Why Would a Lender Accept an Orlando Short Sale?
A common misconception an Orlando homeowner has is that their lender is waiting to take their home from them! The reality is lenders and financial institutions are in the business to lend money, not sell your real estate! A foreclosure is far more costly for a lender to pursue then allowing a short sale. Regulatory consequences are additional reasons why a lender does not want to foreclosue on an Orlando homeowner's home.
The Cost of a Foreclosure:
The best way to demonstrate why a bank will negotiate with a homeowner on a short sale is to cover the costs of a foreclosure. The below example is a hypothetical property.
Let us assume a bank takes over a property to sell at a $200,000 market price and locates a buyer and closes the transaction within 6 months.
Market Value: $200,000
Loan Amount: $250,000
Sale Price: $175,000
Legal Fees: -$7,000
Taxes: -$500
Insurance: -$1,000
6 months utilities: -$600
6 months maintenance: -$600
6 months interest loss: -$6,650
Association dues: -$1,200
Closing Costs (2.25%): -$3,937
Staffing costs: -$2,000
Commissions (6%): -$10,500
Proceeds from sale: $141,4013
The proceeds from an REO foreclosure sale will result in a higher lender loss & loss percentage
Loan amount: $250,000
Less proceeds: $141,013
Lender loss: $108,987
Loss Percentage: 43.16%
The Cost of a Short Sale:
Now we can compare the same property sold as a short sale with an agreement between the short sale seller & buyer with approval by the same bank.
Market Value: $200,000
Loan Amount: $225,000
Sale price: $190,000
Closing costs (2.25%): -$5,700
Commission: -$11,400
Proceeds from sale: $172,900
Conducting a short sale will result in a lower lender loss & loss percentage
Loan amount: $225,000
Less proceeds: -$172,900
Lender loss: $52,100
Loss Percentage: 23.16%
Lender Loss Comparison:
Lender loss from short sale: $52,100
Lender loss from foreclosure: $108,987
Percentage Change: -47.8%
The above examples of a foreclosure sale versus a short sale demonstrates a bank is actually better off accepting a short sale. Even if the bank sold the property at full market price through foreclosure and closed the sale within 30 days the cost would still be higher than accepting a short sale!
The financial situation would be even worse for the bank if the property declines in value, a tenant needs to be evicted (or lease fulfilled), or any number of other issues that can happen.
As I previously mentioned banks are in the business of lending money and their revenue is generated from interest earned from short and long term trades of cash. When a bank completes a foreclosure and takes on another Real Estate Owned property their balance sheet shows additional assets. Per Federal Reserve Tier 1 capital requirements, these assets must be offset by an equal to or larger percentage of cash in the reserve.
Banks that do not meet the requirement are subject to closure!
So next time someone asks Why Would a Lender Accept an Orlando Short Sale? you can tell them "so the bank stays in business!"
What is an Acceptable Hardship for an Orlando homeowner?
In order for a bank to accept a short sale, borrowers must have a demonstrable hardship. The borrower will have to prove this hardship through a signed letter submitted to their lender.
Fortunately or unfortunately many types of hardships exist. Some Orlando homeowner's may have mutliple hardships.
Below is an extensive list:
If you are experiencing any of the above situations you may need to consider a short sale as a solution to avoiding foreclosure.
For any real estate related needs contact Thomas Staples at 407-619-6249 or thomas@thomasstaples.com.
How can the Mortgage Debt Relieft Act of 2007 benefit an Orlando short sale seller?
Before the passage of this law any debt that was forgiven in a short sale or a foreclosure would require the homeowner to receive a 1099 form from their lender. This 1099 form required the homeowner to report this forgiven (or cancelled) debt as income.
So here is the good news:
From January 1, 2007 to December 31, 2012 this law eliminates the phantom tax on debt cancellation in mortgage discharge! After a successful short sale you may not have to pay income taxes on the forgiven debt!
Here are the basic guidelines to qualify for this act:
For detailed information please refer to a licensed tax professional.
It is also very important to realize that the amount of default with a foreclosure will be much greater than with a short sale.
This is for informational purposes and does not constitute legal or tax advice. Please seek appropriate legal counsel.
If you need assistance with the short sale of your home please call 407-619-6249 or email thomas@thomasstaples.com.
Now you know How can the Mortgage Debt Relieft Act of 2007 benefit an Orlando short sale seller?
7 Reasons an Orlando Homeowner Should Avoid Foreclosure
I am surprised how many times homeowners in foreclosure give up! The top two reasons why they reach the foreclosure stage are they did not understand the process & they felt like they no longer cared.
Below is a list of homeowner foreclosure consequences:
1) You will always have to disclose that you have had a foreclosure on any mortgage application and many job applications you submit in the future.
2) Credit scores are lowered 300+ points and a foreclosure is the most damaging issue in relation to future credit availability.
3) It is virtually impossible to "repair" a foreclosure on your credit report.
4) In the state of FL your lender can seek a deficiency judgment against you and collect for any amount they do not recuperate at a bank sale. This happens everyday at the orange county courthouse in Orlando.
5) Many employers run credit checks on prospective employees and a foreclosure may affect your job prospects.
6) Some current employers run credit checks and a foreclosure may jeopardize a current position.
7) Security clearance and government positions; including but not limited to military and law enforcement can be jeopardized by a foreclosure.
There are more than 7 Reasons an Orlando Homeowner Should Avoid Foreclosure but these are the most damaging because of job, career, future finances, and collections for a deficiency judgment.
Another unfortunate occurrence of foreclosure is the difficulty of purchasing your next home. The minimum waiting period is 4 years but it typically takes 5 years to secure your next home.
All of this doom and gloom can be prevented with a successful loan modification or short sale. Neither will cost you any money! For the loan modification you can gain free assistance from a HUD approved counselor. For the short sale you will receive free Realtor services including marketing, negotiating, and managing your transaction to a successful sale.
Now that you know the top 7 Reasons an Orlando Homeowner Should Avoid Foreclosure take the next step:
1) Call your Orlando Short Sale Realtor, Thomas Staples, 407-619-6249 or email thomas@ThomasStaples.com
2) Receive a free consultation to discuss avoiding foreclosure
3) Discuss your home ownership goals to determine if you should seek a loan modification or short sale
This 7 Reasons an Orlando Homeowner Should Avoid Foreclosure article does not provide tax or legal advice.
Take action now to Avoid Foreclosure!
Why Should I Short Sale my Orlando Home?
Here are the top 3 reasons why an Orlando homeowner might benefit from a short sale:
1) Erase an upside down mortgage through the HAFA program!
Home Prices have declined 50% or more since 2006-2007 in most areas of Orlando and surrounding cities.
Here is an example of a typical Orlando homeowner who bought in 2006-2007:
Purchase Price - $200,000
Monthly Mortgage - $1600
The above homeowner WILL have a neighbor that bought a similar home in the same neighborhood this year for:
Purchase Price - $100,000
Monthly Mortgage - $800
As a homeowner asking Why Should I Short Sale my Orlando Home it is important to understand you must have a hardship that your lender will accept. This could be financial, personal (medical or divorce for example), or due to job relocation.
2) Debt Forgiveness!
The Mortgage Forgiveness Debt Relief Act offers relief to homeowners who would owe taxes on forgiven mortgage debt after a short sale. The act extends such relief and covers mortgage debts discharged through calendar year 2012. Removing the tax liability allows the borrower & lender to find a common solution that is beneficial to both parties.
This protection is limited to primary residences — rental properties are ineligible for relief — so consultation with a tax advisor is necessary to ensure that a borrower qualifies. The debt must have been incurred to acquire a principal residence. The amount of forgiven mortgage debt allowed to be excluded from income tax is limited to $2 million per year. Debt from a second (non-acquisition) mortgage or HELOC is not eligible.
If you qualify and do not have to pay taxes on the forgiven debt it is easy to answer Why Should I Short Sale my Orlando Home.
3) Purchase Your Next Home!
Depending on what caused the short sale an Orlando resident may purchase a home in as little as two years. The time frame is based on your loan; Freddie Mac, Fannie Mae, or FHA.
Here are the general guidelines:
1) Fannie Mae - 2 years
2) Freddie Mac - 2 years
3) FHA - 3 years
If we use the example from reason #1 an Orlando resident could come back to the same neighborhood and purchase a similar home for $100,000-$115,000 in 2-3 years based on an appreciation rate of 0-5%. Annual appreciation of 3-5% is for a normal real estate market.
Purchasing the home may provide a monthly mortgage of $850-$950 per month. A monthly savings of $650-$750 per month!
The 3 reasons in this Orlando Short Sale article make it easy to answer Why Should I Short Sale my Orlando Home.
If you would like a free consultation to discuss all of your short sale options please call Thomas Staples; Realtor, CDPE, SFR at 407-619-6249 or email thomas@ThomasStaples.com.
The above article does not offer legal or tax advice.
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Orlando Short Sale Realtor certified as both a CDPE & SFR for the Short Sale Real Estate industry. I have been serving as an Orlando area Realtor since 2005.
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