NEGOTIATION (2)

Do you have a client walking the fine line between foreclosure and a short sale? They may have several questions regarding their predicament that you might not know the best way to answer. The good news is that’s what we are here for! We have compiled a few key points that should be made to a wavering client regarding their decision to short sale or not.

First, let’s start with the definition of a short sale:

In simple terms, a short sale is a graceful exit from an underwater mortgage. The lender will agree to sell the home for less than what is owed on the mortgage.

Secondly, what are the perceived advantages of a short sale?

  1. Credit - If a homeowner decides to short sale instead of foreclose, they can become a homeowner again far quicker.  In fact, updated Fannie Mae guidelines assist homeowners in qualifying for loans just 2 years after their short sale. If a foreclosure is on record, it could take as long as 7 years to purchase again.
  2. Short sellers could obtain additional time in the property - During a short sale, the homeowner could have more time to plan for what’s to come. Since the average short sale takes between 60-90 days, there isn’t a rush to immediately find a new residence. With a foreclosure, you could have as little as 30 days.
  3. Short Sale Cash at closing / Relocation Assistance – There are many updated government short sale programs available and designed to assist the homeowner in need. Bank of America has recently begun to offer pre-approved homeowners up to $30,000 in assistance. We’ve also had Chase and CITI offer homeowners $12,000 - $30,000 as a cash incentive to the homeowner short selling their property. There is also the HAFA (Home Affordable Foreclosure Alternatives) program that is there to assist qualified homeowners with a relocation assistance of up to $3,000.
  4. Mortgage Debt Forgiveness Act– There is the Debt Forgiveness Act of 2007 which may forgive the homeowners of paying the taxes associated with the cancelled debt of selling the property short. This is a question for a Certified Public Accountant.  Click here to see the Mortgage Debt Relief Act of 2007 as described by the Internal Revenue Service (IRS)

Lastly, what could be the perceived disadvantages of a short sale?

  1. Credit - If a homeowner decides to take the route of a short sale, their credit score may be impacted due to the late mortgage payments and/or the reporting of the account being paid in less than full. However, it typically won’t be impacted nearly as much as a foreclosure.
  2. Mortgage Debt Tax Liability – The seller may be responsible for additional taxes if they choose to short sell. If the lender agrees to the short sale, there may be a liability to pay taxes on the debt forgiven. It is important to speak with a tax attorney or professional regarding this matter.
  3. Deficiency Judgments - In some states, the lender may be able to come after the homeowner for the deficiency amount.  In the state of California, for instance, there are Senate Bills that protect California homeowners who decide to short sale their property.  (Senate Bill 931 and Senate Bill 458). Again, it is important to speak with a tax attorney or professional regarding this matter.

At Short Sale Experts INC, we can answer these questions (minus the specific legal or tax questions) plus many more! We are here to help – our name says it all!

888-SHORT-20

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Condo Association Fees In Foreclosure

When Homeowners have financial troubles, the last thing they fall behind on is the mortgage, but the first thing they stop paying is Association dues. Because of this, many Condo & Homeowner Associations in Florida are squeezed for funds and have become aggressive in pursuing every penny. They now have legal representation, have been successful in litigating similar cases, and are not as likely to back off.

What bank negotiators don’t realize is that if the property goes into foreclosure, it could end up costing radically more than just the delinquent Condo fees.

1. Special Assessments:

Unlike delinquent maintenance fees, Special Assessments are not extinguished in a foreclosure because they are part of the property’s cost basis. In other words, the assessed amount becomes real estate -- part of the property. Example: Structural improvements or repairs not covered by association reserves. Delinquent maintenance fees are part of an Association’s receivables, but assessments are part of the real estate itself. As this assessment directly affects the tax valuation of the property, it cannot be separated from it. Which means when a bank forecloses and the property becomes an REO, the entire assessment must be paid, plus the back due monthly fees and the Association’s legal fees, penalties, and the bank’s legal fees.

2. HOA or COA:

One wrinkle to check for is whether the property is governed by a Homeowner’s Association or a Condo Association. Currently, in a Florida foreclosure, the bank would only have to pay 12 months* of Condo Association dues (or 1% of the original loan amount, whichever is lower) in order to deliver clear title to the next owner. However, litigation in Florida is less certain regarding unpaid back dues owed to HOAs after a lender forecloses.

3. Attorney Fees:

Another thing the bank negotiator may not be thinking of is that, even if they only have to pay 12 months of past due monthly Condo fees after a foreclosure…what about the legal fees owed to the Condo Association’s attorney? Judges are lawyers. You think lawyers look out for other lawyers?

The bottom line is that foreclosure will cost a bank more than just a few months of fees and it is in the lender’s best interest to negotiate these costs as part of a short sale, rather than dragging its feet until foreclosure.

*only 6 months prior to new legislation in 2010
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