Busch Law Center

Why Use a Paymaster?

Sun, 26 Jun 2011 23:18:57 -0700

Keep Your Funds Safe
I reently had a client involved in an international transaction. I was responsible for receiving the funds which were fees being paid to another company and a broker to facilitate a transaction.

This client, who was in the United States, was working with a group in Europe who would accept proof of funding (“POF”) sent via certain approved banks. If the POF was sent via any other bank, the group would reject his POF and he would lose a multi-million dollar deal.

I discovered that there had been a miscommunication between the broker and service company. The service company had told the broker that it could use certain banks, and the broker had not informed the service provider that the bank it was planning to use was NOT one of the client’s approved banks.

In other words, the client could have spent thousands of dollars for this service, only to lose the deal because his POF would not have come via an approved bank.

Tragedy Avoided
I caught the problem, and was able to inform the client before any funds were transferred. The client was able to address the situation, and a different bank was identified to be used which could salvage the transaction and save the deal. In the end, because I examined all of the details in the contracts, we saved the client his relationship with the group and prevented him from losing the contract.

Why You Need a Paymaster
This is why people need to use a paymaster/escrow agent to handle their funds when entering into a business transaction, particularly international ones. There are many, many details which can be overlooked or not addressed, and the paymaster can find problems and prevent delays from occurring.

The paymaster also ensures that everyone who is supposed to get paid from a transaction gets paid the proper amount. There are no preferences, no hidden agendas, because the paymaster typically is paid to follow the agreements. He has no favorites or reasons to see a transaction succeed or fail; his job is to transfer money to people once certain triggers in a contract are obtained.

If you have any questions or know of someone who a paymaster or escrow agent for their business, call us at 623-298-4220 or email us.

How A Short Sale REALLY Works

Wed, 25 Aug 2010 22:40:56 -0700

Bank of America Training Video Explains All
Many people have been frustrated by the short sale process, and the enigma wrapped in a mystery that it seems to be. No one, especially the banks, can give an answer to a simple questions: when will my short sale get approved?

If you want to know what to do to get your short sale done quickly, watch this video:

That’s right, use the correct font! And be on hold for 37 times before you can talk to someone! The secrets are revealed!

Now it all makes sense . . . .

If you have any questions or know of someone who needs help, call us at 623-298-4220 or email us.

The Time is Now for a Short Sale

Sun, 13 Jun 2010 23:51:57 -0700

Tax Relief Won’t Last
One of the realities of the U.S. Tax Code is that debt which is forgiven is included as ordinary income on your taxes. Here’s an example where you borrowed $100,000:

Original Loan – $100,000
You Paid Off – $20,000
You Still Owe – $80,000

Your lender, for whatever reason, did not collect the $80,000 you still owed. The lender sends you a 1099 for the forgiven debt, and the IRS would include $80,000 as ordinary income.

Given the current economic situation and the number of foreclosures and short sales happening, Congress does not want to force the economy into further problems and possible depression. So Congress passed the Mortgage Relief Act of 2007, which cancels ordinary income incurred as a result of debt forgiveness on your primary mortgage.

This is good news for homeowners faced with foreclosure or short sales. But there’s a catch – the cancellation of debt only applies if the foreclosure or short sale happens before 2013. In other words, if you wait to sell or foreclose and the closing or auction doesn’t happen until after 2012, you will have to count the amount forgiven as income.

Why Not Wait?
First, with a foreclosure, you are not in
control of when the bank will sell the
home. The bank may start a foreclosure
in 2011, but not actually hold the auction
until 2013. Why would that happen?

Lenders are not out to do what is best for
you – banks do what is best for the bank.
If the bank sees an advantage in waiting
until 2013 to finish the foreclosure, it will
delay the auction. The few extra months
you get to stay in the house without
paying your mortgage won’t make up
for the tens of thousands of dollars you
may end up owing in taxes. And the IRS
won’t sit around not collecting what is
owed it.

Second, a short sale typically takes 6-9 months to complete. Some happen faster, others take longer. It’s not unheard of for a short sale to take 18 months. Do you really want to take the chance that your short sale doesn’t close by 2013, and get stuck wtih a huge tax bill?

Right now, it is favorable for banks to conduct short sales rather than have to pursue a foreclosure and risk taking back the property. Many properties are stripped of fixures, like air conditioners, cabinetry, ceiling fans and plumbing, either before or after the foreclosure. Some are simply in bad condition and need updating in order to sell for anything close to fair market value.

Finally, you need to seriously crunch the numbers and see when (or if) you will ever get back to break-even on your home, even if you get a loan modification approved (which, by the way, I have yet to see a principle reduction). If you’re $100,000 upside down in your home, it will likely take about 14 years for you to gain that value back. So in 14 years you could sell your home and break even. Is that worth it? Does that make financial sense?

So What Do I Do?
I have been advising most of my clients to give up on loan modifications and move to a short sale. The opportunity is now to get out of debt. In 2-3 years, you could qualify for a mortgage again. Heck, it will take that long for banks to loosen up lending guidelines again anyway. Then you can buy a home at today’s low prices and get apprciation for 10 years rather than spend the time trying to get back to even.

If you have questions about your situation, give us a call and we can discuss your options with you. Not every solution is right for each person, and your situation is different from your neighbor’s, even if your house is the same.

One of the keys to a successful short sale is having a realtor who is experienced and knowledgable in the area. If you need a referral to a good relator, let us know and we can help.

Be sure to consult with your tax professional before making any decisions. Not all mortgages qualify for debt relief, or only part of the mortgage may qualify. You should not make any decisions on short sale vs. foreclosure or other option without seeking professional advice.

If you have any questions or know of someone who needs help, call us at 623-298-4220 or email us.

Modification, Short Sale or Foreclosure?

Mon, 31 May 2010 00:59:19 -0700

Which is Right for You?
That is the questions – are you better off with a modification, short sale, or foreclosure of your home? Or none of the above? Let’s take a look, but first some quick definitions so we’re speaking the same language:

Modification – A loan modificaiton is where the bank changes the terms of your loan so that the payments are more affordable, ideally with a reduction in principle as well as lowering the interest rate.

Short Sale – The lender(s) agrees to let you sell your home for less than what you owe on it (thus the money from the sale is “short” what remains on the loan).

Foreclosure – The bank says “We’ve had enough” and either takes you to court or sells your house at auction.

Deficiency – The amount left over on the loan after you sell your property or are foreclosed upon. Many times the bank can come after you for this amount, filing a lawsuit in court to get a judgment, and then garnish your wages, attach other property, etc. to collect.

Modification
This is the Holy Grail of saving a home. Unfortunately, it’s about as common as the Holy Grail itself, with or without Monty Python. The problem is that the lender has no financial incentive to modify the loan, and neither myself nor any attorney, real estate agent, or mortgage broker I have spoken with have seen a principle reduction (some second loans have settled for less, but this was not a modification but a settlement).

I have seen modifications where the interest rate is reduced temporarily, such as 2.5% for a couple of years, gradually climbing to 4.5% after eight years and locking in at 4.5%. But the term of the note is lengthened to 40 or 50 years. That means an extra 10 or 20 years of paying interest on your house, so the bank makes up its money in the long run and then some.

Will you be living in your current home in 40 years? Didn’t think so. Me neither.

Modifications are tossed about by politicians, bankers, homeowners, realtors, etc., but very few people even get one. Bank of America has only done about 100 or so based on the last report I saw. And anywhere from 40% to 80% of those loans that are modified are back in default within 9 months. Why? Probably because there was no principle reduction, so the payments really weren’t much less. In fact, I’ve seen loan modification proposals where the payment actually went UP. Now why would anyone who is having trouble paying a mortgage agree to pay more per month?

The modification “industry” is fraught with fraud, scams, and even people who mean well and try really hard but simply can’t get the job done because the lenders don’t want to do modifications. Let me repeat:

The banks do not want to do loan modifications.

Short Sales
The short sale is a relative newcomer to the real estate transaction process. Only in the past few months have we seen banks willing to consider short sales instead of foreclosures. I belive the lenders decided they couldn’t take back all of these properties, and they were not selling them for much more than they received at auction anyway. So what are the advantages of a short sale?

1. All loans on the property agree to take less and settle the debt. Be sure your lender agrees to WAIVE any right it may have to a deficiency. In Arizona, I do not advise my clients to accept any short sale if the lender insists on being able to go after my client for a deficiency.
2. May be entitled to tax relief for debt forgiveness and up to $1,500 for moving expenses under government programs.
3. There is a temporary relief from taxes incurred when you short sell (or foreclose) a property and the lender sends you a 1099 for the deficiency amount (taxed as ordinary income). This program expires in 2013, so you need to plan ahead. Most lenders take 4-6 months minimum to close a short sale, and they may drag out the procedure if the 2013 deadline approaches specifically to make people pay for the debt forgiveness.
4. Often you can qualify for another mortgage in 2-3 years, rather than 5-7 or more for a foreclosure.

One other factor to consider in a foreclosure: You may be able to work with an investor who can buy your house and lease it back to you, with an option to buy it in 2-5 years. Be careful. Although there are many legitimate programs around, there are just as many scams. Everything should be disclosed in the contracts, such as rent, option price, repurchase price, etc.

Remember, if it’s not in writing, it didn’t happen. Never, ever take someone’s word for it, or trust that it will be worked out later. Truly honest programs, like Housing Angels, tell you everything up front and show you all the agreements before you have to commit to anything.

Foreclosure
In Arizona, we have an anti-deficiency statute which
prohibits a lender from pursuing a deficiency against the homeowner if the property was residential, the loan(s)
was the original loan used to buy the property, and the
home is on 2 1/2 acres or less. Things get a bit cloudier
if you have refinanced, especially if you took out cash or
did not put all of the refi loan proceeds back into the
property.

Sometimes a foreclosure may be best because it
completely severs a bank’s right to collect anything
from the homeowner if the anti-deficiency statute applies.
It can also be advantageous tax-wise, because if the
lender cannot go after a deficiency, then it cannot report
the deficiency as forgiven debt, which the IRS can tax to
you as ordinary income. Also, if you do not qualify for a
short sale (perhaps because you do not have a financial hardship), you may need to look at foreclosure.

Foreclosure is easy – you can simply walk away from the home. However, the house is your responsibility until it is actually foreclosed upon (judgment rendered or auction conducted), so be sure to keep up your homeowner’s insurance – you don’t want a bank coming after you for a $150,000 fire damage bill because someone broke into the house after you vacated it and started a fire, stole cabinets and copper pipe, etc.

Conclusion
There are options for those who find themselves struggling to keep their home. However, one thing is certain: The time is NOW to evaluate ALL your options, even if you don’t want to consider all of them.

Right now the lenders are doing things they do not normally do, and there are special tax breaks which will expire. You may have recently had or currently have a financial hardship which would entitle you to a modification or short sale, but in 6 or 12 months that hardship may no longer exist.

You have to look at your house as a business investment, and decide what makes the most financial sense for you and your family both now and in the future. If your house is seriously underwater, now may be the time to get out from under it even if you can make the payments. Will you still be upside down in 5 years? 10 years? Does that make good financial sense?

At the bare minimum, you need to know how these options and others fit your situation. You may decide to soldier along and keep your home and existing loan, and that’s fine if it works for you. But for many of you, something needs to be done now, before the current climate changes and you lose out on any of these options.

If you have any questions or know of someone who needs help, call us at 623-298-4220 or email us.

Photo Radar Going Away July 15

Thu, 6 May 2010 21:14:21 -0700

Arizona DPS Cancels Contract
Arizona’s Department of Public Safety (DPS) just informed RedFlex, the contractor which operates Arizona’s speed cameras, that it will not renew the photo radar contract for DPS’ fiscal year 2011. All speed cameras will be turned off on July 15, 2010.

That’s wonderful news for Arizona’s travelers. While some argue that photo radar slowed Valley drivers, it had become more of a danger than a help. Drivers knew where the speed cameras were located, slowed down, and simply sped up after passing the camera.

The problem is that if someone wasn’t paying attention, or was fearful of getting a ticket, they hit their brakes when they realized they were close to a speed camera. I have seen many near accidents as people slam on their brakes near the speed camera, even if they were near the speed limit anyway. Many times they slow to 45 mph in a 55 mph or 65 mph zone.

Fortunately, DPS realized that photo radar was not working. The original goal (at least as publicly stated) was to reduce accidents and make the highways safer. There is no evidence to suggest that speed cameras make the roads any safer.

When the pitch was made by RedFlex to DPS, it analyzed estimated numbers of tickets issued among other statistics, including expected profit. That’s right, expected profit.

The underlying reason for photo radar was to make money.

Obviously it didn’t make enough.

If you have any questions or know of someone who needs help, call us at 623-298-4220 or email us.