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Time is of the Essence for Short Sales right NOW!
Posted on 01. Aug, 2013 by ctlms in Blog, Foreclosures, My Blog, Real Estate, Short Sale, foreclosure
The Mortgage Debt Forgiveness Act of 2007 Expires 12/31/13
What does this mean and why is it important?
This act is what many short sale sellers use to avoid owing any taxes on the debt forgiven by their lender in a short sale.
You see, the IRS considers any forgiven debt to be taxable ordinary income, unless you qualify for an exemption.
This exemption was signed into law in 2007 and has been extended a few times as the housing crisis has continued. It was most recent extended at the end of 2012, when it was set to expire, as part of the last minute fiscal cliff agreement.
So far there are no signs that it will be extended again and given the budget issues of the federal government, it is very possible it will not be extended again.
So what does this mean for you?
What this means is we have to do everything we can to get your short sale closed by 12/31/13 in order for the seller to be able to utilize this exemption to avoid potentially owing thousands of dollars in taxes to the IRS.
But it is only Aug... Why worry yet?
The reason I bring this up now is that it may already be too late. The average short sale takes about 90 days from submission of an offer to when the approval letter is issued. This process has been taking longer in recent months, not less. Plus, after we have short sale approval it is often 30-60 days before the buyer's financing is ready to close.
So that means we are looking at potentially a 5 month process from Offer to Closing. We have exactly 5 months left before 12/31/13. So for some short sales, it may already be too late if they do not already have offers, or have circumstances that may cause their short sale to take more than 90 days to get approval.
So what can you do?
The biggest take away here is that we cannot sit on our hands when marketing these properties. If it has been 2-3 weeks at your current price and there is no reason to believe an offer is coming, it is time for a price adjustment. Right now sellers have no time to be waiting around for the perfect buyer at the perfect price. They need the best offer they can get NOW.
This may mean that the offer you get could be a little lower than the very best offer out there. And yes this may mean that the offer does not get accepted and the bank counters.
If they counter the buyer has the option to raise their offer. We can also try to dispute the bank's opinion of value to reduce the counter. But in the end, an offer may not be accepted. At this point the seller typically has the option to ask the bank if they will accept a Deed in Lieu of Foreclosure (DIL) and basically give the bank the property in exchange for being relieved of their obligation to repay the loan. In this situation there is still debt forgiven and if completed by 12/31/13 the seller still may qualify for the exemption.
In a DIL there is typically no commission meaning the agents do not get paid and neither does a debt negotiator like me. But we have to be always looking out for what is in the best interest of the homeowner, not ourselves. To that end we have to do everything we can to get the homeowner's debt forgiven and this situation resolved for them by 12/31/13 if at all possible. It is just the right thing to do, even if not beneficial to us in the end.
The karma will come back to you 10 fold with referrals from grateful homeowners you helped. Trust me. I have probably earned more income from referrals from clients we helped but never got paid for, than if each of those transactions had resulted in a short sale closing and a check, rather than some other workout for the homeowner we did not get paid for.
So please keep this in mind moving forward for the rest of this year as it is very important to your clients.
Sean Wilder
Disclaimer: These are my opinions and nothing here should be considered to be tax or legal advice. All homeowners should consult with a qualified attorney and CPA when completing any workout option.
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Sean Wilder started in the pre-foreclosure business in 2007. Previously he enjoyed successbusiness in the transportation industry, real estate investing and as a licensed Realtor. Sean brought the same determination and work ethic that lead to great success in his previous businesses to Loss Mit Services based in East Windsor, CT. His focus, combined with his drive to succeed, have been essential to his success as one of the area's top short sale negotiators.
Known for finding creative ways to overcome hurdles and never ending persistence; Sean, believes in the power of team. Sean and his team are in the trenches everyday, plowing through challenges and objections while negotiating with various lenders, and finding solutions to difficult problems. It is this daily experience that brings Loss Mit Services consistent success and provides them the knowledge to share.
Sean belongs to a number of industry groups and associations that allow him to collaborate, share, learn, teach and stay updated on the latest changes in the pre-foreclosure industry at the federal, state, local and lender specific levels.
Effective Oct 1, 2009 all debt negotiation companies that offer loan modification, short sale, or foreclosure rescue services needed to be licensed by the CT Dept of Banking. Sean and his company Loss Mit Services were the 1st to be awarded the Debt Negotiation License NMLS # 828273 which can be verified at the CT Dept of Banking Website by Clicking Here. In addition, effective Oct 1, 2011 Debt Negotiators were required to also be licensed Mortgage Loan originators and Sean also has received this license, NMLS# LO-831853.
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