Short Sale Guide
We strongly urge you to have your attorney review all documents
Q: What is a Real Estate Short Sale?
A Short Sale (also called a Short Payoff or a Pre-Foreclosure Sales) is simply a sale of real estate by a seller to a third party buyer in the which the selling price is insufficient to pay off all of the seller’s loans, liens and closing costs. As a result, the seller’s Realtor petitions the seller’s lender or lenders to reduce their loan payoff balance in an amount sufficient for the seller pay all closing costs and close escrow.
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Q: Does the Mortgage Forgiveness Debt Relief Act of 2007 exclude any debt forgiven through foreclosure or a short sale from being treated as 1099 income for tax purposes?
A: No. The Mortgage Forgiveness Debt Relief Act of 2007 (Act) created limited circumstances under which sellers facing a foreclosure can be granted a relief from this requirement if they are able to work out a solution with the lender such as a short sale, where part of the debt is forgiven. To be afforded protection under the Act, the debt must be considered qualified principal residence indebtedness. Also, the total debt must be less than $2 million (or $1 million for married couples filing separately).
Q: In a short sale, when do the time periods in the contract begin to run?
a) Upon delivery of the accepted offer to the lender
b) On the date the offer is accepted and signed by both parties
c) Upon delivery of the Short Sale Agreement Notice to the buyer
A: The date of the seller’s delivery of the Short Sale Agreement Notice to the buyer is deemed the date of contract acceptance for purposes of all applicable contract time periods. In other words, although the parties have entered into an enforceable contract, the time periods do not begin to run until the seller has delivered the Agreement Notice. In the event that the seller and lender are unable to reach an acceptable short sale agreement, the seller must notify the buyer and the contract is cancelled due to the unfulfilled short sale contingency.
Q: Are all REOs sold “as is”?
A: Yes. The bank/seller will normally not offer any warranties or guarantees. However, in some limited circumstances, the lender may be willing to negotiate a price which allows for needed repairs. If this is a concern for the buyer, they should submit an inspection report together with estimates on the cost of needed repairs. There is no guarantee the lender/seller will agree to reduce the price.
Q: Can anyone qualify for a loan modification under Obama’s Making Home Affordable Plan?
A: No. The Program, effective March 4, 2009, includes many restrictions. The Program is only available for owner-occupied properties, and therefore no investors will qualify. Furthermore, the maximum loan amount for a single family residence is set at $729,750.00. The plan includes a few different scenarios under which a home owner may qualify to modify their existing loan. The home owner should talk with their lender honestly about their situation. The lender will be able to determine if there is a modification option available, based on the information they provide.
Q: Is a foreclosed home owner allowed to remove appliances from the home after foreclosure?
A: Yes. Appliances, unless they are considered fixtures, are normally classified as personal property and belong to the home owner. However, any appliances built-in, such as a built-in microwave or range hood, would likely be considered fixtures and stay with the property. Some foreclosed sellers have been known to “strip” a property after foreclosure. However, foreclosed home owners should be advised that removal of fixtures constitutes criminal theft pursuant to A.R.S. §13-1802. The lender can file criminal charges accordingly.
Note: The lender may also be able to file a civil lawsuit against the previous owners for “waste” due to the wrongful removal of the fixtures.
Q: It took months to get a preliminary acceptance from (BankXYZ), but they said it doesn’t have final approval yet. We are 2 weeks from closing and no one from (BankXYZ)will call me or my agent back. Any suggestions to get an answer, so I know if my family has a home?
Great question, and a common problem. It takes a long time for these things to go through usually. You are only two weeks away from closing if (BankXYZ)has all their stuff taken care of by then. The only way to get more information is to call the department of Wells that handles short sales and request the information. They probably won’t talk to you unless the seller authorizes you to talk to the bank. . Ask the appropriate party if the sellers will add you as authorized to discuss the progress of the short sale with Wells Fargo.
Q:I am interested in purchasing foreclosures for investment reasons. I have been warned of second mortgages being what is foreclosed, not the original mortgage. How can I tell which mortgage is being foreclosed?
A: Don’t buy anything until you get a preliminary title report or Lien and Encumbrance report showing who all has a claim to the property. This way you will know who is expecting to be paid off before you can own it. We strongly urge you to have your attorney review all the documents
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