A question caught my eye in a story in the Virginia-Pilot. Can someone still sell his home once it goes into foreclosure? The answer: Once the foreclosure proceedings have begun, the property is now controlled by the primary lien holder, the mortgage company. The answer goes on to talk about short sales. I thought that demand for housing in the Virginia Beach area had put short sales behind us.
Au contraire, mon ami!
908 homes in foreclosure or short sales
In the Virginia Beach, Hampton Roads, Norfolk area, there are at least 908 homes in foreclosure or short sales, according to HomeFinder.com. In the housing crisis of 2008, a short sale was a way to move on from a bad investment. So let’s take a look short sales and see what you should know.
Saving your credit score: The most touted reason for choosing to short sale your home rather than letting it sell at a foreclosure sale. According to myFICO, short sales, foreclosures, and deeds-in-lieu of foreclosure are all “not paid as agreed” accounts. They are considered the same for purposes of your FICO score.
When lenders approve short sales
When a lender approves a short sale, what is the lender agreeing to do? At the very least, the lender agrees to remove or release the lien on the property. A seller would have a near impossible task in selling a property without this lien release.
Is the lender also agreeing to cancel the seller’s obligation to repay the loan in full? Not necessarily. Some lenders ask sellers to sign new, unsecured promissory notes before approving the short sale. Other lenders, without asking for new promissory notes, reserve their right to collect the deficiency — the remaining balance of the debt.
In Virginia, a lender can get a deficiency judgment following a short sale. To avoid a deficiency judgment, the short sale agreement must expressly state that the lender waives its right to the deficiency. If the short sale agreement does not contain this waiver, the lender may file a lawsuit to obtain a deficiency judgment.
HAFA a new government program
There’s a government program for those who qualify. Named HAFA: The Home Affordable Foreclosure Alternative program to help homeowners who can’t afford their mortgages. The big news: it prohibits the lender from coming after the deficiency.
Home Affordable Foreclosure Alternatives is a program available to some homeowners facing foreclosure or otherwise need to do a short sale. There are a few criteria that borrowers need to meet to benefit from this program, but it can be a good alternative to a traditional short sale or a foreclosure.
- You have a documented financial hardship.
- You have not purchased a new house within the last 12 months.
- Your first mortgage is less than $729,750.
- You obtained your mortgage on or before January 1, 2009.
- You must not have been convicted within the last ten years of felony larceny, theft, fraud, forgery, money laundering or tax evasion.
The good news is that effective February 1, 2015, if a short sale is approved through HAFA, up to $10,000 relocation assistance funds will be paid to property occupant. This assistance has been increased from $3,000. The newly published directive states senior liens can allow up to $12,000 to cover a junior lien, up from $8,500 in the past. The US Treasury will reimburse the first lien $2 for every $3 they provide to any junior lien at short sale closing.
You May Owe Taxes on the Deficiency
If your lender forgives you for a deficiency after a short sale, you may owe taxes on the forgiven amount. That’s because it’s considered income by the IRS, upon which you may owe federal and state income tax. Under the federal Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude from your income all or a portion of the amount of forgiven debt in a short sale.
Hire an Attorney to review all documents
Short sales are complicated transactions. We recommend that you hire an attorney to review the documents. The release of lien and protection from tax deficiency are very important to your financial welfare.
I am Christian Dunlap and my company, ChristianBuysHouses.com, buys houses all across Hampton Roads. That includes Virginia Beach, Norfolk, Chesapeake and Portsmouth.
I will do my best to provide you with the fastest and fairest home selling solution you need.
Give me a call today at 757-705-8812.