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Got question about Short Sales?
Buying and Selling Distressed Properties
Short Sales and Forclosure Issues
What is a short sale?
A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.
Why is the number of short sales rising?
Due to the recent economic crisis, including rising unemployment, and drops in home prices in communities across the nation, the number of short sales is increasing. Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses.
A short sale can also be the best option for a homeowners who are “upside down” on mortgages because a short sale may not hurt their credit history as much as a foreclosure. As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially.
Courtesy of the National Association of Realtors website.
Common Results from Short Sales?
- Lien is released; seller forced to carry remaining debt with a payment schedule.
- Lien is released; seller is forced to liquidate other assets to pay balance remaining.
- Lien is released; lender sues for deficient amount.
- Lien is released; lender report loss as a "charge off" or "collection" to credit bureau, causing seller's credit to be negatively affected (like a foreclosure or bankruptcy).
- Lien is released; lender forgives remaining indebtedness.
- Lender ignores the contract.
- Lender refuses to approve contract as written and indicates net proceeds it requires for the short sale to happen.
Mortgage Forgiveness Debt relief Act of 2007
Prior to the Mortgage Forgiveness Debt Relief Act of 2007, forgiven debt ( the portion of the mortgage debt cancelled by the lender in a short sale) was considered taxable income, which placed considerable strain on distressed sellers.
Under this law, which was passed in December 2007, up to $2 million of qualifying mortgage debt forgiven on the taxpayer's principal residence in 2007, 2008, or 2009 will not be treated as income for the taxpayer.
The limit is $1 million for a married person filing a separate return. Mortgage debt reduced ( forgiven) through restructuring, such as a workout or short sale, as well as mortgage debt forgiven in connection with a foreclosure, all qualify for the tax exclusion.
The act applies to only principal residences, not vacation homes or investment property.
For more information please visit the IRS website .
Buying a Foreclosed Property
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Finding Foreclosed Property Has Become Easier
Gone are the days of having to show up at the courthouse auctions or searching through legal filings. Many banks sell homes that have been foreclosed through local realtors.
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Better to Buy From a Bank
Buying a foreclosed home before it has been repossessed, you will have to pay cash and you won't be able to inspect the property. You may also discover outstanding liens on the property.
After the bank has repossessed a home, you will can feel confident there aren't any outstanding liens. You will also be able to inspect prior to purchase and your foreclosed purchase can be financed.
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Consult a Contractor Prior to Purchase
Due to the high rate of abandonment and vandalized properties, it is best to get a accurate estimate on the cost of repairs needed and how long it will take. Underestimating repair cost and surprised bills is sure way to regret the purchase of what you thought was a great deal.
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Low Ball the Offer
Just because the home has been foreclosed bank aren't just giving them away. Like anything, if you can get some good market intelligence it puts you in a better negotiating position. How many foreclosed properties does the bank have? How long have they had the house you are interested in foreclosure? Start off with an offer about 20% of the market value to get the negotiations in motion.
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Be Patient
There is a lot of foreclosures on the market. Some banks have more foreclosed property than others. Some are even buried in a backlog that can delay their response. It is best to look for more than just one property, get your financing pre-approved and follow-up.
Source | Money 2009 |
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Larry Meyers | ReMax Island Realty | 99 Main Street | Hilton Head Island,
SC | 29926
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