Investors Trying to Avoid Foreclosure w/ Short Sales? Unlikely

Question:

Frank- Good afternoon. My name is Eric. I just came across your blog on the web and wanted to see if there's anyway possible you can help me.

In September of 2006, a friend of mine and myself signed a contract on an NV home to be built in Leesburg, yes...I'm here in Northern Virginia! We closed on the house 6 months later and have been in possession of it ever since. We bought it for $750,000 and as of a couple week ago there was a short sale right next us on the market for $510,000- almost identical house.

We put 10% down and currently have 2 loans on the property- both through Wells Fargo

The property is rented, but between my partner and I, we still have a shortage of around $700 that we have to pay out each month.

One of our biggest concerns at this point even if a short sale was an option, is the implications after we close on the forgiven debt. Since it's an investment, there is no forgiveness on paying taxes on forgiven debt. Since there are 2 mortgages, I don't think deed in lieu is an option. And since both my partner and I have our own houses, we're afraid that the bank will come after us for the difference if we let it foreclose.

I've been in touch with a company called HomeAssure, that for $2500 claims that can get a short sales approved, but I'm just too skeptical of them at this point.

Bottom line is I have no where to turn and no idea what to do....it seems there's no way out and the walls are closing in quickly.

Uggghhh....

Any insight or help would be appreciated.....or, if you think there's something you could do to help I'd be more than happy to discuss options with you.

Thank you Sir

Eric
My Answer
Sorry Eric. I don't see it happening.

First of all, a Short Sale is irrelevant if it never sells, so don't compare your value to a possible Fake Listing.

Secondly, you kinda skipped something in your email. You are asking about the 1099 Phantom tax, which you will have to ask a tax advisor about, but I don't see why you would be exempt, but your bigger problem is you left off the huge requirement for short sales: You have to be near bankrupt and prove your financial ruins.

And lenders are FAR less likely to give leniency to investors, in part since they are more likely to hide funds. And if you have another house, they will expect you to refinance your current house to pay your debt obligations. They will suck you dry before giving you any write off.

Too many people think that Short Sales are an easy way to have the bank eat their losses.

And others think that just letting it go into foreclosure is a better option (I got an email regarding that last week from somebody that might be broke in 10 months, he just let them foreclose and is now crossing his fingers that they don't come after him for a deficiency judgment)

As for HomeAssure, I don't know them, but I doubt it. I have called these types of places before and many were scams. Maybe if you got some immediate local references. And if they accept the $2,500 to be placed in escrow and payable upon getting Short Sale approval, MAYBE, but be careful. But my guess is they only take money up front without a guarantee.

You should talk to a lawyer that specializes in this stuff. I am NOT a lawyer.

Hope I was able to shed some light and maybe give you some questions to ask if nothing else.

- Written by Frank Borges LL0SA- Broker FranklyRealty.com

Realty Trac. Is it a scam? Foreclosure buying vs MLS.

Question:
Hi Frank, just finished reading your blogs and tried to "chat" but I couldn't figure out how to "send". My husband and I are moving to Va in the next 4 mos. and we are working with a buyer agent from (insert top 3 company) Realty and have signed a contract. We aren't crazy about her and she is not listed as a REO agent. She is also not crazy about doing foreclosure work and is totally unorganized. We feel sorry for her because she keeps saying "you'll probably want to fire me" and she's in her XX's with many years in real estate. Have you any suggestions for us? We are doing most of the research and have paid to use Realty Trac.

By the way, love your blogs. Thank you. Matty
(emphasis added)

My Answer:
Hey Matty, I was online, I tried to chat back, dunno what happened.

"not listed as an REO agent" that doesn't really matter. There is no such thing (that I know of) as an "REO buyer agent." If somebody says that, that is just marketing. (or Realty Trac is making money letting Realtors advertise as such on their site)

She might not be crazy about Short Sales, my blog post on Short sales is a MUST READ. These are Fake listings that never close (in my area) and they mislead buyers and really mess them up. Make sure you read that.

As for "foreclosures" they don't exist up here. What does sometimes exist is "bank owned." A "foreclosure" is a word frequently incorrectly used. It actually means a courthouse auction of a property. But today the banks buy them back for what they are owed. So the courthouse steps are empty!

I don’t believe in Realty Trac, but maybe I am ignorant (would love to be corrected, and we can both learn). I'd be curious to hear your take on it.

I don't know one person that has bought from it. I think it is a scam, but I could be wrong. Also I don’t think they offer a buyer agent commission, so that could also explain her not looking into them. (but really, show me 2 or 3 on that site and I'll dig up info)

I suggest sticking with your agent a bit longer. You can use her and search via my site (no obligation):

www.FranklyMLS.com it will let you search for keywords like arlington REO (which means bank owned) or Arlington Bank Owned and it will find listings with the word "bank" in the remarks (otherwise they are very hard to find).

Just stay away from short sales unless they say "already approved by bank."

Foreclosures sound sexy, but if you are looking in Arlington or Alexandria, in my opinion, they don't exist. Watch the youtube.franklyrealty.com video with my agent that just bought a bank owned property. If "foreclosures" really existed, she would have bought one that way.

Sounds strange doesn't it? No foreclosures?

Here is the process as I know it.

1) Seller tries to break even at $400k
2) Seller gets foreclosure notice
3) Seller drops price to $300k, a short sale
4) Seller gets 5 offers.
5) Bank says "no way" or doesn't reply
6) Foreclosure on courthouse steps. Bank is owed $380k, they buy it at OVER what it is worth, and they take over the house at $380k (ie no point in you outbidding them)
7) They put it back on the MLS at $350k as a REO or bank sale
8) It sells in 1 week (sometimes for over list, so you better know your pricing and be ready).

Except for far out places like Manassas. Instead of #7, they have these huge 500 person auction houses (HudsonandMarshall.com) that will unload 100 homes. No inspections, nuttin. But they have 3 or 4 people bidding them up. I still plan to do an analysis on homes that sold in that auction to see if they are really better than a regularly listed home. I don't think so, but I could be wrong.

But up here in Nova, they rarely (don't) exist.

So your agent might not be conveying the message to you, or she might have said the same thing, but you might have needed to hear it from a 2nd person that wouldn't make money off of the advice.

Also don't disregard regular properties. They have to compete with the bank ones too. I have MANY clients that start off wanting this blue light liquidation, just to end up getting real and buying a home from somebody that bought it in 2001 for $180,000 and is willing to drop their price to sell it.

Right? A buyer buys for $500k in 2005. 2 years later, the bank takes it over for $400k, sells it for $350k. Meanwhile another seller bought for $200k in 1999. Guess what... they might also be able to sell near $350k.

Hope that helps!

- Written by Frank Borges LL0SA