Wednesday, April 21, 2010

Should Short Sales of Homes Be Allowed For the Reason that an Owner Has No Equity?

The government should stay out of private real estate transactions and decision making about what homeowner deserves a short sale or not, and that should be left to the lenders and lienholders.
 
Short sales of homes should be allowed by lenders for the basic and limited reasons that the owner has a serious financial hardship and is or will be unable to make his or her payments. 
 
A short sale is when a home is sold for less than the amount owed on the mortgage for the home. This occurs when the bank agrees to take less than the full amount due on the mortgage.

A seller does not have to be behind on a home loan to seek a short sale. If sellers wish to pursue a short sale, they must owe more than what the home is worth, demonstrate the house cannot be sold for the amount owed, and suffer from a legitimate financial hardship that makes the mortgage unaffordable.

The next step in the short sale process is to assemble a short sale package. This package will include such things as a financial statement showing monthly expenses, income documentation, bank statements, tax returns, a listing agreement, purchase agreement, an estimated HUD statement and a financial hardship letter.

If the home is sold as part of a short sale, there will be a difference between the amount owed and what the bank collects. This is called the shortage or the deficiency. Sometimes this deficiency may be negotiable. Some banks will seek a promissory note for the deficiency, meaning that the seller may be responsible to pay the difference between what the home sold for and what is owed to the lender. Some lenders might choose to file a collection or a judgment for the amount owed. The seller should be certain that any amount of debt, or release from debt, is received in writing. If the deficiency is forgiven, the lender can write off the shortage with the IRS, which means the seller may be responsible for paying taxes on the amount of the deficiency.
 
However, the US Mortgage Debt Relief Act of 2007 generally allows taxpayers the potential for relief from tax on mortgage debt forgiveness. 
 
Good news is that the state of California recent enacted its own law to allow taxpayers relief from state income tax on mortgage debt forgiveness.
 
A short sale will affect the seller’s credit score. To minimize the effect on a credit score, sellers should avoid making late payments on their mortgage and work with the bank to report the sale in the best possible manner.
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Harrison K. Long, REALTOR® & broker, Explore Group, Coldwell Banker Previews, Irvine, CA.  CA DRE #01410855.  ExploreProperties@gmail.com.  Lawyer member, California State Bar Association #69137.  National Association of Realtors, California Association of Realtors, and Orange County Association of Realtors.  Current Chairperson of Local Government Relations south committee at OCAR.org.  Newport Beach and Irvine area Realtor, broker agent and property information source. 

Be careful with this and hire an attorney or certified public accountant to help with information about decision whether to pursue short sale of your home.  Always hire an experienced local REALTOR® to help you with your decisions and sale or purchase of a home and property.

Posted via email from Explore OC Homes

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