A note from my kitchen to your computer. I really am just a regular part of the Marietta Georgia community (a northwestern Atlanta Georgia suburb). I have worked with thousands of home buyers, first time home buyers, home builders, real estate agents and real estate investors over the last 10 years in the home loan business. Times are tough all over and I hate seeing my neighbors taken advantage of!
Art to CNC Video Series Video 5: This is the CNC Video series on how to take an image to a CNC File. This process is one that many CNC Users want to know, but there is not much info on. Here is your chance to get the inside scoop. For more information, please go to: www.cncinformation.com Here we are in Photoshop making a stencil of our CNC Image. We go through a number of different steps to simplify our Raster Image. We are really turning it into a logo of sorts. We want to simplify it, but keep enough detail so others will know what it is.
When applying for a loan modification you will be required to provide the lender with a hardship letter. This can be the hardest part for a homeowner because many are not sure what to write and some become overwhelmed.
Here will be a sample of a hardship letter that will explain the basic feel that should be used in the letter. Provided is a sample hardship letter along with instructions for what one should bring up in their own letter. The lender needs this letter to see if you qualify for the loan, everyone’s letter will be different with different reasons as to why they need a loan modification, in order for the lender to take your situation seriously you must also tell your story.
Account number: [Your loan number]
[The name your loan is under, usually your own.]
[Your residential address, which is also the address you are requesting loan modification on. Loan modifications are not allowed for properties that are not lived in.]
[Your phone number and email]
To Whom It May Concern: (Or the persons name if you know it.)
[Explain the reason for the loan modification in the hardship letter.] The reason for this letter is to explain the reason I/we have fallen behind on the mortgage payments. I am requesting that you work with us/me on a loan modification. I/we have come across some hard times that are making everything a struggle. I/we would like to work out a plan with you and possibly work out different terms on the mortgage so we can stay in our home.
[Keep the explanation of the reasons short and to the point. Try to limit it to about one paragraph.] I lost my job a few months back and have not be able to find anything that pays enough to pay all of my bills or other expenses. I had some savings that I have been using to try to stay afloat but that is now gone. I have however found a position that pays well enough to get back on my feet and am scheduled to begin working in a few days. My spouse, who pays half of our monthly expenses, has fallen ill with X and can no longer work because of the medical treatment. Fortunately the doctors expect a full recovery within 6 months. Although it is great that my spouse will recover, the medical treatment being used is expensive and we can not afford to pay our other expenses along with the medical treatment.
[Explain your come back plan.] After doing the math I have come to the conclusion that with my new position I will be able to pay monthly expenses including the mortgage payment of $X. As soon as my spouse recovers from her illness we will be financially stable again however until that day comes we will be a little strapped for money. If possible we are requesting [Ask for exactly the loan modification agreement you feel you can handle and they will approve of]
Thank you for you patience and time. Thank you for looking over my situation and considering the home loan modification plan that will help us get back on our feet.
Sincerely,
[Signature]
What we have written above is just a sample letter, make sure you remember this. When writing a hardship letter for a home loan modification it is a good idea to go a little deeper into your story but make sure not to make it into a tear jerker. While you may feel that if you pull some heart strings you will have a better chance of being approved, however the reality is the lenders don’t want to hear it. The lenders are just trying to determine if you are at risk of defaulting again.
In the case of foreclosure, lenders can pursue deficiencies in more than 30 states, including Florida, New York and Texas, according to the US Foreclosure Network, an organization of mortgage law firms. Some states, such as California, are “non-recourse” and don’t allow deficiency judgments. But, even there, if the if the original loan was refinanced, some or all of it may be subject to claims. Deficiency judgments on short sales and deeds-in-lieu can happen in many more places. In these cases, extinguishing the debt is often a matter of negotiating with the bank. But even when lenders are willing, many borrowers may not be aware that they have to ask for release. So, if you are pursuing a short sale, be sure your attorney asks the bank to release you from any further obligation. “People shouldn’t have a false sense of security that a deficiency judgment may not be later sought,” Zaretsky said. He expects many will be filed over the next few years, based on the fact that banks have sold many of these accounts to collection agencies and other third parties, at discount. “The parties who bought those notes wouldn’t have paid money for them unless they had the intention of acting,” Zaretsky said. Ticking time bomb What can be scary is that the judgments don’t have to be obtained immediately. Lenders or collection agencies may wait until debtors have recovered financially before they swoop in. In Florida, the bank can wait up to five years to file. Once the court grants a …
savemycashnow.com Jake Ferder, Kansas City Mortgage Rates, Refinance, MO Mortgage Companies, Home Equity Loans, Kansas City Mortgage
Introduction:
The Financial Accounting Standards Board (FASB) on August, 17, 2010 released their “exposure draft” requiring companies to record nearly all leases on their balance sheets as a “right to use” asset, and a corresponding “future lease payment – liability”. What does this mean to your business in layman terms? This proposal in essence does away with operating leases; all leases (unless immaterial) would be capitalized using the present value of the minimum lease payments. Therefore, businesses who in the past had off-balance sheet lease obligations, must now record these obligations on their balance sheet.
A key point to consider with regards to the proposed lease accounting changes is that, in all likelihood, existing operating leases, signed prior to the implementation of the new rules, will require reclassification as capital leases that must be accounted for on the balance sheet. This means that real estate professionals must immediately consider the effect that existing and planned leases will have on financial statements once the proposed rules are implemented. Since operating lease obligations can represent a larger liability than all balance sheet assets combined, lease reclassification can significantly alter the businesses balance sheet.
The impact of recording these lease obligations on the balance sheet can have multiple impacts, such as: businesses needing to alert their lenders as they will now be non-compliant with their loan covenants, negotiating new loan covenants with the lenders due to the restated financial statements, ratios used to evaluate a businesses potential of credit will be adversely impacted and the restatement of a lessee’s financial statement once the change takes effect may result in a lower equity balance, and changes to various accounting ratios
The conceptual basis for lease accounting would change from determining when “substantially all the benefits and risks of ownership” have been transferred, to recognizing “right to use” as an asset and apportioning assets (and obligations) between the lessee and the lessor.
As part of FASB’s announcement, the Board stated that in their view “the current accounting in this area does not clearly portray the resources and obligations arising from lease transactions.” This suggests that the final result will likely require more leasing activity to be reflected on the balance sheet than is currently the case. In other words, many, perhaps virtually all, leases now considered operating are likely to be considered capital under the new standards. Thus, many companies with large operating lease portfolios are likely to see a material change on their corporate financial statements.
Part of the purpose for this is to coordinate lease accounting standards with the International Accounting Standards Board (IASB), which sets accounting standards for Europe and many other countries. The IASB and FASB currently have substantial differences in their treatment of leases; particularly notable is that the “bright line” tests of FAS 13 (whether the lease term is 75% or more of the economic life, and whether the present value of the rents is 90% or more of the fair value) are not used by the IASB, which prefers a “facts and circumstances” approach that entails more judgment calls. Both, however, have the concept of capital (or finance) and operating leases, however the dividing line is drawn between such leases.
The FASB will accept public comments on this proposed change through December 15, 2010. If FASB makes a final decision in 2011 regarding this proposed change to lease accounting, the new rules will go into effect in 2013.
Additionally, the staff of the Securities and Exchange Commission reported in a report mandated under Sarbanes-Oxley, that the amount of operating leases which are kept off the balance sheet is estimated at $1.25 trillion that would be transferred to corporate balance sheets if this proposed accounting change is adopted.
Commercial Real Estate:
The impact on the Commercial Real Estate market would be substantial and will have a significant impact on commercial tenants and landlords. David Nebiker, Managing Partner of ProTenant (a commercial real estate firm that focuses on assisting Denver and regional companies to strategize, develop, and implement long-term, comprehensive facility solutions) added “this proposed change not only effects the tenants and landlords, but brokers as it increases the complexity of lease agreements and provides a strong impetus for tenants to execute shorter term leases”.
The shorter term leases create financing issues for property owners as lenders and investors prefer longer term leases to secure their investment. Therefore, landlords should secure financing for purchase or refinance prior to the implementation of this regulation, as financing will be considerably more difficult the future.
This accounting change will increase the administrative burden on companies and the leasing premium for single tenant buildings will effectively be eliminated. John McAslan an Associate at ProTenant added “the impact of this proposed change will have a significant impact on leasing behavior. Lessors of single tenant buildings will ask themselves why not just own the building, if I have to record it on my financial statements anyway?”
Under the proposed rules, tenants would have to capitalize the present value of virtually all “likely” lease obligations on the corporate balance sheets. FASB views leasing essentially as a form of financing in which the landlord is letting a tenant use a capital asset, in exchange for a lease payment that includes the principal and interest, similar to a mortgage.
David Nebiker said “the regulators have missed the point of why most businesses lease and that is for flexibility as their workforce expands and contracts, as location needs change, and businesses would rather invest their cash in producing revenue growth, rather than owning real estate.”
The proposed accounting changes will also impact landlords, especially business that are publically traded or have public debt with audited financial statements. Mall owners and trusts will required to perform analysis for each tenant located in their buildings or malls, analyzing the terms of occupancy and contingent lease rates.
Proactive landlords, tenants and brokers need to familiarize themselves with the proposed standards that could take effect in 2013 and begin to negotiate leases accordingly.
Conclusion:
The end result of this proposed lease accounting change is a greater compliance burden for the lessee as all leases will have a deferred tax component, will be carried on the balance sheet, will require periodic reassessment and may require more detailed financial statement disclosure.
Therefore, lessors need to know how to structure and sell transactions that will be desirable to lessees in the future. Many lessees will realize that the new rules take away the off balance sheet benefits FASB 13 afforded them in the past, and will determine leasing to be a less beneficial option. They may also see the new standards as being more cumbersome and complicated to account for and disclose. Finally, it will become a challenge for every lessor and commercial real estate broker to find a new approach for marketing commercial real estate leases that make them more attractive than owning.
However, this proposed accounting change to FAS 13 could potentially stimulate a lack luster commercial real estate market in 2011 and 2012 as businesses decided to purchase property rather than deal with the administrative issues of leasing in 2013 and beyond.
In conclusion, it is recommended that landlords and tenants begin preparing for this change by reviewing their leases with their commercial real estate broker and discussing the financial ramifications with their CFO, outside accountant and tax accountant to avoid potential financial surprises if/when the accounting changes are adopted.
Both David Nebiker and John McAslan of ProTenant indicated their entire corporate team are continually educating themselves and advising their clients about these potential changes on a pro-active basis.
Addendum – Definition of Capital and Operating Leases:
The basic concept of lease accounting is that some leases are merely rentals, whereas others are effectively purchases. As an example, if a company rents office space for a year, the space is worth nearly as much at the end of the year as when the lease started; the company is simply using it for a short period of time, and this is an example of an operating lease.
However, if a company leases a computer for five years, and at the end of the lease the computer is nearly worthless. The lessor (the company who receives the lease payments) anticipates this, and charges the lessee (the company who uses the asset) a lease payment that will recover all of the lease’s costs, including a profit. This transaction is called a capital lease, however it is essentially a purchase with a loan, as such an asset and liability must be recorded on the lessee’s financial statements. Essentially, the capital lease payments are considered repayments of a loan; depreciation and interest expense, rather than lease expense, are then recorded on the income statement.
Operating leases do not normally affect a company’s balance sheet. There is, however, one exception. If a lease has scheduled changes in the lease payment (for instance, a planned increase for inflation, or a lease holiday for the first six months), the rent expense is to be recognized on an equal basis over the life of the lease. The difference between the lease expense recognized and the lease actually paid is considered a deferred liability (for the lessee, if the leases are increasing) or asset (if decreasing).
Whether capital or operating, the future minimum lease commitments must also be disclosed as a footnote in the financial statements. The lease commitment must be broken out by year for the first five years, and then all remaining rents are combined.
A lease is capital if any one of the following four tests is met:
1) The lease conveys ownership to the lessee at the end of the lease term;
2) The lessee has an option to purchase the asset at a bargain price at the end of the lease term
3) The term of the lease is 75% or more of the economic life of the asset.
4) The present value of the rents, using the lessee’s incremental borrowing rate, is 90% or more of the fair market value of the asset.
Each of these criteria, and their components, are described in more detail in FAS 13 (codified as section L10 of the FASB Current Text or ASC 840 of the Codification).
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