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Real Estate Short Sale Deadline Nears

March 4, 2012
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Jeff Donnellan  Re/Max

Click here for Short Sale HELP

The Mortgage Debt Forgiveness Act is set to expire at the end 2012.  This act provides tax exemptions to home owners who have a deficiency judgement as the result of a foreclosed or short sale their home.  A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note, or loan, in full.  The IRS considers this taxable income.  For example is a mortgage balance is 100k and and after the home is sold through short sale or foreclosure the total amount recovered after expenses is 50k.  The IRS would consider the 50k of debt cancellation as taxable income.  The Mortgage Debt Forgiveness Act is an exemption for home owners to not be taxed on forgiven debt, but this is the last year to claim it.

A major benefit of a short sale over a foreclosure is the ability to negotiate the deficiency judgement away.  When using an experienced short sale Realtor & attorney they will most likely be able have the bank release the mortgage deficiency and have it reported to your credit scores as “paid in full” or “settled.”  This has a dramatic difference simply because a foreclosure will not be on the record, which will damage credit for 7-10 years.  In effect it’s like a fresh start with the slate wiped clean, giving home owners a chance to start over and one day purchase again.

Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

  • Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
  • Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
  • Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
  • Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
  • Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

More information is available on the IRS website http://www.irs.gov/individuals/article/0,,id=179414,00.html


2012. Year of the Short Sale

February 23, 2012
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All signs point to 2012 being the year of the short sale.

Back in 2007 no one had ever heard of a short sale and the process was a complete disaster. Real estate agents didn’t know how to price short sales or get them approved by the banks. The whole process was a mystery because there was a complete lack of communication from the banks and they had no idea with thousands of defaulting loans. So many horror stories came from the early days of the housing crisis and home owners were on the loosing end, and the final chapter was foreclosure.

Real estate felt like the wild west. Prices were falling through the floor and loans were defaulting left & right. Banks were so far behind on handling home owners who fell behind on their payments and because they had no systems in place the only option was to foreclose. Most owners didn’t know what to do when their mortgage company wouldn’t answer phone calls or would send them into voice mail loops for days and weeks at a time and could never speak to a live person. Home owners became frustrated beyond all belief because there were no answers to the problems they faced.

5 years later the game has changed. Banks have realized that it’s more expensive to foreclose than helping home owners to complete a short sale or modification. Between attorney’s fees, loss of revenue from a paying mortgage ( some times for 2 full years), property damage, and endless management fees until the home finally sells as foreclosure. Systems & procedures have been established to give home owners more options than ever when they can no longer afford their mortgage and the major banks are extremely cooperative when payments fall behind. Many of the mortgage lenders are now calling when this happens to offer owners a way out with incentives up to $35000 in moving expenses for completing a short sale. In November, short sales accounted for more than 9% of single family home sales and were up 32% from the year before, according to CoreLogic. Short sales are being approved now more than ever providing home owners a way out.

The short sale process is being refined down to the finest detail so home owners have a way out now and prevents the dramatic decline in values that foreclosures represent ( up to %40 loss of value). Programs like HAFA, HAMP, & HARP are designed to free home owners from burdensome mortgages and receive moving expenses (up to $3000). Banks are offering cash incentives ($3000- 35,000) for home owners who complete short sales and streamlining the process so home owners have direct answers in short time periods. BofA, the largest servicer of home loans, did 107,000 short sales last year. That was up from 92,000 in 2010, which was double the 2009 volume, it says. New legislation has even been proposed to have answers in writing with in 75 days of an offer being submitted on a short sale.

Under water homes have more options than ever to get a fresh start, get out from a mountain of debt created by an economic down turn & a bad mortgage. However time is of the essence because the mortgage debt forgiveness act of 2007 is set to expire at the end of the year. This prevents owners from having to pay taxes on the difference of what they sell for and what they owe.

An opportunity exists for people who are behind on mortgage payments or soon will be. The opportunity to sell a home for less than what is owed while having the least impact to credit scores and receive cash to help with moving expenses. At no other time during this financial down turn have so many advantages been offered to struggling home owners.

Jeff Donnellan  Re/max

http://www.webhomesearcher.com


When Should a Home Owner Consider a Short Sale?

February 12, 2012
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Tips for Underwater  Home Owners Who Want to Avoid Foreclosure

by Jeff Donnellan RE/MAX

The US is beginning its 6th straight year of declining home values.  Like myself, 10 million home owners are underwater on their mortgages.  This is not always a problem if there is a long term solution like waiting out the market or renting your home until the mortgage is paid off or values return.  Many home owners that have experienced a hardship like loss of income, wage reduction, increased bills, death of a family member or divorce time is working against them.  They can’t wait out the market until it gets better, they need a solution now.  Most people in these situation are at the end of their rope and savings accounts are running dry.  Now is the time to find out what solution is best, refinance, mortgage modification or short sale.

Here are a 10 tips for home owners who owe more than what their home is worth and they don’t know what to do.

1.  BEWARE of foreclosure prevention scams.  Many unscrupulous people prey on distressed home owners at their moment of weakness.   Never agree to up front fees.  Check credentials and ask for referrals.

2. Be realistic. If you’re spending more than you make each month or have a hardship now or foreseeable future take action now that could prevent defaulting on your mortgage and bills later on.  Ignoring the problem will only make it worse.

3. Must ask the question can I (we) or do we want to stay in the home?  Be honest with yourself.

4.  Seek out information. My website is filled with information to help home owners.  www.webhomesearcher.com

5. Contact your bank and specialists like a Short Sale Realtor, Short Sale Attorney, Mortgage broker.  Each will be able to help you discover all possible options. Banks are more willing now than ever to keep people in their home instead of foreclosing.

6.  Government sponsored programs such as HAMP (mortgage modifications), HARP ( refinance), & HAFA (short sale 3k to home owner for moving expenses) are available to struggling home owners.  Use these programs while they are still available.

7. A Short sale is not the end of the world.  It’s a practical solution to a difficult situation.  No cost to home owner. Credit scores can be affected as little as 50 points, better than foreclosure on credit report and can qualify for a new home mortgage in as little as 2 years and can negotiate away the deficiency ( difference between amount sold and amount owed).

8.   In some cases renting the home is possible if rent prices meet or exceed mortgage payments.  This can be a risk as well because if the tenant doesn’t pay mortgage payments will be missed.

9.  Consider what is best for your short term and long term future.  A foreclosure can stay on your record for 10 years and could prevent purchasing a home again for up to 7 years.

10.  Some banks are offering up to $35000 for home owners to complete a short sale instead of letting the home go into foreclosure.  Contact your bank to see if there are incentives.

My best advice is to meet the problem head on.  The longer  a home owner waits to take action the fewer options will be available.  I have often been contact when there is only 1 month left until a home forecloses and there is very little that can be done to save a home owner.  In contrast when I’m contacted early in the process all options are available.  This process can be scary &  frustrating, but in the long run will benefit your financial future.


Is Your Mortgage Weighing you Down? Short Sale v.s. Foreclosure

February 3, 2012
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What Home Owners Need to Know about Avoiding Foreclosure

By Jeff Donnellan RE/MAX

25% of Home Owners are underwater on their mortgage due to 5 straight years of home price declines and home prices have reverted back to 2001-2002 values in most markets.  This means that anyone who  has purchased a home in that time & didn’t make a large down payment owes more than what their home is worth.  During this time  many Americans have lost their job, experienced wage reduction or other hardships that made paying their mortgage extremely difficult.  This is nothing to be ashamed of because most people in this situation spend all of their savings just trying to keep their home.

Our neighbors are suffering in silence. 1 out of every 7 homes in the U.S. is in some state of foreclosure.  7 out of 10 do absolutely nothing about it.  It doesn’t have to be so.  Their are foreclosure alternatives such as a short sale, renting the home or a deed-in-lieu.  A foreclosure is an extremely traumatic event for a family and the worst thing that can affect your credit score (worse than bankruptcy).

Reason Against Foreclosure

  • A foreclosure is worse than bankruptcy
  • A foreclosure is public record for 10 years
  • A foreclosure could jeopardize future employment because employers check credit.

Reasons for a Short Sale

  • Home owner is in control of the selling process, allowed to sell and move with dignity
  • Less impact on credit score. Can drop as little as 50 points v.s. foreclosure 300 or more
  • Owner can qualify for another mortgage in 2-3 years, 7-10 after a forclosure
  • Short sale will be recorded as ” Paid in Full” or “Settled”
  • Owner can receive up to 3K to moving expenses under HAFA guide lines

Most mortgage companies and banks are now more cooperative than ever by participating in programs such as HARP, HAFA, & HAMP.  These programs are meant to help home owners  refinance or modify their mortgage and stay in their home or short sell their home if the hardship is too great.  In a previous blog  Why Would Your Bank Accept a Short Sale I detailed why banks don’t want to foreclose and how they are trying to help home owners relieve the burden of a mortgage they just can’t afford.

To find the best option contact an experienced short sale Realtor.  Since each person has a different situation, an experienced short sale Realtor can make recommendations what is best for you.

This Article was written by Jeff Donnellan RE/MAX CDPE (Certified Distressed Property Expert).  Find more information about Foreclosure prevention and short sales at www.webhomesearcher.com


Chicago Real Estate: 10 Things to Know Before Buying a Short Sale

January 31, 2012
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Roughly 15-20% of the Chicago Real Estate Market would be classified as a short sale.  This is when a home owner owes more than what their home is worth, (usually behind on payments ) and is asking their bank permission from their bank to pay less than what is owed on the mortgage.  According to MLS data from Oct. 2011 short sales sold for 77.3% of market value where as traditional sales and Bank Foreclosures sold for 92.1% & 88.6% respectively.   So how does the average home buyer go about taking advantage of this deep discount.

1. Be patient!  Short sale can take as little as 60-120 days but in some cases up to 6 months.  It’s a complicated process and moves      slowly because most banks are understaffed in this department or experience high turnover.

2.  No short sale is ever the same.  Find out what bank owns the loan and if there is a 2nd loan on the home as well.  Some banks are easier and faster to deal with than others.

3.  If the price of a home is too good to be true than it probably is.  Ask how the listing Realtor determined the listing price.  Is it based upon market value? Did the bank determine the asking price ?  Or was it a negotiated price of a previous offer?  Did the agent just make it up?

4.  Be sure to find out how much the seller owes on their loan(s).  The less they are shorting their bank the more likely the sale will be approved.  If they are asking 150k and their loans are 400k chances are it will be difficult to prove the drastic loss.

5.  Ask if the listing agent has previous short sale experience.  This is critical.  An experienced agent will have all the documentation necessary to submit a complete short sale package to the bank for approval.  Incomplete packages are the number 1 reason for delays.

6.  Has a BPO been completed or ordered?  This is the 1st milestone in the short sale process.  The bank will order a BPO or broker price opinion after receiving the short sale package.  This is done by a 3rd party and helps a national bank determine home values in a specific neighborhood.  Some times this valuation will come back higher than the offer price or even the listing price.

7.  Another key question to ask “have there been any previous offers?”  Often times if a previous offer fell short critical information was learned like issues during the home inspection, problems financing the home because of repairs needed, acceptable sale price for the bank or just how quickly did the bank respond.

8.  Make sure the seller is cooperative.  A short sale seller is going to be dealing with a hardship like loss of job, income reduction or insolvency.  As a buyer you want to know they are engaged in the process and not in denial or stalling for time.  You will know this if they make the home available for showings, timely completion of contract, and short sale package submission.

9.  Be sure to ask for regular updates.  Usually every 1-2 weeks events will take place as a sign the short sale process is moving along and the listing Realtor is actively following up with bank.

10.  Be ready to close.  Make sure you have an approval letter submitted with your offer and your loan ready to close before the banks final acceptance.  This will greatly speed up the process on the back end by not waiting 30 days for loan processing.

When choosing a Realtor to help in your purchase make sure they are experienced and comfortable with short sales other wise you could miss out on 20% of the homes and some of the best deals.

Jeff Donnellan Re/MAX

http://www.webhomesearcher.com