Friday, November 23, 2012

Short Sale's Impact on Credit History and Income Tax


What is a short sale? 
A short sale occurs when a homeowner who is behind on his or her mortgage payments, and who owes more on his home than it is currently worth, contacts the mortgage lender asking the lender to allow him to sell the home for less than the balance of the mortgage. If lender agrees to proceed, the 'short sale' occurs.

Effect on credit score
In regards to your credit score, the negative credit impact of a short sale is generally significantly less than that of a foreclosure. A short sale will not appear as a foreclosure on your credit report, and therefore only the previous delinquency on your mortgage will appear.

How much of a plunge your credit score will take exactly knows only one agency:  Fair Isaac, who created FICO scoring. Unfortunately, they keep the formula quite secret. It is fair to say, that your credit score might be lowered by something in the neighborhood of 75-185 points. The higher the borrower's initial credit score, the steeper the drop.

It is very important to understand how much proper negotiating can prevent a steep drop in your credit rating. The key to getting the best result is to have your agent negotiate out a "Paid as agreed" or "Paid in full" reporting to the credit company. If this is how it is reported, then the impact is minimal. Is your short sale is reported as “settled for less than amount owned”, you credit score will suffer more.

Experts do advise that the missed payments will hurt more than the short sale itself. The most dramatic difference between the effect of short sale and foreclosure on your credit worthiness is the waiting period before you can qualify for a new loan. Going through foreclosure will make it very difficult for you to get a loan for at least three to five years; if you've done a short sale, you may be able to qualify for a new mortgage within two years.

Short sales and income tax
In most cases the lender by agreeing on a short sale agreeing to settle the debt for less than the amount owed. The lender is allowed to write off this loss against their income. When a loss of $600.00 or more is written off, they are required to send the borrower a 1099-C (Cancellation of Debt), for the amount that they wrote off. The IRS considers “debt relief” to be income for tax purposes. The income must be reported by the borrower on their tax return the year that the debt relief has occurred.

The Mortgage Forgiveness Debt Relief Act Of 2007 provides Federal tax relief under certain criteria, relieving borrowers of the obligation to pay taxes on the amount of “debt relief” reported on the 1099-C received from the lender. The Act provides relief for debt forgiven in tax years from 2007 through 2012. It applies to debt forgiven up to $2,000,000 for a married couple and $1,000,000 for an individual tax payer or a married person filing separately. It is always a good idea to talk to your real estate agent, short sale negotiator and tax professional regarding such matters.

Provided by RealtyProx.com

Common Short Sale Questions


What is a Short Sale?
In a short sale, the lender allows the property to be sold for less than the total amount due on the loan. In some cases, the lender forgives the remaining debt. Usually the mortgage lender agrees on a short sale when the owner of the property has fallen behind on mortgage payments and foreclosure on the property is imminent. The beauty of short sales is that they can be a win-win-win situation for seller, buyer and lender.

What makes me eligible to do a Short Sale?
If one can prove that all three of the above statements are true in their case, they are a potential candidate for s short sale:

  • The home's market value has dropped;
  • The mortgage is in or near default status;
  • The seller has fallen on hard times.

Hard comparable sales must substantiate that the home is worth less than the unpaid balance due the lender. It used to be that lenders would not consider a short sale if the payments were current, but that is no longer the case. The seller must submit a letter of hardship that explains why the seller can not pay the difference due upon sale, including why the seller has or will stop making the monthly payments.

The value of the property must be determined by a licensed appraiser hired by the lender who is familiar with the particular market the property is located in. This valuation is commonly known as BPO (Broker's Price Opinion).

Why would the lender agree to take less money than they are owed?
While it may seem surprising that lenders would agree to accept less than what they are owed, they benefit from the process, too. The lender benefits by not having to go through the protracted process of foreclosing on the borrower and then having to put the property on the market and go through the whole marketing process. A market saturated with foreclosures can cost lenders billions – and as much as $50,000 per foreclosure – according to a study by the congressional Joint Economic Committee. In today's market there is a very good chance that the lenders will end up selling the property for less money than they were owed, if they choose to go down the path of foreclosure. In the case of foreclosure they will incur additional expenses of foreclosing, such as attorney fees, title fees, taxes, etc. Thus a properly submitted and well-documented short sale offer can be very appealing to a lender.

How long does the Short Sale process take? Can you guarantee that my case will get approved?
The correct answer is – there is no correct answer. An approval can be comfortably achieved in about  45 days. However, many banks can approve your short sale in as little as 21 to 30 days. Unfortunately, there are also those few that might have your submission pending as long as 90 days awaiting approval. The right question to ask, however, is never “how long does it take,” but “when do I start?” A seller must be ready to close when the right buyer arrives. When you choose the right representation, your documents will be sent in early enough to commence the process safely in advance, but not so soon as to achieve a payoff before you have a contract in play. In handling short sales, there are no 100% guarantees. In fact, if somebody guarantees you 100% that your case will be closed, you should run from these people without even looking back. Having said that, a smooth and successful short sale is virtually guaranteed when handled by the right professionals.

Will a short sale take longer if I owe a lot more than my home is worth?
Not at all. The value of your home (relative to its outstanding mortgage balance) has absolutely nothing to do with either the length of time to get approved or the likelihood of achieving a successful short sale. The short sale process is about what your home can be sold for today, regardless of what it was once worth or how much was loaned against it in the past.

How long can I stay in my house while the Short Sale is pending?
One of the biggest advantages of a short sale is the option to extend occupancy. Our standard negotiation protocol enables us to put your foreclosure on hold indefinitely until the short sale process is complete. By doing this, you are able to remain in the home (payment free) for as long as the short sale takes. This gives you more time to make relocation decisions, save up a security deposit or catch up on other bills as you prepare to make a fresh start.

How long can I stay in my house while the Short Sale is pending?
One of the biggest advantages of a short sale is the option to extend occupancy. Our standard negotiation protocol enables us to put your foreclosure on hold indefinitely until the short sale process is complete. By doing this, you are able to remain in the home (payment free) for as long as the short sale takes. This gives you more time to make relocation decisions, save up a security deposit or catch up on other bills as you prepare to make a fresh start.

Will the lender(s) stop foreclosure actions while the Short Sale contract is being reviewed?
Usually they will. If the lender feels the offer is genuine they will grant a 30 day extension.

Can my short sale offer be rejected? What if the bank counters my offer?
Some short sale buyers make ridiculously low offers in the hope of getting away with the “steal.” These contracts often result in a counter offer more in line with market value. A good short sale Realtor and attorney know which contracts are reasonable and which are certain to be rejected. In knowing this, the experienced team can properly prepare a file for the bank counter well in advance of its arrival. We can also continue soliciting back up offers more in line with fair market value. By taking these anticipatory steps, the counter itself should not cost more than a few extra days in processing time and it will ultimately not prevent your sale from closing on schedule. Lenders do not normally refuse outright to accept a short sale, and counter offers can be successfully managed by an experienced short sale specialist.

Provided by RealtyProx.com

Monday, November 19, 2012

Underwater Homes Decrease in California.


The number of negative equity homes in California decreased in the second quarter (2Q) 2012 to 1,972,012. This is a 4.8% drop from the prior quarter (2,072,025), and a 10% drop from one year earlier (2,192,008).
29% of mortgaged homes in California had negative equity in 2Q 2012. This is down from 32% one year earlier.

Sunday, November 18, 2012

Options to Stop Foreclosure

OPTIONS TO KEEP YOUR HOME

1. Reinstate the Loan
2. Reduce your Expenses

OPTIONS THROUGH YOUR LENDER

3. Work Out Plan
4. Debt Settlement / Partial Repayment
5. Forbearance Agreement
6. Loan Modification
7. Refinance
8. Reverse Mortgage
9. Bankruptcy

OPTIONS THAT INVOLVE LEAVING YOUR HOME

10. Sell Your Home AS-IS
11. Equity Sharing
12. Deed in Lieu of Foreclosure
13. Short Sale
14. Lease Option
15. Walk Away

Foreclosure Property Search