When Your Massachusetts HAFA Short Sale Doesn’t Work!

Ugg…Another HAFA nightmare I encountered today. I’ve heard NOTHING , but negative news on HAFA. Every Realtor I’ve spoken with who is dealing with a HAFA short sale are not impressed. I’m sure you all read at this point that only 342 short sales and deed-in-lieu’s been completed have been approved and sold since HAFA’s inception last April-September. http://www.housingwire.com/2010/10/27/market-questions-sigtarp-numbers-on-treasurys-hafa-program - What I’d like to know out of that number is how many deed-in-lieu’s were performed for homeowners hopeful for a short sale.

Never would I claim to know all about short sales as the business is ever changing. I would caution you to run from someone who claimed they DID know everything as it is almost impossible. I am writing this today because I encountered a phone call from a homeowner today who asked me to buy his home.

Now Rapid Property Relief, LLC solely focuses on pre-foreclosure acquisition and negotiation so of course anytime a homeowner calls and asks me to buy their home in Massachusetts, it’s a win win for everyone. The problem with this particular short sale is the homeowner was enrolled in the HAFA program. We don’t actually purchase HAFA short sales as there is a lot to the program we don’t agree with, but the homeowner asked if he were to opt out of the HAFA program would we consider buying his property?

So there it was. That was the question I had to consider and didn’t know the answer too. The home was a condex, and typically we don’t purchase condos, but we will consider a condex if there are no condo fees and if more than 50% of the units are owner occupied, so his condex passed that one qualifier we had.
My next phone call was to his Realtor to introduce myself. I explained the homeowner wanted us to buy his property and what we did and how we did it. She was very open and genuinely wanted to work with us, but she started going over the timeframe for the short sale and some things didn’t add up.

HAFA allows you to sell your home for 120 days from the time they mail you the application. If you don’t sell in that timeframe, then they CAN exercise their right to perform the deed in lieu. This homeowner happened to just be a couple days past that mark. The homeowner had called and opted out of the program, however, now I was stumped. Would the lender allow us to do a traditional short sale after this expiration of the HAFA short sale?

To be honest, it’s too much effort to try for a short sale when at any given moment the lender can say NOPE, the property belongs to us now so it was important to find out if that would or could actually occur. No one wants to go into a short sale, knowing at any moment it would end because the lender took the home back. At least with a foreclosure, you know what deadline you are up against.

So I posed the question to the Realtor…Would the lender exercise their right to a deed in lieu if a traditional short sale was started? So at this moment I await the answer. When I find out, I will post back.

Maryann Little, Owner Rapid Property Relief, LLCPreforeclosure acquisition and negotiation Massachusetts and New

Hampshire Short Sales Massachusetts – Short Sales New Hampshire

Maryann Little, Preforeclosure acquisition and negotiation
http://massachusettsshortsales.net
http://shortsalemitigation.net
http://rapidpropertyrelief.com
http://twitter.com/rapidshortsales

Don’t Under Estimate a Homeowner’s Motivation in Your Short Sale Success

Don’t Under Estimate a Homeowner’s Motivation in Your Short Sale Success

There are hundreds of reasons why a short sale may not close. There are far to many variables to list, but one of the biggest qualifiers for me when assessing whether or not we will work with a homeowner is their motivation factor.

It's dooms day in case you haven't noticed in Massachusetts and New Hampshire in the housing market. You can't open the Globe, Herald or Union Leader without seeing page after page of auction notices posted. It is overwhelming to say the least. Homeowners facing the loss of their home are struggling not just financially, but most likely physically, mentally, and possibly spiritually. This can take its toll in many different ways.
The problem becomes too much to bare for many homeowners. Many have to turn away. They can't face what's ahead. Unfortunately this lack of acceptance in their situation causes many to "ignore" the notices, the phone calls from the lender, the questions from credit companies, etc. Denial is a serious problem when a homeowner is facing the loss of their home.

There are cases when we cannot do our job because a homeowner becomes "unresponsive" - That will hinder not only our success in negotiating, but affect the sale of the property for the homeowner.
I have a strict rule that when I make an appointment to meet with a homeowner, that I don't travel to that house until I know that all of my paperwork is signed. That's one of the biggest indicators of motivation for me. If I have to chase a homeowner for paperwork, then it's likely they are in some sort of denial. I certainly understand how overwhelming the short sale paperwork is, which is why I like to give them plenty of time to get their packet together, but if on appointment day I call and they haven't filled it out COMPLETELY, I just set another appointment. It's important for me, and for them, to understand that this is just the beginning of the process and there could be times (maybe several) that I'm going to be in need of more paperwork, scheduling of appointments, etc., and that the sooner everything is completed the sooner we can get a response from the lender. A complete packet is a very good indicator of motivation for a homeowner which is one big peice of the short sale puzzle
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Maryann Little, Preforeclosure acquisition
http://rapidpropertyrelief.com
http://massachusettsshortsales.net
http://shortsalemitigation.net
http://twitter.com/rapidshortsales

Knowing your tax ramifications from Massachusetts or New Hampshire Short Sales

I had the excellent pleasure today to interview Joe Craft, CPA about the tax liabilities for short sales. Joe is an amazing accountant and our personal accountant at Short Sale Mitigation, LLC and Rapid Property Relief, LLC. We felt it was important for homeowners to get this timely and valuable information as many 1099C’s are being generated this month and will affect certain homeowner’s tax returns.

Short sales are risky and scary for most homeowners, but being armed with valuable information regarding all possible outcomes usually sets homeowner’s minds at ease. The alternative is far more devastating than the risk of a short sale, but knowing ahead of time what you face assists homeowners and agents in making the best decisions possible.

You can download the 20 minute interview here. (PLEASE BE PATIENT AS IT’S ABOUT 8 MEGABYTES)

Short Sale Mitgation - If we buy a home for $125,000 in which the homeowner owes $200,000 and the lender says we “forgive the debt” what happens tax wise?
Joe Craft, CPA – Lender issues 1099C to borrower and to IRS to report the cancelation of the $75,000 debt and report that as income to the borrower.

Short Sale Mitigation- So this now becomes a tax liability? Depending on the situation?
Joe Craft, CPA – Potentially. There are a number of provisions that provide for that income NOT being taxable. If none of the provisions apply then it is taxable. Usually more common provisions cover it. Usually owner occupied homes or principal residences fall under the Qualified Principal Residence Exclusion which provides that any amount use to acquire the property, or any debt used to improve the property, then that debt is non-taxable. That law is in effect until 2012.

Short Sale Mitigation– Only purchase money applies? How about an 80/20 purchase or if the homeowner pulls out home equity?
Joe Craft, CPA – Let’s start with 80/20 – That can be traced to the purchase so that would not be taxable, but on the other hand if a homeowner borrowed against equity to satisfy other debt, i.e., credit card, that would NOT qualify. It must be to purchase or improve the property to qualify.

Short Sale Mitgation– So if the home equity was used to pay other debt, such as a car or credit cards, is there any other provision that a homeowner could qualify for so they won’t have to pay taxes on the line?

Joe Craft, CPA – Insolvency provision says the tax payer must be legally insolvent then their cancellation of debt income is non-taxable. So then the question becomes what is the definition of legally insolvent? So you would have to add up the value of the tax payers assets as of the date the debt is canceled or forgiven and then add up the taxpayer’s debts. If the debts exceed of the value of the excess, the debt would be non-taxable. So for example; On the date the debt is cancelled the taxpayer owns assets worth $500,000 and they have liabilities in excess of $650,000 (and this is all debt; car loans student loans, credit card, mortgage) then the first $150,000 of debt cancelation income is NON-TAXABLE.

There are other provisions that would help such as bankruptcy. No debt cancelation income is taxable when a homeowner is in bankruptcy. The first thing you look at is that.

Short Sale Mitigation – What if one spouse claims bankruptcy and the other doesn’t? Is the husband liable for taxes on the forgiven debt.Joe Craft, CPA – if none of the other provisions are applicable, then yes the husband would have to pay on the forgiven debt, but also they file jointly the wife then indirectly becomes liable for that debt as well.

You would want to explore them possibly filing separately.

Short Sale Mitgation– Massachusetts and New Hampshire are recourse states. These exclusions fall under the mortgage debt forgiveness act which is only in effect until 2012. Any thoughts on if it will be extended? Joe Craft, CPA – it’s tough to say. I wouldn’t base my planning around it being extended.

Short Sale Mitigation – What about a second residence? Homeowners immediately think that the forgiven debt is taxable. Is that true?
Joe Craft, CPA – Not always. You have to look at insolvency and other exclusions that may apply. If the residence is connected to a farm, or business, there may be a limited exclusion but those are uncommon. I would always look at insolvency.

Short Sale Mitgation – Is the 1099C generated in January of the following year?

Joe Craft, CPA – Yes and the IRS gets a copy as well.

Short Sale Mitigation – What about form 982?
Joe Craft, CPA – it attaches to the homeowners taxes. When they file their personal income tax, they must complete 982 to take advantage of any of these inclusions.

Short Sale Mitgation– What about a homeowner’s tax bracket?
Joe Craft, CPA – If any portion is taxable it’s taxed at their regular tax bracket.

Short Sale Mitigation – If a homeowner is considering a short sale in New Hampshire or Massachusetts, what is the first step they should consider regarding their taxes.Joe Craft, CPA – they need to see if any of these provisions apply. If they are filing bankruptcy, then they don’t need to go further. Is it my main home? Then I would determine which portion was used for purchase or improvement, and any remaining debt I would ask myself if insolvency would apply. Lastly, I would check if the farm or business provision would apply. They need to get with someone to try to arrive at a good possible scenario again

joecraft@joecraftcpa.com 812-641-0477
www.joecraftcpa.com www.joecraft.com

Maryann Little, Preforeclosure Acquisition and negotiation Short Sale Massachusetts and New Hampshire http://shortsalemitigation.net

http://massachusettsshortsales.net
http://rapidpropertyrelief.com
http://twitter.com/rapidshortsales

 

HIGHEST is not always BEST in Short Sales

There is a HUGE misconception in real estate that the highest offer on a short sale is always the best offer.   That is not always the case.  I say this as I have a unique perspective because our company BUYS and SELLS distressed assets.  I have personally experienced both sides of the coin. 

When it comes to short sales, typically investors will ALWAYS make the lowest offers, but the smartest investors DON’T make LOWBALL offers.  A smart investor knows that many lenders will take a percentage of the BPO price.  Most lenders I’ve worked with will take between 80-90% of what the BPO came in at.  (BPO is Broker Price Opinion which is ordered by the lender.  It could also be an appraiser)  Now this number CAN fluctuate.  I’ve seen lower and higher numbers. 

The numbers in the end have to make sense for the lender and there are MANY variables that affect that, such as PMI, a foreclosure date, how many payments the homeowner is behind, who the investor on the loan is, etc..

Short Sales are a different breed as there is negative equity affecting the seller’s judgment.  With a short sale, sellers most often weigh the value of the offer vs. the quality of the offer.  One of the biggest factors affecting this decision may be “time”.  In a traditional fair market value sale, a seller has all the time in the world to sell or may not even need to sell.  They can wait for the highest offer to be presented, or they could take the home off the market and sell it next year when the market is stronger.  They have TIME to sell.  They are not under pressure from debt collectors, lenders, over leveraged credit cards, death, divorce, etc.  They can make a decision free of influence of hardship. 

A seller considering a short sale with limited time to accept an offer may easily choose a $150,000 cash offer free of contingencies that can close in a short time frame as opposed to a $200,000 offer with no or low down payment, government backed, in which they have a stringent appraisal/inspection process and or have to even sell their primary residence.  Keep in mind MANY lenders look at the same things when weighing the VALUE of an offer.   Many lenders are happy to get a non-performing asset off their books in the quickest way possible.

When I say we’ve experienced both sides of the coin, we have.  http://shortsalemitigation.net recently assisted us in negotiating a 4 unit property we were planning on selling to another group of investors.  We had two investment companies come forward to produce purchase contracts.  There was a $25,000 difference between contracts and we accepted the lower, because they could close quicker and offered cash.  Now it’s not that we didn’t want to NET more on the transaction, but the lower offer  was the  most QUALIFIED. 

It’s inaccurate to say highest is best.  No two offer s are alike and no two properties are alike.  Lenders do not think alike.  Some lenders approach waivers of deficiency with ease, and some lenders are much harder to convince and want to net more, then there are some that truly REVIEW a homeowner’s hardship and base their waiver on the homeowners current means.   Again there are several variables that affect short sale approvals so we can’t look at every short sale the same way and ignorantly assume that HIGHEST is always BEST in a short sale situation. 

Maryann Little Preforeclosure Acquisition and Negotiation

http://massachusettsshortsales.net/
http://shortsalemitigation.net/
http://rapidpropertyrelief.com/
http://twitter.com/rapidshortsales