Short Sale Blog

Here is the latest short sale news at Seattle Short Sales. We assist hundreds of Seattle area homeowners with short selling their home and avoiding foreclosure.

Negotiating it Right: Three Years Later, One Third of HAMP Loan-Mods are Redefaulting

Seattle Short Sales - Saturday, March 15, 2014

Supposedly permanent loan modifications are defaulting at what the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) calls an “alarming rate". The government’s Home Affordable Modification Program claimed that it would help between 3 and 4 million homeowners to avoid foreclosure via loan modifications. However, according to the SIGTARP quarterly report released last week, after four years of HAMP, only 862,279 homeowners are currently in an active permanent mortgage modification.

The low number of total modifications is not the only bad news about HAMP. As of the end of last month, over 312,000 homeowners have redefaulted on their HAMP modification. As SIGTARP notes, “For these homeowners, the HAMP permanent mortgage modification they received was not sustainable.”

The earliest HAMP permanent modifications, those negotiated in the third and fourth quarters of 2009, are defaulting at rates of 46% and 39% respectively. And HAMP modifications negotiated in 2010 are doing little better, redefaulting at rates of between 29% and 38%.

Loan modifications can work for some homeowners who are threatened with foreclosure, provided that they are negotiated properly to ensure that the homeowners will be able continue to afford the new payments. But loan modifications that eventually redefault often cost people their homes: the lost time spent on a modification doomed to fail means that there is no time left to investigate other options, and foreclosure is the result.

Seattle Short Sales has a team of experienced and successful real estate specialists dedicated to working with distressed homeowners. We close, on average, 12% of all short sales per month in King County. In the last 24 months, we have negotiated over 756 short sale approvals, and discounted over $81 million of mortgage debt for distressed homeowners.

In addition to our short sales negotiators, our team includes dedicated professionals advising and advocating for homeowners in the fields of: loan modifications, bankruptcy, debt settlement and collection defense. As part of our service, we offer unlimited attorney and CPA consultations.

If you are a homeowner who is struggling to make ends meet, and would like to learn more about the options available to you, please go to: http://seattleshortsales.com/homeowners/

You can also contact Lambros Politis on Google+ or to find more up to date information on this subject, go to theArk Law Group Blog. 

Stats for Seattle Area Not Good: Percentage of Homes Underwater and Delinquency Rates Both Higher Than National Averages

Seattle Short Sales - Wednesday, March 12, 2014
As reported in the Puget Sound Business Journal, nearly one third of homes in the Seattle area are underwater on their mortgages.

The report quotes quarterly figures released by Zillow.com. At the end of the first quarter of 2013, 31% of homes in King, Pierce and Snohomish counties were underwater - in other words, the homeowners owed more on their mortgages than the current value of their home. That represents a very slight improvement from the last quarter of 2012, when 34% of homes were underwater.

The situation is worst in Pierce County, where nearly 43% of homeowners are underwater on their mortgages. Snohomish County is not far behind, with 37% of mortgages underwater. Homeowners in King County, however, are faring much better, with only 24% underwater with their mortgages - slightly better than the national rate of 25% (as well as better than the rate across Washington State of 29%).

However, Zillow also notes that nearly half of homeowners in the Seattle area had little or no “effective equity.” They consider homeowners with less than 20% equity in their home to have no “effective equity,” because if they sell their home, by the time they pay agents’ fees and closing costs, they will see little or no cash out of the deal.

Zillow also noted that the rate of three or more months’ delinquency is slightly higher in the Seattle area than the national average. In the Seattle area, 10% of homeowners are three or more months delinquent, compared to the national average of 9%. Homeowners who are both underwater and who are behind on their mortgage payments are at high risk of being foreclosed upon by their lenders, unless they take action to prevent foreclosure, such as by negotiating a short sale or a loan modification.

Seattle Short Sales has a team of experienced and successful real estate specialists dedicated to working with distressed homeowners. We close, on average, 12% of all short sales per month in King County. In the last 24 months, we have negotiated over 756 short sale approvals, and discounted over $81 million of mortgage debt for distressed homeowners.

In addition to our short sales negotiators, our team includes dedicated professionals advising and advocating for homeowners in the fields of: loan modifications, bankruptcy, debt settlement and collection defense. As part of our service, we offer unlimited attorney and CPA consultations.

If you are a homeowner who is struggling to make ends meet, and would like to learn more about the options available to you, please go to: http://seattleshortsales.com/homeowners/ 

You can also contact Lambros Politis on Google+ or to find more up to date information on this subject, go to the Ark Law Group Blog. 

 

More Good News For Your Short Sale: Mortgage Forgiveness Debt Relief Act Extended to End of 2013

Seattle Short Sales - Monday, January 14, 2013

Good news! There was a lot of worry in the last few months of 2012 by homeowners contemplating a short sale, because the Mortgage Forgiveness Debt Relief Act (MFDRA) was due to expire on December 31, 2012.

Homeowners who undertake a short sale generally have tens or even hundreds of thousands of mortgage debt forgiven by their lender. While having debt forgiven is a good thing, in some cases that forgiven debt may be taxable as income.

The MFDRA was enacted in 2007 because so many American homeowners were affected by the financial crisis, and were trying to deal with their financial losses through loan modifications or short sales. Most homeowners who are trying to sort out their finances by undertaking a short sale do not have the funds to then pay thousands of dollars of income tax on money that they never actually received. The MFDRA relieves them of that obligation: their forgiven debt is tax-free.

The MFDRA was due to expire at the end of 2012. However, the American Taxpayer Relief Act of 2012, passed by Congres on January 1, extends that deadline for a full year. This means that the MFDRA now applies to any mortgage debt that was forgiven between January 1, 2007, and December 31, 2013.

You can read in more detail about what the act actually does here: Mortgage Forgiveness Debt Relief Act of 2007

Seattle Short Sales has the most experienced and most successful real estate short sale specialists working with us. We close, on average, 15% of all short sales per month in King County. In the last 24 months, we have negotiated over 650 short sale approvals, and discounted over $65 million of mortgage debt for distressed homeowners.

A short sale can improve your credit, and help you to avoid foreclosure and get a fresh start. As part of our service, we offer unlimited attorney and CPA consultations.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/
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The Mortgage Forgiveness Debt Relief Act of 2007

Seattle Short Sales - Tuesday, October 23, 2012

The Mortgage Forgiveness Debt Relief Act of 2007 became law on December 20, 2007. The aim of the Mortgage Forgiveness Debt Relief Act is to protect homeowners who have lost their home through foreclosure, or who have taken action to avoid foreclosure through a short sale or mortgage modification, from the double hit of having to then pay income tax on their forgiven mortgage debt.

Normally, forgiven debt is considered by IRS to be the same as taxable income. For example, if your lender forgives $100,000 of your mortgage debt, whether through foreclosure or via a short sale, that $100,000 would be considered taxable income for the year that that debt was forgiven. However, in recognition of the global financial crisis that has resulted in millions of American homeowners struggling to pay their mortgages, the Act was passed as a special provision, to relieve these homeowners of having to pay income tax on the forgiven debt.

The Mortgage Forgiveness Debt Relief Act originally applied only to homeowners who were foreclosed upon, or whose debt was forgiven, between January 1, 2007, and December 31, 2009. Its expiry date has since been extended to December 31, 2012. It is possible that that expiry date will be extended further, but so far no decision has been made about an extension.

The Mortgage Forgiveness Debt Relief Act applies only to mortgage debt that was owing on your principal residence. For your home to qualify as “principal residence”, you must have both owned the home and used the home as your principal residence for periods aggregating 2 years or more during the 5-year period ending on the date of the sale or exchange of the home. Other things to know:

  • The maximum amount you can treat as qualified principal residence indebtedness is $2 million, or $1 million if married and filing separately.
  • The Act applies to debt that is forgiven through foreclosure, through a short sale, or through modification of the terms of the mortgage. Forgiven debt is normally considered by IRS to be income. In IRS terms, what the Act does is allow you to “exclude” this income when filing your tax return.
  • The forgiven debt must have been used to buy, build, or substantially improve the residence. In other words, forgiven debt on both first and second mortgages can be included under the Act provided that the debt was used for one of those purposes - but not if it was used for other purposes, e.g. to pay off credit cards or to buy a new car.
  • The forgiven debt must be secured by that same residence.
  • Refinanced debt proceeds may also qualify for exclusion under the Act, provided that they were used to “substantially improve” the residence and not for other purposes.
  • Debt that has been forgiven on second homes or investment homes does not qualify for exclusion under the Act - but it may be exempt from income tax due to other exclusions such as Insolvency.

If your lender forgives more than $600 of your debt, they are required by law to issue you a 1099-C, Cancellation of Debt form. Make sure that you examine the form as soon as you receive it. Check that the amount of debt forgiven (listed in Box 2), and the fair market value listed for your home (Box 7) are both correct. If there are any problems with the form, have your lender correct them immediately.

To exclude forgiven debt from taxable income, fill out IRS Form 982 and attach it to your income tax return.

For more detailed information about excluding forgiven debt from your taxable income, through the Mortgage Forgiveness Debt Relief Act and through other exclusions such as Insolvency and Bankruptcy, download IRS Publication 4681.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

Numbers in For First Half of 2011: We Have Discounted Over $18 Million in Mortgage Debt for Distressed Homeowners So Far This Year

Seattle Short Sales - Tuesday, July 12, 2011

We’ve already presented you with recent numbers straight from the Federal Housing Finance Agency: more and more distressed homeowners nation-wide are taking advantage of short sales to relieve themselves of mortgages that they can no longer afford. http://seattleshortsales.com/_blog/Short_Sale_Blog/post/Short_Sales_Continue_to_Grow_in_Spite_of_Decline_in_Other_Foreclosure_Prevention_Actions/

Well, our own numbers at Seattle Short Sales, Inc., are now in for June. And they clearly show that short sales are growing here in the Seattle area. Comparing the number of short sale approval letters that we negotiated over the last six months of 2010 to those from the first six months of 2011, we found that:

  • The number of new short sale approval letters that we were able to obtain from lenders grew by 43% over the six month period. In the last half of 2010 we negotiated 123 approval letters for our homeowners, and in the first half of this year that number was up to 176 new approvals.
  • The average discount that the homeowner received on their balance owing also grew by 6% in the first half of this year, compared to the last half of 2010. In the second half of 2010, the average discount a homeowner received from their lender to pay out their mortgage was $96,480. But in the first six months of this year, that average discount had grown to $102,278.
  • The total mortgage debt that we managed to get discounted for our homeowners grew by 52%. The total mortgage debt discounted for all the approval letters we negotiated in the second half of 2010 was $11,867,000. For the first half of 2011, that total debt discount was up to $18,000,001.

The majority of our short sale approval letters come with full deficiency waivers. This means that the homeowners, who were in a negative equity situation (owing more on their mortgage than the house was worth) are not responsible for paying back the debt discount - the shortfall on the discounted amount they paid back of their loan. They were able to rid themselves of the mortgage that they could no longer afford, and are free to get a new financial start in life.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

Big Banks Now Proactive About Short Sales, Even Approaching Homeowners With Cash Incentives

Seattle Short Sales - Friday, July 08, 2011

My, how things have changed in a year or two!

It was not so long ago that struggling homeowners had to beg lenders to approve them for a short sale. But now, some of the major lenders are making the first move - contacting the sellers themselves to propose a short sale, and even offering cash incentives to homeowners!

These short sale incentive programs are not widely publicized, and they are considered to be “by invitation.” As banks realize that they may recover more of their losses by allowing a short sale than by pushing to foreclosure, they are targeting homeowners who are at risk of defaulting - often, before they are even in mortgage trouble.

The lenders proactively contact these homeowners, suggesting that they undertake a short sale, and often offering a hefty cash payment to the homeowner upon completion of the short sale. These cash payments are reported to range from a few thousand dollars to up to $35,000.

Some of the lenders implementing these incentive programs, and the reported incentives, are:

Bank of America Cooperative Sale Program - upon completion of the short sale, the homeowner receives a $2,500 to $3,000 relocation payment, and the real estate agents receives a 6% commission.

Citi Proactive Short Sale Program - according to the HousingWire, the average cash payment to sellers this year was $12,000

Chase - offers cash payments up to $30-$35,000 to sellers

GMAC - there are reports of cash incentive payments to sellers of up to $1,600

Litton - reportedly offers cash incentives to sellers of $3,000 to $5,000

Wachovia/Wells Fargo
- offers cash payments of 1% of the sales price (minimum $2,500) for sellers.

Although these programs are considered “invitation only” - meaning that the lenders contact the homeowners, rather than homeowners applying for them - there are some reports of short sales negotiators successfully requesting that the homeowners they represent be considered for incentive programs.

But the big take-away from this story is that lenders no longer merely consider short sale requests - but that they are now proactively initiating short sales. This means that they are far more likely to consider and approve any short sale offer put to them than they were a year or two ago.

As Citi’s senior vice president of loss mitigation told the HousingWire, "We're not going to turn anybody away if the short sale meets the net requirement we're looking for." This means that the lenders are no longer looking for stories of exceptional hardship in order to approve a short sale. As long as the short sale represents the best way for the lender to maximize their recovery on a distressed asset, they will approve it.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

Second-Mortgage Debt Will Not Necessarily Follow You - Provided That You Have Good Negotiators Working to Waive the Deficiency Balance

Seattle Short Sales - Wednesday, June 08, 2011

An article published this week in the Wall Street Journal, with the title “Second-Mortgage Misery,” makes it sounds like it’s all doom and gloom for underwater homeowners with second mortgages. The trick to dealing with second mortgages is knowing how to negotiate: showing the lender how it is in their best interest to approve the short sale, even if it means that they waive all rights to any deficiency balance owing.

In Washington State, if a home goes into foreclosure and is sold at a trustee sale, the first lender loses their right to pursue the deficiency - but the second lender may retain the deficiency right. For this reason, second lenders may be reluctant to waive deficiency rights in a short sale, believing that if they allow the home to go into foreclosure they will have a better chance of collecting more of their debt.

However, this is not always the case: it can be costly for a lender to try to sue a borrower for money they probably don’t have anyway.

Borrowers who have second mortgages are more likely to be underwater with their home (i.e. they owe more on their mortgages than the home is currently worth). According to the WSJ article, 38% of homeowners who have taken out second mortgages are underwater, compared to just 18% of homeowners who only have a first mortgage. And the average amount of that negative equity is also higher for homeowners with second mortgages: homeowners with second mortgages are underwater by $83,000, on average, whereas those with only first mortgages are underwater by $52,000.

With home prices down 34% nationwide since 2006, this problem is not likely to resolve itself quickly on its own. But the WSJ makes this sound like this is a real stumbling block for people with second mortgages.

While a second mortgage does mean that there is one more party to work with at the negotiating table, it is not necessarily a stumbling block to getting a short sale approved. This is where having experienced negotiators, who have worked on numerous short sale approvals and who know the ins and outs of how each lender proceeds, can make all the difference. Because if a home goes to foreclosure, the second lender gets nothing.

Working with all parties to come up with a deal where the second lender gets something (beyond only the right to pursue costly legal action that may not result in any payment anyway), and where they get it now, can often be enough incentive to get a second lender to approve a short sale. And that way all parties: seller, buyer, first lender, and second lender, can close their books on the case and move forward - a resolution that is of value to everyone.

If you’ve been following our blog posts this past month, you’ll see that we have been analyzing our record of achieving deficiency waivers for our clients. In March, (the month we did a thorough analysis of), 80% of our approval letters came with deficiency waivers - and many of those were for second mortgages.

Please take a look at our short sale approval letter database for examples of real approval letters from both major and small lenders. Some examples of our recent approval letters waiving deficiencies on second mortgages are:

Bank of America Short Sale Approval Letter: Homeowner approved to sell home and pay off 1st and 2nd mortgages with $198,000 total discount, waived of having to pay back deficiency. http://seattleshortsales.com/LiteratureRetrieve.aspx?ID=85958

Litton Short Sale Approval Letter: Homeowner approved to sell home and pay off 2nd mortgage with $51,000 discount, waived of having to pay back deficiency. http://seattleshortsales.com/LiteratureRetrieve.aspx?ID=86277

Real Time Resolutions Short Sale Approval Letter: Homeowner approved to sell home and pay off 2nd mortgage with $30,000 discount, waived of having to pay back deficiency.  http://seattleshortsales.com/LiteratureRetrieve.aspx?ID=85849

GMAC Short Sale Approval Letter: Homeowner approved to sell home and pay off 2nd mortgage with $55,000 discount, waived of having to pay back deficiency. http://seattleshortsales.com/LiteratureRetrieve.aspx?ID=87264

Chase Short Sale Approval Letter: Homeowner approved to sell home and pay off 2nd mortgage with $9,000 discount, waived of having to pay back deficiency. http://seattleshortsales.com/LiteratureRetrieve.aspx?ID=85890


If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

Banks Easing Up, Extending Credit to Mortgage Defaulters

Seattle Short Sales - Monday, June 06, 2011
According to a new report published yesterday in the Wall Street Journal, lenders are easing up and offering loans to people with a less than perfect credit record - including those who have defaulted on their mortgages.

A study quoted in the article indicates that 64,500 borrowers who had defaulted on their mortgages received a consumer loan between February 2009 and August 2010. The majority of those were credit cards, but 40% of those borrowers received a personal loan or car loan or line of credit.

In evaluating clients for loans, banks are aware that many homeowners who are actually responsible found themselves in financial trouble due to the housing bubble and bust. So, although borrowers who have defaulted on multiple loans will still experience difficulties in negotiating any new loan, borrowers who have defaulted on their mortgages but are current on all other loans are actually considered to be low-risk clients.

While a blemished credit history may not prevent consumers from negotiating a loan, they still may end up paying more in interests than borrowers with a perfect credit report. Credit card interest rates could be 5 to 10% higher for these borrowers, and interest on a car loan could be three or more times higher than for low-risk borrowers.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

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