Hawaii Economy slowing

Several signs of the slowing economy reported in the Advertiser today: "Tourism officials will soon announce arrivals for August, and they are likely to be down by a double-digit percentage as expensive airfares, a slowing U.S. Mainland economy and traveler worries about investments took their toll on Hawai'i vacations... State figures for total passenger arrivals — which includes residents and visitors — were off by about 14 percent for August."

Yesterday state schools Superintendent Patricia Hamamoto talked about possibly cutting 165 positions as she deals with millions of dollars in proposed budget cuts.

Hawai'i unemployment rates that reached 4.2 percent, the highest in more than six years. Higher gasoline, electricity and grocery prices that Hawai'i residents here are paying are not helping.

The only good thing here is that some of the sellers who are being stubborn about their prices will finally be realistic and get the market moving with lower prices.

If you're selling your home, you have to think like a buyer these days. Is it a good deal? That's all buyers want anymore.

Aina Haina update coming tonight

There is an Aina Haina a community meeting tonight at Aina Haina school, where a representative from thereal estate investment company that bought the Aina Haina Shopping will give us an update on their plans.

The Advertiser reported today that Marvin Lotz, the president of the company said, "I think the center is out of date. I think it needs to be renovated. We want to restore this center to the prominence it once enjoyed. But we're not coming in and changing the environment."

The center is 58-year-old. Two more tenants have been told their leases won't be renewed — the 76 service station will move out in early 2009, and Chuck E. Cheese's will close at the shopping complex in December, and my kids are in a serious depression over it.

"Company officials said they envision major upgrades, including new store fronts and signage, changing the facade of the buildings, putting in a food court and reshaping the parking area to include a greenbelt. But Lotz said yesterday it's too early to speculate about how much money will be spent on the remodel and when it will be completed."

What we have to realize is that whether we like the changes or not, the center needs to be renovated. And for someone to spend several million dollars doing that, they need to have some potential of getting that back, in the form of higher rents and revenues.

So while I'm very sad about Chuck E Cheese's, I'm sure the renovations will be good for our neigborhood and our values. The people who are going to keep our values up around a million dollars in Aina Haina are the ones who want nice new shopping centers.

Hawaii's rents are the highest in the nation

There was an article in today's Advertiser saying the Median monthly rent in Hawaii is the highest in the nation according to a new census.

The median rent was $1,194 in Hawai'i last year, which is enough to rent you a tiny studio in a bad neighborhood on Oahu. I think since the numbers include all the islands, that figure is way too low for Oahu. I can't imagine anyone renting anything that cheap here.

The writer, Andrew Gomes, who's kids go to school with mine, said "Only three other states had four-figure median rental rates — California at $1,078, New Jersey at $1,026 and Maryland at $1,000. Nevada ranked fifth at $980. Hawai'i's median rent was up $78 from $1,116 a year earlier... The census report said 39.1 percent of renters last year paid 35 percent or more of their household income on rent."

The article said that the median monthly cost to own a home in Hawai'i for owner-occupants with a mortgage was $2,099 last year, up $140 from $1,959 a year earlier. Only two states had higher ownership costs — California and New Jersey.

These numbers are pretty deceptive, because most people in Hawaii have owned there homes for a long time and don't owe much. People here tend to move less often, and tend to live with extended family.

If you want to rent a recent sized house in Oahu, you're going to pay $2500 in most areas, and as much as $5000 in East Oahu.

Yet another reason to buy instead of rent.

What is a Short Sale?

A short sale means the sale is subject to the lender is accepting a payoff that is less than the existing mortgage balance. Lender accept a short sale when the value has fallen below the mortgage, and the seller has no other recourse. Of course the seller gets nothing except the debt forgiven.

Add up the total amount of loans, liens, other obligations, and closing costs against the your home. If you end up with a negative number, you have a short sale.

Lenders like short sales better than foreclosure, because they can avoid timely and costly foreclosure proceedings which could result in the bank owning the property – what we call an “REO” (Real Estate Owned.) Banks are not in the business of owning property, so getting a property sold, even at a loss, is often better for them than foreclosure.

If there are two loans, the first mortgage lender is going to get money even if the second lender doesn’t. It’s common to see a 2nd mortgage lender get nothing out of a short sale. Amazing as it is, it’s sometimes more profitable for the 2nd mortgage lender to just let the loan go instead of foreclosing because they’ll get nothing either way.

A lender is not going to agree to a short sale unless the seller is unable to pay the difference between the sales price and the loans.

Once the seller accepts an offer, they send it to the lender for approval, which can take several weeks to 6 months. The lender will want to see that the buyer has a loan approved, so as usual, the buyer should send a preapproval letter along with the offer.

In a short sale, lenders will not usually pay for the customary things that a seller would pay for, such as home warranties, closing cost credits, and termite inspections. The property will almost always be conveyed "as is."

A buyer should always get a professional home inspection and pay for other types of inspections needed.


How is the Seller's Credit Affected?

Sellers take as big a hit on their credit report by going through foreclosure as giving the lender a deed-in-lieu of foreclosure.

Short sale, Foreclosure or Deed-in-Lieu of Foreclosure - these affect credit the about same. Sellers take a hit of 200 to 300 points on their credit score, depending on overall condition of credit, and the effect of a short sale on a seller's credit report is basically identical to that of a foreclosure. The short sale can stay on your credit for up to 10 years, with the delinquencies that are associated with it. That doesn’t mean that 10 years later you won’t be able to get a loan, it just means lenders will still see it.

When can I buy a house again?
The good credit reputation you have will be gone when you complete a short sale. A seller who wants to buy another home after a short sale will most likely have to wait about 2 years before a lender will even consider a loan. But as lending rules are changing frequently, you could be surprised to find you have to wait even longer.

The bad news is that sellers can be subject to a deficiency judgment for the difference between the loan amount and the short sale price. To find out whether a foreclosure or short sale is subject to a deficiency judgment, talk to a real estate lawyer.

If you're trying to decide whether to go through a foreclosure versus attempting a short sale, remember there is no credit score advantage to doing a short sale. The only advantage is being able to buy another home within two years. You should seek legal and tax advice before making this important decision.


What documents are necessary to proceed with a short sale?

Lender often require a hardship letter detailing the circumstances behind the short sale. A signed purchase contract, a preliminary HUD-1 settlement statement and a preliminary estimate of proceeds to the lender. Lenders also want to see the financial condition of the seller, so they ask for pay check stubs, bank statements, a personal financial statement and monthly budget assessment, among other things. It’s a lot like applying for a loan.

Most lenders will not accept a short sale if the seller is in the middle of a bankruptcy proceeding, because negotiating a short sale is considered a collection activity which is prohibited in a bankruptcy.

Some Lenders require an appraisal be submitted in the short sale package, and other may only require the real estate brokers price opinion.


Tax implications in the short of real estate.

As a real estate agent, I am not licensed as a lawyer nor a CPA and cannot advise on tax or legal consequences. Except for some conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. could consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the forgiven debt, which in that case would not really be totally forgiven.

As a short sale represents a loss for the lender, they may report the amount lost in tax form 1099, and the seller may be responsible for paying taxes on the amount of debt forgiven.

Speak to the loss mitigation department and give a brief summary of your situation. Understand what the lender wants and their procedures for a short sale. Some lenders may have alternatives and want to modify your loan or pursue other alternatives.

Legal implications of a short sale.
Lenders are agreeing to a short because it will cost less for them than it would to foreclose on the home. You should consult a qualified tax and legal counsel before going through with any of this.

A seller with little or no assets, little or no income, and a willingness to file bankruptcy has little to lose except their good credit rating, by going forward with a short sale. Those with other assets, a job with garnishable wages, or a desire to avoid bankruptcy are at risk in a short sale and should avoid it. Those considering a short sale need to consult a lawyer regarding the short sale.

If you have other assets such as saving or retirement, the lender may not accept your short sale without you paying money to them to make up the difference.


Renting After a Short Sale
Due to the widespread credit meltdown, many landlords have seen short sales already. While your score will be very low, they will want to see that you have paid your other bills on time. A credit report with a lot of "derogs" over a long period of time would be viewed very negatively.

The nation’s two largest mortgage investors, Fannie Mae and Freddie Mac -- with certain exceptions -- won’t lend to you again for five years (foreclosure) and two years (short sale).

Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales.

If you are considering buying a short sale, there could be drawbacks. For your protection, I suggest that all borrowers obtain legal advice from a competent real estate lawyer and call an accountant to discuss short sale tax ramifications.


Submit Letter of Authorization
Lenders will not want to disclose your personal information without written authorization. If you are working with a real estate agent, closing agent, title company or lawyer, you will receive better cooperation if you write a letter to the lender giving the lender permission to talk with those specific interested parties about your loan.

The letter should include the following:

Property Address, Loan Number, Your Name, Your Agent's Name & Contact Information.

The Preliminary Seller’s Net Sheet
This is an estimated closing statement that shows the amount of money you expect to net (a negative number in every short sale) after all the costs of the sale, the loan balances, any outstanding liens and late fees, including real estate commissions. The escrow officer can prepare this for you.

Hardship Letter
If you want your short sale approved, then the more pathetic your hardship letter, the better. This letter describes how you got into this financial position asks the lender to accept less than the current loan payoff. If you lost a job, had a major illness, or if someone died, you’re chances are better at being approved.

Bank Statements
If your bank statements show big deposits, big cash withdrawals or a lot of income, the lender will want you to explain why. The lender might want you to account for every single deposit to determine whether deposits will continue. If they see that you will keep making money, they may want you to pay it to them!


Purchase Contract & Listing Agreement
When you get a purchase contract with a purchaser, send the lender a copy of the offer, along with a copy of your listing agreement. Be prepared to renegotiate commissions and everything else, even the price. If all goes well, the lender will approve your short sale after some negotiations. You can ask that the lender not report derogatory credit to the credit reporting agencies, but the lender is under no obligation to do this.

Oahu real estate market picking up?

I took a few days off to vacation in Maui, and came back to about a dozen inquiries from buyers this morning. Realtors that deal with buyers (like me) are often the first to notice a slowdown in a market, and the first to notice a pickup too.

Sales were down quite a bit the last couple years. Could today's influx of new buyers be a sign of a market that is picking up? If you're reading this from the mainland, remember Oahu's market can move completely independent of the rest of the country.

Maybe it's just a fluke, but it seems like a lot of serious buyers are getting back in the market all of a sudden...