Thousands of California homeowners have fallen behind on their mortgage or need to sell their home, but owe more than it is currently worth.
If you are currently facing this situation or something similar we can help.
We are San Diego’s Short Sale Dream Team!
Through a real estate transaction called a Short Sale we can help you avoid bankruptcy or foreclosure. You will not pay any commissions or closing costs!
We have a team of San Diego short sale experts ready to help. Our top flight team consists of seasoned real estate agents and a Harvard Graduate Attorney who are all able to answer your challenging questions and get results.
We can help you walk away debt-free and save your credit.
We have helped families all over San Diego in pre-foreclosure so please call us today for more information about how we can help you!
To help you make an informed decision we have included information about short sales and help avoiding foreclosure in San Diego.
A short sale is a real estate transaction where the homeowner owes the lender more than their property is currently worth. The lender agrees to accept less than the full loan balance outstanding, which means that they may settle for hundreds of thousands of dollars less than the full payoff amount.
You might want to consider a short sale if:
1) You are facing a financial hardship that you know will decrease your income.
2) You are getting behind on your mortgage and you’re not sure if you can catch up, or;
3) If you just need to sell now because your home is worth less than when you bought it.
If you are not under financial pressure and do not have to sell, you can also wait out the market in anticipation of rising real estate values. If you have defaulted on your home loan there are some options at this point other than a short sale.
If you are trying to avoid foreclosure these are some options you might consider:
1) Loan Modification- To avoid selling or avoid foreclosure you can seek out a mortgage lender who can renegotiate and adjust the terms of your loan. For example they may be able to lower the interest rate, lengthen the amortization schedule, or even transfer the deficiency into the re-amortization schedule. We would be happy to refer you to a mortgage broker that can answer your questions.
2) Another way to prevent foreclosure is to contact your lender to see if they will work with you to pay off your deficiency over the course of several months. If you recently suffered from a short-term financial hardship they might be willing to work with you and devise a payment plan.
If you have to sell and cannot bring in enough cash to pay off the total amount due there are two options:
1) You could let the home go into foreclosure. The lender would then go through the foreclosure process which consists of evicting you from your home and auctioning it off at a foreclosure or trustee’s auction.
2) The last option is to proceed with a short sale. We will contact the lender on your behalf and work diligently to convince the bank to settle for less than the full amount due on your loan.
What are the credit consequences of a Short Sale?
The credit consequences of a short sale are far less severe than those of foreclosure or bankruptcy. It is considered a settlement of your debt, although on your credit report the lender will most likely note “settlement for less than originally owed” or something similar. A short sale will indeed drop your credit score but a decrease of this amount can be restored within a couple years. The credit impact of a foreclosure may take 6-10 years to recover from and could diminish your credit score by up to 300 points.
Why would a Lender agree to a Short Sale?
Short Sales are not the most optimal situation for the banks but they are less costly and time consuming than going to foreclosure. A short sale can be a fairly quick process in comparison to a foreclosure. In a declining real estate market, foreclosing on the home presents the bank with the risk of a substantial loss because property values will decline by the time the property can be sold. Banks also consider that once the home is foreclosed on, it will remain vacant which can cause deterioration and even greater value declination.
What are the steps involved in a Short Sale?
1) First it is necessary to determine the current market value of the property. You may contact us for a free evaluation.
2) Then you must determine the total estimated cost to sell the property. Fees to be included are escrow, title, attorney, agent commissions, appraisal, unpaid property taxes, etc. We would be happy to provide you with an approximate cost based on the value of the property.
3) You will need to contact your lender to determine the exact amount that is owed on the property.
4) The next step is for us to contact your lender. Our experienced attorneys will contact the bank’s loss mitigation department and negotiate on your behalf. They must convince the bank to consider working with you to do a short sale. Many banks will not even consider it an option unless you have already missed a couple payments.
5) The final step is selling the property. We will guide you through the sale and escrow process ensuring a smooth and successful sale of your property.
What are the Tax Implications of a short sale?
The tax implications of each transaction vary as they are individual to each lender. A short sale appears as a loss for the bank and often this amount is reported to the IRS as ‘debt forgiveness’ for the Seller. Historically, the Seller is subject to paying income taxes on that dollar amount. Many Sellers can escape these taxes as they are eligible under the Mortgage Forgiveness Debt Relief Act of 2007 which provides exclusions on taxing debt forgiveness. We recommend speaking with a tax attorney before proceeding with a short sale in order to help make an informed decision.
Mortgage Forgiveness Debt Relief Act of 2007
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007. Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence. What this means is that usually, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude certain cancelled debt on your principal residence from income. The Act applies to debt forgiven in 2007, 2008, and 2009.
There are some exclusions as the Act applies only to forgiven or cancelled debt used to buy, build, or substantially improve your principal residence, or to refinance debt incurred for those purposes. Debt used to refinance your home qualifies for this exclusion, but only up to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. You will be required to submit Form 982 and the Form 982 with tax return stating the amount of debt forgiven. All of this information was found on www.irs.gov. Please visit the website for more detailed information, forms, or frequently asked questions regarding the Mortgage Forgiveness Debt Relief Act.
amortization
The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
amortization schedule
A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
appraisal
A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
closing costs
Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
default
Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.
delinquency
Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a “late fee” for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.
depreciation
A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.
equity
A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
escrow account
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.
fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
lender
A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as “lenders.”
modification
Occasionally, a lender will agree to modify the terms of your mortgage without requiring you t refinance. If any changes are made, it is called a modification.
mortgage
A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.
mortgage banker
For a more complete discussion of mortgage banker, see “Types of Lenders.” A mortgage banker is generally assumed to originate and fund their own loans, which are then sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae. However, firms rather loosely apply this term to themselves, whether they are true mortgage bankers or simply mortgage brokers or correspondents.
mortgage broker
A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.
mortgagee
The lender in a mortgage agreement.
mortgagor
The borrower in a mortgage agreement.
negative amortization
Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called “deferred interest.” The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.
notice of default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.
original principal balance
The total amount of principal owed on a mortgage before any payments are made.
prime rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.
principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
principal balance
The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.
public auction
A meeting in an announced public location to sell property to repay a mortgage that is in default.
remaining balance
The amount of principal that has not yet been repaid.
remaining term
The original amortization term minus the number of payments that have been applied.
repayment plan
An arrangement made to repay delinquent installments or advances.
title
A legal document evidencing a person’s right to or ownership of a property.
title company
A company that specializes in examining and insuring titles to real estate.
title insurance
Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.