Selecting the right real estate agent to help you short sell your house can be very challenging. Once you let your friends and family know that you have decided to short sell your home real estate agents will descend upon you like locusts, all assuring you that they are “Short Sale Experts” or that they use an “Experienced Short Sale Negotiator” or that they are a “Certified Short Sale Specialist”. Friends and friends of friends will appear at school or church or soccer games or parties all offering to help you in this great time of need. The reality is that not all short sale agents are created the same. Some agents claim to have years and years of industry experience and still others claim to be outright “Gurus” at selling distressed properties. Beware and take your time. Friends are friends but business is business. A good philosophy is to keep friendship and business separate.
The following are some questions and tips for correctly choosing the right short sale real estate agent for your situation:
1. Does the real estate agent process their own short sales or do they use an “expert”? Real estate agents that process their own short sale transactions tend to have a greater understanding of how short sales work than ones that rely on 3rd party ”professional negotiators”. Additionally, real estate agents that use 3rd party negotiators tend to try and pass the cost of the negotiator onto the homeowner. As a homeowner the cost of the negotiator should NEVER come from you. If a real estate agent wants to use a professional negotiator that real estate agent should pay for the negotiator out of their own commissions. Better yet, find a real estate agent that has experience processing their own short sales.
2. Do you have more than 1 lien on your property? Short sales that involve multiple liens on the property are exponentially more difficult to negotiate than short sales with just 1 lien. While anti-deficiency laws in California have protected homeowners from lenders who would otherwise agree to a short sale but still attempt to recover the deficiency they have now made second lien holders more difficult to negotiate with. There is no law that requires either a 1st or 2nd lien holder to agree to a short sale. Since 2nd lien holders can no longer pursue deficiencies they have become more obstinate. An average real estate agent can become overwhelmed or discouraged by the amount of tenacity it can take to bring a 2nd lien holder into line. Typically the first lien holder will agree to pay the 2nd lien holder a small (very small) percentage as a payoff. The 2nd lien holder usually wants more than the first lien holder is willing to give them in order to approve the short sale (thus giving up any deficiency rights that they might have if the property were to go to foreclosure). Getting the 1st and 2nd lien holders to agree can be extremely difficult.
3. Do you have any judgment liens or HOA liens on the property? If your property has any type of judgment liens and/or HOA liens then the short sale cannot be finalized until these liens are taken care of. This is a VERY difficult endeavor and something that 95% of real estate agents are not equipped to deal with.
4. Is the property a rental or is it owner occupied? Short selling a rental property has many nuances that can make it difficult for an average real estate agent. First, the real estate agent should strongly recommend that you perform your due diligence as to the tax ramifications of short selling a rental property. The tax ramifications could be via debt forgiveness or capital gains. If your real estate agent glosses over this issue then you should be very cautious about using that particular agent. A true real estate agent will have your best interests ahead of his own. The truth is that you should seek counsel from a CPA or tax attorney prior to entering into a short sale listing agreement, especially when the subject property is a rental. Second, renters can present another set of challenges that a normal real estate agent is not prepared or capable of dealing with.
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5. Are the loans on your home Purchase Money Loans or have you refinanced? Purchase Money Loans refers to homeowners that still have the same note (loan) that they purchased the property with. In other words, if you have never refinanced your house you probably have a purchase money loan. Purchase money loans are important because they carry special protections that are lost if you refinance. The applicability of laws like The Mortgage Debt Forgiveness Act of 2007 are somewhat dependent on the status of your loan as a purchase money loan or refinanced loan.
6. What is the reason for your hardship (like real estate agents, not all hardships are created the same)? Short sales are not guaranteed nor is the lender obligated to approve every single short sale. Like a loan modification one of the important considerations is the nature of the hardship that is forcing you to short sell your house. An experienced real estate agent should have an idea as to whether or not your hardship has a good chance at meeting the investor guidelines for an acceptable hardship.
7. Have you received a Notice of Default or Trustee Sale? If you have already received a Notice of Default (“NOD”) or Notice of Trustee Sale (“NOT”) the foreclosure clock is ticking and you need to find a real estate agent that is 1) familiar with the foreclosure process 2) capable of negotiating your short sale in a shorter amount of time and 3) has the know how to be able to push the sale dates off if necessary. Some lenders are VERY difficult and do not like to push sale dates off just to accommodate a short sale. Likewise, some investors, such as Freddie Mac and Fannie Mae, do not like to push sale dates off at all. You must be cautious and select a real estate agent that possesses the know how and ingenuity to perform under pressure.
8. How many short sales has the real estate agent that you are considering successfully completed? How many of those had multiple lien holders? Every real estate agent that approaches you will claim to be experienced in short sales. They have to say this because they would otherwise have no business in this economy. Remember, real estate agents are sales people. Not only will they attempt to sell your house they will also attempt to sell you on their qualifications. While you might want to help out your neighbor or friend from church that is a real estate agent the bottom line is that you are short selling your house because it is the best financial alternative for your family. Do not be persuaded by personal feelings. Short selling your house is a business decision and friendship is friendship and business is business. Experience is vital in selecting a real estate agent.
9. What type of training and/or educational background does the agent you are considering possess? Let’s face it, not all real estate agents are created equally. Check out your agent’s educational background. Do they have a college degree? Do they have a graduate degree? What tools does the agent bring to the table that will provide you with the best all around service. In addition, check out your agent’s credentials. What additional training courses or certifications do they possess?
Selecting the right real estate agent is a very important decision. Choosing the wrong agent can cause a homeowner to suffer consequences or stress that would have been avoided by performing due diligence during the real estate agent selection process.
Jenny Winford July 23rd, 2017
Posted In: Uncategorized
A word of advice for homeowners trying to short sell their house with Ocwen, do not wait until the last minute to initiate the short sale. Ocwen is a very unforgiving lender and frequently refuses to extend Trustee Sale dates in order to facilitate a short sale. Homeowner’s who desire to short sell their house but also desire to stay in their house for as long as they can should use caution and not push their luck with Ocwen. Ocwen is a servicer and they rigidly follow their underwriting directives. Ocwen has outsourced much of their customer service and underwriting duties to India so even escalating issues within Ocwen can be much more difficult than at other lenders. Homeowners having Ocwen as a servicer and hoping to string out the short sale process as long as possible should be very careful or they might find that, at the last minute, Ocwen will refuse to move a sale date in order to accommodate a short sale leaving the homeowner with a foreclosure.
Jenny Winford July 23rd, 2017
Posted In: Uncategorized
Every month thousands of homeowners located in Orange County, Riverside County and San Diego County receive a Notice of Default from their lender. A Notice of Default (“NOD”) signals the beginning of the foreclosure process and should be an indicator to the homeowner that they need to try and find a resolution as quickly as possible. In California, lenders have to wait 90 days from the day the NOD is filed before they can issue a Notice of Trustee Sale (“NOT”). The sale date indicated in the NOT has to be 21 days from the filing of the NOT. In effect, once a NOD is filed the clock starts ticking. While there are ways to delay or prolong the foreclosure deadlines, one thing is for sure, eventually, if the homeowner fails to reinstate the past due amount or refuses to obtain a loan modification or fails to successfully short sell the property their home will be foreclosed on.
The question for many homeowners is “How do I know when it is time to short sell?” In other words, how long can they push the envelope and still have time to short sell. Like loan modifications, a short sale is a loss mitigation tactic used by lenders to minimize the losses for the investor of the loans. Lenders agree to short sales because, in most cases, a short sale will result in less losses to the investor than would a foreclosure. However, the longer the delinquency and the closer to a trustee sale that a homeowner gets, the more difficult that transitioning into a short sale becomes.
Deciding whether or not to short sale depends on what would need to be done to keep the house. First, homeowners should “realistically” determine whether or not obtaining a loan modification is possible. While homeowners have every right to work directly with their lender, the best advice is to approach someone that is experienced in loan modifications such as www.californialoanmodificationattorney.com and ask for an independent evaluation of their chances at successfully obtaining a loan modification that will result in a payment that is affordable. Homeowners should stay away from entities that promise results that are too good to be true or that are unable to provide a detailed explanation as to why or why not a loan modification has a chance of being granted. Homeowners must also beware of the fact that many of these companies will make promises to assist on a loan modification hoping to lure them into a short sale. Second, homeowners should explore whether or not filing a Chapter 13 Bankruptcy is a viable option. My experience has indicated that most of the time a Chapter 13 provides only a temporary band-aide. However, homeowners should at least take the time to exhaust this possibility. Third, homeowners should determine whether, in the event they cannot save their home, they would like to purchase a home in the near future. If a homeowner has a realistic chance of qualifying to purchase a home in the near future the homeowner should determine whether they would like to waiting period to buy a new home to start sooner or later. Most homeowners who make this determination choose to sell quickly so that they can get back into the buying pool as quickly as possible.
The simple answer to the question ”when to short sell” is as follows: whenever the homeowner is resolved to the fact that keeping the home is either impossible or not in their best financial interests. While staying in the house for as long as possible without making a payment might seem attractive, in the long run, it might not be the best course of action.
Both loan modifications and short sales are getting tougher and tougher to obtain. Increasing property values have started to shift the leverage in negotiations from the borrowers to lenders. Waiting could result in a significant amount of unnecessary stress and anxiety. The best thing to do is to take control of chaos by being realistic about what options are available.
If you are thinking of short selling your property and you are located in Orange, San Diego, San Bernardino or Riverside Counties contact Michael Gaddis, J.D. at 888-242-2272 or Micheal@MichaelGaddis.com . For more information related to short sales please visit www.sdshortsaleattorney.com or www.michaelgaddis.com.
Jenny Winford July 23rd, 2017
Posted In: Uncategorized
What Is Net Present Value NPV & Why Is It So Important for loan modifications?
What is Net Present Value NPV?
Net Present Value NPV is an extremely important test for any loan modification program. In general, there are 3 major tests that every lender uses when attempting to determine whether or not a homeowner qualifies for a loan modification. The first test is the Hardship Test. Homeowners must have a satisfactory Hardship before a lender will agree to review a loan modification file. In other words, they are willing to entertain a loan modification if a homeowner has a legitimate reason for needing one. Lenders are in business to make money and they are not going to adjust or modify the terms of an existing agreement without a valid reason. The second test lenders use when analyzing a loan modification application can be called the Affordability Test.
The Affordability Test is when a lender takes the financial information supplied by the homeowner and analyzes it against the investor guidelines. The resulting payment and necessary interest rate; amortization term and principal deferral/reduction (if needed) needed in order to make the proposed payment are then input into the third test, the Net Present Value NPV Test. Net present value NPV is basically a computer program that takes into consideration all of the information related to the loan modification request file and determines for the investor by which avenue the investor will lose less money. In other words, if, after taking everything into consideration, the net present value NPV Test determines that the investor will lose less money by modifying the loan rather than foreclosing, the homeowner will PASS net present value NPV. However, if the computer determines that the investor will lose less money by foreclosing, the homeowner will FAIL net present value NPV. The factors used in the net present value NPV Test are numerous, and include, but are not limited to, the following: current payment, new projected payment, old interest rate, new interest rate, monthly escrow of property taxes, monthly escrow for hazard insurance, unpaid principal balance, current market value of property, current remaining amortization term, new proposed amortization term, amount (if needed) of principal deferment or reduction, etc.
Net Present Value NPV has the final say on whether or not a homeowner will obtain a loan modification.
If a homeowner is denied a loan modification based upon NPV failure the lender will typically send a denial letter to the homeowner along with a NPV Input Values Chart (“NPV Chart”). The NPV Chart is an extremely important document that sets forth the fields and values used by the lender in analyzing your loan modification application. A homeowner who receives a NPV denial has 30 days from the date the homeowner receives the denial letter to file an appeal of the NPV test based on an error(s) in the NPV Chart.
For a professional that knows how to read and interpret the data on the net present value NPV Chart the information is extremely valuable. This data is a window into how the bank interpreted a homeowner’s loan modification application and what values they used for fields such as credit score, property value, property valuation type, data collection date, etc. The net present value NPV chart typically has around 34 fields populated with data used in the net presetn value NPV analysis. The fields include data collection date, imminent default flag, investor code, unpaid principal balance at origination , first payment date at origination, product at origination, next adjustable rate mortgage (ARM) reset Rate, unpaid principal balance before modification, principal and interest payment before modification, monthly property tax payment, monthly hazard insurance payment, proposed principal and interest payment, proposed amortization term, proposed interest rate, proposed principal reduction, proposed principal deferment, etc. Every field is equally important in analyzing whether or not the NPV denial is accurate.
Appealing net present value NPV results can be difficult for a homeowner because lenders presume that the data collection and net present value NPV are correct. Additionally, the lenders’ internal appeal process is typically not run efficiently. Usually, a homeowner can only communicate through a CRM and not the individual at the lender that input the data into the net present value NPV test. However, if a homeowner believes that an error exists on their net present value NPV results time is of the essence. The homeowner should either file for an appeal or consult with someone familiar with loan modification underwriting guidelines and net present value NPV tests.
It is not uncommon for a net present value NPV Chart to have one or more errors in it. Whether or not the errors are material enough to have changed the final decision is a more difficult analysis. Some errors are trivial in nature while others are more substantive. Either way it is important to determine the accuracy of the values used to populate the net present value NPV fields.
The best advice is to find a competent 3rd party (not yourself and not the lender) and get an expert opinion on the NPV denial. If you would like more information regarding loan modifications and net present value NPV please visit www.californialoanmodificationattorney.com
Jenny Winford July 23rd, 2017
Posted In: Uncategorized
Michael Gaddis, J.D. recently closed a Homeward Residential short sale in the Arrowood community of Oceanside, CA. The property was located at 5329 Village Dr., Oceanside, CA and had a beautiful view of the Arrowood Golf Course. The homeowner had one loan on the property with Homeward Residential. This transaction was one of those rare short sales that ran entirely smooth without a single crisis issue. In fact, this short sale ran so smoothly that one might have thought it was an equity sale. A lot of credit has to go to the homeowner selling the property. He was extremely proactive and committed to the short sale process. Without a doubt this was the smoothest short sale transaction ever processed by Michael Gaddis and is evidence that if all parties involved in the transaction (buyer, seller, agents, lender, etc.) are fully committed that short sales do not have to be extremely difficult.
The homeowner left the property in exceptional shape. In fact, when the homeowner transferred the keys to the new owner on the day of closing the house looked brand new, like a model home. The homeowner in this transaction was truly amazing. His meticulous maintenance of the home surpassed even those selling their house for huge gains. He took pride in his house even when letting it go. People like this are rare and it was honor for Michael Gaddis to work with such a person.
The homeowner initially met Michael Gaddis while attending the Harbor Days street faire in Oceanside, CA in September of last year. He was impressed with the fact that Michael Gaddis was an attorney as well as a real estate broker. After spending over an hour speaking to him at the faire the homeowner made an appointment to visit Michael Gaddis at his Oceanside, CA office and retained him to assist with the short sale shortly thereafter.
It is always nice to close a short sale where everyone is at peace and happy with the result of the transaction. Michael Gaddis has completed several Homeward Residential short sales and everyone has been relatively smooth. If you have a Homeward Residential short sale and are located in San Diego, Riverside, Orange, Los Angeles or San Bernardino counties and would like a free consultation with Michael Gaddis, J.D. please contact him at 760-754-2121 or 888-242-2272. To view copies of the Homeward Residential short sale approval letter associated with this article or to see other short sale approvals procured by Michael Gaddis please cick the following link: https://sdshortsaleattorney.com/short-sales/approved-short-sale/
Carlsbad Realtor: Carlsbad Short Sale Report as of February 7, 2013
The number of ”Active” Carlsbad short sales is unbelieveably low. As of February 7, 2013 Sandicor, the San Diego County MLS, showed only ten(10) Active listings that were identified by listing agents as ”Active”. Active listings refer to listings that are currently being marketed without an accepted offer. Contrast the ten (10) active listing to the seventy (70) ”Contingent” listings and thirty-two (32) “Pending” listings. “Contingent” listings are listings where an offer has been accepted by the Seller but it is subject to lender approval. In other words, since the sale is a short sale, the bank has to agree to the short sale and issue an approval before the sale can continue. Short sale listings that are identified as ”Pending” have obtained the proper lender approvals and are officially in escrow in the final closing stages. The fact that there are only ten Active Carslbad short sale listings and one hundred and two (102) Contingent and Pending Carlsbad short sale listings indicates that most of the Carlsbad short sale listings that are marketed on Sandicor are getting accepted offers and moving relatively quickly into Contingent status. There does not seem to be enough new Carlsbad short sale listings to compensate leaving only ten (10) Active short sale listings. All of this indicates that 1) there is a shortage of short sale inventory currently on the market and 2) that there appears to be a surplus of buyers snatching up whatever short sales appear on the market. Another interesting fact about the Active listings is that seven (7) out of the ten (10) Active listings are either condominiums or townhomes. Of the three (3) remaining Active (single-family detached) listings two (2) are priced at $1,499,000 or higher. The remaining Active (single-family detached) home had extremely restrictive showing hours (the agent notes indicate that the only Showing to be on Jan 27th, 1pm-4:30pm) and unfavorable terms for the selling (buyer’s) agent. If you throw the three (3) Active listings for the single-family detached homes out of analysis based on being priced too high (thus appealing to a very small pool of potential buyers) or for being unreasonable in showing hours and selling agent incentives there are no Active single-family detached homes under $1,499,000 in Carlsbad that would be classified as a short sale.
This fact is amazing since the Carlsbad real estate market has been dominated over the past few years by short sale listings. Does this data indicate that the end is near for Carlsbad short sales?
Jenny Winford July 23rd, 2017
Posted In: Uncategorized
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Radio host and short sale expert Michael Gaddis, J.D. of Michael Gaddis, J.D. Realty Group recently discussed short sales on his radio show which airs on KCBQ AM1170 The Answer. On his September 30, 2015 episode of “The Michael Gaddis Show” Michael Gaddis, J.D. began by discussing how to properly select a real estate professional to represent you in a short sale. Michael Gaddis, J.D. stated that not all real estate agents are created equally and that although every single one of them will tell you they are experts at short sales to be careful. Short sales can be very difficult and challenging even for the most experienced agents. Appreciating home values and challenges from HOA liens, junior liens and judgment liens can create serious problems. The average real estate agent is simply not equipped to handle the complexities that many short sales present. Michael Gaddis, J.D. then discussed exactly what a homeowner can expect from a short sale including the timeline of a short sale. Michael Gaddis, J.D. only allocated this one segment to short sales and was cut short by his producer with a lot to say. Michael Gaddis, J.D. will continue to dedicate a portion of his show to short sales.
If you would like to hear podcasts of “The Michael Gaddis Show” please feel free to visit KCBQ’s webpage at http://am1170theanswer.com/pages/the-michael-gaddis-show. Michael Gaddis, J.D. assists buyers and sellers of real estate in San Diego, Orange and Riverside Counties. In addition to being a real estate broker Michael Gaddis, J.D. is also a licensed CA attorney (www.LawOfficesofMichaelGaddis.com) and the CEO and broker of Frontier Loan Group, Inc (www.FrontierLoanGroup.com). Michael Gaddis, J.D. is licensed by the California Bureau of Real Estate as a real estate broker License #01433800. Michael Gaddis, J.D. Realty Group CALBRE# is 01465493. If you or someone you know is thinking of short selling their house you can have them contact Michael Gaddis, J.D. at 760-692-5950 or 888-242-2272 or by email at Michael@MichaelGaddis.com. You can also visit the Michael Gaddis, J.D. Realty Group Facebook page at www.Facebook.com/michaelgaddisrealtygroup.
Jenny Winford July 23rd, 2017
Posted In: Uncategorized
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Michael Gaddis, of Michael Gaddis, J.D. Realty Group and the Law Offices of Michael Gaddis, mortgage and loss mitigation law, talks about how the expiration of Mortgage Debt Relief Act affects homeowners hoping to short sell their house in 2014.
Video Transcript:
I’m Michael Gaddis your California short sale expert I wanted to take a few moments today to talk about the Mortgage Debt Relief Act of 2007. The Mortgage Debt Relief Act of 2007 will expire at the end of this calendar year. It appears that congress will allow it to expire as such it leaves some questions regarding what is going to happen to homeowners who are still underwater and who desire to short sell their house. Will there will they not incur tax liability related that sale in California? We have an anti deficiency statute and the Code of Civil Procedure section 5b the anti deficiency statue basically says that lenders desiring to approve short sales in the state of California have to waive their right to a deficiency.
Sometimes short sales can be a little bit more difficult when you have second liens involved because second lien holders have to give up their right to pursue deficiency judgments. So, they become a little bit more stubborn about what they want to recover but I digress.Our Senator Barbara boxer was concerned about the potential expiration of the mortgage debt relief act so in a letter to the IRS dated August 28 she asked the IRS’s section 58 EE the Code of Civil Procedure would in any way protect California homeowners from any income tax liability resulting from debt forgiveness. in a letter dated september 19 and basically said this is really good news because the IRS is basically stating that even though the Mortgage Debt Relief Act of 2007 is going away that California homeowners are still protected from a tax liability resulting from short sales.
Shortly after the letter from the IRS to Senator Boxer the State of California’s Franchise Tax Board issued a letter dated December 4 in which they stated that they would take a similar stance related to you the and Mortgage Debt Relief Act and winter but section 58 EE in the same manner as the IRS now this is great news because is it is a confirmation from both the IRS and the state tax Franchise Tax Board that homeowners who were short sale their house will not incur tax liability as a result.
Now the California Association of Realtors read these letters issued a press release dated December 4 in which they are expressing their gratitude to both the IRS and Franchise Tax Board for clarifying this for California homeowners. Because without this clarification homeowners might go into foreclosure or file bankruptcies as a way to try to circumvent any sort a debt forgiveness tax. If you desire arm to see the actual letters the press release from the California Association of Realtors you should be able to find those either by Googling them are you can find him on my web site www.MichaelGaddis.com I have copies a the letter from the IRS to Senator Barbara Boxer and I have a copy of the car press release all stating what I said earlier.
Just for the record I’d like to state that even though I am a real estate Broker, a short sale expert, and a licensed California Attorney, I am NOT a tax attorney and that if you desire to be 100 percent sure about the tax ramifications are the news short sales in California you should consult a CPA or tax attorney. With that being said the letters from the IRS and the franchise tax board are very clear. Still, I suggest that you read them yourself and if you have any questions or comments regarding them you can either contact me or our CPA 760.692.5950
Jenny Winford July 23rd, 2017
Posted In: Uncategorized
According to a press release from Bank of America dated May 15, 2012 Bank of America has launched a nationwide program that offers delinquent mortgage customers increased assistance with relocation expenses – from $2,500 to $30,000 — at the completion of a qualifying short sale.
I have been reluctant to post this information until I saw for myself that I was able to obtain relocation assistance through this program in the amounts stated above. Now that I have successfully been able to secure payments within this range for my short sale clients I feel comfortable posting this information.
To qualify for the enhanced relocation assistance payments under the new program, the seller must work proactively with the bank to obtain a preapproved sales price prior to submitting a purchase offer to the bank. A short sale must be initiated by the end of this year and close by September 26, 2013, to be eligible for the payment.
The amount of assistance provided under the new program will be determined on a case-by-case basis using a calculation that includes the value of the home, amount owed and other considerations.
Initially, the program will be offered on mortgages that are owned and serviced by Bank of America.
For more information regarding this program please contact Michael Gaddis at 888-242-2272 or by email at michael@dreamhouserealtyinc.net
Jenny Winford July 23rd, 2017
Posted In: Uncategorized
As of the date of this article the Mortgage Debt Relief Act of 2007 (“MDRA”) is still set to expire on December 31, 2012. On November 20, 2012, Paul Owens of sunsentinel.com, reported that Pam Bondi, the Florida Attorney General, as well as 43 other state attorneys general have all urged Congress to extend the MDRA in order to prevent homeowners that have been granted debt forgiveness from their lenders via loan restructuring (i.e. loan modification principal forgiveness) or short sales from incurring debt forgiveness tax. All indications are that, although there is a dispute over how long to actually extend the MDRA, President Obama and both houses of Congress have the necessary support needed to extend the MDRA for some period of time. The delay seems to be caused by the ongoing “fiscal cliff” crisis in Washington, D.C. Some talking heads have indicated that the MDRA, and consequently millions of homeowners, might fall victim to the stalemate in Washington, D.C. On November 7, 2012, in response to a recent inquiry from my office regarding this issue, U.S. Senator Diane Feinstein (D-CA) responded as follows:
Thank you for writing me to express your support for extending the mortgage debt relief provisions included in the Mortgage Forgiveness Debt Relief Act. I appreciate hearing from you and welcome the opportunity to respond.
Please know that like you, I strongly believe the federal government must do more to help distressed homeowners and stabilize the housing market. I supported the Mortgage Forgiveness Debt Relief Act (Public Law 110-142) when it was passed in 2007 because I believed that this tax relief would help the homeowners who had been most impacted by the housing market crash. This legislation allows homeowners to exclude debt that is forgiven through mortgage restructuring or foreclosure from their taxable income.
As you discuss in your letter, this tax relief is currently scheduled to expire at the end of 2012. I understand your concerns that the expiration of this tax relief will come at a time when many homeowners are still struggling with underwater mortgages or facing foreclosure. You may be interested to know that President Obama included the extension of this tax treatment through 2015 as a part his FY2013 budget proposal. Additionally, I have instructed my staff to carefully examine proposals to help struggling homeowners, including the extension of the Mortgage Debt Relief Act. I appreciate hearing of your support for this proposal and will keep your thoughts in mind as I continue to work with my colleagues to stabilize the housing market and provide relief for homeowners impacted by the recession.
Once again, thank you for writing. If you have any additional questions or concerns, please do not hesitate to contact my Washington, D.C. office at (202) 224-3841. Best regards.
Sincerely yours,
Dianne Feinstein
United States Senator
Currently, the MDRA allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure or short sale qualifies for the relief. The MDRA expires at the end of 2012 so debt forgiveness that would otherwise be non-taxable through December 31, 2012, would become taxable starting January 1, 2013.
It is important to note that not all debt forgiveness qualifies for relief under the MDRA. The MDRA is applicable to secured debt that was incurred as a result of improving, building or buying a primary residence and refinanced debt that was incurred as a result of a rate and term refinance or a cash out refinance with the specific purpose of home improvement. There are limitations of the amount of forgiven debt that can be excluded and the MDRA does NOT exclude debt incurred from debt forgiveness on rental properties, second homes, commercial properties, car loans or credit cards. Homeowners should visit the IRS website at http://www.irs.gov/individuals/article/0,,id=179414,00.html or consult a tax professional to ensure that their situation qualifies under the MDRA.
Jenny Winford July 23rd, 2017
Posted In: Uncategorized
Know When to Short Sell Your Home
A frequently asked question asked by distressed homeowners is “How do I know when to short sell my home?” The answer to that question, while seemingly simple, is much more complex than one would anticipate. The first question a homeowner needs to ask is why is short sale even a consideration at all. Homeowners tend to fall into categories. The first category of homeowners are those that are concerned about the value of their house. These homeowner’s only concern is how much they owe on their loan versus its currents market value. They feel that unless they can obtain a principal reduction short selling their house is the best answer. For these homeowners the key information that is needed for them to be able to make their decision is whether or not their lender (investor owning the loan) participates in principal reduction programs or not. The answer to that question makes their course of action very clear.
The second category of homeowners are those that are not overly concerned with the value of their house; these homeowners are more concerned with obtaining an affordable payment. A good test for a homeowner that is significantly underwater on their home to use in determining whether they should keep their home or not is If a homeowner is significantly underwater on their home and the lender is not willing to cut the principal then the lender should be willing to offer the homeowner a modified payment equal to or less than the homeowner could rent a similar property for. In other words, if the lender is not willing to modify a homeowner’s payment into a reasonable payment, and they are not willing to modify the principal balance then, emotions aside, a homeowner should strongly consider short selling their home. The key is for the homeowner to take emotions out of the equation and to look at their housing situation as a business (financial) decision.
The third category of homeowners are those that are resolved in losing their home but want to try and stall the process for as long as possible. These homeowners use many tactics to stay in their house as long as possible without making payments. Sometimes these homeowners press their luck and end up with a foreclosure on their record. Homeowners desiring to stall the foreclosure process need to keep several things in mind:
1) Some lenders do not mess around; they are on top of their time-lines and are rigid with their rules.
2) If the homeowner has a recourse 2nd lien the homeowner might be risking too much because if the house goes to foreclosure the 2nd lien holder will come after the homeowner for a deficiency judgment which will cost the homeowner significantly more money than if they negotiate settlement via the short sale;
3) The homeowner might be risking significant relocation assistance from the lender; for example, Bank of America currently has a cooperative short sale program that could potentially pay the homeowner between $5,000 and $30,000 in relocation assistance; and
4) Stalling a foreclosure pushes off the time period for a homeowner to qualify for a new loan; currently, FHA guidelines allow for a homeowner to qualify to buy a new home via a FHA loan 3 years from the end of a short sale. Homeowners who continuously push off short sales desiring to stay in their house as long as they can without making a payment could really be tripping over dollars to pick up pennies. In the long run the better financial position might be to dump the house as fast as possible in order to let time pass in order to qualify to buy a new house in a down real estate market.
The decision on when to short sell a house is an extremely personal decision that should be made by setting aside emotions and looking at the situation from a strictly objective perspective.
Schedule a complimentary consultation with Michael Gaddis, Real Estate Attorney and Short Sale Expert to determine if a short sale is the best option for you.
Jenny Winford July 23rd, 2017
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