short sale

[LewLew]

Originally Posted by Cyndyjg

Nearly all I do are short sales.
A short sale should only be considered if the goal is to get the borrower/seller a 'full satisfaction release' letter at escrow. Otherwise, there is no benefit to the seller of doing a short sale. You want to make sure that you are working with someone that is only representing your interests, not those of an investor. If you have someone do a short sale for you that is representing the buyer, there's a good chance you will get stuck holding the bag for the full balance of the remaining debt.
There has to be sufficient evidence that the borrower/seller can not afford to keep up with the payments at this time. If that is presented to the loan servicing company (Countrywide, Aurora, SLS, ASC/Wells Fargo, etc.), then there's a really good chance that the lender will be able to collect all or part of the 'losses' from the mortgage insurer.
A lot of people think that if they had two loans at the time of purchase, ie: an 80/20 that there is no mortgage insurance. Not true. Often, the first mortgage will be Freddie Mac or Fannie Mae backed/insured. Even the lender who funded the second mortgage may have placed mortgage insurance on the loan. Collecting on any insurance is key to getting the seller/borrower a full satisfaction release letter at escrow. The lender has to disclose to the borrower if there is, indeed, insurance on the loan.
The seller's credit report normally reads 'Paid, settled' on the mortgage line items. Unless they have fallen behind on payments, there should be no derogatory effect on their credit. They might have to do a letter of explanation if they apply for a smaller mortgage loan, etc. within the next 24 months. I encourage my clients to keep all their credit cards, car loans, etc. current. That way, they can show that the only reason that the sold the house short was that it was worth much less than they owed on it, and that when the adjustable rate mortgage reset, or they got divorced and lost part of their income, etc; they could no longer afford the house.


There are days when I think if I have one more agent or broker ask me this question, I will surely die right there and then... "Well, doesn't the bank know that if they don't approve this deal, they'll get nothing?"
It doesn't quite work like that, and I'm going to share a few details with you about how a short sale actually gets approved internally by the seller's banks.
Most loans have PMI insurance or MI insurance on them, even if the borrower/seller isn't aware of it.
So, let's say your 401K at work is invested for the employees in various stock programs, some of which are backed by Real Estate--- mortgage notes.
Your old investment vehicle might have earned you 5% return. Now, your fund manager decided to move some of your investment funds out of that vehicle, and into this higher interest earning fund that is backed by Real Estate--again, meaning mortgage notes. Now, you can maybe increase your yield by 3% or more, but it's a higher risk investment. The investor may elect to place insurance on that loan. Many borrowers were told that they have no insurance (PMI or MI) on their loans. In fact, many were told that the entire point of doing an institutional 80/20 was to avoid having to pay for that insurance. Yet, I often find that when I submit a short sale for approval, I suddenly am also working with an insurance underwriter for the PMI or MI carrier. Just more of the misleading information given to borrowers who got those loans, who are now being chastised by many for not being able to read and understand each line of that 122 page trust deed they signed while their moving truck sat in the parking lot of the title company when they bought the house.....
Frequently, I find that there is insurance on both the first and the second.
So, let me ask you to think like a mortgage servicing company's loss mitigation people for a moment:
"The insurance underwriter tells me that I must have a gross sales price of at least (X )amount to get reimbursed by the insurer for my losses at a rate of no less than (Maybe 70%) of my loss. The insurance carrier says that's within the margins of value required. OK, that's only $3,000 more than the buyer offered us. If I can't get the additional $3,000 from the buyer or ?, I get nothing from the insurance company. UNLESS the property forecloses in a foreclosure auction process."
Now, of course the negotiator might ask for more, trying to up the gross to the lender/investor. We all understand that. But, don't do the lender's thinking for them when it comes to what seems like a minor amount to you and I. It could be just the detail that prevents them from collecting on their losses. And, yes; a foreclosure might just be better for the lender in some instances.
All parties prepare to wipe that nonsensical question from your brain for all future short sale/real estate endeavours!!

I know several folks who did short sales. It is not what to do if you just want out fast. It is, however, a good option if you don't want to destroy your credit for a very long time, and satisfy your mortgage (conditionally) with the bank. You do have many things to prove to the bank, and one is a letter of hardship. No, you can't just write a nice letter stating you can't afford your home anymore...there are certain criteria. In short, and layman's terms....it isn't the best option, but a better one than having your home foreclosed on. You can try filing for bankruptcy in Florida (if that is the reason you can not afford your payments), as that stops foreclosure proceedings.

[Tampa Home Owner]

I couldn't help but read these threads because I am in the same situation with my home. There is a way to short sale your home and dodge the tax burden which results from the difference in what you owed the bank and what the home sold for. Under the "Insolvency" rule you're only obligated to pay taxes up to the amount of your total assets. For instance if your short sale results in a $50K difference sent you in the form of a 1099-C that you have to claim as income, you can then fill out another tax form (can't remember the form number off-hand) where you list your total assets to offset that 1099-C. Rule is that you're only obligated to pay taxes on as much as your assets are worth. So, if you have a 1099-C stating you have to pay taxes on $50K of income, you then have that other form stating you only have $10K in total assets.....you only pay taxes on $10K of that $50K 1099-C. I found this information on the Kiplinger site....check it out by searching "Insolvency" for tax purposes. Also, it's good to note that even though you forclose and the bank auctions off your home...they can still send you that 1099-C for the difference they've lost from what I understand.

[DJD3]

Two years ago I found a property with acerage and purchased it with an awful subprime loan before we sold our 1st house thinking we were in a great area where houses sell fast and the market hadn't clammed up yet. I never had taking such a risk before on anything. I had 6 months of payments for everything in the bank before doing this as a cushion. I homesteaded the new property thinking we were moving in there ( have been told to change homestead to back to my old house where I live to protect it). Then months went by and our 1st house did not sell. My husband was diagnosed with cancer and died 7 months ago. I had to quit paying the mortgage on the 2nd house but am paying the affordable mortgage on the first house, which I have lived in for 7 years and all my other bills on time. I can in no way afford 2 houses or even the crazy mortgage payment on the 2nd house even if I could have sold the 1st house. I have an 11 year old child who I get money from social security. I get a small pension from my husband's employer, work full time and can manage my bills . I recieved a life insurance settlement for less than $50K. I have a short sale offer on my 2nd property ( the outrageous mortgage that I have not been paying) If the short sale goes through I will be in the hole for like $200-250K. My questions are : 1- Would it be in my best interest to go through with a short sale or let it foreclose since the difference is like $200K or more? 2- Can the bank or IRS try to get the life insurance money I am trying to save for an true emergency or my son's schooling/braces/ or whatever? Or should I put it in an account with his name? Is my son's SS check considered my income for bank/ IRS purposes? 3- Is there a way for me to avoid paying taxes on the difference? Do you still have to pay taxes if it is foreclosed on? Or can I or should I file bankrupcy later. 3- If I remarry what is my impact on my new spouses credit if mine is bad. Mine was fairly good before 6 months ago. 4- Can I ask the mortgage company not to file a 1099 and what are the chances of that happening? 5- What type of legal person ( attorney or accountant) should I hire to help with this since I think my real estate agent isn't totally working in my best interest. I am trying to figure out what would impact my credit the least and cost me the least in taxes. I do not want to be paying the IRS for the rest of my life because my husband died and I am stuck holding the real eastate with no way to pay.

[annesg]

The IRS might not necessarily consider this income.....IF a proposed law gets passed. I don't have a good link but here's a little info:

Congress Looking To Change Short Sale Tax Implications

[bentlebee]

Thanks, but if you look at the date the thread was set up....in between I have bought a short sale and actualy had to read it again and was suprised how much a person can learn in a short period....soon the short sale will be history and "normal" sales will be back....when most people have refi or foreclosed and the banks are starting to sell their inventory...things will be back to normal...as long as the government stays out the sooner it will be back to normal...let people/companies fail if they make bad decisions! JMO

[mquintana]

I am going through this right now. We had 3 offers out on 3 different townhouses and all were short sales. One is out of the running because 2 other offers were made that were better than ours. We have been waiting 2 months. Short sale is a deceiving term because they are very time consuming and it takes a lot of patience-though worth it in the end. Hopefully we will here something soon, but it's when you put in your offer and then the owner has to accept it as well as the thrid party lender (the bank). then they need to get the place appraised and explain why they are taking a loose. The owner has to provide the bank with documentation as to why they cannot afford the morgage.