Question: I am thinking about conducting a short sale on a condo I have in Palos Verdes. I have a home in Orange County that has some amount of equity, and I’m doing alright in my 401k. Doing a short sale with my mortgage lender will not risk my other assets, will it? If I am unable to do a short sale with the condo and end up having to lose it in foreclosure, what will happen? And will the tax liability be the same for either outcome?

Answer: If you bought the Palos Verdes condominium with a mortgage loan, a foreclosure will terminate the bank’s rights to any of your other assets. If the mortgage lender agrees to let you do a short sale, you should also end up with no liability to the lender, unless part of the agreement was reimbursing the lender the discrepancy of your loan and the sale.

Basically, you shouldn’t have any liability for the short-sale-difference unless that was originally part of the agreement.  Then of course you’ll be responsible to those payments in  whatever form you agreed to make them.

As for the tax issues, keep in mind that the IRS doesn’t recognize any tax liability whatsoever for forgiving non-recourse debt.

The National Association of Realtors has introduced a new certification system designed to make sure real estate agents get more training in foreclosure sales and short sales.  Called “Short Sales & Foreclosure Resource”, the program is being offered because recent member surveys have shown that these types of properties make up more than one-third of all home sales nation-wide. A real estate agent can’t afford not to be comfortable with the process.

Many real estate agents have had to do with on-the-fly, on-the-job training through experience with these types of sales.  They all require more paperwork than a regular home sale and more patience, but they’re not impossible. Private companies often offer training programs and certification labels to show clients that an agent has ‘official’ skills in the ‘distressed’ property field.

Sellers forced into a foreclosure and/or a short sale are often panicky and more difficult to deal with, but they need to keep in mind that they can stary in their homes for quite some time. Receiving a notice from the bank does not necessarily mean you have to move out right away. The bank doesn’t own a home until it has been officially foreclosed, a long and difficult process.

In this window, a skilled real estate agent can intervene and get the ball rolling on a shortsale instead. The seller must prove financial hardship, but it is not impossible.

The key factor in selling a house, especially one in foreclosure or a shortsale house, is to choose good pricing. You need to put the house up for a price that is competitive with other for-sale homes in the area and in similar areas. Asking for too much will leave you sitting on a house with no bids, wondering what happened. Asking for too little will raise the ire of your lender/bank.
It’s difficult, but lenders want their real estate short sale houses to go for as close to their appraised value as possible- in this current recession, that means a lot of legwork. And if a buyer makes an offer thati s crealy far too ow, it may be better not to report it to the lender at all. Clearly, the bank will say no, wasting ime and effort that could be spent on trying to get the house sold for more.

If a realistic offer is made, your real estate agent submits a big packet of paperwork to the lender/lenders for them to approve the deal. This is a crucial step that requires high precision- even one piece of paper out of place in that packet can result in a no-deal and big waste of time. Lenders have limited time to work through these packets with you- if there’s something wrong, they’re likely to just put your back at the bottom of the pile, so to speak.

According to official reports, home prices have continued to decline during the third quarter of this year. But many real estate agents in the Southern California area maintain that they have seen many signs of stabilization.

On Tuesday, the National Association of Realtors reported that home prices in major metropolitan areas declined almost fourteen percent when compared to the same time last year. However, prices were up in the first part of the year, which suggests that the oscillations may even out.

An agent with J.T. Kirkland predicts that mortgage rates and the federal homebuyer’s tax credit will help to pull in new buyers into the market, keeping prices at least stable, if not rising, into the spring.
“It’s different town to town, city to city,” he says. “Areas with good schools are seeing increases, for example, and demand is rising again.”

He confirms that, on paper, prices at the high and low ends of range have indeed dropped, but that the middle prices have remained fairly stable, which means that most buyers and sellers will have more luck than they suspect. However, the markets flooded with foreclosed and shortsale properties, which create a downward pressure on prices. Real estate short sales have been very helpful in some areas, but when they become to common they tend to exacerbate the problems.

But the tax credit is doing its job- incentivizing first-time buyers to get into the market and snap up those foreclosures and short sale homes. And though overall prices are down, the actual number of sales is increasing thanks to the credit. Sales of single-family homes and condominiums actually rose more than eight percent this quarter, though they haven’t reached anywhere near the peaks of 2004-2005.

The main problem, say experts, is psychological. People feel frightened, insecure in the their jobs and wary of getting trapped into a payment deal they can’t handle. The key to overcoming these doubts is open communication with lending institutions, buying affordable homes that fit one’s income, and ignoring the melodramatic reporting on the housing market on TV. Television news exaggerates in order to get more viewers- obtaining news from free outlets can often be more reliable. The only thing to fear is fear itself.

Another thing for potential buyers to keep in mind is that they will never get an opportunity like this gain- home prices will soon begin rising again. It’s smart to get into the market while everything is cheap.

In the last quarter, the average sale price went down 11.2% from last year, and according to reports almost a third of all homes sales are either foreclosures or short sales. In more than seventy-five percent of metropolitan areas, home prices fell.
Foreclosures and short sales –classified as distressed sales- put downward pressure on prices, despite the Obama administration tax credit. A week ago, the President decided to extend the eight thousand dollar tax credit for families trying to buy their first homes.
Leading economists have said that the decreasing inventories of houses could have been moderating price declines during the year, but that a new wave of foreclosures could upset that balance, pushing down prices again.
Already existing home sales, which include single-family homes ad well as condominiums, actually went up in the third quarter in some areas, but on the whole, major city areas are still sliding backwards.
What does this mean for those in trouble on their mortgages and looking to sell? It means, on the surface, that foreclosures and short sales are more common, making it more difficult to successfully complete them. However, if you look deeper, these types of sales increasing in volume means the infrastructure in companies and regulatory bodies for dealing with them will improve and become more efficient. So there are pluses and minuses.

Look out for the lingering effects of bankruptcies, foreclosures, and short sales, in that order. Bankruptcies have the worst impact on your credit, spreading out among many accounts over many years. Foreclosures are just your mortgage, so you may be able to repair your scores in seven to ten years. Shortsales, on the other hand, have an indeterminate amount of impact on your credit score, but certainly no more than a foreclosure, and very likely less.

Lenders will almost always be more sympathetic to homeowners who had to lose their homes through short sale instead of foreclosures. It shows a level of responsibility and dedication that indicates an applicant is willing to do legwork and takes care of what they can. You may even be able to get another mortgage within a year or two after a short sale, if you fenagle it right and can prove you were experiences undue hardship that is no longer ongoing.

A way to mitigate the effects of any home loss, but especially a short sale, it to maintain good checking and savings accounts, because a mortgage lender in the future will need a few months’ worth of bank statements.

Stay on top of your credit card payments, and apply for new ones with fixed-rate payments. Of course, don’t apply for too much, or you’ll look desperate or out of control. Small loans can also work to help reestablish credit.

The total volume of mortgages may have dropped last year, but the rate of fraud cases has not. According to a study conducted by a research institution for mortgage assets in Virginia,  current levels of faud among brokers, loan officers, and industry professionals has outstripped the levels they were in 2007 by almost half as much.

The research institute does not actually release specific figures, but it gathers its data from a meta-analysis of many surveys of lenders conducted by other groups in the year 2008.  In the end, their data includes information from almost all mortgage professionals across the country.

However, the data set cannot express how much of the ‘fraud’ was egregious, and how much was just a little fudging by loan professionals on homeowner’s applications. There is a difference between ‘fraud for profit’, which is in the first category, and ‘fraud for property’. The second doesn’t actually defraud lenders out of money, and is much more common.

The results were surprising to officials in the industry. Most believed that the recent downturn and host of foreclosures had flushed out most of the unscrupulous brokers and officers. But apparently not. And those who reamin have fewer and fewer transactions on which to turn a profit, forcing them to be more obvious and indelicate in their fraudulent practices.

Mortgage fraud affects all borrowers because it forces lenders to get back those losses through higher fees or interest rates, and lenders rarely pursue legal action because its so expensive.

As more and more American homeowners are dealing with unemployment, undervalued homes, and debt, prominent mortgage lenders and bank are learning to adapt with more personalized communication systems to try to avoid allowing people to default, or letting mortgage troubles escalate to foreclosures. They’re also trying to avoid gathering too many expenses in dealing with foreclosures and loan resolutions.

In this light, getting loan modifications and other loss mitigation tactics like short sales makes sense from all points of view, and homeowners in trouble can take heart in knowing that banks have the same goals that they do. It doesn’t have to be an us-against-them, win-lose situation.

The idea is that proactive, highly personalized forms of communication between banks and lenders and their customers really help allow mortgage lenders to cooperate with individuals. Then both parties can avoid foreclosures and minimize the astronomical costs of all the paperwork of loan workouts, refinancing, and restructuring.

One of the country’s biggest financial holding companies, for example, recently cut down on first payment defaults by more than sixty percent in the last few years. Bigger lending groups are focusing in on mortgage and consumer lending research, trying to optimize conditions and expand departments to save everyone the most money.

The Federal Trade Commission chairman declared last Thursday that the government agency is now entering talks to consider banning all upfront payment requirements for  ‘borrower help’ companies that advertise their ability to help homeowners stay good on their home loans.

Officials in the federal and state government say that there is a relatively high percentage of scammers in the industry, and that this is a trending phenomenon among financial-related industries. Unscrupulous ‘businessmen’ take advantage of desperate borrowers who are in danger of having to default on their mortgages, and who are looking for help. Those who charge upfront fees in the thousands of dollars rarely perform services that pay off.  If it’s that expensive on the outset, it’s unlikely to be a legitimate company who will try to help you stave off foreclosure or short sale.

California loss mitigation companies will be the next state to undergo judicial rulings on the matter. Two companies, “Nations Housing Modification Center” and “Infinity Group Services” have had files charged against them by the Federal Trade Commission.

Limits may also be placed on how these types of companies may advertise, and additional ‘false advertising’ restrictions may be layered upon the pre-existing ones.  More than twenty-two companies have had files charged against them by the government in recent months, and the government wants to emphasize that upfront payments should be minimal for most homeowners, if the company is legitimate.

The government does offer free loss mitigation services, but the wait times are often quite detrimental to the effort. Sometimes you do have to pay a little to get the attention and expediency you need.

Just as recently as five years ago, real estate short sales were fairly uncommon, and before that, they were extremely rare. However, in the current economic climate of high unemployment and lots of mortgage default, many more homeowners are turning to short sales to compensate for the fact that home values are falling.

According to a recent study conducted in California, almost twelve percent of all sales in the real estate business were short sales in the past few months.

This sudden onslaught of popularity of the this maneuver has left bankers at a loss- short staffed and undertrained, they are trying to keep up their service people numbers to contend with all of the new loan modification requests and short sale dealings, each of which is very time consuming and labor-intensive to execute.

There is a very sharp learning curve for both mortgagers and mortgagees, as well as loss mitigation specialists and other intermediaries. Banks are striving to close the short-sale close gap, making sure that a higher percentage of houses that go on short sale actually get purchased. Though home sales are on the decline in general.