New York City, NY · Member since 2012 · 60 posts · 14 votes
One of the incentives of a short sale was that you got a tax break based on an act passed by Congress in 2007.
Short sales are classified as debt forgiveness, therefore in a normal situation homeowners would have to pay taxes on the money they received from one (in fact, the IRS is supposed to count the amount of debt your lender forgives as "income"). Under the Bush tax cuts, though, short sales were given an exemption.
Now that those Bush-era tax cuts expire at the end of the year are we likely to see a decline in short sales?
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
13y
First, my guess is they get extended. Second, if you have basically negative net worth outside of the short sale transaction, you're still exempt under IRS insolvency rules (form 982).
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
13y
First, my guess is they get extended. Second, if you have basically negative net worth outside of the short sale transaction, you're still exempt under IRS insolvency rules (form 982).
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
13y
Bienes,
I hear you, but research helps. I do short sale negotiations and work as a Realtor. I pass on some. If the property has multiple mortgages, HOA liens, personal judgements, etc. the deal just won't happen. 2 mortgages, depending on who holds them, is usually okay. I just closed one with 2 mortgages and $70k in code violations on a $55k purchase.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
13y
From what I've seen, people do short sales for two main reasons: 1) They have come upon hard/unforseen times (i.e. loss of job, etc) and can no longer afford the payment on their overmortgaged house; or 2) They are deadbeats and they no longer want to make the payments on their overmortgaged house.
(Sorry but #2 is a pet peeve of mine. I consider it the same as stealing because you borrowed money, promised to pay it back, and now - because your house is worth less or you have a new neighbor that just bought the same house for less and has a lower payment than you - you're choosing not to pay back what you legally owe.)
I don't think those two things will change any time soon.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Two issues;
Who stoled from who? Did Wall Street design the failure that devalued properties and made it improbable for most to refinance and sticking it to them first?
I was under the impression that the tax relief from the loss was not created under Bush, it's always been an option to request that I know of, but was specifically stated for short sales after Bush, not part of the Bush tax cuts.
If short sales are slowing, what does that mean? That prices are going up? Seems that indicates that the lenders see it's not necessary to take such losses as we recover.
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
13y
This is based on The Mortgage Debt Relief Act of 2007 (not the Bush Tax Cuts), and while it expires at the end of the year, many people believe it's likely to get extended.
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
13y
Originally posted by Wayne Brooks:
Bienes,
I hear you, but research helps. I do short sale negotiations and work as a Realtor. I pass on some. If the property has multiple mortgages, HOA liens, personal judgements, etc. the deal just won't happen. 2 mortgages, depending on who holds them, is usually okay. I just closed one with 2 mortgages and $70k in code violations on a $55k purchase.
70K in code violations? What did they do, put in a huge unpermitted addition?
Brooklyn, NY · Member since 2012 · 4 posts · 0 votes
13y
I don't believe we are. The market has not improved that much since the mess in 2008. Every time I log into my MLS, I see the number of short sales growing each day. New mortgagees are stepping into hot water everyday, and cycle is just constantly repeating itself. The one thing that does interest me is how will the market change since the elections has just ended.
Residential Real Estate Broker · Algonquin, IL · Member since 2012 · 52 posts · 6 votes
13y
I'm not really sure why we would be seeing the end of them. It is cheaper for a bank to short sale a home than it is for them to foreclose on it. Plus the taxes would be due if it was foreclosed the same as they would be on a short sale so there is no real difference to the homeowner. It is still better for the owner to short sale and maybe get some money from the bank to move on.
Rental Property Investor · Colorado Springs, CO · Member since 2010 · 476 posts · 305 votes
13y
I believe the tax forgiveness debt relief act will be extended. It was already in the works. But if for some reason it didn't get extended, people were doing short sales before this was around. Also the bank can send out a 1099 whether the house foreclosure or short sale's. So if it doesn't get extended their deficiency will be larger usually with a foreclosure and their tax liability will be as well.
I don't see short sales slowing down anytime soon. I've got 90 short sale listings right now and the numbers only keep going up. Its crazy how many people need our help.
Residential Real Estate Broker · Algonquin, IL · Member since 2012 · 52 posts · 6 votes
13y
Originally posted by Mark H.:
Funny how it's only real-estate agents who think we "need" to extend the "tax cuts for deadbeats" act.
Christmas is over, find another way to rob the banks.
Are you sure you're responding to the correct thread? Where did you see any agents saying it needs to be extended? Also how is it robbing the banks? The homeowner is either going to get foreclosed on or they are going to short sale the house. Either way the bank is going to lose money. If the bank approves a short sale they end up losing less. Not really sure how this is robbing the banks.
SFR Investor · Phoenix, AZ · Member since 2009 · 484 posts · 181 votes
13y
Originally posted by Nick Richardson:
Originally posted by Mark H.:
Funny how it's only real-estate agents who think we "need" to extend the "tax cuts for deadbeats" act.
Christmas is over, find another way to rob the banks.
Are you sure you're responding to the correct thread? Where did you see any agents saying it needs to be extended? Also how is it robbing the banks? The homeowner is either going to get foreclosed on or they are going to short sale the house. Either way the bank is going to lose money. If the bank approves a short sale they end up losing less. Not really sure how this is robbing the banks.
The tax forgiveness act is irrelevant if you have $0 in the bank - you won't get a tax bill for walking away. The *only* people it benefits are those with other assets to pay their bills. A foreclosure isn't imminent if you have other assets, so the argument about the banks losing either way is a fallacy.
The argument that banks net less after foreclosure than they do in a short sale is an oft-repeated lie. I've benefitted from it personally - the shorts I've purchased closed at probably at least 25% less than a retail buyer would pay for the same house, in the same condition. Retail buyers can't wait a year to move, and both of the shorts I purchased took a full year to close. In my state, the banks could have put those owners out in six months and gotten full retail for them. The sellers ended up with their credit completely smeared, (a year of late payments is every bit as bad as a quick foreclosure).
Winners in the deal? Well, me, and the agent on the other end of the deal. The agents in this thread keep speaking about "helping" people, short-sales don't help the seller, unless they're deadbeats with assets & there's no reason to help deadbeats.
I don't like the big banks a bit, but I do understand the worthless paper they wrote was stuffed into Fannie & Freddie, so heads we lose, tails they win, and your grand kids will be footing the bill for my capital gain.
Investor · Fort Lauderdale, FL · Member since 2012 · 1k+ posts · 465 votes
13y
Down here in South Florida it doesn't take much to get 70k in code violations.
One property in Hollywood had an illegal fence. The city asked for the fence to be removed, the owner was in foreclosure and ignore it, the bank took over after a few months and was dragging it's feet to do anything. Well $250 A DAY of fine quickly adds to 55K.
Another property was a vacant lot owned by someone who passed away, the owner's son lives in another state and left the land alone. A year later he decides to sell it for 120K, hired an agent who went there and discovered the lot was full of dumped debris. City has a bulk trash removal notice and was ignored and again fines added up to 42K just on unattended trash.
Miami, FL · Member since 2012 · 612 posts · 189 votes
13y
If the Mortgage Debt Relief Act of 2007 is indeed allowed to expire without and extension, I believe that we will see a substantial drop in short sales with an equal rise in foreclosures.
Here is why. Lets say you owe $200k and you are approved for a short sale of $175k. IRS will say you owe them tax on $25K. If you are in the 30% tax bracket, you are looking at a bill of $7,500. Tell me, if you can't make your mortgage payment, do you think they have $7,500 just sitting in the bank? Nope.
So rather than having Uncle Sam breathing down your neck, the average consumer is going to opt for a foreclosure which they can walk away from "debt free."
SFR Investor · Phoenix, AZ · Member since 2009 · 484 posts · 181 votes
13y
Originally posted by Simon Campbell:
If the Mortgage Debt Relief Act of 2007 is indeed allowed to expire without and extension, I believe that we will see a substantial drop in short sales with an equal rise in foreclosures.
Here is why. Lets say you owe $200k and you are approved for a short sale of $175k. IRS will say you owe them tax on $25K. If you are in the 30% tax bracket, you are looking at a bill of $7,500. Tell me, if you can't make your mortgage payment, do you think they have $7,500 just sitting in the bank? Nope.
So rather than having Uncle Sam breathing down your neck, the average consumer is going to opt for a foreclosure which they can walk away from "debt free."
The IRS will tax the $25k whether you short sell or the bank forecloses. There's no way out of the tax except insolvency or bankruptcy, as it should be.
And I doubt many people with $200k homes are in the 30% federal tax bracket, especially if they have a legitimate hardship. Deadbeat millionaires should be worried, regular folks, not so much.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
13y
Rgarding "...are we likely to see a decline in short sales?" the facts are this: "Short sale activity continues to increase. Short sale activity as a percentage of the combined total of short sales and foreclosure transfers increased from 27% in the third quarter of 2011 to 35% in the third quarter of 2012 primarily resulting from our increased focus on this foreclosure alternative. At the direction of FHFA and as part of the servicing alignment initiative, we announced a new standard short sale process during the third quarter of 2012 designed to help more struggling borrowers use short sales to avoid foreclosure. This new process became effective November 1, 2012, and represents a significant change from our previous process. We believe that these changes will lead to further increases in short sales in the future." Source: Freddie Mac's latest 10-Q. Ditto at Fannie Mae, where Loan workout activity (number of loans) exceeds foreclosures.
Regarding "The argument that banks net less after foreclosure than they do in a short sale is an oft-repeated lie." Fannie Mae says this: "We realize losses on loans, through our charge-offs, when foreclosure sales are completed or when we accept short sales or deeds-in-lieu of foreclosure.... Since the cost of foreclosure can be significant to both the borrower and Fannie Mae, to avoid foreclosure and satisfy the first-lien mortgage obligation, our servicers work with a borrower to sell their home prior to foreclosure in a short sale or accept a deed-in-lieu of foreclosure whereby the borrower voluntarily signs over the title to their property to the servicer. These alternatives are designed to reduce our credit losses while helping borrowers avoid having to go through a foreclosure."
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
13y
Chris,
There you go, confusing the issue with facts and data again.
I get some short sale training directly from Chase and at the last meeting PB, Broward and Dade counties now have 1200 Chase short sales a month...2013/2014 projected at 1300/1400month. Right now, 120 total Chase REO listings in same area. Don't think they're going away.
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
13y
Originally posted by Mark H.:
The IRS will tax the $25k whether you short sell or the bank forecloses. There's no way out of the tax except insolvency or bankruptcy, as it should be.
SFR Investor · Phoenix, AZ · Member since 2009 · 484 posts · 181 votes
13y
Originally posted by Chris Martin:
Rgarding "...are we likely to see a decline in short sales?" the facts are this: "Short sale activity continues to increase. Short sale activity as a percentage of the combined total of short sales and foreclosure transfers increased from 27% in the third quarter of 2011 to 35% in the third quarter of 2012 primarily resulting from our increased focus on this foreclosure alternative. At the direction of FHFA and as part of the servicing alignment initiative, we announced a new standard short sale process during the third quarter of 2012 designed to help more struggling borrowers use short sales to avoid foreclosure. This new process became effective November 1, 2012, and represents a significant change from our previous process. We believe that these changes will lead to further increases in short sales in the future." Source: Freddie Mac's latest 10-Q. Ditto at Fannie Mae, where Loan workout activity (number of loans) exceeds foreclosures.
Regarding "The argument that banks net less after foreclosure than they do in a short sale is an oft-repeated lie." Fannie Mae says this: "We realize losses on loans, through our charge-offs, when foreclosure sales are completed or when we accept short sales or deeds-in-lieu of foreclosure.... Since the cost of foreclosure can be significant to both the borrower and Fannie Mae, to avoid foreclosure and satisfy the first-lien mortgage obligation, our servicers work with a borrower to sell their home prior to foreclosure in a short sale or accept a deed-in-lieu of foreclosure whereby the borrower voluntarily signs over the title to their property to the servicer. These alternatives are designed to reduce our credit losses while helping borrowers avoid having to go through a foreclosure."
No one has ran accurate numbers on short-sale vs foreclosure losses. Fannie "thinks" short-sales are a good deal for the taxpayer, but they also claim the bulk sales to hedge funds are a good deal as well.
It's all BULL.
Anyone who is looking at actual closed sales know that short sales close for less than reo's.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
13y
So, Mark H., you know all the facts of all the 69,548 short sales and deed-in-lieu cases that Fannie Mae has done this year? Are you their accountant? CFO? Are the numbers in their SEC filings just what they "think"?
I'm all ears. Prove to me they are wrong. Here's their SEC Filing. Table 3, page 8. Until you, Mark H., have $2.98 trillion in total mortgage loans, I'll respect their SEC Filings.
Foreclosure Specialist · Temecula, CA · Member since 2013 · 1 post · 0 votes
13y
I'd say there are certainly still a number of homeowners that would find that short sales far out weigh the long term damages that come with a foreclosure! Helping homeowners understand their options when facing difficulties with their mortgage payments is our commitment!
Centennial, CO · Member since 2009 · 758 posts · 251 votes
13y
It took them some time to realize that they take a smaller loss on a short sale versus foreclosure; and FHFA, the GSE's, and all the major banks are very much encouraging short sales versus foreclosure compared to a year ago
Des Moines, IA · Member since 2012 · 11 posts · 2 votes
13y
I've noticed a LOT more short sales here in the Des Moines market compared to REOs.
I've never done a SS deal, but my understanding is it's just a "throw a bunch of offers at the wall and see what sticks". With so many SS coming thru the system it makes it hard to plan.