This is the 4th and final posting on foreclosures and short sales written by Kathy Persha. I hope that you have found this information useful. If so, please LIKE The Kathy Persha Team on facebook. Thank you. As always we would appreciate your comments and feedback. Please let me know what what topic you would like discussed next. DEALING WITH DEFICIENCY AND LIFE AFTER THE SHORT SALE In a Short Sale, a house is sold for less money than what is owed on the mortgage The difference between the amount that is owed on the mortgage and the amount that the lender accepts as a purchase price on the short sale is called a Deficiency Judgment. A deficiency can occur on a foreclosure, a deed in lieu and on a short sale. Many people think that because they have given their house back to the bank or because their house went into foreclosure that they are done with the bank. That is not necessarily true. On all recourse loans, the lender has the right to come after the homeowner for that difference unless the paperwork for the short sale or deed in lieu states that there will be no deficiency judgment. In the case of foreclosure, deed in lieu and short sale, the lender has two choices. The first is to send you a 1099C showing the difference between what you owed and what the house sold for as income to you. And the second is to come after you to collect the difference. If this is your primary residence or you have lived in this property for 2 out of the last 5 years, a 1099C can be a very good thing. Because of HR3648, Debt Relief Forgiveness Act, $500,000 of the 1099C ($250,000 for each person on title) can be written off. That means if you meet all qualifications, you probably will not pay any tax on the monies reported on the 1099C. If you receive the 1099C, bring it to your accountant when you file your taxes and he will know how to handle it. If this is not your primary residence but an investment property, there are ways to handle this debt also. Discuss this with your accountant. HR3648 is in effect until the end of January 1, 2014. If your lender does not send you a 1099C, that means they are keeping their options open to try to collect from you in the future. Remember when you bought your house; you signed both a note and a mortgage. Even though the bank has released the mortgage, unless they waive the deficiency judgment, they can still collect on the note or they may sell your note to another investor. If you are turned over to a very aggressive collection agency, they might even take you to court and get a deficiency judgment from the judge. If granted, the judge gets to set the interest rate which could be as high as 12% - 14%. If the deficiency is granted by the court, they can now garnish your wages and state income tax return. Obviously, this can get pretty ugly for you. That is why you want a professional to work with so that your rights are protected. With foreclosure and sometimes with deed in lieu, you will not be able to negotiate a solution to the deficiency judgment with your lender in advance. This will be a wait and see situation for you hanging over your head for years to come. A short sale is different. As part of the short sale terms, the deficiency can be negotiated. When negotiating your short sale, I am working for you, not your lender. My goal is to get your house sold with the very best terms for you. In most case, I have gotten the lender to agree not to try to collect any money from the homeowner in the future. I want them to agree to writing off the deficiency in full and record the note as Paid in Full or Debt Settled in Full for less than what was owed or similar terminology. This is much better on your credit report than a foreclosure. In cases where the lender would not write off the deficiency, I have gotten them to take small cash settlement at closing in return for not coming after the homeowner in the future. And in some cases, they have agreed to take an unsecured, 0% interest, promissory note for all or part of the deficiency with a small monthly payment for a period of 5 – 20 years. In negotiating the deficiency judgment with your lender, remember that you always have the final approval of the short sale when you use me as your negotiator. My success rate in negotiating short sales is about 90%. And, in most cases, the short sale was negotiated with no deficiency judgment to the homeowner. I am good at what I do and I am always working for you. YOUR SHORT SALE IS OVER, WHAT NOW???? YES, there is life after a short sale! Think about what your life has been like for the past 6 to 12 months or perhaps even longer. You haven’t had enough money to make your mortgage payment; maybe your other bills are also behind. You have tried working with your lender but they have been unreasonable and unwilling to help you save your house. Perhaps you have had arguments about money with your spouse and haven’t been the best parent because your mind is always thinking, “How can I provide for my family”. Worry and stress has had an effect on your health and you can’t remember when you last had a decent night’s sleep. And, you are embarrassed and don’t want friends and relatives knowing what is going on in your life. Does this all sound familiar? A short sale can be a new beginning for you. Many of my clients have called me months after their short sale and told me that they are sleeping again at night. One client recently told me that he feels bad for the guys at work because they are all going through what he went through last year, but now he has a fresh start and is once again sleeping at night. The short sale is a solution to the problem of what to do with your house and it does far less damage to your credit than a foreclosure. It allows you to get on with your life and start rebuilding your credit. It takes the stress and anxiety away providing for a better relationship with your family. It is a new beginning, a fresh start. You can repair your credit and be eligible for a mortgage in three years after the short sale. And in some situations, I have a local bank that might be able to get you financed in as little as 6-12 months after your short sale. Use this time to save money and decide what price house you can comfortably afford. Rentals - How They May Be The Right Choice It’s wise not to rush in to major decisions after your short sale. Your best alternative may be to rent an affordable house until you can think more clearly about your future. You don’t want to put yourself right back into a financial problem. Think about downsizing for awhile. Sit down with your spouse or partner and list all your monthly expenses. Look for ways to eliminate items that are not a necessity. Compare that total to your income to determine what you can afford to pay for rent. Be wise about your decision. Spend less for rent than what is available so that you can put some money aside to either pay down other debt or start a savings account to buy another house in the future. Remember, renting is a temporary situation to allow you to take back control of your life. And, a home isn’t dependent on the size or newness of a house, a home is made by the people who live in it. LEASE OPTIONS - They Can Work For You There are those who absolutely do not want to lease. They want to get right back into a home that they can buy. If that is the case, you may want to look into a lease option. A lease option is an agreement between a buyer (that’s you) and a seller. In the lease option agreement the buyer signs a document which gives him or her exclusive right to purchase a property before some future date at an agreed to amount. The lease option agreement binds only the seller, the buyer has a choice to make this purchase or not. Because of this the buyer usually pays the seller a fee. That fee is called the lease option fee and is normally non refundable. I should repeat this. The buyer does not get this money back even if they choose to not buy the property. Lease options are common among buyers who would like to own a home but do not have enough money for the down payment and the closing costs or have to wait to become eligible for a mortgage. A lease option may also be attractive to buyers who are working to improve bad credit before approaching a lender for a conventional loan. A lease option may also be a way for the seller to move a property in a slow market. When a seller agrees to give the buyer an exclusive lease option to purchase a property, the option price is usually determined at the outset, but not always, and the agreement states when the purchase should take place say, six months, twelve months or maybe 18 months down the road. Oftentimes a portion of the lease payment is used to make the future down payment. This is called the rent credit. Seller advantages include earning above-market rent, retaining all the property income tax deductions during the lease-option period, and attracting buyers who will care for the property because they want to buy it. Buyer advantages are smaller down payments, fewer credit checks and the ability to live in the property before a final decision is made to purchase. Doing a lease option or leasing a property are great options after a short sale or deed in lieu. It’s true, some landlords may not want to rent to you if your credit score is low, but most landlords will still rent to you if you explain the circumstances to them. I am a landlord, myself, and I know that bad things happen to good people. And, if I understand the circumstances that put them into this position, I’m willing to give them a chance. There are many, many landlords out there that feel the same way. TIP: Even landlords who are looking for a great credit score will re-consider if you have managed to save some money and can pay 2 or 3 months rent in advance. The short sale can give you a new beginning, a fresh start. It’s up to you to make the most of it. This posting is not meant to be construed as legal advice. It is for information purposes only. For legal advice, contact your attorney.
Posted on: Sat, 13 Jul 2013 15:36:59 +0000