For people looking for a good deal buying real estate, short sales may be a good way to start. A short sale is, essentially, an alternative to foreclosure where the lender allows the debt on a property to be paid off for less than is actually owed. For example, if the mortgage is in danger of foreclosing with $200,000 still outstanding, a bank may elect to accept a payment of $180,000 as covering the full value of the note.

In some cases, where foreclosures make more financial sense, a lender may elect to foreclose rather than allow short sales. For example, when the expected market value of the house is greater than the amount owed, a lender is more likely to foreclose than allow a short sale. But with the toppling of the recent housing bubble, selling a foreclosed property at reduced value is looking less and less appealing to lenders, and short sales are gaining in popularity.

If you’re looking at buying a property that is being short sold, make sure you talk to a real estate attorney and a tax accountant before the deal goes through as a borrower is no less burdened by taxes and liability than in any other real estate deal. Furthermore, if you plan on turning around and selling the house immediately for a profit, you will be liable for capital gains taxes on your profits as well, though if a year has passed between the sale and initial purchase, capital gains taxes are dramatically lower.

I came across an interesting article the other day. “Liar Loans” by Alan Zibel, an AP Business writer. Alan writes “In the mortgage industry, they are called “liar loans” — mortgages approved without requiring proof of the borrower’s income or assets. The worst of them earn the nickname “ninja loans,” short for “no income, no job, and (no) assets.”“

Liar lonas, technically called stated income loans, are offered homeowners without requiring proof of income. It is a loan that allows borrowing of hundreds of thousands of dollars without showing any income source. Sounds too good to believe? You bet it is.

Banks began rolling out stated income loans after housing prices soared, while income remained the same. Most people were not able to afford loans, so banks began to think creatively. They began allowing customers to receive loans while not verifying any income. However, customers were not in on the scheme. Most customers use mortgage brokers, who would enter false information on the stated income loan. Many homeowners, not well versed in mortgage and loans would sign the documents, not realizing they were receiving loans not within their means to pay back.

Many brokers would explain to their clients that once they received a loan, they could immediately refinance, taking advantage of lowering interest rates. However, interest rates began to rise, and there were no refinancing options. Now homeowners are literally paying for the lies of their brokers.

Many homeowners as a result of the overinflated loans have now defaulted on them. They are in danger of foreclosure and filing for bankruptcy. These homeowners should now be looking into loss mitigation services, such as those offered by Access Loss Mitigation. Loss mitigation techniques, including short sales and loan modifications may now be the thing to help prevent homeowners from losing their homes.
Disclaimer: I am not a lawyer nor broker and this information is not legal advice. Please consult with a lawyer or broker for any help you may need.