Palos Verdes Short Sale Major Update

Even if a short sale doesn’t apply to you, chances are you know someone for whom a short sale might be a good idea.  And if you do, there are two very critical issues that such a person must know about to help with their Palos Verdes short sale or South Bay short sale.

First of all the the Mortgage Debt Relief Act expires on December 31, 2012.  Prior to the passage of this Act, debt relief resulting from a foreclosure or a short sale was considered income by the IRS.  For example, let’s say the loan on the house was $1,000,000 but the house was sold as a short sale for $850,000.  That difference of $150,000 was a taxable event to the homeowner!  However after passage of the Act, both the State of California and the Feds caused this “gift” to not be a taxable event.  Unless it is extended, this benefit expires very, very soon so the very real benefits to doing a short sale, will disappear!

So if you are considering a short sale or if you know someone that should, time is of the essence!

Now the second piece of information is really exciting!  Breaking news: June 1, 2012, the 3 major credit reporting agencies have announced they will change the impact of short sales on a borrower’s credit (assuming they missed no payments and weren’t late) to a ‘neutral’ . Meaning little to no negative credit ramifications.

This is HUGE. 

Quoting from the Harris Real Estate Training Center:

Q. Can I do a short sale even if I am current on my payments and can afford the payments?
A. The quick answer is Yes.  Can you short sale your home even if you are not late on your mortgage and may be able to make the payments. In the industry that is called a ‘strategic short sale‘ A short sale happens just like any other home sale. A Realtor lists the home, an offer is received, and you (the seller) decide if you want to accept / reject or counter the offer. Once terms are finalized the home is pending/ in contract just like a normal sale. You and the buyer sign the contract. YOU DON’T NEED PRIOR APPROVAL FROM YOUR LENDER TO DO A SHORT SALE. A short sale will require the additional step of lender approval.  Note: Please be clear. A short sale may not be the best option for you. You need to seek advice from your Accountant and/ or attorney.  A vast majority of the time a short sale IS the overwhelmingly best solution for underwater owners. You DO NOT need to be late on your mortgage to do a short sale. In fact, there is an advantage now in remaining current on your payments.

Breaking news: June 1, 2012, the 3 major credit reporting agencies have announced they will change the impact of short sales on a borrower’s credit (assuming they missed no payments and weren’t late) to a ‘neutral’ . Meaning little to no negative credit ramifications.

Translated: If you didn’t miss any payments prior to the short sale you won’t have a credit hit. Even better, the standards to obtain a mortgage following a short sale have changed dramatically. If you didn’t miss ANY payments prior to the short sale it is possible to get another mortgage immediately. Yes, you read that correctly. Short Sale today…buy today.  Generally speaking, if you did miss payments prior to your short sale you will have to wait as little as 18-24 months before securing another mortgage.
It gets even better. Many lenders will literally PAY YOU to do a short sale. Most recently Bank of America announced a new short sale program that pays qualifying owners up to $30,000 to do a short sale. You read that right. You are being PAID to short sale your home. In most cases lenders are even waiving deficiency judgments.  (A deficiency judgment occurs when the lender pursues the former borrower for the loss from the sale. For example, the home sold for $300,000 but the mortgage balance was $400,000. In some states with certain types of mortgages a lender could obtain a judgment against that former borrower for their loss…in the prior example, $100,000)Want more motivation to do a short sale? There is a tax law that expires at the end of this year that allows most owners to not pay any taxes on the forgiven debt. Prior to this temporary tax law change the forgiven debt was treated as regular income! Strong word of caution: 1) Talk to your account to make sure you qualify. 2) This tax law expires at the end of 2012. Unless extended those closing their short sales in 2013 may be subject to taxes on the forgiven debt. Bottom line, yes a short sale is your best solution if you are ready to get out of your underwater home.

So, bottom line, the time to act is now.  When you have questions, give me a call and let’s talk about this AND if you are interested in understanding the benefits as an INVESTOR in the short sale arena, let’s set an appointment to discuss this.  You can use the article in the yellow button below to start thinking about this. 

For more general real estate information, please visit http://www.homeispalosverdes.com To view listings of distressed properties in Palos Verdes, please scroll down to below my website logo and click the image of the map