So we have had a lot of inquiries recently regarding short sales, the costs, the tax consequences, etc. so we wanted to write a simple and quick tutorial for those who are considering it or even for those who already in contract on one.
In a traditional California sale, the seller (Mr. and Mrs. Smith) will be responsible for paying some closing costs, fees, commissions, etc. at the close of escrow. However, in a short sale transaction, the seller is actually a Bank/Investor like Bank of America, and they are the one's responsible for paying closing costs, fees, commissions, etc. In that scenario, Mr. and Mrs. Smith pay nothing, but lose their dream home and damage their credit. Bank of America takes a massive financial loss, but they send Mr. and Mrs. Smith a 1099 for that loss. The Smith's then become responsible for claiming the banks loss as income on their next years' tax returns. See your CPA for details as I am not a real CPA, I only play one on TV :-)
So bottom line, you will pay almost nothing to short sell your home, however there are some consequences to consider, like moving your family, the costs associated with moving, rent payments and of course, damaged credit. However, if you are a struggling home owner, who has a true financial hardship (job loss, death in family, job transfer, etc.) then you might be eligible for a short sale and it is an excellent start to getting back on your feet again!
Showing posts with label credit repair. Show all posts
Showing posts with label credit repair. Show all posts
Thursday, February 9, 2012
Sunday, August 1, 2010
Short Sale will not get approved
So, I just posted earlier about our loan modification failure, let's just keep the positive vibe going and explain the recent rash of short-sale failures too.
First, Indym*c Bank (One W*st Bank), B of A, Ch*se and Wells F*rgo have been good to work with, so long as you NEVER refinanced your home and/or took cash out. This really only accounts for about 12% of the US population, but hey who cares, everyone is doing it right?
We have applied for, started and received approvals for 3 short sales so far. We have applied for, started and been denied on 3 short sales as well. Not bad, 50% approval, but let's dig deeper.
1. Purchase money loans in CA have a "one action rule" which means they get they home or they come after you, they cannot do both. Good for about 12% of the popluation, the other 88% percent of us are screwed.
2. For the rest of us who have "cash-out" loans, it means that once the first lender takes the home, the second lender or "cash-out" lender has to come after you personally since the first lender has the collateral (home). So, if you want to short-sell in CA then you must understand that the second lender will need a large incentive to let the home go in short-sale.
3. Not all lenders are participating and better yet, the Government has not forced any lenders to participate and truely HELP people, so there is no guarantee you will even get a loan mod, a short sale or deed in lieu of foreclosure, in the end. So, with all of the good news, what is a home owner to do? Especially one who needs to ditch a $600k boat anchor that is now worth $250k?
First, get an agent familiar with short sales. Second, do not worry about the first lender, they are in the drivers seat and will get cash or a property. It is time to schmooze the ugly girl in the back seat who is commonly referred to as the "second lien holder". They will typically ask for 20% of their lien balance in cash, at the close of escrow. USAA once asked us for 90% of the loan balance and when we said "HELL NO" they ended up foreclosing on the home owner, so be careful. If you have a private lender second, good luck they are tough! The only alternative is to have the first lender contribute cash and/or the agents each contribute cash to the second lender. However, from experience we know that first lenders only contribute $3k and an Agent will typically tell his clients that the home is not available and show them something else. That will not help bring us out of this recession, will it!
So, if you are a home owne who wants to save your credit, short-selling is your best bet. Otherwise, walk away and be prepared to have a huge hit to your credit, receive a large bill from your lender and possibly a bill from Uncle Sam as well. Always check with your CPA first for exceptions, otherwise good luck to you and your Agents it is tough out there for the middle class!
First, Indym*c Bank (One W*st Bank), B of A, Ch*se and Wells F*rgo have been good to work with, so long as you NEVER refinanced your home and/or took cash out. This really only accounts for about 12% of the US population, but hey who cares, everyone is doing it right?
We have applied for, started and received approvals for 3 short sales so far. We have applied for, started and been denied on 3 short sales as well. Not bad, 50% approval, but let's dig deeper.
1. Purchase money loans in CA have a "one action rule" which means they get they home or they come after you, they cannot do both. Good for about 12% of the popluation, the other 88% percent of us are screwed.
2. For the rest of us who have "cash-out" loans, it means that once the first lender takes the home, the second lender or "cash-out" lender has to come after you personally since the first lender has the collateral (home). So, if you want to short-sell in CA then you must understand that the second lender will need a large incentive to let the home go in short-sale.
3. Not all lenders are participating and better yet, the Government has not forced any lenders to participate and truely HELP people, so there is no guarantee you will even get a loan mod, a short sale or deed in lieu of foreclosure, in the end. So, with all of the good news, what is a home owner to do? Especially one who needs to ditch a $600k boat anchor that is now worth $250k?
First, get an agent familiar with short sales. Second, do not worry about the first lender, they are in the drivers seat and will get cash or a property. It is time to schmooze the ugly girl in the back seat who is commonly referred to as the "second lien holder". They will typically ask for 20% of their lien balance in cash, at the close of escrow. USAA once asked us for 90% of the loan balance and when we said "HELL NO" they ended up foreclosing on the home owner, so be careful. If you have a private lender second, good luck they are tough! The only alternative is to have the first lender contribute cash and/or the agents each contribute cash to the second lender. However, from experience we know that first lenders only contribute $3k and an Agent will typically tell his clients that the home is not available and show them something else. That will not help bring us out of this recession, will it!
So, if you are a home owne who wants to save your credit, short-selling is your best bet. Otherwise, walk away and be prepared to have a huge hit to your credit, receive a large bill from your lender and possibly a bill from Uncle Sam as well. Always check with your CPA first for exceptions, otherwise good luck to you and your Agents it is tough out there for the middle class!
Tuesday, September 9, 2008
Credit Repair
In my business I get a lot of calls from people who just cannot qualify for a home loan. With rising gas prices, consumer prices, utility prices and even rent prices, Now is a great time to address the issue.
First and foremost, do NOT avoid your creditors. They are in the business of making money, so when you have a hardship and cannot pay them, they will listen and work with you. Here is what worked for one of my clients, of course results will vary based on your banking institution.
1. Explain your hardship, tell them you are sorry and that you have every intention to pay them back as much of the balance as possible and then set up a payment plan.
2. Set a budget and delete, eliminate and remove any excess spending from your life until your debts are paid. I know this is easier said than done, but eliminate the fast food, the local watering hole, new clothes, golf (I know that is blasphemy) and the little things that can be missed for a short period of time. Make a list for one month of checks written and cards used and then it will become abundantly clear where the money goes. Do not deny it, face it head on and make it happen.
3. If you get a lump sum commission, bonus, Xmas bonus, etc. make a large payment to the largest balance. Remember, your APR payments (loosely translated) are based on the average balance you carry from month to month, so the higher the balance you carry the higher the payments and interest. When you get yourself in trouble with multiple cards and large balances this is where you lose the ability to repay the debt unless the rich uncle who loved you dies and leaves you a small fortune.
There are millions of American's in the same place you are, so do not worry, do not give up, and most of all do not panic. Set a plan, stick to the plan and believe in yourself that you can do it. If you do succeed at digging yourself from this hole, the sky becomes the limit and then it is time to start thinking about a career move up or a new larger goal and you will live a life where obstacles are merely short term distractions!
Make it happen and have a great day!
First and foremost, do NOT avoid your creditors. They are in the business of making money, so when you have a hardship and cannot pay them, they will listen and work with you. Here is what worked for one of my clients, of course results will vary based on your banking institution.
1. Explain your hardship, tell them you are sorry and that you have every intention to pay them back as much of the balance as possible and then set up a payment plan.
2. Set a budget and delete, eliminate and remove any excess spending from your life until your debts are paid. I know this is easier said than done, but eliminate the fast food, the local watering hole, new clothes, golf (I know that is blasphemy) and the little things that can be missed for a short period of time. Make a list for one month of checks written and cards used and then it will become abundantly clear where the money goes. Do not deny it, face it head on and make it happen.
3. If you get a lump sum commission, bonus, Xmas bonus, etc. make a large payment to the largest balance. Remember, your APR payments (loosely translated) are based on the average balance you carry from month to month, so the higher the balance you carry the higher the payments and interest. When you get yourself in trouble with multiple cards and large balances this is where you lose the ability to repay the debt unless the rich uncle who loved you dies and leaves you a small fortune.
There are millions of American's in the same place you are, so do not worry, do not give up, and most of all do not panic. Set a plan, stick to the plan and believe in yourself that you can do it. If you do succeed at digging yourself from this hole, the sky becomes the limit and then it is time to start thinking about a career move up or a new larger goal and you will live a life where obstacles are merely short term distractions!
Make it happen and have a great day!
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