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ReplyAZIZA AZIZA asks, "DOES ANYONE REALLY BENIFIT FROM A SHORT SALE? I HAVE BEEN TOLD SEVERAL SCENARIOS.... YOU WIIL PAY TAXES ON THE THE DIFFERENCE OF THE SHORT PAYOFF.....AND YOU WILL NOT HAVE TO PAY TAXES....WHICH SCENARIO IS CORRECT AND HOW MUCH % OF TAXES IF YOU DO HAVE TO PAY TAXES....DOES 250K/500K PRIMARY RESIDENT APPLY?"Some believe that the lender may benefit from not having to foreclose and a short sale may be better than a foreclosure on a credit report. There could be tax consequences based upon the "forgiven debt". California has a new form scheduled to come out this month, it is a Short Sale Listing Amendment. If you are in California and a CAR member, you might want to take a look at the Legal Q&As. They cover a great deal.
A short sale can benefit the lender for not having to incure additional expenses and then resale, the borrower will benefit without a foreclosure on their record and fewer late pays on their credit, a lender and realtor will benefit from the commissions, and the neighboorhood benefits with having less months of brown yards and dead plants.
I think that in most short sales, the home seller benefits. That seller was a borrower. They made a committment to pay back a loan plus interest under a set of conditions. When they cannot, for whatever reason, live up to that obligation, the lender has the right to try to collect every dime. If they agree to take less, they are doing that borrower a favor. The lender is collecting an amount on that loan that they feel is acceptable, but still not the full amount they should have collected. That's not a benefit. It's a recognition of the fact they this is likely as good as they can get without a great deal of work & expense.
Bill Keegan wrote: I think that in most short sales, the home seller
benefits. That seller was a borrower. They made a committment to pay back
a loan plus interest under a set of conditions. When they cannot, for
whatever reason, live up to that obligation, the lender has the right to try
to collect every dime. If they agree to take less, they are doing that
borrower a favor. The lender is collecting an amount on that loan that they
feel is acceptable, but still not the full amount they should have
collected. That's not a benefit. It's a recognition of the fact they this
is likely as good as they can get without a great deal of work & expense.
---
Bill: in a short sale, the lender has at least two options: forgive the
difference in debt, or insist on collecting it. In either case, the seller
does not get the benefit as clearly as you say... if the debt is forgiven,
the seller then must pay tax on the difference, generally as unearned
income, and of course, if the difference is not forgiven, then the seller
remains indebted to the lender...
Having the debt forgiven is a better option for the seller, since then the
seller only owes the tax on the amount of the difference. But either way,
the seller must come up with some of the difference.
Paul Silver, Esq.
Focus Real Estate Group, Inc.
benefits. That seller was a borrower. They made a committment to pay back
a loan plus interest under a set of conditions. When they cannot, for
whatever reason, live up to that obligation, the lender has the right to try
to collect every dime. If they agree to take less, they are doing that
borrower a favor. The lender is collecting an amount on that loan that they
feel is acceptable, but still not the full amount they should have
collected. That's not a benefit. It's a recognition of the fact they this
is likely as good as they can get without a great deal of work & expense.
---
Bill: in a short sale, the lender has at least two options: forgive the
difference in debt, or insist on collecting it. In either case, the seller
does not get the benefit as clearly as you say... if the debt is forgiven,
the seller then must pay tax on the difference, generally as unearned
income, and of course, if the difference is not forgiven, then the seller
remains indebted to the lender...
Having the debt forgiven is a better option for the seller, since then the
seller only owes the tax on the amount of the difference. But either way,
the seller must come up with some of the difference.
Paul Silver, Esq.
Focus Real Estate Group, Inc.
From the pin of Paul Silver in explanation to Bill:
Bill: in a short sale, the lender has at least two options: forgive the
difference in debt, or insist on collecting it. In either case, the seller
does not get the benefit as clearly as you say... if the debt is forgiven,
the seller then must pay tax on the difference, generally as unearned
income, and of course, if the difference is not forgiven, then the seller
remains indebted to the lender...
Having the debt forgiven is a better option for the seller, since then the
seller only owes the tax on the amount of the difference. But either way,
the seller must come up with some of the difference.
difference in debt, or insist on collecting it. In either case, the seller
does not get the benefit as clearly as you say... if the debt is forgiven,
the seller then must pay tax on the difference, generally as unearned
income, and of course, if the difference is not forgiven, then the seller
remains indebted to the lender...
Having the debt forgiven is a better option for the seller, since then the
seller only owes the tax on the amount of the difference. But either way,
the seller must come up with some of the difference.
Absolutely, so why do lenders feel like they think if they don't get what they want that we agents have to pay up the difference? I was talking to this foreclosure specialist real estate agent today who told me if my buyer's offer was going to create a net to the lender that was to much in the negative that the difference would have to come out of our commission. I laughed and told this expert that if we come to an agreement with the offer that your client, Freddie Mac, will pay what ever the listing fee is on the MLS or they can suck an egg, I have no intentions of paying some moronic lender out of my bounty for my buyer, it's my buyer's money that's providing the commission anyway, so if their attitude is they think I owe them for taking what they feel is not fair, then I'll inform my buyer to consider an attitude problem may be in the making on this particular property. First of all, I don't negotiate the listing fee, if the listing agent wants to pay any negative net on behalf of their client fine and dandy I'm just not paying for it, neigther is my buyer. After all if the buyer doesn't buy nobody gets paid. Right? I wouldn't even allow my client to look at the property at any price. Oh it's an Exclusive Right to Sell. But it's had so many contracts I can only conclude who has the problem here. Who was the common denominator for all those back on the market dead deals? The stupid LENDER. What a moron. They are so freakin arrogant. That's what I told my buyer, they agreed with me they don't want it at any price. Stupid Lenders, they must be thinkin with the wrong head again? Good post Paul.
Robert King
Absolutely, so why do lenders feel like they think if they don't get what they want that we agents have to pay up the difference? I was talking to this foreclosure specialist real estate agent today who told me if my buyer's offer was going to create a net to the lender that was to much in the negative that the difference would have to come out of our commission. I laughed and told this expert that if we come to an agreement with the offer that your client, Freddie Mac, will pay what ever the listing fee is on the MLS or they can suck an egg, I have no intentions of paying some moronic lender out of my bounty for my buyer, it's my buyer's money that's providing the commission anyway, so if their attitude is they think I owe them for taking what they feel is not fair, then I'll inform my buyer to consider an attitude problem may be in the making on this particular property. First of all, I don't negotiate the listing fee, if the listing agent wants to pay any negative net on behalf of their client fine and dandy I'm just not paying for it, neigther is my buyer. After all if the buyer doesn't buy nobody gets paid. Right? I wouldn't even allow my client to look at the property at any price. Oh it's an Exclusive Right to Sell. But it's had so many contracts I can only conclude who has the problem here. Who was the common denominator for all those back on the market dead deals? The stupid LENDER. What a moron. They are so freakin arrogant. That's what I told my buyer, they agreed with me they don't want it at any price. Stupid Lenders, they must be thinkin with the wrong head again? Good post Paul.
Robert King
********************************
Sorry, Robert, but as a former exclusive buyer agent even I don't buy into the argument that only the buyer pays the commission any more then I believe only the seller does. If anything, they both do since it takes both parties to get paid in this contingent world. But that is in a normal transaction.
And thinking that taking a cut in commission in any way, shape or form makes up for the losses these banks are taking... that is arrogance as well. The fact is that the MLS coop was never consented to by the party that makes the deal work, the lender. And that is the one time a single party does pay the commission. The bank.
Been an REO Specialist several years now and frankly in the short sale situation the buyer is paying nothing, neither is the seller. They are taking advantage of the situation and know the losses incurred by lenders and expect the lender to take anywhere from 10-30% under market value for the honor of accepting their bid. Seller can accept a ridiculous offer, afterall it costs them nothing. And buyer can put the screws on. Or thinks they can.
Sorry, I have seen one low ball offer too many today. Way past insulting. And if you think all of us are not effected by these losses...more arrogance. We'll all pay for this in the long run.
I'm getting off my soap box now.
Steele
Steele V. Propp, CRS, ABR
Foreclosure Specialist
Bank Owned Property Division
Schatz Group GMAC Real Estate
1009 Mainstreet
Minneapolis, MN 55343
(612) 325-6764 Direct Line
(612) 642-0718 24 Hour Voicemail
(952) 938-3831 Fax mailto:SteeleP@aol.com
Access Hundreds of Twin City Bank Owned Homes
http://www.MinnesotaForeclosureNetwork.com
Foreclosure, Short Sale Training and more. Start with Free Vid
Foreclosure Specialist
Bank Owned Property Division
Schatz Group GMAC Real Estate
1009 Mainstreet
Minneapolis, MN 55343
(612) 325-6764 Direct Line
(612) 642-0718 24 Hour Voicemail
(952) 938-3831 Fax mailto:SteeleP@aol.com
Access Hundreds of Twin City Bank Owned Homes
http://www.MinnesotaForeclosureNetwork.com
Foreclosure, Short Sale Training and more. Start with Free Vid
Get a sneak peek of the all-new AOL.com.
Phil Silver says,
Having the debt forgiven is a better option for the seller, since then the
seller only owes the tax on the amount of the difference. But either way,
the seller must come up with some of the difference.
seller only owes the tax on the amount of the difference. But either way,
the seller must come up with some of the difference.
Question:
Purchaser buys house for $300,000. He puts $60,000 down, financing $240,000. Property must short sell for $230,000. Seller's short tax debt is $10,000? Can he take his $60,000 loss and how does that work?
Purchaser buys house for $300,000. He puts $60,000 down, and gets a first for $240,000. He wants to make improvements and house appraises for $350,000, so he borrows back that $60,000 he put down in an equity line (second). House is now worth $300,000 again. Buyer put the $60,000 into improvements into the home (ex. landscaping, pool, etc). Buyer DID NOT pocket the 60K. If buyer must short sell the home, how can he be responsible for paying taxes on the $60,000 that was put into the home? When he leaves the home, he leaves the 60K in improvements, too.
We have heard that lenders are promising sellers that they will NOT issue a 1099C if they do a short sale instead of foreclosure. I understand the concept that the tax liability takes, but if someone is BROKE, can't pay their mortgage, has lost their job and their home, how in hell are they going to be able to pay taxes on the short sale difference? Since ONLY taxes are non-bankruptable, this poor sap's life is ruined. This debt will follow for the rest of his life! NOT FAIR! Why should the government BENEFIT from the losses of American citizens due to economic conditions that only the government had control of???
Deede Wockenfuss
Marketing Manager
Assist 2 Sell, Buyers and Sellers Best Choice
Go To:
www.4GilbertHomes.Com
for your FREE "Real-Time MLS Market Report!
Marketing Manager
Assist 2 Sell, Buyers and Sellers Best Choice
Go To:
www.4GilbertHomes.Com
for your FREE "Real-Time MLS Market Report!
**Absolutely, so why do lenders feel like they think if they don't get what
they want that we agents have to pay up the difference?**
Robert, you did your clients a disservice if you took them into this deal
without understanding the ins and outs of a short sale. The lender is not a
Moron. They are simply doing number crunching and making a decision as to
what will cost them less money: Funds recieved by selling it to your buyer
or to simply foreclose. To them, it is not a matter of being nice. They lent
the money on the house and they want to end up getting the most they can.
The problem also can be with the listing agent not fully understanding a
Short sale (different than REO sales). If the listing agent does not do
his/her part up front correctly, regardless of what the buyer or their
agents do, the deal is going to blow up.
I am not sure what state you are in. However, on a Short Sale in California,
there is a whole list of laws that we have to comply with. These include a
long list of additional disclosures. In the past, the Brokers had to come up
with these disclosures themselves. However, just recently, CAR has created a
specific addendum to Listing Agreement to address these laws and
diclosures. In addition, there is a specific addendum for the Buyer's agent
to use with the Purchase agreement. The idea behind these additional forms
is to "educate and inform" both the buyers and sellers of the process and
what can happen. If they do not like it, that would be time to walk away.
Bottomline is that the lender will ONLY agree to a short sale if it costs
them less money vs doing a Foreclosure. They will play hardball to get the
most out of the deal. It is only natural. Sometimes they will come back and
ask for a commission reduction. I always provide a disclosure to the buyers
and buyers agent of this possibility. However, if you think that you are
doing the lender a big favor with the offer, you are living in a different
world.
They are perfectly OK with you taking your buyer to another house. All they
care about is what they get for this house. Either thru Short Sale or thru
Foreclosure. There are other factors that impact their decision also. This
includes REO's that they currently have. If the REO number goes too high,
the Fed's think that they are in trouble and can come in and take over (Not
all lenders fall in this category, but most do). Point being, their only
concern is what is best for them and as Buyer's agent, we need to understand
that and be willing to deal with it.
It is imperative for Both Buyers as well as their agent to fully understand
the ins and outs of short sale. If they do not like the process and/or
dealing with the lender's demands, please do yourself and your buyer a favor
and don not bother writing an offer.
they want that we agents have to pay up the difference?**
Robert, you did your clients a disservice if you took them into this deal
without understanding the ins and outs of a short sale. The lender is not a
Moron. They are simply doing number crunching and making a decision as to
what will cost them less money: Funds recieved by selling it to your buyer
or to simply foreclose. To them, it is not a matter of being nice. They lent
the money on the house and they want to end up getting the most they can.
The problem also can be with the listing agent not fully understanding a
Short sale (different than REO sales). If the listing agent does not do
his/her part up front correctly, regardless of what the buyer or their
agents do, the deal is going to blow up.
I am not sure what state you are in. However, on a Short Sale in California,
there is a whole list of laws that we have to comply with. These include a
long list of additional disclosures. In the past, the Brokers had to come up
with these disclosures themselves. However, just recently, CAR has created a
specific addendum to Listing Agreement to address these laws and
diclosures. In addition, there is a specific addendum for the Buyer's agent
to use with the Purchase agreement. The idea behind these additional forms
is to "educate and inform" both the buyers and sellers of the process and
what can happen. If they do not like it, that would be time to walk away.
Bottomline is that the lender will ONLY agree to a short sale if it costs
them less money vs doing a Foreclosure. They will play hardball to get the
most out of the deal. It is only natural. Sometimes they will come back and
ask for a commission reduction. I always provide a disclosure to the buyers
and buyers agent of this possibility. However, if you think that you are
doing the lender a big favor with the offer, you are living in a different
world.
They are perfectly OK with you taking your buyer to another house. All they
care about is what they get for this house. Either thru Short Sale or thru
Foreclosure. There are other factors that impact their decision also. This
includes REO's that they currently have. If the REO number goes too high,
the Fed's think that they are in trouble and can come in and take over (Not
all lenders fall in this category, but most do). Point being, their only
concern is what is best for them and as Buyer's agent, we need to understand
that and be willing to deal with it.
It is imperative for Both Buyers as well as their agent to fully understand
the ins and outs of short sale. If they do not like the process and/or
dealing with the lender's demands, please do yourself and your buyer a favor
and don not bother writing an offer.
Wow! Nadim you don't have to get so emotional over this whole deal about short sales! I happen to agree with your position. If I hadn't taken the position I had, clients the sellers would all have taken a big bath, but being the Attorney assigned by the lender happened to agree with me, realized my plan would net them all their risk back plus attorney fees, we all decided to do it my way! So if you were concerned for my sellers and their lender then I guess I should have followed up with all that so called red tape and official paper work. Bottom line we sold the property for more than the mortgage and delinquent payment and attorney fees because the lender and their lead councel could see my way beat the highway. But, far be it from me to be claim I know more about Cal eee forny-ah law than you I'm from Florida. So allow me some room to respond to a section of your post. I shall do so in CAPS so there is no miss-understanding.
Point being, their only
concern is what is best for them I COULDN'T AGREE WITH YOU MORE, WHAT RISK TAKER WOULD NOT BE LOOKING OUT FOR THEIR BEST INTEREST? YOU SAID IT BEST IT'S "COMMON SENSE" and as Buyer's agent, we need to understand that and be willing to deal with it. EXCUSE ME? AS A BUYER'S AGENT I HAVE TO UNDERSTAND ONLY ONE THING, THE NEEDS OF MY BUYER! I MAY BE WORKING WITH THE SELLER (LENDER), BUT MY FIDUCIARY RESPONSIBILITY AS A "BUYER'S AGENT" IS STRICTLY WITH THE BUYER AND THE MONEY THE BUYER WANTS TO SPEND. NOTICE! I SAID "WORKING WITH THE SELLER". WHAT THAT MEANS IS I UNDERSTAND THEIR SITUATION, HOWEVER I DON'T GIVE A RIP ABOUT THEIR POOR LENDING PRACTICES AND POOR RISK MANAGEMENT. NOT THAT I COULD CARE, BUT IT'S REALLY NONE OF MY BUSINESS. MY JOB IS TO GET THE BEST ACCEPTABLE DEAL FOR MY CLIENT REGARDLESS OF ALL THE HOOPS THE LENDER WANTS ME TO JUMP THROUGH.
It is imperative for Both Buyers as well as their agent to fully understand
the ins and outs of short sale. I LIKE THAT WORD YOU USE "IMPERATIVE" IT SOUNDS SO "SEMINARISH", DA-JA-VU. If they do not like the process and/or dealing with the lender's demands, DEMANDS? WHAT DEMANDS? THE DEMANDS FOR THE BUYER TO LAY DOWN AND DO WHAT EVER THE SELLER (LENDER) DEMANDS? please do yourself and your buyer a favor and don not bother writing an offer. WITH AN ATTITUDES LIKE YOURS, YOU SOUND LIKE A LAP DOG FOR LENDERS? IF YOU WANT TO BE THAT WAY ABOUT THEN HAVE A NICE DAY. BUT UNTIL LENDERS LEARN THAT THERE ARE FEW BUYER'S BUYING LATELY, ALL BECAUSE OF THE POOR BUYS EVERYBODY GOT SADDLED WITH. THAT PLUS ALL THE BONEHEADED LENDING PRACTICES. I COULD CARELESS WHAT THESE LENDERS WANT OR DEMAND. IF THEY WANT TO SELL THE PROPERTY THEN THEY BETTER TAKE WHAT THEY CAN GET. BECAUSE THE LONGER THESE PROPERTIES STAY VACANT WITH ALL THESE DEMAND AND OFFICIAL RED TAPE TO JUMP THROUGH, THE LONGER THE MARKET WILL CONTINUE TO DECLINE! YOU SHOULD KNOW THAT, AND EVERY REAL ESTATE AGENT OUT THERE SHOULD UNDERSTAND THAT AS WILL. THE PROBLEM IS THERE ARE NO INVESTORS IN ANY MARKET RIGHT NOW. WHY? BECAUSE THEY DON'T KNOW WHERE THE BOTTOM IS. AND THEY SURE AS HELL AREN'T RUNNING BACK INTO THE STOCK MARKET WHERE THEY CAME FROM JUST A FEW SHORT YEARS AGO.
concern is what is best for them I COULDN'T AGREE WITH YOU MORE, WHAT RISK TAKER WOULD NOT BE LOOKING OUT FOR THEIR BEST INTEREST? YOU SAID IT BEST IT'S "COMMON SENSE" and as Buyer's agent, we need to understand that and be willing to deal with it. EXCUSE ME? AS A BUYER'S AGENT I HAVE TO UNDERSTAND ONLY ONE THING, THE NEEDS OF MY BUYER! I MAY BE WORKING WITH THE SELLER (LENDER), BUT MY FIDUCIARY RESPONSIBILITY AS A "BUYER'S AGENT" IS STRICTLY WITH THE BUYER AND THE MONEY THE BUYER WANTS TO SPEND. NOTICE! I SAID "WORKING WITH THE SELLER". WHAT THAT MEANS IS I UNDERSTAND THEIR SITUATION, HOWEVER I DON'T GIVE A RIP ABOUT THEIR POOR LENDING PRACTICES AND POOR RISK MANAGEMENT. NOT THAT I COULD CARE, BUT IT'S REALLY NONE OF MY BUSINESS. MY JOB IS TO GET THE BEST ACCEPTABLE DEAL FOR MY CLIENT REGARDLESS OF ALL THE HOOPS THE LENDER WANTS ME TO JUMP THROUGH.
It is imperative for Both Buyers as well as their agent to fully understand
the ins and outs of short sale. I LIKE THAT WORD YOU USE "IMPERATIVE" IT SOUNDS SO "SEMINARISH", DA-JA-VU. If they do not like the process and/or dealing with the lender's demands, DEMANDS? WHAT DEMANDS? THE DEMANDS FOR THE BUYER TO LAY DOWN AND DO WHAT EVER THE SELLER (LENDER) DEMANDS? please do yourself and your buyer a favor and don not bother writing an offer. WITH AN ATTITUDES LIKE YOURS, YOU SOUND LIKE A LAP DOG FOR LENDERS? IF YOU WANT TO BE THAT WAY ABOUT THEN HAVE A NICE DAY. BUT UNTIL LENDERS LEARN THAT THERE ARE FEW BUYER'S BUYING LATELY, ALL BECAUSE OF THE POOR BUYS EVERYBODY GOT SADDLED WITH. THAT PLUS ALL THE BONEHEADED LENDING PRACTICES. I COULD CARELESS WHAT THESE LENDERS WANT OR DEMAND. IF THEY WANT TO SELL THE PROPERTY THEN THEY BETTER TAKE WHAT THEY CAN GET. BECAUSE THE LONGER THESE PROPERTIES STAY VACANT WITH ALL THESE DEMAND AND OFFICIAL RED TAPE TO JUMP THROUGH, THE LONGER THE MARKET WILL CONTINUE TO DECLINE! YOU SHOULD KNOW THAT, AND EVERY REAL ESTATE AGENT OUT THERE SHOULD UNDERSTAND THAT AS WILL. THE PROBLEM IS THERE ARE NO INVESTORS IN ANY MARKET RIGHT NOW. WHY? BECAUSE THEY DON'T KNOW WHERE THE BOTTOM IS. AND THEY SURE AS HELL AREN'T RUNNING BACK INTO THE STOCK MARKET WHERE THEY CAME FROM JUST A FEW SHORT YEARS AGO.
SO TELL ME, WHY DO YOU THINK THE FED PUMPED $38 BILLION IN TO THE SYSTEM LAST WEEK? AND WHY DO YOU THINK THEY LOWERED THE PRIME 1/2 POINT THIS WEEK? I'LL TELL YOU WHY! BECAUSE THE BANKS ARE UPSIDE DOWN AND NOBODY IS TAKING OUT LOANS. SO YOU MAY START SEEING AN ADJUSTMENT IN THE 30 YEAR HOME LOAN STARTING MONDAY MORNING. BUT THE PROBLEM IS, WE ALREADY HAVE GREAT LOW RATES, SO WHAT'S ANOTHER 1/2 POINT GOING TO DO? GET 100% WANNA BE INVESTORS BACK IN THE DEAL? NOT IF FANNIE MAE AND FREDDY MAC HAVE ANYTHING TO SAY ABOUT IT. BUT I THINK THEY HAVE ENOUGH PROBLEMS OF THEIR OWN WHEN IT COMES TO LENDING PRACTICES. OR MAYBE YOU DON'T READ THE WALL STREET JOURNAL OR WASHINGTON POST?
MOST OF THAT $38 BILLION IS GOING TO PROP UP A CRAZY STOCK MARKET THAT IS VACILLATING LIKE A DRUNKEN SAILOR ON WEEKEND LEAVE. THESE LENDERS ARE IN TROUBLE THEY KNOW IT AND THEY BETTER STOP ALL THIS, "I GOTTA HAVE IT MY WAY BELLIGERENCE" OR THEY MAY BE TAKING DEEPER CUTS IN THEIR REOS AND SHORT SALES AND ALL THAT OTHER CRAP THAT COMES FROM A STAGGERING REAL ESTATE MARKET.
BECAUSE AS LONG AS THE INVESTORS KEEP TIGHT STRINGS ON THE PURSE, THERE ARE NOT GOING TO BE ANY FLIPS, HOLDS OR SALES. IF THERE ARE NO SALES, THEN THE LENDERS CAN WASH US OUT BECAUSE WE CERTAINLY ARE NOT GOING TO MAKE THE BIG BUCKS IN REAL ESTATE IF THE BUYERS DON'T COME BACK TO THE TABLE. LENDERS ARE ONLY "HOPING" INSTEAD OF "PLANNING". THE WORLD HAS CHANGE DRAMATICALLY SINCE 911 AND THE LENDERS BETTER CATCH ON BEFORE THEY BECOME THE NEXT VICTIMS.
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