Urban Life

LANDAMERICA TITLE FACING POSSIBLE BANKRUPTCY

Much has been said today about the failed merger of LandAmerica Title and Fidelity National. LandAmerica stock fell from 3.81 to 53 cents a share after the merger deal busted.

I hate to see any company in trouble, yet this is simply another example of gluttony gone bad. LandAmerica choose a business model that emphasized massive leveraged growth. LandAmerica's management team chose a plan of massive growth and did not prepare for the eventual market decline.   Click here for a partial list of LandAmerica's holdings.

Part of me hopes they do not find a bailout option and suffer the consequences of poor business management. What ever happened to sustainable growth policy combined with careful cash management? Can you imagine how viable they would be today if they had been prudent verses reckless during the crazies of 2003-2006? They'd be cash rich and able to weather the current storm.

The kinder part of me worries about friends who work for LandAmerica and face losing their jobs because management was dazzled by the gleam of gold.  Do you think corporate America is learning anything during these times or are they just looking for a quick fix bailout so they can move on to their next mistake?

Gene Urban
The Urban Team at Realty Executives
602-234-5777
www.urbanteamaz.com

SMART MONEY... SEVEN WAYS TO RAISE A MONEY LITERATE KID

Ron and I use GreatHomes.com to review schools for our clients. It's a fine tool for finding the best schools in your area. Today I saw an article on their site that seems topical during our current financial times. Rather than recap the content I'll just put a link to the article here... click to read the article on helping your child become financially literate.

Enjoy,

Gene Urban
The Urban Team at Realty Executives
602-234-5777

CHANGE IN LAW WILL AFFECT INVESTMENT PROPERTY OWNERS

Whenever Congress tries to help us it seems someone always gets hurt. The Housing Assistance Act of 2008 (HR 3221) is one such piece of legislation.   Section 3092 of this bill has a provision that will have tax consequences for real estate investors. 

As most of us know, there are provisions in the tax code regarding capital gains on real estate. When we sell our personal home we get a break on the first $250,000 to $500,000 of gain depending on our marital status so long we live in the home for 2 out the last 5 years. Likewise, If you purchased a rental property you could claim the same break as long as you lived in the home for two out of the five years.

Section 3092 of HR 3221 changes all this. Future investors who use the renting and occupying strategy described above will pay capital gains based on a proration of qualifying (owner occupied) and non-qualifying (rental) usage.

To see how these rules work, let us consider a couple of examples. (Depreciation issues and sale costs will not be considered in the examples.)

Current rules: You acquired a rental property in 2003. Your basis in it is $200,000. You rent it out for three years and then occupy it as your personal residence. In 2008, five years after acquiring it, you sell for $400,000, with a gain of $200,000. (Good for you.) The total gain falls within your individual $250,000 exclusion limit and is excluded from taxable income.

New rules: You buy a property in 2009 for $300,000.  You rent it out for three years and then occupy it as your personal home. In 2014, five years after acquiring it, you sell for $500,000. You, therefore have a gain of $200,000. (We are not saying this will happen in our current market... this is a scenario.) Three of the years, 60% of the ownership period, were for rental use and non-qualifying under the new law. Thus 60% ($120,000) of the gain will be taxable. Just 40% of the gain ($80,000) represents the qualified use of the property and may be excluded from taxable (capital gain) income.

The above scenario is simplistic and many variables can and may affect the actual outcome. This is why we strongly recommend you consult with a tax attorney or qualified accountant.  We're really good Realtors, but the expertise of a tax pro is what you'll need to figure out your position under the new tax laws created by The Housing Assistance Act of 2008.

By the way, most of what Congress hoped to achieve through HR 3221 has already failed, but not the new tax portion which the Senate Finance Committee estimates will raise $1.394 billion over 10 years. Thank God we have our elected officials protecting us from ourselves.

Gene Urban
The Urban Team At Realty Executives
602-234-5777

MAKE A DIFFERENCE, HAVE AN IMPACT, BUY LOCALLY NOW

We often write articles about locally owned businesses and the importance of buying from these people. A recent study funded by Steelcase Foundation for the city of Grand Rapids Michigan gives some solid numbers to the effect we, as consumers, can have on our local economy by simply buying our goods and services from hometown vendors.  Below is a summary of the article we extracted from the LocalFirstArizona web site.

Small Move to Independents Creates Jobs, Wages and Impact

On September 23, Local First of Grand Rapids, Michigan, unveiled the results of the new economic study "Local Works: Examining the Impact of Local Business on the West Michigan Economy." The study revealed that a modest change in consumer behavior - a mere 10 percent shift in market share to independent businesses from chain stores - would result in 1,600 new jobs, $53 million in wages, and a $137 million economic impact to the area. "Local Works" was funded by the Steelcase Foundation and conducted by Civic Economics.

"We are looking forward to sharing the results with local policy makers and our local community," said Elissa Sangalli Hillary, Local First executive director. "So often, individuals feel overwhelmed and unable to make a difference. The study shows that by choosing to support locally owned businesses, individuals can help to create and retain jobs in [their] community."

For the study, Civic Economics analyzed the performance and economic impact of independent businesses in Kent County, Michigan, and identified opportunities for economic enhancement based on that analysis. Data was collected and analyzed for businesses in four lines
of goods: pharmacies , grocery stores, full-service restaurants, and banks.

Hillary noted that "Local Works" confirmed the results of similar studies across the country, including Civic Economics studies conducted in Chicago, San Francisco, and Austin, Texas. She added, however, that, while these earlier studies generated great momentum for independent businesses, some policymakers have dismissed them unfairly based on the theory that Austin, Chicago, and San Francisco are somehow atypical communities. No one will be able to dismiss "Local Works" on that premise, she said.
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If you are not currently buying from locally owned businesses, we once again urge you to do so. We often complain that we, as individuals, can not make a difference. However, this is an area each of us can have effect and help determine the viability of our cities and State.

Gene Urban
The Urban Team at Realty Executives... a locally owned brokerage.

SHORT SALE... Our opinions on buying

We have been getting more and more calls asking us to help people buy homes through short sales.  I know we are not alone on this as I see this topic poping up on lots of blog sites and during conversations with other agents. Although we've discussed the difficulties in listing a home as a short sale, we have not touched on the issues buyers face purchasing a home under the short sale heading.

First, what is a short sale. Part of me wants to answer this as "the most frustrating real estate transaction I know" but that isn't the real definition.

A home being sold in a short sale situaltion is simply when the homeowner owes more that the home is worth; home owner has contacted his/her lender to gain approval to sell the home for an amount less than the mortgaged amount; homeowner is now looking for a qualified buyer. This is a pretty simplistic definiition, but covers the basics.

Let's take a look soem of the problems one faces when negociating a short sale propertry.

• It will seem like it takes forever to get a response to your offer. We have a client who has been waiting about 35 days for a response. We call the listing agent every week and they do not know when the bank will respond. An agent in our Realty Exeuctives office who specializes in representing short sale homes says it can take up to 3 months to get an answer from the bank.
• Some agents representing short sales have not educated their clients on the process and have listed homes as short sales that have not gone through the qualification process with the primary lender. Some of these homes can not qualify for this program and you have just wasted time and hope.
• Often times the bank accepts your short sale offer with several contingencies and very short closing timelines. An agent in our office got a response to his client's offer last week and the bank gave them 10 days to close escrow. 
• Short sale homes are often sold "AS IS". This does not necessary mean you can't ask for repairs but many owners do not have the personal funds to make requested repairs.  In addition, we see many short sale homes with deferred maintainance issues. People who are losing their homes or walking away without a gain are often upset, seldom care much about the place and really don't have the money to keep things in top shape.
• It is a very frustrating process due to lack of response by the banks and selling agents. This is simply a part of the process. The primary lender may have to negociate with subordinate lenders if there is more than one loan; the lender has to get approval from the seller and this can be a difficult process depending on the requirements the lender imposes on the seller.
  
• There may be hidden costs to the buyer depending on the acutal contract. Some contracts make the buyer responsible for back taxes and HOA fees due at the time of closing.

So, you may want to know the upside to purchasing a short sale home. We don't see many in this market. Short sales are a way to get a home for below market value. However, you can do this with bank owned (REO) properties with much less hassle and quicker response times.  Simply stated, we are not big fans of short sale transactions.

Gene Urban
The Urban Team at Realty Executives
602-234-5777
www.urbanteamaz.com

FREDDIE MAC, SHORT SALES & HELP

Just got out of another short sale class... this one offered by Freddie Mac.

As many know, short sales are a vehicle used to sell a property when the owner can not keep up with his/her payments and they owe more than the property is currently worth. A yucky combination of circumstance.

The advantage of a short sale is the homeowner may get out from under their mortgage burden without going into foreclosure. Many credit agencies consider a short sale as less harmful to long term credit scores since there is evidence the homeowner worked with their mortgage servicer to arrive at a solution.

The most shocking statistic during our class had to do with foreclosures and communication.  We were told that 50% of loans placed into the foreclosure process are done so without any personal contact made between the homeowner and their mortgage holder.  In other words, 1/2 the people who face foreclosure never take the time to contact their lender to work out a deal.  This is not to say they made no attempt, it simply means they did not doggedly pursue a conversation with their lender that could have resulted in finding options

If you or someone you know is facing foreclosure, contact your lender and try to work out a deal. This may take many calls... lenders are overwhelmed right now. The good news is many lenders are offering solutions such as:

• Full or partial reinstatement
• Short or long term forbearance
• Repayment plans
• Loan modifications
• Mortgage insurance claim advances and more.

Freddie Mac has a website dedicated to helping people understand their options:  click here

As always... thanks for taking a little time to read Urban Life.

Gene Urban
The Urban Team
Realty Executives
602-234-5777

IS THE MORTGAGE MARKET THE LAST HOUSING OBSTACLE?

The US housing market may be entering a critic juncture according to a recent CitiGroup Global Markets analysis.

Steve Wieting, director of economic and market analysis at Citigroup, recently submitted an in-depth study of supply/demand  effects on the housing market as it pertains to mortgages.  He suggests the tightening of mortgage credit standards is probably the last major hurdle standing in the way of market stabilization.

Simply stated, banks are being more cautious in the dolling out of loans and this reduces the number of qualified buyers; Fewer buyers means a slower recover.

The article almost suggests the tightening of credit standards is a bad thing... perhaps because Citigroup is in the money lending business. I, on the other hand, am relieved standards have been strengthened. We have seen the effect of soft credit requirements has had on the housing market and more importantly the public. A lot of peoples lives have been shattered with the promise, and granting, of easy money.

I do agree with Mr, Wieting's opinion that a reduction in the supply of mortgage vehicles may have a significant effect on the housing market recovery. However, reasonable standards are necessary and in the long term will be the basis of a strengthen housing market.  I fear there will be additional pressure put forth by politicians and stockholders looking for another quick fix resulting in softer loan requirements once again creating a cycle of lust and loss.

Gene Urban
The Urban Team
Realty Executives
602-234-5777
http:www.urbanteamaz.com

PROTECT OUR HOMES A STEP CLOSER TO STOPPING REAL ESTATE TRANSFER TAXES

Protect Our Homes, an organization founded to put an amendment to the Arizona State constitution prohibiting real estate transfer taxes, has filed their petitions.

Talking with Craig Stanford, past president of the Arizona Association of Realtors,  I was told  they had over 370,000 signatures and most of them had been certified. WOW!  These signatures were delivered to the Secretary of State's office this past week.

Clearly, the people are making a statement to our legislature that they do not want an additional tax burden placed on the sale of their home.

We've blogged about this initiative before, however, many still wonder what's the big deal. Let me explain what has happened in other states that have imposed a sales tax on homes.  Thirty-six (36) states have imposed a real estate transfer tax. In such states, many counties and cities have jumped on the band wagon and added their own transfer tax. The result is a sales tax that ranges from under 1% to over 8% of the value of the home.  The real kicker is it is based on the sales price of the home, not the actual gain a homeowner has received. So, if you purchased a home for $400,000, put in $50,000 in improvements and sold it for $425,000 (not an uncommon occurrence these days) you would still pay a tax even though you lost money on the investment.

When the approximate 230,000 needed signatures are verified by the Secretary of State's office, the Protect Our Homes Initiative will go on the November 2008 ballot. A "YES" vote will pass the amendment and home owners in Arizona will be protected.

Gene Urban
The Urban Team
www.urbanteamaz.com

Cats, Real Estate and the Future

I have a couple of pets. They teach me a lot... especially Rosie the Cat. What she believes to be true is true for her and she is incredibly reluctant to change. 5:30 PM is her evening feeding time. Not 5:40 or 6:00... 5:30!!  I think people can be like that.

During the real estate frenzies of 2004-mid 2005 people sat awestruck at how home values increased. It was clearly insane. Homes that sold for $400,000 in 2003 were fetching over $700,000 in mid 2005. Then the cat thing happened. We started to believe our homes were really worth that much; No one was going to tell us different.

2006 and 2007 came as affront to our senses. People, prospective home buyers and appraisers, started telling us our homes were not worth what we thought. Our mean Realtor told us to lower our expectations and our listing price. We meowed loudly and didn't. Change doesn't come easy to a cat.

Late 2007 and early 2008 the pressure built. Home buyers refused to buy high priced homes. The buyers became cat-like in their stubborn price positions and they found a new source of food... the foreclosure market. It was 5:30 PM and the home buying cats were happy.

Sitting in their sand boxes after reading countless news articles, having conversations and disappointments, today's home selling cats realize dinner time is way over due. So, with heads raised high, dignity is important to a cat you know, they are lowering their asking price and hoping dinner, in the form of an accepted offer, comes soon.

Meow...

Gene Urban
The Urban Team at Realty Executives
602-234-5777
www.urbanteamaz.com
www.greatinvestmenthomesaz.com

ARIZONA 211... Help Is A Click Away

The State of Arizona has a web site designed to help people in trouble find aid and resources.  Simply go to http://www.az211.gov/ and peruse the site... there is a lot there.

From a real estate standpoint, since we are the Urban Team at Realty Executives, there is a special section for people who are facing foreclosure. (Click here to go to that section)  This part of the web site has a lot of useful information. I especially liked the info outlining deceptive mortgage advertising. 

As those of you who know Ron and me, we have long sought higher standards for mortgage lenders. We've worked with 100's of lenders during our career and some, not all, were not looking out for their client's interest.

We had one client who had a "friend" who was a mortgage broker. This person's friend charged him nearly $5000.00 in excessive fees and put a 3 year pre-payment penalty in the loan contract. Some friend. This is why we so often tout the work of Judy Giel at First Horizon Home Loans. She typifies the standards the mortgage industry should strive towards... put the customer's interest first, be honest and love the work and your clients.

Back to the real reason for this post... If you or someone you know is in a bit of a jam and looking for information/solutions, you may find some help at this web site.

Gene Urban
The Urban Team at Realty Executives
www.UrbanTeamAZ.com