The Irvine edition of the World Property Journal reported that distressed home sales in the U.S., which include REOs and short sales, accounted for 11.2 percent of total home sales nationally in January 2016, down 3.3 percentage points from January 2015 and up 0.6 percentage points from December 2015.
Additionally, World Property Journal said, “Distressed sales, including bank-owned sales, in-foreclosure sales and short sales, accounted for 18.2 percent of all single family and condo sales in the first quarter, up from 17.2 percent in the previous quarter — the second consecutive quarter with an increase — but still down from 20.8 percent in the first quarter of 2015. The distressed sales share peaked nationwide at 44.0 percent in the first quarter of 2009.”
In the Los Angeles area, there are fewer homes in foreclosure than last year, but with markets in turmoil, who knows the future. In the housing crisis of 2008, a short sale was a way to move on from a bad investment. So let’s take a look a short sales and see what you should know.
A Short Sale Won’t Save Your Credit Score
NOLO says saving your credit score may be the most touted reason for choosing to short sale your home rather than letting it be sold at a foreclosure sale, however according to myFICO, short sales, foreclosures, and deeds-in-lieu of foreclosure are all “not paid as agreed” accounts and are considered the same for purposes of your FICO score.
Short Sales Don’t Always Cancel the Remaining Debt on the Mortgage
When a lender approves a short sale, what is the lender agreeing to do? At the very least, the lender is agreeing to remove or release the lien on the property. A seller would have a near impossible task in selling a property without this lien release.
Is the lender also agreeing to cancel the seller’s obligation to repay the loan in full? Not necessarily. Some lenders ask sellers to sign new, unsecured promissory notes before approving the short sale. Other lenders, without asking for new promissory notes, reserve their right to collect the deficiency — the remaining balance of the debt.
You May Owe Taxes on the Deficiency
If your lender forgives you for a deficiency after a short sale, you may owe taxes on the forgiven amount. That’s because it’s considered income by the IRS, upon which you may owe federal and state income tax. Under the federal Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude from your income all or a portion of the amount of forgiven debt in a short sale.
Hire an Attorney to review all documents
Since short sales are complicated transactions it is recommended that you hire an attorney to review the documents. Release of lien and protection from tax deficiency are very important to your financial welfare.
Coal to Cash Homebuyers, Inc. is a cash buyer solution. We are here to help homeowners out of any kind of distressed situation. As investors, we are in business to make a modest profit on any deal, however we can help homeowners out of just about any situation, no matter what! There are no fees, upfront costs, commissions, or anything else. Just the simple honest truth about your home and how we can help you sell it fast to resolve any situation.