is contained in the Implied Warranty of Merchantability law. Under that law, merchants cannot limit your remedies. In addition, this means that if a merchant chooses an "All Sales Final" return policy, it must disclose that policy without limiting your rights. For example, the disclosure of the return policy must be similar to a posting which reads:
"All Sales Final, With the Exception of Defective Goods." (940 CMR 6.12)
Merchandise Credits:
When a store issues a merchandise credit for returned goods, you have at least seven years from the date of issue to redeem the credit . (M.G.L.c. 93§14S )
Gift Certificates:
Gift certificates must remain valid for at least seven years and are not subject to any fees. Once you have used 90% of the cards' value, you may choose to take the remaining value in cash or continue with the gift certificate. The definition of Gift Certificate is expanded to include electronic cards with a banked dollar value, and merchandise credits. Gift Certificates not clearly marked with an expiration date, and issuance date, shall come with those dates clearly printed on the sales receipt, or available on line. If the dates are not provided, the Gift Certificate shall be good forever . (M.G.L.c.200A§5D)
Truth in Advertising and Sales
Disclosure:
Under state law, a merchant must tell you about any fact that may influence your decision to enter into the transaction. For example, a used car dealer would have to disclose that a vehicle was in a serious accident (940 CMR 3.16(2)).
Misrepresentation:
A merchant may not make a claim about a product or service that would mislead you. It's also illegal for a merchant to mislead you by failing to tell you relevant information about a product or service (940 CMR 3.05(1)).
Bait & Switch:
Merchants may not use bait and switch tactics. A merchant using this tactic works to lure you into the store with an appealing advertisement for Product A. The merchant does not really intend or want to sell Product A. Instead, once you are in the store, the seller will try to pressure you into buying Product B, which usually is more expensive or more advantageous to the seller than Product A. (940 CMR 3.02 (3)) Bait & Switch tactics include:
· Refusing to show, demonstrate, or sell the advertised product in accordance with the terms of the offer;
· Discrediting the guarantee, terms, quality, etc., of the advertised product;
· Claiming there are insufficient supplies of the advertised item (unless otherwise noted in the advertisement);or
· Refusing to deliver the item within a reasonable period of time.
Out of Stock Items/ Rainchecks:
A merchant must have enough of the advertised merchandise available for sale to meet reasonably expected demand. If a store is out of stock of a product, then it generally has to provide you with a "raincheck." This will allow you to buy the product for the advertised price when it is in stock again. The store can also offer a comparable substitute for the out of stock item. However, the store does not have to provide rainchecks if the ad states that the available quantities are limited or unavailable in certain geographic areas, or if the demand was more than could reasonably have been anticipated. (940 CMR 6.06)
Advertising Errors:
If an advertisement contains an error, the seller may honor the terms stated in the advertisement or promptly correct the misrepresentation using the same advertising medium. (940 CMR 6.13)
Sales:
For the term "sale" to be used in an ad when the actual savings are not stated, the law requires the savings to be at least 10% for items regularly priced $200 or less, and at least 5% for more expensive items. Stores cannot have the same item on sale for more than 45% of the 6 month period following the first sale date. (940 CMR 6.05 (5) and (3))
Sale Prices:
If you buy an item at the regular price and it goes on sale soon after, there is no law requiring the store to refund the difference in price. However, many stores will give you a refund out of good will.
Used Products for New:
A merchant cannot represent, directly or indirectly, that a product, or any part of it, is new or unused when that is not true. Nor can s/he misrepresent the extent of the previous use. A merchant must clearly and conspicuously disclose whether the products or parts for sale are used, or contain used, rebuilt, reconditioned, or remanufactured parts. (940 CMR 3.15 (1))
Lay Away Plans:
These plans allow you to pay for a product in installments, but you will not receive the merchandise until after you have paid in full. A store must fully disclose its policy on lay away plans, including cancellation and return (or non-return) of payments already made. Merchants cannot change the price of merchandise by increasing payments or by substituting lower priced merchandise. (940 CMR 3.12)
Pricing
Non-Grocery Stores:
Merchants must mark merchandise with the actual selling price. They also must disclose to you the cost of services prior to an agreement. Merchants cannot misrepresent the price or claim that it is reduced or offered for a limited time only, when this is untrue. This pricing law is enforced by the Attorney General. Certain non-food retailers who utilize in-aisle electronic price scanner systems may not be subject to this requirement. (940 CMR 3.13(l)).
Food and Grocery Stores:
The Massachusetts Item Pricing Law requires food and grocery stores to individually price mark most items with the actual selling price. The law also requires food and grocery merchants to sell any item at the lowest price indicated on an item, sign, or advertisement.
Certain items are exempt from this requirement, including unpackaged products, gallon and half-gallons of milk, eggs, tobacco products, greeting cards, vegetable or fruit baby food in glass jars, soft drinks, and some candy and snack food. Additionally, stores do not have to individually price mark up to 60 items located in end-aisle or freestanding displays, and stores with cash register scanners can exempt an additional 400 items of their own choosing. With over 10,000 items in any typical supermarket, these exemptions are a small fraction of the items stores carry. This pricing law is enforced by the Division of Standards. (M.G.L. c. 94 §184B,C,D,E)
Scanners
If the scanner price doesn't match the advertised price, report this to the Division of Standards.
Cooling-Off Periods
Many consumers mistakenly believe that after they purchase a product they have a "cooling-off period"-such as a 3 day period- during which they can cancel the contract. THIS IS NOT TRUE. The law only provides for "cooling-off" periods in extremely limited situations. If your contract contains a cancellation provision, it is valid. However, not all contracts have cancellation provisions. Be very careful when you are signing a contract, especially when you feel that you are being pressured!
Door-to-Door Sales:
If you make a purchase at a place other than a merchant's usual place of business, Massachusetts and federal law allows you three days to cancel. This rule applies to purchases of goods or services for over $25. (M.G.L. c. 93 §48)
To cancel the contract, you must notify the seller in writing at the address given in the contract no later than midnight of the third business day after you signed the contract. You may deliver the notice or send it by regular mail or telegram. Within ten business days after receipt of your cancellation notice, the seller must return your payment. You must allow the seller to pick up the goods at your house, or if the seller requests and you agree, you may ship them at the seller's expense and risk. If the seller does not pick up the goods within 20 days of the notice of cancellation, then you may keep or dispose of them as you wish.
This cooling-off period does not apply to sales that are:
· made at the seller's regular place of business, which is generally the main office or a branch office;
· made completely by mail or phone;
· under $25;
· for real estate, insurance, or securities; or
· for emergency home repairs.
Canceling a Health Club Contract:
You also have three business days to cancel a health club contract no matter where it was signed. (Health spas, sports clubs, weight control centers, and martial arts schools are all considered health clubs.) The health club must include a notice of your rights to cancel in the written contract. To cancel a health club contract, deliver or mail your written notice to the club within three business days of signing the contract. The club must refund your money within 15 business days of receiving your letter. (M.G.L. c. 93, §78-88)
Time Shares:
Contracts for time shares must allow the purchaser a 3 day right to cancel. (M.G.L. c. 183B, §38A (14)) To cancel a time share contract, deliver, telegram, courier, or send by registered, return-receipt requested mail, a notice of cancellation to the seller no later than three business days after signing the contract. If you paid by check, a refund must be made immediately as long as the check was not yet deposited into the seller's account, otherwise it must be refunded within 7 days. If you paid by credit card, a credit must be made to your account immediately. (M.G.L. c. 183B, §41)
Credit Repair and Services Organizations:
You also have a "cooling off" period for contracts with a credit services organizations. You may cancel the contract until midnight of the third business day after signing it. Your payment will be returned within 10 days of the organization receiving your cancellation notice. (M.G.L. c. 93 §68D)
Shopping by Mail, Telephone, Television, or Computer
You may find it more convenient and enjoyable to shop for merchandise advertised by mail, telephone, television, or computer. Convenience, however, may be costly. Before ordering, take the following steps:
Be sure to read the advertisement carefully, especially the fine print. Do not rely on a picture, as it may not accurately represent the product. Note the promised delivery or shipment date. Do not forget to add sales tax and the postage and handling charges to the cost of the merchandise.
Be sure to get a street address and telephone number from the company, in case you need to contact them. If you are uncertain of the legitimacy of an offer, request written materials. Find out the merchant's return policy before you order, including who is responsible for the return postage. Keep a record of your order including disclosed policies, information about the items, the date ordered, and copies of any paperwork.
Never send cash. If you are thinking of using your credit card to purchase merchandise, find out from your card issuer what protection you will have in case of fraud. Be extremely cautious about giving out your credit card number to an unknown company. There are companies that very persuasively solicit card numbers, charge the accounts and never deliver the merchandise.
Delivery:
The Federal Trade Commission Mail Order Rule: A company must ship your order within the time period promised in its advertisements. If the company does not promise a specific time, the company must ship your order within 30 days of receiving your completed order, unless you have agreed to a delay in shipment. If you pay by charge or credit card, the time period begins on the date that the seller charges the merchandise to your account. However, if you are applying for credit to pay for your purchase (either opening a line of credit or extending existing credit), the company had 50 days after receiving your order to ship the merchandise.
If the seller does not send your order when promised, and you have not agreed to a new shipping date, then you can cancel your order and get a prompt refund. The Mail Order Rule does not apply to: photo finishing, magazine subscriptions (except for the first issue), C.O.D orders, seeds and plants, and credit orders where your account is not charged until after the goods are shipped.
This Mail Order Rule also includes sales made by telephone, computer, and fax machine.
Consumer Privacy
Massachusetts law limits the amount of information merchants can require for check cashing and credit card purchases. (M.G.L. c. 93 §105)
For credit card purchases, a merchant is not allowed to record or require personal information that is not required by the credit card company. Generally, this means they cannot require or record your address, telephone number, or social security number.
For check purposes, a merchant can ask to see a credit card but may not write down the credit card number. Merchants may only record your name, address, and driver's license or state ID card, and telephone number.
Your Massachusetts driver's license number may be your social security number. To protect your privacy and to guard against fraud, you may request the Registry of Motor Vehicles to assign you a random number.
When you provide personal information to a retailer, your name could end up on a marketing list. Some merchants compile information about their customers in order to notify them of sales. This information may come from discount cards that are scanned at the register. If you have privacy concerns, ask the merchant for a written policy about how this information will be used.
Unsolicited Merchandise
If you receive merchandise that you did not order or request, you may consider the merchandise to be an unconditional gift. You may use or dispose of it as you wish without any obligation to the sender. Although you are not legally obligated, you may wish to notify the sender that you intend to keep the merchandise as a gift. This could help avoid possible problems, such as the sender trying to bill you for the merchandise, or it could help correct an honest error. (M.G.L. c. 93, §43)
Fair Credit Billing Act
You are protected by this federal law when you use your credit card to pay for purchases.
Billing Errors:
If you find an error on your credit or charge card statement, you may dispute the charge and withhold payment on the disputed amount while the credit card company investigates. A billing error may be a charge for the wrong amount, for something you did not accept, or for an item that was not delivered as agreed.
To dispute a charge and to protect your rights under this law, you must send a written billing error notice to the creditor. Your notice must reach the creditor within 60 days after the first bill containing the error was mailed to you. The notice should include your name and account number, the dollar amount of the billing error, and the reasons why you believe there is a mistake.
The creditor must acknowledge your complaint in writing within 30 days after it is received, unless the problem is resolved within that period. Within two billing cycles (but not more than 90 days), the creditor must conduct a reasonable investigation and either correct the mistake or explain why the bill is believed to be correct.
Unsatisfactory Goods or Services:
You also may dispute charges for unsatisfactory goods or services purchased with a credit or charge card. To take advantage of this protection, you must have bought the item in your home state or within 100 miles of your current mailing address, and the charge must be for more than $50. These limitations do not apply if the seller is also the card issuer or if a special relationship exists between the card issuer and the seller. In all circumstances, you first must make a good faith effort to resolve the dispute with the seller.
More Information
General information:
Office of Consumer Affairs and Business Regulation
(617) 973-8787
(888) 283-3757
e-mail: consumer@state.ma.us
To file a Complaint:
The Office of the Attorney General
(617) 727-8400
To file Complaints about the Item Pricing Law:
Division of Standards
(617) 727-3480
To Request Mediation:
Contact your local consumer group. You may call Consumer Affairs or the Attorney General's Office for the program that covers your area.
To Report Unsafe Products:
U.S. Consumer Product Safety Commission
(800) 638-2772
Sales Tax Questions:
Massachusetts Department of Revenue
(800) 392-6089
Berni's Comments: Since this is the SHOPPING FRENZY time of the year, I thought that this "KNOW YOUR RIGHTS" info would be helpful. On one occasion, I actually had to question a well-known electronics store about their (then) "fuzzy" return policy which was virtually unseen by the customer. When they refused to accept my (next day) return unless I paid a restocking fee, I made a copy of the law for the management. (Note: this was not a "cooling off period" issue since I did buy the item at their store.) Not only did I get my full money back on the unopened item but a few weeks later, I noticed that their return policy was fully visible (at eye level) to all customers at all cash registers. I was happy when I saw the change and like to think my efforts had a little something to do with it. You see, initially I was just going to accept their store policy and accept the loss (like most folks do and like I've usually done in the past).
For more information, please visit: http://www.mass.gov/ . Office of Consumer Affairs and Business Regulations.
Friday, December 28, 2007
Friday, December 21, 2007
How Hidden Incentives Distort Home Prices
PARKER, Colo. -- As the housing market slump deepens, disguised discounts are making it harder to tell exactly how much people are paying for homes.
Buyers, sellers and other market participants typically monitor fluctuating home values through sale records that legally have to be listed with county clerks. But incentives offered to buyers -- ranging from free cars or furniture to cash rebates -- are making those prices less reliable as a sign of what buyers actually paid, netting out the giveaways. And that may be misleading lenders and people shopping for homes, some real-estate lawyers and appraisers warn.
KB Home in January sold a new townhome with green siding in the Denver suburb of Parker for $196,000, according to the deed recorded with the Douglas County clerk. But a disclosure form provided to the buyer and seller of a particular property, which isn't part of the public record, shows that home builder KB paid $27,600 to another company, which made a cash payment to the buyer. Netting out that effective discount, the price was $168,400.
Incentives of all kinds have mushroomed in recent years as sellers found it harder to unload homes, says Jonathan A. Goodman, a lawyer in Boulder, Colo., who gives seminars to real-estate professionals on how to avoid fraudulent transactions. Fannie Mae, the nation's largest investor in home loans, sent a memo to lenders this month warning them to watch out for "practices that may distort or artificially inflate" house prices, such as payments from sellers or builders that effectively rebate part of the recorded price.
Incentives to buyers are becoming more common in a glutted market. For builders, an incentive can mask a discount that might lower the value of nearby homes the company is still trying to sell -- or avoid angering previous buyers who paid more. For buyers, cash from the seller can finance a down payment.
One risk of these transactions is that they can mislead other buyers into overpaying for similar houses nearby, or give owners of nearby properties an exaggerated notion of their home equity. Lenders can make loans on the basis of an artificially high value, increasing the danger of losses from any default.
The national builder Lennar Corp., for instance, last year offered buyers in certain Florida communities vouchers to purchase Mustangs from a local dealership. Lennar said the voucher was deducted from the recorded sales price of the homes. A few months ago, a small builder in Tacoma, Wash., offered a $20,000 Harley-Davidson to buyers of a $479,000 home. One buyer skipped the Harley and instead took a $20,000 incentive from the builder, which reduced the sales price of the home. But in other cases, " the incentive is not always public knowledge," said an agent involved in the sale, Jeff Jensen of Windermere Professional Partners, Tacoma.
It's impossible to determine how frequently such deals distort recorded prices because public records don't usually contain information about incentives. But the practice appears widespread. Mr. Goodman examined all metropolitan Denver home sales in a real-estate agents' database for the 15 months ended March 31, 2006, and found that 1.5% of the homes sold for at least 10% above the listing price. Sometimes, there are legitimate reasons for paying more than the asking price, such as when sellers agree to make major home improvements. But Mr. Goodman figures that at least two-thirds of those sales involved manipulations that disguised the true value.
Giving cash back to the buyer isn't fraudulent if the payments are clearly disclosed to lenders and to investors who buy loans from lenders. But mortgage-fraud experts say the rebates often are designed to fool lenders into making bigger loans than they otherwise would.
In estimating the value of a home, appraisers rely on prices recorded at county courthouses for similar, nearby houses sold recently. Before using the price from a recent transaction as an indicator of another home's value, appraisers or buyers should check with real-estate agents or others involved in that transaction to find out whether incentives skewed the price, says Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. But that information can be hard to obtain, he and other appraisers say, and agents and builders aren't required to divulge information about past sales to appraisers.
Distorted prices also can fool computer programs -- known as automated valuation models, or AVMs -- that estimate home values based on sales of nearby properties and other factors. Lenders often use AVMs to check appraisers' work or in some cases as a cheaper substitute for a human appraisal. Zillow.com and other Web sites consulted by people shopping for homes also rely on AVMs. Zillow.com estimates the value of the townhome in Parker at about $191,274, or about 14% above the net price paid by the buyer. A spokeswoman for Zillow said the company "looks at many homes in order to extract patterns used for valuing homes" and that the estimate doesn't hinge on one, possibly distorted past sales price.
In the townhome sale in Parker, public records show that KB sold it to Ruby Gomez on Jan. 5. The HUD-1 settlement statement provided to buyers and sellers shows that KB paid $27,600 as part of the transaction to a firm identified as Falcon. Mr. Goodman said he was told that the payment was made to Falcon Marketing Group. A representative of Falcon couldn't be reached to comment.
Falcon's Web site, no longer operating, this year promoted a program that it said could help people "purchase a property in the next 30-60 days with little or no money out-of-pocket."
A spokeswoman for Los Angeles-based KB confirmed that the company provided an "incentive" to the buyer of the home but added that this was "certainly not standard procedure."
When a reporter visited the home in late July, the occupants turned out to be the family of Jesús Acosta, who identified himself as a construction-site safety inspector. Mr. Acosta said his sister, Ms. Gomez, obtained the mortgage loans and bought the house because she had a better credit record. But Mr. Acosta said he was making the loan payments. Mr. Acosta said that the original asking price of the home was increased and that in return his sister was given cash, but he said he didn't know the details of that arrangement. Ms. Gomez couldn't be located for a comment.
Silver State Mortgage, Henderson, Nev., provided two mortgage loans totaling $176,400 to Ms. Gomez, according to the HUD-1 form. Based on the recorded price, those loans totaled 90% of the home's value. Taking into account the true price of $168,400, the loans totaled about 105% of the value of the home at the time of the purchase, suggesting that the buyer started out owing more than the home was worth.
Silver State Mortgage, a closely held company, went out of business early this year. R. Glen Woods, a lawyer representing Silver State, says it relied on independent brokers to originate loans in Colorado. "If the loans failed to conform to underwriting guidelines, those facts were unknown to Silver State Mortgage. Silver State Mortgage and the investor who eventually purchased the loans in question have suffered losses from situations such as this, in which independent mortgage brokers failed to follow established criteria for the origination of mortgage loans."
Another transaction that shows signs of price distortion is the sale of a home on Olen Mattingly Road in Avenue, Md. The two-story, 2,158-square-foot home, built within the past two years, was originally listed for sale in February 2005 for $635,000 but languished on the market for more than a year, according to local real-estate agents. The owner, builder Bennett Homes LLC, gradually reduced the price to $469,000 by March 2007. In May, however, the home sold for $600,000, far above the recent asking price. Vangie Williams, a real-estate agent who represented the buyers, says the sale involved a payment by the builder to an organization that collected fees for finding buyers. Officials of Bennett didn't respond to requests to comment.
A unit of Wells Fargo & Co. provided two loans to finance the purchase, the first for $479,800 and the second for up to $120,000, for a total of just under $600,000. That is about 28% more than the asking price for the home two months before the sale. A spokesman for Wells says the property was appraised at $615,000. He adds that Wells relies on "objective third-party appraisals in making all lending decisions. While we expect that appraised value [will] be close to market value, that may not always be the case."
The house recently was back on the market. The latest asking price: $499,000.
By James R. Hagerty and Michael Corkery
From The Wall Street Journal Online
Email your comments to bob.hagerty@wsj.com.
-- December 20, 2007
Berni's Comments: Wow! I had to highlight some key points in this extremely informative article. This underscores the importance of working with reputable professionals with excellent references from reliable sources who have YOUR best interests at heart. I believe in keeping REALITY in Real Estate when it comes to marketing a home, even if the news ISN'T what a potential seller or buyer wants to hear. Given a true reality check on current market values helps both sides obtain a clearer understanding on what's real and what isn't.
Buyers, sellers and other market participants typically monitor fluctuating home values through sale records that legally have to be listed with county clerks. But incentives offered to buyers -- ranging from free cars or furniture to cash rebates -- are making those prices less reliable as a sign of what buyers actually paid, netting out the giveaways. And that may be misleading lenders and people shopping for homes, some real-estate lawyers and appraisers warn.
KB Home in January sold a new townhome with green siding in the Denver suburb of Parker for $196,000, according to the deed recorded with the Douglas County clerk. But a disclosure form provided to the buyer and seller of a particular property, which isn't part of the public record, shows that home builder KB paid $27,600 to another company, which made a cash payment to the buyer. Netting out that effective discount, the price was $168,400.
Incentives of all kinds have mushroomed in recent years as sellers found it harder to unload homes, says Jonathan A. Goodman, a lawyer in Boulder, Colo., who gives seminars to real-estate professionals on how to avoid fraudulent transactions. Fannie Mae, the nation's largest investor in home loans, sent a memo to lenders this month warning them to watch out for "practices that may distort or artificially inflate" house prices, such as payments from sellers or builders that effectively rebate part of the recorded price.
Incentives to buyers are becoming more common in a glutted market. For builders, an incentive can mask a discount that might lower the value of nearby homes the company is still trying to sell -- or avoid angering previous buyers who paid more. For buyers, cash from the seller can finance a down payment.
One risk of these transactions is that they can mislead other buyers into overpaying for similar houses nearby, or give owners of nearby properties an exaggerated notion of their home equity. Lenders can make loans on the basis of an artificially high value, increasing the danger of losses from any default.
The national builder Lennar Corp., for instance, last year offered buyers in certain Florida communities vouchers to purchase Mustangs from a local dealership. Lennar said the voucher was deducted from the recorded sales price of the homes. A few months ago, a small builder in Tacoma, Wash., offered a $20,000 Harley-Davidson to buyers of a $479,000 home. One buyer skipped the Harley and instead took a $20,000 incentive from the builder, which reduced the sales price of the home. But in other cases, " the incentive is not always public knowledge," said an agent involved in the sale, Jeff Jensen of Windermere Professional Partners, Tacoma.
It's impossible to determine how frequently such deals distort recorded prices because public records don't usually contain information about incentives. But the practice appears widespread. Mr. Goodman examined all metropolitan Denver home sales in a real-estate agents' database for the 15 months ended March 31, 2006, and found that 1.5% of the homes sold for at least 10% above the listing price. Sometimes, there are legitimate reasons for paying more than the asking price, such as when sellers agree to make major home improvements. But Mr. Goodman figures that at least two-thirds of those sales involved manipulations that disguised the true value.
Giving cash back to the buyer isn't fraudulent if the payments are clearly disclosed to lenders and to investors who buy loans from lenders. But mortgage-fraud experts say the rebates often are designed to fool lenders into making bigger loans than they otherwise would.
In estimating the value of a home, appraisers rely on prices recorded at county courthouses for similar, nearby houses sold recently. Before using the price from a recent transaction as an indicator of another home's value, appraisers or buyers should check with real-estate agents or others involved in that transaction to find out whether incentives skewed the price, says Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. But that information can be hard to obtain, he and other appraisers say, and agents and builders aren't required to divulge information about past sales to appraisers.
Distorted prices also can fool computer programs -- known as automated valuation models, or AVMs -- that estimate home values based on sales of nearby properties and other factors. Lenders often use AVMs to check appraisers' work or in some cases as a cheaper substitute for a human appraisal. Zillow.com and other Web sites consulted by people shopping for homes also rely on AVMs. Zillow.com estimates the value of the townhome in Parker at about $191,274, or about 14% above the net price paid by the buyer. A spokeswoman for Zillow said the company "looks at many homes in order to extract patterns used for valuing homes" and that the estimate doesn't hinge on one, possibly distorted past sales price.
In the townhome sale in Parker, public records show that KB sold it to Ruby Gomez on Jan. 5. The HUD-1 settlement statement provided to buyers and sellers shows that KB paid $27,600 as part of the transaction to a firm identified as Falcon. Mr. Goodman said he was told that the payment was made to Falcon Marketing Group. A representative of Falcon couldn't be reached to comment.
Falcon's Web site, no longer operating, this year promoted a program that it said could help people "purchase a property in the next 30-60 days with little or no money out-of-pocket."
A spokeswoman for Los Angeles-based KB confirmed that the company provided an "incentive" to the buyer of the home but added that this was "certainly not standard procedure."
When a reporter visited the home in late July, the occupants turned out to be the family of Jesús Acosta, who identified himself as a construction-site safety inspector. Mr. Acosta said his sister, Ms. Gomez, obtained the mortgage loans and bought the house because she had a better credit record. But Mr. Acosta said he was making the loan payments. Mr. Acosta said that the original asking price of the home was increased and that in return his sister was given cash, but he said he didn't know the details of that arrangement. Ms. Gomez couldn't be located for a comment.
Silver State Mortgage, Henderson, Nev., provided two mortgage loans totaling $176,400 to Ms. Gomez, according to the HUD-1 form. Based on the recorded price, those loans totaled 90% of the home's value. Taking into account the true price of $168,400, the loans totaled about 105% of the value of the home at the time of the purchase, suggesting that the buyer started out owing more than the home was worth.
Silver State Mortgage, a closely held company, went out of business early this year. R. Glen Woods, a lawyer representing Silver State, says it relied on independent brokers to originate loans in Colorado. "If the loans failed to conform to underwriting guidelines, those facts were unknown to Silver State Mortgage. Silver State Mortgage and the investor who eventually purchased the loans in question have suffered losses from situations such as this, in which independent mortgage brokers failed to follow established criteria for the origination of mortgage loans."
Another transaction that shows signs of price distortion is the sale of a home on Olen Mattingly Road in Avenue, Md. The two-story, 2,158-square-foot home, built within the past two years, was originally listed for sale in February 2005 for $635,000 but languished on the market for more than a year, according to local real-estate agents. The owner, builder Bennett Homes LLC, gradually reduced the price to $469,000 by March 2007. In May, however, the home sold for $600,000, far above the recent asking price. Vangie Williams, a real-estate agent who represented the buyers, says the sale involved a payment by the builder to an organization that collected fees for finding buyers. Officials of Bennett didn't respond to requests to comment.
A unit of Wells Fargo & Co. provided two loans to finance the purchase, the first for $479,800 and the second for up to $120,000, for a total of just under $600,000. That is about 28% more than the asking price for the home two months before the sale. A spokesman for Wells says the property was appraised at $615,000. He adds that Wells relies on "objective third-party appraisals in making all lending decisions. While we expect that appraised value [will] be close to market value, that may not always be the case."
The house recently was back on the market. The latest asking price: $499,000.
By James R. Hagerty and Michael Corkery
From The Wall Street Journal Online
Email your comments to bob.hagerty@wsj.com.
-- December 20, 2007
Berni's Comments: Wow! I had to highlight some key points in this extremely informative article. This underscores the importance of working with reputable professionals with excellent references from reliable sources who have YOUR best interests at heart. I believe in keeping REALITY in Real Estate when it comes to marketing a home, even if the news ISN'T what a potential seller or buyer wants to hear. Given a true reality check on current market values helps both sides obtain a clearer understanding on what's real and what isn't.
Saturday, December 8, 2007
What To Look For In A Rescue Cat From An Animal Shelter
If you have decided to get a new cat for your family, why not choose one from your local cat rescue home or animal shelter? There are so many animals that are in desperate need of a loving home. By adopting from a shelter instead of buying from a pet shop, you help those animals that are most in need to find a home and help fund the rescue work so that other cats can be saved. Many of these felines have had difficult lives so far - they may have been abandoned, abused or neglected by their owners. So, responsible rescue centres will take special care to find these cats a good home. They will give you as much information as possible about their charges' personalities and histories to help you choose wisely, but also take note of these following pointers before you make your choice.
Observation
Take some time to just watch the cats and kittens without trying to interact with them. Observe how active they are and what type of attitude they have. A cat that stays huddled in a corner or appears lethargic may be sick, which could mean expensive vets bills in the future. Or the poor cat may nave been abused and so is terrified of everyone and everything. If you have the time and patience, please don't automatically dismiss an abused feline. They can repay your care many times over. Take my friend's cat, Sunny, as an example.
Sunny can be affectionate but as she was abused by her previous owners, she can be easily startled and scared. Her new owners found out the extent of her abuse when they went to the vets to make sure she couldn't have kittens The vet,however,had difficulty finding her ovaries. It was then they learnt that Sunny had been repeatedly drop-kicked by her previous owners and her insides had been "rearranged". Due to this Sunny is nervous around people standing up, but fine if you don't move very much and just lie down quietly, then she will come and cuddle up to you. Her life has changed dramatically by having loving owners.
Observe how playful a cat is.
Some pet owners are looking for playful cats that will scamper about the house and chase and play with toys. Others would prefer a more docile cat who will spend hours cuddled up in the owner's lap.
Examine the Cat
Start with the eyes. Bright and clear eyes with no discharge or weepiness are a good sign.
The nose should be clean and slightly moist. Again, there should be no discharge.
The ears should also be clean. Those that are extremely dirty are potentially contaminated with ear mites. Ear mites can be very difficult to get rid of and can easily spread to other cats at home.
Finally, the cat's fur should be clean, shiny, and free of fleas. Fleas can be particularly annoying to both the cat and the owner. Eliminating fleas once they infest the home can be very difficult.
Listen to the Cat
A cat that coughs, sneezes, or sounds congested can be quite ill and should be avoided. Also, listen for sounds of contentment. A cat who is purring is probably happy and healthy. A meow can indicate either trouble or contentment. A long, pleading meow could show that the cat is ill. On the other hand, a playful meow could mean the cat is already developing a bond with its potential new owner!
Play with Kitty
After narrowing your choice down to a few possibles that appear to have the appropriate personality, it's time to play! See how they play with each other first to get a feeling for their disposition. How each cat interacts with other felines is particularly important for pet owners who already have a pet cat at home.
Play with the kitties yourself.
Take out a string, ball of wool or car keys and dangle them in front of each cat. The one that seems most alert and active is likely to be the better choice. Of course, you could always take home more than one if the decision is just too hard to make!
Word of Caution
Any cat or kitten that comes from a shelter will be stressed to some level. This stress has put them at a higher risk of attracting a respiratory infection. They may also be more prone to bite or scratch you before you have bonded. Most cat rescue shelters offer a spayed or neutered cat, with full shots and de-worming but you must also get your cat tested immediately for feline immunodeficiency virus (FIV).
Be aware of any potential problems. Listen to the advice of the shelter workers and don't rush into any decisions.
However, it is so rewarding to adopt a cat from a cat rescue shelter and know that you have saved its life and given it a comfortable home.
Author Bio
Patricia Craggs-Cat Enthusiast at allaboutcatcare.com .
Berni's Comments: My most favorite pet in the whole wide world was "Alaska the Cat" who sadly died in December of 2005. He was an all white angora mix with green eyes and very large frame (almost 20 lbs!) Many times he thought he was a dog! If I called him from anywhere in the house, he would come to me! If he heard a strange noise, his ears perked and then he'd attempt to "alert" me. He was the greatest cuddler and a great source of comfort when I was recovering from ARDS and had to be confined to a wheel chair for a couple of years. I absolutely loved my Alaska! It hurt so much to see him go but his heart finally gave out (the shelter we adopted him from warned us that eventually this would happen). He actually lived a couple of years longer than we expected. He was 5 years old.
I always said that Alaska was my best friend when I needed him the most. In fact, our whole family loved him and still miss him. I used his photo as a mascot of sorts for a website I designed. I also used his name for email accounts and even a screen name at an online forum I belong to. I even wrote a poem dedicated to his antics called, "A Message From a Fellow Cat Slave" ! My daughter wrote a college paper about him and got an "A". My son carried him around the house like a baby (and he was the only one that Alaska would allow to do that. My husband, Victor, would always get greeted by Alaska as soon as he came home from work. So our family was really very crazy about our pet.
I really want another cat but I don't know if I'm ready yet, even though it's been a couple years. I do miss having a pet to care for. I like dogs but I love cats! I want a pretty cat! Sorry. But I do. I'm actually thinking about a Maine Coon next time around. Now that's a very jazzy cat!
Observation
Take some time to just watch the cats and kittens without trying to interact with them. Observe how active they are and what type of attitude they have. A cat that stays huddled in a corner or appears lethargic may be sick, which could mean expensive vets bills in the future. Or the poor cat may nave been abused and so is terrified of everyone and everything. If you have the time and patience, please don't automatically dismiss an abused feline. They can repay your care many times over. Take my friend's cat, Sunny, as an example.
Sunny can be affectionate but as she was abused by her previous owners, she can be easily startled and scared. Her new owners found out the extent of her abuse when they went to the vets to make sure she couldn't have kittens The vet,however,had difficulty finding her ovaries. It was then they learnt that Sunny had been repeatedly drop-kicked by her previous owners and her insides had been "rearranged". Due to this Sunny is nervous around people standing up, but fine if you don't move very much and just lie down quietly, then she will come and cuddle up to you. Her life has changed dramatically by having loving owners.
Observe how playful a cat is.
Some pet owners are looking for playful cats that will scamper about the house and chase and play with toys. Others would prefer a more docile cat who will spend hours cuddled up in the owner's lap.
Examine the Cat
Start with the eyes. Bright and clear eyes with no discharge or weepiness are a good sign.
The nose should be clean and slightly moist. Again, there should be no discharge.
The ears should also be clean. Those that are extremely dirty are potentially contaminated with ear mites. Ear mites can be very difficult to get rid of and can easily spread to other cats at home.
Finally, the cat's fur should be clean, shiny, and free of fleas. Fleas can be particularly annoying to both the cat and the owner. Eliminating fleas once they infest the home can be very difficult.
Listen to the Cat
A cat that coughs, sneezes, or sounds congested can be quite ill and should be avoided. Also, listen for sounds of contentment. A cat who is purring is probably happy and healthy. A meow can indicate either trouble or contentment. A long, pleading meow could show that the cat is ill. On the other hand, a playful meow could mean the cat is already developing a bond with its potential new owner!
Play with Kitty
After narrowing your choice down to a few possibles that appear to have the appropriate personality, it's time to play! See how they play with each other first to get a feeling for their disposition. How each cat interacts with other felines is particularly important for pet owners who already have a pet cat at home.
Play with the kitties yourself.
Take out a string, ball of wool or car keys and dangle them in front of each cat. The one that seems most alert and active is likely to be the better choice. Of course, you could always take home more than one if the decision is just too hard to make!
Word of Caution
Any cat or kitten that comes from a shelter will be stressed to some level. This stress has put them at a higher risk of attracting a respiratory infection. They may also be more prone to bite or scratch you before you have bonded. Most cat rescue shelters offer a spayed or neutered cat, with full shots and de-worming but you must also get your cat tested immediately for feline immunodeficiency virus (FIV).
Be aware of any potential problems. Listen to the advice of the shelter workers and don't rush into any decisions.
However, it is so rewarding to adopt a cat from a cat rescue shelter and know that you have saved its life and given it a comfortable home.
Author Bio
Patricia Craggs-Cat Enthusiast at allaboutcatcare.com .
Berni's Comments: My most favorite pet in the whole wide world was "Alaska the Cat" who sadly died in December of 2005. He was an all white angora mix with green eyes and very large frame (almost 20 lbs!) Many times he thought he was a dog! If I called him from anywhere in the house, he would come to me! If he heard a strange noise, his ears perked and then he'd attempt to "alert" me. He was the greatest cuddler and a great source of comfort when I was recovering from ARDS and had to be confined to a wheel chair for a couple of years. I absolutely loved my Alaska! It hurt so much to see him go but his heart finally gave out (the shelter we adopted him from warned us that eventually this would happen). He actually lived a couple of years longer than we expected. He was 5 years old.
I always said that Alaska was my best friend when I needed him the most. In fact, our whole family loved him and still miss him. I used his photo as a mascot of sorts for a website I designed. I also used his name for email accounts and even a screen name at an online forum I belong to. I even wrote a poem dedicated to his antics called, "A Message From a Fellow Cat Slave" ! My daughter wrote a college paper about him and got an "A". My son carried him around the house like a baby (and he was the only one that Alaska would allow to do that. My husband, Victor, would always get greeted by Alaska as soon as he came home from work. So our family was really very crazy about our pet.
I really want another cat but I don't know if I'm ready yet, even though it's been a couple years. I do miss having a pet to care for. I like dogs but I love cats! I want a pretty cat! Sorry. But I do. I'm actually thinking about a Maine Coon next time around. Now that's a very jazzy cat!
Looking For A Good Dog Breeder
If you are interested in getting a dog, you should be interested in dog breeders.
The safest place to get a new dog would be from a dog breeder. That gives you a history or insight of the prospective dog you are interested in. You can find dog breeders in the newspaper or online. If you see a great looking dog in public, you could strike up a conversation with the owner and ask where they got their dog. Try to verify the breeders reputation. There are several methods you can use to make sure the breeder is professional, reliable and can be trusted.
Ask the Dog Breeder for References.
A good, experienced dog breeder can provide you with references to some of his or her clients. Most people who have purchased a puppy from them would be glad to share their experiences with you. Of course, it would be even better if you locate past clients without being directed by the breeder. Not that easy, but word gets around, good or bad. Maybe some of your freinds or family have dealt with this breeder in the past.
Be Ready to Ask Questions and Expect to Answer Many Questions Yourself.
Good breeders are very interested in screening prospective buyers themselves. They want the puppies to go to good homes. Questions such as whether you have small children, size of your home and yard. Is the yard fenced? Have you ever owned a dog before? Do you already have a veterinarian? Can you or someone else spend the neccessary time with a very young puppy until the puppy is older? If a breeder fails to ask questions such as these, he may not care about the welfare of his puppies. Or, he may be having a hard time selling...a possible sign of other problems.
Is Price Important?
Of course! Price is important with anything you invest in. With some breeds, such as Yorkies, the price will range from a few hundred to many thousands of dollars. But, more money doesn't always mean better dog. If you are getting into the dog show scene, you would need more expensive dogs. Most of us are not interested in showing our dogs. Compare prices to decide what your needs are.
Health Guarantees
You should get some sort of health guarantee before you buy. In writing. Most breeders give only a short guarantee for health due to the many deseases a puppy faces. That is why you should take your puppy to a good vet as soon as possible. Do this before your health guarantee runs out. You will want to get your new puppy any shots he needs. Choose a vet that keeps up with the latest information involving puppy innoculations. Some of the shots given in the past are not needed today and may even be harmful.
Good breeders will take all the time you need to answer your questions. Get everything in writing when you buy and follow your dog breeders suggestions. Remember, they have the experience.
Author Bio
Alton Hargrave offers advice and resources for those interested in dogs.
His website, Dog-Daze.net contains honest information regarding all breeds of dogs, deseases of dogs and how to maintain your dog.
Berni's Comments: Now what's not jazzy about an adorable puppy?! This is the time of the year for lots of new puppy owners! So I thought this post might help relieve some of the new owner anxieties... next post: kittens!
The safest place to get a new dog would be from a dog breeder. That gives you a history or insight of the prospective dog you are interested in. You can find dog breeders in the newspaper or online. If you see a great looking dog in public, you could strike up a conversation with the owner and ask where they got their dog. Try to verify the breeders reputation. There are several methods you can use to make sure the breeder is professional, reliable and can be trusted.
Ask the Dog Breeder for References.
A good, experienced dog breeder can provide you with references to some of his or her clients. Most people who have purchased a puppy from them would be glad to share their experiences with you. Of course, it would be even better if you locate past clients without being directed by the breeder. Not that easy, but word gets around, good or bad. Maybe some of your freinds or family have dealt with this breeder in the past.
Be Ready to Ask Questions and Expect to Answer Many Questions Yourself.
Good breeders are very interested in screening prospective buyers themselves. They want the puppies to go to good homes. Questions such as whether you have small children, size of your home and yard. Is the yard fenced? Have you ever owned a dog before? Do you already have a veterinarian? Can you or someone else spend the neccessary time with a very young puppy until the puppy is older? If a breeder fails to ask questions such as these, he may not care about the welfare of his puppies. Or, he may be having a hard time selling...a possible sign of other problems.
Is Price Important?
Of course! Price is important with anything you invest in. With some breeds, such as Yorkies, the price will range from a few hundred to many thousands of dollars. But, more money doesn't always mean better dog. If you are getting into the dog show scene, you would need more expensive dogs. Most of us are not interested in showing our dogs. Compare prices to decide what your needs are.
Health Guarantees
You should get some sort of health guarantee before you buy. In writing. Most breeders give only a short guarantee for health due to the many deseases a puppy faces. That is why you should take your puppy to a good vet as soon as possible. Do this before your health guarantee runs out. You will want to get your new puppy any shots he needs. Choose a vet that keeps up with the latest information involving puppy innoculations. Some of the shots given in the past are not needed today and may even be harmful.
Good breeders will take all the time you need to answer your questions. Get everything in writing when you buy and follow your dog breeders suggestions. Remember, they have the experience.
Author Bio
Alton Hargrave offers advice and resources for those interested in dogs.
His website, Dog-Daze.net contains honest information regarding all breeds of dogs, deseases of dogs and how to maintain your dog.
Berni's Comments: Now what's not jazzy about an adorable puppy?! This is the time of the year for lots of new puppy owners! So I thought this post might help relieve some of the new owner anxieties... next post: kittens!
Short Sale May Be an Option
Short Sale May Be an Option When
Mortgage Debt Looms Too Large
Question: Could you please explain more about a short sale. I am stuck in my home with two mortgages and can't get out. Please help. I cannot afford this house anymore and can't work anymore due to health reasons.
-- Debbie Garcia, New York
Debbie: I'm sorry to hear that you have health and financial problems. I hope this explanation helps.
In a declining housing market, the value of a home sometimes falls below what is owed on it. When you can no longer pay the amount owed, you have several options. You can try to hand over your deed to your first mortgage holder. But they might not accept it, since they'd still be on the hook for legal fees, taxes as well as your second mortgage. Or you may just let the house fall into foreclosure. But that should only be a last-ditch approach because it hurts your credit rating. And it may not solve your financial problems either, since you may be held liable for any difference between what you owe and what the house brings at auction.
Another alternative is a short sale -- that is, a sale in which the proceeds fall short of what you owe. It can be a win-win situation for you, the lenders and the buyer (often an investor) of your house. But since you're asking lenders to accept less money than you promised to pay them, there's no guarantee that they'll go along with such a sale. And preparing for it will take considerable work on your part.
First, you must prove that you really can't pay your loans -- and that the reason is new, not something that you concealed from your lenders when you originally applied for the loan.
Then you or someone else, like a real-estate agent, must find a buyer willing to purchase your house at market value. Market value can be determined through a formal appraisal (your lender may insist on one) or by an agent's comparative market analysis.
You or your agent also must figure out all the costs of selling the property. That includes the balance of both loans, accrued interest up until the day of closing, closing costs and fees, and unpaid property taxes.
You then must present the facts to your first mortgage holder, which has the top lien position and gets paid first. If your plan will bring them more money than they'd get if the house were sold at auction, they'll most likely go along with it -- and sometimes pick up some of your costs as well, like real-estate commissions and closing costs. However, it may be difficult to get your second mortgage holder to sign off on the deal because if they do, they might not be repaid what they’re owed. But they may be willing to go along with a short sale if the buyer or the first mortgage holder offers to pay them some money, especially if the amount you owe on your second mortgage is small.
Once you close the sale, your problems may not be over. Some hard-nosed lenders may insist that you pay the difference between what the buyer pays for the house and what you owe on the mortgage. Others may forgive that portion of the debt -- but unfortunately, Uncle Sam won't. "Forgiven" debt is considered taxable income.
As you can see, setting up a short sale is complicated and requires some negotiating finesse. Although money is probably tight for you right now, I think it would be worthwhile to consult local professionals with experience in the process, including an attorney, a tax advisor and a real-estate agent.
Author-- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Mondays on RealEstateJournal.com
Berni's Comments: I wanted to add a "part two" to the last posting about avoiding foreclosures. I mentioned the expression, 'short sale', therefore I wanted to include an article which discusses the process. I hope this posting clarifies any confusion between foreclosures and short sales.
Ciao for Now, BP
p.s. The next posting MUST be jazzy....'cause I don't want to scare anyone away from my blog!
Mortgage Debt Looms Too Large
Question: Could you please explain more about a short sale. I am stuck in my home with two mortgages and can't get out. Please help. I cannot afford this house anymore and can't work anymore due to health reasons.
-- Debbie Garcia, New York
Debbie: I'm sorry to hear that you have health and financial problems. I hope this explanation helps.
In a declining housing market, the value of a home sometimes falls below what is owed on it. When you can no longer pay the amount owed, you have several options. You can try to hand over your deed to your first mortgage holder. But they might not accept it, since they'd still be on the hook for legal fees, taxes as well as your second mortgage. Or you may just let the house fall into foreclosure. But that should only be a last-ditch approach because it hurts your credit rating. And it may not solve your financial problems either, since you may be held liable for any difference between what you owe and what the house brings at auction.
Another alternative is a short sale -- that is, a sale in which the proceeds fall short of what you owe. It can be a win-win situation for you, the lenders and the buyer (often an investor) of your house. But since you're asking lenders to accept less money than you promised to pay them, there's no guarantee that they'll go along with such a sale. And preparing for it will take considerable work on your part.
First, you must prove that you really can't pay your loans -- and that the reason is new, not something that you concealed from your lenders when you originally applied for the loan.
Then you or someone else, like a real-estate agent, must find a buyer willing to purchase your house at market value. Market value can be determined through a formal appraisal (your lender may insist on one) or by an agent's comparative market analysis.
You or your agent also must figure out all the costs of selling the property. That includes the balance of both loans, accrued interest up until the day of closing, closing costs and fees, and unpaid property taxes.
You then must present the facts to your first mortgage holder, which has the top lien position and gets paid first. If your plan will bring them more money than they'd get if the house were sold at auction, they'll most likely go along with it -- and sometimes pick up some of your costs as well, like real-estate commissions and closing costs. However, it may be difficult to get your second mortgage holder to sign off on the deal because if they do, they might not be repaid what they’re owed. But they may be willing to go along with a short sale if the buyer or the first mortgage holder offers to pay them some money, especially if the amount you owe on your second mortgage is small.
Once you close the sale, your problems may not be over. Some hard-nosed lenders may insist that you pay the difference between what the buyer pays for the house and what you owe on the mortgage. Others may forgive that portion of the debt -- but unfortunately, Uncle Sam won't. "Forgiven" debt is considered taxable income.
As you can see, setting up a short sale is complicated and requires some negotiating finesse. Although money is probably tight for you right now, I think it would be worthwhile to consult local professionals with experience in the process, including an attorney, a tax advisor and a real-estate agent.
Author-- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Mondays on RealEstateJournal.com
Berni's Comments: I wanted to add a "part two" to the last posting about avoiding foreclosures. I mentioned the expression, 'short sale', therefore I wanted to include an article which discusses the process. I hope this posting clarifies any confusion between foreclosures and short sales.
Ciao for Now, BP
p.s. The next posting MUST be jazzy....'cause I don't want to scare anyone away from my blog!
Protect Your Home and Avoid Foreclosure
Concerned About Your Existing Mortgage?
Learn What You Can do to Protect Your Home
· If you feel like you may be in danger of facing foreclosure and need immediate help, call 888-995-HOPE or visit www.995hope.org . Homeowner's HOPE™, a counseling service provided by the Homeownership Preservation Foundation, can work with you to find a solution.
· How to Avoid Foreclosures and Keep Your Home (PDF: 1.7Mb)
You're not alone if you're having trouble paying your mortgage. The housing boom led to a record homeownership rate of nearly 70 percent, but some home owners now face problems making their mortgage payments and can't refinance their loans. This brochure will help you understand your options and give you tips on how to avoid losing your home--regardless of what kind of mortgage you have. Text-only version available (PDF: 71Kb)
· How to avoid foreclosures (HUD)
· Foreclosure Assistance Programs by State
· Help for Homeowners Facing the Loss of Their Home (HUD)
Credit Counseling is Available
· HUD Housing Counselors: A list of counseling agencies by state
· NeighborWorks® America: Find a NeighborWorks® counseling organization in your community
Under a partnership with NeighborWorks® America, NAR is a founding sponsor of the NeighborWorks® Center for Homeownership Education and Counseling (NCHEC). NCHEC's mission is to work with industry partners to train, certify, and support home buyer educators and housing counselors nationwide.
Learn What You Can do to Protect Your Home
· If you feel like you may be in danger of facing foreclosure and need immediate help, call 888-995-HOPE or visit www.995hope.org . Homeowner's HOPE™, a counseling service provided by the Homeownership Preservation Foundation, can work with you to find a solution.
· How to Avoid Foreclosures and Keep Your Home (PDF: 1.7Mb)
You're not alone if you're having trouble paying your mortgage. The housing boom led to a record homeownership rate of nearly 70 percent, but some home owners now face problems making their mortgage payments and can't refinance their loans. This brochure will help you understand your options and give you tips on how to avoid losing your home--regardless of what kind of mortgage you have. Text-only version available (PDF: 71Kb)
· How to avoid foreclosures (HUD)
· Foreclosure Assistance Programs by State
· Help for Homeowners Facing the Loss of Their Home (HUD)
Credit Counseling is Available
· HUD Housing Counselors: A list of counseling agencies by state
· NeighborWorks® America: Find a NeighborWorks® counseling organization in your community
Under a partnership with NeighborWorks® America, NAR is a founding sponsor of the NeighborWorks® Center for Homeownership Education and Counseling (NCHEC). NCHEC's mission is to work with industry partners to train, certify, and support home buyer educators and housing counselors nationwide.
Article source: © Copyright NATIONAL ASSOCIATION of REALTORS® I Headquarters: 430 North Michigan Avenue, Chicago, IL 60611 DC Office: 500 New Jersey Avenue, NW, Washington, DC 20001-2020
Berni's Comments: Foreclosure isn't jazzy but it is very real. As most of my clients know, I prefer to face reality when it comes to real estate. Unfortunately, there are many other folks who are now facing a very serious threat to their home: Possible foreclosure. Recently, I have had calls from protential clients asking for assistance in avoiding foreclosure. Some decide that selling their home asap is the solution, even if it means a short sale. Others desperately want to keep their homes by any legal means necessary. Therefore, since I am a member of the National Association of Realtors, I wanted to share some very important resources that you can share with everyone. If you have any concerns that you wish to discuss in full confidentiality, please contact me as soon as possible.
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