The Next Wave - Luxury Short Sales
A recent Bloomberg News article reports first time home buyers were aided this past year by an $8,000 tax credit that raised resales to a 6.1 million annual pace in October, the highest since February 2007 according to the NAR. Last month President Obama extended the program for another year for first time buyers and broadened the program to include some move-up buyers. However, it can’t be used for homes priced above $800,000. As a result, the high end has continued to decrease in value and is predicted to continue to do so over the next year. High end homeowners are no different from other housing markets in that they have also suffered in this down economy and many struggle to make their mortgage payments. Only there is no bailout plan in place to help the million dollar market. Currently houses valued at over a million dollars are defaulting at twice the rate of other markets. Read the full article here
Call me at (209) 471-6516 or email me at info@homes-in-stockton.com regarding any questions you may have regarding Stockton real estate, Lathrop real estate, Lodi real estate, Manteca real estate or Tracy real estate. Click on the links below to see all the Valley’s listings or only those in the neighborhood you desire.
Foreclosure and Short Sale Tax Implications
The Mortgage Debt Forgiveness Act of 2007 and the Emergency Economic Stabilization Act of 2009 provide tax relief for debt forgiven through a short sale or foreclosure. In the Internal Revenue Code Section 108, discharge of qualified debt from the purchase of a principal residence can be excluded from income if the discharge occurs in calendar years 2007 through 2012. In order to understand how these laws apply to your specific mortgage, you must determine the following:
1) Is it a recourse or non-recourse mortgage?
a. Recourse -the borrower is personally liable for the debt and the lender can pursue collections
b. Nonrecourse - the lender is limited to the property and the borrower is not personally liable for any deficiency
i. California – is a nonrecourse state so most loans to purchase a home are nonrecourse
ii. California - most loans from refinancing or a home equity line of credit are recourse
2) Will there be cancellation of debt?
a. When nonrecourse mortgages are foreclosed or sold as a short sale, the mortgage is thereby satisfied
b. For recourse mortgages, the remaining debt is the difference between the principal balance of the debt and the fair market value of the property and collections can be and often are pursued
In California SB 1055 was the state tax law intended to follow the federal legislation and was only effective for 2007 and 2008. Currently, the state is considering new legislation that would adopt the federal law through 2010 but it has yet to be approved.
For more information regarding the current federal tax laws go to the Internal Revenue Service website for further information.
It is important to understand how the federal and state imposed tax laws will apply to your specific situation be sure to consult an attorney and CPA prior to making any decisions pertaining to foreclosures and short sales. As Stockton’s number 1 listing agent, I would be happy to answer your questions regarding a Stockton short sale, Lathrop short sale, Lodi short sale, Tracy short sale or Manteca short sale.
Streamlined Shortsales? Really? Hey, I Have This Bridge For Sale…
Buyers and sellers unfamiliar with the short sale process always ask if there is anything that can be done to speed up the short sale process. As I have mentioned before, there are new and improved rules that have just been formed to streamline the short sale process that will go into effect April 5, 2010. First off, the streamlining rules are guidelines, not laws and lender participation in the incentive program is not mandatory but optional. There is no guarantee that lenders will even choose to participate.
Under the new guidelines, the seller will receive the pre-approved short sales terms before listing the property, including the minimum acceptable net proceeds. However, what isn’t clear is how long the minimum net set by the broker price opinion or appraisal will be valid. Currently, many banks won’t order a new appraisal for four to six months. Hopefully, the home isn’t in a declining market. In addition, mortgage servicers will have 10 days to approve or disapprove the request for the short sale. Please remember, this is the REQUEST for a short sale NOT short sale approval.
Lenders will provide a financial incentive of $1,500 to help home sellers move out of their home. There will also be a requirement that borrowers must be fully released from future liability for the first mortgage debt. This means no cash contribution, promissory note, or deficiency judgment will be allowed. This is great news to sellers if lenders actually choose to go along with it. Since the lender’s participation incentive is only $1,000, it is questionable that they would play along with these conditions if they stand to lose too much. They would be more likely to disapprove the request for a short sale or build it into the initial minimum acceptable net proceeds thus driving up the purchase price and making it more difficult to entice buyers.
The investors will be paid a maximum of $1,000 for allowing up to $3,000 in short-sale proceeds to be paid out to subordinate lien holders. Which means subordinate lien holders will be paid up to $3,000 of the short sale proceeds. The Treasury said second lien holders who want more than this will have to pursue a short sale outside of the federal program. Travis Hamel Olsen, COO of Loan Resolution Corporation said “While we are excited about the new measures that the Treasury announced, we believe that subordinate lien holders will have a limited adoption rate of the program. It is a step in the right direction, but there needs to be more incentive to subordinate lien holders.”
‘Streamlining’ may be an exaggerated term. Although these changes will help speed up the process for a select few, it will not be the solution to the majority of ongoing short sale dilemmas. It is still yet to be seen how the loan servicers will choose to embrace the new program. Homeowners with subordinate liens are still likely to face some challenges to reach approvals. It is common for subordinate liens to seek 10% of the balance owed to release the lien. Which may become more difficult than the current market since the participating primary lien holders will now be capped in what they can contribute to the subordinate lien holder. This will be the fly in the ointment and sellers should expect high demands from subordinate liens.
It is still unclear how the new guidelines will affect the Stockton short sales, Lodi short sales, Tracy short-sales, Manteca short sales and Lathrop short sales, but for those considering a short sale hope for the best a prepare for the worst. Work with an agent who is experienced in short sales and stay involved and informed. The transactions with proactive sellers tend to resolve themselves quicker. Consult with your attorney and or CPA before pursuing a short sale and be prepared for any subordinate lien holders to request additional funds or a promissory note in order to close escrow. So buckle up, the ride could be short or it could be long but it will definitely be bumpy!
They Should be Called Long Sales
Time and time again sellers, buyers and agents involved in short sale transactions complain that the process takes too long. In fact, buyers often get frustrated and leave prior to receiving approval. It isn’t uncommon to go through two or three buyers in any given short sale. This is unfortunate since it can prolong the final approval for the seller. In the following New York Times article, Short Sales a Long Process the newspaper explains why they are not likley to speed up anytime soon. For more information on the short sale process call 209-471-6516. We are your short sale experts in Stockton!
Short Sales Gain and REOs Slip
Although the number of foreclosures has been reported as going down 8% since last month, it is still up 18% over this time last year. Don’t be mislead by the numbers, foreclosures are still ocurring in large numbers and the government is actively trying to create incentives to help prevent them. The good news is incentives for banks means more foreclosure alternatives for borrowers. Banks are shifting more and more of their resources, once reserved for foreclosures, to short sales and loan modifications in an attempt to limit runaway foreclosure figures. As illutrated in the Deutsche Bank loan performance figures shown below:
HUD Secretary to Request Higher Lending Standards
Housing and Urban Development Secretary Shaun Donovan to tell the House Financial Services Committee to require larger down payments by borrowers, increase the minimum required credit scores, and limit kick backs from sellers, including closing costs and upgrades.
Due to previously relaxed lending standards that fed the now imploded housing bubble, the lending standards must be tightened again to regulate the market. Donovan plans to explain that the current FHA loans require stricter risk controls than were previously in place. The banks that aren’t lending or modifying loans have gotten most of the bailout assistance, all while rising fraud in FHA loans threatened the housing market. The FHA must get things in order and running efficiently and up until now this has been an overlooked challenge facing the new administration.
The tighter standards are in response to the FHA’s dramatic volume increase that has quadrupled since 2006 causing the agency to handle a large number of defaults. Creating worry the agency will be the next for a government bailout. We are unsure what the impact the policy change will have on Stockton foreclosures and Stockton homes for sale.
U.S. Treasury to Impose New Short Sale Incentives and Requirements for Lenders
As reported by Reuters on Monday The U.S. Treasury released terms for mortgage companies to increase approval times on short sales and loan modification programs to reduce the numbers of foreclosures. The Home Affordable Foreclosure Alternatives Program will provide financial incentives and simplifies the procedures for completing short sales.
Since the HAMP program encounters situations where lenders are unable to approve loan modifications, they have expanded the program to include financial incentives for completing short sales. Such as $1,000 payment to servicers, and a maximum of $1,000 to go to investors who sign off on payments to junior lien holders. In addition, the borrowers would receive $1,500 in relocation expenses.
Short sales can preserve the borrower’s credit rating and can prevent home maintenance issues due to vacancies caused by evictions. Even though primary lenders often experience deep losses through short sales the outcome is typically better than that of a foreclosure.
Until now, short sales have been frustrating due to laborious negotiations and in fighting between lien holders or whether the borrower will be held accountable for the debt in the future.
New requirements include:
- mortgage servicers have 10 days to approve or disapprove a request for short sale
- transaction must fully release the borrower from the debt
- no reduced real estate commissions
- 2nd lien holders to be capped at $3,000
We are hoping the new incentives will help us close our numerous Stockton short sales, Lathrop short sales, Lodi short sales, Manteca short sales and Tracy short sales quicker.
