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Does Public Records Indicate You are in Default?

You do have options  . . . We Believe in People First, Money Second

  •  Are you in financial distress because of your mortgage?
  • Do you need to get out from under a payment that has become too hard to manage?
  • You are not alone. Many homeowners find themselves with financial problems.We want you to know you do have choices and you should take a look at all of them before deciding on what to do. Each situation is unique, as is the solution. We want to help.

As investors we buy and sell real estate. We are also aligned with professionals, licensed with the California Department of Real Estate, to offer you the best solution to your real estate needs.

People First, Money Second

We realize that today’s real estate market can be frustrating. We are dedicated to creating win-win situations for homeowners and home buyers. We are here to help! We are here to listen and give you the options which might work with your real estate problem.

You can:

• Short Sale
• Refinance
• Deed in Lieu
• Bank Foreclosure
• Loan Modification
• Lease Option
• Become a landlord
• Sell to an Investor
• Renegotiate Loan*
• Credit Counseling*
• File bankruptcy*

* Consult your attorney and/or tax professional

Call us today . . . (951) 901-8153 or (951) 545-5657


California’s independence from the federal government — and housing

California’s independence from the federal government — and housing

first tuesday readers mostly consist of real estate professionals — specifically, California real estate professionals. Why does California need its own journal for real estate? Because when it comes to housing and other economic matters, national averages just won’t do. California is becoming less and less like the rest of the nation with each passing year, offering real estate agents and brokers a unique set of challenges, and rewards.

Of all the states, California is the fourth least dependent on the federal government for money, according to WalletHub. On the other end of the spectrum, southern states like Kentucky and Mississippi top the list for most dependent on the federal government.

How much does California receive from the government?

Per person, the average Californian receives about $9,600 from the federal government, lower than the national average of $10,200. This average figure varies significantly by region of the state, with California’s most rural counties averaging $10,000 or more per person and some coastal counties like Orange County and San Luis Obispo averaging less than $7,000 per person.

As of 2015, the federal government gives the state approximately 99 cents for every dollar the state sends back to the federal government. This classifies California as a donor state, meaning the federal government gets more money from California than the state gets from the federal government, according to California’s Legislative Analyst’s Office. This status caused an uproar earlier in 2017 when President Trump threatened to withhold federal funding due to sanctuary cities’ refusal to comply with orders to increase vigilance around undocumented immigrants.

The gross domestic product (GDP) produced by California and other states directly correlates with dependence on the federal government.

California has the highest GDP of any state and the sixth highest in the world. States with relatively low GDP tend to have a higher dependence on the federal government, as less GDP makes for less tax revenue to go around.

How is federal revenue spent?

The state’s relatively low take from the federal government also has to do with demographics.

California’s population skews younger, with a median age of 35.8 compared to the U.S. median age of 37.6, according to the U.S. Census. 12.5% of California residents are 65 years or older as of 2015, while 14.1% are 65 or older nationwide.

According to California’s Legislative Analyst’s Office, the state’s younger population draws less from the federal government per individual due to the federal benefits members of the older population receive. This is played out across the state, as rural counties with higher per-person expenditures from the federal government are home to older populations.

Despite the relatively small population of older folks, the biggest destination for federal tax revenue is Social Security and Medicare in California, according to the Legislative Analyst’s Office. The top payments of federal dollars in the state are:

  • $82.6 billion to Social Security recipients;
  • $69.2 billion to Medicare recipients;
  • $54.7 billion to state health and human services;
  • $33.8 billion to private entities (such as contractors) and universities; and
  • $19.4 billion to individuals as wages or pay for current and former federal employees, including U.S. military.

These payments from the federal government, along with other, smaller payments, totaled $376 billion in 2015, slightly less than what the state — mostly, individuals living in the state paying federal income taxes — paid the federal government that same year.

What California’s independence means for housing

All this revenue sent from Californians to the federal government comes from taxes.

Direct tax revenue comes from two main sources:

  • income from a job; and
  • capital gains from the sale of an asset, like property.

The more money you make, the more taxes you pay — and Californians pay a lot of taxes.

State tax rates are pretty high, compared to the rest of the nation. But the state also produces so much federal tax revenue relative to its population due to its high-paying jobs and high-priced real estate market.

High home values are exciting, on the surface, for real estate professionals. High prices mean higher fees and incomes for real estate agents and brokers.

But California’s high prices mean something less exciting: aside from plenty of taxes, lower sales volume, less construction and a tepid homeownership rate are all results of unstably high home prices.

The cost of land is excessively high here, especially in California’s exclusive coastal metro areas. Low-density zoning makes building to meet the needs of our ever-rising population nigh on impossible. Since demand only keeps increasing, prices continue to rise due to the lack of inventory available.

For a peek into what this situation looks like for real estate agents, consider San Francisco, infamous for its restrictive zoning and low inventory. Here, the average agent sells fewer than five homes a year. These homes are more expensive than average, and the result is an annual income of around $80,000 for the average agent, right in line with the area’s median income. But when this income is dependent on just four or five deals a year, a spate of bad luck or bad listings can be decimating.

The solution? More reasonable land costs for coastal California, achieved by loosening zoning, smoothing the permitting process and revising costly California Environment Equality Act (CEQA) barriers to building. Removing these barriers will open up more opportunities for building in the most desirable areas, near the jobs and amenities plentiful across the state.

California has a lot of good things going on, including all the factors that make up its high contribution to the federal government. Fix the housing shortage, and it will be the best place to do business as a real estate professional by far.

How Much House Can the Buyer Afford?

Many sellers accept owner financing without any idea of how much the buyer can actually afford to pay. The last thing a seller wants is to stress over receiving monthly payments or worse, getting the property back through foreclosure. Use these three simple methods to determine how much the buyer can afford before accepting seller financing.

The amount a buyer can afford to spend on a house depends on their income, overall debt, cash they can put down, credit rating, and the mortgage terms.

There are three different calculations that are traditionally used by mortgage companies to determine how much house a buyer can afford. These are known as the Income Rule, the Debt Rule, and the Cash Rule. While owner financing does not require the strict use of these rules, it makes sense to utilize the standard as a guideline. (Better safe than really sorry, right?)

Income Rule

If you ask a real estate agent or lender for an estimate of how much house a buyer can afford, they’ll typically use a version of the Income rule. The Income Rule says that the monthly housing expense — which is the sum of the mortgage payment, property taxes, and homeowner insurance premium — cannot exceed a percentage of income. This is often referred to as the front-end ratio and ranges from 27 percent to 30 percent for most lenders.

If the maximum percentage is 28 percent, for example, and the monthly income is $4,000, the monthly housing expense can’t exceed $1,120 (4,000 x .28 = 1,120). If taxes and insurance on the home are $200 per month, the maximum monthly mortgage payment is $920. At 7 percent interest for a 30-year loan, that payment will support a loan of $138,282. Assuming a 5 percent down payment, the maximum price of the home this buyer can afford would then be $145,561.

Debt Rule

The Debt Rule says that the total debt expense – which is the sum of the total mortgage payment plus monthly payments on existing debt like cars, credit cards, etc. – cannot exceed a percentage of income. This is often referred to as the back-end ratio and ranges from 36 percent to 43 percent.

If this maximum is 36 percent, for example, and the monthly income is $4,000, the monthly payment can’t exceed $1,440 ($4,000 x .36 = 1,440). If taxes and insurance are $200 a month, and existing debt service is $240, the maximum mortgage payment the buyer can afford is $1,000. At 7 percent interest and a 30-year loan, this payment will support a loan of $150,308. Assuming a 5 percent down payment, the maximum price of the home would then be $158,218. (You’ll notice that’s significantly higher than what we calculated using the Income rule.)

Cash Rule

The Cash Rule says that the buyer must have cash sufficient to meet the down payment requirement plus other settlement costs. If the buyer has $12,000 and the sum of the down payment requirement and other settlement costs are 10 percent of the sale price, then the maximum sale price using the cash rule is $120,000 (12,000 divided by .10 = 120,000). Since this is the lowest of the three maximums in this example, it would be the affordability estimate that is safest to use for this scenario.

Putting It All Together

How much house a buyer can afford is easy to overestimate if you ignore one of the three rules. Don’t make the same mistake as many of the mortgage lenders that ignored these standards in past years.

Granting loans to buyers that could not afford the payment played a large role in the current sub prime toxic mortgage mess that is currently in the headlines. There is no federal bailout program for sellers accepting owner financing. Play it safe and be sure the buyer can afford the house payment before accepting payments over time.

Disadvantages to Owner Financing

What’s old is new again and the credit crisis, struggling economy, and declining real estate market are making seller financing the come back kid of 2010.

Offering to owner finance a property can attract buyers and even save transactions as banks increasingly stamp “DECLINED” on mortgage applications.  Before you agree to “Be the Bank” carefully consider the downside to providing creative financing.

Time is Money – For most sellers waiting to get paid is the biggest drawback since they would prefer to receive the full purchase price in cash at closing. Using a balloon payment to shorten the term of repayment can often reduce the severity of this time delay.  Using temporary seller financing techniques can also help optimize a subsequent sale of the payments to a note investor.

Honey, Did You See That Check? – It will take time every month to keep track of the payments.  An amortization schedule helps to accurately calculate the interest, principal, and remaining balance due. There are also annual 1098 mortgage interest statements to prepare. Many sellers decide to leave all this to a professional and make use of an outside servicer.

Here Comes Guido – When payments don’t arrive on time sellers will quickly find they have been cast in the role of bill collector.  They also have to worry about if the buyer maintains the property, lets the property insurance lapse, fails to keeps the real estate taxes current, or violates any other terms of the financing arrangement.

No TARP for You! – There is the risk a seller will need to initiate foreclosure proceedings if the buyer fails to make payments (or follow any other terms of the note).  Along with time and money, in today’s market foreclosure comes with the risk a property might be worth less than the outstanding balance due.  There is no government TARP lender bailout plan for the individual seller!

Who’s On First? – When a property is sold with owner financing and the seller still owes money both the buyer and seller need to be concerned about timely repayment of the underlying lien.  The first position might also have the right to accelerate their mortgage under some type of due on sale clause. Most note investors will pay off the seller’s underlying liens out of proceeds when they purchase the future payments

They Offered How Much?! – If a seller gets tired of the monthly payments trickling in they can sell the note to an investor for cash now. While future payments can be sold to a note buyer it is usually at a discount rather than full face value.  How steep of a discount depends on the equity, interest rate, payer credit, property type, and other terms. (Read more at Structuring Notes for Top Dollar Pricing)

Of course it’s not all bad.

Many buyers and sellers use owner financing to create a winning solution for both sides.  The trick is to work with qualified professionals that can steer you in the right direction. To discover the positive side of seller financing be sure to read 10 Advantages to Using the Seller Carry Back.


10 Advantages to Using the Seller Carry Back

The word is out and seller financing is on the rise as buyers and sellers look for creative ways to finance property in the struggling market.

So what’s all the hype?

Here are ten advantages to using the seller carry back to buy or sell real estate.

 1.Shorter Marketing Times – Properties marketed with “Owner Will Finance” will draw a greater response rate and generally sell at least 20% faster than properties requiring conventional financing.

 2. More Buyers – With many lenders’ tightening their approval process, the seller carry back enables a greater number of buyers to purchase and finance a home.

 3. Speedy Closings – Without the red tape of a conventional mortgage lender, a real estate transaction can close in as little as two to three weeks.

 4. Maximize Selling Price – The seller has an opportunity to realize full market value for a property when providing financing. This is viewed as a sales concession in many markets.

 5. Reduced Restrictions – Restrictive lending requirements don’t apply providing greater flexibility when it comes to the buyer’s credit history, down payment, debt to income ratios, and other underwriting criteria.

 6. Fewer Costs – There are no expensive loan costs to worry about. A buyer can put the money they save on origination fees, points, underwriting fees, mortgage insurance premiums, and junk fees towards the down payment and building equity.

7. Interest Income – The seller is able to collect long-term interest since they are essentially acting as the bank by extending terms to the buyer. On average a buyer will pay back 2 to 3 times the amount of the mortgage on a 30-year term as a result of interest.

 8. Installment Sale Tax Deferral – When property is sold at a gain and subject to tax there can be an opportunity to delay a portion due when reporting under the Installment Sale Method (Refer to IRS Publication 537, Form 6252 and speak to a qualified tax professional for further details).

 9. Secure Asset – The balance of the purchase price is collateralized by the property. If the buyer stops making payments the seller can take back ownership of the home.

10. Liquid Asset – The seller owns a liquid asset, which is just a fancy way of saying somebody will purchase the note, mortgage, trust deed, or contract on the open market. Many sellers elect to sell their future payments to a note investor or note buyer for cash today rather than payments over time.

Seller financing offers a creative solution to financing real estate but there are some risks. For the flip side of the coin be sure to read the Disadvantages to Owner Financing. It also pays to consult with qualified real estate, tax, and legal professionals to make sure today’s solution doesn’t turn into tomorrow’s problem.




What is Seller Financing?

When a seller allows a buyer to make payments over time for the purchase of property, it is known as owner financing or seller financing. This private financing by the seller can take the place of a bank loan or be in addition to a conventional mortgage.

The payment amount, interest rate, and other terms are agreed upon between the buyer and seller. The amount financed by the seller will depend upon the buyer’s down payment and whether there are any bank loans.

Here’s an example of how it works.

An owner advertises his or her house for sale, either on her own or through an agent.

A buyer makes an offer, and they agree upon a sales price of $175,000 with a 10 percent down payment of $17,500.

Rather than requiring the buyer to obtain a bank loan, the seller carries back the balance of $157,500 in the form of a note and mortgage. It could also be a note and deed of trust or a real estate contract, depending on the customary documents for that state. A title company or real estate attorney is often used for the closing.

The note spells out the terms of repayment. In this case they agree upon 8.5 percent interest at $1,211.04 per month based on a 360-month amortization. The seller doesn’t really want to wait a full 30 years for payments, so the note requires payment in full, known as a balloon payment, within seven years.

Because the buyer is making payments to the seller rather than an institutional lender, the legal arrangement is called a private mortgage, seller carry-back, installment sale, or owner financing.

The seller has the same mortgage rights as a bank, so if the buyer does not make payments, the seller can foreclose and take the property back.

When the seller prefers cash today rather than payments over time, the rights to future payments can be sold or assigned to a note investor on the secondary market.