Last week on Boise Real Estate Radio, we had Mark Perison, Attorney at Law, in studio. Mark specializes in Idaho foreclosures, and even teaches a class on this subject at the Idaho Real Estate School.
In speaking with him, I was alarmed to hear some of the horror stories people are experiencing when they attempt to short sale their home. Being a real estate agent who works with homeowners who may need to short their home, this was extremely valuable information to help me do my job better and not make an already stressful situation more stressful for my clients. Here is quick recap of the discussion. (Keep in mind this is my interpretation of what the attorney told me, and should not be used or considered legal advice. You should contact Mark Perison, at: 208.331.1200).
A lot of my questions for Mr Perison were about deficiency judgments. A deficiency judgment is when your lender sues you for the amount of money they lost during a short sale or foreclosure on a property. What homeowners and real estate agents don’t often realize is, just because your lender allows you to do a short sale, it doesn’t mean they will agree to waive their ability to sue you some time in the future. Obviously nobody wants to be sued, so it is important you negotiate to remove or reduce the possibility for lenders to do so. Mark said that if you fail to get your lender to provide a written statement agreeing to waive their right to sue for the deficiency, then the lenders have up to five years to come back and sue you if you short sale your home. Yikes! Therefore, it is vital that a homeowner goes into a short sale closing with a written statement from their lender removing this threat. And remember, even if you get it in writing, make sure you understand it completely so there are NO surprises down the road.
If you don’t get your lender to completely remove their ability to seek a deficiency, then Mark said it is better NOT to do the short sale. The reason being that, in the state of Idaho, a lender must sue within 90 days of foreclosing on a home—a difficult timeframe to work within. On a short sale, however, they have up to five years to sue if they don’t waive the deficiency. That gives them plenty of time to put their case together and come after the former homeowner. While the lender may ask for a payment at closing from the seller in order to waive the deficiency, the good news is that most lenders are agreeing to waive it. But don’t expect it to it just happen, or to happen without other complications.
Another thing to consider when contemplating a short sale is second liens. If someone has a second loan on the property, it changes the rules. Second lien holders have an entirely different statue of limitations on how long they have to sue you after the sale of the home. Doing a short sale rather than a foreclosure is highly recommend if you can get your first and second lien holders to agree to a payoff amount. It is difficult, but possible, and--if done correctly--you remove all threats of getting sued.
If a homeowner is successful in doing a short sale on their home where the first and second lien holders waive their right to come after the unpaid debt, the next hurdle to jump is the 1099 tax form you will receive. This 1099 shows how much the lender lost due to the short sale of the property. If the amount, for example, is $100,000, then in the world of taxes you have effectively had a capital gain of $100k added to your yearly income. This can create a huge tax liability that a homeowner who just lost their home didn’t expect. Be sure to speak with a CPA to understand the possible implications of this tax liability before you short sale your property.
There is IRS protection in place if you short sale your home before the end of 2012. This protection essentially voids the income from the 1099 income reported by your lender. But it only applies to your primary residence and has other limitations, so read up.
The big take away I got from meeting with a foreclosure attorney was that, before someone commits to a short sale, foreclosure, loan modification, etc., they need to be sure they fully understand all their liabilities and rights. Speaking with a real estate attorney can help you get answers to your questions and keep you out of any more hot water.
Legal Insights into Short Sales and Foreclosures
Last week on Boise Real Estate Radio, we had Mark Perison, Attorney at Law, in studio. Mark specializes in Idaho foreclosures, and even teaches a class on this subject at the Idaho Real Estate School.
In speaking with him, I was alarmed to hear some of the horror stories people are experiencing when they attempt to short sale their home. Being a real estate agent who works with homeowners who may need to short their home, this was extremely valuable information to help me do my job better and not make an already stressful situation more stressful for my clients. Here is quick recap of the discussion. (Keep in mind this is my interpretation of what the attorney told me, and should not be used or considered legal advice. You should contact Mark Perison, at: 208.331.1200).
A lot of my questions for Mr Perison were about deficiency judgments. A deficiency judgment is when your lender sues you for the amount of money they lost during a short sale or foreclosure on a property. What homeowners and real estate agents don’t often realize is, just because your lender allows you to do a short sale, it doesn’t mean they will agree to waive their ability to sue you some time in the future. Obviously nobody wants to be sued, so it is important you negotiate to remove or reduce the possibility for lenders to do so. Mark said that if you fail to get your lender to provide a written statement agreeing to waive their right to sue for the deficiency, then the lenders have up to five years to come back and sue you if you short sale your home. Yikes! Therefore, it is vital that a homeowner goes into a short sale closing with a written statement from their lender removing this threat. And remember, even if you get it in writing, make sure you understand it completely so there are NO surprises down the road.
If you don’t get your lender to completely remove their ability to seek a deficiency, then Mark said it is better NOT to do the short sale. The reason being that, in the state of Idaho, a lender must sue within 90 days of foreclosing on a home—a difficult timeframe to work within. On a short sale, however, they have up to five years to sue if they don’t waive the deficiency. That gives them plenty of time to put their case together and come after the former homeowner. While the lender may ask for a payment at closing from the seller in order to waive the deficiency, the good news is that most lenders are agreeing to waive it. But don’t expect it to it just happen, or to happen without other complications.
Another thing to consider when contemplating a short sale is second liens. If someone has a second loan on the property, it changes the rules. Second lien holders have an entirely different statue of limitations on how long they have to sue you after the sale of the home. Doing a short sale rather than a foreclosure is highly recommend if you can get your first and second lien holders to agree to a payoff amount. It is difficult, but possible, and--if done correctly--you remove all threats of getting sued.
If a homeowner is successful in doing a short sale on their home where the first and second lien holders waive their right to come after the unpaid debt, the next hurdle to jump is the 1099 tax form you will receive. This 1099 shows how much the lender lost due to the short sale of the property. If the amount, for example, is $100,000, then in the world of taxes you have effectively had a capital gain of $100k added to your yearly income. This can create a huge tax liability that a homeowner who just lost their home didn’t expect. Be sure to speak with a CPA to understand the possible implications of this tax liability before you short sale your property.
There is IRS protection in place if you short sale your home before the end of 2012. This protection essentially voids the income from the 1099 income reported by your lender. But it only applies to your primary residence and has other limitations, so read up.
The big take away I got from meeting with a foreclosure attorney was that, before someone commits to a short sale, foreclosure, loan modification, etc., they need to be sure they fully understand all their liabilities and rights. Speaking with a real estate attorney can help you get answers to your questions and keep you out of any more hot water.
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