WHAT IS A SHORT SALE?
Background: Foreclosures and delinquency rates for mortgages are occurring in record numbers for Southern Oregon real estate, Medford, Ashland, Grants Pass, Central Point, Eagle Point. Reasons include high unemployment rates, loss of income due to decline in consumer spending, slower housing starts, and mortgage rate increases after conclusion of teaser-rate periods. Also contributing to the difficulties in making mortgage payments is the softening rental market. Investors who have rental homes from Ashland to Grants Pass have a harder time getting sufficient rents now to cover their mortgage payments or even getting tenants because of an increase in rental properties on the market. Higher insurance costs are adding to the difficulty for borrowers to keep up with their mortgage payments. Now that property values have significantly decreased in the Rogue Valley, these owners are in a predicament. Many have negative equity, i.e. owe the lender more on the mortgage than the property is worth. When this is the case, and the borrower needs to sell, one solution is a "Short Sale".
Definition: A “Short Sale” is when the lender agrees to a accept a payoff for less than the remaining mortgage balance, and possibly forgive the entire shortfall, as well as pay the seller’s closing costs including the Realtor fee. The loss is either completely written off by the lender, a payment arrangement is made with the borrower (promissory note), or a lump-sum for a potentially lesser amount is agreed to (cash contribution).
Why Would A Lender Accept a Short Sale? Banks don't want to own your Ashland area real estate. A foreclosure can cost a lender $50,000 to $60,000. They have to maintain the property, market the property, pay for utilities, then spend money on closing costs. They would rather do a Short Sale- where the groundwork has been done for them and generally costs them less than a foreclosure.  

What is a Short Sale 

SHORT SALE BENEFITS

A “Short Sale” is a much better alternative to Foreclosure or a Deed-in-Lieu of Foreclosure, and will do less harm to your credit and future ability to borrow. A Foreclosure will drop credit ratings by 200-300 points and remain on credit reports for seven to ten years. It usually takes 5 years before new mortgages maybe obtained, with 7 year lending restrictions. A Short Sale, however, may drop credit by 60-100 points, and 2 years is the common waiting period before new mortgage loans may be procured. Further, a "Foreclosure" on your credit will require you to answer certain questions on applications, such as for new loans or even employment with a "YES, I have had a foreclosure". Thus, if you own Medford real estate from Asland to Grants Pass and you are considering the alternatives, remember that a Short Sale may save your future ability to borrow. And, importantly, you are taking action and solving your predicament in a forthright manner, versus having your lender "take" your property in foreclosure, or giving it back in a deed-in-lieu of foreclosure.  

Why A Short Sale 

STEPS TO A SHORT SALE
• Provide a Letter of Authorization for Jared Hokanson for permission to speak with your lender on your behalf. The letter should specify your Southern Oregon property address and loan number. I will also need the last four digits of your social security number for verification with your lender.
• I will place your property on the market for fair market value. Most lenders will only consider offers that net close to what your real estate appraises for, based on their independent appraisal, and the criteria of the end-investor on your loan. "Net" means after all costs, including any payoffs to second mortgage holders, taxes, real estate commission, title insurance, etc. Thus, I will monitor your list price closely to advise you of probably bank appraisal.
• When we get an offer, I will ensure that it states it is "subject to seller's mortgage lender approval".
• You may counter offer the buyer at this step, as we don't want to send an offer to the bank that we think will be rejected.
• I will package up the contract with the following documents and fax or express mail them to your lender:
• Buyer's pre-approval letter
• Hardship letter which explains why you need a short sale
• Financial worksheet itemizing your income and expenses
• Most recent tax returns
• Most recent pay stubs or quarterly profit and loss if self-employed
• Most recent bank statements
• Copy the listing agreement
• Estimated net sheet or HUD-1 Settlement Statement and other documents
• Expect to wait 90 to 120 days for a response from the bank. They will be ordering an independent appraisal or Broker Price Opinion on your real estate to ensure the offer is for fair market value. If the appraised value is higher than the offer amount, they may counter-offer at the appraised price. The buyer may choose to comply, to stay firm, or to come up at this point.
• If there are two lenders involved, or a Private Mortgage Insurance company (PMI), then I will facilitate the negotiations between them focusing on a fully approved sale on your behalf.
• Further steps and negotiations occur behind the scenes. Rest assured, I will be following up on a successful sale for you every step of the way.
Note: Different lenders have different procedures for short sales, thus the required documentation may vary slightly from one lender to another.
I can help you with your short sale real estate in Ashland, Talent, Phoenix, Medford, Central Point, White City, Eagle Point, Gold Hill, Rogue River & Grants Pass. 

Steps To A Successful Short Sale 

WHO QUALIFIES FOR A SHORT SALE?
Anyone may qualify for a short sale. Most lenders will consider allowing a Short Sale if there has been a change in circumstance after the loan was initially obtained which prevents the borrower from making payments.
Some of the possible reasons:
1. Loss of income
2. Divorce
3. Job Transfer
4. Medical Bills
5. Mortgage Rate Reset
The lender will want a Hardship Letter explaining what happened to cause the inability to keep up with mortgage payments. An unsatisfactory reason would be "the market has declined".  

Who May Qualify For a Short Sale? 

Alternatives to a Short Sale:
1. Forebearance: Your lender will allow you to delay making payments on your Medford Oregon real estate for a period of time, but will add these payments back to your loan. They may be added to the end of your loan, or with a separate payment plan.
2. Re-Amortization: Your lender may add missed payments to your balance, and recalculate a monthly payment taking into account the missed amounts. For example, if you owe $200,000 on your mortgage, and you have missed $4000 in payments, they may recalculate a new monthly payment based on $204,000 mortgage. This will increase your payments somewhat.
3. Re-Finance: Your lender may agree to change the terms of your loan in order to reduce your monthly payment.
4. Deed-in-Lieu of Foreclosure: You give your lender will take title to the house and may agree to waive a deficiency judgment against you. This is still recorded as a foreclosure on your credit, and oftentimes AFTER you sign it over the lender will still do a complete foreclosure to ensure they have a clear title.
5. Foreclosure: Proceeding in which the mortgage holder sells or repossesses your property. The lender may then seek a deficiency judgment against you for the unpaid balance, depending on the situation.  

Alternatives To A Short Sale 

Potential Tax Implications of A Short Sale or Foreclosure
Did you know that until recently, mortgage debt on a primary residence that was forgiven from a Short Sale or Foreclosure could be counted as "taxable income" by the IRS?
The good news is that on December 20, 2007, the Mortgage Forgiveness Debt Relief Act was signed into law. Effective from January 1, 2007 through December 31, 2009, any forgiven or "cancelled" primary mortgage debt from a principle residence, or debt used to improve the residence, will not be taxable. The limits are up to $2,000,000 for married couples filing jointly, or $1,000,000 if filing separately. The Emergency Economic Stabilization Act of 2008 extended the time period through December 2012. You can find more information on the IRS online filing form titled Reduction of Tax Attributes Due to Discharge of Indebtedness. Be aware, however, that second mortgages (not used to initially buy your property) and home equity lines are not exempted.
If you own Medford area real estate as an investment property or second home, your cancelled debt will trigger a 1099-C as "income". According to the IRS, there is an exception to tax liabiltiy when the borrower is insolvent, meaning, your total liabilities are greater than your total assets at the time of the debt forgiveness (short sale real estate closing). Many borrowers are insolvent when performing a short sale. For a detailed explanation of potential tax liability and insolvency, please visit the IRS web page about "Questions and Answers on Home Foreclosure and Debt Cancellation". Consult with your tax account on your particular situation, and after completing a short sale, have your CPA prepare your tax return.  

What are the Tax Implications of a Short Sale or Foreclosure?