July 27, 2010 -
PRLog -- In response to the Orlando Sentinel article from July 5, 2010 entitled "SHORT SALES are not immune to RISK", every transaction these days involves some sort of risk. Using your ATM card at your local grocer or ordering products on-line exposes your banking and credit card accounts to unwanted risks. Investing in "safe" vehicles such as CD's, muni's and mutual funds exposes an investor to the risk of market fluctuations. The truth is that there are no guarantees in this world. A short sale is the sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold. In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor/borrower. This negotiation is all done through communication with a bank's loss mitiation department. The homeowner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. For example: $200000 amount is owed and the house sells for $150000- the short sale amount is $150000 and the difference is $50000. THe $50000 could result in a deficiency judgement against the homeowner unless it is waived and the short sale is accepted as full satisfaction. Short sales are just one alternative to assist homeowners that are experiencing adverse situations. As a short sale specialist, most of the families we encounter have experienced a dramatic change, placing them in jeopardy of losing their homes. Increases in property taxes, higher homeowner's insurance, decreasing property values and adjustable rate mortgages changing to higher payments have ushered in a tidal wave of properties facing foreclosure. These factors along with divorce, loss of employment, loss of a business, loss of a spouse or retirement have contributed to the number of preforeclosed and foreclosed properties in Orange County exceeding 20,000. The short sale process has been in existence for years, but has become widely noticed because of the number of these transactions in recent years. The article states "of all the existing home sales reported by Realtors in the core Orlando market in May, 23 percent were short sales". The article did not provide readers with information regarding how long these homes were on the market. Nor did the article state the average duration of the short sale negotiations with the lenders (usually takes 90-180 days to communicate with bank mitigators and finalize an acceptable offer). The article did point out the differences between Orlando's median home sale price for normal home sale price, bank-owned sales and short sales ($160000, $81800 and $110000 respectively)
. The remainder of the article focused on the "risk" of having a deficiency judgement filed against the homeowners after the short sale process is completed. The article pointed out "banks usually have four years in which to file a deficiency judgement". While this is true, it should be the goal of any short sale or foreclosure specialist to make sure the homeowners do not have any financial obligations at the conclusion of this process. It is imperative that the homeowner is informed of the difference between a release and a satisfaction of the loan. A Lender may offer to “release” its security interest against the property in exchange for less than the total amount of the note. A release will allow the property to be sold without paying off the obligations of the note. However, the note is not satisfied. This successful Short Sale will allow the property to be sold thus avoiding a foreclosure on your credit record. Unfortunately, the remaining debt on the property (also called a deficiency) still exists. You are still liable for the note. In other words, you still owe the money. It is not likely the Lender will pursue the deficiency unless you have other significant assets. A Lender may agree to accept less than what is owed as complete and total satisfaction of the note and releases its lien against the property (it is something we always ask for, and frequently receive). Your note and obligation to the Lender are satisfied for less than you owe. When the property is sold, the debt is paid off completely. But, you may have some tax consequences as the Lender may issue you a 1099 form, saying in effect that you are liable for taxes on between the price the property is purchase for and what the balance on your loan was. However, IRS rules say that if your liabilities outweigh your assets, you aren’t liable for the amount owed. Overall, the "Short Sales" article was very informative and should be used as a springboard for those reading it to go out investigate further. One of the easiest and most overlooked steps for homeowners facing difficulties that was not mentioned in the article is to simply contact your bank. Their representatives are very cooperative and will inform you of how their institutions deal with short sales, foreclosures, etc.
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Notaes, LLC is an affordable housing provider offering a free service to families and business owners in the Central Florida area. We are a multi-service company who has the ability to BUY, REPAIR, MARKET, and SELL HOMES.
