Debbie Yost

It happened again today. I spoke to another person who abandoned a home because they thought they would lose it to foreclosure. I understand the hopes and dreams they had as new homeowners are dashed by the economic challenges of this market, and they may feel as though they have no other options. In reality, it may take months for the home to actually be acquired by their bank and in the meantime neighborhood home values will be negatively impacted as landscaping dies, the pool turns green and weeds grow in the yard of this abandoned home.

If a homeowner is struggling financially or feels desperate because their mortgage balance exceeds current market value, abandoning their home is actually the last thing they should do. Contrary to popular belief as well as the folks who answer the phone at the mortgage company, lenders do not want to foreclose on their property. I know of homeowners who haven't made a mortgage payment in over a year who are still in their homes.

Many people erroneously believe that if they miss a mortgage payment the bank will foreclose and this means that they and their belongings will be thrown out into the street. Arizona law protects homeowners by giving them a minimum of 90 days legal notice before the actual trustee's sale takes place. And that notice of foreclosure (which starts the 90-day time period) usually won't begin for months after the first monthly payment is missed.

As in every natural and manmade disaster, there are those individuals and companies who find a way to prosper in the face of others' distress. I've spoken with countless homeowners who have paid companies thousands of dollars to help them modify their loans, seek short sale approval or induce them to sign over their property with the ability to rent the property until some future date when they can purchase it again. The federal government has laid out guidelines and provided financial incentives to mortgage companies to assist borrowers with loan modifications and foreclosure alternatives, such as short sales, at no cost to the homeowner. I repeat: There is no need to pay anyone money to participate in the HAMP loan modification and HAFA foreclosure (short sale) programs and the federal government actually pays the lender money for successful assistance to homeowners under these programs. The truth is that participating in these programs requires unending patience, a lot of financial disclosure and paperwork, and can take months to complete.

Some lenders have actually taken a proactive approach to the challenging real estate market and have streamlined their short sale procedures to the point where approval can be obtained in as little as 10 days! More lenders are watching these pilot programs, with the goal of adopting similar procedures in the coming months.

Rather than moving out of their home while wading through the paperwork and procedures involved and taking on another housing expense in the form of rent and moving costs, financially distressed homeowners are far better to remain in their homes, even if they are unable to make their scheduled mortgage payments.

The real estate market has changed from the skyrocketing appreciation Arizona experienced in the 2002-2005 years, and it will probably never return to those crazy days. The only way for the market to stabilize is to stop foreclosures and the further value declines they create in our neighborhoods.

There are many Realtors who have been extensively trained in dealing with the banks and negotiating short sales, which is convincing the bank to accept a loan payoff which is "short" of the full balance owed. If you or someone you know is having difficulty making their payments or finds their loan balance is so much larger than their home's current market value, interview Realtors to find someone who has been extensively trained and certified in this specialty, doesn't charge a fee up front, and who has a track record of successfully closing short sales. Short sales have been called "the brain surgery of real estate" and while I would seek a family doctor for treatment of the flu, I would seek out a skilled brain surgeon with a successful track record if I needed that type of treatment. We have created a Web site full of helpful information for distressed homeowners at www.CasaGrandeShortSales.com.

If you or someone you know is in trouble with your mortgage or property value, please don't abandon your home. It doesn't help you, your lender or your neighbor's home values.

Tax consequences on Arizona Short Sales

Chris Combs of Combs Law Group, PC had some very interesting comments in a piece published in the January 13th, 2010 edition of the Arizona Republic. A reader asked about the tax consequences on the debt forgiveness on three Arizona residences being sold as short sales. Two of the three properties were investment properties and the third was their primary residence and they wondered if they would have any taxes on the debt forgiven.

In Arizona, we have two issues to deal with in a short sale: deficiency judgments on the difference between the mortgage balance and a sales price lower than market value; and the tax consequences of the debt forgiveness on a property that is not your primary residence.

Mr. Combs, who is considered an expert in AZ real estate law explained that the seller of these three properties would "probably not" as "the amount of any debt forgiveness on a loan is generally taxable income, and the lender will send a Form 1099 to the Internal Revenue Service for the amount of the debt fofgiveness, debt forgiveness on loans used to purchase homes is generally not taxable income." (See complete article)

I kept reading, thinking Mr. Combs would go on to say that debt forgiveness on your AZ principal residence is not taxable income, as a result of the Debt Forgiveness Act of 2007. I expected him to say that the debt relief on the rental homes may be subject to taxes. He explains that the IRS has ruled that "there is no tax liability for debt foregiveness of non-recourse debt." He further explains that under Arizona law, "any loan used to purchase a home in generally non-recourse debt; that is, the homeonwer has no personal liability for the loan."

WOW! Most loans made to purchase Arizona residential real estate are non-recourse debt - on both personal residences and on homes purchased as investment property. This has huge implications for many investors who are forced to sell Arizona properties with short sales. I haven't seen anyone else address this issue of non-recourse debt being excluded from taxes on debt forgiveness. He also suggests that if your lender erroneously sends a Form 1009 indicating debt relief it can be corrected on your tax return. This is certainly an important point to remember and discuss with your tax preparer! I'm clipping and saving his column for future reference!

Its true! Short sales can be frustrating, difficult, require mounds of paper and followup, and take months for approval. However, we've seen a definate trend with lenders understanding the problem of reduced property values, and making strides to streamline the process. In fact, some lenders have begun pilot programs where the main requirement for approval is that your property value is less than the current mortgage balance(s).

We have recently become aware of a few lenders who will approve a short sale in just a few weeks, not require mountains of paper and will approve the short sale based only on the mortgage balance/market value difference. Lenders processes are changing all the time with an effort toward streamlining their systems, and that is great news for those of us in Western Pinal County in Arizona. Call or email us today to find out if YOUR lender is one of the forward thinking ones who are approving short sales faster and without the hardship or payment delinquency requirements.

Unfortunately, many short sales can take 2 to 4 months for approval and closing, which means it is even more important to get your home on the market now so that the potential buyer has enough to time close escrow before the expanded first time homebuyer and repeat homebuyer tax credit deadlines become an issue. There is a great misconception that listing your home during the holiday months of Nov and Dec is a waste of time. Nothing could be further from the truth, especially with the expanded home buyer tax credit!

The new laws require a signed purchase contract before the end of April 2010 with closing occurring before the end of June 1020. If you think that you may be a good candidate for a short sale, get your home on the market with a broker who is highly experienced with successful short sales as soon as possible! As CDPE's (Certified Distressed Property Experts) we understand the process needed to stop the foreclosure action by your lender. Wouldn't be nice to know your family could enjoy the holidays without worrying about a possible foreclosure?

If you own a home in Western Pinal County from Maricopa to Casa Grande, Arizona City to Coolidge, Robson Ranch in Eloy or anywhere in the Casa Grande Valley, we are here to help you. We can help explore your options, avoid foreclosure and help you get a fresh start. Members of the Yost Realty Group at RE/MAX Casa Grande understand the frustration you are experiencing with your lender and are here to help.

Every day I see ads on TV and the newspaper promising solutions to save people from foreclosure by negotiating a mortgage modification or short sale. Many of these companies have professional sounding names, slick websites and made grand promises. It almost sounds too good to be true!
After your initial information many ask for negotiation fees to be paid up front. I'm also seeing marketing from real estate brokers who are requiring sellers to pay money up front for these services. My understanding is that licensing through the Arizona State Banking Department is required in order to negotiate financing on behalf of another party. There is absolutely no reason or requirement to pay any fees for someone to negotiate a loan modification and I hate to see people who can't afford to pay these fees get taken advantage of. Simply go to www.MakingHomeAffordable.gov and you'll find information to help you determine if you would qualify for a mortgage modification.

I get so frustrated when financially distressed homeowners get caught up in these scams and pay their hard earned money to folks who pocket the funds and then the property still goes to foreclosure! There are a few requirements that are necessary for a loan modification: the homeowner must have income that can be verified, they must qualify for that payment (it's almost the same as when they originally applied for and qualified for the original loan), and must be able to AFFORD the new payment. Homeowners can pursue a loan modification and a short sale at the same time. There is ALOT of financial information required for both these processes and if you are filling out one set of financial documents, it's just as easy to fill out both! If the loan modification isn't approved, or the new payment offered isn't affordable, the short sale can be pursued instead.

One business model for short sales involves a professional looking company who offers to solve all your financial problems, including a loan modification and/or a short sale. They make an offer to purchase your home with a short sale, and then go to the mortgage company for approval of that short sale amount. Once they receive approval they list the home for sale and attempt to find a buyer who will subsequently purchase the property at a higher price. When the date of closing occurs the investor closes the short sale with the lender, and then resells the property (or flips it) to the new buyer, pocketing the difference as profit. Our office has been approached by several of these companies, asking us to list the property for sale. We have declined these listings because I believe it's WRONG. Taxpayers are funding this bailout of major banks and lenders. If the property will sell on the open market to a second buyer at a higher price, then I believe it's morally wrong to participate in a "flipped" sale where the investor pockets the difference. If the home is truly being sold short of the loan balance, and at market value, then there isn't room for profit for the investor between the short sale and subsequent sale. While this practice might not be labeled fraudulent at this point, if you really look at this practice from an arms length position, in my opinion it's wrong for private investors to profit from a short sale where taxpayer money is being used to pay the difference between a loan balance and market value. I believe it is wrong in the same way as it is wrong for the CEO's of these failing banks to pocket enormous paychecks and bonuses. I've spoken to some of these business people who insist this practice isn't wrong because they are fulling disclosing the fact that the property is being resold to the mortgage company approving the short sale. Just as it might have been "legal" for home repair contractors to greatly inflate repair prices for necessary repairs following Hurricane Katrina, I still believe it was morally wrong.

I'm proud to be part of an organization that is truly making a difference in people's lives. That's the Distressed Property Institute. There are currently over 8000 Realtors in the US who have spent their money and their time to take the intensive training courses to become certified as a Certified Distressed Property Experts. These Realtors don't charge fees upfront to homesellers, and they are negotiating hundreds of short sales on a weekly basis. The Institute continues to provide support on a weekly basis as short sale practices change and they've developed a complete system to give homeowners the best chance possible to successfully avoid foreclosure. If you or someone you know is having difficulty making their payments, or owes more on their property than it's current market value, recommend that they find a Realtor who is a CPDE. Consumers can access the Institutes' website at www.cdpe.com to locate a CDPE near them.

On May 20th, President Obama signed the Protecting Tenants at Foreclosure Act of 2009 (S. 896) into law. These tenant protections are effective immediately and expire on December 31, 2012.

In a nutshell, renters must now be allowed to remain in the home for the duration of their lease, even if the home is being foreclosed on. The new law gives renters a minimum of 90 days notice before they must vacate. If a new buyer plans to personally occupy the property, or the tenant's lease is month to month, or there is no lease at all the tenant is entitled to at least 90 days notice.

If there is a lease, tenants will be allowed to stay for the remainder of the lease before the foreclosing lender or new owner can proceed with eviction. If a state offers greater protections to renters, the new law allows the stronger protections to apply.

This bill is important and timely, because it specifies that tenants have rights and gives them protections they did not have previously. As a broker who provides property management services, I'm thrilled that we have some guidelines that allow us to treat the tenant fairly. Without this law, we were required to enforce the provisions of the existing lease.

If an owner was attempting to negotiate with their lender for a loan modification, refinance or a short sale, we often didn't know until the day before the scheduled foreclosure if the the lender would postpone or stop the foreclosure auction. This left the tenant in a precarious and stressful situation, not knowing whether or not they'd have to move. As the property manager, my hands were tied, as I was unable to alter the lease without the owners permission, and they frequently are working furiously to keep the property.

This new law provides a policy whereby tenants have rights, property owners have new guidelines to follow and landlords, new purchasers and lenders all know where they stand.