Short Sales

Top 7 Reasons Why a Short Sale Can Benefit You If You Are Facing Foreclosure:

1.           Avoid Foreclosure.
2.           No Cost To You, The Bank Pays!
3.           Avoid Bankruptcy.
4.           Save Your Credit
5.           Walk Away Mortgage Debt Free
6.           Allowance for Relocation up to $3K!
7.           You may qualify to buy a house again in as little as 2 years when it will still be a buyers market!

Frequently Asked Questions:

What Is A Short Sale?

A short sale is the process of selling your home when you owe more than what your house is worth. It can be described as when the net proceeds of the sale of the property cannot cover the balance of the liens against the property, and therefore the lender must settle for less than the full remaining loan balance. The vast majority of homeowners in the foreclosure process owe more than the value of their home, and therefore a short sale is an effective method to avoid foreclosure.

If A Short Sale Is The Best Option For Me, How Much Will It Cost?

Performing a short sale will cost you nothing. The lender pays escrow fees, closing fees, and commissions. Also, they may pay property taxes that are outstanding.

How Can A Short Sale Help Me Avoid Foreclosure?

Lenders prefer short sales to foreclosures. TCG finds a buyer for your home and presents an executed contract to the bank. Once we show we have a qualified buyer, banks can postpone the foreclosure.

Are There Federal Tax Consequences If I Perform A Short Sale?

This is a hot topic and a lot of misinformation exists about this question. Here are some quick answers and points:

• If you do a short sale on your primary residence and have purchase money loan (a loan you use to buy a home) you do not have to pay income taxes on the debt forgiven.

• If you pulled cash out of the home on your primary residence but allocated the cash to “substantially improve” your home, you do not have to pay income taxes on the debt forgiven.

• In any other scenario, there are federal tax consequences. If you pulled cash out of your home to do anything other than substantially improve your home (pay college tuition, medical bills, etc), there may be tax consequences. If you do a short sale on an investment home or second home, there may be tax consequences.

• In a short sale, the IRS allows the lender to write off a loss in an equal amount to the debt forgiven. If you owed $300,000 and the lender settled for $275,000, the IRS will send you a 1099-C for $25,000 and you may be taxed on the $25,000.

• The only other exception the IRS will grant is if you qualify for the “insolvency” exclusion. This is defined as your debts exceeding the value of all your assets at the time of the short sale.

• We recommend you review all this information with your CPA (Certified Public Accountant), and review IRS Form 982. Lastly, The Mortgage Tax Debt Relief Act signed into law by President Bush in January of 2008 created the debt forgiveness exception. It was intended to expire at the end of 2008 but has been extended to the end of 2012.

Are There CA State Tax Consequences If I Do A Short Sale?

On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. It allows taxpayers who had all or part of the loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from California gross income. The new law applies to discharges of qualified principal residence indebtedness on or after January 1, 2009, and before January 1, 2013.

How Long Is the Short Sale Process?

The short sale process can take as little as 3 months up to 6 months. With the new HAFA program, forms and processes are being standardized to cut down the time it takes to complete the program. In addition national banks and loan servicers are building the necessary infrastructure to timely complete short sales.

Why Do Lenders Agree To Short Sales?

Lenders have woken up to the fact that their loss severity is better in a short sale as opposed to completing a foreclosure. This means borrowers and lenders can have a mutual interest in avoiding foreclosure and completing a short sale.

Can I get any money back from my short sale?

You may qualify for up to $3000 through HAFA “Home Affordable Foreclosure Alternative” Program. Our team is HAFA Certified to make sure you get what you deserve.

Otherwise, you would only get money back if the property is sold for more than is required to pay your indebtedness in full (as well as paying off any other liens, such as judgment liens, second mortgage and closing costs).

To Perform A Short Sale, Do I Need To Be Behind On My Payments?

Absolutely NOT.

What If I Have Other Assets?

If you have assets, the lender will most likely want you to contribute some amount for the deficiency. Speak with a qualified tax professional about the ramifications of doing so.

Also, in general, lenders will NOT ask you to contribute from 401K’s and other accounts of that nature.

How Will I Know I’m Being Released From The Debt?

On July 15th 2011, Gov. Jerry Brown signed a bill SB 458 to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans. This includes all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property. Exceptions to the new law include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.

What are the advantages, if any, of letting my property go to foreclosure rather than performing a short sale?

A foreclosure will severely damage your credit, and will stay on your credit report for up to 7 years. In a short sale the lender will agree to settle the debt for less than the amount that is owed. The credit impact from performing a short sale is significantly less than going through with a foreclosure, and you could be able to buy a home within 2 years.

What if I have more than one loan on my property with one or two different lenders?

Often homeowners in need of a short sale have more than one loan with two different lenders. To perform the short sale, both lenders will have to approve the short sale and agree to have the debt settled.

Who will negotiate my short sale with the bank?

We negotiate directly with the bank. Please come in and meet with us, to get a firsthand look at how we operate and how dedicated we are to serving you. Our team will invest our time and effort into completing your deal, and eliminating your mortgage burden.

Do I need to hire an attorney to do a short sale?

No. Attorneys do not work every day in the real estate business, and do not always deal with homeowner financial burdens. We believe that being represented by a capable and experienced real estate consultant will best benefit you.

Can the lender go after me for the loss it took?

On July 15th 2011, Gov. Jerry Brown signed a bill SB 458 to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans. This includes all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property. Exceptions to the new law include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.

What is the difference between recourse and a non recourse loan?

The main difference is that in a recourse loan, a lender has the right to go after assets other than the underlying collateral if the lender loses money on a foreclosure. They may only do so if they file a judicial foreclosure, however this process is very rare in California do to its length and expense. The vast majority of foreclosures are non-judicial foreclosures in which a property is auctioned at a trustee sale.

In general, purchase money loans (loan one uses to buy a home) are non-recourse loans, and cash-out loan are recourse loans.