Category Archives: Short Sale Information

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New guidelines should streamline short sales

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Area brokers and real estate agents will tell you that more short sales – an 11th-hour effort for homeowners to avoid foreclosure – are being executed this year.

The strategy in the past had been mired by communication breakdowns, prompting many a would-be buyer and Realtor to bemoan there is nothing “short” about a short sale.

So this week’s announcement by the Federal Housing Finance Agency directing Fannie Mae and Freddie Mac to streamline the short-sale process can only help.

The efforts will come in stages, with the first phase taking place in June.

Among the new guidelines is that mortgage servicers review and respond to requests for short sales within 30 days from receipt of a short-sale offer.

Slow responses from lenders, poor communication with a lender rep, and repeated requests for documentation were common gripes cited by agents in a California Association of Realtors’ survey of short sales released last year.

Other things servicers have been ordered to do under the new guidelines are provide weekly updates to the borrower if the short sale offer is still under review after 30 days; and make and communicate final decisions to the borrower within 60 days of receipt of the offer.

The new streamline rules would also apply for deeds-in-lieu and deeds-for-lease.

 

 

 

Source: David Benda’s Blog http://blogs.redding.com/dbenda/archives/2012/04/new-guidelines.html

Important HAFA Program Changes

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The federal government’s flagship HAFA short sale program continues to evolve in hopes of more effectively addressing the needs of distressed homeowners for whom continued ownership is not longer a realistic option.  The most recent Supplemental Directive 12-02 was released on March 9, 2012; loan servicers are instructed to implement program changes effective immediately.  They include:

  •  There are no longer any occupancy requirements for HAFA eligibility.
    Previously, HAFA required that the property be occupied as the borrower’s primary residence at some point within the prior 12 months.
  • The amount a servicer may authorize the settlement agent to pay from gross proceeds to subordinate mortgage holder(s) in exchange for a lien release and full release of borrower liability is increased from $6,000 to $8,500.
  • Borrower relocation incentives will be limited to HAFA short sales or Deed-in-Lieu transactions where the property is occupied by a borrower or a tenant at the time of the Short Sale Agreement or DIL Agreement and who will be required to vacate the property as a condition of the sale or DIL.
  • Borrowers may now elect to remain current on the loan during the term of the Short Sale Agreement or DIL Agreement.
  • Credit bureau reporting of HAFA transactions are amended as follows:
    • If the real estate is sold for less than the full balance owed and the deficiency balance is forgiven, report the following Base Segment fields as specified:  Account Status Code = 13 (Paid or closed account/zero balance) or 65 (Account paid in full/a foreclosure was started), as applicable.
  • The deadline for HAFA has been extended. A borrower now has until December 31, 2013 to submit a Short Sale Agreement or a written request for a consideration for a Short Sale Agreement to be eligible for HAFA.

The stated intention of the program updates is to expand the availability of HAFA’s benefits to more struggling homeowners.  Certainly, the increase in the amount of gross proceeds available to settle junior liens should help.  This has been an area of particular concern, most especially in California where the implementation in 2011 of SB 457 barred
lien holders from reserving collection rights following short sales or, alternatively, from conditioning short sale approval from additional seller contributions.  Of course, as with all previous program changes, the proof will be in the pudding.  Stay tuned….

 

 

 

 

Source: http://www.brianaripley.com/2012/03/26/important-hafa-program-changes-announced/

 

What is a Loan Modification?

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A loan modification restructures the terms of a loan without actually refinancing the property it secures. Modification of a loan applies to the terms governing the interest rate, the amount of the monthly payment, the term of the loan, but very rarely the principle balance.

Are you a good candidate for Loan Modification?

All of the following are great candidates for modification:

  • Any homeowner currently stuck with an adjustable rate mortgage
  • Any homeowner with a “PayOption ARM”
  • Any homeowner behind on Payments
  • Any homeowner with a “hardship” or inability to pay what is currently owed
  • Any homeowner that has little to negative equity
  • Any homeowner that cannot refinance

Are there any NECESSARY requirements to be considered for a loan modification?

  • Your monthly mortgage must be affected by a verifiable reduction in income or an increase in expenses.
  • It is required that you have a source of a stable and predictable monthly income.

How long is the Loan Modification process?

This depends on the lender, but typical turn times can range from 4-6 weeks up to over a year.

What happens during a Loan Modification?

During a loan modification the terms of your mortgage are renegotiated to bring the interest rate down to a percentage that fits into your budget and the monthly payment no longer presents a severe strain on your ability to meet your other financial obligations.

Loan Modification – Pros

1. Lenders are making a big push for loan modifications. Based on our recent experience it has proven difficult for a truly lasting and helpful modification to be completed.

2. Many lenders seem to be able complete Loan Modifications in the same time it takes to complete short sales.

3. In the future you might get your entire investment back. (It is theoretically possible, though no one can say for sure if it will happen)

4. You may minimize damage to your credit.

5. You may be able to do a loan mod and not waive your anti – deficiency protections.

Loan Modification – Cons

1. Without leverage it is unlikely you will negotiate a principle reduction. We are not seeing these happen.

2. In a typical loan modification – you may just be buying time. You make payments until you decide to sell or your payments go back up. Will it be better to attempt a short sale in a few years? I doubt it. But, you never know.

3. If you are not careful you may lose of waive important anti -deficiency protections. If you have assets or a salary to protect or you expect to have those things, this will need to be negotiated.

4. Your mod may not be successful enough to eliminate the full financial problem.

 

 

 

Source:  http://www.sandiegohopenow.com

The Skinny on the Short Sale

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With the amount of Short Sales on the market it is CRITICAL to use an agent who specializes in this field.  Short sales will be here for a while.  Call us the Short Sale Specialists with all your questions.  We’d be happy to assist you whether you are buying or selling!  360 Realty 800-399-9659 x 313!

There are many flavors of compromise you can strike with your lender if you are facing foreclosure. One of the toughest to execute is the short sale.

What Is a “Short Sale”?

The title “short sale” is somewhat misleading; many assume that “short” means quick, implying a transaction that has a short escrow period. Au contraire. A short sale refers to a homeowner’s sale of their home for a net sales price (after commissions, closing costs, etc.) that is less than what the homeowner owes their mortgage lender(s).

Why Is a Short Sale Desirable?

A short sale is an alternative to foreclosure. A short sale prevents you from having to go through the foreclosure and eviction. A short sale does make a smudge on your credit report but is much less traumatic to your credit than foreclosure.

What Makes a Short Sale Hard to Complete?

Because a short sale results in the lender losing (a) funds they are owed and (b) the property which secured the mortgage loan, these transactions must be done with the full participation and agreement of the homeowner’s lender(s).

Lenders are institutions, not people. They often move at a snail’s pace when evaluating a request for a short sale. Short sales are more frequent in a declining market — many lenders are simply not equipped to handle the deluge of short sale requests they receive.

Realtors who work on short sale transactions all have stories of trying for weeks to get the short sale “package” to the correct person in the loss mitigation department! Once the package is in the hands of the right person, the bank may have some reason they disagree with the deal between the buyer and seller, and may insist on inserting the bank’s price increase, reduction in closing cost credits, or other major alteration of the terms of the deal.

During a short sale, the buyer, seller and even the real estate agents are somewhat subject to the whims of the bank — the deal cannot be done without the bank’s agreement.

 

 

Source: By Tara-Nicholle Nelson, Esq., FrontDoor.com

The Most Important Short Sale Do’s and Don’ts

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Do educate yourself. This is THE most important thing you can do.  Short sales can be complicated. You need every bit of information you can get when you jump into the short sale process.

Don’t wait until it’s too late. If you drag your feet and hide from the fact that you’ve stopped making mortgage payments, it will cost your credit rating and it will put any chances of a short sale in risk.

Do be diligent. There have been very closable short sales that fail because the homeowners either stop responding to their agents, stop returning paperwork, stop returning phone calls, stop caring, etc. It can be a difficult process, but at the end of it you will be free of the mortgage, the upside-down house and your financial future will have a better foundation.

Don’t stop taking care of your home. Yes, you will be moving, but if you stop mowing the lawn or keeping the place tidy, that unkemptness will discourage any potential buyers.

Do keep paying your HOA dues! Any unpaid HOA dues will need to be settled either before or at the close of a short sale escrow. Sometimes the buyer or the first lien mortgage bank will contribute to these outstanding bills, but not every time. And Home Owner Associations will send your defaulted HOA bill to a collection lawyer who will slap you and your property with their own outrageous charges.

Don’t rent your home out. In these economic times there are unsavory renters, many of them lost their own homes, that don’t mind giving you the first month’s rent and a security deposit, only to never pay you another payment. You lose the house to foreclosure, but they live rent free for the foreseeable future.

Do your homework when choosing a real estate agent or broker when you go to list your house for a short sale. The wrong short sale agent can ruin your chances of avoiding foreclosure.  Short sales require diligence, confidence and an unmatched work ethic. Find that short sale REALTOR that knows her stuff, knows how to work and knows exactly what the banks want to approve your short sale.

Don’t think that you need a real estate agent that knows your neighborhood to short sale your home. In a short sale transaction, it’s about the short sale negotiation and working relationship with your lender(s), not that your home’s location is special compared to the listing around the corner. Out-of-area agents easily price properties using a Comparative Market Analysis (CMA). In fact, banks regularly pay agents and real estate brokers a minimal fee, usually $50 or $75, to price out-of-area properties for them. Your local neighborhood real estate agent may not be the right person. You need a tough and knowledgeable short sale specialist.

Do expect to move soon, or not for months. When your home receives an offer that is just the start for your short sale transaction. But the bank could decide to approve your short sale right away, which means you may only have 30 to 45 days to relocate. But, the approval process could take up to three to six months! Don’t move prematurely. It makes no sense to pay rent while your home sits empty. Communicate with your agent and keep updated on where the short sale process is.

Don’t stop paying your water bills, sewer bills or trash bills! Any unpaid bills may slow down or stop the short sale process.

Do consult your tax man or even a tax attorney when considering a short sale. Even the best short sale agents are not legally allowed to advise on tax implications of your particular situation, and the best short sale real estate agents don’t. A tax accountant CPA or real estate attorney has a better understanding and the legal right to advise you on such matters.

Don’t think that you must have a real estate attorney to execute your short sale. Most times these lawyers don’t understand real estate or the short sale process as well as an experienced short sale agent does. In fact, many if not most of these lawyers offering short sales require an upfront fee to process your short sale.  real estate agents and brokers only collect commissions from the proceeds of the sale, which comes out of the bank’s pocket, not yours.

Do let your real estate agent put a yard sign in the yard. Yard signs tell buyers trolling streets looking at neighborhoods and houses that yours is a possible candidate.

Don’t make viewing appointments unavailable and hard on buyers and their agents. The more potential buyers that see your home the better chance of short selling it and avoiding foreclosure. Make that home as available to buyers as possible!

Do yourself a favor and remember that millions of Americans are going though their own short sale, or unfortunate foreclosure. This economy is dreadful, and many are experiencing financial hardships and your particular situation is nothing to be ashamed of.

Don’t apply for a home equity line of credit or any other type of credit. If you own other properties that have equity, refrain from pulling money out of any of them during a short sale approval. Your bank and any of your bank’s back-end investors will dig deep into your credit history and find this activity. This kind of action says you are just out for your own financial bottom line, and yes, they will take offense to that.

Do a quick pick up of toys, laundry and any other items lying around when a buyer’s showing appointment is scheduled. Buyers will criticize your messiness like your mother-in-law, and worse, it could affect their offer which in turn could affect your short sale!

Don’t make the mistake of thinking a foreclosure is not much worse than a short sale. It is. A foreclosure will decimate your credit; it will keep you from owning another home for years and it will be a part of your financial incompetence far more than you hope it won’t.

Do keep your hardship letter short and sweet. Explain your situation as-matter-of-factly as possible. Then your bank will look at your finances, tax filings and other documents to verify and support your story. But DO NOT include in your hardship that you bought your home for more than it’s worth. The bank does not care your home is underwater. The bank is losing money too.

Don’t strip the house of its fixtures or other potentially valuable assets. Taking the pool system, or the ceiling fans or the beloved touch-action faucets will degrade your home’s marketability, and for what? A few hundred bucks will not make the financial blow of foreclosure any softer.

Do all your paperwork and return to your real estate agent in a timely matter.  Short sales can die if the proper paperwork is not supplied. It’s a silly way to screw your short sale, but it happens all the time.

Don’t use a short sale negotiating company. They will charge you large upfront fees that they don’t have to return to you even if they do not complete the short sale. And these companies aren’t held up to the same Department of Real Estate code of ethics that real estate agents and REALTORs are. In fact, some banks will not work with them!

Do call and communicate with your bank(s) and let them know you are attempting a short sale. They have thousands of mortgages defaulting, and if they don’t know you are pursuing a short sale, your property may automatically be classified as a pre-foreclosure. Not keeping your mortgage holder informed of the status of your short sale can help expedite your house to foreclosure which will not help your short sale.

Don’t violate the bank’s At Arm’s Length requirement for the short sale. The Arm’s length agreement required from the short sale lender prevents you from “renting the house back”. To avoid any fraud or risk that can result in the bank coming back at you for the balance of your loan. Do it by the book and follow the rules. The risk is not worth it.

Do know that credit card companies may decide to pull your credit due to foreclosure. When a foreclosure shows up on your credit, it says that you are in financial distress and your credit risk increases dramatically.

Don’t think you can’t short sale if you own other properties. This is a common mistake many multiple property owners make. A bank will more than consider a short sale even if you own two or more homes.

Do clean the home and property when you move out. Remove any trash, debris and take or dispose of any of your personal property. The condition of the property before transfer can have a negative effect on the buyer and their desire to own the home, and give them a reason to back out. Cleanliness is next to Godliness, and Sold Short Sales!

Don’t assume the information about short sales you read on the internet is always correct. There are many real estate professionals, and many not-so-professional individuals, giving advice regarding short sales. Some do not have a clue how to handle a short sale, let alone give advice on the subject. Your best bet is to call and talk to any prospective short sale experts. Get a feel of their knowledge base and real estate confidence, and above all else only hire a real estate short sale agent with experience.

DO CALL 360 Realty for more information.  We are Short Sale Experts! 1-800-399-9659

 

 

 

Source:  Garrigus Real Estate Blog

Permanent Housing Director Sought

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Due to the high home foreclosure rate in California, Rep. Jerry McNerney, D-Pleasanton, and 27 other members of Congress from California have called for President Barack Obama to immediately appoint a permanent director of the Federal Housing Finance Agency.

There has been no permanent director for 2 1/2 years, which McNerney says undermines the housing authority’s capability to address the foreclosure crisis. Meanwhile, areas like San Joaquin County have been ravaged by foreclosures, he said in a news release.

The federal agency has the authority to establish rules over mortgages that are underwritten by Freddie Mac and Fannie Mae, as well as those underwritten by other federally-backed enterprises, McNerney said. Without a permanent director, the FHFA cannot make key decisions to help keep people in their homes, he added.

According to RealtyTrac, 224,394 U.S. properties had foreclosure filings in November 2011. This means that one in every 579 housing units received a foreclosure filing nationwide, according to the letter McNerney signed. In California, one in every 211 housing units received a foreclosure filing.

 

 

By Ross Farrow/News-Sentinel Staff Writer

California House Dems Call for Recess Appointment at FHFA

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Brian Beutler writes that President Obama will likely have to make more recess appointments if he wants to staff key positions, including the newly-created vacancy at the Office of Management and Budget, as Jack Lew has become White House Chief of Staff. The assumption here is that Republicans will react to recess appointments at the CFPB and the NLRB by refusing to confirm any other Presidential appointee, and that’s a reasonable assumption.

But the President won’t get pressure just from Republicans on naming recess appointments. House Democrats in the California delegation, the largest in the Congress, wrote a letter late yesterday to Obama asking him to recess-appoint a new director to the Federal Housing Finance Administration. That institution has been without a confirmed director for over two years, since David Lockhart left.

The President has never had his own nominee at FHFA. And Democrats believe that FHFA, which currently oversees Fannie Mae and Freddie Mac, is uniquely positioned to help the country out of the housing mess. They accuse acting director Ed DeMarco of obstructing efforts to aid the housing market and keep borrowers in their homes. Here’s an excerpt from the California Dems’ letter, which I’ll put in its entirety on the flip:

As part of the FHFA’s ability to promote policies that will prevent foreclosures, they have the authority to establish rules over residential mortgages that Fannie Mae, Freddie Mac and other government enterprises are able to underwrite. FHFA has consistently and erroneously interpreted its mandate far too narrowly and as such has failed to take adequate action to help homeowners and has brought an end to successful, local initiatives—such as the PACE (Property Assessed Clean Energy) program [...]

As the fiduciary of government-backed entities, there are steps that the FHFA can take to help prevent future foreclosures while also protecting taxpayers. Installing a permanent Director of the FHFA will allow the FHFA to move forward to make key decisions that will help keep families in their homes and improve our economy. We appreciate your recent appointment of Richard Cordray as the new Director of the United States Consumer Financial Protection Bureau over similar Republican opposition and we urge that you take the same action to put in place a permanent Director to the FHFA.

I’m of two minds on DeMarco. He has interpreted his mandate very narrowly. It’s a bad thing when he refuses to engage in principal reductions for troubled borrowers, even though that would make more money for Fannie and Freddie in the long run, because he doesn’t want to take the short-term financing hit. But it’s a good thing when he sues 17 banks over misrepresentations of the mortgages in the securities they sold to Fannie and Freddie, with the hope of forcing repurchases of those mortgage pools.

There have been signs that DeMarco is warming to a more activist stance. He agreed to the changes to HARP, which is more of a stimulus program than a program that will save homes, but which will allow expanded refinancing come March of this year on GSE-owned properties. Freddie Mac just initiated a program for a 12-month forbearance (where the borrower can skip payments) for unemployed borrowers, although Democrats maintain that not everyone eligible will receive that forbearance.

Most promisingly, DeMarco is considering a principal pay-down program put forward by a California Democrat, Zoe Lofgren, that would allow underwater homeowners with GSE loans to have their mortgage payments go entirely to equity for five years, waiving the interest payments. DeMarco said he would look into the idea back in October, and there have been leaks since then suggesting that principal pay-down would happen. However, there has been no final word, and officially FHFA “continues to evaluate” the Lofgren proposal, even though in a meeting with House Dems they promised an assessment within two weeks.

I don’t think some in the Administration would have any problem getting rid of DeMarco – they don’t particularly like his aggressive stance on bank repurchases. But that would not necessarily be the best news for the housing market or the rule of law. If anything, the California Dems’ action shows that the previous recess appointments have opened a Pandora’s box for the Administration, and now everyone wants a recess appointment tailored to their concerns.

The entire letter from the Congressional Dems in California is below the fold.

The President
The White House
Washington, DC 20500

Dear President Obama:

We urge you to act on behalf of the American people and immediately make an appointment for the Director of the Federal Housing Financial Agency (FHFA). For two and a half years, Senate Republicans have been blocking the appointment of this position, causing there to be no permanent Director. The FHFA regulates and oversees Fannie Mae and Freddie Mac, which together hold 70% of mortgages in the US. The current economic crisis began in the housing market and our economic recovery is dependent on the important work pending before the FHFA. It is time to move forward and put in place a permanent FHFA Director.

According to RealtyTrac, 224,394 U.S. properties had foreclosure filings in November, 2011. This means that 1 in every 579 housing units received a foreclosure filing nationwide. In California, 1 in every 211 housing units received a foreclosure filing. And there are fears that a new set of foreclosure waves may come in the next few months. According to RealtyTrac cofounder, James Saccacio, “November’s numbers suggest a new set of incoming foreclosure waves, many of which may roll into the market as REOs or short sales sometime early next year…some bellwether states such as California, Arizona and Massachusetts actually posted year-over-year increases in foreclosure activity in November.”

It is clear that we must take immediate steps to prevent more foreclosures. As part of the FHFA’s ability to promote policies that will prevent foreclosures, they have the authority to establish rules over residential mortgages that Fannie Mae, Freddie Mac and other government enterprises are able to underwrite. FHFA has consistently and erroneously interpreted its mandate far too narrowly and as such has failed to take adequate action to help homeowners and has brought an end to successful, local initiatives—such as the PACE (Property Assessed Clean Energy) program. The PACE program allows property owners to finance energy efficiency measures and renewable energy projects for their homes and commercial buildings, thereby reducing their energy costs and making them better able to make mortgage payments. It has been successful in many of our districts, however, in July of 2009 FHFA issued a decision that essentially put an end to PACE programs across this country.

As the fiduciary of government-backed entities, there are steps that the FHFA can take to help prevent future foreclosures while also protecting taxpayers. Installing a permanent Director of the FHFA will allow the FHFA to move forward to make key decisions that will help keep families in their homes and improve our economy. We appreciate your recent appointment of Richard Cordray as the new Director of the United States Consumer Financial Protection Bureau over similar Republican opposition and we urge that you take the same action to put in place a permanent Director to the FHFA.

 

 

By: David Dayen Wednesday January 11, 2012 7:00 am

Short Sales Suit Patient First-Time Buyers

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A short sale could fit the bill for a first-time homebuyer who has patience.

In a short sale, the lender allows the home to be sold for less than the mortgage balance. As a result, prices often are affordable. On top of that, today’s mortgage interest rates are low. But short sales are complex and can take a lot of time.

Short sales are complicated because the final price must be approved by the both the home seller and the seller’s lender. So short sales require extra time to move from an offer to a settlement — sometimes as long as six to nine months.

“In general, first-time homebuyers should definitely consider short sales because they offer a terrific opportunity to get a great house at a discounted price,” says Paul McDonough, a Realtor with Weichert Realtors in Randolph, N.J. “The only drawback is timing because some banks are still notoriously slow at approving an offer. Buyers who need to move within a specific timeline because their lease is expiring or a school schedule may not want to make an offer on a short sale.”

According to CoreLogic, short sales represent about 8 percent of all home sales in 2011.

First-time buyers and successful short sales

Christina Griffin, a sales associate with Coldwell Banker Residential Real Estate in Tampa, Fla., says first-time buyers are often less patient than move-up buyers, and don’t want to wait for a short sale to go through.

According to the monthly Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, the share of short sales purchased by first-time buyers dropped to 40 percent in August 2011 after peaking at 54 percent of all short sales in November 2009.

“A short sale can be a great way to get an undervalued property, but buyers need to make sure that both agents, including their buyer’s agent and the listing agent, are experienced with short sales,” says Mike Cuevas, a Realtor with Exit Realty in Chicago. “I always recommend that buyers put in a drop-dead date into their contract, such as allowing the lender 30 days to approve the offer, because this puts pressure on the listing agent.”

First-time buyers should interview real estate agents to find a buyer’s agent with short-sale experience in addition to a deep knowledge of the local real estate market, so they recognize the value in a specific property. Griffin says buyers should choose an agent with experience in their price range, so they will know whether the offer is in line with current market conditions.

McDonough says, “Buyers sometimes think they should never pay full price, but they need to be realistic and recognize that a short sale may already be discounted. Short sales are generally a bargain because the sellers are motivated and want relief for their financial situation, and most banks are motivated to accept an offer. But sometimes the short sale is already priced below market, so a low offer may not be approved.”

Short sale pitfalls

In addition to the uncertain timing of a short sale settlement, buyers must be aware that the homes are typically sold as is, meaning the seller won’t make repairs.

“I recommend that buyers have a home inspection, even before the bank approves the offer, so that they have an opportunity to get out of the deal if the home has defects,” Cuevas says.

A home that needs repairs may not qualify for Federal Housing Administration financing, which is popular with many first-time homebuyers because of the low 3.5 percent down payment requirement.

“Buyers should have their agent find out about the condition of a property, so they can estimate whether FHA financing will work,” McDonough says. “FHA rules have stricter definitions of livable condition, but if the home is in good condition, it should be approved. If the home needs repairs, buyers can opt for FHA 203(k) financing to wrap repair costs into their mortgage.”

McDonough says buyers with conventional financing and at least 5 percent for a down payment will be in a better position for a short sale approval because they are considered less risky borrowers.

“The biggest risk for buyers, besides timing problems, is that they may put in an offer on a short sale, become emotionally attached and then the deal falls through,” says McDonough. “Some buyers know they don’t have the risk tolerance for that experience.”

As with any other home purchase, buyers should be both financially and emotionally prepared for their purchase with a preapproved mortgage, cash for a down payment and plenty of patience.

 

 

 

 

By Michele Lerner • Bankrate.com

Short sales Better Option for Homeowners

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MSNBC reports that the recent increase in short sales may be the relief that the housing market needs during its slow recovery. The number of short sales has increased by 26,000 this year following a jump in the number of foreclosures and short sales in 2010.

According to the source, short sales may also be a better option for homeowners when compared to foreclosures, especially for those who don’t qualify for loan modification.

Homeowners who choose short sales can stay in their homes and start rebuilding their credit sooner than those who find themselves in foreclosure, says the source. FICO reports that the number of points homeowners lose is the same when foreclosing or selling the home for less than the amount owed on the mortgage, but those who opt for short sales will likely obtain a loan quicker, which will help improve their credit scores.

The source reports that some economists are concerned that the decrease in foreclosures may be a result of a built up amount of foreclosures that have not been processed.

“Foreclosures are going to be a drag on the market for a long period of time,” Dean Baker of the Center for Economic and Policy Research told the source. “Until these distressed homes are resold and assimilated back into the market, real estate prices can’t stabilize.”

 

 

 

Source:  Today’s MLS Real Estate News on Dec. 30, 2011

California Short Sale and Foreclosure Tax Update

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Thursday State lawmakers passed SB 401 which will exempt borrowers who lost their homes to foreclosure or short sales in 2009 from paying state taxes.

State officials say as much as 100,000 people statewide will be spared from paying tax they otherwise would owe.

The bill extends the state ban from 2009 through the end of 2012. It also bans state taxes on federal stimulus grants for renewable energy projects.

The bill still needs to be signed by Gov. Schwarzenegger, however a spokesman for the governor said he will sign the bill.

Who is affected:

Primarily, the bill affects people who had debt forgiven as they lost homes in foreclosures, short sales and deeds in lieu of foreclosure last year – and through 2012 now. Also affected: those who got loan modifications that cut the amount they owe the bank.

The Franchise Tax Board says the tax forgiveness measure mostly applies to people who refinanced their homes to get better interest rates or extract equity, and then had a short sale or foreclosure where debt was forgiven.

But the tax board also warned that refinanced dollars taken out as cash and spent on items other than home improvements may be taxable.

Who is not affected:

Those who bought houses and never refinanced before doing a short sale, loan modification or foreclosure are unaffected.   In most cases the banks just take back the houses. There is no forgiven debt, and no tax bill, said the tax board.

Investors are also unaffected.  They still must pay state taxes on forgiven debt. The bill affects only people who live in their home.

What people should do now when filing their taxes:

The Franchise Tax Board says: “Once the governor signs this into law, California taxpayers will not have to do anything. If they qualify for federal relief on the mortgage debt forgiven, then they will also qualify for state income tax purposes. California Form 540 starts with federal adjusted gross income so there will be no adjustment necessary to properly reflect the state adjusted gross income amount for this issue.”

 

 

By Parsons Media Group

Read the full article from the Sacramento Bee www.sacbee.com