It’s easier than ever before to walk away without a deficiency and maybe even thousands of dollars in your pocket.
And to top it off you usually don’t have to pay taxes on the debt you walked away from when you agreed to the short sale on your primary residence.
If you can’t stay in your home, this is frequently the best possible scenario.
You don’t have to pay taxes on that debt because of theMortgage Forgiveness Debt Relief Act, which was enacted in 2007 as President George W. Bush was leaving office.
Even though thebill passed with overwhelming bipartisan support and was enacted by a GOP President, tea partiers and Republican strategists alike seem fixated on the ‘moral contagion’ factor as well as the program’s $2.7 billion price tag.
Which means that if you agree to a short sale on your $200,000 home for only 150K, you could have to cough up taxes on the $50,000 of forgiven debt.
Currently the Debt Relief Act allows for up tax relief on up to $1 million of debt if you’re single, $2 million if you are married.
Once again there’s a lot of talk from some conservatives about the cost to the taxpayer. Never mind the fact that President Obama and the $25 billion settlement has made principal reductions and loan modifications the centerpieces for stabilizing the housing market.
So even the idea that this tax break might not see the light of day in 2013 is a slap in the face to everything the Attorneys General spent months haggling over.
The same government that is dangling the carrot of refinancing in front of you might very well bat it away with a massive tax bill.
Bottom line, if you’re thinking about a short sale, get started NOW. Short sales can sometimes take months to complete, and if you wait til one minute after the clock strikes midnight on December 31st, you run the risk of your beautiful stage coach turning back into a pumpkin.
It is of course an election year, so this lame brain duck Congress cannot be counted on to come through for homeowners. I thoroughly expect them to let the Debt Relief Act lapse, and once again you’ll be on the hook for taxes on ‘loan forgiveness income’.
Loan forgiveness income. If that’s not an oxymoron, then I don’t know what is!
For 5 years now we’ve been a huge champion of the short sale. We’ve been banging and banging away at the banks because they didn’t share our opinion.
There has long been an institutional reluctance among our nation’s lenders to embrace the short sale, but it appears they are finally coming around.
According to Corelogic’s most recent numbers, short sales accounted for 9 percent of all residential transactions last November.
In January of 2008, they represented only 2 percent. That’s a 350% increase in the amount of homes sold at short sale.
Hallelujah.
It may have taken them a while, but the banks are finally letting go of the arcane notion that foreclosing on a delinquent borrower is always the best option for them.
The short sale has and will always be a much better alternative for the banks. In many cases, when modification isn’t an option, a short sale is better for the existing homeowners as well.
It’s good for the banks because it’s the fastest way to bring down their massive backlog of foreclosures.
Now that more and more foreclosures are lingering in the courts, banks now realize its the simplest way to get these homes back on the market, sometimes in just a few months.
They may not get back the full value of the home but their losses are about 15 percent less than if the home was foreclosed on, according to Bloomberg News.
It’s good for the borrower because they can walk away, legally, with little or no debt at all. Some banks are even offering cash incentives, as much as $35,000 in some cases, to entice homeowners to sell back their homes. (more…)
There is an interesting practice developing at our nation’s big banks. Borrowers who are in or nearing foreclosure are being offered thousands of dollars to short sale their homes. Some are even being offered $35,000 to get rid of their homes, and quickly. This situation presents an intriguing insight into the way banks are thinking at the moment. Banks would rather pay you and take a loss rather than foreclose on homes.
Do such offers signify that banks have learned their lesson and are trying to get out of sub-prime loans, or are they looking to just prevent further losses? Perhaps the answer is that the banks are concerned about existing home prices. Bank of America’s chief economist, Mickey Levy, while speaking privately, spoke of the concern that the 1.8 million bad loans in the nation will drive down the market if they go into foreclosure. Such fears help explain why the banks are desperate to avoid foreclosing on homes. They don’t want the rest of their loans to become vulnerable: the more foreclosures, the more house prices fall, therefore, the value of the banks’ loans go down and more people want to walk away from their homes, causing the banks even more losses.
In the end, this situation is a win-win. Not only do banks protect home prices, but they stand to get back more money quicker from a short sale than a foreclosure and the good publicity would be a nice change of pace for their PR departments. Homeowners in trouble are also helped because they can get out of their houses with some cash in their pockets and get on with the rest of their lives.
Like the never ending horror franchise, deficiency judgments are back. A Florida deficiency judgment occurs when a bank pursues the remaining balance on a mortgage either after a foreclosure or, in theory, after a Florida short sale. Most banks are currently too busy to process deficiency judgments because they are dealing with foreclosures and short sales. Due to the large costs associated with pursuing deficiency judgments, few homeowners who were foreclosed upon will be pursued. Those people whose mortgages were owned by trusts will probably not face a deficiency judgment because of the large costs. Unfortunately, if a community bank owns the mortgage the story might be a little different. Most community banks still have the loans on their books so they will pursue the deficiencies. Also, some community banks have started to buy deficiency judgments for pennies on the dollar for the express purpose of acting like a collection agency. This is good news to keep in mind because, in these situations, the banks will be eager to settle.
While we have addressed the deficiency judgment issue for years now, the Sun-Sentinel has now also reported on the danger of what will soon happen. In two or three years, when big banks catch up with their foreclosures, we will see a flood of such deficiency judgments. The main targets of the big banks will be strategic defaulters. Strategic defaulters are the folks who could afford their mortgages but defaulted because they are so underwater that it didn’t make any sense to pay. Not every strategic defaulter has to worry though. A deficiency judgment can only be entered in foreclosure cases. Short sales cannot lead to a judgment being entered against you unless the bank decides to file an action and litigate in court. An action would require the bank to pay attorneys and other fees with no guarantee of success and scrutiny of their documents, which might lead to sanction if fraud is uncovered. (more…)
Foreclosures are back… just like Freddy Krueger. Just like in the horror films when things start to calm down and get back to normal… out pops Freddy Krueger again to scare the living daylights out of you.
Well, that seems to be the case here in Florida as it relates to real estate and foreclosures. The news this past week has been that median prices have increased by approximately 22 percent in the past year in South Florida and sales of homes actually also has increased 12 percent from last year.
During the past six months, however, there has been a drastic reduction in the number of foreclosures that have been processed and brought to market due to the fraud-closure crisis that became apparent last fall.
Fast forward to today and we’re seeing the resurgence of the foreclosure crisis. Many of the foreclosure mills have shut down and are being replaced by new firms, many of whom will not process as many cases. Just in the past ten days we have seen an increase in the number of people served in foreclosure and the scuttlebutt is that the process this time around will be faster and more furious.
The unfortunate aspect of all this is just as the real estate market was starting to find its footing, and some even would say slightly rebound, these new foreclosures will either reduce the price of existing real estate or, in fact, bring down prices another 10 or 20 percent. Of course no one knows for sure how buyers will react. Will such additional foreclosures encourage even more buyers to come into the market because they’re getting even a better deal – or will the number of buyers in the market be somewhat fixed or stagnant; increasing supply and reducing the market price of homes? (more…)
Broward County homeowners now face an additional hurdle when trying to complete a loan modification or short sale to avoid a Florida foreclosure.
In Sun-Sentinel reporter Paul Owers’ blog House Keys, Owers discusses the ramifications of Broward County now requiring 10 days’ notice to cancel residential foreclosure auctions according to an administrative order signed by Broward Chief Judge Victor Tobin.
Prior to the Administrative Order, Broward foreclosure auctions could be cancelled only hours before the sale. Now, homeowners looking to cancel a home foreclosure in Broward County are forced to file a motion and be scheduled for a hearing at least 10 business days before the foreclosure sale date.
Oppenheim Law Real Estate Attorney and Legal Bogger Roy Oppenheim was quoted in the article saying, “This will have unintended consequences. Clearly, the homeowner gets the short end of the stick here.”
Effectively, this order limits the time homeowners have to negotiate a short sale or loan modification before their home is put up for auction. Before the order, these deals could be completed up to the last minute.
This order appears to be an attempt to eliminate the backlog of foreclosure cases by limiting the number of homeowners who cancel their foreclosure auctions.
“Roy Oppenheim gets it, and I agree with him,” said Ronald Scott Kaniuk in a comment to the blog. “Courts throughout the state are trying to expedite foreclosures in the mistaken belief that completing foreclosures – even if the process is flawed, improper or ill-advised – is better than having cases continue to proceed on a normal track like any other litigation.” (more…)
During the webcast, Oppenheim discusses how with the departureofFannieMaeandFreddieMac also goes the traditional 30-year mortgage, paving the way for a new 20-year mortgage, higher interest rates and larger down payments. In other words, buying a house just got harder.
If you missed this hour of economic insight from a leading industry expert, the replay will be available on OppenheimLawTV and the OppenheimLawYouTube channel for the next 30 days! We want to remind you that as the short sale market heats up, Oppenheimlaw and WestonTitle are here to service all your legal and title insurance related needs.
It’s a great time to do a short sale. 
