Short Sales: Buyers Beware

November 17, 2011 By

The short sale process can be a tricky process for both the seller and the buyer. When discussing short sales, many people tend to focus on the seller and how the process effects them. however, the buyer is also very important to the process and stands to gain, or lose, the most if the process isn’t handled correctly. since every lender is different, navigating a short sale can be difficult for buyers. if a buyer can successfully manage the process, they stand to gain a great deal on a home. There are a few things anyone considering buying a short sale should know to make sure they come out ahead.

It Takes Patience

Unlike a traditional sale, the short sale process can take several months to complete. Buyers are used to being able to put in an offer, find out if their offer was accepted and close within a month or two. Short sales are quite different and there is numerous factors that can hold up the process. the biggest hold up is the bank. since the bank is agreeing to allow the seller to sell the home for less than is owed on the mortgage, and often less than what it is worth, they hold all of the power. Banks will often hold multiple offers and wait for the best offer. after all, they want to make as much of their money back as possible. It isn’t uncommon for buyers to have to wait 3 months to hear back from the bank about their offer and wait another 3 months to close.

Buyers that are in a hurry to purchase are not good candidates for short sales. they simply do not have the time to invest in the process. the short sale process cannot be rushed and buyers are often disappointed when they find that it can take several months to successfully purchase a short sale. however, this doesn’t mean that buying a short sale is impossible or should be avoided.

Buyers are advised to get preapproved for their mortgage financing before putting in an offer on the home. this can make or break whether an offer is accepted and, when a bank finally does make up their mind, they want to seal the deal fast. a preapproved buyer has a better chance at having their offer accepted than someone waiting to get financing. Also, buyers should put in their strongest offer right away. Banks do not like to negotiate and it isn’t uncommon to have an offer rejected over attempts to low ball. if a buyer is serious about a house they should go in with their top dollar right away.

It Takes Understanding

Another road block for buyers is the condition of the home. Similar to a foreclosure, many short sale homes are listed for as is condition. Banks are rarely willing to agree to any repairs and buyers should be aware that they have very little room for negotiating any repairs or upgrades on the property. however, buyers need not be concerned about the property being trashed. Although it is common for previous owners to trash foreclosures prior to moving out, this is rarely the case with a short sale. the seller stands to benefit from the sale by avoiding the hassle of foreclosure, so they generally keep the home in good repair. Buyers should ensure they request a home inspection as part of their offer. if there are any problems or major repairs that need to be fixed, they have the right to walk away from the deal.

Short Sales: Buyers Beware

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Short Sale

October 1, 2011 By

A short sale is a viable way for a borrower to get rid of a home in order to face less financial impact on his or her credit report. Doing a short sale might not be the first choice for homeowners in a financial struggle trying to keep up with their financial obligations. However, sometimes there are no other choices but to sell a home as a short sale and avoid the stigma of foreclosure.

Of course getting your mortgage company to give you a loan modification would be a first choice for many homeowners who are behind on their mortgage payments. that is not always the case though. sometimes banks do foreclose of a borrower’s property when they are unable to work something out with the homeowner in a timely manner. a homeowner has to be active and see what other options their lender might be willing to offer them, because if they are unable to work something out then their home could be sold at the next foreclosure auction. in my professional opinion, a short sale is far less damaging than a foreclosure on anyone’s credit history. Sitting around and doing nothing is the worst thing a borrower can do. Always be proactive and talk to your mortgage company and see what they might be able to offer you. if you have tried several times to get a lower mortgage payment with no luck, and you are unable to maintain your mortgage payments then why not consider selling your home as a short sale. I understand it is hard to part ways with your home that has stood as tangible evidence of your past life with all the memories and all; but if you are unable to make your mortgage payments and you do not want the property to be sold from under, then you must find a way to work out another solution. a borrower’s home will be sold at a foreclosure auction if nothing is done to work something out with his/her lender ahead of time. it is not a good thing for any homeowner who might already be under heavy financial stress in the first place to be told their home was just sold in an auction.

The short sales being offered today often offer a quick move out option that will offer the homeowner up to $3000 to vacate the property faster than normal once sold. the longer the property stay there without making any income, the more costly it becomes for the mortgage company. it is better for a mortgage company to rid the property of any non-paying borrowers so that they can turn around and close on the sale to the new buyer. therefore, it is more beneficial for them to offer money to get a borrower out of the property when it is time to do so. you really can not blame them, they are in business to survive.

Short Sale

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The Short Sale Process – Understanding the Short Sale Process

September 19, 2011 By

When housing prices in many parts of the country were booming a couple of years ago, there wasn’t much national attention given to short sales. But with the current subprime debacle and increasing mortgage delinquencies, many people are wondering if the short sale process is a way to avoid foreclosure.

Basically, the definition of the short sale process is when the lender of a property allows the property to be sold for less than the amount due on the mortgage loan.

The obvious benefit to the short sale process is that it allows the seller to avoid the credit report damage associated with a foreclosure. A foreclosure can stay on your credit report for up to 10 years and can take an emotional and financial toll on you and your family.

But the pitfalls of the short sale process should be considered as well. the I.R.S. may consider any debt forgiveness as taxable income, thus resulting in a tax liability. in addition, lenders can often pursue a borrower for the deficiency balance (the difference between the amount owed and the amount paid).

In some cases you may be able to avoid taxation if you can prove you are insolvent. But if insolvency is unsuccessful, and you are faced with a tax liability resulting from the deficiency amount, it may make more financial sense for you to let the lender foreclose.

The Short Sale Process

The short sale process can vary, but it will generally work as follows:

1) the lender is contacted to discuss the possibility of a short sale and to determine the lender’s process for completing the sale.

2) the seller issues a letter authorizing the release of personal information about the loan and the property to the buyer or escrow agency.

3) the lender will review a settlement statement, which will indicate the proposed selling price, remaining loan balances and itemize all expenses, including real estate commissions and other fees and expenses associated with the closing.

4) the seller will complete a hardship letter, which will detail and explain all financial difficulties. Lenders will usually want to validate the seller’s financial situation by looking at bank statements, investment accounts, along with examining paystubs and other financial records.

5) the lender will then look to the broker to provide a price opinion by examining the condition of the house and the market value of comparable properties.

6) the lender will then want to scrutinize the purchase agreement to determine if all amounts are reasonable and the real estate commission is acceptable.

Because of the documentation required, the short sale process can be lengthy. But if done correctly, it can work well for all parties involved. the lender avoids the uncertainty of the foreclosure process, the seller avoids a foreclosure on his or her credit report (along with potential bankruptcy), and the buyer hopefully got a good deal on a property.

Considering the complexity of the short sale process, you must be educated. If you are considering a short sale, make sure that you discuss your situation with a competent lawyer and accountant. the more educated you are on the process, the easier the transaction will be, and the better the impression you will make on the lender.

The Short Sale Process – Understanding the Short Sale Process

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Should You Consider a Real Estate Short Sale?

September 10, 2011 By

Hopefully you will not find yourself needing this information on real estate short sales however if you do this article will be helpful.

What exactly is a short sale?

It is an option given to homeowners allowing them to sell their property for less than they owe on their mortgage loan. a short sale is often used as an alternative to a foreclosure, which mitigates additional fees and costs typical with foreclosures to both the creditor and borrower.

In a declining real estate market a homeowner can be upside down in his or her property, meaning that the debt on the property exceeds the current market value.

The actual process can take many months to complete and there is no guarantee that lender will ultimately agree to the short sale.

In order to qualify for a short sale, the homeowner must demonstrate financial hardship.

If you find yourself considering a short sale, create a hardship letter to be sent to the lender and that letter should be no more than one page. Do not blame the lender in your letter as the reason for the hardship even though you might feel there is cause. State your reasons being factual and truthful. Common valid hardship reasons are the following though not exclusive:

  • Loss of Job
  • Illness
  • Divorce
  • Relocation

Ask the lender for their help based on your specific hardship.

When negotiating with your lender, you can require that the bank waive its right to a deficiency judgment otherwise you could be held liable for any outstanding balance after the house is actually sold.

Credit Implications- bad news is the fact that your credit history will reflect your sale of your home and remain on your credit history for seven years. this likely will affect your ability to apply for credit for several years including purchasing another home.

After you have completed the short sale, request a free credit report from Annual Credit Report’s website. you are entitled to a free report from each of the three major reporting agencies. it is recommended that you request your reports from each of the three agencies one at a time in other words one report every four months.

Tax Considerations – a short sale in which a portion of the debt is forgiven is considered a relief of debt and may be treated as income for tax purposes. this will result in the lender issuing a tax form 1099 C known as cancellation of debt.

Check with a tax adviser to review current tax rules dealing with the cancellation of debt rules as Congress passed new regulations concerning a homeowner’s residence in the case of foreclosures and short sales.

There was an exception rule that allow a taxpayer to escape the additional taxes, however that expired in 2010. the exception might be or has been reinstated so do discuss this tax issue with a tax professional.

Should You Consider a Real Estate Short Sale?

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How to report short sale stock in schedule D if it's not closed by the end of 2006?

August 19, 2011 By

The 1099-B form from my brokerage firm shows a short sale as a sale proceeds amount and therefore IRS is going to treat it as a gain. but I didn't buy to cover the short sale of stock.

How to report short sale stock in schedule D if it's not closed by the end of 2006?

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