Foreclosures and Short Sales: Deficiency Judgments
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.
Buy vs Rent: Owners, Renters Agree: Owning a Home is a Smart Decision
A substantial majority of both home owners and current renters agree that owning a home is a smart decision over the long term. That’s according to the results of a National Association of Realtors® survey of 3,793 adults conducted online by Harris Interactive.
The American Attitudes About Homeownership survey found that in today’s challenging economy, 95 percent of owners and 72 percent of renters believe that over a period of several years, it makes more sense to own a home. In addition, an overwhelming majority of home owners are happy with their decision to own a home – 93 percent of owners surveyed would buy again.
“Home owners and renters agree that home ownership benefits individuals and families, strengthens our communities, and is integral to our nation’s economy,” said National Association of Realtors® President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. “The results of this survey illustrate just how important issues related to home ownership are to people in this country.”
The survey uncovered some differences between home owners and renters, as well. While more than half of owners are “very” or “extremely” satisfied with the overall quality of their family life, only one-third of renters report the same levels of satisfaction. Similarly, 43 percent of home owners are very/extremely satisfied with their community life, compared with 30 percent of renters.
A majority of renters – 63 percent – said that it was at least somewhat likely that they would purchase a home at some point in the future. Among this group, young adults (18-29 years old) have the strongest aspirations for home ownership; only 8 percent of young adults said that it was “not at all likely” that they would purchase a home at some point in the future.
In today’s market, many aspiring home owners are faced with worries about job security and creditworthiness. Among renters who are very or extremely likely to buy a home in the future, three out of five consider confidence in job security and creditworthiness to be an obstacle.
One point of agreement between renters and home owners was support of the mortgage interest deduction (MID). Seventy-four percent of owners and 62 percent of renters say it’s “extremely” or “very” important that the MID remain in place.
“At a time when the middle class is under increasing economic pressures, both home owners and renters agree that the mortgage interest deduction should not be targeted for change,” said Phipps. “Given strong public support of and aspirations toward owning a home, we need to keep policies in place that support and encourage responsible, sustainable home ownership for our future.”
http://www.realtor.org/press_room/news_releases/2011/01/owning_home
An easy version to Understanding Real Estate Capital Gains
When you sell a stock, you owe taxes on your gain — the difference between what you paid for the stock and what you sold it for. The same holds true when selling a home (or a second home), but there are some special considerations.
How to Calculate Gain
In real estate, capital gains are based not on what you paid for the home, but on its adjusted cost basis. To calculate, follow these steps:
1. Purchase price: _______________________
The purchase price of the home is the sale price, not the amount of money you actually contributed at closing.
2. Total adjustments: _______________________
To calculate this, add the following:
- Cost of the purchase — including transfer fees, attorney fees, and inspections, but not points you paid on your mortgage.
- Cost of sale — including inspections, attorney fees, real estate commission, and money you spent to fix up your home just prior to sale.
- Cost of improvements — including room additions, deck, etc. Note here that improvements do not include repairing or replacing something already there, such as putting on a new roof or buying a new furnace.
3. Your home’s adjusted cost basis: _______________________
The total of your purchase price and adjustments is the adjusted cost basis of your home.
4. Your capital gain: _______________________
Subtract the adjusted cost basis from the amount your home sells for to get your capital gain.
A Special Real Estate Exemption for Capital Gains
Since 1997, up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a home is exempt from taxation if you meet the following criteria:
- You have lived in the home as your principal residence for two out of the last five years.
- You have not sold or exchanged another home during the two years preceding the sale.
- You meet what the IRS calls “unforeseen circumstances,” such as job loss, divorce, or family medical emergency.
Short Sale in Apple Valley and some insights…
Great news for this seller in Apple Valley. Final approval on the short sale! Congrats to this seller on the timeliness and accuracy on the list of paperwork needed by the banks. It can be done! For anyone considering buying a short sale, remember to ask good questions to make sure the listing agent has certifications and is experienced in these types of transactions. It helps on your side as the buyer to have better knowledge about what you are getting into. A synopsis of what a short sale consists of:
A Short Sale….
A process that is confusing to a lot of people….still. Buyers are confused, their agents could be confused and hopefully the listing agent is not confused.
A requirement for the Bank to start a short sale is a hardship. This can be one or some of the following:
• Reduced income/Unemployment
• Death of primary or subordinate
• Job transfer
• Bankruptcy
• Divorce
• Medical reasons leading to hardship
An example of the typical paperwork (short sale package), which can be lengthy and differ from institution to institution is:
• Letter of authorization, allowing your agent speak to the bank
• Seller’s hardship letter (written by the seller)
• HUD-1 or preliminary net loss sheet
• Completed financial statement(s)
• 2 years of tax returns
• 2 years of W-2s
• Recent payroll stubs
• Most recent bank statements (2 months)
After the seller accepts an offer, the listing agent will send the following items to the bank:
• Listing paperwork
• Executed purchase agreement and all related addendums
• Buyers purchasing qualifications and copy of earnest money check
• Previously mentioned short sale package
If the package is incomplete, the short sale process will be delayed. In this event, the bank might even shred the package.
The real process begins…..
It is at this time the buyers get anxious and ask their agent to call every day and demand an update and timeframe. This does not work, because as of now, you are working with a call taker who is simply updating the file in a computer. Subsequently, during the entire process it is the “call taker” that usually is the one you get any and all updates from. But ask thorough questions of the status! It is however critical, that once the offer is submitted, the listing agent is very prompt and consistent in follow up with both the buyers and the bank, as well as the seller if anything extra or new(which happens) is needed during the process.
What are we waiting for……?
• Completion and acceptance of ALL the correct paperwork
• The BPO
• Attorney approval
• Investor approval (true, a lot of banks don’t own your mortgage)
• Mortgage insurance company approval (likely applicable)
• Additional Bank generated paperwork (arms length affidavit…)
• Negotiator approval
• Extend and do some of this more than once for additional liens….
The least I have experienced this to all happen was 60 BUSINESS DAYS. Speaking with Bank representatives, the most common reason for delays is incomplete paperwork and timeliness in getting it complete and correct, back to the Bank.
NOW, remember the buyers still might have to perform the inspection. The lenders likely haven’t gone through complete underwriting because of the undetermined schedule. So we now begin the process to get to closing much like a traditional sale.
If you made it this far, GREAT! Now, just hope your buyer and buyer’s agent avoided the remorse and anxiety and still want the house! Glass half full…knowing what you are getting into, both as a buyer and seller, and having communication during the process will significantly improve the likelihood of success.
Put on a Pretty Face….
Home Owners Recoup More with Exterior Replacement Projects, REALTORS® Report
As part of the 2010-11Remodeling Cost vs. Value Report, REALTORS® recently rated exterior replacement projects among the most cost-effective home improvement projects, demonstrating that curb appeal remains one of the most important aspects of a home at resale time.
“This year’s Remodeling Cost vs. Value Report highlights the importance of exterior projects, which not only provide the most value, but also are among the least expensive improvements for a home,” said National Association of REALTORS® President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. “Since resale value can vary by region, it’s smart for home owners to work with a REALTOR® through the remodeling and improvement process; they can provide insight into projects in their neighborhoods that will recoup the most when the owners are ready to sell.”
Nine of the top 10 most cost-effective projects nationally in terms of value recouped are exterior replacement projects. The steel entry door replacement remained the project that returned the most money, with an estimated 102.1 percent of cost recouped upon resale; it is also the only project in this year’s report that is expected to return more than the cost. The midrange garage door replacement, a new addition to the report this year, is expected to recoup 83.9 percent of costs. Both projects are small investments that cost little more than $1,200 each, on average. REALTORS® identified these two replacements as projects that can significantly improve a home’s curb appeal.
“Curb appeal remains king – it’s the first thing potential buyers notice when looking for a home, and it also demonstrates pride of ownership,” said Phipps.
http://www.realtor.org/press_room/news_releases/2010/12/home_owners_recoup
For Sale by Owner?
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.
