2012: The Year of the Short Sale?
Over the past couple of years, we’ve seen an increase in successful and closed short sale transactions. Short sales used to take an indefinite amount of time before having a negotiator assigned, and often times, the process took so many months that buyers lost interest and walked away, resulting in foreclosure for the seller.
A short sale, by definition, is when the seller’s lender accepts a sale price on the property for less than what the seller owes on the mortgage. Sometimes the seller has multiple notes on the property (a 1st, 2nd, and sometimes a 3rd trust deed). Usually, if there is a 2nd or 3rd on the property, this will make the approval process on the short sale very complicated, and much more challenging since there are many moving parts to juggle in order to satisfy the various lien holders. In the recent past, short sales have been very difficult for borrowers with more than one trust deed on their property, since the sale of the property typically only paid for the first mortgage. HAFA is now offering up to $3,000 for second lien holders. Re/Max International Chairman and Co-Founder, David Liniger states: “Second trust lien holders are often owed five or ten times that of the $3,000 payment, but if the property goes to foreclosure, the second trust holder is not likely to get any money at all. This, at least, guarantees something.”
Due to recent streamlined short sale incentives and rules, which allow borrowers and lenders to work together in order to avoid foreclosure, 2012 will see a much higher rate of short sale transactions going through compared to previous years. These rules and incentives have been established by the Home Affordable Foreclosure Alternatives (HAFA) program to speed up the short sale process. David Liniger, states: “The streamlined short sale process will definitely help homeowners”. Under the HAFA program, the seller’s lender will provide pre-approved short sale terms before putting the home on the market. This will greatly improve the rate and speed of the short sale process from start to finish. What used to take up to 4 to 6 months before hearing from the lender should now be a matter of weeks in 2012.
HAFA is also offering other incentives such as $1,000 to the loan servicer to cover administrative fees, up to $1,000 for mortgage investors who are agreeable to sharing the short sale proceeds with the 2nd lien holder, and $1,500 to the homeowner to aid in relocation costs. Liniger also states: “The moving expense allocation acts as an incentive for the seller to stay in the property until the short sale goes through. Owner-occupied properties are usually in better condition than vacant homes.” Although, with regards to the resort real estate market, like Mammoth Lakes, which is primarily “owner occupied”, but mostly second homes for many, the majority of properties that go to short sale are in far better condition than those you would find in the primary residence market.
According to the I.R.S., The Mortgage Debt Relief Act of 2007 allows the tax payer to exclude any categorized “income” from the discharge of a debt on their primary residence. 2012 will be the last year that sellers can sell their home for less than what they owe on their mortgage without paying penalties to the I.R.S. After January 1, 2013, the amount that a lender forgives on a loan will be taxable on federal income taxes. This will most certainly spur an increase in the number of short sales we’ll be seeing in Mammoth and surrounding areas in 2012.
During difficult economic times, a discretionary purchase, such as a second home, will be the first thing that a property owner will walk away from. Since a short sale will impact a seller’s credit for a short length of time vs. a foreclosure, many sellers are motivated to go through with the short sale process.
Although our Mammoth real estate market inventory is very low at the moment, spring is typically the time of year when we begin to see many properties coming on the market. Given the lack of snow during the 2011/2012 ski season, and the resulting reduced tourism and rental income, property owners who rely on the income that the ski season brings may flood the market with short sales this spring.
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Verena Robinson, Broker/Owner
Mammoth Lakes Resort Realty
CA BRE License #01512209
tel. (760) 924-8521