Gary May Group – Real Estate

Americans work hard and save money in hopes of having a comfortable retirement. But as people live longer and spend more years in retirement than ever before, preparing financially can be complicated. Here’s good news that may help families saving for their retirement.

For the first time in more than 25 years, Congress has raised the limit on federal deposit insurance coverage, which protects against loss if a banking institution fails. However, the higher insurance limit only applies to certain kinds of retirement accounts that people may have at banks and savings associations insured by the Federal Deposit Insurance Corporation (FDIC) and at credit unions insured by the National Credit Union Administration (NCUA).

The FDIC wants you to be clear about what has changed…and what hasn’t. Here is an introduction to what you need to know about your FDIC insurance coverage.

1. Certain retirement accounts at FDIC-insured banks and savings institutions will be insured up to $250,000, up from $100,000 previously.

The higher insurance coverage applies to traditional and Roth IRAs (Individual Retirement Accounts), Simplified Employee Pension (SEP) IRAs, and Savings Incentive Match Plans for Employees (SIMPLE) IRAs. Also included are self-directed Keogh accounts, “457 Plan” accounts for state government employees, and employer-sponsored “defined contribution plan” accounts that are self-directed, which are primarily 401(k) accounts and include SIMPLE 401(k) accounts. In general, self-directed means that the consumer chooses how and where the money is deposited.

Under the FDIC’s new rules, which took effect on April 1, 2006, all of your deposits at the same insured bank that are in this broad category of retirement accounts are added together and the total is insured up to $250,000. Your retirement accounts also are separately insured from any other deposits you may have at the same institution.

This increase to $250,000 for retirement accounts is important because many people saving money for their retirement have accumulated well in excess of $100,000. With the higher FDIC coverage, more Americans who rely on banking institutions for safety and easy access will know that more of their money for retirement will be completely protected if their banking institution were to fail. There’s also the added convenience for people who, previously, might have gone to more than one institution to get full coverage of retirement deposits of more than $100,000.

2. The basic insurance coverage for other deposit accounts is still $100,000. However, as before, there are ways to qualify for far more than the basic coverage at one insured institution.

For example, the funds you have in checking and savings accounts (not retirement accounts) in your name alone are insured up to $100,000. Also, your portion of accounts held jointly with other people is also separately insured up to $100,000. Likewise, two other categories of accounts – business accounts you have at that bank and your share of employer-sponsored pension or profit-sharing plans – each qualify for separate insurance coverage of $100,000.

Let’s say you have four deposit accounts at one institution – a checking account in your name alone (totaling $25,000), a savings account you own jointly with your spouse (your share equals $40,000), an account for a corporation you own (totaling $90,000), and your portion of an employer-sponsored profit-sharing account ($30,000). Even though the four accounts add up to $185,000, all of the money is fully insured by the FDIC because each account is in a different ownership category that is separately protected to $100,000.

In addition, trust accounts may qualify for separate insurance coverage of $100,000 per beneficiary (not per depositor) if certain conditions are met. That means you could have a $200,000 trust account naming your spouse and a child as the beneficiaries upon your death and all $200,000 would be insured by the FDIC ($100,000 for each beneficiary), separately from the money you have in other types of accounts at the same institution.

And remember, your retirement accounts that will be protected under the new rules to $250,000 are insured separately from your other accounts.

As you can see, the way different types of accounts are separately insured can add up to a lot of coverage for you and your family from the FDIC. This can be confusing, so to learn more contact the FDIC as listed below.

3. The insurance limits could rise in the future, but not until 2011, if at all.

The new law establishes a method for considering an increase in the insurance limits on all deposit accounts (including retirement accounts) every five years starting in 2011 and based, in part, on inflation. Otherwise, your accounts will continue to be insured just as we’ve described them.

That’s an overview of what the new law means to you and your FDIC insurance. But here are some important reminders:

• No depositor has lost a single cent of FDIC-insured funds as a result of a failure. Fortunately, failures are rare nowadays. But if your bank or savings association were to fail, FDIC insurance would cover your deposit accounts, dollar for dollar, including principal and accrued interest, up to the insurance limit.

• FDIC insurance only applies to deposits, not investments. The FDIC protects checking accounts, savings accounts, CDs (special accounts you’d typically hold for anywhere from one month to five years) and other types of deposits. The FDIC does NOT insure the money you invest in products such as mutual funds, stocks, bonds, life insurance policies and annuities – even if you purchased them from an FDIC-insured institution.

• If you or your family have $100,000 or less in all of your deposit accounts at the same insured institution, you don’t need to worry about your insurance coverage. Your funds are fully insured. If you have more than $100,000 on deposit at any one institution, you should take the time to be sure they’re fully insured.

www.fdic.gov

Realtors can be successful putting money in their own pockets as well as those of their clients.  Here are 7 things every realtor should know.

1. The Value of an S-Corporation.

Every Realtor that is independently employed by brokers should seriously consider the use of an S-Corporation as their form of doing business. The major benefit to using an S-Corporation versus a Sole-Proprietorship is the ability to save on self-employment tax. The self-employment tax rate is 15.3% on every dollar earned, while through the use of an S-Corporation the owner can split salary and dividends to save dollars on the dreaded self-employment tax. As an added bonus, the S-Corporation provides liability protection for the Realtor and may protect their personal assets in the case of a lawsuit from a project gone bad.

2. Self Directed IRA’s.

In the last several years many more self directed IRA management companies have come into the market, providing IRA owners the ability to take their IRA funds out of the traditional stock market and invest their IRA funds in real estate. Often times, individuals would like to invest in real estate but do not have the available cash to afford the down payment and get the project ‘jump started.’ Utilizing IRA funds has become a very popular strategy in allowing people to better utilize their retirement funds. However, care must be given to plan appropriately with your accountant or tax attorney familiar with these types of transactions. Most IRA Managers require a Limited Liability Company (LLC) to hold the investment for the IRA and thus require further consultation and support. In sum, the time and cost to implement a self-direct IRA real estate project is affordable and often times outweighs other options.

3. 1031 Exchanges.

Although there has been a reduction in the capital gain rates through the Job’s and Growth Tax Relief Reconciliation Act of 2003, signed by President Bush in May of 2003, the 1031 Exchange is still very viable for real estate investors and their agents helping them to invest in property. The 1031 Exchange allows any property owner to exchange their property for equal or greater value into multiple pieces of property while deferring the capital gain tax regularly due upon sale. The higher the value of the property the greater the tax savings. Generally, it is going to behoove the investor or their agent to utilize the services of an intermediary 1031 exchange company. An intermediary handles the transactional documentation and escrow services while working closely with the title company during the purchase and sale of the properties.

4. Tax Benefits of Rental Real Estate.

Many new Realtors have not experienced the power of depreciation and flow through losses from rental real estate. Realtors should take the time to study and learn about rental real estate and the deductions related thereto, such as depreciation, chattels, and tax-free appreciation. Many times the greatest financial return from rental real estate is not the cash flow from the rental itself, but from the tax-free appreciation and the depreciation flow through losses from the operations of the business.

5. Stepped-up Basis in Capital Assets Upon Death.

Even with the current changes to the estate tax provisions of the Internal Revenue Code, the “stepped-up” basis provisions are still in effect for several more years. What these provisions provide is that when an individual passes away, any capital assets they owned receive a stepped up basis to fair market value. Sometimes, holders of real property will make the mistake of placing the children or other family member’s names on the asset that would have previously received a stepped up basis. Therefore, when a person passes away, only a portion of the property is stepped up due to the fact that they only owned a portion of the property. Agents and real estate investors should be very careful as to how they change the ownership of the property with a person that is older or has health concerns because the tax impact can be dramatic.

6. Estate Taxes.

Every real estate professional should be generally familiar with the estate tax provisions so they can advise their clients that own large pieces of property. It is too bad that some people “loose the Family Farm” due to the estate taxes because they were not properly advised to do estate tax planning. Many agents have land owners that are farmers and ranchers that have large tracts of land but are cash poor. These land owners should consider the use of Charitable Remainder Trusts and other mechanisms to save on potential estate taxes.

7. Keeping good records and planning.

Many business owners wait until April 15th to try to do their tax planning for the past year. It is critical that taxpayers keep good records of the tax deductions they are trying to take throughout the year and meet on a regular basis with their accountant or tax attorney to go over strategies that may be helpful in their business. Travel, entertainment, home office and advertising expenses are deductions a realtor should certainly consider and take advantage of. Due to poor planning and record keeping, many Realtors don’t take deductions that are legally theirs. In summary,  every Realtor should take the time to build a strong relationship with a business/tax planner that can facilitate and advise on many of the above strategies for the realtor and for the Realtor’s customers.

Excerpts taken from Chris Kohler’s Real Estate Report

Investing in real estate has its risks, but if you are well informed and do your research, a good investment decision could lead to a long term profit.  The most important thing for any investor to remember is to be wary of who you are dealing with, even before thinking about location. There are many unscrupulous people out there promising to make you a millionaire with no money down methods.  Very few of these are legit.  The Gary May Group takes pride in giving you the tools and education you need to make a wise investment decision.

The Gary May Group believes you will need some investment essentials, the first being capital.  Whether it is your own money, or someone else’s, it’s important to remember to attain the capital without putting yourself in debt.  Next, is knowledge.  Knowing the current real estate market and neighborhoods you want to buy are of utmost importance.  The Gary May Group has years of real estate experience and can make some recommendations of the best locations to buy property. Another essential is good management, people and negotiating skills; all three of these will be provided by the Gary May Group.  We’ll get you the best deal and work with you on managing your investment.

After the essentials comes patience.    Buying a piece of property requires a lot of commitment and follow through.  The costs alone are fairly high and not only include the purchase, but things associated with the purchase such as loan fees, and inspections.  Once you have purchased your property, there will be on going costs like maintenance, taxes, homeowner fees and advertising costs when/if you decide to sell it.

On the flip side, investing in real estate can offer lots of great tax breaks. The interest, taxes and insurance are all deductibles.

Finally, buying real estate is a great way to diversify your investments. portfolio  If you have a lot of money in stocks, bonds and 401Ks, it makes sense to diversify and hold part of your portfolio in real estate.  For further explanation, contact the Gary May Group.

If you can afford to buy real estate and you have the credit to do so, now is the time to buy.  Foreclosures and short sales are abundant and provide an excellent opportunity to purchase a home or land, many times below replacement cost.  Each time the banks sell a property, it makes way for a new comparable for the neighborhood which very well may lower the average sales prices for other homes on the market.  In addition, we are now seeing properties with positive cash flow and interest rates that are very low. Don’t miss this opportunity, call the Gary May Group today and invest in a piece of real estate.  It’s a smart move!

There are lots of reasons to ask your lender for an FHA loan instead of taking a conventional or an expensive and risky sub-prime mortgage loan. Why not take advantage of the many benefits and protections that only come with FHA:

Easier to Qualify – Because FHA insures your mortgage, lenders are more willing to give loans with lower qualifying requirements so its easier for you to qualify.

Less than Perfect Credit - Even if you have had credit problems, such as bankruptcy, its easier for you to qualify for an FHA loan than a conventional loan.

Low Downpayment - We have a low 3% downpayment, and that money can come from a family member, employer or charitable organization. Other loans don’t allow this.

Costs Less - Many times, FHA loans have competitive interest rates because the loans are insured by the Federal Government. Always compare an FHA loan with other loan types.

Help You Keep Your Home – The FHA has been around since 1934 and will continue to be here to protect you when the others walk away. Should you encounter hard-times after buying your home, FHA has many options to help keep you in your home and avoid foreclosure.

There is more to buying your home then the monthly house payment. Why not ask for an FHA loan that will help you buy your house and keep it too? Tell your lender you want an FHA loan for all the reasons above- FHA is a wise choice.

www.grants.gov

Homeownership remains one of the highest goals for many people because of its many benefits. Along with owning a home comes a sense of security and belonging that cannot be found elsewhere. For many, homeownership represents personal and financial success.

There is much personal satisfaction in living in a home that you own. A home is a valued investment that can have many financial advantages and tax benefits. The interest you pay on a home loan and the real estate taxes you pay on your home are among the few major federal tax deductions. Owning a home is the primary way most people build wealth.

Homeownership is also good for our communities, because families who own their homes are more involved in their communities and participate in local events.

The rewards of homeownership include:

• Personal satisfaction
• Sense of community
• Tax savings
• Stability for you and your family
• Investment in the future

OBSTACLES TO HOMEOWNERSHIP

Still, for many Americans, owning a home continues to remain just slightly out of reach. For more and more families, saving the money for a down payment is the biggest obstacle to homeownership. Many people mistakenly believe that you have to come up with a down payment equal to 20 percent of the price of a home.

Traditionally, lenders have required that home buyers be able to make a down payment of at least 20 percent of a home’s purchase price to get a home loan or mortgage. Mortgage lenders, however, will grant home loans to qualifying home buyers with a down payment of as little as 3 to 5 percent of the purchase price if the mortgage is insured.

In fact, home loans with down payments of less than 20 percent are becoming increasingly popular. They are called “low down payment mortgages.”

This is good news for the millions of home buyers who are finding it difficult to save a large down payment, especially for their first house.

Simply put, mortgage insurance protects the mortgage lender against financial loss if a homeowner stops making mortgage payments. Lenders usually require insurance on low down payment loans for protection in case the homeowner fails to make his or her payments. When a homeowner does not make mortgage payments, a default occurs and the home goes into foreclosure. Both the homeowner and the mortgage insurer lose in a foreclosure. The homeowner loses the house and all the money he put into it. The mortgage insurer has to pay the lender’s claim on the defaulted loan.

For this reason, it is crucial that the family buying the home can really afford it — not only when they buy it, but throughout the time period of the loan.

Although the cost of mortgage insurance is paid by the home buyer, or borrower, the mortgage insurer works directly with the lender. Mortgage insurance is available to commercial banks, mortgage bankers and savings & loans, all of which offer mortgage loans to home buyers.

Remember that mortgage insurance is not the same as credit life insurance, also called mortgage life insurance. This type of policy repays an outstanding mortgage balance if the person who took out the insurance policy dies

The lender’s decision to use mortgage insurance is driven by the requirements of investors in the mortgage market. Because of the losses that could occur, major investors require mortgage insurance on all loans made with low down payments.

The three primary investors in home loans are the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and Government National Mortgage Association (Ginnie Mae). By purchasing and selling residential mortgages, Fannie Mae and Freddie Mac help keep money available for homes across the country.

Unlike Fannie Mae and Freddie Mac, Ginnie Mae does not actually buy the mortgages. It adds the guarantee of the full faith and credit of the U.S. government to mortgage securities issued by private lenders

Now that we have explained how mortgage insurance works and why it is necessary, let’s look at the basic kinds of mortgage insurance. Low down payment mortgages can be insured in two ways — through the government or through the private sector.

Mortgages backed by the government are insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the U.S. Department of Agriculture’s Rural Housing Service (USDA-RHS).

The minimum effective down payment FHA requires is less than 3 percent. For single-family homes, there is a limit on the loan amount that varies according to geographic area.

Although anyone can apply for FHA insurance, the other two government mortgage guarantee programs are much more targeted. The VA program is limited to qualified, eligible veterans and reservists. The USDA Rural Housing Service insures loans for the construction and purchase of homes in rural communities. These programs are very specialized, so contact your lender for details.

Obtaining conventional financing is the alternative to obtaining a home loan backed by the government. Conventional mortgages are all home loans not guaranteed by the government, including those guaranteed by private mortgage insurers.

Although both government and private insurance are based on the concept of allowing families to get into homes with less cash down, there are many differences between the two. Often the lender or loan originator will play an important role in suggesting and deciding which insurance is selected.

Private mortgage insurance is available on a wide variety of low down payment home loans and there is no pre-set limit on the loan amount. Although differences such as these may affect whether the lender prefers to work with government or conventional mortgages, your lender will discuss with you which one would be better for your situation.

With the wide variety of loans available, home buyers have the freedom to choose the type of loan that best suits their needs. Early on in the homebuying process, it is a good idea to meet with several lenders to compare the types of mortgages they offer and shop for the best price and terms. Best of all, working with a mortgage insurer can be very easy — whether your loan is insured by the FHA or a private mortgage insurer — because your lender handles all of the arrangements.

By making lending money to home buyers safer, mortgage insurance helps more families get into homes of their own.

Qualifying for a low down payment loan is much like applying for a regular loan.

To be considered for a low down payment loan, you generally need to have:

• Sufficient income to support the monthly mortgage payment.
• Enough cash to cover the down payment.
• Sufficient cash to cover normal closing costs and related expenses (explained below).
• A good credit background that indicates your payment history or “willingness to pay.”
• Sufficient appraisal value, which shows the house is at least equal to the purchase price.
• In some instances, a cash reserve equal to two monthly mortgage payments.

Closing costs, or settlement costs, are paid when the home buyer and seller meet to exchange the necessary papers for the house to be legally transferred. On average, closing costs run 2 to 3 percent of the house price. This percentage may vary, depending on where you live.

Closing costs include the loan origination fee (if not already paid), points, prepaid homeowner’s insurance, appraisal fee, lawyer’s fee, recording fee, title search and insurance, tax adjustments, agent commissions, mortgage insurance (if you are putting less than 20 percent down) and other expenses. Your lender will give you a more exact estimate of your closing costs. You can eliminate the need to pay a year’s mortgage insurance premium at closing by choosing a monthly premium program.

Points are finance charges that are calculated by the lender at closing. Each point equals 1 percent of the loan amount. For example, two points on a $100,000 loan equal $2,000. Lenders may charge one, two or three points in up-front costs in addition to the down payment. The more points you pay, the lower your interest rate will be. In some cases, you may be able to finance the points.

There are two basic formulas commonly used by lenders to determine how much of a mortgage you can reasonably afford. These formulas are called qualifying ratios because they estimate the amount of money you should spend on mortgage payments in relation to your income and other expenses.

It is important to remember that the following ratios may vary from lender to lender and each application is handled on an individual basis, so the guidelines are just that — guidelines. There are many affordable housing programs, both government and conventional, that have more lenient requirements for low- and moderate-income families. Many of these programs involve financial counseling to help potential home buyers learn about the financial responsibilities of owning a home.

Generally speaking, to qualify for conventional loans, housing expenses should not exceed 26 to 28 percent of your gross monthly income. For FHA loans, the ratio is 29 percent of gross monthly income. Monthly housing costs include the mortgage principal, interest, taxes and insurance — often abbreviated PITI. For example, if your annual income is $30,000, your gross monthly income is $2,500, and $2,500 x 28 percent = $700. So you would probably qualify for a conventional home loan that requires monthly payments of $700

Any expenses that extend 11 or more months into the future, such as a car loan, are termed long-term debt. Total monthly costs, including PITI and all other long-term debt, should equal no more than 33 to 36 percent of your gross monthly income for conventional loans. Using the same example, $2,500 x 36 percent = $900. So the total of your monthly housing expenses plus any long-term debts each month cannot exceed $900. For FHA loans, the ratio is 41 percent.

Maximum allowable monthly housing expense:
26–28 percent of gross monthly income — conventional
29 percent of gross monthly income — FHA

Maximum allowable monthly housing expense and long-term debt:
33–36 percent of gross monthly income — conventional
41 percent of gross monthly income — FHA

One way to determine how much to spend for housing is to compare your monthly income with monthly long-term obligations and expenses. Use the worksheet, “Evaluating Financial Resources,” to determine how much money you can spend on housing. Be sure to include only income you can definitely count on.

When budgeting to buy a home, it is important to allow enough money for additional expenses such as maintenance and insurance costs. If you are purchasing an existing home, gather information such as utility cost averages and maintenance costs from previous owners or tenants to help you better prepare for homeownership.

Homeowner’s insurance or property insurance is another cost you will have to consider. The lending institution holding the mortgage will require insurance in an amount sufficient to cover the loan. To protect the full value of your investment, however, you might want to consider purchasing insurance that provides the full replacement cost if the home is destroyed. Some insurance provides only a fixed dollar amount, which may be insufficient to rebuild a badly damaged house.

There are a few restrictions on the type of home you may buy with a low down payment loan. In addition, low down payment loans may be used with a wide variety of mortgages.

Besides price range, there are many other factors to consider when purchasing a home. It’s in your best interest to take care in selecting a home that will have lasting value as well as provide shelter. Be sure the neighborhood and house meet the needs of your family. If you have children, you may want to know if there are other children in the neighborhood and what schools or playgrounds are nearby. Also consider the availability of public transportation and how far family members will have to commute to work or school.

Check the condition of the plumbing, heating and electrical systems and whether they are up to regulatory codes. The best and easiest way to do this is through a home inspection from a certified inspector.

If you are like most people, a home is the single largest purchase you will ever make. It is important that you select a home that will meet your family’s needs and keep you happy for years to come. And most important, you must be able to afford to remain in that home for as long as you please.

The loan approval process generally begins with an initial meeting at which the prospective home buyer and the lender discuss the potential loan. You will need to bring information to verify your income and long-term debts.

Often people prefer to meet with the lender before house hunting to determine in advance what price range they can realistically afford and the mortgage amount for which they can qualify. This step is called prequalification and can save you much time and trouble by assuring you are looking in the appropriate price range.

For your first meeting with the lender, you should bring:

• A purchase contract for the house, if you have one.
• Your bank account numbers and the address of your bank branch, along with checking and savings account statements for the past two to three months.
• Pay stubs, W2 withholding forms, tax returns for two years, or other proof of employment and income verification.
• Divorce settlement papers, if applicable.
• Credit card bills for the past few billing periods, or canceled checks for rent or utility bill payments, to show payment history and amount of revolving debt.
• Information on other consumer debt, such as car loans, furniture loans, student loans and retail/credit cards.
• Balance sheets and tax returns, if you are self-employed.
• Any gift letters, if you are using a gift from a parent, relative or organization to help cover the down payment and/or closing costs. This letter simply states that the money is in fact a gift and will not have to be repaid.

Having these items on hand when you visit the lender will help speed up the application process. Usually, you will need to pay an application fee and appraisal fee when you submit the mortgage application. This is done only after you have negotiated successfully on a home and the seller has accepted your offer. Generally, there is no fee for prequalification.

After the initial meeting with the lender, you should have a general idea if you qualify for the size and type of loan you want. The lender should let you know if you qualify for the loan in 30 to 60 days. If you are denied a home loan, the lender must explain the reasons. If this happens, the lender usually will discuss any options with you

In attempting to approve home buyers for the type and amount of mortgage they want, lenders basically look at two key factors: the borrower’s ability and willingness to repay the loan. Ability to repay the mortgage is verified by your current employment and total income. Generally speaking, lenders prefer for you to have been employed at the same place for at least two years, or at least to have been in the same line of work for a few years.

The borrower’s willingness to repay is determined by examining how the property will be used. For instance, will you be living there or just renting it out? Willingness also is closely related to how you have fulfilled previous financial commitments, thus the emphasis on the credit report or rent and utility bills.

It is important to remember that there are no rules carved in stone. Each applicant is handled on a case-by-case basis. So even if you come up a little short in one area, perhaps one of your stronger points will make up for the weak one. Everyone involved in real estate is in the business of selling homes, in one way or another. Therefore, if the loan makes sense, lenders and insurers will do their best to see that you qualify.

By its very nature, mortgage insurance is an aid to affordability, because it allows families to buy homes with less cash on hand. The industry plays a central role in helping low- and moderate-income families become homeowners.

More and more borrowers are taking advantage of low down payment mortgages and becoming homeowners with less than 3 percent down. For more information on how you can take advantage of the benefits of a low down payment home loan with mortgage insurance, contact your local lender or real estate agent. For general information on purchasing a home, contact the county extension office of the U.S. Department of Agriculture, listed in the government pages of your telephone book.

www.pueblogsa.gov

Gardening can be a great way to enjoy the outdoors, get physical activity, beautify the community, and grow nutritious fruits and vegetables. Whether you are a beginner or expert gardener, health and safety are important.

Below are some tips to help keep you safe and healthy so that you can enjoy the beauty and bounty gardening can bring.

• Do have your heating system, water heater and any other gas, oil, or coal burning appliances serviced by a qualified technician every year.
• Do install a battery-operated CO detector in your home and check or replace the battery when you change the time on your clocks each spring and fall. If the detector sounds leave your home immediately and call 911.
• Do seek prompt medical attention if you suspect CO poisoning and are feeling dizzy, light-headed, or nauseous.
• Don’t use a generator, charcoal grill, camp stove, or other gasoline or charcoal-burning device inside your home, basement, or garage or near a window.
• Don’t run a car or truck inside a garage attached to your house, even if you leave the door open.
• Don’t burn anything in a stove or fireplace that isn’t vented.
• Don’t heat your house with a gas oven.

www.cdc.gov

The FDIC — along with fellow regulators and the banking industry — is working vigorously to help consumers and the banking industry avoid unnecessary foreclosures and stop foreclosure “rescue” scams that promise false hope to consumers at risk of losing their homes. Banks that originate and service mortgage loans are encouraged to make prudent attempts to find solutions for homeowners having trouble making their mortgage payments. Exploring options that can keep homeowners in their homes may be one of the best ways for lenders to mitigate losses, preserve customer relationships, and maintain safe and stable neighborhoods.

Homeowners who currently have, or expect to have, difficulty making their payments should contact their loan servicer or reputable counseling agency as soon as possible to discuss options. Troubled borrowers should be careful in dealing with organizations that encourage borrowers to cease making payments or walk away from their home while also promising to repair their credit. If it sounds too good to be true, it may well be a scam that will damage the borrower’s credit and cost more in the long run. Working directly with the servicer or legitimate non-profit organizations is the best approach for troubled borrowers.

www.mymoney.gov

Not every situation can be resolved through your loan servicer’s foreclosure prevention programs. If you’re not able to keep your home, or if you don’t want to keep it, consider:

Selling Your House: Your servicers might postpone foreclosure proceedings if you have a pending sales contract or if you put your home on the market. This approach works if proceeds from the sale can pay off the entire loan balance plus the expenses connected to selling the home (for example, real estate agent fees). Such a sale would allow you to avoid late and legal fees and damage to your credit rating, and protect your equity in the property.

Short Sale: Your servicers may allow you to sell the home yourself before it forecloses on the property, agreeing to forgive any shortfall between the sale price and the mortgage balance. This approach avoids a damaging foreclosure entry on your credit report. Under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt on your primary residence may be excluded from income when calculating the federal taxes you owe, but it still must be reported on your federal tax return. For more information, see www.irs.gov, and consider consulting a financial advisor, accountant, or attorney.

Deed in Lieu of Foreclosure: You voluntarily transfer your property title to the servicers (with the servicer’s agreement) in exchange for cancellation of the remainder of your debt. Though you lose the home, a deed in lieu of foreclosure can be less damaging to your credit than a foreclosure. You will lose any equity in the property, although under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt on your primary residence may be excluded from income when calculating the federal taxes you owe. However, it still must be reported on your federal tax return. For more information, see www.irs.gov. A deed in lieu of foreclosure may not be an option for you if other loans or obligations are secured by your home.

Be Alert to Scams

Scam artists follow the headlines, and know there are homeowners falling behind in their mortgage payments or at risk for foreclosure. Their pitches may sound like a way for you to get out from under, but their intentions are as far from honorable as they can be. They mean to take your money. Among the predatory scams that have been reported are:

• The foreclosure prevention specialist: The “specialist” really is a phony counselor who charges high fees in exchange for making a few phone calls or completing some paperwork that a homeowner could easily do for himself. None of the actions results in saving the home. This scam gives homeowners a false sense of hope, delays them from seeking qualified help, and exposes their personal financial information to a fraudster.

  Some of these companies even use names with the word HOPE or HOPE NOW in them to confuse borrowers who are looking for assistance from the free 888-995-HOPE hotline.

• The lease/buy back: Homeowners are deceived into signing over the deed to their home to a scam artist who tells them they will be able to remain in the house as a renter and eventually buy it back. Usually, the terms of this scheme are so demanding that the buy-back becomes impossible, the homeowner gets evicted, and the “rescuer” walks off with most or all of the equity.
• The bait-and-switch: Homeowners think they are signing documents to bring the mortgage current. Instead, they are signing over the deed to their home. Homeowners usually don’t know they’ve been scammed until they get an eviction notice

www.usa.gov