Step One: Call Town ‘N Country Realty 831-424-0001
Short Sales
A short sale is the sale of a home where the
bank or mortgage lender has permitted the
homeowner to sell for less than what is owed on
the property. Typically, when a homeowner is
facing foreclosure, a short sale benefits both
the homeowner and the lender. The homeowner is
able to reduce some of the damages to his/her
credit, while the lender is able to avoid a more
expensive foreclosure action. Though this might
seem like a magical solution, completing a short
sale does present a challenge to the homeowner
since banks usually take a significant amount of
time to approve a short sale. So much time that
by the time a bank approves a short sale
proposal, the buyers have usually either lost
interest or their financing. The approved short
sale is usually valid for only 30 days, so
finding a new buyer is challenging given the
tight lending environment of today.
Consequences of Short Sales
-
Tax Liabilities:
The recent Mortgage Forgiveness Debt Relief
Act of 2007 limits the amount of tax
liability on primary residences. Keep in
mind that if you are short selling an
investment property or a second home that
you are still likely on the hook for taxes
on income from debt forgiveness. The other
thing a homeowner should keep in mind is
that short sales may be subject to capital
gains taxes. Further reading is available on
tax issues involved with a foreclosure.
(Seller
needs to talk to a tax adviser or CPA)
-
Credit Consequences:
Your credit could be facing a credit score
drop of about 80 to 100 points, though
compared to a 200-point drop for a
foreclosure is not bad. Officially, Fair
Isaac Corporation, the company who produces
the FICO score, states “the common
alternatives to foreclosure, such as short
sales, and deeds-in-lieu of foreclosure are
all “not paid as agreed” accounts, and
considered the same by your FICO® score.”
Anecdotal evidence shows though that there
is a definite difference in the damage that
your credit incurs when comparing a
foreclosure to a short sale, where the short
sale is the better of the two alternatives.
-
Loan Deficiencies (Deficiency Judgments): In California, deficiency judgments are
generally not allowed, meaning that a lender
cannot sue a homeowner for any difference
between the amount of the sale and what is
owed on the home.
Step One: Call Town ‘N Country Realty 831-424-0001
Short sales can be challenging transactions to
manage due to the complications of dealing with
the lender and in working to get their approval
on the sale in a timely manner.
Competent help
through the use of a real estate agent
experienced with short sales is strongly urged
to increase the likelihood of success.
Whether a homeowner is attempting to short sale
a home himself or with a real estate agent, keep
in mind that the sale must be an “arms-length”
transaction. The home may not be sold to anyone
who the seller has a close relationship with,
like family, neighbors, friends, and business
associates.
|
DOWNLOAD AND PRINT
FORMS NEEDED FOR A SHORT SALE
|
Definition of
Foreclosure
Foreclosure is a
process, governed by
California state law, by
which a home is sold to
satisfy an unpaid debt
such as a home mortgage,
a tax lien or other
debt.
What Causes a
Foreclosure
A foreclosure is
initiated once a default
occurs. A default can be
triggered by a failure
to make a payment on a
deed of trust or
mortgage, or, for
example, can also happen
if a property is sold
without permission or if
property taxes aren’t
paid. The note and
mortgage will stipulate
what the lender
considers a default.
California
Foreclosure Process
The California
foreclosure process
typically takes about
200 days starting from
the time that a
homeowner misses their
first payment to the
point when the home is
auctioned off in a
foreclosure sale. Though
this might seem like a
lot of time, the four
month process moves very
quickly and a homeowner
must act immediately in
order to take advantage
of as many options as
possible to avoid
foreclosure.
Foreclosures in
California are typically
non-judicial under power
of sale in deed of
trust. This means that
the foreclosure process
occurs without any court
intervention, with
requirements for the
foreclosure process set
by state statute. The
lender will typically
send a Notice of Intent
to Accelerate after 60
days. Next, the lender
will contact the
homeowner 30 days before
sending the first of two
notices in the
foreclosure process, a
Notice of Default. The
Notice of Default gives
the homeowner a 90-day
window until the lender
takes the next step,
which is a Notice of
Sale, the second notice
required by California
law. The Notice of Sale
then gives the homeowner
20 days before the
foreclosure sale takes
place.
A homeowner has a
right to cure the
default up to within 5
days before the sale.
In a non-judicial
foreclosure, commonplace
in California, a lender
is not able to seek a
deficiency judgment*.
(*A deficiency
judgment allows a bank
or lender to obtain a
judgment lien against a
homeowner when a
foreclosure sale does
not produce enough to
cover the full amount
due on a home loan.)
Without a deficiency
judgment a homeowner is
not given a redemption
period. What all this
basically means is that
not having a redemption
period available after
the foreclosure sale
makes the foreclosure
sale date the deadline
for a California
homeowner to rescue his
home. (You can find more
information pertaining
to California
foreclosure statutes,
Cal. Civ. Code §§ 2924
to 2924l, on the
California Legislative
Information website,
but the reading contains
a lot of legalese, so be
forewarned.)
However, after the
foreclosure sale, a
homeowner may still
remain in the home for
some time while the
legal eviction process
churns on. After a
foreclosure sale
happens, if the
foreclosed homeowner has
not moved out of the
home, the lender/bank or
new owner is required to
produce a 3-Day Notice
to Quit. Once the three
days expire and a
homeowner still has not
moved, then the new
owner is required to
start the legal eviction
process by filing an
unlawful detainer, which
basically means that the
foreclosed homeowner has
30 days still before the
sheriff will come out to
force an eviction.
California
Foreclosure Timeline
From the day that a
homeowner first misses
their mortgage payment,
they have 200 days until
a foreclosure sale, and
233 days total until a
foreclosed homeowner is
evicted.
