Contra Costa, California Real Estate

I worked with my buyer for over 6 months trying to find a decent home within her retirement income price range.  Unfortunately, that price range was the same as investors buying with cash so we lost several offers. 

Then I had a brilliant idea....we would find a really ugly but structurally sound home well under her price range and utilize the FHA Rehabilitation Loan to make it perfect.  The idea was great, the execution was painful - primarily due to what I didn't know.  Thank goodness I explained to my buyer in advance that this was new territory for me.

We found a bank-owned fixer in a good neighborhood at a price that allowed the improvements. The original scope of work included:

- New insulation in the attic (current insulation was nothing but dust)
- Add a Tankless Hot Water Heater which allowed a more functional reconfiguration of the laundry room
- Repair a hole in the wall that previously held a wall air-conditioner
- Remove one wall between the kitchen and main living area to create a "great room"
- Replace 3 kitchen cupboards
- Replace the 30 year old, yellow, laminate counter tops with Silestone
- Change the electric stove to gas and add a vented convection microwave
- Add French Doors and a deck
- Repair the dry rot on the eaves and siding
- Paint the exterior

I utilized my trusty roster of professionals in each category who are known for quality work at competitive prices.  The total project cost came in at $28,000 which meets the "streamline" FHA Rehab program (limited to $35,000).  This will be great!  But then the unexpected happened.... again....and again....and again.

I had no idea that the simple act of moving kitchen cupboards triggered a kitchen remodel permit.  The kitchen remodel permit triggered the need to meet Title 24 (aka California Energy Code) standards.  The Title 24 electrical standards triggered the need for an electrical upgrade for the entire house.  Add it to the project.

The house was built in an era when sewer clean-outs weren't standard.  If the sewer ever backed-up, it would discharge under the house.  Eeeeuuuuw. Add a new sewer clean-out to the project.

Although the roof looked fine from the ground, it only had 2 years remaining life. The roofer then pointed out that the reason there was so much dry rot on the eaves was the failing gutters.  Add a new roof and gutters to the project.



The FHA appraiser had concerns about the grade of the yard and that the drainage from the downspouts wasn't properly directed away from the house.  Add re-grading the yard and new drainage under the sidewalk to the project.

The list goes on but you get the idea.  The unexpected additions to the project put the total cost well over the Streamline limit and we moved in to the Full 203(k) Rehab category.  In itself not an issue.  The problem was that we had individual contractors performing each segment of the work for a total of 6 contractors - not a problem with a Streamline but a paperwork nightmare with a full 203(k).  Every contractor had to provide a Contractor Profile, proof of license and insurance and references (which the lender is required to check so the loan officer had to call 24 references vs 4 - he doesn't like me very much right now).  The poor HUD Consultant had to work with 6 contractors to get all of her paperwork completed.  We have to figure out a draw schedule to get 6 contractors paid in a timely manner.

The paperwork is now done, we will be closing next week.  Although my "newbie" mistakes made this process far more difficult than necessary, the desired end result will be acheived -  the buyer will have a fabulous, personalized home within her budget when the work is complete! 

Here is my advice to anyone considering an FHA Rehab even if you THINK it's going to be a Streamline:
1.  No matter how carefully you view the property, allow at least 30% for unexpected upgrades and expenses (unless you have memorized the code requirements in every city in your market area)
2.  Choose one, competitive General contractor who is familiar with FHA Rehab Loans.  It will save you untold hours of additional work.
3.  Hire a HUD Consultant immediately.  THEY will work with the General contractor to complete all of the required paperwork.

Households that can purchase an entry level home in Contra Costa County has risen to 46% in the first quarter of 2010.  This is a significant increase compared to the low of 17% in 2006.

Should you continue to rent or buy a home?

The most confusing - and important - comparison for renters who are thinking of becoming home owners is the monthly mortgage payment compared to the income tax benefits from home ownership.  Unfortunately, renters are often given very generalized statements about their tax savings which can be grossly incorrect.

To help renters determine the impact of a home purchase on their personal finances and budget, we have created a FREE Rent vs Buy Calculator.  Download this Calculator to the privacy of your own computer, input your income tax filing status, the number of dependents in your household, your income, your 401(k) contributions and the amount of your current rent.  Our nifty Rent or Buy Calculator will automatically compute an After-Tax-Cash-Flow Comparison for you!

Important Note:  This Calculator is only valid for the State of California.

5240 Concord Blvd., Concord, CA

Come view this wonderful single-story home located close to Clayton.  Accepting FHA offers!

• 3 bedrooms

• 2 bathrooms

• 2 bonus rooms
  

Huge 3 car garage
PLUS workshop. 

Multiple 220 amp outlets and extra overhead lighting.

• Close to shopping and restaurants
  

• Close to Clayton and great community events - Farmer's Market, Free Concerts in The Grove and more!

• The schools are Ayers Elementary, Pine Hollow Middle School and Clayton Valley High School.

Don't hesitate to call me if you would like to view this property.  925.917.1135.

Real estate market report for detached homes in Concord, California

Active Listings

Number of Active Listings = 213, of which 60 are short sales and 40 are bank-owned

The highest list price is $1,295,000
The average list price is $383,091 and the median*list price is $349,950
The lowest list price is $136,900

In Contract and Pending

There are 283 homes pending, of which 174 are short-sales and 40 is bank-owned.  The sold price is not disclosed until the transactions close.

Closed Concord home sales for the recent month:

Number of closed sales = 69, of which 14 are short-sales and 18 are bank-owned

The highest closed price is $805,000
The average closed price is $345,931 and the median* closed price is $335,000
The lowest closed price is $185,000

Concord detached homes by quartile:

The top 25% (first quartile) averages of 2308 s.f., 4 bedrooms, 2.5 baths and a 8,000-10,000 s.f. lot with a median price of $549,900.

The second 25% (second quartile) averages 1734 s.f., 4 bedrooms, 2 baths and a 6,500-8,000 s.f. lot with a median price of $389.500.

The third 25% (third quartile) averages 1293 s.f., 3 bedrooms, 2 baths and a 6,500-8,000 s.f. lot with a median price of $306,600.

The fourth 25% (fourth quartile) averages 1108 s.f., 3 bedrooms, 1.5 baths and a 6,500-8,000 s.f. lot with a median price of $218,000.

*Median price is the mid-point of the market where half of the homes are above this point and half are below.


Real estate market report for condos/townhomes in Concord, California

Active Listings

Number of Active Listings = 108, of which 66 are short sales and 27 are bank-owned

The highest list price is $376,000
The average list price is $130,501 and the median*list price is $107,285
The lowest list price is $49,000

In Contract and Pending

There are 146 homes pending, of which 93 are short-sales and 32 are bank-owned.  The sold price is not disclosed until the transactions close.

Closed Concord condo/townhome sales for the recent month:

Number of closed sales = 35, of which 6 are short-sales and 17 is bank-owned.

The highest closed price is $350,000
The average closed price is $131,977 and the median* closed price is $107,500
The lowest closed price is $47,000

Concord condo/townhomes by quartile:

The top 25% (first quartile) averages of 1230 s.f., 2.5 bedrooms, 2 baths with a median price of $196,950.

The second 25% (second quartile) averages 973 s.f., 2 bedrooms, 1.5 baths with a median price of $125,000.

The third 25% (third quartile) averages 874 s.f., 2 bedrooms, 1 bath with a median price of $99,000.

The fourth 25% (fourth quartile) averages 695 s.f., 1 bedroom, 1 bath with a median price of $69,950.


For additional details, please visit my interactive real estate trend chart for Concord, California.

Everyone who has written an offer on a foreclosure property knows that when the offer is accepted, it isn't accepted using the California Residential Purchase Agreement but is accepted using the bank's contract.  Why does that matter?  The bank's contract is written by the bank's attorneys for the bank's best interests.  Many rights afforded buyers on the California Residential Purchase Agreement are specifically excluded.

The new California law "Buyer's Choice Act", which went into effect on October 11, 2009, returns one right to buyers.  The Buyer's Choice Act prohibits foreclosure sellers from requiring, either directly or indirectly, that the buyer purchase title insurance or escrow services from a particular title insurer or escrow agent as a condition of selling the property.

The law does not stop a buyer from agreeing to accept a title insurer or escrow agent recommended by the seller -- if written notice of the buyer's right to make an independent selection is first provided by the seller to the buyer.

A "seller" subject to this law can be a financial institution or and individual lender who foreclosed and acquired title to residential 1 - 4 unit property at the foreclosure sale.  This law applies only to such sellers and their agents.

This law will remain in effect until January 1, 2015.

I recently received a phone call from a frustrated mortgage lender.  She has a significant backlog of pre-approved FHA first-time buyers that can't find homes that will accept FHA financing - and the deadline for the First Time Home Buyer Tax Credit is looming.  She asked, "What's going on?"

In order to answer her question, I pulled the Active single family home listings in the $275k - $350k price range ("starter" homes in our Northern California market area) in the three cities with the most homes in this price range.  The results shocked me. 

Of the 43 active listings:

NO FHA

• 11 are short-sales, of which only 6 will accept FHA financing.  Given the 3-4 month average timeframe for a short-sale decision, an offer written on these homes will not be approved and closed by the Tax Credit deadline.
• 3 are cash-only REOs.  The properties won't qualify for any financing.
• 15 are REOs that will not accept FHA financing.
• 12 are "normal" sales that will not accept FHA financing
  

FHA OK

• 2 are "normal" sales that will accept FHA financing - a miserable 7% of the possible listings (excluding short-sales and cash-only REOs).

Is it possible that the 27 "no FHA" homes have such significant pest, health and safety issues that FHA financing would kill the deal?  No.  Does Conventional 10% down financing overlook all pest, health and safety issues? No.

Does the FHA financing exclusion serve the sellers?  No.

Less than 5% of first-time buyers have the funds necessary for a 10% down payment ($27,500 - $35,000) plus loan costs.  Limiting the financing to Conventional decreases the potential pool of buyers to 5% of the first-time buyers and bargain-hunting investors.

Let me play devil's advocate for a moment.  Let's assume that an FHA Offer will cost the seller $5,000 in pest, health and safety repairs, but in exchange for that cost the pool of potential buyers will increase by 95%.  This isn't a marginal increase in potential buyers, this is a huge increase!  The potential cost will be offset by a higher net sales price.

I recognize that REO's are sold as-is.  That being said, am I the only person who knows about the FHA 203(k) Rehabilitation loan that doesn't require any repairs prior to closing?


FHA Fix and Flip 90 Day Rule

Many of the homes in the best condition are investor fix and flips.  Unfortunately, FHA will not provide financing on these properties until they have been owned by the investor for 90 days.  These investors are extremely savvy.  They purchase structurally sound homes that are a cosmetic mess.  They fix holes in the walls, paint, put in new flooring, update the kitchens, add granite counters and new appliances.  They are, for the most part, beautiful and turn-key ready for the market in 30 - 45 days.  They are sold and closed by the time an FHA buyer is allowed to write an offer.

The 90 Day rule serves who?  Protects who?

Are you facing the same issues in your markets?

Note:  This blog pertains to the state of California.  Lending laws and regulations may differ in other states.

Many sellers proceed with a short-sale prior to consulting a CPA and attorney.  Don't make this mistake! There is a significant amount of erroneous information about short-sales and the ultimate impact on you, the seller. 

There are three major items to consider before listing your home as a short-sale:

• Recourse or Non-Recourse mortgage(s)
• Income Tax Liability
• Personal Liability after the sale

Recourse or Non-Recourse mortgage -

Recourse is the lender's right to collect the mortgage deficiency for up to four years.  If your current mortgage(s) were the loans obtained when you purchased your home, then it is a Non-Recourse mortgage.  If you refinanced your original loan (even if you didn't take cash-out) or obtained a 2nd mortgage / Home Equity line of credit after the purchase, they are now Recourse loans.

Let me walk you through an example -

Mr. and Mrs. Seller purchased their home with a $600,000 original mortgage.  They later refinanced the mortgage and obtained a Home Equity Line of Credit for $150,000.  Total combined finanncing = $750,000.  The current fair market value of the home is $525,000.

In a typical short-sale transaction, the 1st lender pays the 2nd lender 10% of the 2nd lender's balance to release the lien and allow the sale to close.

Sales Price:     $525,000
Selling costs:   $ 32,970
Payoff to 1st lender:   $477,030 ($122,970 short)
Payoff to 2nd lender:   $15,000 ($135,000 short)

Since these are not the purchase loans, both lenders have the right to Recourse (the right to collect on the unpaid balance) for up to four years unless they waive that right.

Potential outcome #1:  Both lenders waive their right to Recourse

Each lender will send you a Form 1099 (Miscl Income) for the portion of the mortgage that was "forgiven" (i.e. unpaid).  In this case, the sellers will have an additional $257,970 "income" on which they will have to pay State and Federal income taxes.  Assume they are in a 25% effective Federal tax bracket, this will represent an additional Federal income tax bill of $64,500 +/- plus an additional State tax bill of $23,00- +/- for a total additional income tax liability of $87,500.

Important note:  the requirement for lenders to issue Form 1099 for the forgiven debt occurs whether the home is a short-sale or a foreclosure, but in the case of foreclosure the seller has no control over the price and ultimate loss.

I know of two methods allowed by the IRS (there could be more) to legally avoid paying Federal income tax on the forgiven debt:  if you are Insolvent at the time of the sale OR if you qualify under the Mortgage Forgiveness Debt Relief Act.  It is important to discuss your potential personal income tax liability with your CPA in advance.

Potential outcome #2: The 1st lender waives their right to Recourse but the 2nd lender doesn't.

The 1st lender will issue Form 1099 for $122,970.  Using the same effective tax bracket as the previous example, this will result in additional Federal taxes of $31,000 +/- plus an additional $11,000 +/- State taxes for a total additional tax liability of $42,000.

The 2nd lender retains their right to collect on the balance due of $120,000 ($135,000 less $15,000 paid from the short-sale).  Remember, unless the lender waivees their right to recourse, they retain that right and typically utlize the services of a collection agency or a deficiency judgment.

When faced with the potential post-sale Recourse, sellers have said, "If they try to collect the balance, I will file bankrutpcy." BUT due to changes in the bankruptcy laws, sellers may not have the option to file a Chapter 7 bankruptcy after selling the home because they no longer pass the "means test" and will be forced in to a Chapter 13 bankruptcy (5 year repayment plan).

There are numerous other "potential outcomes" but, in the end, this is the truth:  Regardless of our "short-sale expertise", Realtors' are not attorneys.  For some sellers already dealing with a serious financial hardship, a bankruptcy or foreclosure may be the better option than a short-sale.  The only individual qualified to help you evaluate your options is an attorney who specializes in Bankruptcy, Short-Sales and Foreclosures.  Many attorneys offer a free half-hour consultation. 

Please, take the time to meet with a CPA and attorney.  Learn your options and potential ramifications in order to make educated decisions for your future.

851 Brittany Lane, Concord, California

This updated 2172 s.f. home is located in a well maintained neighborhood bordering Walnut Creek,
within 1.1 miles of Carondolet High School and DeLasalle High School.

Large master suite with 3 additional sizeable bedrooms, a light and bright kitchen with a full-sized
eating area in addition to the Dining room.  The home is graced with crown molding,
hardwood floors, new carpets, a fireplace with a heatilator,  and french doors from both
the family room and the master suite to the rear yard patio and pool.