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How much mortgage do I qualify for?

Figuring out how much mortgage you can afford is a process that involves several steps. Once you have gone through all of them and have thoroughly examined your financial situation, you can have a much better idea as to how big of a loan you can afford, and in turn, how big of a house to look for.

The general rule of thumb is that about a third of a borrower’s income should be dedicated to financing a home. For example, if someone makes an annual salary of $50,000 a year, they should be able to manage a mortgage of $150,000 if their current debt is moderate.

While this tends to be a common rule for some, it will not be the case for every new home buyer.

A good rule of thumb is to examine your current debt, living expenses, and then adjust for future financial obligations, like children, education, and possible retirement.

Instead of trying to spend all your earnings on buying a home, a more modest approach is sometimes necessary. There’s no better way to be well-prepared for homeownership than making a budget and sticking to it!

Aside from considering your regular monthly costs such as utility bills, car insurance, health insurance, etc. – finding out the exact mortgage costs you will be facing will help you determine whether or not the purchase is a sound financial investment.

You also need to keep in mind that a mortgage loan pays not just for your house, but also for the costs of owning a home, such as insurance, property taxes, and home maintenance. All of these things should be factored into your calculations when you are calculating your mortgage.

There are also many more factors such as your interest rate, credit score, debt-to-income ratios and down payment that affect the amount you can afford to borrow.

The best way to determine exactly what fees you’ll pay is to find a lender and pre-qualify for a mortgage. This process will allow a borrower to receive a loan estimate from the lender, which will have all of the exact costs associated with the mortgage.

Below I will discuss the steps and most effective ways for an individual to calculate how much they can realistically afford.

* If you need to quickly see how much mortgage you can afford and you do not want to read this entire article, please call me at 619-379-8999 or email me at [email protected].

STEP 1: Calculate Your Monthly Income

To qualify for a mortgage, you and your spouse must prove that you have enough income to cover all of your housing costs, including homeowner association dues and property taxes.

You should also add up all sources of your monthly income, including your spouse’s if you are married, alimony if you are getting some and any other income that you receive.

If you have a fixed-term employment contract or receive a salary from your job, then the calculation is easy. Just add up all of your monthly income and divide it by 12 to get the average amount of money you make each month.

Gross monthly income is the total amount of money earned before any deductions have been made. For example, if you make $45,000 per year and work 40 hours per week, then your gross monthly income is $3,750 ($45,000 divided by 12 months).

If your spouse earns $50,000 per year and works full-time. Her gross monthly income is $4,167 ($50,000 divided by 12 months). Adding these two together gives you a gross monthly income of $7,917 ($3,750 + $4,167).

If you receive variable or irregular income from self-employment, there are several things that you can do. For example, let’s say that you are self-employed and your income varies from month to month or year to year due to market conditions or seasonal factors.

To account for this in the calculation of your monthly income for mortgage purposes, simply average out the last 2 years of your income tax returns and use this figure as your monthly income when applying for a mortgage. These calculations can, however, be slightly tricky because some of the deductions on your tax return are added back into your net income like depreciation, depletion and one-time expenses/repairs.

If you were getting alimony every month or had another source of income such as an investment property, then include that as well. Also include any investments in stocks and bonds or annuities (regular payments) as well as any government benefits.

If you receive Social Security, Alimony, Child Support or any other income source that is Non-Taxable a lender may be able to qualify 25% above what you receive which will allow you to qualify for a slightly higher purchase price/loan if needed.

STEP 2: Calculate Your Monthly Expenses

In addition to this information about your monthly income, lenders will also want to know about your existing debts. This includes credit card debt and any other type of installment loans that you carry each month.

Lenders will take the sum of these debts and add it to your estimated mortgage payment to see if you have enough room in your budget before approving your loan application.

This will include any rent or mortgage, food, transportation, taxes, insurance, and other regular costs of living such as your car payment, credit card payments, utility bills, and other recurring costs.

STEP 3: Debt-to-Income Ratios

Mortgage lenders look at your gross monthly income and your monthly debts to determine how much of a mortgage loan you can afford. This is called the debt-to-income ratio.

Debt to income ratio applies to the comparison of an individuals monthly expenses to their monthly income. Lenders use strict debt-to income ratios when qualifying a borrower for a mortgage, so it is imperative that you get a basic understanding of how this is done.

The housing to payment ratio is referred to as your front-end debt-to-income (DTI) ratio and includes all expenses associated with the mortgage – including principal, interest, property taxes and homeowners insurance. To calculate an affordable front-end DTI, multiply 0.3 by your gross (pretax) annual income, then divide by 12.

In contrast, your back-end DTI is the percentage of your gross monthly income that is applied to all other installment debts (i.e., mortgages, student loans, car payments, credit cards, child support etc). One of the first things to do is itemize all of your debts, including credit card bills, personal loans, and car payments.

The back-end DTI shows the lender exactly how much of your earnings go towards your total debt obligations. Generally, they will look for a borrower with a DTI of around 43-55%.  If your DTI is below 43% then you have a better chance of qualifying for a loan.

If your DTI is above 43% then you may have a more difficult time meeting the requirements. FHA mortgages allow a higher number with a front-end DTI of 47% of your gross monthly earnings, and a back-end DTI of 57-59%.

How to calculate your debt to income ratio (DTI)

To determine the size of a mortgage you can afford, your total monthly payment, taxes and insurance (PITI) should not exceed 2x to 2.5x your take-home pay or salary after taxes and other withholding are taken into consideration.

The first step is to calculate your gross monthly income.

To do this, simply figure out how much money you are making each month from all of your documentable sources throughout the year and now divide that by 12. If you are married, figure both incomes into the equation.

Remember I said “documentable”.

If you can’t prove it, it didn’t go into your bank account and or you do not claim it on your taxes, then it is not provable income.

Add up all your monthly debts

Things like a car, credit cards, and stuff that will show up on your credit report are what we are looking for. Figure out what percentage of your income is going towards paying off debts. Generally, figures like 5%, 10%, or 20% are used.

Of course, the lower the better, as you will be more likely to be able to keep up with the payments. So, if your income is $4,000 per month and your debts are $500, this would mean that you are currently at an approximate 13% debt to income ratio.

STEP 4: Calculating Your Mortgage Payments

These are some of the major costs a homebuyer faces when buying a home. Once you have all the costs figured out, you’ll want to sit down with your lender or loan officer to locate a realistic mortgage option.

These expenses include, but are not limited to:

Monthly mortgage payment: Principal, interest, taxes, homeowners insurance (PITI) and HOA dues (if applicable).

Homeowners Insurance

Homeowner’s insurance is required to obtain a mortgage. In fact, you’ll be paying for homeowner’s insurance before you even close on the property. Your lender will require that you pay your first year’s insurance premium when you close on your home loan, and it will be included in your monthly mortgage payment.

Homeowners insurance covers the structure of your home and your personal property inside, up to the policy limits. Most policies also cover liability and additional living expenses if something happens to your home.

For example, if a tree falls through your roof or an electrical fire damages half of your house and you can’t stay there for several months while it’s being repaired, homeowners insurance would cover the cost of temporary housing until your home is again habitable.

How much does homeowners insurance cost?

The typical homeowners policy costs between $1,000 to $5,000 per year, depending on where you live. Premiums vary based on factors like location, coverage limits and replacement cost value (RCV) as well as high risk areas for fire or natural disasters.

In general, if you have a $100,000 mortgage on a house that’s worth $550,000 (the value of the house is also called the replacement cost), your lender requires that you have at least $450,000 in liability coverage and $550,000 in coverage for the structure itself. In addition, you’ll want to protect any personal items inside the home with a rider or floater policy.

The more coverage you take out, the higher your premium will be.

Interest Rate

The two main variables that you will have to consider when determining how much you can afford are the loan amount and your interest rate.

Home loans are typically broken up into two types:

Fixed-rate mortgages have an interest rate that is set and does not change for the length of the loan. This provides stability, but if interest rates go down you will miss out on the lower rate. The most common fixed-rate mortgage is a 30-year loan.

Adjustable-rate mortgages (ARMs) start out with a low, fixed rate and then adjust upward or downward after a certain period of time, depending on market conditions at that time. Most ARM loans provide a fixed-rate payment for three to five years and then adjust every year thereafter.

These are also called 3/1 and 5/1 ARMs, which means they start with a fixed-rate and payment for five years, then adjust annually after that.

Private Mortgage Insurance (PMI):

If you do not have a 20% down payment to purchase the home, you will more than likely be subject to paying PMI. If so, this cost will be figured into your monthly mortgage payment.

You pay PMI as part of your monthly mortgage payment until you reach at least 20 percent equity in your home,, but there is no obligation for your lender to do so. This can take quite some time, especially in a rising real estate market where the value of the home increases faster than you can pay down your loan.

PMI can cost between 0.3% to 1% of the original loan amount on an annual basis. That means that if you borrowed $200,000, you may be paying as much as $2,000 a year — or around $167 per month — assuming a PMI rate of 1%.

There are different ways to eliminate mortgage insurance with less than 20% down; you can buy it out as a single premium, which is a lump sum at closing, or through an option called lender paid, which is a less common direction where you would have a higher interest rate that covers the cost of the premium.

Real Estate Taxes:

Real estate taxes are simply the taxes you pay for your home. All residential property requires the homeowner to pay property taxes – prices will vary from city-to-city, state-to-state.

Each town and county sets their own tax rate and the assessor determines the property value. This information is provided to you by your mortgage company, but you may also contact the local tax assessor’s office to confirm or to find out other important information.

Taxes may be paid annually, twice a year or quarterly. Most of the time when you put less than 20% down the lender will require you to include your taxes and insurance with your mortgage payment. In addition to property taxes, some municipalities also charge a municipal tax or supplemental tax – which is usually a fixed amount that doesn’t change year-to-year.

Down payment:

A down payment is required to purchase real estate. The down payment is subtracted from the purchase price of your home. Your mortgage loan will cover the rest of the price of the home.

The minimum amount you’ll need for your down payment depends on the purchase price of the home you’d like to buy and the type of mortgage.

Most conventional loans will require at least 20% down to obtain favorable terms and avoid private mortgage insurance (PMI) however many borrowers choose to only put 3-5% down in today’s market.

Some lenders offer special programs for buyers, however, which may lower the amount needed for a down payment. FHA loans, for example, may allow buyers to qualify with only 3.5% down if they have a credit score of 580 or higher. Down payment assistance programs may be available for buyers in certain areas who meet income qualifications.

In addition to the down payment, you will also need cash reserves on hand to cover closing costs and repairs that come up during the home inspection process.

Closing Costs:

In addition to a down payment, lenders and third parties associated with the transaction will charge fees to close the loan.

These fees may include loan origination fees, credit report fees, attorney fees, appraisal fees, underwriting fees, etc. In general, borrowers can expect to pay approximately 2-4% of the purchase price in closing costs.

While most of these closing costs must be paid by the borrower, some of them can be paid by the seller, split between buyer and seller or even credited by the lender. It is important that you ask your lender what costs are negotiable and which ones are non-negotiable before making an offer on a home.

Points:

Mortgage points are an upfront loan cost that could save money throughout the life of your loan. Mortgage points can be purchased in order to lower the overall interest rate on your loan. A lower interest rate means lower monthly payments as well as less money being paid over the life of the loan.

The cost of a point is 1% of your total loan amount. For example, if you’re borrowing $500,000 to buy a home, each point will cost you $5,000. Usually every 1% paid to buy the interest rate down equates to .25% in rate.

If you are planning on living your home for a long period of time and expect interest rates to rise, it can be a very wise idea to consider that is also typically a tax-deductible expense, of course consult with your accountant or tax professional the impacts to your taxes when you purchase a home.

Bonus Tips

It is always good to undershoot the number you can most afford. It is better to buy a cheaper house and to have extra money, than it is to overdo it and come up short.

Use a mortgage calculator to determine how much you can afford

Lenders tend to use a formula that is very complex to help decide how much a borrower is able to afford. By using a mortgage calculator you will be able to decide for yourself how much you can afford to pay by factoring in your income, debt, and other expenses to see if you qualify for a home loan.

You can start by calculating your gross income on a monthly basis. Then, you can use a mortgage calculator to determine how much house you can afford.

Here are a couple of sites that offer free calculators: Mortgagecalculator.org or Mortgagecalculator.net

These tools will allow prospective home buyers to get a good estimate as to what their monthly mortgage payments should be.

But be aware that this tool will only be able to give an estimated amount, so it would be wise to speak with a mortgage counselor to get concrete numbers.

Interest rates and guidelines may also vary from lender to lender, so it is always important to first shop around for the best deal before you make your purchase. And in the end, the mortgage lender will have the final say as to how much the monthly payment will be.

If you would like to know exactly how much mortgage you can afford, please call me at 619-379-8999 or email me at [email protected].

Private Mortgage Insurance (PMI): Learn the cost and how to avoid paying it

Private Mortgage Insurance (PMI): Learn the cost and how to avoid paying it

If you do not have a 20% down payment to purchase the home, you will more than likely be subject to paying private mortgage insurance (PMI), which will be figured into your monthly mortgage payment.

PMI protects the lender in case you default on your loan and don’t have enough equity built up to sell the home and pay off the loan balance. Private mortgage insurers are for-profit companies that provide this protection for lenders.

Private mortgage insurance (PMI) is an extra mortgage cost that is used to cover the risk to a lender, and that is paid by a borrower in monthly premiums tied into their mortgage payments. It is not for the benefit of the borrower.

This type of insurance is usually required by lenders when a mortgage loan amount is above 80% loan to value (LTV) and the borrower has less than a 20% cash stake in the property. A loan amount above 80% is considered a lot riskier to lenders, and in order to cover this risk, they require insurance that will pay them in case the borrower defaults on the loan.

PMI payments range anywhere from 1% to as high as 1.5% of the loan amount that is amortized yearly and paid monthly throughout the life of their loan as long as the loan amount is above 80%.

For example, let’s say you get a $100,000 loan amount and are required to have mortgage insurance. Your estimated monthly insurance payments would be approximately $100 extra a month. A $200,000 loan amount would equate to approximately $200 a month in extra insurance fees.

As you can see, this money can add up quickly. Also, please keep in mind that this money does not help pay down the mortgage balance, and it is not tax-deductible.

You pay PMI as part of your monthly mortgage payment until you reach at least 20 percent equity in your home.

Because PMI exists for the benefit of the lender rather than the borrower, it would make perfect sense that most borrowers would be curious about either avoiding or canceling their PMI policies in order to save money on their monthly payments.

Although it is possible to eliminate the need to pay for PMI, the money required and process can be difficult for many people.

Here are a few ideas on how to avoid private mortgage insurance (PMI).

1. Make a 20% down payment

The most commonly known way to avoid private mortgage insurance altogether is to make a full 20% down payment when closing on your mortgage.

By putting 20% down, the lender knows you are a serious borrower who is placing a good chunk of money as a down-payment and they only have to extend an 80% loan, which makes it considerably less risky. This is also called an 80% loan to value.

Making anything below a 20% down payment automatically binds a borrower to a PMI plan.

However, having 20% down is easier said than done, and many borrowers are unable to meet this demand. This makes this specific method difficult for a lot of people.

2. Get a Second Mortgage

Another way to avoid the PMI policy would be to take on one of these funny-named loans, also known as “80-10-10” or “80-5-15” mortgages. The secret of this loan lies with the fact that it is actually two instead of one.

Although the thought of two separate loans on one mortgage plan might sound scary, they actually reduce the amount that you have to put down on a home while still avoiding PMI. Someone with just enough cash to make a 10% down payment is going to get a 90% mortgage and be stuck with a PMI premium.

Piggyback loans allow home buyers to take on one mortgage for 80% of the purchase price, and a second for 10% of the purchase price.

Under the program, the two loans make one mortgage at 90% of the purchase price, but act as two separate finance options. That 10% down payment under this program will suffice for the 80%-10%-10% plan, and could end up being even lower at 5% for the 80%-5%-15% plan.

Under this option, the 80% loan will not require PMI, and most lenders who hold this plan won’t require PMI under it due to the smaller lower-risk loans. Like everything else, piggybacks come with their downsides.

For example, the interest rate for the second loan will most likely be higher due to such a short term. While paying it off, you may end up paying a little extra in interest, all to save yourself from PMI.

3. Wait for your equity to rise above 20% loan to value

If you are currently paying mortgage insurance, the only way to cancel the insurance is to have more than 20% equity in your property. Some people will need to build equity over time if the housing markets allow them to eliminate their insurance policies. If your homes increase in value so you have 20% equity, then you can have the insurance canceled.

This will not happen automatically.

You have to call your mortgage servicers and have them review your mortgage and home value to assess if you can have the PMI requirement waived.

Important note:

Please keep in mind that mortgage insurance is not an insurance policy to protect you in case you miss your monthly mortgage payments, but for the lender only. If you fall behind on your monthly payments and you have this type of insurance, you can still lose your home to foreclosure.

It is your lender who would benefit from the insurance because they would still be paid in full even if you stopped making mortgage payments altogether and/or if you were foreclosed on.

To see if you’ll be paying PMI, you can start by talking to your loan officer about the details of your loan. They’ll be able to look at the specifics and let you know the amount you will be paying.

Commercial Property Crash 2021-2022

Commercial Property Crash 2021-2022

In 2004, Donald Trump told CNN, “I love bad markets!”

In a Trump University audiobook, he had said “I sort of hope” the real estate market crashes.

“How you react to the so-called housing bubble can be a barometer of your business personality. Are you the type of person who takes advantage of positive situations when they present themselves…or do you heed every message of doom and gloom, avoiding risks that could be some remarkable opportunities?” he wrote in a 2005 post on his Trump University blog.

A couple of years later he told the Globe and Mail in March of 2007, “People have been talking about the end of the cycle for 12 years, and I’m excited if it is. “I’ve always made more money in bad markets than in good markets.”

A year before the last market crash of 2008, Trump counseled Trump University students to take advantage of the housing bubble as an investment opportunity. He was “excited” for it to end because of the money he’d make.

“The real estate markets crashed. Now, I don’t want to blame the real estate markets, because I always made a lot of money in bad markets. I love bad markets. You can do very well in a bad market,” he said.

Fast forward to 2020-2021, it looks painfully obvious that there is another commercial property crash that is rearing its ugly head all across the nation and the world.

The economic fallout from the COVID lockdowns forced thousands of companies around the U.S. to have their employees work from home, and many went out of business.

As a result, tens of thousands of commercial buildings sat empty for several months and some for over a year, forcing a severe financial burden on their cash-strapped owners. In addition, these owners had to pay their mortgage with virtually no tenants to help foot the bill, and as it turns out, many have not been able to make their payments for most of the time.

In April 2020, the Wall Street Journal reported, “A Reckoning Looms for Commercial Real Estate – and its Lenders”. The WSJ said;

“Even as Covid-19 cases surge world-wide, the arrival of viable vaccines holds the promise of a return to something resembling normality by the middle of next year. But the commercial real-estate sector may never get back to normal, and that could spell trouble for banks. Many banks are concentrated in and dependent on commercial property lending. Banks hold half of all commercial real-estate loans.

The 5,000 or so U.S. community banks, with about a third of total assets, are two to three times as concentrated in commercial real-estate lending as the approximately 30 larger banks. Problems in commercial real estate can hurt banks in two ways. Losses on existing loans can damage earnings directly, and a correction can reduce future lending volumes, impairing an important driver of earnings.

Based on what we know now, things don’t look good.

Around the same time, a Politico magazine article said, “Commercial real estate is in trouble, and turbulence in the $15 trillion market is threatening to bleed over into the broader financial system just as the U.S. struggles to emerge from a recession.”

Politico reported, “The number of commercial loans that have been packaged into securities going into “special servicing” — where distressed loans are transferred to a new manager hired by bondholders to negotiate a payment plan on their behalf — has steadily increased since March.

“The number of commercial loans that have been packaged into securities going into “special servicing” — where distressed loans are transferred to a new manager hired by bondholders to negotiate a payment plan on their behalf — has steadily increased since March.

And it has become clear that the virus will continue to cut into revenue for some time, so even those property owners who have been able to patch together payments — thanks in part to now-lapsed relief measures passed by Congress — may start to slip.

The loss of paying tenants could touch off a wave of property write-downs and eventual foreclosures on everything from shopping centers to apartment buildings. But it’s not just a pocket of wealthy investors who will get hurt by widespread write-downs. Eighty-seven percent of public pension funds and 73 percent of private pension funds hold real estate investments.

For nearly two years now, many major commercial properties have suffered from low occupancy rates and forced closures due to the Covid-19 pandemic. This is especially true for Hotel properties with $100-200 million dollar mortgages that have remained virtually vacant throughout the crisis.

The facts are that many commercial building owners have not made payments over the last 1-2 years, and their lenders are starting to foreclose upon them for non-payment all across the nation. Investors hold up these loans via commercial mortgage-backed securities that have been bundled and sold on Wall Street all across the globe.

An economic disaster that I predict will become a market crash as soon as investors awake from their slumber and become wise to the media propaganda lying to their ears the whole time.

It has come time for many of them to pay the piper, and it is painfully obvious that many of these property owners barely have two nickels to scratch together. But they won’t tell you that. Quite the contrary.

Now, we will see the actual grave reality for what it is.

A commercial foreclosure crash like the world has never seen.

Major commercial markets like New York and especially Chicago are starting to surge as the foreclosure tsunami rises.
Here are the latest commercial foreclosure casualties. I’m sure Trump is more than ready to use his investing skills to snatch up some great deals in the years to come.

The big question is, “are you ready?”

Below is just a tiny example of the foreclosure fallout. There will undoubtedly be many more that will make this list as the months and years go by.

NEW YORK

Hello Living East Flatbush Apartment Complex

In New York, a judge ruled that Madison Realty Capital can go after the interests of the luxury commercial developer, Eli Karp’s Hello Living East Flatbush apartment complex — and the rest of its portfolio through a UCC foreclosure sale, according to The Real Deal.

 

Karp founded Hello Living in 2005. He has developed 10 buildings under and six more are allegedly in the pipeline.

Karp said in an interview that Madison “wiped him out” and forced him out of business.

“I can’t get around how this happened,” said Karp. “I have lost everything.”

A spokesperson for Madison said, “We are pleased with the court’s decisive final ruling in favor of Madison. The facts of this case speak for themselves. It is unfortunate that Mr. Karp has a pattern and practice of frivolous litigation against lenders and partners to further his agenda.”

The Kent House

The luxury mixed-use project, Williamsburg residential development Kent House is facing foreclosure auction thios past month for its equity interest in the luxury mixed-use project, at 187 Kent Avenue. The commercial property located at at 187 Kent Avenue has 96 apartments and 31,000 square feet of retail is owned CW Realty.

Invictus Real Estate Partners claimed that CW Realty defaulted on a $10 million mezzanine loan. The entity was created when Invictus Real Estate Partners took over the loan, along with a $78 million senior mortgage, from Prophet Mortgage Opportunity this summer, according to The Real Deal.

Invictus has also pursued foreclosure on the property based on the defaulted $78 million mortgage loan. To counter that, CW Realty on Sept. 17 filed a hardship declaration, a measure under the state’s commercial eviction and foreclosure moratorium to stop certain commercial real property mortgage foreclosure actions from moving forward until Jan. 15, 2022.

CHICAGO

Civic Opera House

The owner of the Civic Opera House commercial property was served with a $195 million foreclosure lawsuit representing the largest case of a downtown Chicago office building in years, according to Crain.

The lender, Wells Fargo’s lawsuit claims the New York investment firm founded by Mark Karasick failed to pay monthly loan payments on the Chicago’s Civic Opera House since May, marking the biggest default for a downtown office building since the pandemic.

601W and Berkley Properties owes $154 million on loans and $28.3 million for late payments on the 915,000-square-foot art deco landmark at 20 North Wacker Drive. The Cook County Circuit Court is expected to appoint real estate services firm Transwestern as the receiver next week.

The Loop

The owner of the Loop 226,000-square-foot office building in Chicago that houses a Morton’s Steakhouse handed the keys back to its lender to avoid foreclosure after failing to sell the property.

The Irish owned REIT, Wilton U.S. Commercial performed a deed in lieu of foreclosure of the 24-story Art Deco building at 65 East Wacker Place to Acres Capital rather than face a foreclosure lawsuit due to missed loan payments, Crain’s reported.

The REIT’s director Iain Finnegan said the building lost some non-profit tenants in the building “due to a lack of state funding” and the pandemic made it too difficult to recover, leaving the company with the choice to either restructure or sell the asset.

Wilton bought the building in 2010 for less than $16 million. The property had been seized by what is now CIBC through a foreclosure. After losing tenants over the years, Wilton struggled to cover the $1.3 million debt service payment in 2019 after generating less than $375,000.

Standard Hotel High Line

The owner of the luxury Standard Hotel High Line, the Hong Kong–based private-equity firm Gaw Capital hasn’t made a mortgage payment since May 2020, according to Crain’s.

 

The investment firm owes nearly $187 million, according to a foreclosure lawsuit filed recently in U.S. District Court in Manhattan.

Wells Fargo sent the owners a notice of default on their mortgage in June 2020 demanding demanded that Gaw Capital pay back the entire balance, but they failed to make payments for the next 17 months, the lawsuit says.

The loan backing the property is part of commercial mortgage-backed security or CMBS.

According to Curbed, “The 338-room hotel founded by André Balazs was purchased in 2017 by Gaw Capital, a Hong Kong–based private-equity firm led by Goodwin Gaw. Gaw bought the Standard for $340 million, $60 million less than it had been in contract for a few years before, and took out a $170 million acquisition loan from Natixis, a French investment bank that was bullish on hotels at a time when other lenders were pulling back.

“New York’s hospitality sector is a little out of favor at the moment,” Gaw told Forbes at the time. But during the last year and a half, the hospitality sector has fallen more than a little out of favor, with a global pandemic and travel bans making Airbnb and market oversaturation seem like relatively minor woes.

Gaw Capital owns several commercial properties across the country, mainly in San Francisco and the Standard Hotel High Line is its only New York City asset.

If you own shares in Gaw Capital, you may want to pull your money out soon because this news is a big red flag that they are in serious financial trouble.

Over the past year, several Manhattan hotels have permanently closed. The Roosevelt Hotel, which was owned by Pakistan’s national airline company, and the AKA Wall Street hotel, which has since been converted into apartments.

FLORIDA

DoubleTree Hotel by Hilton of Tallahassee

The Tallahassee DoubleTree Hotel by Hilton on Adams Street through his Delaware-based limited liability corporation, IB Tallahassee, LLC., a hotel owned by JT Burnette is going into foreclosure.

A Leon County court ruled on Sept. 24 that unless his company pays more than $32 million owed by the sale date, the property will go up for auction, which was scheduled to be auctioned on Oct. 28, and sold to a sucker buyer for $23 million.

Burnette was convicted on corruption charges earlier this year and will be sentenced in November 2021, according to ABC 27.

OHIO

Westin Cleveland Downtown

The Westin Cleveland Downtown is facing foreclosure but has found a sucker buyer to possibly buy the property. In later October, the owners through their attorney had asked a judge to approve the sale of the hotel to HEI Hotels & Resorts for $40.2 million, according to a motion and a copy of the agreement the lawyers for receiver Tim Collins filed in Cuyahoga County Common Pleas Court.

The Carew Tower

According to Cincinnati.com, the Carew Tower, one of Downtown’s most iconic buildings, is facing foreclosure and more than $642,000 in delinquent utility bills just over a year after the building was put up for sale.

Lender Veles Partners LLC filed a foreclosure lawsuit against the building’s owner, Greg Power, on Oct. 15 for defaulting on the mortgage, according to Hamilton County Common Pleas Court records.

Veles claims Power owed $9,664,656 in principal on the loan, about $93,630 in interest and $3,594 in late fees as of Oct. 5.

Power — a Downtown-based commercial real estate investor who owns the Carew Tower and the connected 561-room Hilton Cincinnati Netherland Plaza Hotel — was served a summons on Nov. 2.

OREGON

Loyd Center Mall

A New York-based real estate lending company says it plans to foreclose on the Lloyd Center mall and redevelop the beleaguered Northeast Portland shopping center.

According to Oregon Live, KKR Real Estate Finance Trust said it plans to take ownership of the 1.2 million square foot mall before the end of the year. The company says payments on its $110 million debt have been overdue since October 2020.

“Upon taking title, which is targeted for the fourth quarter, we’ll begin to plan for a comprehensive redevelopment of the site, which we expect will include multiple uses including residential and creative offices,” said Patrick Mattson, the president and chief operating officer of the company. Bloomberg Law first reported the comments.

KKR loaned $177 million toward a renovation of the Lloyd Center in 2015.

Lloyd Center opened in 1960 as a 100-store, open-air mall, said at the time to be the largest in the world. It was covered in the 1980s with a glass ceiling, then extensively renovated in the 1990s into a more traditional enclosed shopping mall with a central food court.

More than 1.3 million ‘zombie’ homes in the US

Property analytics firm, ATTOM recently reported more than 1.3 million ‘zombie’ homes in the US. The definition of a ‘zombie’ property is a home abandoned by homeowners who have defaulted on their mortgage due to a pending foreclosure and remains vacant, while the title remains in their name along with all financial responsibilities.

According to the report, approximately 1,312,410 homes sit vacant and are in foreclosure status across the country, which represents one in 75 residential properties or 1.3% of the housing market.

New York state reported the highest number of zombie properties in the US” with 2,049, followed by Ohio with 925 and Florida reported 907 vacant homes.

The analytic firm warned “the foreclosure scenario stands at a precipice”, with the number of zombie properties “likely to increase over the coming year. That’s because lenders can resume taking back properties from homeowners who fell far behind on loan payments during the pandemic, following the recent end of a 15-month foreclosure moratorium that affected most mortgage payers.”

Chief product officer of ATTOM, Todd Teta, said: “Zombie foreclosures are in a holding pattern this quarter – at least for now. They’re still totally off the radar screen in most parts of the country, with none in most neighborhoods. But that’s probably going to change soon because lenders can now return to court and take back properties from owners who can’t keep up on their mortgage payments. Foreclosure activity is already on the upswing. So, depending on how fast cases wind through the courts, it’s probably just a matter of time before zombie properties begin creeping back into the mix.”

The number of properties that have been abandoned by homeowners decreased slightly from 3.5% in the third quarter of 2021 to 3.3% in the fourth quarter.

The report stated, “Just one of every 13,292 homes in the fourth quarter are vacant and in foreclosure, down from one in 13,060 in the third quarter of 2021 and one in 13,074 in the fourth quarter of last year.”

According to ATOM, much of that will depend on how many delinquent homeowners will be able to work out repayment plans.

YouTubers Austin and Catherine McBroom’s Home Foreclosed

YouTubers Austin and Catherine McBroom Woodland Hills home was recently foreclosed upon by their lender, 5 Arch Funding Corporation, for failing to make payments on their $8.7 million mortgage.

The celebrity influencers were served with a notice of default in May 2021, and the home was sold on October 19 at a foreclosure auction.

The McBrooms falsely denied rumors on social media that they could be evicted from their house. “Ain’t nobody getting evicted, ain’t nobody moving,” Austin stated on Instagram in July.

The couple had used the home to showcase their lavish lifestyle on their ACE Family YouTube channel with over 19 million subscribers but have been embattled with lawsuits and rumors that they are in dire financial straits due to bad business decisions.

Austin and Catherine McBroom purchased the 12,000-square-foot home one year after it was built in 2019 for $10.1 million in 2019.

They remain in the foreclosed property with their three children until their lender files an eviction lawsuit, which is the next step in the legal process to have them leave the home.

The couple also has many other legal problems and is involved in several lawsuits. Austin McBroom was sued for $100 million by LiveXLive for allegedly failing to meet contract obligation related to a social media star boxing event, “Social Gloves: Battle of the Platforms.”

Investors were allegedly promised they would make $200 to $500 million in profit as a return on their investment, but instead, it was a failure, and they incurred substantial losses.

Catherine McBroom is being sued by TBL Cosmetics, a “premium skincare line” with ethically sourced ingredients. According to the lawsuit papers filed in court, Catherine was supposed to promote the company on social media, but TBL said she “conspired with her family, friends, and other under-utilized members or idle of her entourage to stage a takeover of 1212 Gateway’s management,” or effectively enact a “coup” against TBL.

Rich Dad Poor Dad Author Robert Kiyosaki Predicts Major Housing Crash

The Rich Dad Poor Dad author, Robert Kiyosaki has been in the news lately for saying that a major crash is coming to the real estate market and the stock market due to the debt crisis of China’s largest property developer, the Evergrande Group.

The Chinese developer owes $300 billion in outstanding loans, and their property portfolio looks overvalued to him.

In a Tweet last week, he told his 1.7 million Twitter followers that he expects a massive crash in the near future.

“HOUSE of CARDs coming down. Real estate crashing with the stock market,” Kiyosaki tweeted. “China’s Evergrande Group cannot pay. Valuation of properties fake. Will real estate crash spread to US? Yes,” he said.

“Stocks dangerous. Careful,” he warned in the tweet.

“Giant stock market crash coming October. Why? Treasury and Fed short of T-bills,” said Kiyosaki.

“Gold, silver, Bitcoin may crash too. Cash best for picking up bargains after crash,” he added.

He also told Kitco News last week that this “is going to be the biggest crash in world history.

Kiyosaki has been sounding the alarm for several months now like in June when he tweeted;

“Biggest bubble in world history getting bigger. Biggest crash in the world history coming.”

What is a Deed in Lieu of Foreclosure?

If you are unable to pay your mortgage, refinance, or get a loan modification, you may be able to qualify for what is called a “deed in lieu of foreclosure.”

A deed in lieu of foreclosure (DIL) is a legal procedure in which you willingly transfer your property’s title (deed) back to the lender.

In return, the lender agrees to release you from all legal obligations to the mortgage contract. This will be done to satisfy a defaulted loan and to prevent foreclosure proceedings.

A DIL is often better than just walking away from your home and letting it fall into foreclosure because it has a less detrimental effect on your credit score.

You can also negotiate with your lender so that they will not legally come after you to collect any money you may owe on the mortgage in back payments and fees after the lender has sold the property.

On the other hand, a deed in lieu is also beneficial for the lender because it avoids the costs and effort required for a foreclosure sale.

What are the elegibility requirements?

You may qualify for a DIL but let me warn you that this is not an easy process. Before your mortgage servicer even considers this option, you must meet specific elegilibility requirements;

  • You cannot afford your current monthly mortgage payments
  • The property must be your primary residence, not an abandoned or investment property.
  • You’re experiencing financial hardship, such as losing your job, reduced income, significant illness, divorce, or another difficulty.
  • You’re unable to obtain a loan modification and have exhausted all other loan workout options and financial resources available to you.
  • You tried to sell your property with a licensed real estate brokerage at fair market value for at least 90-120 days but were unsuccessful
  • You don’t wish to stay in your house due to other circumstances, such as a job relocation
  • You must have actively explored and exhausted all other options and financial resources available to you.

How do I get a deed in lieu of foreclosure from my lender?

In general, a deed is a right granted by a legal contract based upon mutual agreement; therefore, a deed-in-lieu must be based upon voluntary agreement in good faith.

To proceed with a deed in lieu, both parties must agree to and sign both an Agreement in Lieu of Foreclosure, which outlines the terms of the deed and the deed itself, which transfers legal ownership of the property.

For the agreement to be reached, the property’s appraised market value must be less than the original agreement’s outstanding debt, and the property must not be subject to any 3rd party creditor claims or liens.

A third party escrow service then executes the legal agreement, which will release both you and the lender from the original contract.

Once the agreements are reached and there a clear title, the lender then classifies the original loan as paid and issues a waiver to a deficiency judgment. This will typically go into effect if the property’s sale results in less than what is owed on the debt.

Please be advised that many lenders may not be amenable to a deed in lieu because they believe they will have a better title after a standard foreclosure sale. This is because a trustee’s deed of sale effectively erases any judgment liens and second and third mortgages after a foreclosure. Thus, it would depend on the borrower’s lender whether they will accept a deed in lieu or not.

How will it affect my credit?

A deed in lieu of foreclosure will cause a negative impact on your credit score. According to a 2011 FICO study, if you begin with a score of approximately 720, it will drop 105 to 125 points off your score; but if you start with a score of 680, you’ll lose 50 to 70 points. But please be aware that your score will drop a lot more if there is any deficiency balance owed.

Here are the charts from FICO;

With that said, you can expect to lose from 50 points minimum to 250 or more points depending on your credit score when you started and if you own a deficiency balance or not. The credit report will also reflect the deed in lieu for seven years, although a borrower can still rebuild their credit.

However, the ill effect on the credit score gradually lessens in time, and you may request its removal from a credit report towards the closing of year seven.

Tax Consequences 

Please be aware that if you can complete a deed in lieu of foreclosure, you will still be liable for taxation on the cancellation of indebtedness or COD income. The tax results would be based on whether the loan is classified as a non-recourse loan or a recourse loan.

You can find out if your loan is recourse or non-recourse in your original loan documents that were initially signed by the lender and borrower.

A, if the basic rule of thumb is that if a lender’s only option is to take possession of the property when the borrower defaults, it is a non-recourse loan. However, if the lender can go after the borrower to collect any shortfall when the property is sold, then it is a recourse loan.

A lender will submit a Form 1099-C to the IRS in the case of a shortfall. This is known as the borrower’s COD income.

In the case of a non-recourse loan, the IRS will consider the deed’s tax consequences in lieu as if the borrower had sold the property. If the property’s current market value is less than what is owed, the borrower will have a personal loss, but this is not tax-deductible.

On the other hand, if the property’s value is greater than the outstanding loan, the borrower will have a gain that may not be taxed if he is able to comply with IRS Sec. 121 two-year residency requirement. In the case of a recourse loan, the situation is similar to the non-recourse loan except that the borrower will also be taxed for COD income if the property’s value is less than what is owed. Ordinary income rates will be applied for the COD income.

According to the IRS, the amount of the benefit must be reported as income received under IRC §61(a)(11)3, unless the taxpayer qualifies for an income exclusion under IRC §108.

When can I buy another home?

Most lenders will not offer a loan to a borrower who has filed a deed in lieu for a minimum of two to three years since it will significantly bring down your credit score. The chances of loan approval increase after a few years, especially if a borrower attempts to rebuild their credit score.

But please be aware that some alternative lenders may extend a mortgage to borrowers who maintain good credit score (680 and above) with large down payments in the 25-30% range.

Generally speaking, you will have to wait after a few years as passed and new credit has been established to purchase a home once more.

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What documentation is needed for a mortgage refinance?

The documents required for a mortgage refinance will vary depending on the lender you use. If you stick with your current lender, chances are they still have a lot of your information already on file. However, much of this information will change over the years and will most likely be updated.

It also depends on the lender you apply with and the type of loan you apply for, and understand that with the information you provide, you must also provide all necessary documents to prove that income.

The basic items you will need to refinance are your latest two years of tax returns, six months of bank statements, and pay stubs or proof of income.

Some lenders might require pay stubs over another form of income. With bank statements for various bank accounts, you’ll usually have to obtain the most recent 2-3 months of statements, including the account names, addresses, account numbers, and balances.

Other lenders may even request your diplomas and transcripts and f you are receiving a gift from someone, you must bring a copy of the gift letter.

You will need to know your existing mortgage loan balance for payoffs and payments verification. You can call your lender for an updated statement.

Here is a list of the general items and documents you will need to refinance your mortgage:

– Photo ID and social security number

– Proof of income (copy of paycheck over last 30 days or employer contact info for last 1-2 years). Self-employed borrowers must provide year-to-date profit and loss statements or balance sheets. Pension plans, social security, alimony, and rental property statements also qualify for legitimate income sources

– Tax forms (W-2s and 1099s), are generally required for each loan applicant. Self-employed borrowers must have signed tax returns from the previous 2 years

– Financial records of debts such as student loans, car notes, child support, alimony, insurance, and tax bills

– A homeowner’s insurance policy

– Bank statements for checking accounts, savings accounts, credit union accounts, mutual fund accounts, retirement plans statements, 401K forms, and any other assets

– Statements for mutual funds, bonds, and other securities

– Copy of the deed to your property

– Copy of title insurance

– Loan-to-value appraisal: Most lenders will accept informal appraisals and estimates of relevant figures, but others will require a formal analysis.

– A list of your addresses of residences for the last two years.

– Copy of purchase agreement (If a new construction loan, you may need to provide copies of plans and specifications)

– If you are a resident alien, evidence of permanent residency issued by INS (Green Card)

How to write a hardship letter with examples

To qualify for a loan workout such as a loan modification, short sale, or forbearance, you as the property owner must write a hardship letter to your lender to prove that you are facing financial difficulties. The purpose is to explain the details of your financial situation and the reasons why you can no longer afford your mortgage payments and detail the steps you are taking to correct your problem.

Having a well-written hardship letter is one of the most critical steps in getting your request approved. In this article, we will explain how to write one and give you a couple of examples that you can use as a template for your own letter.

When writing your letter, it’s essential to understand what your lender wants to hear. They want you to write out a solution that makes sense and will help you afford your payments and stay in your home.

You can let them know what you feel you can afford each monthly payment or even what modification programs you think you may qualify for. This will make your lender aware that you are ready to take on a new affordable loan and continue paying your monthly payments.

It would help if you remembered to be as honest as possible because your lender will also require all of your financial information and run a credit report. If your lender finds that you have lied about your financial situation, your request will automatically be denied.

Also, make sure that your letter is not too long and straight to the point. You do not want to write a 3-4 page letter because most reps will not take the time to read the entire letter. Remember that mortgage servicers and lenders are entirely overwhelmed with requests because of the current economic crisis.

EXAMPLE HARDSHIP LETTERS

Eligible hardships include job loss, income reduction, illness, relocation, divorce, medical bills, death of a spouse, etc. In your letter, you will also want to note when each event occurred and include any documentation that you can. For example, if you recently lost your job, you will want to show that you have a new job or are actively searching for employment.

Here are some examples that lenders will consider:

Divorce
Reduced Income
Loss of Job
Illness
Death in family
Military Duty
Incarceration
High Medical bills
Significant damage to property(such as vandalism or natural disaster)

Now that you know what hardships your lender is looking for, you are now ready to begin writing your own. But keep in mind that this is only one factor of the loan workout process. Your lender will not automatically assist you just by reading your letter, and there will be many other factors involved as well.

Here are two example letters were written by real homeowners and members of the LoanSafe forum who had received a loan modification from their efforts.

Name: (Your Name)

Address: (Your Address)

Lender Name: (Your Lender)

Loan #: (your Loan #)

To Whom It May Concern:

We are writing this letter to explain the extreme financial hardship it will be for our family when our loan adjusts from a 7.75% interest rate to a 10.75% interest rate in August 2020. This interest rate adjustment will cause our payment to dramatically increase in the amount of $1695 per month on top of our current payment of $4234.10, increasing the payment to $5929.10 per month. Our current income does not support an increase of this magnitude. As a matter of fact, a monthly increase of this amount will ruin us financially, and within a few short months of this adjustment, we will surely fall into foreclosure as we will not be able to afford the monthly payment.

We conducted a counseling session with a woman named Deborah Winston (888-669-2227 x742) from 995-HOPE and submitted a monthly budget where we only have a surplus of $158 per month after we pay all of our monthly obligations. According to the counselor, we are currently utilizing 54% of our monthly income for housing costs which is way above the national average.

My husband, Kevin, is the bread winner in the family and his income varies from paycheck to paycheck because of overtime, holiday pay (2 times per year), and uniform allowance. So, sometimes he makes his base pay of approximately $7839 per month and other times he makes more than that depending on the overtime he works each month. However, overtime is never guaranteed, so we cannot depend on the overtime in order to fulfill our monthly obligations.

I am currently receiving Social Security Disability in the amount of $1435 and am also the payee for our son, Christian, in the amount of $717 per month. Also, I receive a check from Calpers for my disability retirement in the amount of $829.74.

We would appreciate the opportunity to work out a loan modification where our interest rate will be frozen at the 7.75% interest rate for the DURATION of the loan, if the rate is just frozen for 2 to 5 years we will find ourselves in the same situation in a few short years from now.

Please take the time to review the information we submitted and consider our request. It is very important to us that we keep our account in good standing and preserve our credit rating as well as protect our main asset….our home.

Thank you in advance for your time and consideration in this matter. We are looking forward to working with Option One to resolve this situation. If you have any questions please contact us at xxx-xxx-xxxx.

Sincerely and Respectfully,

Borrower’s Signature
Date
Co-Borrower’s Signature
Date

————————————————————————————————————————————-

Sample Hardship Letter #2

Name: (Your Name)

Address: (Your Address)

Lender Name: (Your Lender)

Loan #: (your Loan #)

To Whom It May Concern:

I am writing this letter to explain my unfortunate set of circumstances that have caused us to become delinquent on our mortgage. We have done everything in our power to make ends meet, but unfortunately, we have fallen short and would like you to consider working with us to modify our loan. Our number one goal is to keep our home, and we would really appreciate the opportunity to do that.

There are several reasons that caused us to fall behind on our payments:

a) On July 6, 2019 my husband, was laid off from his job with IBM. He no longer receives Unemployment Compensation from the State of Florida as of January 2020.

b) Since July 2019, we went down to one income and were unable to keep up with the higher mortgage payments due to our escrow account from the beginning of 2019 being short on funds due to raised taxes and insurance coverage in Flagler County, FL.

c) In November 2020, we had to fly out of State for a family emergency which did not enable us to make that months payment.

d) Since we no longer have medical coverage, I had to pay for my visits to the doctor on several occasions due to prolonged and excessive menstruation. The Doctor Office would not see me unless I had full payment at each visit.

e) Since there is only one income in our household, but my husband helps me with my business while still looking for a comparable job, I must travel a lot. Gas prices have become extremely high, if I do not travel to do presentations and meet with clients, I cannot assure growth.

It feels like catch up for those two months we fell behind on is almost impossible, I assure you we have every desire of retaining our home and repaying what is owed to Bank of America. But at this time we have exhausted all of our income and resources, so we are turning to you for help.

Our situation is getting better because, like I stated above, my husband and I have combined forces, and we are working my business together in order to ensure stability and growth in our income, and we feel that a loan modification would benefit us both. We would appreciate if you can work with us to lower or delinquent amount owed and/or our mortgage payment so we can keep our home and also afford to make amends with Bank of America.

We truly are looking forward to you working with us, and we are anxious to get this settled so we all can move on.

Sincerely and Respectfully,

PLEASE JOIN THE LOANSAFE FORUM!

You can find more examples of various hardship letters right here written by different homeowners in the LoanSafe forum. =

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The Communications Decency Act or CDA provides that when a user writes and posts material on a website such as LoanSafe.org, the site itself cannot, in most cases, be held legally responsible for the posted material. Specifically, 47 U.S.C. § 230(c)(1) states, No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider. Because the reports on Ripoff Report are authored by users of the site, we cannot be legally regarded as the “publisher or speaker of the reports contained here, and hence we are not liable for reports even if they contain false or inaccurate information.

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