What’s all this talk about Short Sales

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Short Sales, Bank Owned, Foreclosure, Bankruptcy…all start with one problem; Finances or the lack of funds to overcome the current and future expenses. Who hasn’t had some type of financial issues in your life? Unfortunately, these are some of the more extreme financial solutions. With foreclosures on the rise, short sales have become an option to relieve some of that burden.

Disclaimer; I am not a tax expert, CPA, financial planning expert, nor a lawyer. I suggest before you decide if a short sale is right for you, that you seek professional advice from your CPA, tax expert and lawyer. What I am giving you here is a peek into what could happen if this is the right choice for you.

Foreclosure is the final action that a bank takes to recover assets to cover the mortgage at which a homeowner promised to pay. There are other alternatives to foreclosure. One of the biggest problems with deterring foreclosure; Homeowner denial.

How many empty promises were made to the collection agency?

How many times has the phone rang and you didn’t answer it?

How many notices from the bank went unopened into the garbage?

For some reason it is our human psyche to ignore it and it will go away. THIS IS THE WORSE THING YOU CAN DO. Let me tell you a secret; Banks don’t want to own real estate. Now the catch-22, they don’t realize that either. You would think that they would want to help you before you start to have problems in today’s economy and housing situation. I have heard many stories that the bank wouldn’t even talk to the homeowner until they were at least one month behind on their payments. So, I guess you have to hurt your credit to fix your credit. (that is not my advice, that is just my reasoning.)

What is happening quite too often now is that homes have depreciated anywhere from 5-15% since 2006. (prices are actually that same now as they were in 2005 according to the January 2008 Housing report for Frederick County) What you have now is a mortgage that is worth more than the property is actually valued. This is creating problems with refis too. Some are looking to refinance their mortgage to help lower the payments which is great. The interest rates haven’t been this low for a long time. But now the problem, the appraisals are not matching up with what is owed on the property. In some cases you have homeowners that bought their home with no money down which means after all the charges, the loan was more than the purchase price. Simple banking math; you don’t pay much on the principal to lower your debt for the first few years only interest (even on 30 yr fix loans.) Now, if the homeowner tries to sell the property, the amount they owe is more than the market will pay. Hence the birth of the short sale. What happens now, the bank has to approve the sell of your property, because now they are looking to take a loss on your mortgage. This can be a tedious and nerve racking process for all involved. In the end the bank still might to decide on foreclosing on the property. They might feel this will yield them more money.

Now a shortsale doesn’t always relieve you of your financial burden. Banks might request that you pay back the difference between the sale price and the mortgage price or they may not. If you are relieved of the difference, it is still considered as income by the government and could be subject to taxation. Either way, it is much less than having the whole mortgage hanging over your head. This might not be the right choice for you or the only solution that is out there for you, but there are solutions. You need stop avoiding the banks…that is the worse thing you can do. A REALTOR educated on short sales can help show you options.

I will be back next week to talk about what to expect in a short sell as the seller and as the buyer.

February 7, 2008 · Filed Under Frederick Foreclosure, Frederick MD Real Estate, frederick real estate

Comments

9 Responses to “What’s all this talk about Short Sales”

Kristal Kraft on February 7th, 2008 9:15 am

Bob, I think it is worth mentioning to homeowners that unless they absolutely have to sell they shouldn’t worry about the market. This is NOT a permanent condition and things will get better. Sometimes when we get to the end of our rope we need to tie a knot and hold on!

This too shall pass.
Frances Flynn Thorsen on February 7th, 2008 9:52 am

Congress recently passed The Mortgage Cancellation Relief Act, removing the tax burden associated with short sales. That said, you offer excellent advice when you tell homeowners to seek professional help.

There are many “predators” waiting in the wings to reap an equity bounty. Find our what a property is worth, and what the tax and financial implications are at each juncture.

Good post! Nice blog!
Teresa Boardman on February 7th, 2008 9:53 am

I am thinking that banks do want to own real estate, at least here in St. Paul. They sure are not selling any of it. We make offers and nothing happeneds so I guess I disagree.

but you are 100% correct in that the biggest mistake people make is to ignore it all until it is too late. I have been contacted by soon to be X home owners after the sheriff’s sale and after the statutory redemption periods are over and I can’t help.
gotbob on February 7th, 2008 12:04 pm

KK, That is absolutely excellent advice…don’t need to sell… don’t! We will get through this.

Frances, It changes everyday…doesn’t it? Predators…especially the ones that say don’t do anything, we will save your house (for themselves)

T, The part about “they just don’t realize it yet…” we are on the same sheet. I believe they are understaffed for this department and cannot respond to all of us.
ines on February 7th, 2008 6:49 pm

I just had a client tell me that their mortgage broker suggested a short sale right after refinancing…….do you smell fraud or what? (and here I thought we were done with that!)
gotbob on February 7th, 2008 8:28 pm

Ines, that has to be the lowest…why do some parts of this industry get a bad name?
ines on February 7th, 2008 9:46 pm

The question is what do we need to do to clean up the mess??
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