how long does it take for the primary and junior lien holder to negotiate in a short sale?
I am in the process of buying a short sale home. I heard from my agent last week and the primary mortgage lender and a junior lien holder were in the process of negotiating. Does anyone know about how long this process takes?
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Well I cannot tell you whether you should do a short sale or not that is something you will have to decide on. But I can tell you that this is your LAST CHANCE if you are worried on paying for taxes whether you do a short sale or not. The Mortgage Debt Foregivness act was extended to the end of this year. Basically what that means is that if you think or have been wondering if you want to do a short sale or if a short sale is something that might be in your benefit. The reality is you do not have much more time to be giving it any thought. A typical short sale takes appox. 6 mos close from start to finish, and sometimes longer. We have a short sale in our office now for over a year, literally over a year still trying to get the approval from bank to do the short sale, actually its the second giving us a headache on it.
But in order for the debt to not be counted as taxable income the short sale must close by the end of this year. Meaning the home has a new owner before 12/31/2013 other wise the yes it will become a taxable event. For example you owe $400,000.00 on your home its only worth $250,000.00. The difference would be a $150,000.00 tax bill to you. Under normal circumstances when debt is forgiven or charged off as far as the IRS is concerned you reaped the benefits of that loan. So as far as they are concerned you have received some form of income from this loan. This is what they call phantom income, but not if you do a short sale and close before the end of this year. Now this had to have been your prinpal r
After this year you may still be able to avoid the tax consequences via bankruptcy or other alternatives such as showing you are insolvent. But that will be something that you will have to get with your tax preparer or possibly attorney. Just remember even if you find yourself having to file for bankruptcy its not free and can cost a few thousand.
A short sale for many may be ideal if they can get past the emotional attachment to the home. The problem is that if the home is a financial burden and you are doing everything you can to save the house. You may only be prolonging the inevitable and by that time doing a short sale may not be as beneficial. But the Clock Is Ticking!
Just a few last things, 1) you should not have to pay the agent you use to do the short sale for you, their compensation will come from your lender. 2) You can live in the house even while the short sale is in progress and even if you are not making any payments. 3) Your lender can, and may even offer you a loan modification on your home even if they have denied you before and you can cancel your short sale. 4) Do not move out till you have to but do plan on moving if you move out to early you may be denied relocation assistance which can be as much as $5,000.00, so stay put but be advised this does not mean you will get any funds. But if you move out you will forfeit that option.
Short sales have been around now for the last few years and supposedly the lenders have been getting better at them. In fact there has even been a lot of publicity that many of the lenders have become more responsive and helpful to the home owners that have fallen on hard times. To help them through the short sale process. Many of our law makers have insisted that they become more responsive as well. But is that not usually the case.
Our office has been working on a short sale on a property for the past year now, literally the past year. A whole year has gone by where Green Tree is the second on this property and has consistently prevented this short sale from happening. To the point that the first is now threatening to just pursue the foreclosure process. This property happens to be located on 1676 Maple Ave, Unit 7, Solvang, Ca. 93436. Now remember this lender has not received a payment for over a year now. The balance happens to be 58k on the second and 248k on the first. On a property selling for 120k
Now the client did cash out like so many other people so this is not a purchase money loan. Meaning that he did not use the loan to purchase this property he took money of the property for it. But like many others he fell on hard times and has not been able to pay the loan and now does not even live in the property but a renter.
What Green Tree is willing and wanting to do is let the home go to foreclosure, they will get nothing the first will close them out. Then take the client to court suing the client forcing them into bankruptcy. Rather than just take something now vs. nothing, because the first lender is only allowing them 6k out of the transaction which is customary in all of these transactions. Even if roles were reversed Green Tree would be doing the same thing to the second, you are only allowed 6k take it or leave it. Now Green Tree is willing to settle for a higher dollar amount to close off this transaction for about 12k but they know the first will not allow that. Why would they if there is any extra money it should go to the first. The same rules that Green Tree would enforce on any other lender if they were in first place are the same rules they want broken.
Reality is rather than settling for something Green Tree would rather let this property go to foreclosure, and literally get nothing. But they would reserve the right to sue the client and take him to court and force him into bankruptcy. I guess getting absolutely nothing and ruining someone else credit and putting another foreclosure on the market is a better alternative.
With all the lawsuits that Bank Of America has pending against them and all the negative media in the last few years you would think they would do a 180 on their business practices by now. I am sure they have done some improvements in their business practices in the last few years, not because they wanted to but because they have been forced to. Especially with all the bad foreclosures that happened and with all the robo signing screw ups as well as mishandling of the paper work. But it seems that rather than accepting responsibility for their business practices they are still using the same excuses and doing some of the same business practices that got them in the mess that they are in. Sometimes it makes you wonder how did Bank Of America get to be too big too fail in the first place and where did it all go wrong.
I have been working on doing a short sale for the last 6 months on a property that happens to be one of the Santa Maria homes for sale. The property happens to be 2432 La Costa Dr., Santa Maria, Ca. and a very nice home. Now one of the things when doing a short sale with Bank Of America is that they utilize a company known as Loan Resolutions Corp. to help facilitate the process? At least that is the idea, same idea that the Equator system is used to communicate with the agents to make things easier and more efficient. So when doing a short sale with Bank of America you are dealing with the bank and investors and LRC as well. So more moving parts only makes things more simple?
Well turns out that the short sale was approved since Oct. 29, 2012. But no approval letter was generated? Or issued ? Now every time I followed with the Negotiator assigned to the file I am told the letters are being reviewed for approval, and I was even told at one time I would have the letter no later than Nov. 08, 2012 well that did not happen. I did follow up and then told and educated there are other loans in the process and this is a 5 step process on approving letter, writting the letter and reviewing etc etc., and to be patient. But the suspicion did grow when my calls and emails via Equator went unanswered for days as the seller awaits for a decision as well as the buyer. Although the huge difference is that the seller has a huge tax liability for thousands of dollars looming over his head if the short sale does not close before Dec. 31, 2012 since that is when the Debt Forgiveness Act expires.
Finally after hours on the phone 11/21/2012 and being transferred several times and even losing connection a few times who knows could of been an error. I finally did get hold of someone that let me know the letter has been generate twice just never sent to me because the buyer was getting VA financing. According to the internal notes on their system they did not feel that buyer could close on the transaction before 12/14/2012 because the loan was scheduled to be SOLD to another servicer. But remember the short sale was approved since 10/29/2012?
This was unbelievable!!! The short sale is and has been approved and its been in the process for months and they had loan scheduled to be sold next month? Forget about the homeowner having huge tax consequences, forget about the buyer making plans and being patient to buy the home. Forget about the work and time involved to get the short sale approved and submitting all the documents requested. Forget about the short sale process would have to be started all over again from the beginning with a new servicer once the loan is sold.
Now upon more phone calls and discussion Bank Of America is blaming LRC (Loans Resolutions Corp), and LRC is blaming Bank Of America but neither one is accepting responsibility for the current situation. This is completely unprofessional and indifferent to all parties involved, where all parties involved are and or will be suffering some kind of financial losses due to the mishandling and just unprofessional handling of the file. Bottom line is maybe not all banks are still operating this way but at least one is. Rather than being truthful and upfront with their intentions.
Reality is that if you are dealing with real estate transactions you are going to be faced with having to deal with short sales. The majority of the homes on the market are still distressed properties whether they are foreclosures or short sales. Personally I cannot wait for the day when short sales are part of the history books and or when they do come back into fashion I am pretty much retired. Anyone that has dealt with enough short sales, knows that they can be a little challenging. Trying to get the bank to approve the short sale is never fun, but what is even less fun is trying to get a transaction on a home that has two loans and getting the second in agree is even less fun.
Another reality is that if the home owner is doing a short sale on his home for what ever financial reason that he can no longer keep the home, there is little to know equity or value in the home. The home is upside down on value and more than likely if they are two loans on the property the loan in second position more than likely will get little to nothing on what is owed to them. Typically the way it works is that you must get approval from the first before you can even attempt the approval from the first since the first in is in first position. Not only will you get approval from the first loan, before moving on to the second loan the first loan will also dictate how much the second can receive. Since the first is also more than likely not going to receive the full balance of what is owed on their loan.
Now I know that there is a lot of advertising and publicity about how banks are now more responsive to homeowners. There is even some legislation or proposed legislation to get the banks to become more responsive to the short sales we have. There is even material out there explaining how a short sale transaction is even more beneficial for the banks to do than a foreclosure. Now if that is the case one has to wonder why do some banks push for foreclosure or prefer that the homeowner go into foreclosure versus granting the short sale approval.
I have been dealing with a short sale transaction on 2021 Mariah Dr. , in Santa Maria, Ca. with Chase bank now for months. Now the first has agreed on to the transaction. Now I am the third agent working on this the first two pretty much gave up since Chase would not allow the short sale to take place. Each and every time it has been Chase bank that as stopped this short sale from happening. To the point where the representative has even advised the client your best option is to file Bankruptcy. Now Chase bank is in second position and knows very well how the short sale process works this is not their first short sale transaction as I am sure not their last. Now Provident bank that is in first position has been more than cooperative in getting this done. Chase bank that received tax payer funds has done nothing but stalled and stopped this short sale from happening. Chase bank one of the largest banks in the country has been reacting as if they have never been involved in a short sale transaction where they have been in second position.
Typically $6,000.00 is what the lein holder in first position typically allows the second to receive. Chase bank has even agreed to settle on a specific dollar amount only to later increase that dollar amount stating that the previous dollar settlement was no longer valid. Only to make the transaction even more impossible. According to the representative of Chase Bank since the real estate agents are making more money than they in the transaction they are. So they felt the need to increase the dollar amount to close the transaction to $24,000.00. It is unbelievable that this is the stance of one of the largest banks in the country to halt everything because the real estate agents are making more than they are. As well as offering or insinuating to the homeowners that they are better off to file bankruptcy. Why a bank that has already charged off this account and has basically considered this a loss and yet will not even let the client out of the lien. Is something that should be asked, whether there is an ulterior motive for the clients to just let this home go to foreclosure or is this the bank’s way of showing it is acting in a vindictive manner towards its former clients. As well as holding their financial situation hostage and forcing them to let the home go to foreclosure and file for possible bankruptcy since the loan on the home is a non-purchase money loan.
The problem with short sales is that they are anything but short. But it would be nice if all the banks were truly as responsive as all the marketing materials they seem to promote. As well as all the rhetoric that the govt. seems to promote as well to getting the banks to become more responsive in handling these transactions. So the sooner all these distressed properties can be flushed out maybe the sooner we can actually be on to a road of recovery.