(My guest blogger for this issue is Judy Larkins, Executive Director for Colorado Mediators & Arbitrators LLC)

Divorce is costly, both emotionally and financially.  Dividing joint obligations and marital assets, calculating child support, maintenance payments when warranted, his-and-her matching attorney fees…  If you are anticipating an empty pocketbook after the divorce is finalized, take heart! 

A financially savvy mediator may be tremendously helpful in providing sound guidance through an otherwise confusing process.   Mediation of all divorce agreements generally costs one to two thousand dollars, as opposed to each spouse hiring attorneys with initial retainers of five to ten thousand dollars each.

Mediation is a creative process that, when successful, culminates in workable agreements for a particular family’s situation, as opposed to what the letter of the law may dictate via a court order if the couple cannot agree.   

The mediation process may assist couples in identifying individual financial priorities: 

  • real estate (primary residence, second homes, and rental investments)
  • retirement funds
  • stock options
  • cars and recreational vehicles
  • collections, antiques, artwork, etc.

One spouse may value real estate ownership while the other spouse places greater significance on retirement funds.  A financially savvy mediator will assist the couple to evenly divide assets taking all factors into consideration.  This can be more involved than it appears on its face.  One common mistake is overlooking the tax ramifications in dividing assets by making dollar-for-dollar offsets rather than addressing the pre-tax versus non-taxable assets (retirement funds are usually pre-tax; equity gains for a primary residence are tax exempt up to $250,000 / $500,000 for certain joint returns) .*  For example, paying a marital settlement from a 401k withdrawal could cost a 10% penalty, tax on the withdrawal, and put the taxpayer in a higher taxable bracket for all income in the year that the withdrawal is made.  It may be more beneficial to use a Qualified Domestic Relations Order, or QDRO, where the assets are transferred “in kind” – from a pre-tax retirement account into the spouse’s own pre-tax retirement account.

Another decision-making challenge may be the family home; the housing market currently favors buyers.  The marital home is one of the largest investments a couple makes during a marriage.  Evaluating whether to keep the house until the market rebounds is an important consideration.   If it makes sense to keep the home, a financially savvy mediator will assist the couple in negotiating written agreements that address who will live in the home (a renter or one of the spouses), who gets the mortgage interest tax deduction, when a spouse has the right to demand the house be refinanced or placed on the market for sale, who will pay for the repairs along the way, how the equity will be divided when the house is eventually sold or refinanced, and other necessary agreements. 

When interviewing a mediator to assist in your divorce or post-divorce issues, ask questions to determine whether the mediator has expertise in the areas that are important to you.  An incomplete or bad agreement can be costly, and like all professions, there is a wide variance of financial and business experience between mediators.

*http://www.irs.gov/faqs/faq/0,,id=199598,00.html

Judy Larkins
Denver Divorce Services
4600 S Syracuse St. Suite 900
Denver CO 80237
Phone 303-864-9675
Email Hope@DenverDivorce.org
www.DenverDivorce.org

Judy Larkins has been in full-time practice since 2003.  A large part of her personal caseload has focused on divorce and family matters.  Judy specializes in high conflict cases and is very successful in bringing contentious matters to satisfactory conclusion.  She is a preferred provider for the  CLC Employee Assistance Program for domestic matters, and a panel arbitrator for FINRA (Financial Industry Regulatory Agency).  Judy is the Executive Director for Colorado Mediators & Arbitrators LLC dba CoMA.

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(My guest blogger for this issue is Chad Rogers, of CMR Consulting.)

Anyone faced with the threat of foreclosure may decide to look into a short sale as an alternative. As a credit coach I am often asked “How does this affect my credit?” and the answer is, it will hurt either way. Chances are that someone that who is facing the threat of foreclosure has already started damaging their credit score by being in default, that is, behind on their payments. People have reported FICO score drops from 50 – 130 points from a short sale and 200 – 400 points after a foreclosure, but rarely, if ever, are there isolated changes in a credit report that make any point difference traceable. Others have reported no significant difference in credit score drops between the two. Either way, both are unhealthy behaviors for a credit score, no matter how you look at it.

Credit score aside, a short sale should be looked into for other reasons. The primary reason a short sale is better than a foreclosure is the waiting period before you will qualify for another home loan. You should always check with a reputable mortgage professional for their unique lender programs, but typically, you can get another FHA home loan in three years. If you are in arrears and a short sale is still granted by your lender, you may qualify to buy another home with a Fannie Mae backed mortgage within two years, regardless of whether the home is your primary residence. With a foreclosure, you may be eligible to buy another home in five years if the home was your primary residence, but the wait time can be as much as seven years. An investor typically must wait the full seven years with a Fannie Mae insured loan.

A loan application does not ask if you have had a short sale, but you are required to answer the question of whether you have ever had a property foreclosed upon in the last seven years. Even if you are fortunate enough to get it removed from your credit report, you still must disclose this information or you risk committing mortgage fraud, which is subject to investigation by the FBI.

Be aware that the homeowner may still owe the difference between the mortgage balance and what the discounted sale price was, resulting in a “deficiency judgment.” If granted, this judgment will affect a credit report as much as any other judgment. To avoid this, in negotiations, the bank needs to accept the payment in full without pursuit of any deficiency judgments. However, the homeowner would then need to declare that difference between the balance owed and the short sale by means of a 1099 tax form. A lender cannot do both! Another negotiating point can be how the bank will report the short sale to the credit bureaus, so use that to your advantage if possible.

To summarize, both short sales and foreclosures are harmful to your credit. However, with time (generally less time with a short sale), honest reporting, and informed negotiations with the bank handling the sale, the average person will be able to move on to a brighter future after the experience.

*Always obtain legal and tax advice before making a decision between a short sale or foreclosure.

Chad Rogers, CMR ConsultingChad M. Rogers
Credit Coach & Professional Networker
CMR Consulting
crogers@cmrconsulting.biz
http://www.cmoreresults.com
Phone: 303-725-7385
FAX: 1-888-422-1804

Chad M. Rogers, a loving husband, father, and real estate professional for over 8 years, decided to pursue a career path in credit coaching because he genuinely loves helping people obtain the goal of home ownership. He is passionate about helping along the success of others, hence his favorite quote by Alexandre Dumas – “Nothing Succeeds Like Success.” After years of success as a top-performing title representative, Chad opened CMR Consulting, which focused on bringing products and services to the real estate community. He soon recognized the need for a trustworthy credit coaching partner and therefore expanded CMR Consulting to include these much needed credit coaching services. CMR Consulting is now the premier coaching company dedicated to educating consumers on credit and debt resolution. The goal is to only work with the very best real estate professionals helping fill the void in service to the public. CMR Consulting continues to help companies, families, and individuals improve their bottom line and services.

(My guest blogger for this issue is Aaron Nieman, owner of Aaron R Nieman Insurance Agency.)

You may have heard how lenders are now requiring that borrowers on townhomes and condos carry an HO6 policy. This is what some people call a Contents Insurance policy. An important question to ask is why do you think this is happening?

Let’s use an example with another insurance coverage that most people have. Imagine getting into a car accident and showing up at the repair shop to find that the insurance company had your vehicle completely repaired, except for the interior. You look inside the car and find no seats, steering wheel, dashboard… etc. Now they need additional money from you to buy and install these items. What would you do?

This is the same situation that banks are in should something happen to the condo or townhome they own, as they are the owner until you pay them off. If there is a fire, flood, or any insurable event, most master policies for homeowner’s associations do not cover the interior. This means that the carpet, cabinets, drywall, fixtures, and doors, to name just a few items in that condo, are not getting repaired. So, banks are now requiring that you carry a policy to cover this important asset.

In my opinion, this is something that was long overdue. This has always been a gap in coverage that leads to a lot of problems. In most cases, an HO6 policy can be as inexpensive as $12 a month, depending on how much coverage you need. However, with most insurance companies, adding this coverage will qualify you for a home auto discount on your auto policy, which will lower your auto insurance payment, bringing your net cost down.

While this may give you a brief overview of this issue, there is more to consider when looking at an HO6 policy. Some more important things to ask yourself and the insurance professional that you work with are:

— What is the amount that my interior needs to covered at?
— How much would I need to replace all of belongings?
— How does the deductible I choose for this policy effect the rate?
— Will this policy cover injury on property due to negligence (i.e. liability coverage)?
— What amount of liability coverage is appropriate for me?

Feel free to contact me anytime should you have any questions. Don’t just get a policy, understand why need it and make sure the coverage is appropriate for your situation.

Aaron_Nieman

Aaron_Nieman

Aaron R Nieman
Aaron R Nieman Insurance Agency
9785 South Maroon Circle Suite 312
Englewood, CO 80112
Office   303-645-8036
Cell      720-422-8190
Fax      303-645-8039

[Aaron Nieman is the owner and operator of the multi-award-winning Aaron R. Nieman Agency of American Family Insurance. The agency has been around for more than five years. J.D. Power & Associates awarded Aaron with the prestigious Award of Excellence for being in the top 20% for agent customer service in the field of insurance. Additionally, the agency has won multiple company awards. Aaron and his agency’s promise to his clients is that you will not receive better service with the right amount of coverage for a lower amount of premium.]

(My guest blogger for this issue is Jose Luna, managing broker of HomTur Realty.)

Should Getting Out Of Debt Be Your Number 1 Priority?

I was surfing the internet researching articles about real estate. The articles I came across talked about a possible second wave of foreclosures that are looming. Lots of details and statistics about delinquency rates and the number of people in option ARM loans that are causing themselves harm by paying the minimum amount on their mortgages.

I recommend that getting out of debt be your number one priority for two reasons. First, you will find yourself in a crunch you didn’t predict and become a part of a statistic , and second, you can take advantage of some of the tremendous opportunities that will be available. If you believe that the best opportunities appear when there is chaos, then prepare now. Will you be ready the next time opportunities present themselves? Or will you be saying once again, “Darn, I don’t have the money to jump on this opportunity.”

Here’s what one article reads…

“All signs point to a new flood of real estate foreclosures that no amount of government sandbagging will prevent. Sources of trouble:

— A record 7.58 percent of U.S. homeowners with mortgages were at least 30 days late on payments, says Equifax. Delinquencies are not only rising from month to month, but rising at a faster pace. More than 41 percent of subprime mortgages are delinquent.
— About 1.2 million loans out there are in limbo: The borrower is in serious default yet the bank has not started the foreclosure process. Another 1.5 million are in early stages of the foreclosure process but the bank hasn’t yet taken possession of the home. Counting these and loans that are highly likely to end up in default, one analyst estimates three million to four million foreclosed homes will come on the market over the next few years.

To read more, click on the below link:
http://reason.com/blog/2009/09/23/corpse-of-a-thousand-houses

Now let’s take a look at some data that reflects the consumer debt in America:

— Here are some interesting statistics from an article titled, “Don’t Get Clobbered By Credit Cards”, by author and journalist, Gary Weiss:

— The average American household’s credit card debt in 1990 was $2,966. In 2007 it was $9,840.

— 60% of U.S. consumers always (or usually) pay off their bills in full each month. The 40% who don’t pay off their bills each month are called “revolvers”. In 2007, revolvers paid $18.1 billion in penalty fees to credit card companies. This figure is up more than 50% since 2003 and accounts for approximately half of the industry’s $40.7 billion in profits. For the full article, please click here. 
(SOURCE: http://www.parade.com and garyweiss.blogspot.com)

 
So, credit card debt has more than tripled in less than 20 years and “revolvers” paid $18.1 billion in penalty fees! That is astounding!

There are many resources available to help get you reduce and eliminate your debt. Make sure you do your homework because some may be causing damage to your credit along the way.

Here are some that I heard are worth looking into:
www.cashflowobjectives.com
www.mortgageaccelerator101.com

Do you know any others that you would recommend?

Do you have any questions?

Jose Luna
HomTur Video Realty
1720 Wazee St Unit 1-B
Denver, CO.  80202
(303) 815-1515
www.JoeMoonSellsColorado.com 

[Jose Luna is the managing broker of HomTur Realty, and manager of ColoradoNewHomes.com. Jose is also a member of the Denver Board of Realtors. He specializes in residential and investment properties. He is an investor, landlord, and has managed his properties for over nine years. Jose is a University of Colorado alumnus where he earned his Mechanical Engineering Degree. Jose is committed to living his by his life’s mission statement: “To use my passion and enthusiasm to inspire and empower others to create powerful lives.”]