Prompt Decision for Qualification for Short Sale Act of 2011

Here's an article from the National Association of Realtors website which brings a little hope to the heart of Realtors and troubled homeowners alike. Caution - talk to an attorney and a CPA before deciding which path to take if you cannot make your mortage payments.

Washington, April 13, 2011

A new bill to improve the process for approving short sales may soon bring relief to distressed home owners who are unable to keep their homes and hope to avoid foreclosure. The bill, introduced in the U.S. House yesterday and strongly supported by the National Association of Realtors®, would impose a deadline of 45 days on lenders to respond to short sale requests.


The legislation, the “Prompt Decision for Qualification for Short Sale Act of 2011,” was offered in Congress by U.S. Reps. Tom Rooney (R-Fla.) and Robert Andrews (D-N.J.).


“The current short sale process can be time-consuming and inefficient, and many would-be buyers end up walking away from a sale that could have saved a home owner from foreclosure,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I.


“Realtors® and consumers continue to raise issues about delays in the short sale process, because lenders are unable to decide whether to approve a short sale. After many months of delays, and with no response from lenders, potential buyers are losing patience and cancelling their contracts, often resulting in the property entering foreclosure. A short sale minimizes the negative impact on sellers and generally costs the lender less than a foreclosure,” said Phipps.


NAR has been actively pushing the lending industry to improve the process for approving short sales, which represent about 13 percent of recent home sales according to NAR data. Phipps praised Reps. Rooney and Andrews for their efforts on the bill and urged Congress to pass the bill quickly.


“As the leading advocate for home ownership and housing issues, Realtors® want to help more home owners avoid foreclosure by facilitating a short sale when a family is absolutely unable to keep their home; however, that can only happen if lenders and servicers approve short sale offers in a reasonable amount of time,” said Phipps. “Streamlining short sales transactions will reduce the amount of time it takes to sell the property, improve the likelihood that the transaction will close and reduce the overall number of foreclosures. This benefits sellers, lenders, buyers and the entire community.”


The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

Understanding the tax treatment of cancelled mortgage debt

I read an excellent article today on the tax treatment of cancelled mortgage debt by an excellent Real Estate writer, Kenneth R. Harney.

In a nutshell, if debt is forgiven due to a short sale, foreclosure or loan modification, the lender sends the borrower a 1099C at the end of the year. If the debt was forgiven on your principal residence and you have only used the funds to purchase, build or improve your home, it's probably not taxable income. It would be taxable if you refinanced and pulled out money to buy a Tesla. Check out IRS Form 982 and Publication 4681 for more technical details.

The link to this great article is: http://articles.latimes.com/2011/mar/13/business/la-fi-harney-20110313

Enjoy! I have a great real estate attorney and C.P.A. to refer if you need more help. Just let me know.

Judy Clarke
The Clarke Team
Bay Area Real Estate
650-489-5399
sold@clarketeam.com

Why don't banks want to modify mortgages with principal reductions?

Basically, lenders get to write-off loans from their balance sheet to their income statement when they allow a short sale or foreclosure. This results in a loss which can be offset against other income, resulting in a tax savings for the lender.

When lenders agree to reduce principal, they still have to carry the loan on their balance sheet at the original value, plus get a smaller payment. The teenie bitty incentive payment (around $1,000) to allow modification is a small drop in the bucket. Thus, there is absolutely no tax incentive to allow principal reductions.

When lenders agree to reduce the interest rate, they typically add any reduction back to principal (remember negative amortization?) and can actuall INCREASE the asset shown on the balance sheet.

Unless the tax treatment is equalized, don't look for voluntary principal reductions.

Foreclosure Alternatives Program (FAP) Announced by Obama Administration

We wanted to share some interesting news on the new Foreclosure Alternatives Program (FAP) with you:

May 14, 2009 from the CALIFORNIA ASSOCIATION OF REALTORS®

Good news from Washington, D.C., today. The Obama administration announced new details under its Foreclosure Alternatives Program (FAP) enabling servicers and borrowers to pursue short sales and deeds-in-lieu (DIL) of foreclosure in cases where the borrower is generally eligible for a Making Home Affordable modification but does not qualify or is unable to successfully complete the three month trial period. The program, effective through 2012, requires that prior to proceeding with a foreclosure, servicers must determine if a short sale is appropriate.

We’re gratified that the administration has recognized the need to streamline the short sale and deeds-in-lieu processes, and has provided viable options to homeowners who have fallen behind on their mortgages but owe more than their homes would sell for in today’s challenging market. We also appreciate the efforts of our colleagues at NAR for keeping this issue front and center in our nation’s capital.

Incentives in the FAP program include $1,000 for servicers for successful completion of a short sale or deed-in-lieu of foreclosure; $1,500 for borrowers/homeowners to help with relocation expenses; and up to $1,000 toward the cost of paying junior lien holders to release their liens ($1 from the government for every $2 paid by the investors to the second lien holders).

The FAP includes streamlined and standardized documents, including a Short Sale Agreement and an Offer Acceptance Letter to minimize complexity and increase use of the short sale option. Servicers will independently establish both property value and minimum acceptable net return, in accordance with investor requirements, based on an appraisal or one or more broker price opinions, issued no more than 120 days before the date of the short sale agreement.

In the Short Sale Agreement, servicers must give borrowers/homeowners at least 90 days to market and sell the property, or up to one year, depending on market conditions. The property also must be listed with a licensed real estate professional with experience in the neighborhood, and no foreclosure may take place during the marketing period, of at least 90 days, as specified in the Short Sale Agreement.

The Short Sale Agreement also must specify the reasonable and customary real estate commissions and costs that may be deducted from the sales price. The servicer must agree not to negotiate a lower commission after an offer has been received. Servicers may not charge fees to borrowers/homeowners for participating in the program. Servicers have the option to require the borrower/homeowner to agree to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time allowed in the Short Sale Agreement, plus any extensions.

Additional details will be forthcoming. Please check C.A.R.’s Market Response Center for updated information as it becomes available.

Sincerely,



James Liptak

2009 President

CALIFORNIA ASSOCIATION OF REALTORS®



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