The advantages of a short sale

Real estate: A short sale is better than a foreclosure in many ways — for everyone involved

By Jim Walker Escape Editor

http://www.the-signal.com/section/43/article/61000/

So, you’ve got to go. Maybe your employer is transferring you out of town, or maybe you can’t make the monthly payments on your home and you are in default or heading toward it rapidly.

And, what is worse, you owe far more on your home loan than your home is worth.

The handwriting is on the wall. You are beginning to realize you won’t be in your home much longer, one way or another.

So, pull your head out of the sand and make some smart choices while you can. Be proactive. Don’t let your home go to foreclosure. Have a short sale, instead.

And, while you are at it, why not get a professional short sale team behind you?

Mike Lebecki is a Realtor with Re/Max of Santa Clarita, and he understands the tough situations many homeowners are in these days.

In fact he offered some general statistics to illustrate it: “Currently, in the Santa Clarita Valley, only about 30 percent of the home sales are standard sales,” he said. “Forty to 50 percent are short sales and 20 to 25 percent are REOs (real estate owned) or foreclosures.”

And, when homeowners find themselves facing foreclosures or underwater so far they will have to get the debt off their backs, Lebecki usually recommends a short sale, as there are so many advantages to going that route.

“And when I have a short sale, I go to an authority,” he said. “I turn to an expert.”

That expert is attorney David Rendall of Group One Legal, who is also the In-House Counsel for Re/Max of Santa Clarita.

“You’re not paying for the service, but you’re getting a team of support,” Lebecki said.

Using a team allows Realtors to concentrate on selling the home, while Group One educates the homeowner about the process — what their rights and obligations are — which allows them to move forward confidently, Rendall said.

Why a short sale?

“A short sale is a viable alternative to avoid foreclosure, one that can benefit all involved parties,” Rendall said. “A foreclosure typically stays on your record for approximately seven years.” And he said a short sale is better for the homeowner, surrounding neighborhood, homeowner’s associations, and also the beneficiary/lender.

“It can be an effective and pro-active outcome, in an otherwise very difficult economic and emotional time,” he said.

But he noted that a short sale is not a legal requirement of the lender. Ultimately, it takes all involved parties to agree to the terms of the short sale, and although there is government pressure and available incentives when servicers/lenders do participate in short sales, lenders are not legally required to do so. It is really a choice of remedy to avoid less effective remedies or outcomes.

Homeowner help

The two most important benefits of a short sale to a homeowner who is underwater can be described as debt forgiveness/deficiency waiver and/or potential tax forgiveness.

No deficiencies: Rendall said that, in most cases, through a short sale, the homeowner cannot be pursued for deficiencies. The leftover debt is, basically, forgiven.

Tax exemption: Currently, the homeowner is also potentially exempt from taxes on that loan forgiveness.

“People in a short sale don’t have money to pay a tax bill,” Rendall said. “And with a short sale they oftentimes qualify for particular tax exemptions under the current Mortgage Debt Relief Act of 2007.”

But he noted there are some requirements and, “There are some situations where you could be taxed,” he said, which leads to the next benefit of a short sale, which is a better sale price.

Better sale price: It is advantageous to everyone, including the homeowner, that the sale price of the home be as high as possible. And Rendall said that short sales typically command higher prices than foreclosures. Thus, there is less cancellation of debt to the homeowner and a smaller amount that could be taxed in certain situations.

Fees paid: The homeowner does not have to come up with money out of pocket for fees during a short sale. The bank allocates funds for those fees.

Painful process: A foreclosure is usually a long, chaotic, embarrassing and emotionally draining process, with the exact end unclear until the last moment.

“The Eviction and Unlawful Detainer is not an enjoyable process for anyone involved, and the eventual Sheriff Lock Out is something most people should avoid at all costs,” Rendall said.

By contrast, Rendall said short sales are usually much faster than foreclosures and, with a short sale, it “feels” like a regular sale and appears like one to your neighbors. There are typically fewer collection calls and fewer notices of foreclosure, and sellers avoid the actual foreclosure and eviction process. And you get a sale date you can plan for, making arrangements for your move and your next living arrangements.

Financial record: Rendall said a foreclosure remains on your financial record longer than a short sale. With a foreclosure, you might not be able to get back in the housing market for five to seven years.

“Plus, with a foreclosure, there can be substantial other credit hits,” he said. And there is the potential for “junior liens” to have rights against you afterward, in certain situations.

Rendall explained that, after a short sale, you might be able to get back in the housing market in two to three years. Because your record shows, “The account was settled for less than full amount.”

As far as your credit score, Rendall said a foreclosure might cost you up to 300 points, while a short sale might only lower your score 100 to 200 points, depending on time frame of concluding the short sale, along with the scope of delinquencies.

All of this helps when you need to finance other things in your life, such as the purchase of a car, and even when applying to rent property, Lebecki said.

“By having a short sale, instead of a foreclosure, there is an assumption that you have been more responsible and practical,” Lebecki said.

Local advantages

Unlike foreclosures, which often leave homes vacant, you stay in your home, taking care of it, during a short sale. No squatters will move in, no teenagers will turn the home into a party hangout, and there won’t be any vandalizing or theft.

This is great for your neighborhood, building stability and helping property values stay higher. And, since there is no substantial homeowners association deficiency through a short sale, it is better for your HOA, as well.

Neighborly help

Rendall said a short sale is better than a foreclosure for the bank, as well. Foreclosures can cost the bank many thousands of dollars, and often there is damage and theft from homes left vacant, which lowers the sale value. Through a short sale, the bank doesn’t have to worry about taking on the property (REO) if a foreclosure sale doesn’t go through. Additionally, because a short sale usually gets a higher price than a foreclosure sale, the bank loses less money, and avoids the cost and time frames of the foreclosure process. And a short sale helps the bank comply with government programs to assist the housing market.

Now is the time

Rendall noted that the exemption on taxes for debt forgiveness in a short sale is only guaranteed through Dec. 31, 2012. “I wouldn’t be surprised if some of those protections will be extended,” he said, but anything could happen. “We don’t know where the legislation is going to go.”

That means, if you are considering a short sale, you might want to get it done in 2012, just to be on the safe side.

 You don’t want a tax burden of thousands of dollars hanging over your head, just when you are finally getting your life in order.

Short sale advantages over foreclosure
 Easier, faster, much less chaotic and embarrassing
 Better sale price
 Better for your financial record
 Better for your neighborhood, HOA and bank

You can contact Mike Lebecki at michael.lebecki@gmail.com or call (661) 702-4555. You can contact David Rendall at davidrendall@grouponelegal.com or call (661) 702-4651.