Contact Us
Mental Health
Financial advice
Youth Matters
Techno Corner
  Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection

Francis Vayalumkal

Foreclosure is a fairly well-understood process, but as "short sale" signs sprout like weeds, you may wonder what it's all about. When a lender agrees to accept a mortgage payoff amount less than what is owed to facilitate a sale of the property by a financially distressed owner, it's called a short sale. The lender forgives the remaining balance of the loan.

Win or lose

Short sales are a mixed bag for the buyer, the seller and the lender.

If you're a seller, a short sale is likely to damage your credit - but not as badly as a foreclosure. You'll also walk away from your home without a penny from the deal, making it difficult for you to find another place to live.

The lender takes a financial loss but perhaps not as large a loss as it might if it forecloses on the property. Foreclosure is an expensive and time-consuming process for a lender. By agreeing to a short sale, the lender wraps up this little mess quickly, and perhaps with less of a loss than it would have incurred with a foreclosure.

Remember that after foreclosing, the lender owns the home and has to maintain it, insure it and pay taxes on it. So, instead of receiving payments each month, the lender is now forking out money every month. Plus, short sales help the lender look good on paper - the property never gets listed as an actual foreclosure, which helps the lender's numbers. They see it as the lesser of two evils - if the numbers make sense for them.

1. Identify potential short-sales

Locate pre-foreclosures in your area. You can use an online database, search courthouse listings, legal ads or use an experienced real estate agent as a buyer's agent. First, try to determine how much is owed on the house in relation to its approximate value. If it seems high, it's a good candidate because it indicates the seller might have trouble selling it for enough to satisfy the loan.

2. View the property

Gauge its condition and come up with a rough estimate of how much it's going to take to repair or renovate. If it needs work, many "normal" buyers won't consider it, which is good for you.

3. Do your research

What is the property worth? What's the profit potential? If you're an investor or even a homeowner planning to live in the home, a short time you'll want to profit from the deal.

4. Find all liens and mortgages Ask the seller or his agent what liens are on the property, and which lender is the primary lien holder.

5. Figure out the financing

This is critical. You have to know how you're going to pay for the property. If you're a good credit risk, the existing lender may be willing to give you a loan. Since they already have a lot of your information in the short-sale paperwork, they may be able to expedite the loan application process. It's important to understand that in a short sale, you have to have the ability to move quickly. Once an agreement is worked out, it is common the lender will require closing in as few as 20 days. This is too late to start shopping for a mortgage.

6. Contact the lender

You or your agent should speak with the loss mitigation department (or perhaps the resource recovery department) rather than the collection or customer service department, which is only interested in recouping past due loan payments. Finding the decision-maker can be one of the biggest initial challenges. You will first need to have the homeowner complete and sign (notarization is usually required) an authorization letter, which gives the lender permission to discuss the mortgage situation with you.

7. Complete the lender's short sale application, if they have one

Many lenders have an application specifically for a short sale request.

8. Assemble the proposal

The proposal generally consists of a package of materials including the application and authorization letter plus:

" The purchase and sale contract -- signed by you and the seller -- to buy the property for a specified price.

" A hardship letter - The lender must recognize the seller's inability to pay the loan -- immediately and in the foreseeable future -- and that the situation is irreversible. To make that case, start with a letter written by the seller giving an overview of the seller's desperate situation. The seller should supply as much evidence and documentation as possible. If the lender thinks the seller has money or assets stashed away, it will never go along with a short sale.

" A statement of the property's value. This can be an appraisal or a broker's price opinion. The lower the estimate of the property's current market value, the better it will be for you. You want to show the lender that the seller would not be able to get enough for the home via a normal sale to satisfy the loan. Compile a list of all the negatives and problems of the home that negatively affect the value and make it undesirable to the average buyer and tougher for the lender to resell.

" Detail the costs and liabilities. You want to show the lender it would be much better off letting you take the property off its hands. If you can convince the lender the home is a money pit, all the better. Take photos of any damages and get estimates of the repair costs.

" A settlement statement. This statement (which can be prepared by a closing agent or real estate lawyer) outlines the purchase price, the closing costs and any other costs or fees involved in the transfer of the property. Often referred to as a net sheet and the information can be entered onto a HUD-1 Settlement Statement to show the final, negative result at closing.

9. Negotiate

It's not uncommon for the lender to reject your offer or to come back with a counteroffer. As with any real estate transaction, you should figure out beforehand what your absolute highest limit is, and don't be afraid to walk away if the lender won't meet your figure.

10. Seal the deal

Once you've reached an agreement that all three parties (you, the seller and the lender) are OK with, get everything in writing and officially recorded. Make sure the seller understands all of the terms of the deal. It is always important and recommended that you work with a real estate professional that is experienced in short sales.

Francis Vayalumkal is a mortgage banker with Regions Bank and can be reached at (813) 719-0303

Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection

Nitesh Patel

Financial matters can seem overwhelming. Some people are overly confident about managing their finances, while others are perplexed and choose not to make any choices. Many of us have these kinds of financial hang-ups that are keeping us from achieving true financial security.

Take a moment to think about how prepared you are for retirement and the amount of preparation you’ve done. How much have you saved so far? Where are you with respect to saving for other financial goals, such as a child’s education? Do you feel prepared for a financial setback?

According to a Northwestern Mutual Financial Network survey (Money Maladies survey conducted by Harris Interactive for Northwestern Mutual, 2000-2002), 7 out of 10 Americans are comfortable with the amount of preparation they’ve done. Yet, the study found:

One-third have not begun to prepare or save for retirement.
One-fourth didn’t know how much they’ve saved.
One-fourth did not save anything on a monthly basis for long-term goals.

As these findings suggest, many Americans are blinded by overconfidence and tend to overestimate their abilities, knowledge and skills.

Adding to the problem is another potential financial misbehavior or “blind spot” – decision paralysis. If you intend to set up a retirement account but never seem to get around to it, you probably have a case of decision paralysis.

There are several types of retirement accounts and funding options from which to choose. As more choices are added, it becomes harder to sort though them and pick the best option. Too many choices and barriers cause people to do nothing. And without a deadline for making a decision, the paralysis can continue to the point that a decision is never made at all.

As the research indicates, most people are living in a financial fantasy and are far too optimistic about meeting their financial goals. Overconfidence and decision paralysis are conditions that can lead to serious money maladies, which are detrimental to long-term financial wellness. A good financial professional can help you evaluate your situation, understand your potential blind spots and ultimately turn them into positive behaviors.

Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail

Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection

Kamlesh Patel


If you've been caught in the rising wave of mortgage foreclosures throughout the country, you may be able to take some solace from a new tax law. Thanks to the Mortgage Forgiveness Debt Relief Act of 2007, you can avoid a substantial tax bill when a mortgage debt is discharged. This tax relief is available for the three-year period spanning Jan. 1, 2007, through Dec. 31, 2009.

Normally, the discharge of a debt results in taxable income to the beneficiary. The taxable amount is the difference between the principal balance and the amount used to satisfy the debt. Under the new law, however, the first $2 million of mortgage debt forgiveness on a principal residence is tax-free if the debt was incurred to acquire, build, or substantially improve the home.

Example: The outstanding mortgage principal on your home is $200,000. The bank forecloses this year and sells the home for only $150,000. Usually, you would have to pay tax on $50,000 of debt forgiveness, but the benefit is completely tax-free to you under the new law.

The new law exemption extends to "workouts" where a lender arranges to receive lower monthly payments in lieu of foreclosing on the property. Such arrangements would normally constitute cancellation-of-debt income.

Note that this tax break is limited to principal residences. It isn't available for second homes. Also, the tax exclusion doesn't apply if the discharge is not directly related to a decline in property value or your financial condition. Finally, you can't claim this tax benefit if you're involved in a Chapter 11 bankruptcy proceeding.

Timing is critical: A debt is considered to be discharged when it becomes likely it will never be repaid. Claim the exclusion on your 2007 return if an identifiable event occurred last year.


New tax breaks for small businesses could make investing in new equipment a tax-smart move in 2008. The Economic Stimulus Act of 2008 offers generous business expensing and depreciation limits to encourage capital purchases. But like most IRS breaks, there are a few strings attached.

The new rules increase what is known as the "Section 179" deduction, which is a direct write-off of the cost of qualified new or used business property in the year purchased. For tax years beginning in 2008, this deduction is nearly doubled, rising from $128,000 to $250,000. This means that if you purchase as much as $250,000 worth of property, you may be able to deduct the entire amount from your 2008 taxable income. To qualify, the equipment must be tangible business property or computer software (no real estate).

The catch? The asset must be both purchased and placed in service before Jan. 1, 2009. Also, if your total 2008 equipment purchases exceed $800,000, the deduction is reduced dollar-for-dollar by the amount exceeding $800,000. Equipment costs not eligible for the deduction must follow normal depreciation rules.

The good news, however, is that the Economic Stimulus Act also increased first-year depreciation limits to 50 percent of the adjusted basis of new property. The types of assets eligible for bonus depreciation are generally the same as for Section 179 expensing, except that the asset must be new, not used. In addition, leasehold improvements to real property may qualify.

Business vehicles also get into the bonus depreciation act. New cars and trucks purchased and placed in service in 2008 may qualify for around $11,000 in first-year depreciation - an increase of $8,000 over previous limits.

Take note: These changes are good for 2008 only, so you must act before the end of the year.


If you're a business owner focused on day-to-day operations, motivating your employees may be fairly low on your priority scale. But a motivated staff is a productive staff, and without incentives, your best people could leave for more satisfying endeavors.

Motivation starts with compensation. Few people work for salary and benefits alone, but even fewer will work for a company that pays significantly less than average. Firms that attract superior employees tend to offer higher pay and benefits, and that's only the beginning.

Employees - especially good employees - want respect. Harsh supervision, micromanagement, favoritism, and nepotism all create discontent and turnover. To retain your best people:

- Establish reasonable, objective work standards, and base rewards and promotions on those standards.

- Communicate your standards clearly and provide whatever training is needed. Then give your employees the leeway to do their jobs. Focus on results, and let your staff determine the process.

- Avoid showing favoritism, particularly if your employees include family or friends. Granting special treatment to friends or relatives is guaranteed to lower everyone else's morale.

In addition to respect, employees want their efforts to be recognized. Encourage your people to offer input about relevant work issues. If their suggestions result in significant improvements, reward them with bonuses or similar incentives. The same should be done for exceptional work efforts. Frequent small rewards like free lunches, gift certificates, or balloon bouquets can boost morale without significantly increasing costs.

Note: Bonuses and other incentives only enhance productivity if they're based on objective, measurable, and attainable criteria. If they're perceived as products of management whim, they actually may decrease productivity.

If you can offer fair compensation, respect, and recognition to your staff, you'll go a long way toward improving productivity. You'll also attract the best people, and more importantly, you'll keep them.

Kamlesh H. Patel, CPA, can be reached at (813) 949-8889 or e-mail or

Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection

Satya Shaw

A successful retirement does not just happen; you have got to plan for it. The long ramp toward retirement focuses on saving and investing, but once retirement starts emphasis shifts to spending and safeguarding. Even though the greatest challenge in retirement, and probably your greatest fear, is outliving your money, most people spend less time planning their retirement than they do planning a vacation.

What does retirement planning involve? Here are the steps: First, determine what you would ideally like to do in retirement, and then discuss it with your spouse and other loved ones. Will you spend your time traveling, enjoying hobbies, helping others, working part time, or what? Second, estimate the retirement income you'll have from savings, Social Security, pension and all other sources. Third, estimate your expenses making sure to take account of inflation, taxes and health care costs, which are likely to be an increasing part of your budget.

Steps two and three should be done for each five-year period of your retirement and then revised annually. Fourth, if you have more income than needed, you only need to safeguard your investments to make sure they're not lost or shrunk by bad decisions. If you have insufficient money for retirement (expenses exceed income), then you'll need to postpone retirement, work part-time or possibly use a Reverse Mortgage to access the equity in your home. Either way, it is highly recommended that you minimize your exposure to loss and maximize the full potential of your financial resources by working with a financial adviser. They can help you determine the risk you can afford, investment options and how to position your money for best results without sacrificing safety. Retirement is going to be long, filled with uncertainties, including emergencies, and going it alone is one of the greatest risks you can take.

Be realistic in your planning. For example, be aware that for a couple age 65, there is a 50 percent probability that one will live beyond age 90. Acknowledge that even a low rate of inflation can make a big difference in prices over the 20 to 30 years you'll be in retirement. For example, average inflation of 3 percent means $1 today will be worth only 55 cents in 20 years and 41 cents in 30 years. Since 78 million boomers are entering retirement over the next two decades, the price of everything related to retirement, especially health care, is likely to rise faster than overall inflation. Inflation is a cruel tax for those on fixed incomes, and chances are your income in retirement will increase a lot slower than prices.

The boomer explosion is going to overwhelm government-provided services and benefits. This means that the relative benefits of Social Security and Medicare are going to shrink under the pressure of increased retirees. There will simply be more people receiving entitlement benefits than workers paying the bills. Every study, government and private, indicates there will be a shortage of money to support these programs. To pay for this shortfall, the government must raise taxes of all types. The increased taxes, inflation, relative decrease of benefits combined with escalating medical care costs will be especially burdensome for those in retirement without rising incomes from wages and salaries.

If you haven't evaluated it yet, investigate the risk you're taking with your retirement money. Would you have a loss if the stock market lost ground? You might if your money is still in your ex-employers 401(k) plan, or if you own securities, even mutual funds, whose value is determined by the market. Generally, investments in stock have done well long term, but you may need your money before a long time. From November 1973 to October 1974, the S&P stock market index fell 48 percent, and it took over six years to recover. The last bust in the stock market was 2000-2002, and we have yet to fully recover. In the meantime, inflation marches forward with the shrinking dollar purchasing less. Much of your income in retirement is likely to be derived from your savings and investments, and you simply can not afford risk of loss and the compounding of inflation. If you lose some or all of your retirement money to bad investments, you'll increase dramatically your chances of realizing your greatest fear: outliving your money.

How do you safeguard against the challenge of too many years and not enough money? Like law and medicine, financial planning is best left to professionals. Your job in retirement is to enjoy life free of investment worries.

Satya B. Shaw, CPA, can be reached at (813) 842-0345.

Contact Information
The Editor:
Send mail to with questions or comments about this web site. Copyright © 2004 Khaas Baat.

Anything that appears in Khaas Baat cannot be reproduced, whether wholly or in part, without permission. Opinions expressed by Khaas Baat contributors are their own and do not reflect the publisher's opinion.

Khaas Baat reserves the right to edit and/or reject any advertising. Khaas Baat is not responsible for errors in advertising or for the validity of any claims made by its advertisers. Khaas Baat is published by Khaas Baat Communications.