Posted by Brad Crouch on May 02, 1999 at 19:08:07:
Also, the difference between the amount of the loan balance and ultimate sales price will be considered “debt relief” by the IRS. The bank is required to send you a 1099C which includes attorney fees, court costs, back payments, etc.
The banks either have to send you this form (and a copy to the IRS) or pay the taxes themselves. So the end result of a “short sale” or foreclosure is a WHOPPING tax bill. And the IRS cannot be “bankrupted away”.
The seller may not be aware of these ramifications, so these points may be good things to bring up, in order to get a better deal. Motivation.
Brad
Please Help, I?m way out of my league here. - Posted by Rik NJ
Posted by Rik NJ on May 02, 1999 at 15:25:27:
I?m a newbie to REI and I?ve stumbled across a deal that is way outside my knowledge base.
I found a house that has a motivated seller. The appraised value of the home is $520,000. It?s located in an upscale neighborhood in a prominent town. The house needs approx. $30K - $35K worth of work on it. (I would assume the owner has run into some financial trouble) I made an offer on the house of $380,000. I low-balled it expecting to get laughed out of the room and gain some valuable experience from the bid/offer process. Well?the agent called me back and said the owner is considering my offer.
The owner owes $470,000 to the bank and they are looking into the possibility of selling the property ?short?. I have absolutely no idea what that means. I?m way out of my league here. Does anyone know what that means or have any advice for what I should do? I didn?t know you could short a property.
I would like to flip this house to either an investor or an end buyer. The potential to make a fair amount of money on this is clearly there. Any advice would be greatly appreciated!
Thanks,
Rik
Re: Please Help, I?m way out of my league here. - Posted by Dave T
Posted by Dave T on May 02, 1999 at 22:55:03:
A short sale simply means that the seller is asking the lender to accept less than the balance owed on the mortgage and permit a sale to go through. The seller is asking for relief between the difference between the mortgage amount and the net sale price. If the seller makes up the difference, then that is not a short sale.
A short sale often is needed, when a seller’s mortgage balance is higher than the current market would bear in an arms-length sale, and the seller does not have the funds to make up the difference.
If the lender approves a short sale, it will be for a minimum amount or greater. The bank will require a current appraisal, and the eventual selling price usually can not be more than 5% under the appraised value. In a short sale, the seller’s acceptance of a purchase offer will be contingent upon lender approval and acceptance
Short Sale - Posted by Sean
Posted by Sean on May 02, 1999 at 17:00:46:
A short sale means the owner is in foreclosure and is trying to sell to avoid foreclosure. The bank knows that if it forecloses then sells the place it will lose some money. The seller is trying to convince the bank to accept a payoff of less than the amount owed under the theory that it will be cheaper than paying a lawyer to do the whole foreclosure and then selling at the FMV (which may be $380,000 for all we know).
These things, even if successful, take months. There are bank committees to discuss the matter, and lots of red tape. Then the bankers come back and say something like, “OK, we’ll do it, but your Realtor gets only half his normal commission” and that starts a whole new fight.
If this is out of your league remember you can always withdraw an offer. Just call the Realtor and say, “I’ve heard short sales take forever, and that’s not for me. Thanks for the assistance, and I’m going to look for another property.”
Re: Please Help, I?m way out of my league here. - Posted by CarolFL
Posted by CarolFL on May 02, 1999 at 15:48:49:
Nothing says that the seller can’t pay the difference out of his pocket if he so chooses, rather than ‘lose it all’.
I have had this happen once - on a different scale, but what the heck, it’s only zeros!
Carol
Re: Short Sale - Posted by David M. Petrovich
Posted by David M. Petrovich on May 02, 1999 at 19:34:44:
FYI
While ‘short sales’ are frequently employed by a Seller whose mortgage loan has been foreclosed, it is not ALWAYS the case.
I’ve successfully negotiated short sales of residential property when the mortgage loans are current, and the Seller has assets, but mortgage obligations exceed anticipated proceeds from an arms length sale.
Of course, they’re easier if the mortgage has been foreclosed. And, they often do take 60 days or more.
The ‘short-cut’ to an expedited short sale is to do your homework, and submit a comprehensive Proposal.