1 in 7 borrowers across the country are not paying their mortgage. Look down your street and count seven doors. One of your friends or neighbors are struggling to make their mortgage payments, or are missing their payments altogether. According to the Mortgage Banker’s Association’s second quarter 2010 National Delinquency Survey, nearly 14% of loans are in foreclosure or are past due.
For homeowners struggling to make mortgage payments, there are more options today than ever before. Short sales now account for more than 12 percent of all residential real estate sales. In San Bruno, short sales account for nearly 50% of the available housing market. Helping homeowners avoid foreclosure and understanding the options available to them is something I am passionate about. In an effort to continue to advocate on foreclosure avoidance in my community, I offer this small background on short sales.
What is a short sale? To put it simply, a short sale transaction is a sale of a property in which the outstanding debt (in the form of mortgages – such as purchase loans, refinance loans, home-equity loans, or one of the various other types of loans secured by your property) was more than the price for which the property was sold. Example: 1st and 2nd mortgages totaled $470,000.00 and the property was sold for $325,000.00. The sale price was $145,000.00 “short” of the amount that the seller had originally borrowed – thus the term “short sale.” Since the banks/lenders were essentially paid back less than what you borrowed, you could be deemed to have received a debt “forgiveness” of $145,000.00. A sale of this type requires bank/lender approval.
While there are many reasons why a bank/lender would choose this manner of sale, the important question is: What should you (as the seller of the property) know about this type of sale? If you participate in this type of sale, please be aware that:
- In some instances, you may be sued by the lender/bank for the money that was “forgiven”.
- The amount you did not pay back, which is a form of “debt forgiveness”, may be taxed by tax agencies for the “forgiven” amount. In the example above, you may be taxed on $145,000.00. For Mortgage Forgiveness Debt Relief Act and Debt Cancellation tax information visit: http://www.irs.gov/individuals/article/0,,id=179414,00.html
- If there are other lenders or lien holders (such as a 2nd or 3rd loan), the holders of the second or subordinate liens, may file a deficiency judgment in civil court against you to get their money back, even though the first lien holder allowed debt forgiveness.
These are just three major consequences of choosing to sell through a short sale. Therefore, it is very important that you seek:
- A licensed and qualified real estate agent to represent you in these types of transactions. To determine if the person is licensed by the California State Department of Real Estate and/or to check on a license status, please visit our website at http://www.dre.ca.gov.
- The advice of an accountant. To obtain the status of a Certified Public Accountant or a Public Accountant, please visit the California Department of Consumer Affairs – California Board of Accountancy at http://www.dca.ca.gov.
- The advice of a lawyer. To obtain the status of an attorney, please visit the State Bar of California at http://www.calbar.gov.
In addition, contact a free United States Department of Housing and Urban Development (HUD)-approved housing counselor at http://www.hud.gov or contact your lender directly.
In April of 2010, the federal government will offer financial incentives to push short sales through a program called Home Affordable Foreclosure Alternatives. The program is designed to spur home sales and one of its components will be providing government payments to homeowners (for moving and/or relocation expenses). For more information, please visit www.makinghomeaffordable.gov.
Foreclosure is avoidable and homeowners need solutions. Today more than ever, they need educated professionals to help them learn about their options. As a Alain Pinel Distressed Property Certified Agent, I can help assist homeowners in distress. If you would like a private consultation to discuss your foreclosure avoidance options, please contact me. I look forward to hearing from you.
Filed under: Buyer's Blog, Seller's Blog
Joe Capote 