 Metro-Detroit Michigan Real Estate & Entrepreneur Investment ClubWe are Metro-Detroit's source for connections and information on Metro-Detroit real estate and business. Our Next Renegade Detroit Investors MeetingTuesday November 3rd at 6:00 PM! Renegade Detroit Investors presents: Property Solutions of Michigan is negotiating dozens of deals right now in Michigan as well as Nationally. Steve has been investing in Real Estate since 2005, and has been doing short sales since 2006. He has invested in multi-family, single-family and done complete rehab projects with 18 rental units currently owned. In 2006 Steve began to focus his business more on short sales as he saw the market shift that was taking place. He has over 12 years experience in Title Insurance where he was a Title Examiner and Closer for some of the largest title insurance companies in the country. He has worked in the foreclosure niche for some time, as a Title Examiner for Trott & Trott's Attorneys Title being intimately involved in the foreclosure process. Their company has successfully negotiated and closed dozens of short sale transactions both as a buyer and negotiator. Al has been investing in Real Estate since 1990. He has invested and worked in just about every investing niche possible! He has owned rentals, done full rehab projects, owned commercial buildings, and of course short sales. They got together in mid 2008 and have been successfully building a short sale investing business together since then. The cost for first time attendees is only $10 or $25 for everyone else. Annual memberships are available at a discount. Free food is always available at the meetings!
Meeting Location: |  |
 |
Tuesday, October 27, 2009
Tuesday, October 6, 2009
U.S. Treasury set to finalize home "short sales" plan
Well this is good news. I've heard some talk about this, and read about it back in May. Good to see its going to start being pushed more. I know that Wachovia is offering sellers up to $2500, which comes out of the Net to the lender, to the homeowner is default, distress or foreclosure. Let's see if anything good actually comes from this, eh?
Steve
U.S. Treasury set to finalize home "short sales" plan
By Al Yoon Al Yoon – Fri Oct 2, 7:13 pm ET
NEW YORK (Reuters) – The U.S. Treasury will soon finalize a plan to expand its incentives for mortgage companies to include "short sales" as a way to stem a rising tide of foreclosures, according to a Treasury spokeswoman.
"Short sales," or sales of homes for less than the balance on existing mortgages, are seen as a key way to supplement other efforts such as loan modifications to steady housing. Unlike most modifications, "short sales" eliminate the problem of negative equity that has become a big reason for defaults as home prices have plunged.
The incentives, first announced in May, would expand the government's Home Affordable Modification Program that has seen limited success in lowering payments for hundreds of thousands of homeowners deemed eligible. Just 12 percent of homeowners eligible have had their loans reworked, leaving millions more foreclosures to come, the Treasury said on September 9.
More short sales may alleviate fears that a raft of "shadow supply," or foreclosures in the pipeline, will flood the market and deal a blow to the nascent rebound in housing seen over the U.S. summer months, analysts said. The overhang of supply is currently about 7 million units, or 135 percent of a year's of existing home sales, according to Amherst Securities Group.
"What they are trying to do is move some of these foreclosures in the pipeline, and bring them to a resolution before (foreclosure) happens," said Lisa Marquis Jackson, a vice president at Irvine, California-based John Burns Real Estate Consulting. "12 percent of these being modified isn't enough to clean these up."
Realtors express frustrations with banks when trying to negotiate a short sale, which can take four to five months to complete, according to John Burns consultants. Buyers often walk away from sales because banks are slow to respond, or balk at the offer.
The Treasury will use up to $10 billion from a previously announced $50 billion pool of mortgage modification funds for payments to address lender concerns that home prices will continue falling in high-cost areas.
Incentives will be calculated on recent declines of local home prices and average home prices in these markets, the Treasury said in May. They would add to other incentives that servicers can receive for reducing loan payments.
In May, the Treasury proposed lenders would receive a $1,000 payment for allowing the owner to sell the house for less than the amount owed on the mortgage, and accepting the proceeds as full repayment. They can also receive $1,000 for accepting a similar deed-in-lieu transaction, in which the deed is simply transferred to the lender instead of going through a costly foreclosure.
Borrowers who agree to short sales or deed-in-lieu deals can received up to $1,500 in closing costs. Treasury also said it will pay second lien holders up to $1,000 to relinquish their claims in such transactions.
"Presumably, the Treasury is trying to help facilitate a transaction that will result in less loss to the lender than in the case of a foreclosure," John Burns consultants said in a research note dated Oct 1 alerting clients of an impending Treasury announcement.
(Additional reporting by Emily Kaiser and David Lawder in Washington; Editing by Diane Craft)
Steve
U.S. Treasury set to finalize home "short sales" plan
By Al Yoon Al Yoon – Fri Oct 2, 7:13 pm ET
NEW YORK (Reuters) – The U.S. Treasury will soon finalize a plan to expand its incentives for mortgage companies to include "short sales" as a way to stem a rising tide of foreclosures, according to a Treasury spokeswoman.
"Short sales," or sales of homes for less than the balance on existing mortgages, are seen as a key way to supplement other efforts such as loan modifications to steady housing. Unlike most modifications, "short sales" eliminate the problem of negative equity that has become a big reason for defaults as home prices have plunged.
The incentives, first announced in May, would expand the government's Home Affordable Modification Program that has seen limited success in lowering payments for hundreds of thousands of homeowners deemed eligible. Just 12 percent of homeowners eligible have had their loans reworked, leaving millions more foreclosures to come, the Treasury said on September 9.
More short sales may alleviate fears that a raft of "shadow supply," or foreclosures in the pipeline, will flood the market and deal a blow to the nascent rebound in housing seen over the U.S. summer months, analysts said. The overhang of supply is currently about 7 million units, or 135 percent of a year's of existing home sales, according to Amherst Securities Group.
"What they are trying to do is move some of these foreclosures in the pipeline, and bring them to a resolution before (foreclosure) happens," said Lisa Marquis Jackson, a vice president at Irvine, California-based John Burns Real Estate Consulting. "12 percent of these being modified isn't enough to clean these up."
Realtors express frustrations with banks when trying to negotiate a short sale, which can take four to five months to complete, according to John Burns consultants. Buyers often walk away from sales because banks are slow to respond, or balk at the offer.
The Treasury will use up to $10 billion from a previously announced $50 billion pool of mortgage modification funds for payments to address lender concerns that home prices will continue falling in high-cost areas.
Incentives will be calculated on recent declines of local home prices and average home prices in these markets, the Treasury said in May. They would add to other incentives that servicers can receive for reducing loan payments.
In May, the Treasury proposed lenders would receive a $1,000 payment for allowing the owner to sell the house for less than the amount owed on the mortgage, and accepting the proceeds as full repayment. They can also receive $1,000 for accepting a similar deed-in-lieu transaction, in which the deed is simply transferred to the lender instead of going through a costly foreclosure.
Borrowers who agree to short sales or deed-in-lieu deals can received up to $1,500 in closing costs. Treasury also said it will pay second lien holders up to $1,000 to relinquish their claims in such transactions.
"Presumably, the Treasury is trying to help facilitate a transaction that will result in less loss to the lender than in the case of a foreclosure," John Burns consultants said in a research note dated Oct 1 alerting clients of an impending Treasury announcement.
(Additional reporting by Emily Kaiser and David Lawder in Washington; Editing by Diane Craft)
Thursday, September 3, 2009
Short Sale Success!!
So we've been PRETTY busy lately! Negotiating and getting quite a few approvals lately.
Look for a lot more posts to come very soon!
If you have a short sale related question, please email it to info@psomich.com and I will answer it on this blog!
Steve Londeau
Property Solutions of Michigan
Look for a lot more posts to come very soon!
If you have a short sale related question, please email it to info@psomich.com and I will answer it on this blog!
Steve Londeau
Property Solutions of Michigan
Wednesday, July 1, 2009
Foreclosure vs Short Sale
Here's a quick chart for the effect of, and difference of a Foreclosure vs a Short Sale. You can also find this on our website at http://www.propertysolutionsofmichigan.com
FORECLOSURE VS. SHORT SALE
Issue | Foreclosure | Successful Short Sale |
Future Fannie Mae Loan - Primary Residence | Ineligible for a Fannie Mae | Can be eligible for a Fannie Mae backed mortgage after only 2 years. |
| | |
Future Fannie Mae Loan-Non Primary | An Investor who allows a | Can be eligible for a Fannie Mae backed investment mortgage after only 2 years. |
| | |
Future Loan with any Mortgage Company | A borrower will have to answer YES to Question C in Section VIII of the standard 1003 Mortgage Application that asks "Have you had property foreclosed upon or give title or deed in lieu thereof in the last 7 years?" This will affect future rates. | There is no similar declaration |
| | |
Credit Score | Score may be lowered a | Only late payments on mortgage will show and after sale mortgage will be reported as paid or negotiated. This will lower the score as little as 50 points if all other payments are being made. A Short Sale's affect can be as brief as 12 to 18 months. |
| | |
Credit History | Foreclosure will remain as a | Short Sale is NOT reported on a credit history. There is no specific reporting item for 'short sale'. The loan is typically reported 'paid in full, settled'. |
| | |
Security Clearances | Foreclosure is the most | A Short Sale on its own does NOT challenge most security clearances. |
| | |
Current Employment | Employers have the right | A Short Sale is not reported on a credit report and is therefore NOT a challenge to employment. |
| | |
Future Employment | Many employers are requiring | A Short Sale is not reported on a credit report and is therefore NOT a challenge to employment. |
| | |
Deficiency Judgment | In 100% of foreclosures | In some successful short sales it s possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner. |
| | |
Deficiency Judgment (amount) | In a foreclosure the home | In a properly managed short sale the home is sold at a price that should be close to market value and in almost all cases will be better than an REO sale resulting in a lower deficiency. |
| | |
Monday, June 1, 2009
Freddie Mac says it costs on average $60,000 to foreclose
According to mortgage financier Freddie Mac, the typical foreclosure cost is nearly $60,000. And officials at HSBC North America, parent of HSBC Bank USA, HSBC Mortgage Corp. and HSBC Finance Corp., say their average loss on sale at foreclosure is 20 percent to 25 percent of the loan’s value.
“We truly believe that foreclosure is the worst alternative for all parties concerned and go to great lengths to avoid foreclosure,” Brendan McDonagh, CEO of Illinois-based HSBC Finance and former chief operating officer of HSBC Bank USA in Buffalo, said in March testimony to Congress. “Financially, it is our worst alternative.”
So like First Niagara, most lenders today have so-called “loss mitigation” departments whose sole purpose is to try to prevent a loss to the bank. But that also means doing whatever necessary, to a point, to help borrowers keep up with their payments and stay in their homes.
“Loss mitigation is working with borrowers to avoid foreclosure,” said Judith Palmer, loss mitigation manager at M&T Bank Corp. “Foreclosure isn’t good for anybody.” via The Buffalo News
This is one more reason why a short sale is the better option!
“We truly believe that foreclosure is the worst alternative for all parties concerned and go to great lengths to avoid foreclosure,” Brendan McDonagh, CEO of Illinois-based HSBC Finance and former chief operating officer of HSBC Bank USA in Buffalo, said in March testimony to Congress. “Financially, it is our worst alternative.”
So like First Niagara, most lenders today have so-called “loss mitigation” departments whose sole purpose is to try to prevent a loss to the bank. But that also means doing whatever necessary, to a point, to help borrowers keep up with their payments and stay in their homes.
“Loss mitigation is working with borrowers to avoid foreclosure,” said Judith Palmer, loss mitigation manager at M&T Bank Corp. “Foreclosure isn’t good for anybody.” via The Buffalo News
This is one more reason why a short sale is the better option!
Wednesday, May 27, 2009
Obama Administration Announces Financial Incentives and Uniform Process for Short Sales
Responding to the call of the National Association of Realtors®, the Obama Administration has announced incentives and uniform procedures for short sales under its new Foreclosure Alternatives Program (FAP). For borrowers who do not qualify to have their loans modified on a permanent basis under the Making Home Affordable Program, the servicer may consider a short sale or, if that is not successful, a deed-in-lieu of foreclosure (DIL).
* Borrowers (Homeowners). Borrowers qualify under the FAP if they meet minimum eligibility requirements for the Home Affordable Modification program but don't qualify for a modification or do not successfully complete the three month trial period. Before proceeding with a foreclosure, servicers must determine if a short sale is appropriate.
* Incentives. Incentives include: (1) $1,000 for servicers for successful completion of a short sale or DIL; (2) $1,500 for borrowers to help with relocation expenses; and (3) up to $1,000 toward the cost of paying junior lien holders to release their liens (one dollar from the government for every $2 paid by the investors to the second lien holders).
* Standardized Documents. The program will include streamlined and standardized documents, including a Short Sale Agreement and an Offer Acceptance Letter. The goal is to minimize complexity and increase use of the short sale option.
* Property Valuation by Appraisal or BPO. Servicers will independently establish both property value and minimum acceptable net return, in accordance with investor requirements. The price may be determined based on an appraisal or one or more broker price opinions (BPOs), issued no more than 120 days before the date of the short sale agreement.
* Timeline. Servicers must give borrows at least 90 days to market and sell the property, or up to one year, depending on market conditions. Property must be listed with a licensed real estate professional with experience in the neighborhood. No foreclosure may take place during the marketing period (at least 90 days) specified in the Short Sale Agreement.
* Commissions. The Short Sale Agreement must specify the reasonable and customary real estate commissions and costs that may be deducted from the sales price. The servicer must agree not to negotiate a lower commission after an offer has been received.
* No Borrower Fees. Servicers may not charge fees to borrowers for participating in the FAP.
* Program Expiration. The program is in effect through 2012.
DIL Option. Servicers have the option to require the borrower to agree to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time allowed in the Short Sale Agreement (plus any extensions).
* Borrowers (Homeowners). Borrowers qualify under the FAP if they meet minimum eligibility requirements for the Home Affordable Modification program but don't qualify for a modification or do not successfully complete the three month trial period. Before proceeding with a foreclosure, servicers must determine if a short sale is appropriate.
* Incentives. Incentives include: (1) $1,000 for servicers for successful completion of a short sale or DIL; (2) $1,500 for borrowers to help with relocation expenses; and (3) up to $1,000 toward the cost of paying junior lien holders to release their liens (one dollar from the government for every $2 paid by the investors to the second lien holders).
* Standardized Documents. The program will include streamlined and standardized documents, including a Short Sale Agreement and an Offer Acceptance Letter. The goal is to minimize complexity and increase use of the short sale option.
* Property Valuation by Appraisal or BPO. Servicers will independently establish both property value and minimum acceptable net return, in accordance with investor requirements. The price may be determined based on an appraisal or one or more broker price opinions (BPOs), issued no more than 120 days before the date of the short sale agreement.
* Timeline. Servicers must give borrows at least 90 days to market and sell the property, or up to one year, depending on market conditions. Property must be listed with a licensed real estate professional with experience in the neighborhood. No foreclosure may take place during the marketing period (at least 90 days) specified in the Short Sale Agreement.
* Commissions. The Short Sale Agreement must specify the reasonable and customary real estate commissions and costs that may be deducted from the sales price. The servicer must agree not to negotiate a lower commission after an offer has been received.
* No Borrower Fees. Servicers may not charge fees to borrowers for participating in the FAP.
* Program Expiration. The program is in effect through 2012.
DIL Option. Servicers have the option to require the borrower to agree to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time allowed in the Short Sale Agreement (plus any extensions).
Monday, April 20, 2009
Short Sale, Deed-in-Lieu, Foreclosure & Their affect on your NEXT mortgage
Complete and total credit to Drew Sygit. This is copied from his Blog at Drew's Mortgage News
Short Sale, Deed-in-Lieu, Foreclosure – How do Each Affect When You can get Your Next Mortgage?
Too many homeowners act on bad advice, false assumptions or allow themselves to be conned when choosing one of these options.
DETROIT, MI – Over the last couple of weeks, in speaking with numerous homeowners, real estate agents and investors, I’ve noticed that there’s a lot of confusion and misunderstanding about the impact of Short Sales, Deed-in-Lieu’s and Foreclosures on one’s ability to get a new mortgage.
Over and over again, I’ve heard self-proclaimed experts make many incorrect statements. So many, that I felt compelled to do my best to separate reality from myth, fact from fiction.
Getting a New Mortgage
It’s actually pretty easy to provide concrete proof of when it’s possible to qualify for a new mortgage after a Short Sale, Deed-in-Lieu or Foreclosure. The mortgage meltdown has reduced the main players in the mortgage industry to FNMA, FHLMC, FHA, VA and RD. Gone are the numerous subprime and Alt-A players that seemed to have a mortgage program for anyone.
FNMA – Federal National Mortgage Association
Guidelines changed regarding these issues on June 25, 2008 with Announcement 08-16.
Short Sale: FNMA refers to these as “Preforeclosure Sales” and requires a 2 year waiting period after the sale, with acceptable re-established credit.
Deed-in-Lieu: minimum waiting period of 4 years, with a minimum of 10% down required for 7 years. There is a 2 year exception for extenuating circumstances.
Foreclosure: standard of 5 years waiting period, with minimum of 10% down & 680 credit score for 7 years. Primary residences only, no second homes or investment property loans for 7 years. There is a 3 year exception for extenuating circumstances.
Bankruptcy: Chapter 7 requires a 4 year waiting period, but there is a 2 year exception for extenuating circumstances.
Chapter 13 is 2 years from discharge date or 4 years if the Chapter 13 is dismissed (not completed).
FHLMC – Federal Home Loan Mortgage Corporation
Guidelines changed regarding these issues with the release of Bulletin October 17, 2008. For some reason FHLMC isn’t as user-friendly with their updates in comparison to FNMA. Instead of listing the specific changes in their Bulletins like FNMA, they force you to refer to their guidelines to find the changes. The ones related to our topic are found in Chapter 37-7. FHLMC could definitely use some PR coaching to be more user-friendly.
Short Sale: FHLMC refers to these as “Short Payoffs” and requires a 4 year waiting period after the sale, with acceptable re-established credit. There is an exception for extenuating circumstances of 2 years.
Deed-in-Lieu: minimum waiting period of 4 years, with a minimum of 10% down required for 7 years.
Foreclosure: standard of 5 years waiting period, with minimum of 10% down for 7 years. Primary residences only, no second homes or investment property loans for 7 years. There is an exception for extenuating circumstances of 3 years.
Bankruptcy: Chapter 7 requires a 4 year waiting period.
Chapter 13 is 2 years from discharge date or 4 years if the Chapter 13 is dismissed (not completed).
FHA – Federal Housing Administration
FHA is a part of HUD and as of this point does not differ in how they address Short Sales, Deed-in-Lieu’s or Foreclosures. They’re all treated the same. Their great source for their guidelines can be found at FHA Lending.
ALL: standard of 3 years waiting period required. There is an exception for extenuating circumstances.
Bankruptcy: Chapter 7 requires a 2 year waiting period, minimum 12 months with extenuating circumstances.
Chapter 13 requires 12 months of timely payments and must have court’s authorization.
VA – Veterans Administration
The credit requirements are the same as FHA. More information can be found at: VA Loans
RD – Rural Development
A part of the U.S. Department of Agriculture. The credit requirements are mostly the same as FHA & VA. More information can be found at RD Loans (my favorite!)
Bankruptcy: minimum 3 year waiting period required, no difference between Chapter 7 or 13. Extenuating circumstances may be considered for exceptions.
I highly recommend checking out some of the links I’ve included. Direct anyone giving you contradictory information to them, so they may reference the correct facts.
Short Sale, Deed-in-Lieu, Foreclosure – How do Each Affect When You can get Your Next Mortgage?
Too many homeowners act on bad advice, false assumptions or allow themselves to be conned when choosing one of these options.
DETROIT, MI – Over the last couple of weeks, in speaking with numerous homeowners, real estate agents and investors, I’ve noticed that there’s a lot of confusion and misunderstanding about the impact of Short Sales, Deed-in-Lieu’s and Foreclosures on one’s ability to get a new mortgage.
Over and over again, I’ve heard self-proclaimed experts make many incorrect statements. So many, that I felt compelled to do my best to separate reality from myth, fact from fiction.
Getting a New Mortgage
It’s actually pretty easy to provide concrete proof of when it’s possible to qualify for a new mortgage after a Short Sale, Deed-in-Lieu or Foreclosure. The mortgage meltdown has reduced the main players in the mortgage industry to FNMA, FHLMC, FHA, VA and RD. Gone are the numerous subprime and Alt-A players that seemed to have a mortgage program for anyone.
FNMA – Federal National Mortgage Association
Guidelines changed regarding these issues on June 25, 2008 with Announcement 08-16.
Short Sale: FNMA refers to these as “Preforeclosure Sales” and requires a 2 year waiting period after the sale, with acceptable re-established credit.
Deed-in-Lieu: minimum waiting period of 4 years, with a minimum of 10% down required for 7 years. There is a 2 year exception for extenuating circumstances.
Foreclosure: standard of 5 years waiting period, with minimum of 10% down & 680 credit score for 7 years. Primary residences only, no second homes or investment property loans for 7 years. There is a 3 year exception for extenuating circumstances.
Bankruptcy: Chapter 7 requires a 4 year waiting period, but there is a 2 year exception for extenuating circumstances.
Chapter 13 is 2 years from discharge date or 4 years if the Chapter 13 is dismissed (not completed).
FHLMC – Federal Home Loan Mortgage Corporation
Guidelines changed regarding these issues with the release of Bulletin October 17, 2008. For some reason FHLMC isn’t as user-friendly with their updates in comparison to FNMA. Instead of listing the specific changes in their Bulletins like FNMA, they force you to refer to their guidelines to find the changes. The ones related to our topic are found in Chapter 37-7. FHLMC could definitely use some PR coaching to be more user-friendly.
Short Sale: FHLMC refers to these as “Short Payoffs” and requires a 4 year waiting period after the sale, with acceptable re-established credit. There is an exception for extenuating circumstances of 2 years.
Deed-in-Lieu: minimum waiting period of 4 years, with a minimum of 10% down required for 7 years.
Foreclosure: standard of 5 years waiting period, with minimum of 10% down for 7 years. Primary residences only, no second homes or investment property loans for 7 years. There is an exception for extenuating circumstances of 3 years.
Bankruptcy: Chapter 7 requires a 4 year waiting period.
Chapter 13 is 2 years from discharge date or 4 years if the Chapter 13 is dismissed (not completed).
FHA – Federal Housing Administration
FHA is a part of HUD and as of this point does not differ in how they address Short Sales, Deed-in-Lieu’s or Foreclosures. They’re all treated the same. Their great source for their guidelines can be found at FHA Lending.
ALL: standard of 3 years waiting period required. There is an exception for extenuating circumstances.
Bankruptcy: Chapter 7 requires a 2 year waiting period, minimum 12 months with extenuating circumstances.
Chapter 13 requires 12 months of timely payments and must have court’s authorization.
VA – Veterans Administration
The credit requirements are the same as FHA. More information can be found at: VA Loans
RD – Rural Development
A part of the U.S. Department of Agriculture. The credit requirements are mostly the same as FHA & VA. More information can be found at RD Loans (my favorite!)
Bankruptcy: minimum 3 year waiting period required, no difference between Chapter 7 or 13. Extenuating circumstances may be considered for exceptions.
I highly recommend checking out some of the links I’ve included. Direct anyone giving you contradictory information to them, so they may reference the correct facts.
Tuesday, April 14, 2009
Detroit Free Press article on Short Sales
Short Sales in Michigan
Freep Article
Freep Article 2
While its true that currently short sales are a smaller part of the overall market, everyone will agree they are becoming more and more common and a bigger and bigger part of the market every week here in Michigan. Look at the rise in the graph above. Also, RealtyTrac
reports that nationally, by the end of 2009, 50% of all sales will be short sales!
Short Sales DO require a hardship, and DO take time. If you're a real estate agent, why waste YOUR time doing all the work? OUTSOURCE it. FOR FREE! Let ME do all that work for you! You can concentrate on what you're good at! Finding buyers and sellers! We NEVER charge a fee to the homeowner, agent, or anyone. What are you waiting for? Email me today to let us take over the headaches of dealing with the lenders and negotiations!
info@psomich.com
www.psomich.com (under construction)
Deficiency Judgments, 1099s, and Short Sales
When a lender forecloses, or allows a short sale, there is, of course a loss to the lender involved. When this happens, there are really, only 2 options. Either the lender will write off the debt, and therefore issue a 1099-C (Cancellation of Debt) OR They will pursue a Deficiency Judgment.
The best case for everyone, typically, is if they issue a 1099. They get the write-off, and the homeowner doesn't' have to worry about a judgment against them. is the homeowner then liable for taxes on that 1099, you might ask? Well, there are multiple ways to answer that, and I am NOT an accountant. (nor a lawyer, this is not accounting advice or legal advice, there, got that out of the way :P) The first is IRS form 982, which can be found HERE This basically is used when the homeowners debts or liabilities are MORE than their income or assets, in what is called insolvency. When this form is used, there is typically very little to no taxes owed. The other solution is a change in the tax code that former President Bush signed into law in December 2007 (retroactive to January 2007) called the Mortgage Forgiveness Debt Relief Act of 2007 a.k.a HR 3648 (for a brief overview and not the actual law, click HERE. I won't get into all the details, but it works similar to form 982. If the home was your primary residence, or a qualifying second home there will be no tax ramifications to the 1099.
Now on to Deficiency Judgments. This is BAD. A lender, if they have a judgment, can garnish wages, bank accounts, and generally make life miserable for the homeowner, or former homeowner as it were. Now, a lot of times, the people in a short sale situation, are unemployed, or have literally nothing to take, other times, they ARE still employed, and the lender knows the employer. They can garnish wages for this judgment. (I do it to deadbeat tenants as well, it actually quite simple!) The thing with deficiency judgments is that if the lender is going to pursue one after a short sale, there's probably a 99.99999% chance (nope, not a statistician either. :P) that they will pursue one after a foreclosure too. So the decision needs to be made by the homeowner to either continue on with the short sale, and accept that either there is a possibility that the lender will pursue the deficiency, or let the home go to foreclosure instead. A lot of times, we are able to negotiate a full settlement or payment in full and have it in writing that the lender will not pursue the deficiency. There is just no guarantee going in that this is the case however, just as there is no guarantee that the lender will accept any short sale.
What I tell all sellers that I am working with on short sales, is that regardless of how the lender will treat a deficiency, we will communicate with them and advise them of the facts as we know them. (again, we don't offer legal or accounting advice and suggest that all sellers consult their own attorney and/or accountant) If the lender does not give us in writing that they will not pursue the deficiency, we will present this to the seller and ask them if they wish to continue. We also let them know that if they do not, that's okay, but to keep in mind that if the house goes into foreclosure and the bank ends up with possession, they will likely only be delaying any deficiency judgments.
Honestly, I'm seeing more and more that lenders are writing off these losses. They know that in most cases they can't collect on the judgments, and are making an already rough and terrible situation, worse for the homeowner. We will continue to work with them as well to ensure that our sellers are in the best possible situation and get away from any deficiency judgments.
If you want more information on this topic, please comment and let me know what you'd like to hear about. Also, please comment and let me know what you think of this post, and this blog. Your comments will help make this blog a more useful tool for homeowners, agents, other investors, and anyone that wishes to learn more about Short Sales.
The best case for everyone, typically, is if they issue a 1099. They get the write-off, and the homeowner doesn't' have to worry about a judgment against them. is the homeowner then liable for taxes on that 1099, you might ask? Well, there are multiple ways to answer that, and I am NOT an accountant. (nor a lawyer, this is not accounting advice or legal advice, there, got that out of the way :P) The first is IRS form 982, which can be found HERE This basically is used when the homeowners debts or liabilities are MORE than their income or assets, in what is called insolvency. When this form is used, there is typically very little to no taxes owed. The other solution is a change in the tax code that former President Bush signed into law in December 2007 (retroactive to January 2007) called the Mortgage Forgiveness Debt Relief Act of 2007 a.k.a HR 3648 (for a brief overview and not the actual law, click HERE. I won't get into all the details, but it works similar to form 982. If the home was your primary residence, or a qualifying second home there will be no tax ramifications to the 1099.
Now on to Deficiency Judgments. This is BAD. A lender, if they have a judgment, can garnish wages, bank accounts, and generally make life miserable for the homeowner, or former homeowner as it were. Now, a lot of times, the people in a short sale situation, are unemployed, or have literally nothing to take, other times, they ARE still employed, and the lender knows the employer. They can garnish wages for this judgment. (I do it to deadbeat tenants as well, it actually quite simple!) The thing with deficiency judgments is that if the lender is going to pursue one after a short sale, there's probably a 99.99999% chance (nope, not a statistician either. :P) that they will pursue one after a foreclosure too. So the decision needs to be made by the homeowner to either continue on with the short sale, and accept that either there is a possibility that the lender will pursue the deficiency, or let the home go to foreclosure instead. A lot of times, we are able to negotiate a full settlement or payment in full and have it in writing that the lender will not pursue the deficiency. There is just no guarantee going in that this is the case however, just as there is no guarantee that the lender will accept any short sale.
What I tell all sellers that I am working with on short sales, is that regardless of how the lender will treat a deficiency, we will communicate with them and advise them of the facts as we know them. (again, we don't offer legal or accounting advice and suggest that all sellers consult their own attorney and/or accountant) If the lender does not give us in writing that they will not pursue the deficiency, we will present this to the seller and ask them if they wish to continue. We also let them know that if they do not, that's okay, but to keep in mind that if the house goes into foreclosure and the bank ends up with possession, they will likely only be delaying any deficiency judgments.
Honestly, I'm seeing more and more that lenders are writing off these losses. They know that in most cases they can't collect on the judgments, and are making an already rough and terrible situation, worse for the homeowner. We will continue to work with them as well to ensure that our sellers are in the best possible situation and get away from any deficiency judgments.
If you want more information on this topic, please comment and let me know what you'd like to hear about. Also, please comment and let me know what you think of this post, and this blog. Your comments will help make this blog a more useful tool for homeowners, agents, other investors, and anyone that wishes to learn more about Short Sales.
Wednesday, April 8, 2009
What is a Short Sale?
What is a short sale?
A short sale is when a seller facing foreclosure works with the lender and they agree to accept less than the amount owed as payoff on a home as a means of avoiding foreclosure.
Generally, lenders will only accept a short sale when the homeowner is behind on payments, and is facing a financial hardship. There are cases when a lender will entertain a short sale when the homeowner is facing a hardship but are not yet behind. If there is no financial hardship, the homeowner is not behind, and there does not appear to be an imminent hardship, the lender will not accept a short sale. The property simply being upside down in value does not constitute a hardship in the lender's eyes.
How does it work?
The first thing the borrower should do when they can no longer afford a property is to contact the lender immediately. The last thing a lender wants to do is foreclose on the property. Lenders typically have departments that work with people who are behind on their payments to resolve the situation. That department is called the "loss mitigation" or "workout" department, depending on the lender.
The lender will usually require the borrower to submit a lot of information to the lender in order to consider the short sale. The information required may include:
• Income documentation such as W-2s or tax returns (typically the last 2 years' worth) and pay check stubs (usually the last 2) to verify the borrowers’ income.
• Bank statements to verify the borrowers’ assets (last 2 months worth)
• Hardship letter – this letter will describe for the lender the reasons the borrowers are in the financial position they are in and will ask the lender to accept the short sale. Borrowers should make this letter sound as sad as possible and back up the story with any documentation you may have such as medical bills, etc.
• Fair market value for the property – The lender will order a BPO (Broker's Price Opinion) or sometimes a full appraisal on the property, depending on the lender, to determine their own value.
• Preliminary proceeds sheet from the sale of the property. (Sometimes called a Net sheet, HUD-1 settlement statement or "HUD" for short) This will show the proceeds of the sale of the property after the mortgage is paid off and all other closing costs and fees are paid. This will be negative in the case of the short sale and this negative amount is the amount of the shortage.
• Listing agreement and purchase agreement when they are available. (a lender will not even talk about a short sale in most cases until an offer is received.)
When the lender reviews all of this they may or may not approve the short sale. If they do not approve the short sale they will proceed with the foreclosure. If they do agree to the short sale you will close on the sale of your property and the lender will take the loss.
When the lender accepts a short sale, the bank will either pursue a deficiency judgment, or write the loss off. If the lender writes the loss off, they will issue a 1099-c statement. There are many situations and ways to avoid any tax on that 1099-c. I will create a separate post to address this issue as it deserves its own post.
A short sale is when a seller facing foreclosure works with the lender and they agree to accept less than the amount owed as payoff on a home as a means of avoiding foreclosure.
Generally, lenders will only accept a short sale when the homeowner is behind on payments, and is facing a financial hardship. There are cases when a lender will entertain a short sale when the homeowner is facing a hardship but are not yet behind. If there is no financial hardship, the homeowner is not behind, and there does not appear to be an imminent hardship, the lender will not accept a short sale. The property simply being upside down in value does not constitute a hardship in the lender's eyes.
How does it work?
The first thing the borrower should do when they can no longer afford a property is to contact the lender immediately. The last thing a lender wants to do is foreclose on the property. Lenders typically have departments that work with people who are behind on their payments to resolve the situation. That department is called the "loss mitigation" or "workout" department, depending on the lender.
The lender will usually require the borrower to submit a lot of information to the lender in order to consider the short sale. The information required may include:
• Income documentation such as W-2s or tax returns (typically the last 2 years' worth) and pay check stubs (usually the last 2) to verify the borrowers’ income.
• Bank statements to verify the borrowers’ assets (last 2 months worth)
• Hardship letter – this letter will describe for the lender the reasons the borrowers are in the financial position they are in and will ask the lender to accept the short sale. Borrowers should make this letter sound as sad as possible and back up the story with any documentation you may have such as medical bills, etc.
• Fair market value for the property – The lender will order a BPO (Broker's Price Opinion) or sometimes a full appraisal on the property, depending on the lender, to determine their own value.
• Preliminary proceeds sheet from the sale of the property. (Sometimes called a Net sheet, HUD-1 settlement statement or "HUD" for short) This will show the proceeds of the sale of the property after the mortgage is paid off and all other closing costs and fees are paid. This will be negative in the case of the short sale and this negative amount is the amount of the shortage.
• Listing agreement and purchase agreement when they are available. (a lender will not even talk about a short sale in most cases until an offer is received.)
When the lender reviews all of this they may or may not approve the short sale. If they do not approve the short sale they will proceed with the foreclosure. If they do agree to the short sale you will close on the sale of your property and the lender will take the loss.
When the lender accepts a short sale, the bank will either pursue a deficiency judgment, or write the loss off. If the lender writes the loss off, they will issue a 1099-c statement. There are many situations and ways to avoid any tax on that 1099-c. I will create a separate post to address this issue as it deserves its own post.
Tuesday, April 7, 2009
Michigan Short Sales
Are you a real estate agent, trying to work short sales?
Are you tired of waiting on hold for bank endlessly, and sick of them cutting your commissions after all of YOUR hard work??
OUTSOURCE your short sales to us!
Property Solutions of Michigan also known as Michigan Short Sale Solutions has a PROVEN track record, established relationships with major lenders and loss mitigation departments.
What is Property Solutions of Michigan?
We guarantee Realtors FULL commissions! If the bank tries to cut your commissions, WE'LL make up the difference!
So Attention Real Estate Agents!
We guarantee Realtors a full commission for...
...just bringing us short sales...
We do all the negotiating...
...You do what you do best...
Market the property for us...
...FULL Commissions for YOU...
Unlimited funds to buy...
Property Solutions of Michigan
Michigan Short Sale Solutions (under construction)
Are you tired of waiting on hold for bank endlessly, and sick of them cutting your commissions after all of YOUR hard work??
OUTSOURCE your short sales to us!
Property Solutions of Michigan also known as Michigan Short Sale Solutions has a PROVEN track record, established relationships with major lenders and loss mitigation departments.
What is Property Solutions of Michigan?
- A short sale OUTSOURCING, negotiation & consulting service.
- A business that does NOT subscribe to "equity skimming"
- Is here to assist real estate agents with short sales
- Is here to provide solutions and answer questions
- Has over 3 years experience negotiating short sales
- Has over 12 years experience in title insurance
- Has almost 20 years experience in real estate investing!
- Has national partners in 30+ states!
We guarantee Realtors FULL commissions! If the bank tries to cut your commissions, WE'LL make up the difference!
So Attention Real Estate Agents!
We guarantee Realtors a full commission for...
...just bringing us short sales...
We do all the negotiating...
...You do what you do best...
Market the property for us...
...FULL Commissions for YOU...
Unlimited funds to buy...
Property Solutions of Michigan
Michigan Short Sale Solutions (under construction)
Subscribe to:
Posts (Atom)