INFORMACION EN ESPAÑOL CLICK HERE

PARA INFORMACION EN ESPAÑOL CLICK HERE

The Pre-Foreclosoure Short Sale

What you need to know about short sales

For a FREE consultation
call (954)-531-8100

The 'phantom income' that is generated under a short sales is no longer taxable under the Mortgage Foregiveness Debt Relief Act of 2007. The loss which the bank writes off (or 'foregives') is repored as 'phantom income' to the IRS under form 1099. This new law is temporary and ends in Jan 2010.

Under this new law however, home owners are excempted under certain criteria, such as if the home is your primary residence, how long you have lived in it, if the loan was purchase money and other limitation. Please, consult your tax man for the details as we are not allowed to give tax advise whatever.

On December 20 President Bush signed into law H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007.

WHAT IS A FORECLOSURE

Basically a property becomes a foreclosure when a loan is in default and no one has come forward to buy property or bail lender and/or home seller out through a short sale. The property is then foreclosed upon and offered at an auction where if there are no buyers because amount of debt is larger than the actual property's value the lender ends up owning the property.

If you are the home owner read below. If you WANT TO BUY THEM at the auction sale keep in mind that with everyone and their dog bidding on the same properties, the margins on foreclosures are paper-thin. When someone finally ends up with the property, all the equity that once made the property a good deal has been chewed up in the process. Not to mention that now you need all the cash up front in order to buy a foreclosure, fixing all the damage usually found in these types of properties, making it next to impossible for the average person to get started buying and selling foreclosures. You need a very deep pocket and nerves of steal.

We Realtors do get some of these foreclosed properties listed once the bank has taken them back when no one else bought them at the auction sale. However, these homes will typically be listed at a price close to market value or just slightly under as banks by then have dropped even more money to repair them and will try by all means to recover as much of their losses as possible. Therefore, in some instances these homes are no better deals than other property around. Some lenders will actually sit on their REOs (lender owned real estate) for a while trying to recover most of their loss.

WHAT IS A SHORT SALE

A short sale is a negotiation done with the lender(s) of record (prior to a foreclosure) when the value of a given property is below the loan amount and the property owner cannot pay his obligations thus facing imminent foreclosure. If the property is sold at market value there will not be enough money to pay the loan amount nor the closing costs in most instances. At this stage a bank may be willing to discount the amount of the loan that is owed so that the home owner can sell the property at a lower price rather than to go through a foreclosure. For a buyer this is a good opportunity to pick up their dream home at below market price.

Although both a short sale and a foreclosure have an impact on your credit, a foreclosure is the worst causing your credit score to drop over 250 points and making it very difficult to qualify for a loan for a long time. A short sale, on the other hand, will cause a score reduction of about 100 points and make it possible to get a loan at reasonable rates a lot sooner.

To buy under a short sale agreement with the lender of record for a property in distress a buyer needs to be fully pre-approved for a loan and ready to close on the property immediately. The offered amount has to make sense to the lender or else the property will end up being foreclosed upon and buyer loses any chance of getting it at all in pre-foreclosure. Since all offers at this point are subject to the bank's Loss Mitigation Department's approval buyer may not actually receive a counter from the bank if offer makes no sense to them. Therefore, it is important to try your best offer the first time out or some one else will and scoop the deal right from under you before you get another chance.

Buyers looking to purchase under a short sale need to know that a bank may take anywhere between 45-60 days to finalize a short sale approval. Some times, especially if the offer is too low it could sit at the bank's asset manager's desk without a response for weeks. For this reason you need a truly experienced Realtor to handle the short sale negotiation who is knowledgeable of banks short sale protocol in order to obtain a respond as soon as possible. The procedure to present the offer is critical and must be done meeting certain criteria otherwise the bank will delay a response or will simply ignore the offer.

** An experienced agent who has actually done 'short sales' and closed them can shorten the time it takes to complete the closing by taking certain steps which eliminates errors in the package to be presented to the lender for approval of the short sale offer.

WARNING:

WHAT A 'SHORT SALE' IS NOT

A 'SHORT SALE' IN NO WAY IS A MEANS BY WHICH SELLER CAN DEFRAUD THE BANK OR BUYER CAN EXPECT TO LEGALLY ROB IT EITHER. IT IS A COMPROMISE WHERE THE PROPERTY, THE QUALIFIED HOME OWNER AND A SAVVY BUYER STRIKE A BALANCE IN A SALE PRICE THAT JUSTIFYS TO THE LENDER NOT TO FORECLOSE AND WHERE THE BUYER GENERALLY GETS A GOOD HOUSE AT A VERY GOOD PRICE!

A HOME-OWNER TRYING TO DUMP A PROPERTY BECAUSE IT IS NO LONGER A VIABLE ASSET, ALTHOUGH HE/SHE HAS OTHER ASSETS AND COULD CARRY THE PROPERTY, WILL MOST DEFINETELY BE DISQUALIFIED BY THE LENDER FROM ATTEMPTING A SHORT. HE/SHE COULD BE COMMITING FRAUD IF THE LENDER WAS INTENTIONALLY MISSLEAD INTO ACCEPTING A SHORT SALE WHEN OTHERWISE THE OWNER COULD HAVE KEPT THE HOME SINCE NO REAL HARDSHIP EXISTED.

BANKS ARE NOT INCLINED TO ACCEPT ABSURD OFFERS EITHER NOT MATTER WHAT A BUYER MAY HAVE HEARD FROM REAL ESTATE AGENTS OR THE MEDIA.. A 'SHORT SALE' IS NOT AN AUCTION SALE AT THE STEPS OF A COURT HOUSE BUT A WAY TO MITIGATE THE LOSS FOR THE BANK WHICH IN TURN RESULTS IN A GOOD DEAL FOR THE RIGHT BUYER!

ADDITIONAL INFO FOR	ESPAÑOL CLICK HERE	ADDITIONAL INFO FOR
	Banks