Banks pay delinquent borrowers $35,000 to sell their homes

In an effort to cut their losses, banks are paying some struggling homeowners as much as $35,000 to sell their homes before they end up in foreclosure.

The deals are aimed at incentivizing homeowners who owe more on their home than it is worth and who are seriously delinquent on their payments to sell their homes in a short sale.

In short sales, homes are sold for less than what is owed and the bank forgives the excess debt. Banks have been reluctant to approve such deals in the past -- since they take a loss on the home -- but in certain cases, it's become a much better proposition than letting the homeowner fall into foreclosure.

This new approach by the banks has startled plenty of homeowners, according to Elizabeth Weintraub, a Sacramento-area real estate agent who specializes in short sales.

"Initially, the homeowners are skeptical," she said. "The bank may have already turned down their request for a modification. Then, one day, they call and say, 'Let us give you some cash.'"

When Chase Mortgage (JPM, Fortune 500) told Angelique Pierce, that she would receive a check for $25,000 if she sold her house, she couldn't believe it.

"I got the offer in the mail," said the Rancho Cordova, Calif. resident. "I called my bank to ask if it was real."

After Pierce became disabled a few years ago and had to stop working work, she fell behind on payments on both her first and second mortgages, valued at $250,000 and $50,000, respectively.

Now, she's trying to sell her three-bedroom ranch for just $95,000 -- almost half of the $179,000 she paid for the place in late 2002.
Foreclosure free ride: 3 years, no payments

From the bank's point of view, the offers make sense, according to Tom Kelly, a spokesman for Chase Mortgage, who would not comment on Pierce or other individual cases. "The first choice is a modification but if that's impossible than a short sale is a faster, more efficient solution," he said.

For the banks, foreclosure has become an increasingly difficult and expensive option. Homeowners have learned to fight the banks tooth and nail, dragging out cases for years.

And as the cases drag, expenses grow. Homeowners not only stop paying their mortgages but they stop paying property taxes and conducting normal maintenance as well. Roofs, siding, plumbing and other parts of the home deteriorate and the property loses value. By the time banks take possession, they're out tens of thousands of dollars.
Foreclosures: America's hardest hit neighborhoods

"I've seen a lot of foreclosures for sale where it would cost a lot more than $20,000 to get them into condition to sell again," said John Hayton, a short sale specialist in Orlando, Fla, who has had a number of clients receive offers from the banks.

Short sales also command higher prices than foreclosed homes. In December, foreclosed properties sold for an average of 22% less than conventional sales, while the discount for short sales was only 14%, according to the National Association of Realtors.

All that has been true for years, but it is only lately that these outsized incentives, which Bloomberg recently reported on, have surfaced.

Sellers are more cooperative when they're going to receive a five-figure check for their troubles.

Nick Chaconas, an agent with discount broker Redfin, wondered why one seller was so anxious to sell their home. "Since I represent the buyer, I didn't even know about the incentive until the closing," he said.

It turned out that the seller's bank was writing her a check for $30,000.

Whether sellers can expect incentives from their banks depends on multiple factors, including where they live.

Wells Fargo (WFC, Fortune 500) limits its offers to certain states, such as Florida, where the foreclosure process can be lengthy, according to spokeswoman Veronica Clemons. The bank has paid $10,000 to $20,000 to borrowers who short sell or transfer their title to Wells via a deed-in-lieu.
What the foreclosure settlement means for you

Bank of America (BAC, Fortune 500) had a pilot program in Florida that paid incentives of $5,000 to $20,000 for sales that were initiated between Sept. 26, 2011 and Nov. 30, 2011 and close by the end of this August. The amount of the incentive is based on 5% of the unpaid balance, with a $5,000 minimum and $20,000 maximum.

Jumana Bauwens, Bank of America's spokeswoman, called it a "test-and-run program" that may be expanded to other states.

The offers are not always a panacea for homeowners struggling to pay the bills, however.

Pierce, for example, has not been able to make hers pay off. She had a buyer but her second mortgage holder refused to go along with the deal unless it got a share of the $25,000 she was being offered by the bank. She said that the bank balked at the deal and the sale was cancelled.

She's looking for another buyer, but it's up in the air if Chase will honor its original offer if the second mortgage holder won't cooperate. To top of page

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5 Tax Trends That Could Cost You in 2012

We took a look at five trends that may have a big impact on the government's bite in the months ahead:

Inflation's upside
Your 2012 taxes could benefit from what is usually a painful force of economics. There may actually be an upside to inflation.

By law, "the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation," according to the IRS.

The formula used in indexing showed a relatively higher amount of inflation this year over last, just over 3.8%, according to CCH, a Wolters Kluwer business and provider of tax information, software and services. This increase is well above the 1.4% amount used last year and the 0.18% inflation factor used in 2010.

"Most taxpayers benefit from inflation adjustments, since they tend to preserve the value of most, but not all, of the dollar-based benefits under the tax code year after year," says George Jones, a CCH senior federal tax analyst.

The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011, according to the IRS.

The new standard deduction is $11,900 for married couples filing a joint return, up $300; $5,950 for singles and married individuals filing separately, up $150; and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions such as mortgage interest, charitable contributions and state and local taxes, the IRS says.

When there is inflation, indexing of brackets lowers tax bills by including more of people's incomes in a lower bracket, an analysis by CCH explains.

Tax-bracket thresholds will increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15% bracket from the 25% bracket is $70,700, up from $69,000 in 2011.

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Teach your children great money habits

Think back to when you were a child. Did you get an allowance? Did you have one of those pretend shops with the play money? Did you sit around with your family on a Sunday night and play Monopoly?

If so, you were getting your first lessons in money management. Your parents may not have realised it at the time but those innocent games took root inside your impressionable young mind and helped you take your first steps into the world of personal finance, well on the road to being a financially sound adult.

…At least, that’s what happens in an ideal world. The reality is that many people grow up without a sense of budgeting, saving or long term financial planning, either because they’ve never had that habit from being young or they’ve forgotten the lessons they learned from those simple games.

I’m of the firm belief that no child is too young to learn money lessons. Well, almost no child – I wouldn’t try to teach a 6 month old about saving a percentage of her allowance to buy that special toy, but you know what I mean!

2 – 7 years old
My daughter is two now and she’s already learned what saving her pennies means. Every time her dad or I have a few bits of spare change in our wallets at the end of the day, we give it to her, asking her what she should do with it. She immediately replies “bank”, meaning her piggy bank. It’s a clear one so she can actually see the number of coins rising, and she knows that when it gets up to a certain point she’s allowed to take the money out and choose herself a special gift from the shop.

OK, it’s not teaching her to work for her money but that will come when she’s older…

When she gets to about 4 or 5 we plan to reward her when she picks up her toys herself or helps Daddy with the gardening. Not too much; I don’t think children at that age need a huge allowance, but just enough to help her feel like she’s done a good job. And of course we’ll be encouraging her to save this allowance if she wants something.

8 – 11 years old
By the time she turns 8 or 9 we’re going to open a savings account for her, and let her monitor how the money is growing by the beauty of online banking. There’s lots of savings calculators on the internet which show the amount of interest you can earn based on the AER, so this will be a great way to demonstrate what interest actually is.

At this age she should also be able to make better decisions about her spending. Whenever there’s some luxury or frippery I want I always force myself to wait for at least a fortnight rather than buying it there and then. Usually, by the time the 2 weeks are up I no longer want the item and I’ve saved myself the money.

Our daughter will be taught the same financial procrastination and hopefully it will not only stop her wasting her money on pointless frivolities but also teach her patience – making Christmas time a little easier on us all!

Teenagers, argh!
As we head into the dreaded teens we’ll be encouraging her to get a weekend or after-school job, or even volunteering at a local community group. The latter may not be paid but hopefully it will teach her that it’s not just money that makes things worth doing.

We’re fully prepared for the typical teenage mentality of withdrawing at The Bank Of Mum And Dad but when this happens, we shall tell her kindly to earn the money she wants either through chores or her job while steeling ourselves for the tantrums.

A few more tips:
If you’re a couple you both need to be in firm agreement that you won’t give your stroppy teenager the money they ask for just to avoid an argument. Be consistent too; don’t give her money on a whim one day then say she has to work for it the next.

If you have close family who are a little too free with their finances, ask them not to give your child money without checking with you first. If necessary you can keep it safe for them and dish it out on special occasions like birthdays or a really good report card.

If you’re unsure how much allowance to give, check with other parents to see what they give, and try to find out how much the usual things your child would buy actually cost, and adjust the amount accordingly. It’s all very well telling them to save for their treats but if it’s going to take them years at the current rate of allowance they’ll just get demotivated.

When giving them their allowance ask if they’d like to save a percentage of it, rather than all or none. This will help them to see that they can ‘have their cake and eat it’; they’ll have some to spend on what they want that day, and still be saving towards the bigger treat they want too.

Finally, if you can afford it, consider paying their allowance by direct bank transfer. Tell them that the money in their account has to last them the full week or month. Be on hand to offer budgeting tips whenever needed!


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6 ways to pay your mortgage faster

Six Simple Ways To Pay Off Your Mortgage Faster

Before making extra payments on your mortgage, make sure there are no prepayment penalties.The following prepayment methods don't require a formal commitment on your part or any help from your bank.


Impose your own discipline: Each month add a set amount that you can comfortably afford (say $15 or $25) to your payment. If you use a coupon book to make payments, chances are there is a line where you can write in whatever extra payments you're making. But even without that, the bank will automatically credit your account.



Double up on the monthly payment four times a year. Ask the bank for a statement showing how much you still owe.

Apply the next tax refund towards your mortgage principal.

As bonds or CDs mature, put the principal, the earnings or both towards your mortgage, instead of reinvesting.

Use your annual bonus

Apply part of each windfall, such as an inheritance, investment earnings or if you play poker, your winnings at the card table.



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Some investment basics

Investing is the seemingly basic strategy of increasing the value of your money over time. The way this is achieved is through saving your money. You will not be saving the money in a lockbox though. Rather, you will put your money into investment vehicles that will potentially pay compounded interest on the money invested. There is always the possibility of the devaluing the initial investment but more conservative investing strategies come with less risk of this.


Budgeting


The way you start investing is by budgeting how much money you want to earmark for investing. There is no right or wrong way to budget it but it would be best to put a decent amount of money into investment vehicles. 10% of your salary, for example, could turn into enormous sums over time.      


Short Term and Long Term Investing


How long do you wish to invest your money?
Are you seeking a quicker return or do you want one that can last for the long term?
Short term can be defined as five years or less and anything over five years can be dubbed a long term investment.


Investment Vehicles


There are many different ways you can invest your money. Purchasing real estate is among the oldest in existence. Acquiring stocks in a company would likely be the most common strategy most people employ. Stocks can be purchased either directly from the company or they can be purchased in the form of a mutual fund or an IRA where several stocks are combined into a single fund, managed, and the return is based on the average of all the funds.
Bonds are quite popular as they are extremely low risk when backed by the government. Precious metals and currency remain other investment strategies that have grown in popularity in recent years.


There really is no right or wrong method of investment vehicle. Any legitimate investment vehicle will have good potential.


Risk Assessment

We return to our previous point of risk. The more volatile the investment, the greater the potential will be for both a high return and a potentially higher level of loss. Those returns with moderate or lower levels of risk will offer a lower return but the odds of losses are quite rare. You simply need to determine which level of risk you are interested in prior to investing. Generally, you need a risk level that you are comfortable with or you might not find your investing experience delivers on expectations.
On a side note: it is not impossible for a low risk investment to become a lucrative one. A stock traded for $2 a share that is reasonably expected to grow to $3.75 in four years could potentially grow to $9.87 within a year.


Portfolios and Hedging

It is not wise to have all your investment dollars in one investment opportunity. Rather, you will want to acquire a number of different assets into an overall portfolio. That way, the successful and growing investments can act as a hedge against the losses. Seeking the advice of an investment manager could be a great help in this regard.



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Seven Myths About College Scholarships

When searching for scholarships, part of the challenge is to follow the best advice you can find. Another part is to ignore advice that's misguided. Here you'll find the truth behind seven scholarship myths, as excerpted from Benjamin Kaplan's book, How to Go to College Almost for Free (HarperCollins, 2001).


Myth 1: "Only students with high academic achievement win merit-based scholarships."
The real story: Students with all sorts of talents and interests win scholarships. In fact, many of the best scholarship programs are designed for students who devote their time to such diverse fields as music, the arts, foreign languages, community service, science, leadership, writing, and oratory, to name a few.


Furthermore, many scholarships that do consider grade-point averages use them only as preliminary cut-off points. Once you've cleared this minimum bar, grades don't impact your chances of winning some money.


Finally, even when GPA is used as an evaluation factor, it's only one aspect of a student's application. One of the largest scholarship programs, the Coca-Cola Scholars Program, is known for selecting students who don't necessarily have top grades. Other programs use a definition of academics that includes areas of interest and study outside the traditional school curriculum.


Myth 2: "Star athletes are the only big scholarship winners."
The real story: Just as the letter grades on your transcript aren't a prerequisite for winning scholarships, varsity letters earned on the playing field aren't a requirement, either. Although a few merit-based contests are targeted at athletes who excel on and off the field, for the vast majority of contests, athletic prowess is just another element of a student's record -- equivalent to having a skill in any other field.


Myth 3: "The student with the most extracurricular activities generally wins."
The real story: As is the case in many other aspects of life, winning scholarships is about quality, not quantity. Some people think that to win these awards, you must have devoted your entire high school career to participating in extracurricular activities. On the contrary, most scholarship winners distinguish themselves by the devotion demonstrated to an activity or activities, rather than by the sheer quantity of their involvement.


Myth 4: "Entering scholarship competitions is just like applying to college."
The real story: Actually, scholarship contests demand a different approach than the college admissions process, because contests are characterized more by direct head-to-head competition. While college admissions officers compare students primarily to a standard, scholarship contests directly compare students to one another. Because of this heightened competitive environment, students who devise creative techniques to make themselves stand out from the crowd have a distinct advantage. In this way, a good scholarship application will likely be a good college application -- but the reverse is not necessarily true.


Myth 5: "Scholarship competitions are conducted on a level playing field."
The real story: Every scholarship contest has biases. This is not to say that scholarship judging is unfair. Rather, it's just that each contest is looking for students with particular qualities. The ideal application for one particular scholarship contest may place you out of the money for another. Because of these biases, it's essential to define each contest's ideal applicant and to develop a strategy that emphasizes personal attributes consistent with that definition.

Myth 6: "The record you've already accumulated determines whether you'll win scholarships."
The real story: What you do after you decided to apply for scholarships is just as important as what you did before. This holds true regardless of how little time you have left until a particular scholarship application is due. Content strategies, for instance, increase your chances of winning by adding depth and breadth to your existing record. Likewise, packaging strategies help make your application stand out by highlighting talents, communicating passions and emphasizing potential. So don't fall into the trap of thinking that your die has already been cast. What you do now can make all the difference in the world.
Myth 7: "Students should focus their time and energy on only one or two scholarship applications."


The real story: Applying for scholarships is a numbers game. A variety of factors outside of your control can affect the outcome of any given contest. Only by applying for large numbers of scholarships can you minimize the effects of such factors. As the saying goes: Don't put all your eggs in one basket.

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7 Ways to Tweak Your Retirement Plan for 2012

"Set it and forget it," infomercial marketer extraordinaire Ron Popeil used to say.

That might have worked for Ron's easy-to-use chicken rotisserie -- but it's not a good approach for your retirement portfolio. Even the best-built retirement plan needs a periodic check-up, so here's a list of seven tips, tweaks and reminders for the year ahead.

1. Adjust your 401(k) contribution.

The maximum employee contribution allowable by the IRS rises by $500 in 2012, to $17,000; workers over age 50 can contribute another $5,500 in catch-up contributions. If you're already maxing out, adjust your contribution rate for 2012 accordingly. Deductible contribution maximums for traditional IRAs and Roth IRAs are unchanged for 2012 - you can sock away $5,000 (or $6,000 if you are over age 50).

2. Rebalance.

Make sure your equity and fixed income allocations are on target by buying or selling assets as needed to make sure you're not taking more risk than desired. Adds Jessica Ness, director of financial planning at Glassman Wealth Services: "Rebalancing puts an automatic buy-low and sell-high methodology to work because you trim asset classes that have grown in size and you contribute to asset classes that have shrunk." Ideally, you should rebalance quarterly.

3. Consider Roth IRA options.

A Roth isn't always the best investment option for available pre-tax dollars because it's a bet on future tax rates, and what you expect your personal tax rate will be in retirement. But a Roth is a slam-dunk option if you're investing after-tax dollars because everything in the account grows tax-free.

Income eligibility limits to qualify for a Roth IRA contribution will increase in 2012. Single income tax return filers with modified adjusted gross income (AGI) less than $110,000 will be eligible to make the maximum contribution to a Roth; for joint filers, the income limit will be $173,000.

If you don't meet the income qualifications, there's another option: the so-called "back-door Roth." It's a two-step process; first, you make a contribution to a non-deductible traditional IRA; then immediately convert that IRA to a Roth. "The key is to do the conversion right after you make the contribution, so the account doesn't have time to accrue taxable earnings," says Maria Bruno, a senior investment analyst at Vanguard Investments.

A caveat: This strategy works best if you don't have other traditional IRA assets, because federal law requires you to aggregate all your IRA assets for tax purposes. So, if you have significant IRA assets that were funded with pre-tax contributions, you'll need to weigh the potential tax bite.

4. Don't forget to take required distributions.

Retirement investors over age 70 1/2 must take the required minimum distribution (RMD) from most types of retirement accounts (except Roths). But some retirees seem to be forgetting this; Fidelity Investments reports that two-thirds of its IRA customers haven't taken RMDs as of early November.

RMDs are calculated for each account you own by dividing the prior December 31 balance by a life expectancy factor that you can find in IRS Publication 590. Often, account providers will calculate RMDs for you -- but the final responsibility is yours. Any RMD amounts that you don't withdraw on time will be taxed at 50 percent.

5. Top off liquid assets.

A great strategy for extending portfolio life in retirement is to make sure you have sufficient cash on hand to meet expenses without being forced to sell equities when the market is down. Yearend is a good time to refill your "liquid asset pool," that may have been depleted this year, notes Christine Benz, director of personal finance at Morningstar. When considering what to sell, think about your overall portfolio asset allocation, investment strategies and taxes, she says.

"A positive side effect of ensuring that you have adequate cash reserves is that you can keep a cool head during volatile markets, knowing that your near-term living expenses are covered," Benz adds.

6. Give away your IRA.

The law allowing donors over 70 1/2 to make charitable contributions from an IRA is set to expire at the end of this year, unless Congress acts. The Qualified Charitable Contribution provision allows contributions up to $100,000 to be made direct to a single or multiple charities. The gifts aren't deductible, but they are excluded from your income -- and that can help you avoid triggering high income premium surcharges on Medicare or Social Security taxes. The gifts also can be counted toward your RMD.

7. Evaluate your draw-down strategy.

Most Americans don't have a "decumulation" plan -- that is, how much to draw down from savings and when. The trick here is finding a balanced approach that meets income needs while avoiding the risk of running out of money especially in difficult market conditions.

"Ensure that you know how much you have withdrawn over the past year and the amount you may need to withdraw next year," says Ness. "Portfolio values may be down, so withdrawing the same amount in 2012 that you did in 2011 could have a greater negative impact on your portfolio. Knowing how much you need to withdraw for next year and understanding the impact that could have on your portfolio will allow you to make any adjustments necessary, before it is too late."


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