Case Shiller Home Price Index is a leading information source for what is going on in the housing market.  The January report shows that sales prices across the nation continue to decline.

While the low interest rates and low prices are  bringing many buyers to the market in search of bargain prices there appears to still be more downside for home sellers.

What does that mean to real estate agents?  I means they will need to price their listings below the current market value. Since it could take 2 -3 months for a short sale approval it would be wise to determine the month over month decline percentage in your area and multiply that by let’s say 3 months..So, if your area is declining at 12% a year you may want to reduce your list price by 3% from recent comps.

This, of course, is not an exact science but it is a start in the right direction.

Today the term “loan modification” is highly searched on the internet.
For good reason.  As we all know the rate of foreclosures is at an all
time high and getting worse.  Homeowners who are not able to make
their house payments on time are trying to figure out what their options
are so they don’t loose their home to foreclosures.

All over the news we hear the term “loan modification” being bandied about
with ever increasing frequency.  What is a loan modification?  How does
it work?  Do I qualify?  Will my lender participate?   What if my home is
worth less than the current liens?  What if I am currently late on my mortgage
payments?

My objective is to help homeowners who are behind or having a hard time
making their payments, facing foreclosure or notice of default to understand
their workout options and whether a loan modification would be right
for their situation.    If they don’t qualify or their lender won’t participate
than other workouts would need to be considered.

A typical loan modification plan may include lowering the interest rate,
adding the payments which are behind to the end of the loan – thus, increasing
the payoff balance or even extending the term of the loan.  This solution would
generally be for a borrower whose income has changed permanently (lowered)
and they do not expect it to go back up anytime soon.  It would be best
to show your lender that you have changed your habits and are spending less, paid
down debts, etc.. to show them good financial management as they consider
your request.

There are many other terms that fall under the concept of a loan workout, however,
they do not modify the home loan.   Such terms you may have heard of include:
foreclosure, forbearance, deed in lieu of foreclosure, NOD, Notice of Default,
Cash for Keys, Short Sale, Listing home for sale, Repayment plan, Reinstatement
and Bankruptcy.

A brief definition of each follows:

Foreclosure:   Due to non-payment of note the trustee sells home on courthouse steps
in an auction format.

Notice of Default (NOD):  this notice is delivered to the borrower and states that the
payments have not been paid as agreed and that if the amount owed plus certain
expenses is not paid in full by a certain date that the home will be sold at auction.

Cash for Keys:  The lender agrees to pay the defaulted homeowner a set amount
of cash when they leave the property in good condition.  Clean and undamaged.

Deed in lieu of Foreclosure:  This option is where the owner gives the deed of the home
back to the lender in order to avoid foreclosure proceedings.

Forbearance:  The lender can “stay” the foreclosure process with a forbearance agreement
between the lender and homeowner.  When the homeowner faces a temporary financial hardship the lender may approve this option and allow the homeowner time to get back on their feet (so to speak) and resume payments at a later date and catch up on payments in arrears within a certain time frame. This would be used with “temporary hardship” conditions rather than a long term financial problem.

Short Sale:  The lender accepts a ’short payoff’ meaning that the proceeds to the lender upon the sale of the home is less than the current mortgage value.  If there is a 2nd or 3rd mortgage those lenders would also have to accept a short payoff or complete write off of their loan(s).

Listing Home for Sale:  Selling home on the open market usually thru a local real estate
agent and using the MLS (multiple listing service).

Repayment Plan:  The amount you are behind can be broken up into smaller chunks and
repaid over several months with your normal mortgage payment till you are ‘current’ on your mortgage.

Reinstatement: Once you have paid the lender the entire amount of past due payments plus any late fees than your mortgage is reinstated.

Chapter 13 Bankruptcy:   This can give a homeowner time to reorganize their debts and enter into a repayment plan
that incorporates all of their monthly obligations.

A word of caution:  Always seek the advice of your attorney, financial planner and accountant before proceeding with any type of loan workout or modification program of your exiting mortgage or selling your home.   Don’t delay when behind on payments – seek legal advise immediately and be in constant communication with your lender till your situation is resolved.

The word is out that lenders are slashing prices on short sales across the country. What does this mean for you?  Well, a couple things.  First of all if you are a homebuyer you can pick up especially good deals and be able to low ball offers on short sales (within reason) and have a higher chance of getting your offer accepted.

For sellers the advantage is their home will sell faster as buyers can bring in lower offers thus appealing to a wider base of homebuyers that otherwise would not be able to purchase the home in the current list price range.

An exceptional loan that is available to purchase short sales is the FHA loan which requires a very low down payment.

Do I Have to Pay Taxes on a Real Estate Short Sale? This is a much asked question in the real estate industry. Due to the tremendous record number of short sales in the US thousands of homeowners want to know if they have to pay taxes on a short sale.

This information about taxation on a real estate short sale is informational and not intented as tax advice. You should consult your tax advisor for real estate short sale tax questions.

The Mortgage Debt Relief Act of 2007 was signed into law by President Bush. The following is a quote from President Bush about this new law: “When your home is losing value and your family is under financial stress, the last thing you need is to be hit with higher taxes. So I’m working with members of both parties to pass a bill that will protect homeowners from having to pay taxes on cancelled mortgage debt.” ? President George W. Bush, 9/1/2007

Prior to this law passing a homeowner selling a home as a short sale whose home had fallen in value below the amount of the current mortgages would face a tax bill by the IRS on the forgive debt. Ouch!

This new law regarding taxes on forgiven debt of a home mortgages is for mortgages originated on or after January 1st, 2007 and only applies to the primary residence – purchase, construction or significant improvement.

While we are happy for The Mortgage Debt Relief Act of 2007 we can be sure there are thousands of homeowners who wished it would be retroactive to prior years.

Here is how the law reads at the house.gov website, source is http://www.house.gov/

Major provisions of the new law:

Permanent exclusion from gross income of discharged home mortgage indebtedness.

Long-term extension of the deduction for private mortgage insurance.

Modification of the qualification tests for cooperative housing corporations.

Modification of exclusion of gain on sale of a principal residence.

Learn more about Debt Relief on Taxes due to a Short Sale

What is a Short Sale? By now most people who own real estate have heard the term “short sale” but they may not understand what it means. A real short definition of the term short sale is the home sells for less than the combined mortgages on the property.

This is accomplished thru negotiations with the lenders. The lenders do not want to have a foreclosure so they are often willing to negotiate a “short sale” – accepting a reduction on their loan balance payoff so the home can be sold on the open real estate market thus saving the lender the extra hassles and financial losses that go along with a foreclosure.

However, there may be tax ramifications to the seller of the property of a short sale. An example could be someone who has taken out equity loans or refinanced for cash out and now the property is worth less than the total amount of loans on the property. This will result in what is known as “forgiven debt” for tax purposes. The question is: Is the forgiven debt of a mortgage taxable? Learn more