Short Sales…if you’re patient, you can get a lot of house for your money.
Short sales are tougher to navigate than conventional sales and the process is pretty much the same with an added wrench in the mix…an Asset Manager. An asset manager works for the bank/lender and is the person that approves or denies your short sale offer. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales. Have questions about the short sale process? Ask them here, we’re happy to help.
Short sales benefit homeowners, lenders and investors
Nearly half of Arizona homeowners owe more on their mortgage than their homes are worth. While there are options, such as refinancing at a lower interest rate, that still doesn’t solve the problem of owing much more than what the home is worth. Perhaps the best option for many homeowners and lenders is a short sale.
Lenders are often willing to accept a short sale in lieu of a foreclosure on a property to avoid a lengthy and costly foreclosure, and a short sale allows the owners pay off the loan for less than what is owed. While a short sale will hurt the owner’s credit score, it will not do nearly as much harm as a foreclosure. It is takes around three years after a foreclosure for the homeowner to be able to find a reasonable interest rate on another home. But a person who goes through a short sale typically can buy another home with a reasonable rate within 18 months.
Many homeowners who walk away from home ownership find they can rent comparable houses for half their current mortgage payment. Renters do not have the responsibility of paying for repairs or insurance. But, they may have the advantage of staying in the same neighborhood, saving money while renting and being able to possibly purchase again within only a few years.
Short sales are a great opportunity for the investor, too. When a house goes on the market as a short sale, investors may be able to pick up properties at an amazingly low price. If you are considering buying an investment property through a short sale, contact Artisan Real Estate Group today.
Mortgage Foreclosure or Short Sale Tax Tips
If you are a homeowner whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income.
Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million ($1 million for a married person filing a separate return) of debt forgiven on your principal residence.
You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure. The debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
Debt forgiven on second homes, rental property, business property, credit cards or car loans do not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
My sister and her husband received a 1099-C for a property they had purchased for their children to live in. The 1099-C stated the assessed value of the property was $65,000, but we knew the property had sold for $1200.00 after repossession. We contacted the assessor and received a statement of value on the home, attached it to the income tax return and was able to reduce the amount of tax they would have been required to pay.
For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit http://www.irs.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.
You can also use the Interactive Tax Assistant available on the IRS website to determine if the cancellation of debt is taxable. The ITA tool is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions
Taxpayers may obtain copies of IRS publications and forms either by downloading them from http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
A short sale in real estate is not always a pleasant transaction
There are many ways to lose a home but signing away ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity is one of the hardest. For owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a “short sale.”
When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales.
If you are considering buying a short sale, there could be drawbacks. For your protection, we suggest that all borrowers obtain legal advice from a competent real estate lawyer and consult with an accountant to discuss short sale tax ramifications.
As real estate agents, we are not licensed as lawyers or CPA’s and cannot advise on those consequences. Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. could consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A real estate lawyer can determine whether your loan qualifies for a deficiency judgment or claim. Although all lenders have varying requirements and may demand that a borrower submit a wide array of documentation, the following steps will give you a basic idea of what to expect.
- Call the lender
- Submit Letter of Authorization
- Preliminary Net Sheet
- Hardship Letter
- Proof of Income and Assets
- Copies of Bank Statements
- Comparative Market Analysis
- Purchase Agreement & Listing Agreement
To increase you chances and receive better cooperation from the bank, we suggest working with a real estate agent, closing agent, title company or lawyer. Please feel free to ask your short sale questions here.
Will Housing Hit Bottom In 2011? | Strategic Defaults and Short Sale On The Rise!
Sometime, somehow, the foreclosure crisis will ease. But probably not anytime soon.
Home prices dropped 2.6% nationwide during the last three months of 2010, pushing more borrowers underwater, according to a quarterly real estate market survey from Zillow.com.
Now 27% of homeowners with mortgages owe more than their homes are worth. That’s up from 23.2% a quarter earlier.
That will surely lead to higher foreclosure rates soon. That’s because being underwater is second only to unaffordable payments in leading to foreclosure, according to Zillow’s chief economist, Stan Humphries.
Additionally, the report found that more than one-third of all homes were sold at a loss in December. That trend has been on a steady uptick for the past six months, as homeowners try to find ways around foreclosure or out from under their homes.
The so-called “robo-signing” events of the fall also forced the number of underwater mortgages higher.
When banks’ foreclosure paperwork came under scrutiny, many halted all repossessions until they could straighten things out. With foreclosures no longer being cleaned out of the system, more homes stayed underwater rather than moving on to foreclosure.
10 foreclosure hotspots
The moratoriums have been only temporary, however, and the defaults that had been stopped up in the foreclosure pipeline could come out in a gush over the next few months.
And any bump in the number of foreclosures adds to the likelihood that more homes will be dumped onto an already bloated market. That would just further depress home prices, continuing the vicious cycle that has plagued the industry for several years.
Source: Money.CNN.com
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(480) 560-5757
www.ArtisanRealEstateGroup.com
Robert Jeffrey, Designated Broker
6245 N. 24th Parkway
Suite 207
Phoenix, AZ 85016
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