Second Chance for Foreclosed Home Owners

The Federal Housing Administration is giving some former home owners another shot at home ownership. The FHA sent a letter to mortgage lenders stating that it would offer mortgage insurance to borrowers who once filed for bankruptcy, or who lost their homes through foreclosure or short sale during the recession. 

Still, potential borrowers must show they can meet all other FHA requirements and that they are no longer financially constrained. Borrowers also will have to undergo housing counseling and FHA is requiring lenders to verify that at least a year has passed since the foreclosure or “economic event" that caused the foreclosure or bankruptcy.

"FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage," according to the letter FHA sent to lenders. 

Source: “FHA offers mortgage backing to the once bankrupt,” HousingWire (Aug. 16, 2013)

REALTORS Working Hard For Everyday People

·         Mortgage cancellation relief is extended for another year. Households that have mortgage debt forgiven by a lender in 2013 as a result of a modification, short sale, or foreclosure will not have to pay tax on the amount forgiven.

·         Mortgage insurance premiums ­remain deductible. Tax filers making less than $110,000 who pay for mortgage insurance can deduct the cost of their premiums on their 2012 and 2013 tax returns.

·         15-year straight-line cost recovery on leasehold improvements is extended. For qualified leasehold improvements on commercial properties, 15-year depreciation is extended through 2013 and made retroactive to cover 2012.

·         Energy efficiency tax credit remains in force. The 10 percent tax credit, up to $500, for home owners who make energy efficiency improvements to an existing home is extended through 2013 and made retroactive to cover 2012.

CONGRESS EXTENDS FORGIVENESS OF DEBT TAX ONE MORE YEAR!!

The fiscal cliff legislation is 157 pages long.  Section 202 that addresses an issue important to those of us involved in assisting distressed homeowners: income tax on debt forgiven.

At this juncture the legislation awaits the President’s signature, but we are confident that the law that precludes certain income taxes from those homeowners that sell their property “short” has been EXTENDED ONE MORE YEAR until December 31, 2013. In short, most homeowners will not have any tax to pay when they do a short sale. 

This could be a sigh of relief as this is really important to those sellers involved in short sales who will experience Debt Forgiveness.

If you have any questions of this law, please feel free to call me.

Waiting Period Matrix After Foreclosure, Bankruptcy or Short Sale

How Long Until You Can Buy Again?

What Is A Short Sale?

A short sale is when a seller/owner has a larger underlying debt service against the property and they are not able to clear title. And if they do not have the cash in savings or checking to bring the title or loan payoff in full current out of their pocket.   So the seller asks their lender for forgiveness of a portion of the loan that will be "deficient" and thus the lender takes a "short" payoff.

The seller gets to negotiate the terms of the offer with a buyer, but has to ask for approval of the terms with their lender, since the lender will have to accept the "net" sale proceeds as a payoff. 

An example would be as follows on a $200,000 listing

Seller's typical closing costs on the selling side only are roughly 10%....excise tax, title insurance, escrow fee, brokerage/commission, recording fees, etc.

Sale price  $200,000.
Seller side closing costs are $20,000
Loan Payoff $240,000
Net proceeds or loss <$60,000>

Seller either has to have $60,000 of their own money, or have their lender accept a payoff by less than $60,000 as a payoff in full.

Once mutual acceptance is received between buyer and seller the purchase and sale agreement is submitted to the seller's lender for approval and blessing on the terms.  This can take up to 30-180 days for approval.   The lender will look at the "value" of the home/offer to see if it is fair or undervalued before approving the agreed purchase price.  The lender will also evaluate their "borrower"/seller for their financial "hardship" and inability to repay the loan in full, or whether the seller has the capability or resources to repay.   Then they issue the terms of approval of the short sale. 

Sometimes the lender for the seller will accept.  Sometimes they reject.  Sometimes they counter to the buyer and change the terms of the offer.

As a buyer, there is no negative impact, other than the frustration of the waiting game and not being able to initially plan on a closing date and/or a possession date.

The impact to the seller is that it will effect their credit report and their ability to borrow money for a period of 3-7 years. 

Short sales have an array of complexities.  Whether you're the seller of a short sale or the buyer, having a knowledgeable agent to best represent your interest is key.  Contact me with your questions: 360-870-5191 or AnyaMyer@remax.net