Lori ,

Your customer may be in one the buildings that I have done several Short sales in. I think I may even know what building you are talking about. The original builder is now selling the 3rd phase at Short sale prices. I feel your customers pain.

This is a tough decision for people. On one hand it may take 3 or 4 years or maybe even more until her value comes back to the price she paid. If she has enough down and a rental income that will cover the debt service until the value gets back to put her even , I would suggest to hang in. Credit is something to protect. In this market ,to let the unit fall behind could have a big impact in other areas of her life.

In order to have a smooth short sale she would need to fall behind on payments. There are reasons that a bank would allow a short sale to go through without missing a payment but I am sure she would not qualify.

To go to her bank and ask for a loan mod may be tough because if it isnt her primary they are not very flexible,even with the threat of her going into default.

As for the bank coming after her for the deficiency , it could happen. Most likely the bank would 1099 her for the deficiency . She could also try and get a contract on the property and hold a note for the difference to just get it sold , not a comfortable idea !!


She has a tough choice to make. Hey maybe she has the abilty to buy another at the $350,000 price and then she could be in both for an average of $473,000 per unit. ( this idea came from the Realtor in me )


If you need any help in the Short Sale process I would be glad to help



Edward ( Augie ) Augsberger

Weichert Coastal REO / Short Sale Division

609.338.1189 cell

609.523.1112 office

Lori,

"Jersey Shore" is a broad term as certain areas have been more profoundly affected by today' economical conditons than others. More info needed in order to most appropriately determine your client's options.

Call me, let's discuss, truly no oboligation.

Francesca, Realtor, ePro
732.606.2931

A little NJ real estate news:

http://www.northjersey.com/business/realestate/Wheres_the_bo…

Not looking too good in parts of NJ, but not as bad as other areas.

Mw:

Since I wrote that back in January I have had a few friends who have run into trouble with investment propertiesand buildable lots. The worst case is a (somewhat) buildable lot on the ES of Virginia which has essentially no value, for both market and local reasons, and a $275,000 loan.

Will the government help this guy? No. Should the government help this guy? No, it was speculative, and sadly, he lost bigtime. It's either keep paying the debt for at least 20 years until the LTV is at a sellable level or a bankruptcy filing, no way to short sale or even finance a lot nowdays.

Your situation is exactly the same as the lot owner friend, only much less worse. You have a speculative/investment property with a bad LTV ratio. If the government bails you out, it should be done only after all the primary mortgages have been helped to keep people under roofs. And then, if Obama wants to offer welfare for investors whose deals didn't work out, I would say take it.

Even though you did everything right, should I pay my tax dollars to buy down the interest rate on your investment? It just dosen't sound right to me. Your "all I want is what everyone else is getting" statement is essentially what Obama is bringing us to, a society that has forgotton that welfare is not a good thing.

Im sorry that you are upside down, but I don't think there is enough money in the US GDP to buy everyone out of this mess. It's going to involve pain for lots of people.

Jeff

The bank will only go after other assets if the negotiator has little or no experience. Pulling the ability to go after assets with a deficiency judgment should be one of the items negotiated up front when negotiating a short sale.

I have never had a short sale approved without making certain that the lender/servicer agreed in writing to frogive the unpaid balance due, with no repercussions.

Be aware that on a second home, the bank in a short sale can go after other assets (equity in primary residence, savings, etc) and that the seller will be taxed on the defaulted amount.

Laura Giannotta
Keller Williams Atlantic Shore

Speaking to Jeff (from Va). I'm not sure that its a fair assessment to state the pity arguement here for this homeowner. Sure if she got in over her head (like so many others) I agree. But what if its someone like me who could afford that payment but is now hosed because of the others who caused this mess? Why should I suffer and have to pay for a now over priced property without having my loan corrected? I agree that I'll pay for what I bought and it was over valued. All I want is what everyone else is gettting. I want my second home mortage re-worked so that I can at least get a lower interest rate. I can afford what I have now, but am under water because I have negative equity (and I did everything right). If I want to refi - I need to come up with anopther $50k cash for an already bad investment. So lets hear about advice for those of us who did the right thing. Came up with the original 20% down on the property and made all payments on time. Now I want to refinance to a lower rate to put more money in my pocket (so I can spend more and buy other things which is good for the economy). But I can't because the banks won't do it. Why?

Stuck under water.

Hi Lori,

I spoke to a few financial people with regard to short sales and credit scores a few weeks ago. According to them, a short sale will drop a credit score about 100-150 points (she can't expect to have the bank take less and not have to pay a penalty somewhere); however, they further went on to say that within 6 months or so, if an individual is on time with all their bills that that the 100-150 point drop will be erased pretty much. They are not going to give her a loan modification if she wants to be on even playing field with prices around her....I have clients who moved from NJ to PA and paid $1.3 million for a new home outside Philadelphia and the builder is not discounting to $750,000 new homes in their neighborhood. They aren't happy, but it is what it is.

There are many good options these days. One thing to keep in my mind is the need to get a full release if you decide to get involved in a short sale. Banks will quickly release the lien but will they competely release the seller from future liabilty with respect to the short sale? That's the first thing we request with all our short sale files. I strongly urge you to do the same. Email me at changjos@hotmail.com or call 973 9252525. Spanish: Somos abogados hispanos en paterson new jersey y freehold new jersey. Llamenos con cualquier pregunta legal. Sobre inmigracion, criminales, y bienes raices.

Lori,

She could do either depending on her long term goals.

Loan mods can most DEFINITELY be achieved on investment properties: http://homeretentiongroup.com/uploads/Bank_of_America_Invest…

There are more examples there also.

Just think about how the lender makes a decision IT's The Bottom Line.

A loan modification that lowers the rate and maintains asset value for the future is much better than a foreclosure auction that MIGHT bring $350,000 on an mortgage valued at $595,000.

I have negotiated many loan mods on investment, 2nd homes etc...

The lender would rather keep their $595,000 mortgage amount and reduce the interest rate down to 1%, 2%, or 3 % for 5 years.

As long as payments are current a loan modification does not affect the credit.

______________________________________________________________________________

A short sale would affect the credit, the credit report would indicate the mortgage as a paid account settled for less than the full amount.

I disagree with the characterization that the score would drop from 800 to 300. My experience has been that the credit would suffer a hit of about 125 - 150 points.

It is my experience that the lenders ability to go after the borrower for a deficiency judgment should be part of the short sale negotiation, NEVER agree to allow this.

As for the tax consequences of a short sale:

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.

Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.

Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.

Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

These exceptions are discussed in detail in IRS Publication 4681.

__________________________________________________________________________________

A properly designed loan modification might allow the best of all worlds for all parties.

Your client might be able to negotiate a payment on $595,000 down to:

Interest Only -
1% = $496
2%= $992
3%= $1,488

This might make it possible to find a tenant to pay rents equal to the mortgage.

What is her hardship?

She had the $$$ to make payments when she bought at $595,000, what has happened to prevent making those payments now?

Hi there,
If your client wants to short sale and you'd like to be the listing agent, please contact me if you're interested. I am an investor buying short sales and would be happy to correctly answer any questions you may have. Hope to speak to you soon.
Thank you,
Allison
allyb02@gmail.com
213 484 1171

Funny. Tell your customer welcome to the meltdown.

Shes going to have to keep the property. A short sale is a credit killer. That should reduce her 800 to the 300 range for certain.

There are no loan mods for loans that far out from the primary residence and first mortgage. Even common sense tells anyone that. Ohhh...Let's help this poor homeowner keep her beachfront vacation house and credit intact.....

A responsible person would pay their debts. How? Sell their primary residence (assuming it would bring the $245K she needs to cover the ocean property sale) and get in a rental. Sell the ocean front property for $350K. Credit saved. Now buy another house for the primary.

There are few people who take responsibility for their actions, so this scenario probably never happens.

A loan modification would be the best option. In a short sale the bank will state that the short sale price satisfies the loan (that's usually included in the closing instructions). The bank could send a 1099 IRS form to you customer, which means the amount they discounted in the shart sale must be taken as income by the seller. Not all banks do that.

Bottom line, the bank is not likely to come after her for the difference.

Laura Giannotta
Keller Williams Atlantic Shore

Short sale will effect her credit she would need furnish hardship letter. Client is in boat as many other across the country continue make payments wait for market return .

If does not want to sale consider leasing or lease purchase option therefore she continue a tax benefits potential purchase.