What's better: a foreclosure or a short sale?

Recently talking with a mortgage broker I was given a short but important lesson about the differences between a foreclosure and a short sale. Here are the main points:

• A foreclosure is reported on your credit report as opposed to a short sale.
• A foreclosure will prohibit you from buying again until you pay off any judgements and tax liens reported on your credit report and in a short sale you still have to pay off the tax allocation but it helps build your credit.
• A foreclosure causes a psychological stigma as opposed to a short sale.

Do you have any other differences between a foreclosure and a short sale? Let us know.

Tuesday Links

D.R. Horton's Orders Fall 39 Percent on Mortgage Woes [bloomberg.com]
Bernanke Spots Relief in Markets [wsj.com]
Bonus pay [marketwatch.com]
Using a credit counselor [marketwatch.com]
Crystal City's potential future becomes clearer [washington.bizjournals.com]
See-through condos [baltimoresun.com]
Hispanics vulnerable to predatory lending [baltimoresun.com]
Goodbye subprime, hello FHA [cnnmoney.com]
Do-It-Yourself Builders [nytimes.com]
'Tax' on Interest Deductions Gains Support [washingtonpost.com]

Thursday Links

• Home Foreclosures Doubled in September on Loan Rates (Update1) [bloomberg.com]
• The United States of Subprime [wsj.com]
• Douglas Development trying to bring Whole Foods to Penn Quarter [washington.bizjournals.com]
• Housing market to rebound in 2008, economist says [wichita.bizjournals.com]
• Condo plan splits Bowleys Quarters [baltimoretimes.com]
• Land bank against blight [baltimoretimes.com]
• Mortgage applications up 2.4% [cnnmoney.com]
• Langley Park project highlights immigrant issues [gazette.net]
• Coalition to help avoid foreclosures [miamiherald.com]
• Why Renters Need Insurance [nytimes.com]
• Proper investments needed to help counteract inflation [examiner.com]

DC Luxury Market Update

Presenting the newest luxury listings on the DC block:

• $8,500,000- 3100 Woodland Dr NW, Former embassy that has been meticulously restored over the past 2 years, grand scale rooms for entertaining. Subdivision: Mass Ave Heights
• $8,500,000- 3314 O St NW, One of the grand houses in the Village. Truly one of the grand houses in the Village. Subdivision: Georgetown
• $5,995,000- 2216 Wyoming Ave NW, Masterful renovation, embassy sized entertaining spaces, expansive roof patio. Subdivision: Kalorama
• $5,499,000- 2346 S St NW, Brick and limestone mansion exemplifies the best of Beaux-Arts architexture. Located on Embassy Row. Subdivision: Kalorama
• $4,900,000- 3232 Ellicott St NW, Stately, sunny stone colonial with circular driveway with spectacular garden and pool. Subdivision: Forest Hills.
• $4,100,000- 2801 Tilden St NW, Sited on 1.25 acres with breathtaking views of Rock Creek Park. Subdivision: Forest Hills
• $3,999,000- 2241 Bancroft Pl NW, Classic Georgian offers amazing entertaining spaces, and beautifully landscaped private grounds. Subdivision: Kalorama.
• $3,295,000- 5054 Millwood Ln NW, Rare find! 1/2 acres lot with enchanting, wooded grounds and terraced stone patio. Subdivision: Kent

Pic of the Week

Black Hill Regional Park, Germantown, MD. Pic by D Romero.

Tuesday Links

• Fed members all backed bold rate cut [reuters.com]
• A New Mortgage 'Cop'Targets Wall Street [realestajournal.com]
• Washington-area condo sales drop 50 percent [washington.bizjournals.com]
• FDIC to mortgage servicers: Freeze ARM rates [cnnmoney.com]
• Mortgage slump hits home decor industry [miamiherald.com]
• $6 Million for the Co-op, Then Start to Renovate [nytimes.com]
• Alexandria condos go on auction block [examiner.com]
• Van Metre Homes is Highest in Customer Satisfaction and Design: Gains Top Rankings in Washington, D.C. Market in J.D. Power and Associates Studies [examiner.com]
• The Math Behind Your Home Loan [washingtonpost.com]
• Before There's Smoke, check your insurance policy [washingtonpost.com]
• A Mortgage for Richer or Poorer [washingtonpost.com]
• Denise Richards expands her world [latimes.com]

Friday Links

• Economy adds 110,000 Sept jobs [reuters.com]
• Fed's Kohn: housing, credit woes bode weakness ahead [reuters.com]
• Convert LoansTo Fixed Rates,FDIC Head Says [wsj.com]
• Fight for land near Nats' stadium goes to extra innings [washington.bizjournals.com]
• Financial services firms establish mortgage program in D.C. [washington.bizjournals.com]
• Arena Stage gives Crystal City role of temporary home [washington.bizjournals.com]
• Blacks buying in home slump [baltimoresun.com]
• Quick and dirty tour [baltimoresun.com]
• Mortgage brokers urge fair new rules [baltimoresun.com]
• Steps to take for getting the best deal on a new house [baltimoresun.com]
• A beverly hills star [baltimoresun.com]
• Subprime: Bailout backlash [cnnmoney.com]
• Uncertain future for Bethesda rec centers [gazette.net]
• Project highlights immigrant issues [gazette.net]
• Flipping Slows, but Landlords Continue to Raise Rents [nytimes.com]
• Consumer Confidence Improves in October [examiner.com]
• Help Is Available To Lower The Costs [washingtonpost.com]
• Pr. William Immigration, Housing Ills Seen as Linked [washingtonpost.com]

1031 Exchanges

For those thinking of selling their investment properties there is a tax law that can help you defer paying taxes on the gain created from the sale of those properties to a later date: a 1031 Exchange.

A 1031 exchange, also known as a Starker Exchange or a Tax Deferred Exchange, is an exchange of property for other like-kind properties. It usually requires a qualified intermediary that holds the sale proceeds for a short period of time while the taxpayer indentifies other like-kind properties of equal or greater value than the value of the relinquished property. All the net proceeds are then used to purchase the future replacement properties and once the properties are sold the taxpayer is then liable for the deferred gain.

There are set time limits for an exchange to occur successfully. The first being the identification period of the replacement property. An owner has 45 days to identify the replacement properties and an additional 135 days to go to settlement. If these time periods are not met than the exchange fails and the taxpayer will have to pay any taxes arising from the sale of the relinquished property. The taxpayer can identify 3 replacement properties or more as long as the value of these properties does not exceed twice the value of the relinquished property. The properties identified must be for trade or business use and not real estate for personal use even though later on it can be converted to personal use.

What is the difference between a condo and a co-op?

Manhattan is 80% co-ops and 20% condos while DC is predominantly condos. And even though from the exterior both a condo and a co-op can look the same they are two completely different creatures when it comes to ownership, financing, and property taxes. So what are some of the differences between a condo and a co-op?

• Ownership: The type of ownership a condo is fee simple or the same as a house while in a co-op you own shares of stock in the cooperative corporation
  

• Property Taxes: In a condo each unit owner is taxed separately while in a co-op you pay typically lower taxes
  

• Financing: It is easier to obtain financing for a condo than a co-op. A co-op has fewer lenders and usually requires additional documentation such as financial statements

• Tax Deduction: The owners of condominiums have the same tax benefits as if they owned a house while co-ops are more complicated
  

• Monthly Assessments: A condo includes maintenance and some utilities while co-ops include maintenance and property taxes
  

Other differences to consider when buying a condo or co-op is that condos are easier for resale than co-ops and co-ops can accept or reject applicant owners or tenants based on their financial and personal qualifications at their discretion.

DC Looking more like New York City?

Before you buy in Baltimore understand ground rent.

The first time I heard of ground rent I had no clue what it was and since most of my business was outside of Baltimore City I really didn't need to know. In the last couple of years many investors and real estate speculators have been buying up many of the properties in Baltimore City without understanding the concept of ground rent.

Ground rent is a form of real estate ownership where the land is owned by one entity but the real property is owned by another entity. This information should be disclosed by the seller prior to buying the property. The amount of ground rent is stated in the original property lease documents, is paid biannually and can be redeemed by law if requested.

The purchase price of the ground rent is determined by taking the annual ground rent and multiplying it by the redemption rate usually between 0.04-0.12 depending on the year the lease was created. For example if the annual ground rent is $150 and the lease was created June 1, 1977 the redemption rate would be 6% and the cost would be $2,500 (150/6% = $2,500). Properties with an original lease dated before July 1, 1982 have a 6% redemption rate and all others have a 12% redemption rate.

FHA Sturring Up Another Affordability Crisis

Last week the Federal Housing Administration ruled against seller assisted downpayment programs such as Nehemiah and AmeriDream. FHA cites poor loan performance and higher sales prices to borrowers as their reasons for discontinuing them. The ruling will go into effect November 1 of this year.

The Nehemiah Program and AmeriDream provide much needed relief to first time homebuyers by assisting them with the standard 3% downpayment required by FHA. From my eight years in real estate I can definitely attest that the number one reason people do not purchase a home is lack of a substantial downpayment--in this region we could be talking about $10,000 to $20,000.

Nehemiah and AmeriDream believe that HUD is taking the wrong course of action at a time when all other types of financing has dried up and are seeking to overturn the decision in courts.

What is your opinion regarding the FHA ruling? Are you for it or against it?

More Disclosures on the Way

In a move to appease the hunger of consumers and government officials for more disclosures WaMu, the sixth largest home lender by volume, is mandating that mortgage brokers that do business with them provide proof that they have disclosed the terms and conditions under which the client obtains a home loan. The disclosures must contain the loan amount being financed, the loan terms including monthly payment, interest rate, whether the rate is adjustable and if it has any prepayment penalty.

In addition, the National Association of Hispanic Real Estate Professionals (NAHREP) has also established a set of ethical principles, called a code of trust, to protect buyers who lack the ability to read, write, or speak the English language. This code calls for stronger licensing requirements, more industry education, and a bilingual home buying guide.

According to NAHREP many latino borrowers that could have gotten a prime loan were not offered one and were encouraged to take out larger loan amounts than they could afford. Foreclosures for the hispanic community are expected to reach $25 billion in 2007 and $52 billion in 2008.

Also the Maryland Association of Mortgage Brokers (MAMB) has adopted a new Code of Ethics and Professional Standards/Best Lending Practices for their members. This Code of Ethics will govern 800 of the 10,000 licensed brokers and loan originators in the State of Maryland. The members of MAMB will be required to be honest in their business dealings and provide accurate information, explain the loan program being offered to the consumer and provide them with alternative loan programs if applicable.

Tuesday Links

• Should You Buy Into a CommunityWith a Homeowners' Association? [realestatejournal.com]
• U.S. consumers' sentiment weakens [marketwatch.com]
• City rise in population hailed as turnabout [baltimoresun.com]
• Md. ground rent inventory begins [baltimoresun.com]
• Architects return to bring charm to Charles North [baltimoresun.com]
• Bankruptcy 'tweak' could save 600,000 homes [cnnmoney.com]
• Free help to stop foreclosure [cnnmoney.com]
• WaMu: Mortgage brokers must disclose more [cnnmoney.com]
• Write-Downs by Big Banks Spark Rally [nytimes.com]
• Can These Mortgages Be Saved? [nytimes.com]
• Rural Waterfront Oasis That’s Not Far From Town [nytimes.com]
• Starwood’s Founder Makes a New Splash [nytimes.com]
• Borrowers Are Feeling Some Heat, but It's Not a 'Mortgage Meltdown' [washingtonpost.com]
• If You Buy Now, Will You Lose Money? [washingtonpost.com]
• O'Hurley waltzes into the home market [latimes.com]