The intelligent alternative to bankruptcy or to foreclosure proceedings
There has been an unprecedented explosion in demand for attorneys who specialize in representing homeowners who must dispose of their homes through “short sales”.
Short sales are defined as sales where one or more mortgage holder agrees to discount its debt so that the property can be sold at its current market value to a willing buyer. Currently, short sales account for more than 40 percent of residential transactions and the numbers appear to be increasing.
Short Sales as a Market Force in New Jersey
More and more homeowners find themselves overwhelmed by their mortgage debt. For owners who can no longer afford to keep mortgage payments current, a short sale is the intelligent alternative to bankruptcy or to foreclosure proceedings. Short sales can preserve a homeowner’s creditworthiness and can help homeowners avoid the harsh long-term consequence of a foreclosure.
Many lenders in NJ have become willing to offer short sale discounts in an effort to minimize their own potential losses and to avoid the protected process of foreclosing. Qualified buyers, many of whom are prepared to invest significant down payments, are holding out for the lowest possible price. Mortgage holders agree to absorb the short sale discounts, enabling such qualified buyers to buy “discounted deals”.
For a seller in a short sale, the process tends to be both unique and complex. It usually involves intermediation between first and second mortgagees as well as the need for extensive drafting of agreements and releases. Real estate agents can often act most effectively as the preliminary negotiators. They initiate the short sale process by opening communication with loss mitigation officers, which in itself, is often a cumbersome process.
Agents can provide property specific data to the lender and they can arrange for the homeowner to provide proofs of hardship which are required by mortgagees before they will consider the terms of short sale. While it is the real estate agent’s work that positions the loan for discounting by the lender, it is ultimately a skilled short sale attorney, representing the seller, who secures meaningful protection for his clients and who brings the short sale to a successful conclusion.
In a market where an increasing number of homes are no longer worth as much as the liens which encumber them, many consumers are no longer able to afford their scheduled monthly mortgage payments, and judicial foreclosures are taking longer and longer to complete, ultimately increasing the number of short sales transactions.
Looking Forward into the Future as the NJ Real Estate Market Continues its Demise
The trend in short sales is expected to continue well into 2017. This is attributable to the recent failures of major lenders and to the fact that more adjustable borrowers will experience the shock of payment “resets” in the second half of the year. Reportedly, more such resets will occur in the first six months of the year than have occurred in any one full year period in American history. These resets are expected to generate a tidal wave of short sales. In response to the current number of defaults, and in anticipation of even more in coming months, the holders of mortgages are increasingly opting for loan discounting as their alternative to protracted, and ultimately costly, judicial foreclosures. Simply put, short sales are cheaper and faster.
The increasing willingness of residential lenders to grant discounts shows a preference for short sales as a practical means to cut their losses and to quickly purge their portfolios of at-risk loans. Homeowners and real estate agents find a shortage of attorneys who are specifically trained in the specifics of short sales – including the ability to make a case for mortgagees to discount their loan balances – enabling the homes to be sold. Eroding home prices have left many owners with mortgage debt that far exceeds selling prices of the mortgaged properties. While institutional mortgages have redeployed personnel into newly created, massive loss mitigation departments, there has not been a corresponding expansion among attorneys who clearly understand the protocol.
Fredrick P. Niemann and the attorneys in his firm have developed the experience to become aggressive short sales negotiators and are currently in demand as residential and commercial real estate values continue to decline. The short sale attorney’s role is pivotal to the success of most short sales.
Tax Consequences of a Short Sale
Is the forgiven loan amount considered taxable income?
Generally, forgiven debt is taxed as ordinary income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, forgiven mortgage debt in the context of a short sale is not taxable if the home is the principal residence of the seller and if the funds were in fact used to purchase the house (or equal to that amount, i.e., a no-cash out refinance would not result in taxable income).
If a refinance/equity loan were undertaken by the homeowner to obtain funds over and above the original loan amount, the additional funds may be taxable.
It is good practice to contact Fredrick P. Niemann, Esq. at firstname.lastname@example.org or call him toll-free at (855) 376-5291 in order that the actual tax consequences can be examined and a final determination made.
Sincere, professional, responsive and in touch with my legal needs and requirements. I have been a client for many years and have been very, very satisfied with Hanlon Niemann & Wright.
—Paul Brady, Princeton, NJ
The Bottom Line on Short Sales
In considering whether to approve a short sale, a Lender will try to determine what the property, if sold at a sheriff’s sale, would garner. Of course, it is considering what costs it will incur to prosecute the foreclosure action, and the likelihood of ever collecting on any deficiency. If the numbers add up in their favor, the short sale request will be approved. If not, the Lender will deny and proceed with the foreclosure action. Of course, property owners can always try to find another buyer who is willing to pay more and thus, start the process of getting a short sale approved all over again.
Short Sale Questionnaire
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Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Foreclosure Law Attorney