San Diego Short Sales

  1. FAQs

    1. What is San Diego Hope Now?

    San Diego Hope Now is a website for troubled homeowners. It allows homeowners to get objective, accurate information about doing a loan modification, a short sale, a deed-in-lieu of foreclosure, a bankruptcy or a foreclosure.

    2. Do I need to behind on my mortgage to do a loan modification or short sale?

    No. You can successfully complete a loan modification or a short sale if you are current on your mortgage payments. However if you are struggling to keep up with payments, anticipating going behind on your payment, it is best to call now to find out your options.

    3. What is a "short sale"?

    A short sale occurs when the market value of a property is less than the outstanding balance on the mortgage. The lender(s) agree to accept less than what is owed on the property in order to avoid a possible foreclosure situation. Upon approval from the lender, the seller is able to walk from the property limiting their potential credit damage and tax liability. You should note that short sales may not be for everyone, call to see if it is a viable option for you.

    4. A Notice of Default (NOD) has been filed on my property, can I still Short Sale?

    Yes. Short sales can take on average 3-4 months to complete depending on how many loans on the property and who the lender is, but there is still plenty of time to successfully achieve a short sale even when a NOD has been filed on your property. The sooner a homeowner contacts us for a short sale the better, but often times a lender is willing to postpone a trustee sale date in order to review an offer on the property for approval. The banks are not in the real estate business, they would rather short sale then go through the lengthy and costly foreclosure process.

    5. If I do a short sale, will I still owe my lender the difference between what I owe and what my home sold for?

    CA Senate Bill 458 No-Recourse Short Sale Bill was passed on July 15th, 2011. It specifically requires all lenders, including Junior Liens and HELOC’s, to forgive the remaining balance after a short sale is completed. This is a major victory for upside down homeowners in CA and can allow short sellers to breathe a sigh of relief by not having to worry about their lender pursuing them for money after a short sale. There are a few exceptions and some other minor details. Call us TODAY at 619-228-6200 to find out more about the new Senate Bill 458 and how it will affect you after a short sale.

    6. What are the credit benefits of doing a short sale vs. foreclosure?

    There are two parts and scenarios that need to be considered for this answer. Let’s start with how it will be reported to the credit bureaus. While in cases, short sale and foreclosure, the delinquent mortgage will negatively affect their credit rating, at least short sellers will have type of verbiage stating that they worked out a deal with their lender. Such terms reported by lender are “debt settled for less than what was owed”, “debt settled”, “debt discharged” or some other similar verbiage dependent on each lender. A short sale can be less damaging to your credit point wise and there are cases where the damage was as little as 100 points, compared to a foreclosure which mortgage and credit experts say that, after bankruptcy, having a foreclosure on your credit report is the worst result and will possibly reduce your credit score by over 300-400 points.

    The next situation that plays out as to your credit damage is whether you are late on your payments or not. Once you stop making payments lenders will report you 30, 60, 90 days late all the way out to 120 days late which all contributes to the degradation of your credit. If you have two loans then the damage can be even greater. People who are late on their payments will suffer much more severe credit damage than those who never miss a payment and do a short sale. And YES you can do a short sale even if you are not behind on payments. (See below)

    People who successfully complete a short sale may also qualify for a mortgage at a reasonable interest rate in as little as 24 months. So, if buying a home is a future goal, then a short sale is the better option for many families. Fannie Mae and Freddie Mac have recently changed their guidelines (August 2008) stating if you have a short sale on your record you may be able to buy another home in 24 months. While if you have a foreclosure on your record you will have to wait 5-7 years.

    7. Are there tax consequences of doing a short sale vs. a foreclosure?

    Every situation is different for each person, so it is important to consult with a tax professional, CPA, tax attorney or someone who is qualified to make this determination for you. But here is some information to get you started. When you do a short sale or a foreclosure the lender is allowed to write off the loss and pass it on to you as income in the form of a 1099-C. The IRS considers this income for you and is taxable. For example, you borrowed $200,000 to purchase a home, but only were able to repay $150,000 in the short sale, you will receive a 1099-C for that $50,000 and possibly taxed on that according to your tax bracket.

    Federal Taxes: The Home Mortgage Forgiveness Debt Relief Act of 2008 states if the property is your primary residence and the debt discharged was from your original “purchase money” loan, and then you will not have to pay the taxes for that amount. Further, if you did refinance and used the money to only improve your home, then you may be eligible for exclusion of the taxes as well. This act has been extended until the end of 2009.

    If you refinanced your home and pulled the money out for other expenses or it is not your primary residence, then it is possible that you may have to pay the taxes unless you are eligible for “insolvency.”

    The IRS does not require you to pay taxes on the loss the lender takes in a short sale if, at the time of the short sale, you are insolvent. Insolvency means your debts (including your mortgage) exceed the value of all your assets. In other words, if, at the time of the short sale, your debt is greater than your assets, then you are insolvent. Ask your tax advisor if you are eligible for the Debt Relief Act qualifications or are eligible for “insolvency” and filing the IRS Form 982.

    State Taxes: The state of California finally conformed to the federal tax exemption with its own senate bill 1055, which currently conforms to the federal exclusions. Ask your tax advisor if you qualify for the exemption of the state taxes for a short sale.

    It is important to understand that these tax implications apply whether you do a short sale or a foreclosure. The difference being in the amount of loss the bank may suffer if they go through with foreclosure. The amount that we as professionals might be able to sell the house at for now, could possibly be much greater than what the bank may sell it for at foreclosure at a much later date. Typically we will sell the property for market value, if not just slightly less. Where as if a bank takes a home back through the foreclosures process, they will typically price it to sell within 30 days or less, or sell it at an auction, and they also incur the expenses of paying an attorney and asset management company to take over the property. All contributing to the loss the on the property, and increasing the amount of the 1099-C, or loss the bank suffers, on to you.

    EXAMPLE: Suppose you owe $400,000 on a home that is worth $350,000 today. We would most likely be able to sell it for $350,000 to $345,000, thus the amount of the 1099-C you receive would be $50,000 to $55,000. If the bank or lender has to foreclose, they might pay out $10,000-$20,000 in order to get control of the property and maintain it. On top of that, it may take 4 - 10 months to foreclose, at which point the property is now only worth $330,000, but may price it at $320,000 in order to sell quickly. That would result in a possible total loss to the bank of $100,000 that will be passed on to you in a foreclosure instead of the short sale scenario loss of only $50,000.

    8. If I sign up to do a short sale, can I cancel with your company at anytime?

    Yes, if you are able to find a better solution to assist you with your mortgage problems, you are free to cancel at anytime. Our goal is to assist you in any way we can to avoid foreclosure or bankruptcy, even if that means canceling our agreement. You have a no cost obligation.

    9. What is a "loan modification"?

    A loan modification is when the lender agrees to modify the terms of the loan in order to make the borrower's monthly payments more affordable, usually by reducing the interest rate on the loan and/or fixing the borrower’s interest rate for a longer period of time. You should note not everyone can qualify for a loan modification, call to see if it is a viable option for you.

    10. If my lender agrees to modify my loan, will they reduce my principle balance?

    No. If an organization claims they can reduce your principle balance, that is a red flag and you should look into another company to assist you with your modification. It is considered extremely rare that a lender will reduce your principle, only in case where the borrower can prove predatory lending violations. A loan modification will simply restructure the rate and terms of the loan to make the monthly payment more affordable for the homeowner.

    11. Why would I do a loan modification rather than a short sale?

    A loan modification is aimed at keeping a homeowner in their property. If you wish to stay in your home, this should be the first option to pursue. If your lender does not agree to modify you loan, a short sale would be the next step in the process.