Okay, this will surely strike some nerves with those buyers out there trying to purchase a short sale home.   Sorry, but the facts are what they are.

First let me say that I’ve done many Short Sales, representing both the seller and the buyer, and therefore have some insight into the process and situation.

I’ll say it now, and again….   SHORT SALES ARE ALL ABOUT THE SELLER.

Let’s break it down.   The reason why the short sale is all about the seller is simple.  The seller in most cases is in trouble and needs to get out of the financial situation.   The seller has requested the lien holders to approve a short sale (for those who have not heard of a short sale – simply put – it’s when a property is sold for less than what is owed). 

The lien holders are not OBLIGATED to approve a short sale for the seller.  As we have seen over the last several years, not all short sales are approved.   A good majority of them are, but ultimately the lien holders have the final say.   Sadly, we have no control over this.

Now the buyer steps in….places an offer on a property, expecting a great deal and then expects everyone to complete the sale.  It seems that there are still too many buyer agents out there who have not educated their buyer’s.  Again, let me say SHORT SALES ARE ALL ABOUT THE SELLER.    If the lien holder and the seller cannot come to an agreement regarding the terms of the short sale, the seller has EVERY right to cancel the sale.   The buyer cannot force a seller to perform at that point.  This is not normal real estate sales, and the sooner that buyers are educated, the better.

SHORT SALES ARE ALL ABOUT THE SELLER

In the state of Arizona, we have a SHORT SALE ADDENDUM document that is required to be signed by both seller and buyer.  It clearly states that a seller can cancel if the seller and lien holders cannot come to agreement on the sale.   Where does it say that a seller must continue?  No where !   Yet buyers for some reason think they are owed the opportunity to purchase the property.

Many of us know what it’s like to have a short sale listing with a buyer offer (remember it is just an offer) and the buyer decides to cancel after 60-90 days of work and effort have gone into the transaction.  Frustrating…..you bet.   Now turn the tables and we have a situation where a seller has attempted a Short Sale.  The lien holder has done there due diligence and determined that they will not approve the short sale for whatever reason.  At this time the seller has no choice but to cancel the short sale offer with the buyer.  

So let me ask you….why would the buyer want to continue?  Perhaps they were still trying to meet the $8000 homebuyer tax credit deadlines. Or it’s truly their dream home and can’t live without it.  

Since the lien holder has denied the short sale, what possible control does the buyer have?   Again…. SHORT SALES ARE ALL ABOUT THE SELLER.   The buyer has no control and cannot force the seller to perform.   The offer was not accepted by the lien holder.   The buyer should move on to another purchase (and yes there are plenty of great homes out there).

As a work with buyers I make sure that I repeat over and over again to them…..there is no guarantee on Short Sales.   If the buyer has deadlines to meet, perhaps an REO or regular sale is in the best interest.   Short Sales are not for all Buyers, regardless how great a deal they could possibly get.

HOA’s have more Power than we think.   They have the ability to follow the individual after a foreclosure.  While a short sale requires resolution to clear title, the past HOA dues and penalties can nix a deal.  

In Arizona there are so many foreclosures and short sales, where homeowners have not paid the dues.   These bills have mounted up, and in some communities have caused serious financial hardship to the HOA management – which in effect – impacts those still living in the community and paying their dues.   The current homeowners are feeling the affects of the HOA debts.

Take for example the community that has over 75% of the homes in either foreclosure or short sale status.  Imagine all or even half, of these homes are behind on their dues.  The money that is collected was to be used to maintain the streets, community common areas, landscaping, and even lighting.   Now this particular community’s HOA is so far behind, the HOA has stopped landscape, street and common area maintenance.  If that isn’t bad enough for the remaining homeowners, the street lights were turned off due to the inablity of the HOA to pay the bill.  

While we understand the hardship many homeowners are going through in paying their mortgage and other bills, there are some steps that can be taken to avoid the HOA issues.   First, if you are planning to short sell your home, continue to pay the HOA.   If not, this will only come back to bite you in the end.   Banks are not paying past HOA dues or penalties.  If you have not paid your dues, you are not only incurring monthly penalties, but could also be levied additional attorney fees when the HOA decides to exercise their option to persue you.  The bank will not pay for these, and buyers are smart enough to recongnize they aren’t responsible and will refuse to pay them as well.  That leaves the Homeowner. 

If it is impossible for you to continue paying HOA dues during your short sale…..be prepared for the end.  Remember that HOA’s are liens to the property and must be cleared in order to complete the short sale.   In some cases, the HOA will negotiate with you for a reduced number.  For example a recent homeowner had an HOA debt of  $3,500 and the HOA accepted $1,200.  There is no guarantee that the HOA will negotiate, so be prepared either way.

HOA’s and their lien on a property can be the kiss of death to a deal.    Make sure you are communicating with your HOA – it will go a long way to resolving the debt when the time comes.

If you are considering short selling your home, don’t hesitate to call or email us for more information

1) Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.

2) The limit is $1 million for a married person filing a separate return.

3) You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

4) To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

5) Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

6) Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

7) If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.

9) If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.

10) Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, please visit http://www.IRS.gov and as always consult a tax professional with specific questions you may have.

2. “I guarantee I will save your home – trust me.”
Beware of guarantees that a person or company can stop foreclosure and allow you to remain in your house. Unrealistic promises are a sign that the person making them will not consider your particular circumstances and is unlikely to provide services that will actually help you.

3. “Sign over your home, and we’ll let you stay in it.”
Be very suspicious if someone offers to pay your mortgage and rent your home back to you in exchange for transferring title to your home. Singing over the deed to another person gives that person the power to evict you, raise your rent, or sell the house. Although you will no longer own your home, you still will be legally responsible for paying the mortgage on it.

4. “Stop paying your mortgage.”
Do not trust anyone who tells you to stop making payments to your lender and servicer, even if that person says it will be done for you.

5. “If your lender calls, don’t talk to them.”
Your lender should be your first point of contact for negotiating a repayment plan, modification, or short sale. It is vital to your interests to stay in close communication with your lender and servicer, so that understand your circumstances.

6. “Your lender never had the legal authority to make a loan.”
Do not listen to anyone who claims that ‘secret laws’ or ‘secret information’ will be used to eliminate your debt and have your mortgage contract declared invalid. These scammers use sham legal arguments to claim that you are not obligated to pay your mortgage. These arguments don’t work.

7. “Just sign this now; we’ll fill in the blanks later.”
Take the time to read and understand anything you sign. Never let anyone else fill out paperwork for you. Don’t let anyone pressure you into signing anything that you don’t agree with or understand.

8. Call 1-800-Fed-Loan
This may be a cam. Some companies trick borrowers into believing that they are affiliated with or are approved by the government or tell you that you must pay them high fees to qualify for government loan modification programs. Keep in mind that you do not have to pay to participate in legitimate government programs. All you need to do is contact your lender to find out if you qualify.

9. “File for bankruptcy and keep your home.”
Filing bankruptcy only temporarily stops foreclosure. If your mortgage payments are not made, the bankruptcy court will eventually allow your lender to foreclose on your home. Be aware that some scammers will file bankruptcy in your name, without your knowledge, to temporarily stop foreclosure and make it seem as though they have negotiated a new payment agreement with your lender.

10. “Why haven’t you replied to our offer? Do you want to live on the streets?”
High-pressure tactics signal trouble. If someone continually contacts you and pressures you to work with them to stop foreclosure, do not work with that person. Legitimate housing counselors do not conduct business that way.