The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt however George W. Bush passed law where these troubled home sellers would not have to pay taxes on the forgiven debt in most situations, the only time I can think of where the seller will be responsible to pay taxes on the canceled debt is if they were NOT insolvent or if they took a cash out refi and did not use the money for repairs in the home before doing a short sale.
You should advise your clients, actually their tax specialist usually will handle this but the year where a short sale took place and they received a 1099-C they should submit IRS Form 982 - Avoid Debt-Relief Taxes with their taxes to avoid being taxed on the forgiven amount.
IRS Form 982 http://www.irs.gov/pub/irs-pdf/f982.pdf
Disclosure: Please consult your tax attorney for your specific situation
Its easier to focus on people looking for deals by advertising "i cen help you get 20% off" and then dropping offers on the oldest properties on the market.
There are many courses in how to do this, and it seems to be a very indepth topic. The few short sales I've handled in the past were extraordinarily difficult and time consuming. Perhaps you and I could look into courses on this and take one together since we are n the same office.
On the answer mentioning the taxes. I , and any other agent should, always mention in the first discussion about a Short Sale with a Seller mention that some lenders may send them a 1099 or other form stating that they owe taxes on the amount forgiven. Not all lenders do but many do. I have had no one decide against a short sale because of this but it is something that your certainly must state.
Have they received the 1099C showing the debt forgiven as income? Many of them are receiving them now and being hit with very large tax liabilities.
The number one piece of advice I can give you is to find out about the potiential Tax liabilities to the sellers of a "Short Sale".
Read on the â€œrecourseâ€ and â€œnonrecourseâ€ tax liability to sellers.
Sellers may have a big tax liabilityâ€¦â€debt forgiveness incomeâ€™ taxed as ordinary income.
Sellers may receive a 1099C in January for the debt forgiven as income and the may owe tax on it as income.
Read about "Insolvency" and the Form 982.
Above all, make sure your clients see a Tax attorney before they consider a Short Sale.
So what are your available options for conducting a short sale, and how much can you expect to spend for each option?
Your first option is to visit your local bookstore and look for, purchase, and read as many short sale books as possible, until youâ€™re well versed in all aspects a short sale entails. The only problem with this approach is depending on how many books you purchase, you still might spend a couple hundred dollars, and youâ€™re on your own with teaching yourself the intricacies of a short sale.
Would you be able to pick up a calculus book today, read it, and teach yourself calculus well enough that you can have informed discussions with other calculus teachers? Unfortunately we couldnâ€™t. We learned best by interacting with others.
The next alternative is to hire a short sale consultant to negotiate your short sale for you. While this is a decent alternative, most short sale consultants will charge a minimum of $500 and as much as $1-3 thousand dollars for an outcome that they canâ€™t, and wonâ€™t, guarantee. Additionally, when you go this route and donâ€™t handle the short sale negotiations, or at least some part of the negotiations, youâ€™ll have to allow a 3rd party access to your clientsâ€™ very personal information such as their social security number, tax returns, bank account information, etc., and you also run the risk that the 3rd party short sale consultant has ulterior motives that will contradict you and your clientsâ€™ objectives. You wonâ€™t want to cut off your nose to spite your face by giving a 3rd party access to your clients and run the risk of being circumvented.
Your last alternative to our service is attending a multi-day short sale seminar taught by a â€œshort sale guru.â€ This can be a decent option and when we first started conducting short sales we utilized this option ourselves. However, these seminars cost several thousands of dollars and also require that you have the time and money to invest in such a strategy. Most Realtors and property owners do not.
We believe that our clients should be able to afford the help they need, and that is why we created the Internetâ€™s first step-by-step, â€˜how toâ€™ website designed to teach everyday homeowners, Realtors, investors, and real estate professionals how to successfully negotiate real estate short sales.
Our pricing is low, and is spread out over however long you actually need us. You can cancel at anytime or keep your membership and earn a substantial income helping others in need. Our membership plans start as low as $24.88 a month and will give you full access to all of our features and benefits.
We can help with the following:
â€¢ For a Realtor, a short sale opens doors previously closed. It gives Realtors another tool in their arsenal to sell over-priced homes; something most Realtors are struggling with these days.
â€¢ Weâ€™ll teach you the secrets of the art of short selling real estate
â€¢ Weâ€™ll give you an easy to use, easy to understand, system that you can follow at your own pace
â€¢ Youâ€™ll be granted a free membership to our support forums, which will serve both as an information bank where you can get your questions answered, and as a networking tool where you can find property owners, Realtors, investors, and professional short sale consultants.
â€¢ Weâ€™ll provide you with Short Sale documents, forms, and Calculators designed to streamline and semi-automate suitable short sale offers.
â€¢ Our System is broken up into easy to follow phases and steps that will guide you through the entire short sale process from beginning to end, including alternative options should your short sale be unsuccessful.
â€¢ Youâ€™ll receive automatic email reminders to keep your progress on track, as well as
â€¢ Media tutorials that fully explain and walk you through all the items that are most concerning to Realtors, including, but not limited to: what to say to bank reps, what questions to anticipate, what to say to BPOâ€™s and appraisers, how to work with Investors and Attorneys, and much more.
â€¢ Weâ€™ll share with you little known insights into how to communicate and negotiate with lenders and the appraisal representatives theyâ€™ll send to your properties.
â€¢ Weâ€™ll show you how to negotiate with buyers.
â€¢ And finally, weâ€™ll give you tons of tips that will give you a deeper understanding of how lenders perceive short sale offers and how you can get lenders to work with you.
http://www.ShortSaleSuccessKit.com has detailed guide including a free sample that may help.
Anyone can do it, like anything else it takes some learning. I have found the information from Harris Real Estate University to be very up to date and helpful. Check out one of their free online seminars and judge for yourself.
I also think that anyone who tries to discourage anyone from anything usally has failed and given up. Sure there are some pitfalls to SS and preforeclosures but it isn't hard to learn. Remember that most people fly around by the seat of their pants instaead of having a system. Learn the system and work the system.
Qualify the seller, ask how many payment they are behind. They have 20 days, after third default, to pay entire amount and then if they don't more time to the first Tuesday of the month auction, so do your math and decide if you want to have this listing or not.
It is a not rocket science for sure, go ahead and good luck.
Introduction to Short Sales
Short Sales are the direct result of real estate foreclosure and the current real estate industry is now overwhelmed with the question; â€œWhat is a Short Sale and how do I service clients who have no equity in their homes or money to bring to a closing?â€ This course is for real estate agents, brokers and other industry professionals who want to know how to prepare a short sale package and the timeline needed to get everything accomplished.
Save a customer from foreclosure & develop a skill set for a niche market!
You will learn:
Factors that Lead to a Short Sale
Mortgage Theory and Ownership
What is a Foreclosure and itâ€™s Timeline
Is a Short Sale Right for the Client
Why Lenders Accept Short Sale
The Hardship Test of a Short Sale
Whatâ€™s in a Short Sale Package
The Steps in a Short Sale
This course is open to everyone. There are no prerequisites for this course.
This one day course meets from 9am - 1pm
Tuition: C.A.R. Members: $79 Non-Members $99
June 26, 2008
July 8, 2008
July 24, 2008
August 7, 2008
August 19, 2008
September 8, 2008
September 9, 2008
September 24, 2008
October 8, 2008
October 23, 2008
November 6, 2008
November 24, 2008
December 17, 2008
Until you know what you are doing you can do yourself and your client a disservice trying to do a short sale.
Not everyone qualifies for a short sale. 1st the home must be listed, they must be behind on payments, they must have a good reason for being behind on payments, - lost job, have cancer, such as this, NOAT my son is going to college, I want a new car , we spent too much on new furniture. you must negotiate with the finance company before advertising in private (agent) the home as a short sale, you may in agent remarks say possible short sale, but do not guarantee a short sale until you hear it from the lender.
Your sellers need to write (they write ,just like in sellers disclosure it must be them) a hardship letter for you to have when you address the lender about a short sale.
Once you are assigned a person to speak to do not break contact or it will be assigned to another person, speak to the person every 4 to 5 days even if it is only a message saying just checking.
As stated below Short Sales and different, on is just in better shape usually. I find the equity pretty much the same here. The foreclosures are not as cheap anymore, guess the banks have too many.
Why not take on one at a time
Make sure you team up with professional short sale, pre foreclosure attorneys and professional short sale negotiators, that specialize in the field, to handle your transactions professionally and optimize them for success. This will make your job so much easier, and you will become an instant Pro.
A few words of advice:
- do not try to negotiate on your own. Your job as a listing agent is marketing and coordinating the transaction.
- Try to get as many offers on your short sale listing as you possibly can, and forward them to your short sales professionals, they will tell you how to optimize them before submitting them to the lender.
- do not take any low ball offers from investors that look for a huge profit (i.e. 50% below estimated market value) - you will only tie up the transaction for months, pi** off the lender, that will mostly likely lead to rejection of the offer and consequently the seller being foreclosed upon, as you may not have enough time left to find other buyers. If you believe the property can be sold at 10-20% below the estimated market value, there is no need to entertain offers that are 30%+ below market (unless the sheriff sale (auction) is coming up next month, then send whatever offers you have in hand).
- DO NOT change the status to CTG once you get an offer on your short sale listing. Trust me. That's the end of multiple offers. Who's going to bother showing your CTG listing if there are 150 other homes in the area that meet buyer's criteria and are not under contract.
Related Terms & Definitions:
Definition: Short Sale is a Real Estate Sales transaction where the proceeds of the sale fall short of the property owner's outstanding real estate debt obligations (mortgage loans, real estate taxes, etc..).
A lender may agree to adjust the amount owed, and accept less than a full payment, forgiving the balance, if the seller is in a financial hardship or must relocate.
Definition: Repossession of a real property. A legal process by which the lender forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage.
Definition: Real Estate Owned. Usually refers to Bank owned property aquired through foreclosure. If a property does not sell at the sheriff sale/ auction, it goes back to the lender and becomes an REO.
Definition: Broker Price Opinion.
There are books available, but most investment books will outline ONE strategy that worked for the author, so tread lightly. Real-life experience will be the best teacher. Happy hunting!