Real Estate Information Archive

 ECONOMIC RECOVERY ACT OF 2008

Attorney General Mike Cox issued an important opinion this week clarifying the proper application of an obscure exemption contained in the Michigan Transfer Tax Act. The opinion, arising out of a request from Representative Martin Griffin (D-Jackson), should afford certain Home sellers immediate financial relief as Michigan’s real estate market continues its road to recovery.

Exemption “t”, as designated in the Michigan Transfer Tax Act, sets forth that a seller may seek an exemption from paying the state transfer tax if the following criteria are met:

With property values and corresponding SEV declining due to the struggling economy, home owners and real estate agents first took notice of the exemption’s possible applicability under the state transfer tax. However, absent an official interpretation, there was little awareness of its proper application.

The opinion from the Attorney General uses examples to show how the application would apply. One example illustrating application provides:

If the SEV of the principle residence when acquired in 2006 is $74,000.00 and the SEV when transferred in 2008 is $72,000.00 then criteria one and two above are satisfied. You can establish the true cash value by doubling the SEV at the time of transfer. In this case the true cash value is $144,000. If the sale price in 2008 is $140,000.00 then the sale does not exceed its true cash value. All three criteria are satisfied and the exemption would apply.

The Attorney General’s opinion provides immediate relief to home sellers already faced with the reality of declining value on their single greatest asset. The opinion also provides a uniform reading of the exemption that is necessary to provide consistent application among the various Registers of Deeds across the state as they are already receiving filings for the exemption.

Sellers should be cautioned that a request for the exemption that fails to meet all three criteria could bring a penalty equal to 20% of the tax assessed in addition to the tax due. Additionally, no similar exemption exists in the County Real Estate Transfer Tax Act.

Seller Concessions:

Percentage of purchase price towards allowable costs (percentage depends on program and downpayment, see chart below).

In addition to concessions, sellers can pay for the following:

1. Seller can waive tax pro­-rations from the buyer on the purchase agreement.

2. Disburse Use and Occupancy fee's (if any) to Buyer at clos­ing.

3. Pre-­pay association fee directly to the association. By giving the buyer a paid receipt allows this cost to remain off the final HUD.

A short sale in real estate occurs when the outstanding obligations (loans) against a property are greater than what the property can be sold for.

Step One

Verify the value of your property.  If you are selling the property through a real estate broker, your broker will provide you with an estimate of market value.  If you are selling the property yourself, do your own market analysis of the area and your property.

Step Two

Add up all the costs of selling your property.  If you are using the services of a real estate broker, the broker will provide an estimate of closing costs.  If you are selling the property on your own, call a local title company or real estate attorney and ask, as a seller, what the closing costs will be.

Step Three

Determine the amount owed against the property.  This will be the total of all loans against the property.

Step Four

Do the calculations.  Subtract the total amount owed against the property from the estimated proceeds of the sale.  On a short sale, this will be a negative number.

Step Five

Contact the lender or lenders.  Talk to someone in the customer service department and tell them the situation.  They may direct you to a specific department.  Talk to a supervisor or manager if possible; this person will have more authority.

Step Six

Ask the lender what its procedures are for a short sale.  Some lenders are willing to work with you by reducing the amount owed or making other arrangements.  Others will look to the agents involved (if any) or anyone who’s making money off the transaction to see if they can make concessions to make the transaction happen.  Still other lenders will tell you, the debt is your responsibility, one way or another.

Step Seven

Sell the property.  Select a real estate broker to assist in marketing your Home.

Tips

Closing costs will include title and escrow fees (if the seller is responsible for any portion of them, which will depend on your county), attorney fees, a portion of unpaid property taxes, re-conveyance fees, notary fees, delivery fees, documentary fees and/or transfer fees.  Remember that the amount on your monthly loan statement does not include interest.  Interest is accrued until the date a loan is paid off, so you may have as much as 30 days of interest on top of the balance owing, and you’ll need to include this interest in the total payoff amount.

Warnings

If a property is sold under a short sale, the lender may require the buyer to make up the difference, either through a personal obligation or collection.  The IRS often gets involved with short sales, because they are seen as a relief of debt and may be treated as income.  Check with your accountant.

Click here to get a price on your home .  Or if you are looking for property that might be a foreclosure or otherise.

What type of property qualifies for a short sale?

• Banks may consider a short sale for various reasons
• A Home in any location, size, style and condition may be considered

Normal steps to start the short sale process.

• The property must be in distress and have a sales offer in writing
• Discuss the potential short sale option with the homeowner
• The homeowner must sign an authorization to release form.
• You must have a signed sales contract for an amount less than what will cover all of the sellers’ costs
• Contact the Loss Mitigation department at the bank

Fax your offer along with the following to the bank.

• Include a cover letter explaining why the offer is less than full price, the sales contract, justifying comps for the area and pictures, if you have them.
• A net sheet or closing statement (a sheet that shows the bank exactly how much they will net after closing costs, taxes, etc are paid)
• A hardship letter from the homeowner that mentions the dreaded word….bankruptcy
• Estimate a cost of repairs using retail repair prices that the normal homeowner would pay for these items

What happens to the homeowner’s credit?

• Keep in mind that the agreed upon price is payment in full.  However, the homeowners may still owe the difference between the mortgage balance and the discounted amount via a deficiency judgment.
• If granted, this judgment will affect the homeowners and their credit report just as any other judgment.  You must get the bank to agree to accept payment in full without pursuit of any deficiency judgment.
• In addition, the difference between the mortgage balance and the short sale may be declared as income on your income tax returns by means of a 1099.
• Homeowners should speak with their accountant for advice.

What other options are available?

• Since Fannie Mae and Freddie Mac have additional programs to assist sub prime borrowers, many lenders are more willing to offer loan modification options.  This option can extend the term of the loan, add on delinquent payments to the loan principal, and/or reduce the interest rate to make the loan more manageable for the homeowner.
• Also, there may be an option to utilize a repayment plan that requires homeowners to increase their monthly payments until the loan is current.  Check with the mortgage lender and a real estate consultant who specializes in short sales.  It may be possible to refinance an adjustable rate loan with a Federal Housing Authority (FHA) or Conventional Fixed Loan.  Noe that lenders will not postpone a foreclosure just because a property is listed, although they may delay the process, if you have a reasonable offer in the works.
• The idea candidate for a short sale is still making loan payments and has a credit rating worth preserving.  Otherwise, it may not be worth going through the complicate process.

What are the seller’s options if a short sale is rejected by the lender?

• There are a variety of reasons a bank will reject a short sale – from too low a price to too many files on the loss mitigator’s desk.  You can look for another buyer or even try resubmitting the same contract.
• A short sale might be rejected if the loan is less than a year old.  In this case, the loan servicer that bought the loan may require the original lender to buy it back.

What financial liability will the sellers incur as a result of the short sale?

• Many lenders ask sellers to sign a promissory note for all or part of the difference between the proceeds of the short sale and the debt obligation as a condition to a short sale.  In such cases, the note gives lenders the right to sue a seller and attach other assets if the note is not paid when due.
• According to many professionals, it’s important to understand this difference if you work in a non-recourse state which may not allow the lender to pursue a deficiency judgment against a seller for any deficiencies after a property is foreclosed.  Seek the advice of an attorney and your lender to determine what financial obligations exist for both parties involved within your state.

Are there tax liabilities as a result of a short sale?

• Seek the advice of a tax expert.  The IRS requires lender to submit a Form 1099 stating the forgiven amount.  Sellers who meet the Internal Revenue Service definition of insolvency (either bankruptcy or with debts exceeding assets) may not have to pay taxes on the forgiven amount.
• The U.S. house of Representatives has introduced the Mortgage Cancellation Tax Relief Act (H.R. 1876), which would eliminate taxes on any debt forgiven on a principal residence through either short sale or foreclosure.
• Ask an accountant or attorney to provide more information on this bill.

Are For Sale By Owners qualified for Short Sales?

• Homes that qualify for short sales are identified primarily by word of mouth.  However, we have agents that specialize in short sale counseling which happens prior to filing bankruptcy.
• For Sale by Owners are another source since many homeowners look for ways to cut their costs when selling their property.  Their concern may not be warranted because many FSBO’s don’t realize that the bank covers the commission.
• With many more adjustable rate mortgages ready to reset to higher loan amounts in the next couple of years, short sales represent a growing sector of the market.

Legitimate businesses generally don’t advertise on utility poles or on temporary signs along the side of the road.  Be wary of anyone who calls or stops by your Home with an offer too good to be true.  Predatory buyers or scam artists may pretend to help you.  What they really want is your property.  A potential predatory buyer/lender:

• seeks you out to “solve” your financial problems
• pressures you to make a quick decision
• demands large up-front fees
• tells you not to contact your current lender or bank
• tells you not to contact a lawyer
• asks you to sign papers without giving you a chance to read them
• asks you to sign papers with blank spaces
• asks you to sign a deed
• offers to file bankruptcy for you

Legal Services of South Central Michigan

Click here for More Info on Predatory Lendors

Green Path Debt Solutions

1-800-630-7410

Stop by Tom Stachler's web site or call us should you need further assistance. Or you can Click Here to get an email report providing you with a valuation of your property.

Click here to get a price on your home .  Or if you are looking for property that might be a foreclosure or otherise.

There are different options available to you when you no longer have enough income in the household to support the mortgage and all other bills.  These options assist with preventing the foreclosure, but do not mean keeping the Home.

Short Sale

The mortgage company allows the homeowner to sell the home for less than what is owed on it.  This option can be utilized before the Sheriff’s Sale.  Prior arrangements need to be made with the mortgage company before the official sale of the home.

Deed-in-Lieu

The mortgage company allows you to give back the deed to the home in exchange for “forgiveness” of the debt.  This must be done before the Sheriff’s Sale.  The mortgage company may require you to have the home listed on the market for a period of time before considering this option.

Sale of Home

List the home for sale.  This can be done before or after the Sheriff’s Sale.  However, to prevent the foreclosure from going on your record, the sale must be completed before the Sheriff’s Sale date.

During this time, the best thing for you to do is to stay in contact with the mortgage company.  This is important to prevent the foreclosure of your home, if at all possible.  Unfortunately, it may not mean keeping your home, but will allow you to “spare” your credit, so that you may purchase a home in the future when your situation improves.

You have up until the date of a Sheriff’s Sale to “work out” arrangements with your mortgage company.  So, if you can re-establish sufficient income before that date, then options that involve keeping your home become available to you.

Click here to get a price on your home .  Or if you are looking for property that might be a foreclosure or otherise.

While a short sale may be a last resort for many homeowners facing foreclosure, it also represents a great opportunity for potential Home buyers and real estate investors. This article is designed to help answer a few basic questions about the substantial risk and reward involved in this extremely complex and often drawn out process.

What is a Short Sale?

A short sale is a legally-binding agreement to allow a home to be sold for less than the amount that is owed. And, while short sales are not by any means common or easy, because of increasing inventory levels and foreclosures in some parts of the country, lenders are much more eager to negotiate with borrowers who are having trouble paying their mortgages. For potential home buyers and real estate investors, a short sale also offers a great opportunity to purchase property at a significant discount.

However, don't expect a lot of help from the lender without first providing a sales contract from a qualified buyer and all the information required by the lender's loss mitigation department.

Of course, lenders are not looking to bail out "flippers" or other borrowers who simply overextended themselves. In most cases, a borrower must have suffered a serious financial hardship that directly caused him or her to default on the mortgage: the loss of a job, a serious illness, or the death of a loved one.

A written declaration and supporting documentation demonstrating financial hardship will definitely be required by the lender. This may include pay stubs, tax returns, and liquid asset statements, among other documentation.

Key Considerations to Keep in Mind

The lender will likely issue a 1099 to the seller for the difference between what is owed and the final amount the lender collects after the costs of the sale, including real estate commissions and possibly other charges. This means that the difference or deficiency can be considered as taxable income to the borrower. Some lenders may even attempt to get the existing homeowner to sign a note for the remaining amount due.

If there are multiple liens against the property, all lien holders will have to be involved in the negotiation process, not just the first lien holder. Therefore, communication and patience are essential components of any short sale. This is why an experienced real estate agent and mortgage professional become so valuable to this process.

Loss Mitigation

Loss mitigation is the terms used by mortgage companies to describe their programs and department that can assist borrowers in bringing their mortgages current.

The number one requirement of Loss Mitigation is affordability of the mortgage.  To be able to assist you, the mortgage company must see a budget that demonstrates to them that the income coming into your Home is sufficient to support all of the household bills.

When speaking to your mortgage company, ask to speak to their Loss Mitigation Department, which is sometimes called the Loan Counseling Department.  These are the people that have the authority and knowledge to assist you with becoming current on your mortgage.  Request from them a Loss Mitigation Package for your loan.

Find out what type of loan you have (i.e. Freddie Mac, Fannie Mae, VA, or FHA).  When you contact your mortgage company, ask them who the investor is on your loan, or if you have mortgage insurance.

Options You May Have

         Repayment Plan

This is when the mortgage company can take the amount that you are delinquent and add it on to your regular payment, and spread it out over 3-12 months (some mortgage companies will allow longer).

         Loan Modification

This is when the mortgage company adds the amount that you are delinquent to the principal balance of your loan.  If they think that it is necessary, then they may consider extending your loan term to 30 years and/or adjust your interest rate.

         Partial Claim

This strategy is used on FHA loans or those with PMI insurance only.  This is when the insurer of your mortgage gives you a loan for the amount that you are delinquent.  This is a non-interest loan that does not require payment until the sale of the home or until you pay off the first mortgage.

For more real estate information, please call Tom Stachler directly at (734) 996-0000 or go to his web site.