Delete Collection Accounts

Getting a home mortgage loan or refinancing an existing loan calls for a clean credit report. Banks simply will not give a mortgage to someone with collection accounts on their credit report. And, sometimes these collection accounts can be a big shock to the prospective home buyer. Who knew the account was even there?

In California, the statute of limitations for an unpaid collection account is four [4] years. It seems, though, that  creditors have come up with some creative ways to keep collection accounts going. Sometimes, the debt is sold to another credit company, thus re-activating it or sometimes it is simply transferred to another division of the same company with a different name. Both gambits are done with the hope of resurrecting these debts.

This can have a major impact on the consumer’s credit score, sometimes as much as 30 points. This is, of course, of major concern when applying for a home loan. All collections must be paid or the bank will not grant the mortgage. If collection agencies realize that a debtor is trying for a home loan, then they will definitely play hardball and expect to get the entire amount of the debt paid with additional fees added.

So, what to do?

Thanks to a recent court case, the 9th Circuit held that the Federal Debt Collection Practices Act requires substantial activity by the debt collector before a debt can be considered valid. Specifically, for a debt to be valid the collection agency must send a notice to the debtor within 5 days.This is true if it’s the first collection agency, one of many or a subsequent one.

Of course, people often don’t even realize they have collections because collection agencies rarely send out these “validation notices.” Now, the collection agency must inform the debtor of the total amount of the debt and to whom it is owed and this must be in writing within 5 days. Furthermore, the agency must inform the consumers they have 30 days in which to dispute the debt.

When the consumer disputes the debt or any part of it, the agency must supply a copy of the judgment or verification of the debt. Previously, knowing the consumer wanted to buy a house, the agencies would simply insist on payment until either the home buyer gave up the quest for a house or paid the loan.

Now, there is some protection for the home buyer with a collection account. If you discover a collection account on your credit report, it is only valid if you have received notice of it from the collection agency in writing and you may still dispute the account. If the collection agency refuses to back down, yes, you will have to hire an attorney, but a simple letter may do the trick.

The Magic of Income Property Math



How Income Math Is Magic

Owning income property is the key to magic money. Don’t believe me?

Think of it this way. Let’s take a small income property, say a fourplex. A quick way to figure the value of a fourplex or a duplex or triplex is to take the NOI [net operating income] and multiply by 10 or 12, the going rate here in Southern California.

So for example, a fourplex has four equal units and each is rented for $1000. Monthly income is $4000 and yearly income is therefore $48,000. The owner pays water and garbage collection for a total of $300 per month or $3600 per year. The taxes and insurance amount to $5000 per year and repairs about $2000. Subtracting these expenses from the income of $48,000 gives us the net operating income of $37,400. Multiply that by 10 and the value of the property is $370,400.

Rents have been going up all over the country and especially here in Los Angeles, so it’s time to raise the rent to current market rates.  Each unit will now rent for $1100. Yearly income becomes $52,800 and, assuming expenses stay the same, the NOI  $42,200. Multiply that by 10 and the value of the property is now $420,200. Magic. Pure magic.

For every extra dollar in increased rent, the value of the property goes up $10. This is truly magic math. Almost all the gains are passive. This kind of math is much more favorable than paycheck math, small business math or stock investing math.

More Magic

In the above example, the owners have not only increased the value of their property, but are also receiving a monthly income of $3500. If the property also has a mortgage, not included in the NOI, the tenants are paying that mortgage, not the owner. 

Many owners of income property fail to keep their rents at market rates. Now you can see why this is potentially catastrophic in the event that they wish to sell the property, take cash out of the property or refinance. Unless the rents are kept at market, the value of the property does not increase.

Reverse Mortgage Fraud Revealed

senior citizen

What Is A Reverse Mortgage?

Many senior homeowners with equity in their residences have elected to take out reverse mortgages. These mortgages allow the homeowners to borrow a substantial portion of  their equity  and at the same time to continue living in the home while making no payments to the lender. The homeowner does continue paying taxes, insurance and other home-related fees. The purpose is to help seniors continue living in their homes.

So far, so good, but these mortgages do come with a few qualifications just like any mortgage. First, the homeowner must be 62 or older and have substantial equity in the home or own it free and clear. Second, the homeowner must continue living in the home. If the homeowner moves or sells the home, the reverse mortgage must be paid off.


Reverse Mortgage Fraud

It’s important to emphasize that the homeowner must continue to live in the home. In fact, that is the whole purpose of reverse mortgages and why lenders under guidelines from HUD and FHA are willing to offer them. Every year recipients of reverse mortgages must sign a Certificate of Occupancy attesting that they continue to reside in the property.

But, recently, a routine trial audit sent shock waves  through the HUD Inspector General’s Office for HUD’s Reverse Mortgage Program [HECM]. The audit found that in the small sample of 159 recipients an astounding 86% of borrowers could not meet the residency requirements.

According to audit’s findings, the ruse was discovered because these homeowners  were also receiving rental assistance under a federal voucher program FOR A DIFFERENT ADDRESS AT THE SAME TIME.

Further, of the 136 violators, 46 borrowers outright certified the property as their principal residence. In other words, they lied and filed a false statement to HUD. Initially, 80 borrowers refused to provide occupancy certifications and were later found NOT to be residing in the home. Of the 159, only 10 admitted they were not residing in their homes.

As a result of this audit, chagrined HUD officials with begin conducting residency re-certifications of all homes secured by reverse mortgages.

Penalties For Reverse Mortgage Fraud

For homeowners who have violated the residency requirements of HECM guidelines, the lender may require:

1)  Immediate payment in full of the loans all outstanding principal balance and accrued interest.

2)  Back payments going back to the onset of the fraud.

3)  Failure to comply can lead to criminal penalties for the homeowner and any co-conspirators

It may seem hard to imagine hordes of senior citizens conspiring to defraud banks and the government departments which guarantee the loans, but that is exactly what has occurred.

So far the process has remained in the realm of civil litigation, but if the fraud is as widespread as the initial test group suggests,  look for HUD to begin to proceed with high profile criminal prosecutions as a way of cleaning up this mess.

Foreign Buyers in California


foreign money

International Buyers of US Residential Real Estate

Every year since 2007 the National Association of Realtors [NAR] has released a survey of foreign buyers of U.S. residential real estate. This year’s survey covers March 2013 to March 2014. Foreign buyers are defined as either those non-residents or those who have immigrated within the last two years. 
For this period nationwide, the total sales volume to international clients was $92.2 billion, a 35% increase from the previous period’s level of $68.2 billion. The dollar level of international sales was roughly 7% of the total U.S. homes sales of $ 1.2 trillion for the same period . Compared to the previous year, sales to foreigners increased both in numbers of transactions and in average price. 

Where Do International Buyers Come From?

Foreign buyers come from all over the world, but the top countries of origin are Canada, China, Mexico, India, and the UK which together represent 54% of all sales to foreigners. Canadians bought the most in terms of number of sales, but Chinese bought more in terms of dollar volume. As Chinese tend to purchase in a few pricey states, California, Washington and New York, so their average home price is higher than most.  Canadians purchased in lower-priced states of Arizona and Florida.

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Foreign Buyers In California

By far the greatest number of foreign buyers in California come from China which includes PRC, Taiwan and Hong Kong. California and Washington are destination states partly because of the proximity to Asia.

foreigners in ca r e

 AR’s newly released 2014 International Home Buyers Survey,showed despite a slowing in the California housing market in 2014, international home-buying activity continued its momentum. A large percentage were from China and their purchases remained very cash-strong. 

Since obtaining mortgage financing is difficult for non-residents, though not impossible by any means, 66% of international buyers paid all cash , down slightly from 69% in 2013.  Those who purchased homes below $500,000 had the greatest tendency to pay all cash (66%), compared to those who purchased homes costing $500,000 to $1 million (57%). 

Overseas buyers tend to be more affluent than the average California buyer. Most have already established homes in their own countries and are seeking resort/rental properties abroad. Some are looking for a more secure place to put their money and the US, and especially California, figure high on the list of desirable locations.Many overseas buyers find the stability of their home countries questionable and seek to protect their assets abroad and specifically in the US. This is particularly true of affluent mainland Chinese as the home economy is now constricting. 

Since non-resident visas are for no more than six months, many international buyers plan to rent their properties for at least half the year. Rentability and profitability are important considerations for such buyers. 

Overseas buyers purchased more expensive homes at a median price of $490,000, compared to 2014’s single-family median home price of $447,000. Those who purchased homes below $500,000 had the highest percentage of investment purchases (40%), compared to those who purchased homes between $500,000 and $1 million (17% for investment) or those who purchased homes over $1 million (34% for investment reasons).

Nearly half of overseas buyers purchased a home in the suburbs. The percentage who purchased in a city center or urban area declined from38% in 2013 to 33% in 2014, while purchases in small towns/rural areas increased from 9% to 10% over the same period. About 67% of international buyers  bought single-family detached homes, and 23% purchased a condominium or townhomes.

IBs in 2014 intend to keep their property for a median of 7 years, compared to 5 years in 2013.

The percentage of first-time IBs in the U.S. declined from 59% in 2013 to 54% in 2014. 75% of overseas buyers said they purchased in the U.S., primarily to be closer to family/friends, for investment and tax reasons, or because of a child attending college in the U.S.



Help For California Home Buyers


1st time home buyerThink you and your family don’t make enough to buy a home? Worried about your low credit score or lack of down payment? If these issues have prevented you from even beginning to look for a new home, let me assure you that help is on the way.

Most home buyers are not aware that many programs exist to help them  purchase a home. Often, the lenders selected by the buyers or their agents prefer to avoid the extra paperwork and so do  not inform their clients about these programs. Financial aid for home buyers in California comes from cities, counties and the state itself. 

The assistance comes in many forms.Some allow zero down payment. Some are outright grants of money. Some come as “silent seconds” which are only repaid when the home is sold. Some eliminate mortgage insurance. Some are directed towards buyers with low credit scores. Future home buyers in pricey California would do well to find a lender who is conversant with these programs and start the process.



Here is a sampling of assistance available to first-time home buyers. Note that a “first-time” home buyer is one who has not owned a home in the last three years. 

  • California Housing Finance Authority [CalHFA] requires at least a 640 FICO score, well below average, and when combined with 3% CHDAP, 3% CalPLUS and $6500 Cal Extra allows for ZERO down payment. On a $300,000 property, for instance, $22,000 is available through these programs.
  • Extra Credit Teacher’s Program [ECTP] allows teachers, administrators, employees and staff of high priority schools [ranks 1-5] a deferred loan of up to $15,000 in high-cost areas and $7500 in low-cost areas. If the recipient lives in the house for three years, the loan is forgiven.
  • Southern California Home Finance Authority [SCHFA] requires at least a 640 FICO score and offers a grant, not a loan, of up to 4% of the purchase price to help with the down payment. This program applies to LA and Orange Counties only.
  • CHF Platinum, again requiring 640 FICO,  is a 3-5% down payment assistance grant with a slightly higher interest rate.
  • Mortgage Credit Certificate [MCC] is a 20% tax credit through CalHFA and amounts to average savings of $200/month through the life of the loan and helps borrowers qualify.
  • County of Orange Mortgage Assistance Program [MAP] provides up to $40,000 down payment assistance in 17 Orange County cities. The amount becomes a lien which must be paid back when the property is sold.

Most of these programs are for “low-income” individuals and families, but in Southern California that can mean up to $120,000 or higher family income. Each program is different and attempts to answer different borrower needs.

These are just SOME of the mortgage assistance programs available. Many cities in Southern California also offer some type of aid. It costs nothing to ask and may make the difference between buying and renting.

For further help either with home buying or selecting a lender, feel free to call me, Diane Butler, at 626-641-0346 or email me at