Property Taxes Push Forward

During his election campaign and this entire year, Miami Dade County Property Appraiser Pedro J. Garcia has repeatedly stated that he would establish the “right values” throughout Miami Dade County. Then a few weeks ago he dropped the bomb. Overall, the 2009 countywide taxable value was only reduced 13 percent.

I cannot tell you how many properties the average buyer has to pass on as they get spooked by the property taxes, or the taxes are simply unaffordable. It is a real problem for us in the real estate industry, and particularly, for buyers or owners of real estate in Miami Dade County.

Our real estate tax system and laws were designed only for a “normal” or appreciating real estate cycle. We have been in a depreciating market for almost two full years.  In 2008, the county increased the overall taxable value, and this year it may only be adjusted marginally downward.

On July 23, 2009, Miami Dade County issued a press release stating that “taxing authorities would have a difficult job meeting their obligations to fund vital services, and the County Commissioners did not reach an agreement during the budget meeting.” Additionally, it stated that ”Florida law (Section 200.065, Florida Statutes) requires the Property Appraiser to calculate the ‘rolled back rate’ when a taxing authority fails to provide the County’s proposed millage rate to the Property Appraiser.” 

The “rolled back rate” is the millage rate that would generate the same ad valorem tax revenue as was generated in the previous year, excluding changes from new construction and annexation.

Unfortunately, it appears that we are in for another year of high property taxes based on unjustified assessed property values. Please contact the Board of County Commissioners and speak up. We need to change the system and these archaic Florida laws.

Miami Distressed Sales – Update

During the most recent three month period from December 2008 through February 2009, we experienced quite a significant jump in the number of closed sales in Miami Dade County. Although the above chart does not show the results for the same period during the previous year, our total unit sales increased by 1,722 units or 43 percent over the same period! So what is really driving the increase in activity?

If you pay attention to the statistics in this table, what should immediately jump out at you is that two-thirds, or 66.2 percent, of the total unit sales during this quarter were either bank owned properties or short sales. This is further evidence to indicate how much the real estate landscape has shifted from a traditional market to one of mostly distressed sales. As buyers and investors are coming back into our market, we are now dealing with an entirely new landscape full of challenges and legal issues. Bidding, multiple offers, as-is contracts, revised contracts, Fannie Mae, asset managers, stripped properties, title issues, liens, association attorneys, and the list goes on.

With distressed sales representing such a large chunk of the current housing inventory, being aware of the potential legal and title issues that accompany bank owned and short sales is crucial. If you are considering getting involved in a short sale, here is a list that was recently provided by the National Association of Realtors:

1. Tax Consequences – Although the federal government passed a law in 2007 directing the IRS not to count mortgage debt forgiven by a lender as income, the provision is limited. It applies ONLY to purchase money mortgages, it does not apply to cash-out refinancing, and it does not apply to second homes or investment properties. There is also a dollar limitation of $1 million for married couples filing separately or twice that amount for joint filers.
2. Secondary Debt – Even if the primary lender forgives the debt, holders of second mortgages do not typically forgive the debt. It is more common practice that they accept a partial payment, like $2,000, and instead of forgiving the debt, they then sell the balance to a collection agency for another few thousand dollars. You may be caught by surprise when a collection agency calls you a year later seeking payment of the debt.
3. Inappropriate Lender Requests for Seller Contributions- It is not uncommon for lenders to go after money that the sellers have in a bank or retirement account before they approve a short sale request. They will sometimes push the real estate practioner representing the seller to get the sellers to sign over a note for the amount they have in the bank as a condition of the sale. However, in states where mortgage debt is non-recourse, they have NO right to the money.
4. Double Close and Flip- Here is what typically happens in this scenario: Investors insist on handling short sale negotations with the lender, allowing the real estate agent to focus on finding a buyer. During the negotiations, often without the agent’s knowledge, the investors talk the sellers to turn over the deed. Once the agent finds a buyer, the investors do a double closing, buying the property at a deep discount and then flipping it to the buyer at the listed price.
5. Loss Mitigation Experts – Companies that specialize in managing short sales promise to focus on the complicated details of the short sale. However, a lot of these companies are fly-by-night or have one person that is handling too many cases and may not touch your file for weeks.
6. Facilitating Transacations Not Listed On The HUD-1 Form – It is very common for investors to offer incentives to move a deal forward, but lenders do not want to see a seller walk away with money when they are supposedly taking a loss. Investors may try to work around this limitation by offering to buy something from the seller at an attractive price, such as a piece of furniture for $5,000. Be careful not to get involved in such transactions, which may potentially lead to charges of lender fraud.

If you are considering purchasing a distressed property in Miami, we are available to consult with you and discuss your plans. For further information, please call us at 305.673.5300 or send an email to  info@miamiangelproperties.com.

Property Taxes Front Lines

A few weeks ago, I published a blog on Florida’s property tax issues titled Florida’s Property Tax Conundrum. In addition to the ever rising cost of property insurance in our state, the real estate tax debate is now on the front lines. Currently faced with severe budget cuts, the Florida Legislature, Department of Revenue, local cities and counties, are in no rush to change the way they assess real estate property taxes.

However, there is some light at the end of the tunnel. The Florida Department of Revenue (“DOR”) recently issued an advisory opinion that foreclosures in general should not be used for assessment purposes, but that Property Appraisers may “calibrate” property assessments to “adjust” for foreclosures. The term “calibrate”, which does not exist in the DOR  rules and Florida assessment statutes, means that Property Appraisers may potentially qualify foreclosure sales that were sold on the open market, or more specifically, those that were listed on the MLS. Additionally, based on the October opinion issued by the DOR, short sales are now believed to reflect the market and may also be used for 2009 assessment purposes.

Property assessments in Florida are always done a year in arrears, therefore, this is good news for 2009 assessments.

Lori Parrish, Broward County’s Property Appraiser, is being very open about her interpretation of the DOR’s latest opinions and has publicly issued her 2008 assessments guidance on short sales and foreclosures. Let’s just hope that our new Miami Property Appraiser, Pedro Garcia, will answer to the voters who put him in the position. In a recent interview with the Daily Business Review, Garcia stated that his “primary goal” is to “establish the right value for all properties in Miami-Dade County.” Additionally, he stated that the “department will take a look at comparable sales, foreclosures and short sales in a community to establish the right value of properties in each market area.”

Let’s make sure that we hold him to this.

If you would like a FREE consultation on the value of your property or to discuss your real estate tax situation, please feel free to send us a request at info@miamiangelproperties.com or call Ross at (305) 673-5300.

First Time Homebuyer Financing

The Housing and Economic Recovery Act of 2008 affects many aspects of the real estate industry, including FHA loans. Here are several points you should know about how the housing bill alters FHA loans:

1. New Maximum Loan Limits – The maximum loan amount will be the lower of 115 percent of the median home price in the area or 150 percent of the conforming loan limit, which amounts to $625,500. In Miami Dade County, the maximum loan amount for a single family dwelling has been increased to $423,750.
2. Downpayment – FHA borrowers are required to make a minimum of 3.5% downpayment.
3. Seller Financing Downpayment Assistance – Sellers may still contribute 6% towards closing costs, and downpayment assistance programs are still allowed as well.
4. Alternative Underwriting – In addition to your traditional credit report, the FHA will allow your score to be derived from alternative credit sources as well. These sources may include, but are not limited to, rent and utilities.
5. Upfront Mortgage Insurance Premiums:
   • 1.75% for purchase mortgages and full credit qualifying refinances
   • 1.5% for streamline refinances
   • 3.0% for FHASecure (delinquent mortgagors)
6. Monthly Mortgage Insurance Premiums:
   • 0.55% for 30YR mortgages if your LTV > 95%
   • 0.5% for 30YR mortgages if your LTV < 95%
   • 0.25% for 15YR mortgages if your LTV > 90%
7. Credit Scores – The FHA requires a minimum credit score of 500 to qualify for maximum LTV. The middle of the three scores is used, and if you only have 2 scores, then they use the lower of the two.
8. Revised Loan To Values (LTV) – The LTV is based on the lower of the purchase price or the appraised value, as follows:
   • 96.5% for all purchases
   • 98.28% for rate and term refinances
   • 95% for cash-out refinances
   • 98.52% for all streamline finances

FHA loans remain a very viable source of financing with high loan to values for first-time homebuyers. Although other sources of conventional mortgages are available as well, often the FHA product is a good option for those borrower’s that may have a few credit challenges and/or need a mortgage product with a low downpayment.

For additional information on FHA financing or other sources, or for a free consultation to discuss your needs, please contact us at info@miamiangelproperties.com or call 305.673.5300.

Realtor Denial Syndrome

Yesterday, I read two different blogs in regard to disclosing of number of days that a property has been on the market. One author is convinced that less transparency in real estate is what is necessary to “protect sellers,” while the second author stated that according to Altos Research, Miami has the highest average days [172] on the market out of all the top metropolitan areas in the country.

To the author of “Posting Days On Market Unfair To Sellers,” I say give up your license and find a new profession. We NEED more transparency in real estate and trying to withhold important information from buyers is the last thing we should be doing.

In regard to Miami having the highest average days on the market, we have certainly had an increase in the average number of days on the market. Which market hasn’t? However, based on recent statistics provided by the Southeast Florida MLS, the data is very different to what Altos Research is publishing. The following closed sales statistics are for Miami-Dade County during the last 30 days, from October 11, 2008, through November 11, 2008:

• Condominiums/Townhomes: 448 closed sales, average number of days on the market = 126
• Single Family Homes: 469 closed sales, average number of days on the market = 108

David Knox, of David Knox Productions in Minneapolis, has termed the new seller disorder “PDS” or Price Denial Syndrome. I think that he brings up a very valid point as it also applies to real estate practitioners, particularly here in Miami. I think that the majority of realtors do not “say it like it is” to their clients. They are too concerned with obtaining the listing and then dealing with the high price later. 

In a declining market, this “Realtor Denial Syndrome” and lack of responsibility will have a direct effect on the results. Buyer interest is always at its peak when the property is just listed, so pricing it too high will turn buyers away. Additionally, if you are so overpriced that you are constantly making price reductions, buyers will sit on the sideline waiting for further price decreases. Furthermore, if you are priced too high, many people will just consider your price unrealistic and not even contact you.

The bottom line is that property that is overpriced is simply not going to sell in a declining market, and this responsibility rests directly on the shoulders of the listing agent. Blaming the seller suffering from Price Denial Syndrome is just an excuse.

Short Sales 101

Whether a seasoned real estate investor, first-time home buyer, distressed seller, or real estate agent, being educated and knowledgeable in short sales is very important in today’s market. To back this up, consider the fact that according to the Southeast Florida MLS, there are currently a total of 11,212, or 26.7%, of the entire inventory of condos or homes available for sale in Miami Dade County, that are listed as short sales.

A “short sale” refers to the sale of real property for a price that is less than the owner’s outstanding debt secured by the property. In a typical short sale scenario, the seller is in financial distress and is currently defaulting on the debt secured by the seller’s property, or will likely default in the future. Additionally, the property securing the seller’s debt has declined in value due to market conditions and the seller wants to sell the property to satisfy as much of the debt as possible.

The short sale typically involves three parties; (i) a real property owner, (ii) a lender that holds a lien against a seller’s real property, and, (iii) a buyer.  So far it sounds simple enough, however, negotiating and completing a successful short sale may be complicated and time consuming. While most lenders or banks will require similar documentation, they do have their own specific requirements or procedures. 

The lender’s loss mitigator will require the following documents:

• A signed Letter of Authorization from the seller authorizing their lender to discuss the loan with the investor or negotiator.
• A fully executed purchase and sale agreement contingent upon the lenders approval of the short sale. Please note that they will be looking for minimal contingencies so keep it clean!
• A hardship letter from the seller clearly explaining why they are behind on their mortgage payments and why they will not be able to make payments in the future.
• A financial declaration from the seller itemizing their monthly income and expenses.
• The most recent three to six months of the sellers bank statements.
• The most recent two years tax returns of the seller.
• A HUD-1 Settlement Statement showing an accurate statement of closing costs and net payoff to the lender.
• If necessary, a property condition and repair statement [use a licensed contractor for the estimate].

It is important that you do not piece meal the lender’s representative, so submit all your documents at the same time. Once the complete package is submitted and accepted, they will then order a Broker Price Opinion (BPO) to assist in their decision.

While there is no perfect method to work on short sales, by following these basic steps you will separate yourself from the rest of the pack and receive faster feedback from the mitigator.

If you would like further information on properties available for sale, please send us a comment or click here to search for properties.

Valuable Tip: If you are purchasing a property in an approved short sale, and you are successful in obtaining financing with a high loan-to-value ratio ["LTV"] that requires mortgage insurance, remember that according to today’s guildelines that the MI company will use the appraised value and not the purchase price to determine your LTV. Therefore, if the property appraises higher than the purchase price, the cost of your mortgage insurance may be lower than anticipated!