First and foremost you want to meet with your agent to determine your asking price and work out your personal plan for maximum marketability of your home. Review all financing options, including seller financing and other acceptable terms. Make repairs or improvements that will increase the marketability of your home. List your home for sale at a certain price. Permit your home to be shown to prospective buyers. Consider offers and negotiate a sales contract. Have necessary inspections made. Stand by while your buyer applies and is approved. That’s it, easy peasy lemon squeezy. Please know that not all contracts are this easy and you may encounter a bump or two.
Greentree Financial has to be one of the toughest lenders to get anywhere with when asking for a short sale. I cannot say they are slow, they are actually faster than many of the other lenders I have to deal with. Their speed is probably due to their set policies, which are what cause me heart burn. In order for them to even consider a short sale, you must be offering them at least 5% of the sale price of the property being sold, before they will even look at the reason why the borrower is pleading for relief.
If the 5% criteria is met, their consideration at that point will only be to release the lien and let the property be sold to the buyer. If the loan is a recourse loan, they will not release their right to pursue the borrower for a deficiency. I can understand their policy to a point; there are some borrowers who have the ability to continue to pay bad debts. What frustrates me is when the buyer has no ability to continue to pay, and the prospect of having to do so would likely lead them to declare bankruptcy. In most cases, the buyer would just go ahead and declare bankruptcy instead of trying to do the right thing by helping the lenders as much as possible by facilitating a short sale. Once the seller/borrower declares bankruptcy, Greentree has no ability to collect any of the loan balance. Their blanket policy causes not only unnecessary hardship on the borrower, but it also causes the investors they represent to receive nothing, rather than something. In most cases, insisting on 5% of the sale price before they will even consider the sale is usually the end of it. This is due to that fact that most senior lenders will have a policy of not paying any junior lenders anything more that $1,000 to $3,000 and will not allow either the borrower or the buyer to make up the difference. At that point, the sale is dead in the water. Time and energy has been wasted by the buyer, seller, both agents, the senior lender and of course we need to include escrow and the title company who also invested a lot of work into trying to save everyone a lot of money and also earn a paycheck themselves.
The most ridiculous thing I have had to deal with recently is Greentree’s admittance that they will not consider the extenuating circumstances of one of my transactions because Bank of America is the senior lien holder because BofA would lose less money than if Greentree were to agree to make an exception. It seems that BofA has their own blanket policies which tend to infuriate the junior lien holders. I can understand that too, but I think they all need to grow up and quit doing the tit-for-tat and just look toward the bigger picture, which should be to help everyone (especially themselves) minimize further loss and look forward to better days ahead. Dean Carlson
Fortunately, Congress has passed a bill extending the Homebuyer Tax Credit closing deadline to September 30, 2010. This is a huge win for homebuyers, and I’m proud to say that that National Association of Realtors had a lot to do with making it happen.
The extension applies only to transactions that had ratified contracts in place as of April 30, 2010, and have not yet closed. There was no gap between June 30 and July 2nd which is that date the President signed the bill into law.
Additionally, Congress has extended the National Flood Insurance Program (NFIP) through September 30th. The bill is retroactive and will cover the lapse period from June 1, 2010, to the date the law is enacted. NAR will continue to work with Congress on the NFIP Reform bill, and we will keep you posted on those efforts.
For additional information on both the tax credit deadline and the NFIP, visit Realtor.org/Government_Affairs.
The original 60 day window to get the sale closed was completely unrealistic since many of the accepted offers involve Short Sale properties in which the lenders that have to approve the sale normally take at least 60 days to give the approval. Buyer’s were at the mercy of the lenders who see no reason to move any faster than a dead snail’s pace. Dean Carlson
Source: California Association of REALTORS®
Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification. Enacted into law April 11th, Senate Bill 401 generally aligns California’s tax treatment of mortgage debt relief income with federal law. For debt forgiven on a loan secured by a “qualified principal residence,” borrowers will now be exempt from both federal and state income tax consequences. The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.
“Qualified principal residence” indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence. It includes both first and second trust deeds. It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.
The tax breaks apply to debts discharged from 2009 through 2012. Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment.
Taxpayers who do not qualify for the above exemptions (e.g., second home or rental property) may nevertheless be exempt under other provisions. Most notably, taxpayers who are bankrupt are exempt from debt relief income tax. Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent their current liabilities exceed current assets.
For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board’s Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service’s Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage. The full text of Senate Bill 401 is available at www.leginfo.ca.gov.
C.A.R. provides REALTORS® with many legal articles covering a wide range of topics of interest. Some of the new or newly revised legal articles available at http://qa.car.org/ are as follows:
About a year ago I heard about another avenue to help challenged homebuyers buy a home regardless of their credit. This method can also help homeowners avoid foreclosure and even prevent the credit damage they would suffer if they were to sell short. Most agents have never heard about it and would very likely not bother to learn about it since it is not the “Usual” way of solving an otherwise doomed transaction.
I finally decided to invest the time and money to learn this specialized technique and hope to have the training completed by the end of May. I’m looking forward to adding one more alternative in my Alternatives to Foreclosure article. I’ll tell you all about it when I finish!
Problems a Foreclosure creates: (also see Foreclosure FAQs)
- Loss of all the money the homeowner put into the home when purchased and while owning it
- Credit score damaged for as much as 10 years
- Inability to buy another home using preferred financing (Fannie Mae or Freddie Mac) for 5 to 7 years
- The lender(s) may pursue you for the deficient balance (if your loan was a recourse loan)
- Loan applications ask if you have “EVER” had a foreclosure or Deed in Lieu of Foreclosure
- You don´t have the satisfaction of knowing you did everything you could to pay your debt as you would with one of the viable alternatives
Alternatives to Foreclosure (also see Foreclosure FAQs)
- Loan Modification – Utilizing the existing mortgage company to refinance the debt or extend the terms of the loan. This may allow the homeowner to catch up at a more affordable level. To qualify, you must prove to the lender you have fixed the problem that caused the late payment and that you can afford to make the payments with the new terms.
- Forbearance – The lender can offer a temporary payment reduction or suspension of payments. Any missed payments will either be added to the back of the loan (accruing interest), or add the difference to the original loan payment once the payment suspension is over. This option is useful if the homeowner experienced a temporary loss/reduction of income or a temporary increase in expenditures.
- Partial Claim – A loan from the lender for a 2nd TD loan to include back payments, costs and fees. Must qualify for the loan which will very likely be at a higher interest rate and it would surely be a recourse loan, if you were to end up in default later.
- Settle with Junior Lien Holders – Junior lien holders may take as little as 5% (usually 10%-20%) of the amount owed if you can show that the loan would be completely wiped out if foreclosed upon by the 1stTD holder.
- Sale – If the property has equity, the homeowner may sell the home without lender approval through a conventional home sale.
- Sell and bring in money – Bring a check for the difference between the sale price and the amount owed the lender(s).
- Short Sale– The house is sold for the highest price the market will bare and the lender(s) agrees to accept the proceeds as payment for the loan(s). In most cases this will eliminate a future deficiency judgment. The lender pays the closing costs and a settlement with junior lien holder(s).
- Continue Struggling – Unfortunately some homeowners deplete their entire savings, retirement, and children´s college tuition before they request a short sale.
- Payoff/Refinance – This is rarely an option because if you are already into the foreclosure process, you have already damaged your credit and alerted potential lenders that you are having trouble. And if you are already having trouble paying your current mortgage, then getting a loan for a different one at an even higher interest rate is usually not possible. In addition, the property will need equity to qualify. Avoid borrowing from a friend or relative to do this; trying to save a house that is not worth the amount owed is probably not worth jeopardizing a relationship if things don´t go as planned.
- Reinstatement – Pay the entire default amount plus interest, attorney fees, and late fees.
- Deed in Lieu of Foreclosure – Give the property back to the bank instead of the bank foreclosing. Banks generally require the home to be well-maintained, all taxes current and there cannot be a junior lien holder. I would use this as a last resort to try to avoid a deficiency judgment if a short sale was not approved. Most loan applications ask if this has ever happened.
- Bankruptcy – This option can liquidate debt and/or allow more time. There is no guarantee a homeowner will be able to keep the house since it does not erase mortgage secured debt. Check with a bankruptcy attorney to see if you could be eligible to settle with any junior lien holders.
–Chapter 7 (Liquidation) – To completely settle personal debt
–Chapter 13 (Wage Earner Plan) – Payment plan to pay off debts in 3-5 years.
–Chapter 11 (Business Reorganization) – A business debt solution.
(also see Foreclosure FAQs)
This information does not replace advice from other professionals such as attorneys and or tax advisors.