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Short Sales

A reader asks … Are short sales a better deal to buy than bank foreclosures?

Feb 18th, 2012
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Oftentimes yes. Lenders can be more motivated to approve a short sale as it can save them time and money as opposed to the foreclosure path.

However, according to RealtyTrac most major lenders are accelerating their foreclosure actions this year to the tune of about 25%. This more aggressive foreclosure activity is expected to result in a 60% increase in short sales.

While this may not necessarily bode well for property values in the near term, the market cannot fully recover until the distressed and shadow real estate inventory is absorbed.

For more on this topic, visit www.DestinFloridaRealEstate.com or email us at smith@realtor.com

Question: Will I get a 1099 at the end of the year if I short sale my house?

Feb 5th, 2012
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Answer:  If your lender forgives part of the debt against you, they are supposed to issue a 1099 to alert you and the IRS of the canceled debt which is theoretically taxable. However, in the case of your principal residence (resided in for at least 2 of the last 5 years) you may be able to exclude up to $2 million of debt forgiven under the Mortgage Forgiveness Debt Relief Act of 2007.  But do not wait … The Act expires at the end of 2012 if not extended by Congress.

Who Pays for Past Due HOA Fees on a Short Sale?

Dec 30th, 2011
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The foreclosing lender will often pay up to a point, but we have seen many cases in which the back HOA fees exceed $50,000. We are working on one now with a $65,000 HOA lien on it!

The lenders know that they only have to pay for the most recent twelve months in past due HOA fees should they foreclose the property, so they are often less than enthusiastic about paying more than that. Knowing this, many HOA’s will negotiate the fee down to facilitate the transaction.

It is often a win-win if the HOA can come out with much more than the stautorily mandated twelve months worth of fees. However, in a short sale, both buyers and sellers should be prepared to contribute should the foreclosing lender and HOA reach an impasse.

PMI Group, Inc. Files Chapter 11

Nov 25th, 2011
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According to PMI, their Chapter 11 bankruptcy filing is in response to the seizure of two of its subsidiaries by their primary regulator in Arizona last month. The subsidiaries include PMI Mortgage Insurance Co. and PMI Insurance Co., who make up a significant share of the private mortgage insurance market in the U.S.

 

According to PMI, they now wish to “raise additional capital from new investors in order to allow a third subsidiary, PMI Mortgage Assurance Company, to serve as a platform to write new mortgage insurance nationwide”.

 

The Arizona Department of Insurance said that PMI will be making claim payments “at 50 percent”. Presumably, that means that the unpaid balance of the claim will become part of the bankruptcy creditor claims. It is interesting that none of PMI’s subsidiaries themselves filed bankruptcy, only the parent company. While PMI states that they will continue to operate in the ordinary course of business, as a debtor-in-possession, their operations will be under the scrutiny of a Federal Bankruptcy Court.

 

Sitting on approximately $735 million in unsecured notes that are now due and payable, it is yet unclear as to how PMI’s move will impact the many lenders around the nation who are presently seeking claims reimbursements. Also in question is how this may impact the many tens of thousands of short sales that PMI has insured. If bankruptcy court approval will now be required for claims authorization, the short sale process nationwide and along the Emerald Coast as well could be dealt yet another unwanted setback. Time will tell.

Is it true that the banks will pay you to short sale your house?

Nov 23rd, 2011
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Yes, it is possible, if you qualify. In fact, we were selected to participate in a pilot program designed to assist distressed homeowners in the area. Many of our short sale sellers are receiving what is referred to as “relocation assistance” dollars at closing. We have assisted sellers who have received amounts of from $2,000 all the way up to $20,000 and even $35,000 at closing. 

 

For information on short sales, bank foreclosures and general real estate topics, please visit www.FloridaBrokers.com or email us at smith@realtor.com

As The Market Turns

Oct 27th, 2011
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According to Realty Trac, foreclosure filings have surged by 17% in what is being interpretedas a possible end to the review process that has hampered and bogged down the process for more than a year.  A review system was initiated by most of the major lenders in response to the robo-signing debacle that they faced last summer.
 
Many in the know do believe that major lenders are gearing up to accelerate the foreclosure process next year. Consequently, many of them are also gearing up to approve higher numbers of short sale transactions. As an example, Bank of America will complete approximately 100,000 short sales nationally in 2011, but has plans to complete 160,000 short sales in 2012.

We are buying a short sale in Destin. Why are we required to agree to not re-sell it for 90 days after we close?

Jun 9th, 2011
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Many lenders are requiring that such restrictions be imposed on the sale of their distressed properties to help eliminate mortgage fraud. Some lenders are now requiring a twelve month prohibition on the re-sale of their distressed properties.   
 
According to Freddie Mac’s Fraud Investigation Unit http://www.freddiemac.com/singlefamily/preventfraud/spotlight.html , if you contract to purchase a short sale and re-sell it (have it under contract) for more money prior to taking possession, you have committed mortgage fraud.
 
For information on short sales, bank foreclosures and general real estate topics, please visit http://www.floridabrokers.com   or email Ed and Terri Smith at  smith@realtor.com 

How long after a short sale can I qualify to buy a new home?

Feb 8th, 2011
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The answer depends upon which type of financing you wish to pursue. After completing a short sale as a seller, for example, VA and Conventional (Fannie Mae and Freddie Mac) mandate a two year wait. Another arm of the federal government, FHA, mandates three years.Non-conforming products such as that for jumbo and condo loans can be almost anything, depending upon the individual investor. From what we are seeing in the market though, non-conforming loan investors are requiring waiting periods of somewhat longer than that of the government sponsored loans. We have seen waiting requirements for non-conforming loans of from five to seven years. You may also expect higher than average down payment requirements.

To be on the safe side, short sale sellers should be prepared to face greater levels of credit scrutiny for a period of up to seven years after the successful completion of a short sale.

Is it possible to do a short sale when there is a second mortgage on the property?

Dec 22nd, 2010
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Yes it is possible, but there can be twice as much work to do and more time required to get the short sale approved. Additionally, it is very important that the second mortgage not go more than ninety days in arrears. That is because as a matter of policy, many lenders will assign their seconds to a collection agency after three months of missed payments. These collection companies can be extremely difficult to work with and have been known to kill many a short sale.

If the first mortgagee in a foreclosure sale is “upside down”, meaning the value is less than the first mortgage balance, then the mortgageee in second position gets absolutely nothing.  Even so, many of these collection companies will make insane and unreasonable demands. As a typical example, one such collection company recently demanded $30,000 on a $60,000 second mortgage from the short sale seller who was basically destitute. This seller had lost his job, had spent every dollar of savings trying to keep up his payments. He had nothing left. He could no more come up with $30,000 than the man in the moon.
 
In that case, the first mortgagee was already taking a huge hit, writing off nearly $100,000. The first offered the collection agency in second position $5,000 to settle. The collection company would not agree, the property went to foreclosure and the collection company received exactly what they deserved, which is nothing.
 
In another case … We recently sold a  short sale condo across from the Gulf of Mexico. A collection company was involved and hindered the sale for 26 months!  Yes, we had the property under contract on five separate occassions over a 26 month period of time. Even funnier? We originally had the property under contract for $325,000. 26 months later when the collection company finally agreed to the terms, we sold and closed the property for $209,000.  Effectively, the collection company cost the first mortgagee $116,000.  Even funnier still?  The first morgagee also owned the second mortgage and had assigned it to the collection company.  The collection company was negotiating against their own client!!
 
Some day we will look back at all this and laugh …??

Fannie Mae Tightens Policy

Jul 7th, 2010
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One more reason that a short sale is better than foreclosure … The government-owned mortgage giant Fannie Mae issued the following warning:

“Defaulting borrowers who walk-away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure.”

Prior to this policy change, a foreclosure would render the mortgagor ineligible for 5 years. However, if you complete a short sale instead, the prohibition is a mere 2 years – Approximately the length of time it takes the average consumer to get back on their feet again.

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