Short sales and the things to consider.

By Frank Becerra on December 19, 2011

If you’re thinking of selling your Southern California or Las Vegas Real estate short sale, and you expect that the total  amount you owe on your mortgage will be more than the selling  price of your house, you may need to consider a short sale. A short sale of real estate in Southern California or Las Vegas is one where the net proceeds from the sale won’t cover the total  mortgage obligation and closing costs, and you don’t have other  sources of money to cover the deficiency. A short sale is different  from a foreclosure, which is when your lender takes title of your  home through a lengthy legal process and then sells it. Unlike a foreclosure, a short sale may allow you to purchase a home much sooner and your credit will recover from the impact of the short sale much sooner than with a foreclosure.
 1.  Consider loan modification first
If you are considering short selling house because of financial  difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home.  Your lender may agree to a modification such as: Refinancing
your loan at a lower interest rate; providing a different payment plan to help you get caught up; or providing a forbearance period if  your situation is temporary. When a loan modification still isn’t enough to relieve your financial problems, a short sale could be your  best option if:

  • Your property is worth less than the total mortgage you owe on it.
  • You have a financial hardship, such as a job loss or major medical bills.
  • You have contacted your lender and it is willing to entertain a short sale.

2.  Hire a qualified short sales agent
The first step to a short sale is to hire a qualified real estate professional and a real estate attorney who specialize in short sales. interview at least three candidates for each and look for prior short-sale experience. Short sales have proliferated only in  the last few years, so it may be hard to find practitioners who have closed a lot of short sales. You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won’t try to take advantage of your situation or pressure you to do something that isn’t in your best interest. A qualified real estate professional can:

  • Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
  • Help you set an appropriate listing price for your home, market the home, and get it sold.
  • Put  special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).
  • Ease the process of working with your lender or lenders
  • Negotiate the contract with the buyers.
  •  Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval. You can’t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.

3.  Begin gathering documentation before any offers come in.

Your lender will give you a list of documents it requires to consider a short sale. The “short-sale “package” that accompanies any offer typically must include:

  •  A  hardship letter detailing your financial situation and why you need the short sale
  •  A  copy of the purchase contract and listing agreement
  • Proof  of your income and assets Copies of your federal income tax returns for the past two years

4. Prepare buyers for a lengthy waiting period.
Even if you’re well organized and have all the documents in place, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take several weeks to months. Although in recent months the time that most banks are taking to process short sales have declined sharply as the finally learned that they can sell the home for more in the short sale process than in the foreclosure process.

Some experts  say:

If  you have only one mortgage, the review can take about two months. With  a first and second mortgage with the same lender, the review can  take about three months as typically the second takes a wait and see approach as to how much the first loan will give them.

With two or more mortgages with different lenders, it can take four  months or longer in some extreme cases.

When  the bank does respond, it can approve the short sale, make a  counteroffer, or deny the short sale. The last two actions can
lengthen the process or put you back at square one. (Your real estate  attorney and real estate professional, with your authorization, can  work your lender’s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.)

5. Don’t expect a short sale to solve your financial problems.

Even if your lender does approve the short sale, it may not be the  end of all your financial woes. Here are some things to keep in mind: You  may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about your options.

Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount.  Under a temporary measure passed in 2007, the  Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify. Having  a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will impact your credit score  less than foreclosure and bankruptcy.

6. You don’t have to fall behind to do a short sale.

With internet networking and social media at an all time high, sources of information cannot always be relied on as most are hear say. Such is the case that you have to ruin your credit and/or fall behind in order to do a short sale.

To the contrary, most people that want to buy a home destroy their chances for a long time because they decide to do this and think that it is the only way a bank will pay attention.

If those that do this would stop doing it, they could go buy a house the day after the home closes and, when negotiated properly, have debt forgiveness and a new home.

Bottom line is that you can do a short sale and you do not have to fall behind.

7. Get money to relocate.

If your bank participates in this type of program, and you qualify, you could be given money to move.

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Short sales, foreclosure sale, 1099????

By Frank Becerra on October 29, 2011

I all the time I have been teaching homeowners and agents the pros and cons about doing a short sale in California or doing a  foreclosure sale in California or Las Vegas alike, the same question keeps coming up over and over again and it usually starts out like this…

“I heard that if I do a short sale I will get a 1099″ I usually expand on that and tell them, “did you know you will get one if you do a foreclosure as well.”

Misinformation travels quickly, and although these statements are both true ans concerns those who ask it, most people don’t know what a 1099 is or have had limited exposure to one.

Oh, and here comes my disclosure statement, this is not legal or tax advice, please contact a competent professional that specializes in these matters, this is for informational purposes only.

In the hope of balance, if there is a loss, meaning the amount that was originally lent, and the amount the home sells for, the difference is a loss to the investor. Well if no one received a 1099, there would be a bit of an imbalance, don’t you think? The 1099, in the case of a Los Angeles Short sale, San Diego short sale or a Las Vegas short sale balance the difference by giving you the credit for earning money.

What you didn’t make money?, the IRS thinks so.

Now with the 1099 (your earned money) plus the price the home sold for equals the amount of debt you had on the house, all is well and balanced.

Most people don’t want to pay the taxes on the earnings and is where the concern comes from, well… the government several years ago approved a measure that with the preparation of a form on your taxes you do not have to pay for the taxes as if they were earnings, but those people that tell you about the 1099 during a short sale in Las Vegas, Short sale in San Diego or a short sale in Los Angeles fail to tell you the great part of not having to pay them. The speceific reason why it does not have to be paid is because of the mortgage debt relief act and debt cancellation. The act was enacted back in 2007 and is valid until 2012 and unless it is extended they will go back to considering the 1099 as earnings.

If you have been considering doing a short sale, now that you know that the 1099 is not as bad as you thought, you should do it before the act expires. Lenders have become more efficient in the processing of short sales, and in some cases will give you money to move and relocate. If you do not fall behind on payment during a short sale, and you credit is ok other than the short sale you can go buy a home the day after the closing of the house.

Now with the passing of SB458 in California where the debt in a short sale can no longer become a deficiency, or in case of Las Vegas short sales where we still get the same acceptance in writing from the seller  and no deficiency is pursued, the best time do consider a short sale is now.

If you have questions please do not hesitate to ask we can set a free appointment, free consultation and the short sale is done for free. We have experience working with short sales in Los Angeles, short sales in San Diego and short sales in Las Vegas.

 

The full text of the mortgage forgiveness debt releif act and debt cancelation  can be found by following the link

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Los Angeles real estate couuld see loan limits restored helping California real estate overall

By Frank Becerra on October 21, 2011

A vote from the senate on a bill that would restore loan limits to where they were at in September has been approved and will now move to the house potentially helping the Los Angeles real estate, San Diego real estate and other coastal California Real estate markets

If this is bill is approved this would restore the limits back to 729,750 from 625,500, that left some home buyers and sellers in higher priced areas such as the Los Angeles real estate markets and the San Diego real estate markets were sent scrambling to find financing when their transactions did not close on time or buyers could not find homes in time.

Senator Menendez agreed that the lower loan limit was making a weak housing market even weaker and was quoted as saying. “It makes it harder for middle class homebuyers to get credit when credit is tight,” and he was also quoted saying Getting the housing market moving again is one of the most important tasks facing the country,” .

However the bill still has to be passed by the House of Representavives where there may be oposition. Republican Senator Richard Shelby  stated that the measure would help homebuyers who “do not need federal subsidies.” “This is not a good use of taxpayer dollars,” .

The bill will have to pass both to reach the president to sign into law.

High priced areas such as the Los Angeles real estate market, Orange county real estate market and San Diego real estate will benefit if the bill is approved again since these would be for conforming loan limits often used by first time buyers or those that do not have high amounts of down payments. At present some potential buyers have to wait until they either save more money for down payments or the new bill passes.

 

Source: “Senate Backs Plan to Help Americans Buy Homes,” Reuters (Oct. 21, 2011)

 

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San Diego short sales real estate to benefit from SB458 promise to release short sale deficiency.

By Frank Becerra on October 16, 2011

Home owners attempting to do a San Diego short sales prior to the passing of this law ran the risk of having second lien holders come after them for the deficiency amount of the short sale. The law is not retroactive to the best of my knowledge.

Currently, sellers in California that sell their homes that are secured by a mortgage and the home has no more than 4 units (single family, condominiums, duplex, triplex and fourplexes) can benefit from the new rules.

In the old legislation, despite popular hear say, after the sale a the second lien holder could come after the seller for the deficiency if they did not put it in writing in the San Diego short sales letter of approval. Many letters released the house so it could be sold, but not the  San Diego short sales seller of the debt.

The current law states that if the bank accepts less than what they are owed, and they agree to do the short sale, they are also agreeing to release the responsibility for the seller and not come after the seller for the deficiency.

We have had great success even before the passing of sb458 in obtaining written instructions saying this to ensure sellers had no problems, which we continue to request today.

Unlike a foreclosure, a short sale will not show on your credit as a foreclosure, and you do not have to say that you had a foreclosure on credit applications. Furthermore the other benefit of a short sale is that there are loans that allow you to purchase a home the next day after the short sale closed if you did not fall behind on the payments of your home and your credit is acceptable.

The benefits of doing a short sale now outweigh those of considering a foreclosure and the legislators know it.

By doing a short sale with a San Diego Short sales specialist you

  • Avoid a foreclosure on your credit.
  • Can purchase a home as soon as the day after the sale of the house.
  • You are no longer responsible for the deficiency.
  • Banks, in some cases, will give you money to relocate.
  • Your credit recovers quicker.
  • You do not have to answer yes on credit aplications if you have not had a foreclosure.
  • Banks prefer short sales over foreclosure.
  • Banks pay for the San Diego Short sales agent fees.
  • A short sale is done at no cost to you.

The full text for SB458 and how it affects San Diego short sales is here

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