Short Sales and Foreclosure information
Short Sale - When a lender agrees to accept less than what is owed as payment in full. Banks will consider this for borrowers who generally meet the following criteria:
§ Behind on Payments
§ Little or No Equity
§ Legitimate Hardship
Foreclosure - A creditor forces a sale of real estate to repay a debt.
Forbearance Agreement - A payment plan on the back payment owed. The lender agrees to a payment plan on the overdue mortgage payments for a period of time. NOTE: This is in ADDITION to the regular mortgage payment.
Loan Modification - Lender approved restructuring of a mortgage outside the original terms of the contract.
Deed in Lieu of Foreclosure - The bank agrees to take the property back versus going to foreclosure. This is the LAST ditch effort for a seller when a modification will not work, forbearance will not work, and a short sale will not sell at the price the bank needs/wants.
This is almost as bad (credit points) as a foreclosure, but the recovery period is better than a foreclosure. Waiting period in about 4 years versus 7-9 year wait from foreclosure.
This is an application process; the seller cannot just leave the keys and walk away. The seller has to get approval from the bank to do this process. A full title commitment and pay for a full appraisal. The lender is taking back the property subject to any liens on the property (i.e. HOA, back taxes, 2nd mortgage, and equity lines)
1099-C - What does the "C" stand for? Cancelled of debt
In a short sale, the lender is forgiving debt, cancel the debt. The whole program designed by HUD was designed so that the short sale was available to cancel the debt. Any time debt is forgiven or cancelled, there is income earned involved.
- Has to be your primary residence
- Debt to be forgiven has to be debt on original loan
- Debt taken out to improve the property (home equity loan-only)
- Debt taken out used to refinance the property
You submit FORM 982, when you file your personal 1040. You have received a 1099-C, you are including that 1099 as taxable income, then file form 982 indicating exactly how much is taxable and how much is not. The burden is on the tax payer to define this on their taxes.
Short Sale Benefits
Here are a few benefits for doing a short sale that may not have occurred to you:
§ You are in control of the sale, not the bank.
§ You may sleep better at night knowing who is buying your home.
§ You will spare you the social stigma of the "F" word, foreclosure.
§ Contrary to popular belief, you can be current on your payments and still effect a short sale.
§ Your home sale will be handled like any other home sale.
Buying again after a Short Sale
If your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. The wait for an FHA loan is 3 years.
If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence.
Buying again after a Foreclosure
With certain restrictions, you may be eligible to buy another home in 5 years if the home was your primary residence. Without restrictions, the wait is 7 years.
If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years.
Effects on Credit after a Short Sale
A short sale is not a derogatory mark on your credit because credit bureaus do not show the word "short sale" on your credit report. It may say "pay as agreed" or "paid as less than agreed," among other categories. Some clients have reported negative FICO score drops from 50 points to 130 points. The point drop is typically due to being in default.
Effects on Credit after a Foreclosure
A number of sources have reported FICO score drops from 200 to 400 points after a foreclosure. Generally this credit score will remain on your credit report as a public record for 10 years.
Credit Reports after a Short Sale
All lenders report short sales differently and some do not report them to the credit bureaus at all.
Credit Reports after a Foreclosure
If a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record.
Deficiency Judgments after a Short Sale
Judgments are often negotiated between the seller and the short sale bank. In some cases, such as California, if the home is your personal residence and was financed through purchase money, there is no deficiency judgment.
Deficiency Judgments after a Foreclosure
Banks are unwilling to negotiate deficiency judgments with the homeowner after a foreclosure. In California, for example, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard-money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee's sale.
Taxation after a Short Sale
A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level. Some states will still tax you unless you qualify for an exemption. An investor is not exempt from mortgage debt relief, subject to certain conditions.
Taxation after a Foreclosure
Same as with a short sale. Except some lenders immediately send out 1099s, even if the owner is exempt.
Ø Desert Canyon Properties is not associated with the government, and our service is not approved by the government or your lender; and
Ø Even if you accept this offer and use our service, your lender may not agree to change your loan; and
Ø If you stop paying your mortgage, you could lose your home and damage your credit rating.