Want Short Sale Or Foreclosure Advice? Are You Trying To Stop Foreclosure In Arizona By Short Selling Your Home?
Is doing a Short Sale a good option for a homeowner that is having a tough time selling in today’s market because they owe as much or more than their house is worth?
First, we have to understand the three major areas of a homeowner’s life that a short sale could affect:
1. Credit Issues
A short sale may adversely affect a borrower's credit rating because a lender can report for seven years that a loan has been "settled" for less than its balance. Although a lender is unlikely to change what it reports to credit bureaus, a borrower may attempt to negotiate this issue when arranging the short sale or request a letter from the lender detailing any extenuating circumstances surrounding the short sale. We use http://www.genesiscreditgroup.com/ when dealing with any credit concerns!
2. Deficiency Judgment
In order to recoup any shortfall in the final sales price, including attorney's fees, court costs, and accrued interest charges, the lender must file a deficiency judgment. A deficiency judgment is defined as a judgment that has been issued when the collateral for the loan is inadequate to satisfy the lender's debt completely. Arizona is a Non-Deficiency State meaning that most single family residences are not at risk to cover the difference between the amount owed, and the amount accepted from a Short Sale. According to http://www.azleg.state.az.us/ars/33/00814.htm the law is as follows:
33-814. Action to recover balance after sale or foreclosure on property under trust deed
F. A deed of trust may, by express language, validly prohibit the recovery of any balance due after trust property is sold pursuant to the trustee's power of sale, or the trust deed is foreclosed in the manner provided by law for the foreclosure of mortgages on real property.
G. If trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling is sold pursuant to the trustee's power of sale, no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness and any interest, costs and expenses.
Lets Recap:
Arizona is a non-deficiency state and as long as your home qualifies under the above foreclosure laws, you do not have to pay back the difference between what you owed, and what you finally sell your home for! Just to be safe, a good Realtor or Investor should negotiate for the lender to put in writing to waive their right for a deficiency.
3. Tax Complications
When completing a Short Sale, possible tax issues can arise for the homeowner. As such, an owner considering a Short Sale should be encouraged to discuss these issues with an attorney, accountant, or other appropriate professional. From my understanding, the debt forgiven by a lender is generally taxable to the borrower as "debt discharge income." When a taxpayer receives proceeds from a new loan, those proceeds are not taxable income because there is an offsetting obligation to repay. However, if the debt is cancelled, there may be debt discharge income. This basically means that if you owe $200,000 and Short Sale the home for $150,000, on your next tax return it could look like you have $50,000 worth of earned income from the sale of your residence and would be treated as taxable income. IRS Form 1099-C: Cancellation of Debt will be sent to you at the end of the year.
BREAKING NEWS! H.R. 1876: The Mortgage Forgiveness Debt Relief Act of 2007 would eliminate the tax owed on any forgiven mortgage debt. This bill has been passed and signed into law by the president! The bill permanently eliminates tax on up to $2 million of debt for a principal residence. The best part about this bill is that it is retroactive to January 1st, 2007. This means that any Short Sale conducted after that date automatically is protected from any tax implications! For more info, please visit http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html
Let’s Recap:
The bank accepts a Short Sale, your foreclosure is canceled, and you sell your home for less that what you originally owed. The new House Bill H.R. 1876 should protect you, but if you do not qualify, and you receive a 1099-C: Cancellation of Debt at the end of the year, you still have options! Ask your accountant about the IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness (http://www.irs.gov/pub/irs-pdf/f982.pdf). If you can prove your insolvency (your expenses outweigh your income) then you should qualify for an exemption and not be taxed on the deficiency.
How does a typical short sale negotiation work (i.e. the general process)?
Short Sales are a difficult and time consuming process that only true professional negotiators should undertake. You only have one shot to get it right or you risk facing a foreclosure on your record! Here's the general process:
1. Initial offer is made and agreed to between buyer and seller (subject to lender's approval) 1-3 days
2. Short Sale package is prepared and submitted to lender - Week One
3. Lender processes the package through their system - Week 2
4. Lender orders a Broker's Price Opinion - Week 3
5. Lender says they can't find the package and asks you to resubmit it. Week 4-5
6. Broker Price Opinion is Performed and submitted to lender - Week 4-5
7. Broker Price Opinion is evaluated by Lender - Week 6
8. Lender says they can't find the package and asks you to resubmit it - Week 6
9. Loss Mitigation Specialist is Assigned and Whole Package is Reviewed - Week 7-8
10. Lender proposes A Counter Offer - Week 9
11. Negotiation Continues - Week 10-12
12. Agreement is reached and the closing takes place within 30 days.
What are some of the negotiating practices you have found to be effective?
First, understand the goals of the parties involved:
- Buyer: Wants to buy as low as possible
- Lender: Wants to sell as high as possible
- Real Estate Investor / Realtor: Wants to buy a property below market value or earn a commission. Also, they want to follow the law in their state.
- Seller: Praying that it all works out and stops the foreclosure
Second, listen more than you talk. The other side always wants to be heard. If you don't let them tell you their side, you are going to lose.
Third, Always let the other side talk first. There is an axiom in negotiating, "He who speaks first loses."
Fourth, remind everyone that you are trying to reach a win/win solution.
Fifth, remember that NO is not a final answer. You may have to go through 7 NO's to get to the YES you want.
Are there any common mistakes you see people make in short sale negotiations?
1. Lenders mistakenly believe the BPO (Brokers Price Opinion) is correct. However, the BPO is usually prepared by an inexperienced agent because the lender only pays @ $50.00 for it. It is our job to influence the BPO to reflect the true market value!
2. Buyers become impatient and lose sight of their goal. If we are negotiating a short sale on behalf of a seller and we find an end buyer other than ourselves to purchase the property, it is our job to keep the end buyer on the line long enough to finish the negotiating process!
3. Becoming angry is a negotiation killer. The Loss Mitigation processors at the banks are overwhelmed with the amount of foreclosures they are getting back on a daily basis. Imagine you working in a call center only dealing with hundreds of angry homeowners and short sale negotiators all day long! It is our job to constantly stay in touch with our assigned Loss Mitigation processor and stay on their good side. We have many negotiating tricks and techniques that get the job done, but avoid pissing off these overworked bank employees!
Can you give me a specific example of a negotiation that went particularly well, or particularly poorly, and why it went the way it did?
Seller Owed: $320,000
We Offered: $199,000
BPO: $219,000
Field Test: $240,000 (This was like an appraisal review)
Lender's Counter-Offer: $240,000 Close in 7 Days
Our Counter-Offer: $209,000Our Offer Was Accepted!
This short sale took two and a half months to complete! The house needed about $15,000 worth of repairs and was in an o.k. location in North Phoenix. The major negotiating stance we took was that it bordered the 202 Freeway, needed some repairs to get it up to a marketable condition, and had over 45 bank owned properties and listed short sales within a 2 mile radius! Our expert negotiator worked diligently on this file and in the end the homeowners avoided foreclosure and we were able to purchase the house for a great deal!
Is there anything else you think is important for homeowners to know?
1. Work with an experienced Real Estate Investment Company or Realtor unless you like to learn things the hard way. Lenders will not allow you to negotiate your own short sale no matter what they tell you in the beginning! Local investment companies all say and do the same things, it is the character one conducts business in, the ethics they abide by, and the systems they have in place that sets a good investment company above the rest.
At SellQuickForCash.com we pride ourselves on our commitment to our clients and their families! We only choose to work with those that we truly feel we can help in their brief period of financial despair!
2. Make sure you have plenty of patience and can stay calm during this time-consuming process. We will do everything in our power to keep you informed every week so you understand where in the process we are! We take great pride in our organization and short sale system we have created and believe we are the best option for homeowners that are upside down, have a verifiable hardship, and need to sell their house quickly to avoid foreclosure.
INFO@SELLQUICKFORCASH.COM
480-861-8732
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Labels: avoid foreclosure, cash for houses, how to short sale my house, how to stop foreclosure, what is a short sale
posted by SellQuickForCash @ 9:49 AM
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