Short Sale Services
Foreclosure and Short Sale FAQ for San Diego County - Get the Facts Not Hype!
Evaluate Options to Avoid Foreclosure
A loan modification is a process where the original terms of a mortgage are modified, giving the homeowner new payment terms that they can handle. It will usually involve a lower interest rate, extension of the term, adding missed payments to the end of the loan, reduction in principle, or a combination of these.
Some families find success in modifying their loan, but you must meet all financial, employment and hardship requirements in order to qualify.
Deed in Lieu of Foreclosure-
Deeding your house title to the lender in exchange for their agreement not to foreclose is called a deed in lieu of foreclosure. You negotiate with the lender to accept the deed and they cancel the foreclosure action. It is not without negative consequence to your credit, but If a short sale or loan modification is not an option, a deed in lieu may be an answer. One difficulty in negotiating a deed in lieu settlement is that lenders do not want the property back because it creates liability issues for them and additional costs. If you are able to negotiate a deed in lieu, be aware of the possible negative consequences.
Foreclosure is rarely the best option for homeowners. In a foreclosure, the homeowner stops making payments and the lender takes possession of the house. A foreclosure creates additional expense and liability for the lender. You may still owe the debt even after a foreclosure depending on your loan. This may also lead to more severe tax consequences and is guaranteed to significantly impact your credit. A foreclosure will impact your credit for up to 10 years and will affect your ability to purchase a new home for 7.
What is a short sale?
A short sale is when a seller or seller’s agent arranges with their mortgage lender to accept a price that’s less than the amount they owe on the property. As part of this arrangement, the lender typically agrees to forgive the rest of the loan. As a result, the seller doesn’t have to go through a foreclosure, a buyer picks up a property at a discount, and the lender avoids taking on the burden of unloading the property.
Is short sale right for you?
A short sale may not be right for everyone. But in the following instances it is important for a home owner to strongly consider doing a short sale.
If a home was purchased or refinanced between 2003 and 2008 then the chances are high that the home is significantly upside down creating a negative equity position. Most homeowners will basically be stuck in their homes until their property appreciates back up to the level it was when they received their current loan. In some areas this may not happen for 10 — 15 years. It is very important for a home owner to understand that even if real estate goes back to the historical rate of appreciation of 4% annually, and if that starts today… it will literally take 12 years to break even…
What are the tax consequences of a short sale?
There are several different scenarios with regard to whether or not you will owe federal income taxes on the loss the lender takes in a short sale.
When you do a short sale, your lender is agreeing to settle the debt on the property for less than the amount they are owed. The IRS therefore allows them to write off this loss, which is why your lender will send you a 1099-C after the short sale.
The IRS considers “debt relief” to be income for tax purposes. For example: if your lender writes off $100,000 on your short sale, traditionally they will send you a 1099-C for that amount, and you would include that when you file your income taxes. The “C” stands for “Cancellation of Debt” and the law says cancelled debt is taxable as income.
There are exceptions that most individuals who do a short sale qualify for that exclude them from having to pay taxes on a short sale.
The Mortgage Tax Debt Relief Act of 2007 signed into law in January of 2008 and extended through 2012 states that homeowners who do a short sale on their primary residence, and have a purchase money loan “In other words”, they have not pulled cash out of their home with a cash-out refinance) pay no taxes on the loss that their lender incurs in a short sale. If a homeowner has pulled cash out and has put that money back into their home to “substantially improve” the home, they are also excluded from taxes on the short sale.
But if you pulled cash out on your primary residence and spent it on something other than upgrading your home like a car or vacation then this will result in a taxable event unless you qualify for the “Insolvency” exclusion.
The IRS does not require you to pay taxes on the loss the lender takes in a short sale if, at the time of the short sale, you are insolvent.
How does a short sale affect my credit?
This is a great question as there is a lot of misinformation on the internet about this topic. A short sale is recorded on your credit report as “debt settled for less than the amount owed”.
This usually will result in a relatively minor hit on your credit compared to a foreclosure or late payments on your mortgage. I say ‘”usually” because it affects everyone’s credit differently. The more established your credit, the less of an impact it will have on your score. It is important to understand that it is the late payments that mainly affect the credit rating not the short sale.
Did you know? That according to current Fannie Mae guidelines, a short sale will only impact your ability to qualify for a new home for two years! If you short sale now, you could realistically approach buying a new home in less than 24 months.
How much does a Short Sale Cost?
3 reasons loan modifications often fail
It is estimated that 60%-70% of homeowners who have modified a loan have or will go back into default within the first nine months and back on the road to foreclosure. This proves that many homeowners approach a loan modification with high hopes and realized only after completion, that it was not what they bargained for.
3 reasons why Loan Modifications Often Don’t Work…..
- Modified loans often carry higher balances than the original loan…
Because many lenders add unpaid interest and fees to the loan balance, homeowners often walk away with more mortgage debt than they originally incurred.
- … and higher monthly payments too.
It should come as little surprise that with few lenders reducing principal — and most tacking on fees to the loan balance — nearly half of loan modifications actually resulted in increasing a borrower’s monthly payment.
- Homeowners accept unaffordable terms.
Desperate to keep their homes, many homeowners accept modification offers they can’t afford. If you are in a loan modification and getting nowhere or are being offered unrealistic terms, you must consider the future and prepare.
Why choose Maximum Mortgage & Real Estate Inc.?
Remember, you only get one shot at a short sale. In my experience, perhaps the biggest mistake any homeowner can make when considering a short sale is assuming that all agents are the same, and that any agent, (i.e. Your neighborhood realtor), can effectively negotiate a short sale. If your agent is inexperienced, disorganized or simply drops the ball, your chances of doing a successful short sale are ruined. At Maximum Mortgage and Real Estate Inc. your short sale is cost-free and risk-free. You can walk away should a short sale cease to be in your best interest. We make our guarantee with confidence with over 200 short sales approved and a success rate of greater than 90+%.
We also specialize in:
Foreclosure Delay / Postponement — We have a proven track record postponing foreclosure auctions just days before sale. We are able to in most cases postpone foreclosure auction multiple times, in some cases up to 12 months.
Moving Money- We are also experts at initiating and closing HAFA short sales, initially announced on May 14, 2009, with guidance and standard forms issued on November 30, 2009. If you qualify HAFA short sales prevent the lender from pursuing any deficiency judgment against the seller and pay the seller $3,000 at close of escrow for moving and transition funds.
Other benefits of HAFA include:
- Prohibits lender from foreclosing.
- Mortgage debt is settled — lender issues a “full & final satisfaction” on both the 1st and 2nd lien.
- Seller receives a $3000.00 payment at close of escrow.
- Seller pays NO Closing Costs or Real Estate Brokerage Fees.
Lease Backs — Some seller want to remain in the home even just to rent, we can approach the short sale with the intent of finding an investor buyer who would be willing to rent you back the property. * Some lenders do not permit this option.
Making the decision to move on a short sale is not easy, but making the decision to avoid foreclosure is!