Short Sales in Utah - aka "Pre-Foreclosure" Properties
Is a Short Sale right for me?
In direct contrast to its name, a Short Sale in Utah is anything but. It is a lengthy process of negotiation with a bank to determine whether or not they will accept a ‘short’ (discounted) payoff of the existing loan balance. Banks will consider this alternative in lieu of a full blown foreclosure when a homeowner defaults on his mortgage and the home in question is worth less than the existing loan balance. The average foreclosure will cost a lender $77,935 (Congressional Joint Economic Committee), which provides the bank with more than enough incentive to work with the homeowner and make the best of a tough situation. Consequently, short sales can be excellent opportunities for home buyers and investors alike.
When attempting to buy a pre-foreclosure home, a large helping of patience is key. Short sale listings in Utah are marked with an ‘SS’, and often contain the phrase “Subject to 3rd party approval,” or “Purchase price subject to bank approval” in the Remarks section. When making an offer, it is critical to know that not only must it be accepted by the homeowner, but it also must be approved by the bank in order for it to mean anything. The bank may take a few weeks to respond, or it may take a few months. It is important to note that when working with a bank, the deadlines in the purchase contract mean nothing. The bank will work at its own pace, and will often wait until it has multiple offers on the table before deciding which one they will take. If you start the process with this in mind, you won’t get discouraged too quickly if things don’t pan out right away. The old adage, “Good things come to those who wait,” is especially on point with short sales.
From a distressed homeowner’s perspective, it is important to note that the bank’s Loss Mitigation Department must be convinced of your inability to pay. Lenders are not in the business of bailing out over-zealous investors or homeowners that simply over-extended their finances. The lender will require a letter of hardship detailing the circumstances that lead up to the current situation. These circumstances must be life changing events, and often include the loss of employment, death, serious illness or serious injury. You may also be asked to provide recent pay stubs, tax returns and documentation of any assets that you may (or may not) have. While this can be mildly stressful and taxing in the short term, it is vital to remember that the long term benefits of avoiding a full-blown foreclosure far outweigh the negatives of the Short Sale process.
As a silver lining for homeowners that find themselves in this difficult situation, the Bush administration passed the Mortgage Forgiveness Debt Relief Act of 2007. Under the previous legislation, any debt that was ‘forgiven’ through the process of a short sale counted as income for the homeowner that benefited. Therefore, the owner was sent a 1099 form with the forgiven dollar amount and he was required to pay taxes on it. However, with the Mortgage Forgiveness Act, that is no longer the case (at least for the 3 years that the law will be in place). If the proper process is followed, none of the liability associated with the negative equity in the home comes back to haunt you. “The new law contains important provisions for struggling homeowners,” said Acting IRS Commissioner Linda Stiff. “We urge people with mortgage problems to take full advantage of the valuable tax relief available.” Because of our vast experience with the Short Sale process, we can walk you through all the necessary paperwork and ensure that you take full advantage of the new legislation.
Please contact us anytime with your questions, comments, and concerns. We are happy to provide you with all of the information that we have at our disposal. If you are on the fence about whether or not a Short Sale is for you, please understand that it costs you nothing out of pocket. It is free. You save your credit, avoid any tax liability, and pay nothing. All you have to do is contact us and we’ll take it from there.