What do I need to know about short sales?
 

Here's the situation:

• My wife has a house in Sacramento that she bought several years before we met.
• She paid $172k and owes about $132k on the house
• She took out a HELOC not long after buying, so the total between the 1st and 2nd is ~$213k
• Zillow shows a value of ~$172, but you can take that with a grain of salt.
• Realtor things (off-the-cuff - he hasn't done formal comps yet) that he can get $180k+
• The house next door is a total, complete POS. Seriously. It's been vacant for 10 years, the roof is caving in, the ceilings are collapsing. I don't think it's savable.
• I am not on the deed (we just never got around to it)
• She's been renting it out for the past couple of years, but the guy is moving out October 1st.
• With the renter, she was still ~$400 in the red each month
• She's getting laid off in 3 weeks

We talked to a realtor this past week about a possible short sale. He says he would list the house on Tuesday, show it on Saturday, have a big stack of offers by Monday, and have one vetted and selected by Wednesday. He says his strategy is to set the price slightly below the actual value and let the potential buyers bid it up. He says the bank will whisk the short sale approval in 30 days or less. Once all is said and done, we should be closed by December.

I'm skeptical that there would really be that many offers to bid it up and significant amount, or they would come that quickly, or that the bank would process the short sale at anything other than glacial pace.

As part of the deal, she'd get a 1099 for (guesstimating) $20k or so. Ouch.

From what I can tell, this would be the way to go, although the tax bite will suck. We don't really want to be landlords, and the monthly loss without a tenant will be difficult to sustain.

Am I missing anything? Any other gotchas? Any other suggestions?

Without being behind on mortgage payments - she may not "qualify" for a short sale. That would be up to the bank to determine.
Depending on what the HELOC funds were used for - the shortfall between payoff and sale proceeds may not be taxed (1099.) If she has receipts for upgrades,etc they can be used to show additional basis for the house purchase.

really depends on the bank
some are faster then others

the house next door to me has been vacant 7 years
the bank BoA HAS NOT FORCLOSED IN 7 YEARS

mean while the house had a minor fire
and has been semi striped
county finally issued at repair or take down notice
we will see if that happens now

No FHE, but I'd be surprised if everything happened so quickly with a short sale. From what I've heard, these things can take months (6+) to resolve. You're the only one with any sense of urgency in the whole deal, and your opinion doesn't really matter. Hope I'm wrong. Best of luck.

Same thing I've heard. The bank is in no hurry to take a loss in much the same way I'm in no hurry to get kicked in the head. Dragging their heels could work out in their favor, as values could go up.

Because accumulating taxes are applied to the former owners credit history.
The bank took possession of real estate(i.e. 'real' and 'physical') by force.
The bank is a corporation.
Corporations are a person-hood.
Like a person.
But not.

=Constitutionally 'separate but equal' person-hood.

Because the former owner is still on the hook for taxes.
The bank can choose whether to sell in an up-market, or choose to continue to screw the lendee by not doing it's job.
The bank possesses all the leverage, but no responsibilities.

=Representation but no taxation (or the constitutional opposite for the former owner).

Nota and Widebody:
Not sure about the legal situation, but if bank negligence is causing your property to lose tens of thousands of dollars of value, there might be legal claim to recover loses.

Your position may be reinforced by a database of similar neighborhood comps... without destitute properties right next door.

Caveat: It's a touchy political subject.

I have a similar situation with my house in VA. Pretty sure the 1099 would be offset by a large deduction for rental loss, which you can claim in the year it's sold.

that's a big HELOC, and technically it's a cash out deal (like said earlier) unless it went to upgrades that actually increase the value, such as adding footage.

If you drop paying, possibility is the 2nd will keep paying the 1st lienholder to help keep the 2nd lienholder from losing claim in FC.

of course, they will run you into the ground in the process, the HELOC could be considered personal debt, not attached to the house and therefore collection rules stand, including going after your wife's income- Normally if they FC in many cases they can't come after you personally if they didn't get judgement in court.

Don't quote me tho, I'm no expert in THIS situation, all I know is that HELOC is going to be a problem...

rjp

---"large deduction for rental loss, which you can claim in the year it's sold."

Please expand, Rick.
I've had many years of ceilings caving in from a leaking roof(almost a decade), and problem neighbors.

PS good luck with that short sale, I highly doubt that 2nd lienholder is going to roll over, you never know.

Realtor just wants a listing, that's all. If you don't see $213K, he /she definitely won't get it.

The only thing is- bank can lose home rights in tax FC, taxes are the only thing that overrides 1st lien by bank.

They have to keep paying taxes to prevent that from happening.

rjp

Who Pays Foreclosure Property Taxes? : Real Estate and Mortgage News
With a short sale the situation is different. A short-sale is not a foreclosure. It’s a transaction where the lender agrees to allow a sale without a foreclosure even though the entire mortgage debt is not being repaid.

In terms of property taxes a short sale is simply a sale with property taxes to be paid at closing. Who pays the property taxes? In some jurisdictions there is a tradition that the buyer will pay or that the seller will pay, but the issue can typically be negotiated.

So, the realtor will list for $172K or a little less........Yes, it can get bid up a bit. But highly unlikely to to surpass the 213K you need to break even......Realtor is looking for a quick commission.....No harm in trying, you have to Accept any offer?

I checked as I could buy the tax note and get the house [after 2 years]
if the taxes were unpaid
but the taxes are being paid and not by the former owner but who ?
the bank or some kind of insurance [fire or loan ins ] is keeping the taxes up to date
BoA paid crews to look at the property and cut the grass
but willNOT admit they own or have any plan for the now part burned house

Cut to the chase nota.
Certified, notarized, authorized, witnessed.
Get a neighborhood petition going.

Someone is eventually responsible for blight.

Calling Berettafan. He does my taxes and mentioned something about this last we spoke.

that is, assuming the county hasn't gotten fed up with being unpaid and hasn't hooked the house yet. If it comes down to that, the bank loses.

No bank will risk it.

ya, you can accept, but the lender OTOH isn't gonna dig the short..

rjp

Agent is going to bring you an offer by listing house low. When bank rejects or delays, agent is betting on you to bring money to closing to end the bleeding sooner.