Short Sales - Why Do Owners Go Along With Them?
Hello,
It struck me like a ton of bricks as I was reading about short sales, that there seems to be no good reason for a seller in preforeclosure to do one.
It's great for us, we get more equity! But they get nothing, and what is worse, they get a 1099 for the difference in what was owed and what was accepted, as if they had received that amount as income, and they have to pay taxes on it.
Where are the benefits for sellers, other than:
1. letting owner know the short sale will create a deal where there was none, and allow me to help you out of your situation
2. I'd be happy to give you a percentage of profits I realize because of the short sale, if it goes through.
Any comments would be helpful. Thanks, Dave
Great Question!
Yes, the IRS views forgiven debt as income. When a former homeowner gets an IRS form 1099 (which represents the portion of the debt which was forgiven) in most (99%) cases, that income is exempt from income taxes... but that's another discussion.
The Seller is prohibited from receiving any proceeds from a negotiated short sale, and you really can't promise them a future payment, either.
Why would they agree to particpate in a short sale? The primary reason is to preserve their dignity... and have some degree of control as to the sale, and move-out date. Also, by participating in a mortgagee approved short sale, they demonstrate to future creditors that they did the responsible thing... they didn't simply vacate the premises and forsake their responsibilities.
I met with a family earier today facing tax foreclosure that is leaving the state. They promised to board up the windows, bleed the water pipes, and place antifreeze in the toilets before they leave. They want to do the right thing. Most people want to do the right thing.
A short sale will help protect their future creditworthiness. And allow them to 'close the door' on that chapter of their lives.
If you find yourself wanting to provide 'cash for keys' or UHaul money... but don't want it to appear on the HUD1, let me know. I work with a nonprofit group that will accept a tax deductible contribution from the Seller, and in turn make a gift to the soon to be displaced homeowner.
Aren't you forgetting the homeowners who accept your offer in the shortsale have already come to the conclusion that they have to sell their house?
A lot of them have tried to sell their house but can't because of what they owe on the mortgage is more than the house is worth, once you figure into it the real estate commissions, the condition and such.
They have listed there house and can't sell it.
So your shortsale is a way for them to actually get rid of the house.
One of the things I notice when looking at REOs in the MLS is that there will usually be a isting history showing the property was listed during the foreclosure, often for 10-20% more than the bank is asking now. I was confused at seeing this in the beginning but slowly realized this is evidence of the homeowner in foreclosure deperately trying to sell their house to pay off the mortgage.[ Edited by The-Rehabinator on Date 01/12/2004 ]
great reply sspro, and good question! taught me something else i didn't know about shorting (not that that's hard to do).
Hi Dave,
There are many reasons listed above as to why a homeowner would agree to a short.
One other thought that I would like to mention is the stress that a homeowner in default carries from the letters from debt collectors, power company, and letters from the banks attorney demanding payment. With those things to wake up to in the morning, who would want to get out of bed.
The majority of people that I have helped via a SS, have all shared the same interest in getting this "Monkey" off their back. If someone is looking for help and you can provide them with a solution, it is a win-win deal all around!
I just got another thank you / testimonial letter from a homeowner that I helped. Here is what is said ...................
"Brock sent me a card in the mail. I read the card and gave him a call. We talked about what he could do. He could buy my house and take a BIG load off of my shoulders . . . and he did just that! He is a good person to know. His name and number is in my cell phone, and if anyone I know needs help, he will be the first one called!"
I dont want to buy their houses unless I can sincerely provide a solution for them. They all have their own needs and wants, no 2 have been the same! But when I get letters like this, I know that I am still doing something right!
Best of Succes!
BAMZ
Great thread...
I have a guy that said that the only reason why he's willing to work with me is that he doesn't want the co-borrowers (his close, close friends) on the loan to be affected by the foreclosure.
Bginvestor
I also find this thread very interesting. I didn't know about the tax consequences of a short sale either. I'd like to get more info on that myself. I'm working with a couple right now who are getting a divorce and are in disagreement. She wants to do the short sale (it would be only a little short, like $500.00) but the husband just wants to sign a QCD to the bank. I will be trying to talk to him about the short sale as giving it back will certainly harm their credit. (payments are not yet behind but they will be cause the hubby doesn't intend to pay anymore.) Anyway, it is correct to say that the short sale is a a better way to save your credit and your pride if you're in that situation.[ Edited by Sandbahr on Date 01/15/2004 ]
Mortgagees aren't keen on taking back property via a DIL. Before they would consider that, they would want evidence that the Homeowner did everything possible to sell the property at it's as-is, fair market value.
ShortSalePro:
What does DIL stand for?
Thanks, Dave
Deed In Lieu (of foreclosure)
The post above made reference to the giving back to the bank... via a QCD...
Typically, when a mortgagee considers accepting a voluntary conveyance, a DIL is offered by the mortgagor. The language in the DIL is clear that if the mortgagees accepts the DIL, the mortgage debt is canceled.
Offering a QCD (as had been suggested) is shortsighted.[ Edited by TheShortSalePro on Date 01/15/2004 ]