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Short Sales

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Why isn’t the bank doing a short sale?

I had a great question asked this week. The person asked me about a house in their neighborhood. It had been vacant for a while and they were interested in the stats and possibly purchasing it. I looked up the house and found out the property was scheduled for foreclosure in less than a month.

The question: “Why isn’t the bank doing a short sale?”

The consideration for a short sale is requested by the owner of the home. It may be in the owner’s best interest to do a Bankruptcy, and let the property foreclose. If the owners had consulted with a tax attorney, they may have been advised to move forward in the manner they were.

Doing a short sale is not the choice of the bank. They (the bank) cannot opt to sell the property, as they do not own it. The current owner could at the last minute pay the bank the fees owed, renegotiate their loan and get out of default. The foreclosure process allows the owner to get out of trouble if they can.

The bank is not at liberty to do anything until they have ownership of the property.

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REO/Short Sale/Normal – What’s really selling in the Phoenix area housing market

I was looking through the charts and statistics and came across these 2.  They offer an interesting view on what homes are selling, and how much of our housing market is really about the foreclosures.

From the chart below you can see that steadily for the past 6 months the REO (bank owned properties) are about 15% of the active listings. The Short is for short sale listings running at about 35% and Normal, is a regular buyer and seller no bank involved is still 50% of the homes on the market.

active-listings

Compare the above chart with this one and you can see REO (bank owned property) sales dominate. Currently about 45%, down from 55% of all the sales are REO’s.

Normal transactions having 35% of the sales (back in Nov what was thought to be the end of the home buyer tax credit and people were looking to make the home purchase happen and not mess with the banks)

The Short Sales have increased from 15 to 23%.

monthly-sales

What does all that tell me, a few things?

1.       Bank owned homes sill offer the best value

2.        Banks are starting to approve short sales.  (it sure has taken a long time)

3.       With more short sale approvals, fewer homes are going to foreclosure

4.       And there is nothing like a home that has been loved and taken care of

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Considering buying a Short Sale?

Anyone watching the active listings of homes will see the abundance of  “Short Sales” available.

So what are they?

  • A short sale is where the seller owes more on their home than the current value and they are asking the bank to be ‘shorted’ the funds due them.

And what’s the deal…

  • Any offer must also be accepted by the Bank(s) holding the loan(s) on the property
    • Banks are slow to respond (could be months and months)
    • Bank must determine if it is in their best interest to do a short sale (is there mortgage insurance on the existing loan?)
    • Bank will determine at what price/value they will accept an offer (could be an amount greater than the asking price)
    • Bank may choose foreclosure over short sale
  • It is an “as is” purchase – (no repairs will be done by the seller)
  • The seller is not allowed by the bank to contribute any expenses regarding the closing (to pay for a home warranty for example)
  • All parties must agree to the terms, buyer, seller, and bank(s)
    • If the seller does not agree with terms from bank – they can cancel
    • If the seller has excessive tax implications that they learn about – they can cancel
  • And many more items to consider

And yet they could be a good deal for the person who…

  • They sell for near foreclosure prices, and sometimes less
  • is not in a hurry with no time frame requirements to meet
  • Realizes the “list price” may not be the sales price and is prepared to raise their offer beyond the list price.
  • has the patience of Job

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Foreclosures and the Adult Communites

Although there are no adult communities within McCormick Ranch, our initial website is focused on Active Adult Communities and we work with many 55+ buyers.   

We are seeing lots of numbers being published for the ratios of Bank Owned and Short Sale properties in the valley.   We are not seeing those same numbers in the Adult Communities.   Since it is a cold rainy day, I have been playing with numbers and really surprised myself with what I found!

Taking only single family detached homes in the entire MLS for the valley, a total of 41,832 this morning, 10,796 of them were Bank Owned and an additional 9,003 were Short Sales.  Those numbers round off to 25% of the single family homes on the general market are bank owned and another 21% are short sales.  

Current MLS Single Family Homes on the market, with Bank Owned and Short Sale
Current MLS Single Family Homes on the market, with Bank Owned and Short Sale

 

 

BUT when you look at the Active Adult Community 55+ single family homes, there are a total of 2819 on the market.  Of that 2819 only 52 are bank owned and 63 are short sales which works out to 2% of the homes are bank owned and another 2% are short sales.

Current active single family home listings in adult communities comparing bank owned/ foreclosure and short sale
Current active single family home listings in adult communities comparing bank owned/ foreclosure and short sale

 

 

HMMMM  kinda makes you wonder.    Our 55+ citizens have indeed saved for their retirement homes, their financing is minimal and their risk taking days are in the past.

There were very few zero down,  or investor homes sold in these communities in the 2005 and 2006 sales surge.    I believe it is the investors who did get in to these adult communities, that are making up the Bank Owned and Short Sale properties.

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Mortgage Forgiveness Debt Relief Act of 2007

The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007. 

Normally if you do a short sale, or if you foreclose on a home, you would receive a 1099 for the amount of debt you have not had to repay. Then you would be required to pay the taxes on the amount as income to you.

The Mortgage Forgiveness Debt Relief Act of 2007 made it so many people having financial challenges from 2007 till 2009 who sell their home in a short sale situation or have their home foreclosed upon will not have to have the burden of being taxed on the amounts of the debt.

The catch is, not everyone is exempt from getting the 1099.

If the home was a second home or an investment property, you will still receive the 1099 and have to pay taxes on the debt.  If you refinanced, pulled money out of your home, and it was used for anything other than adding to the value of your home, you will be gettting a 1099 and paying the taxes.

Check out the IRS information on this Act as you consider your options.

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Short Sales – What Sellers should know

Read what you sign.  The Short Sale Addendum (one of the forms that gets to be included in any contract that is a short sale) covers the seller if the bank should come back with an acceptance of short sale conditional on the balance being paid off.

Some times in a short sale the bank will want the seller to pay the difference the bank is being shorted. 

When a seller applies for a short sale with the bank they have to fill out a package similar to a loan package.  With all of the financial data; that means your 401K could look mighty nice to the bank. 

The Short Sale Addendum in Arizona allows for all parties to be satisfied with the final conditions.  If the bank agrees to the sale and the seller once they have the final agreement letter does not like the terms there is no contract.

Be sure to read these other posts as well:
Short Sales, info for the Buyer
Mortgage Forgiveness Debt Relief Act of 2007