On any given day when I look in the Big Bear Multiple Listings, I see more and more homes being listed for sale as short sales.  I’ve been listing and selling Short Sale Properties in Big Bear for a few years now and still find both buyers and sellers unsure of just what a Short Sale is.  I’ve written about this before, but I thought I would go through the Short Sale process once again. 

What is a Short Sale?

A short sale is simply when a house on the market is worth less than the seller still owes on it.  Here is an example of what I am talking about.  Mr. and Mrs. Homeowner borrowed $450,000 to purchase their dream cabin in Big Bear for $600,000.00.  Property values in Big Bear as well as everywhere else in California have dropped and the home that was purchased for $600,000 is now worth $350,000.   The homeowners are upside down or under water on this property.

Let’s say that they put the property up for sale for $350,000 and plan to turn over the whole amount of money to the bank, with a letter to the bank asking the bank to forgive the additional $100,000 that is owed.  If the bank agrees to do this, then that is a short sale.

Most people understand that much.  Here are some factors that catch people off guard.

1)      No one, including the Realtor can tell you how long the short sale will take, or even if the bank will approve the transaction.  One an average, short sales in Big Bear run about 90 days, but I have seen some go as long as 180 days without a resolution.  That is why you see so many buyers walk away from the short sale and move on to another property.

2)      The banks don’t agree to any short sale until a valid offer has been submitted.  The property must be listed for sale and be priced at a price that can be substantiated by comparable sales.

3)      One of the factors that people don’t understand is that the foreclosure process does NOT stop during the short sale process.  Depending on who the investor is, they may be willing to postpone the sale of the property and let the short sale process go forward.  Others won’t.  I had one short sale here min Big Bear that went on for 6 months.  Just before we hit the six month mark, we started the negotiations with the bank, only to have the investor say no more and had the home sold at auction.

4)      Unless you are behind in your mortgage payments, most banks won’t consider approving a short sale.  As a Realtor, I can’t advise my clients to stop making their mortgage payments.  What I would advise my clients is speak to their accountant and find out what the tax ramifications are if they do commit to a short sale.  It might also be a good idea to speak with a lawyer to find out what your legal options are

The Short Sale process starts with the listing agent.  The Realtor is the one who qualifies the seller to make sure that he or she qualifies for a Short Sale. Before the Realtor can move forward with the short sale, he needs to know how many loans the seller has on the property.  He needs to see if there is a true hardship by the homeowner keeping the property, and he needs to see if the home owner has any real assets. Once the qualifications have been met, the Realtor gathers the necessary documents from the seller and puts the Short Sale Package together that will accompany any offer to the bank.  Once an offer is submitted, the short sale package is then submitted to the bank and the process begins.

Buyers go into these Short Sales with the mentality that this is a normal purchase and that they are in the driver’s seat.  They quickly find out that this is not the way it works.  The buyers quickly learn that the seller is not going to do any repairs to the property.  In most cases, the homeowner is broke and has no money to spend on the property.  Forget about asking the bank to do anything.  The bank is only going to do what is absolutely necessary in order to close the escrow. 

What are the Tax Implications of a Short Sale?

That is a question that I am asked on just about every listing appointment that I go on when we are discussing the Short Sale.  The first thing I advise my clients is to speak to a tax professional about the tax implications of a Short Sale. 

That being said, the amount of money that the lender agrees to write off may be considered ordinary income in the form of a gift of a cancelled debt.  As such, the seller will generally receive a 1099 tax form from the lender for the cancelled debt.

Will the Seller be taxed on this gift of forgiven debt?

Again, seek the advice of a tax professional on all tax matters.  That being said, under the Mortgage Debt Relief Act of 2007, a tax payer will not be taxed if the following conditions apply.  1)  The property is the primary residence and 2) The subject loan was used to purchase the cabin. 3) The short sale debt is being forgiven between January 1, 2007 and January 1, 2013, 4) The cap on the debt forgiveness is capped at $ 2 Million.

In conclusion, if you are going to sell your home as a short sale in the Big Bear Lake area, please give me a call and I will see what I can do to help you.

On any given day when I look in the Big Bear Multiple Listings, I see more and more homes being listed for sale as short sales.  I’ve been listing and selling Short Sale Properties in Big Bear for a few years now and still find both buyers and sellers unsure of just what a Short Sale is.  I’ve written about this before, but I thought I would go through the Short Sale process once again. 

What is a Short Sale?

A short sale is simply when a house on the market is worth less than the seller still owes on it.  Here is an example of what I am talking about.  Mr. and Mrs. Homeowner borrowed $450,000 to purchase their dream cabin in Big Bear for $600,000.00.  Property values in Big Bear as well as everywhere else in California have dropped and the home that was purchased for $600,000 is now worth $350,000.   The homeowners are upside down or under water on this property.

Let’s say that they put the property up for sale for $350,000 and plan to turn over the whole amount of money to the bank, with a letter to the bank asking the bank to forgive the additional $100,000 that is owed.  If the bank agrees to do this, then that is a short sale.

Most people understand that much.  Here are some factors that catch people off guard.

1)      No one, including the Realtor can tell you how long the short sale will take, or even if the bank will approve the transaction.  One an average, short sales in Big Bear run about 90 days, but I have seen some go as long as 180 days without a resolution.  That is why you see so many buyers walk away from the short sale and move on to another property.

2)      The banks don’t agree to any short sale until a valid offer has been submitted.  The property must be listed for sale and be priced at a price that can be substantiated by comparable sales.

3)      One of the factors that people don’t understand is that the foreclosure process does NOT stop during the short sale process.  Depending on who the investor is, they may be willing to postpone the sale of the property and let the short sale process go forward.  Others won’t.  I had one short sale here min Big Bear that went on for 6 months.  Just before we hit the six month mark, we started the negotiations with the bank, only to have the investor say no more and had the home sold at auction.

4)      Unless you are behind in your mortgage payments, most banks won’t consider approving a short sale.  As a Realtor, I can’t advise my clients to stop making their mortgage payments.  What I would advise my clients is speak to their accountant and find out what the tax ramifications are if they do commit to a short sale.  It might also be a good idea to speak with a lawyer to find out what your legal options are

The Short Sale process starts with the listing agent.  The Realtor is the one who qualifies the seller to make sure that he or she qualifies for a Short Sale. Before the Realtor can move forward with the short sale, he needs to know how many loans the seller has on the property.  He needs to see if there is a true hardship by the homeowner keeping the property, and he needs to see if the home owner has any real assets. Once the qualifications have been met, the Realtor gathers the necessary documents from the seller and puts the Short Sale Package together that will accompany any offer to the bank.  Once an offer is submitted, the short sale package is then submitted to the bank and the process begins.

Buyers go into these Short Sales with the mentality that this is a normal purchase and that they are in the driver’s seat.  They quickly find out that this is not the way it works.  The buyers quickly learn that the seller is not going to do any repairs to the property.  In most cases, the homeowner is broke and has no money to spend on the property.  Forget about asking the bank to do anything.  The bank is only going to do what is absolutely necessary in order to close the escrow. 

What are the Tax Implications of a Short Sale?

That is a question that I am asked on just about every listing appointment that I go on when we are discussing the Short Sale.  The first thing I advise my clients is to speak to a tax professional about the tax implications of a Short Sale. 

That being said, the amount of money that the lender agrees to write off may be considered ordinary income in the form of a gift of a cancelled debt.  As such, the seller will generally receive a 1099 tax form from the lender for the cancelled debt.

Will the Seller be taxed on this gift of forgiven debt?

Again, seek the advice of a tax professional on all tax matters.  That being said, under the Mortgage Debt Relief Act of 2007, a tax payer will not be taxed if the following conditions apply.  1)  The property is the primary residence and 2) The subject loan was used to purchase the cabin. 3) The short sale debt is being forgiven between January 1, 2007 and January 1, 2013, 4) The cap on the debt forgiveness is capped at $ 2 Million.

In conclusion, if you are going to sell your home as a short sale in the Big Bear Lake area, please give me a call and I will see what I can do to help you.