All Forum Posts by: Monica Breckenridge

here is a blog I had posted on this subject:

The Mortgage Debt Relief Act of 2007 allows qualified taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring and mortgage debt that is forgiven in connection with a short sale or foreclosure, generally qualifies for the relief. For example, if you owe a debt to someone else and that person cancels or forgives that debt, the canceled amount of the debt may be taxable. However, if the cancelled debt applied to your qualified principal residence, the indebtedness could be forgiven. This Act was originally set to expire in 2008, however was extended through the end of 2012. Only cancelled debt that was used to buy, build or improve your principal residence, or refinance debt incurred for those purposes qualifies under the Act.

With the end of the extension nearing, many homeowners are now wondering if the act will be extended again. On February 15, 2012, it was announced that Obama’s Fiscal Year 2013 budget proposal includes an extension of the Mortgage Forgiveness Debt Relief Act of 2007 through the end of 2014. An extension of the act would ensure that homeowners who received principal reductions from loan modifications or other forms of debt forgiveness through short sales or foreclosure on their primary residences would not have to pay taxes on the amount forgiven. Under the act, up to $2 million in debt elimination can be tax-free.

Based on the importance of facilitating home mortgage modifications, in the Treasury’s Green Book, there is a summary explanation of the administration’s budget proposal and it calls for an extension of the tax break due to ‘the continued importance of facilitating home mortgage modifications.’ The proposal extends the act through 12/31/2014. At the end of this time, the government would reassess the market to determine if another extension is needed.

While it all looks good on paper and can easily be seen as the right thing to do, what is the reality the law will be extended and what is it going to take to get it done? There is a lot of opposition from the conservative members of Congress that could keep the act from being approved. The price tag to extend this act is about $2.7 billion and they want to know ‘Who is going to pay for it?’

The extension is needed because people are still affected by the downturn of the housing market and the economy. Many of the folks hit hard in 2007 and 2008 are still feeling the pains of the financial repercussions. Homeowners today are still drastically affected as property values continue to decline and many people are either still out of work or working for wages considerably lower than they were prior to the fall of the economy. While the market in Colorado Springs has picked up slightly and the inventory of homes on the market has been somewhat reduced, the increase in the number of short sales and foreclosures continue to rise. People are being hit just as hard today as they were in 2007 and 2008. It is unrealistic that any of the homeowners today seeking help through a loan modification, short sale or foreclosure are in a position to pay taxes on any amount of debt forgiven. If they are not in a position to pay their mortgage, how can they pay the taxes on forgiven debt?

The National Association of Realtors (NAR) was a large supporter of the ACT when it was originally put into law in 2007. They supported the first extension in 2008 and today they support the need for another extension! When Linda Goold, the NAR's director of tax policy, commented on the possibility the Act would not be renewed, she said, ‘There would be very, very serious economic repercussions if lenders and borrows remained uncertain about whether the law would be extended. This uncertainty would create an environment of remarkable chaos.'

Now is the time for every homeowner and real estate agent to speak out and let Congress know that the extension of the Mortgage Forgiveness Debt Relief Act of 2007 is critical! We must be the voice that ensures the extension gets passed into law. This is definitely a budget proposal that requires attention and each American needs to speak out because it's anticipated that getting this extension passed could be a tough fight and met with strong resistance. The NAR is behind the extension and stresses that the public concern needs to be known. With so many of the nation's homeowners hit hard financially, they need to step up and demand help and let their concerns be heard. While Obama is certainly looking for brownie points as he nears the next election, we are dealing with a divided house that struggles to agree on the real issues at hand. Therefore, it is important for each an every homeowner and real estate agent to take the necessary stand to get the law passed!

The bank is under no legal obligation to sell the house on a short sale. It's their asset and they can choose to do what they want with it. The listing agreement is with the owner of record not the bank. So the listing agent sets the list price. Just because a house is listed at a price doesn't mean the bank will accept it.

Now most banks do find it in their best interest to do a short sale. Just remember behind every bank there is an investor and there are different loan types. There may have been circumstances that you did not know of. For example, if it was an FHA or VA loan, they may have already done an appraisal. A VA appraisal will stick for 6 months and if the bank didn't get the required net of 88.13% of the VA appraisal, then they will foreclose because VA guarantees the loan. If it's an FHA loan and the homeowner were approved into the pre-foreclosure sale program and it expired, the bank can foreclose.

With Conventional loans the investor could be fannie, freddie, ginney, or a private even. Some investors have set guidelines for example that say if the homeowner is more than 12 month in default, you must proceed with foreclosure. There really isn't much you could do. Especially since you were not in control of the short sale and you just submitted the offer. Being in that position you don't know the whole story behind the negotiation.

The only investment properties I've seen go through were situation where the homeowner became a landlord and there was a legitimate hardship. In order to do the short sale your buddy will have to disclose all his financials to the bank and business financials. He has to sign waivers with the bank that says he is providing accurate information, if he lies about his situation he can get into a lot of trouble. That is considered short sale fraud.

The chances will be on the bank, most banks won't want to work with the investor unless there is a true hardship. If he can afford to make his payments and he can show that on paper the chances of the bank wanting to work with him will be slim. And like Dion said, he is probably a good candidate for the bank to seek a deficiency judgement on. I've seen more investors just let their houses foreclose. This way the bank doesn't see their financials and they could take it up for auction at zero deficiency. It will hurt their credit more in the long wrong, but they have a chance of having zero to little deficiency. And if there is a deficiency after the foreclosure, the investor could negotiate that down for pennies on the dollar. Versus if the bank knew the investor had money they may not be willing to negotiate.

I've never seen an HOA foreclose in my area, but if you buy the lien you could. But you would have to make sure that the there is equity in the property because you wouldn't want to buy a house that's upside down. I'm assuming there won't be many of those deals out there. In my market maybe 1 in 100 people who are behind have equity. And the ones that do have equity are usually smart and won't let their house get to that point.

I used to do this all the time before I had money for marketing. I would door knock the foreclosure list and often would find homes vacant. Here's what I did that was very successful:

1. Leave a note and info package on the house, just in case they live in the area and come back periodically.
2. knock on every neighbors house and ask them for information on where they are, do they have a phone #, do they know where they work, do they have their email. This is where you become a detective and try to dig for as much info as possible.
3. Once you get some clues for example work you can call them up at their work or you can look them up on social media websites like Facebook, LinkedIn, twitter and send them a message. I have found many people this way.
4. Look on the assessor webpage to see if a new mailing address has been documented. If so knock on that door.
5. Do a reverse address search on www.PhoneNumber.com. If they have a home phone they may have transferred it with them.
6. Do a name search on phone number.com and search for just in your city. you make find their new address this way, even if they don't have a phone # recorded.
7. Leave notes on all the neighbors doors if they aren't there.
8. Phonenumber.com the neighbors to get their phone #'s to call them if they weren't home.
9. Write the homeowner a letter and hopefully it will forward to their new address.

Persistence is key and never give up. I was very successful when I started out because I was very persistent. I'm sure I had more creative ways, but this was what came to my mind first.

If the bank would have gotten this back they would offer the tenant or homeowner $1k-$3k to move by a certain date but they must remove everything from the house and it must be cleaned to get the money. So you'll have to weigh your options. Will it go faster and cheaper to go the eviction route which is probably $350 and then pay somebody to remove all the items or pay the homeowner $1000 to remove everything and keep the house clean. I'm a nice person so I would offer the cash for keys first, but give them a firm deadline. If you aren't getting a warm and fuzzy and your gut is telling you to evict than you should probably do that.

These don't sound like good deals. I would need more info to let you know for sure. Your not going to be able to short a 2nd if you are on title. The bank is going to see this quit claim deed when they do their title search on their end. If you take the 1st subject to and short the second you would need to purchase the house bring the 1st current and pay off the 2nd on a short sale at the closing. But if you are bringing the first current, it better be a good loan. For example a loan that is already amortized for 15 years and will have equity after shorting the 2nd.

I agree with all the posts on here. In Colorado Springs, CO we are seeing almost no REO's on the MLS. And if there are any, they are getting bid up so high by owner occupants or investors paying too much! I used to do a full rehab where I replaced everything, I just did a test on a house and did a light rehab but have it on the market for less. So far it's working out and I'm getting showings and 2 interested in submitting an offer.

I think investors are going to have to change their strategies and adjust to the market. Direct mail is what I have been doing to accumulate short sale deals. This way I'm in full control of the deal and don't have any competition and no up bidding. My profits are much bigger.

There are always going to be deals out there, investors are around in a good market and bad market. We just need to adapt to the changes and change our acquisition strategies. Right now I'm trying to buy up as many cheap short sale's as possible for rentals before the short sale market disappears, but that won't happen for 3 more years or more.

Welcome, I'm in the Colorado Springs Area!

I personally don't like making offers to agents with short sale listings on the MLS. There is too much competition and you will see that the agents are very hesitant about giving out info or having the investor negotiate the short sale.

You are going to get better luck finding your own short sale deals off the MLS and having your own short sale processor process the short sale, or have a buyers agent process the short sale for you. This way you are in complete control and don't have to worry about competition.