To being with, this post is meant to touch upon the news that an increasing number of lenders will not borrow money to purchase a house in the redemption period, not short sales specifically. However it is more common for homes listed as a short sale or potential short sale to be up against the clock that is ticking towards the sheriffs’ sale. Which at that point begins the redemption period. To clarify, if you are buying a house, whether a short sale or not, and the sheriffs sale has happened, you may be out of luck. Check with your lenders on this.
A bill was introduced in the U.S. House of Representatives that would waive withdrawal penalties on certain retirement plans if the money is used to buy a home that has been in foreclosure for a year or more. This bill was introduced recently by congressman and real estate professional Bill Posey, R-Fla, and is expected to apply to Roth IRAs, 401(k) plans, and company pensions.
The intent is to promote purchases of these types of properties by owner occupants or second homes rather than people looking to “flip” them. According to the bill, purchasers must agree to hold the property for at least two years to avoid penalties associated with the withdrawals.
The “second home” idea could be an inviting one as California (25%)and Florida (9%) accounted for nearly 34% of foreclosure activity during the first quarter according to RealyTrac.
The bill has been sent to committee for further consideration.
The Mortgage Debt Relief Act of 2007 that extends through 2012 has no doubt helped a lot of people. There have been many, that given their unfortunate situation, were faced with tough choices such as foreclosure, a short sale, or a lengthy loan modification. I have previously stated on this site, not all debt should be assumed forgiven…
The debt your lender canceled must have been used by you “to buy, build or substantially improve your principal residence.” One of the keys in this is “principal residence.” This means not your investment property, 2nd home or seasonal condo. Another factor in deciding the qualifying forgiven debt: was any of the unpaid mortgage balance used for non-qualifying purposes? Refinanced for kids tuition? Maybe a vacation? A new car? Consolidating credit cards? As currently written, the IRS does not see these as qualified principal residence debt.
If you have foreclosed, sold short, or modified your loan and have never received a 1099-C, you should request this of your lender to possibly avoid tax issues. A person should verify with a qualified professional in the tax arena on their responsibility. The site IRS.gov also has information on filing details such as Form 982 and IRS Publication 4681.
Going through a foreclosure or selling your home short via “Short Sale” can be confusing and frustrating. There is some information you kind find either on the internet or by word of mouth that complicates things even further. If you are in this type of situation, consult a professional who can help with some answers and point you in the right direction if legal or professional tax advice is necessary.
Some things I have heard people say and read online about short sales: “The government passed a law directing the IRS not to count mortgage debt forgiven by a lender as income” or “You won’t get a 1099 because your debt was written off” While the passing of this law has helped numerous people, it does have some limitations. Did you refinance your home and take out cash? Maybe bought a boat? Is this your vacation home or rental property? Is the total debt more than a million dollars? Did you have any equity loans? Second mortgages? Was any debt already sold to a collection agency? If you have any questions like these or any similar, again, seek some professional advice.
Some things I have heard and read about foreclosures: “Just walk away, they can’t do anything” or even worse…. “I’ll buy another house and just give this one back”-not touching this one here! While foreclosures may have more statutory or legal history than short sales, it is still a legal process that begs more of your attention than putting your keys in an envelope and leaving them on someone’s desk at the bank. (Wouldn’t have brought it up if it hadn’t of happened) Foreclosure by advertisement, foreclosure by action, voluntary foreclosure, or deed-in-lieu…these are not all made equal and do not all necessarily exclude a person from a deficiency judgment. From the department of redundancy department, seek legal or professional advice.
In showing some homes in Lakeville, MN, some clients pointed out something to me. They hadn’t seen any for sale by owner signs lately. In doing a little research, I found that homes sold without the help of a real estate professional dropped to a record low over the past year. According the the 2010 NAR Profile of Home Buyers and Sellers, unrepresented sellers made up only 11 percent of the market, down from 2009. Considering most for sale by owners sell to someone they already know, the actual number of homes sold on the open market without professional assistance was a record low 5 percent. This current market can bring some challenges especially when purchasing foreclosed property or trying to sell your home as a short sale. If you’re in Lakeville, MN or in any of the surrounding suburbs and considering for sale by owner, consider interviewing a Realtor about the complexities and obstacles you might encounter and how a professional might help you overcome those challenges.
Outside the voting area at Hosanna Church in Lakeville, MN I was having a conversation with someone about 1st time buyers, investors and the interest rates. Most indicators and industry professionals point to the rates not being this low for too much longer and predict them to go higher in 2011. This person is looking at purchasing to rent out the home versus living in it, but in either case, investing or buying as a principle residence, short sales or foreclosures, home prices and interest rates make this a great window of time to buy.
While a lot of this information is personal experience mixed with some documented fact, it unfortunately cannot be held as 100% gospel as the rules seem to be ever changing and sometimes foggy from the beginning. I have been hearing a lot of people discuss with strong opinion that you can get a better deal on a short sale. In fact, a lot of banks are pricing foreclosure listings so competitively they are getting multiple offers. Also, with a short sale, you are never guaranteed that the sale will actually ever happen, depending on if if some screening was done prior to the property being listed. Short Sales do take much longer between offer, final acceptance, and closing, but you likely will get some more disclosure on the property and in some cases are receiving a home that was still being very well cared for. Some foreclosure transactions are very heavy with bank addendums indemnifying them from just about everything you can imagine in the conveyance of the property to you. Obviously, it is best to handle your potential purchase on a house by house basis with your agents and sometimes attorneys help.
Federally sponsored mortgage loan purchaser Fannie Mae announced plans this week to institute a new rule penalizing homeowners who walk away from their mortgages. If homeowners are able to afford home payments, Fannie Mae says they will pursue them in court and restrict their access to future home loans for seven years. The decision will affect many home-owning Americans since the mortgage market is nearly completely controlled by Fannie Mae, and its sister company Freddie Mac, as well as the Federal Housing Administration.
It was announced that troubled borrowers who do not try in good faith to work out a deal, but have the capacity to pay, are the targets of the policy. Fannie Mae said that in locations where the law allows, it also plans to take legal action to recoup outstanding mortgage debt from borrowers who strategically default. The company plans to instruct its servicers to monitor delinquent loans facing foreclosure and recommend cases to pursue for such judgments.
Bloomberg
February 26, 2010
The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program.
The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.
“It is one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts,” Treasury spokeswoman Meg Reilly said in an e-mail. “This proposal has not been approved and there are no immediate planned announcements on the issue.”
She confirmed the authenticity of the document, which hasn’t been made public.
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To being with, this post is meant to touch upon the news that an increasing number of lenders will not borrow money to purchase a house in the redemption period, not short sales specifically. However it is more common for homes listed as a short sale or potential short sale to be up against the clock that is ticking towards the sheriffs’ sale. Which at that point begins the redemption period. To clarify, if you are buying a house, whether a short sale or not, and the sheriffs sale has happened, you may be out of luck. Check with your lenders on this.
