Stop treating a Short Sale with less Respect than a TRADITIONAL SALE! Massachusetts New Hampshire

Ok, I’ll admit. I LOVE short sales. LOVE LOVE LOVE THEM. I know I’m in a vast minority. Not everyone loves the challenge, nor can rise to the occasion. I TRULY love short sales in Massachusetts and while most people give the eye roll when I say we are an attorney state, I think most of the time it works to our advantage. I mean in New Hampshire you sign a purchase contract FIRST and THEN iron out details, but in Massachusetts you can sign an OFFER first which stipulates the DETAILS and THEN sign your purchase contract. It’s a beautiful thing.
The problem I run into is some of the agents I’ve spoken to seem to fall over backwards when I tell that inspections should be done within 5-7 days of signing the purchase contract. It’s as if BECAUSE it’s a short sale, it’s treated “differently” than a traditional sale. NOOOOoooooooo. This is the ABSOLUTE WRONG premise.

First, keep in mind we are hired by the sellers, so my job is to protect them. Most of the time the selling agent has referred us to the homeowner, and we’ve worked out many of the details of the transaction long before the first offer comes in on the property. I LOVE Realtors who “get it” – Realtors who list a lot of short sales “get it”, but there are some agencies that teach short sales…well…backwards.
Last week I got a call from an Andover, Massachusetts real estate agent, who was interested in referring us to her homeowners. She didn’t like short sale and then when I explained that we make sure inspections are done up front, she seemed to think buyers would never go for it. First, give buyers some credit. If they like the home enough, they will usually work within the parameters the seller set for the sale, but more importantly you CAN’T wait for the short sale approval and THEN get the home inspected or you could likely jeapordize the sale. Here’s why. Let’s say we negotiate a sale, and God forbid it takes 5 months. This could be sale that has gone back and forth with counters, multiple BPO’s, appraisals, etc., and then when the waters part, we get that nice approval, full deficiency release and then read we have 3 weeks to close. Well, let’s say, the buyer is FHA, the inspection process is pretty grueling and can take up to two weeks, which leaves you ONE week for it to get to underwriting and pass the many OTHER requirements the buyer’s lender set forth. It won’t fly. What if the SELLING lender is nasty and says, “Listen, we’ve given you FIVE months to get your financing, inspections etc., in order and all you are going to get is this three weeks to close,” then what? Ok, upon inspection you find a faulty heating system, or mold, or a Title V that won’t pass, you may have a SLIM chance to go back to the seller’s lender and ask for a reduction or change terms of the approval. WHY WOULD YOU WASTE YOUR TIME? WHY WOULD YOU WASTE THE SELLERS TIME? WHY WOULD YOU WASTE THE SELLING LENDER’S TIME OR YOUR AGENTS TIME? GET YOUR INSPECTION DONE UP FRONT BEFORE the purchase contract is signed and that way if there is a significant problem you can adjust your price before you waste anyone’s time.
Get your offer solid, and in order if you are serious about the property. The agent I spoke with said she works with buyer’s that go around making multiple offers on properties. Other than an investor who is looking to buy multiple properties, that doesn’t fly. If you are making multiple offers on properties, then you are HARDLY committed to any ONE property. Get your inspection in order, get your financing in order and a commitment within 45 days and you’ll have a MUCH higher success rate of getting your offer accepted. BUYERS SHOULD HAVE THEIR INSPECTIONS DONE LONG BEFORE SHORT SALE APPROVAL SO THERE ARE NO SURPRISES. You don’t want ANY hold ups at closing. Once the approval is issued, you need to get to your title agent and get closing scheduled ASAP, NOT get your inspection done..NOT get your financing in order then.
A short sale is the same as a regular sale, only the lender approves the sales terms. Don’t treat it with less respect.

Maryann Little, VP Short Sale Mitigation (negotiations)
Massachusetts, New Hampshire and soon to be Maine
http://shortsalemitigation.netFollow me on TWITTERhttp://twitter.com/rapidshortsales
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NO – YOU control the list price – Massachusetts Short Sales

We’ve had a lot of new homeowners call us lately for assistance with short sales.  We assign these listings to the more experienced agents we’ve worked with.  We’ve worked with agents from Keller Williams, Remax, Century 21, Weichart, and many others. On occasion we have to work with a new agent.  We work with the new agents if they have questions or want to know about the process.  This past week I had two separate agents ask me the same question.  “How do I know what to set the list price at?  How can I tell what the bank wants to NET?”
This is where their inexperience shows a bit.  It’s ok, because we all had to start somewhere.
On each short sale we mitigate, we have the agents do a thorough market valuation.  They provide comps and we ask them to provide a high and low price, based on similar solds.  We usually ask them to take a look at the local market for the amount of REO’s and short sales.  MOST times, when the lender does their valuation, they cannot look at sold comps for REO’s and Short Sales, however, if you want a TRUE comp you HAVE to look at similar properties in that category.  There are some properties that are extremely difficult to comp, but we all work together to get an idea of what the property will sell at.
The key to remember is WE or YOU the listing agent have control over the list price…NOT the bank (unless you are doing a HAFA short sale) – It’s important that YOU show the bank what the property is worth and not the other way around.  There are MANY times the lender will send out someone to come up with a value for the property and their “opinion” does NOT reflect the local market or condition of the property and then you have an uphill battle of trying to prove why your offer actually supports recent sold comps.  Take control first.  You need to set the list price.  Once you can show market history on the property, it shouldn’t be hard to prove to the bank why your valuation of the property is the accurate one.
http://shortsalemitigation.net/ New Hampshire and Massachusetts Short Sale Negotiation
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Maryann Little, Managing Member
Short Sale Mitigation, LLC

Source: Massachusetts Short Sale (http://s.tt/13Cdz)

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

How to Write A Successful Short Sale Hardship Letter to Your Lender.

Short sales are a mishmash of paperwork, time, anxiety and questions, and one of the biggest questions I receive from Massachusetts and New Hampshire homeowners wanting to short sale their home is, “What do I write in my hardship letter to the lender?” This is a simple question to answer, but the details of most hardships are never simple for a homeowner facing foreclosure.

Assuming you truly have a hardship and are just not “walking away” from your home, what I tell homeowners to write is this:  Explain to your lender what circumstances from the time you took out your loan until now,  led you to not be able to afford your house and payments.

Therein lies your answer to your hardship.
For most homeowners I’ve worked with they seem to be facing job loss, or reduction in pay, medical reasons, death or divorce/separation, or even a combination of things.  There could be many reasons for their hardship, which really should be explained in detail and if possible kept to one page.  You are dealing with a bank negotiator with a hundred or so files on their desk.  Keep your letter to one page max.  If you have to write two pages, please cut to the chase for them.

I’ve had great success if a homeowner hand writes their hardship letter providing it’s legible and neat for the negotiator to read.  It doesn’t mean you can’t type it. You should always let your lender know you’ve tried to make the payments and wanted to keep your home, but cannot afford to at this time.  You should also let your lender know that you DO wish to sell.  I personally prefer to work with homeowners who have already tried a loan modification.  It’s difficult as a buyer to try to start the short sale process and then have a homeowner decide to do a loan modification.  Explain to the lender you tried a loan modification, borrowed money, took an extra job, took money out of an IRA or savings and exhausted your options to pay your mortgage.  I’m not advocating taking money out of savings/IRA, or borrowing from friends or family, but if you HAVE done that, you really should let the lender know.

An example may be:
To Whom It May Concern:
I am writing this letter to explain the terrible circumstances that have caused us to become delinquent on our mortgage payments to you. We have tried everything to make ends meet but unfortunately we have fallen short. The main reason we have not been able to keep up with our home payments is (insert reason here and don’t be too lengthy and long winded) OR The main reason we cannot currently afford our home is (INSERT HARDSHIP EXPLANATION) Our income is not enough or cannot sustain this home and we had fallen further and further behind. Now, it’s to the point where we cannot afford to pay what is owed to (lender).

At this time we have exhausted all of our income and resources so we ask your permission to allow us the sale of our property to start over. We just wish to sell and begin the new chapter of our lives. Sincerely and Respectfully, Joe and Ann Homeowner

Make sure you sign and date the letter.  If there is anything else you need to include, make sure it’s on a separate letter.  For example, last week I met with a homeowner that had no paystubs to include in his short sale package.  We wrote up a separate two sentence page addressing why we could not provide those paystubs.  DO NOT include that information in your hardship letter.  It will likely get missed by your negotiator.
Key points to remember are:
1) Keep it short and to the point
2) DEFINITELY hand write if you have neat enough writing
3) Sign AND DATE the letter
4) Explain why from point A when you took out the loan FULLY to point Z why you cannot now afford your home
5) Make sure any other pertinent information about your package is put in a separate letter.
For questions, feel free to contact me!

Maryann Little
Preforeclosure Acquisition and Negotiation
Massachusetts and New Hampshire Short Sales
http://rapidpropertyrelief.com
http://massachusettsshortsales.net/
http://twitter.com/rapidshortsales
978-376-3718