Wednesday, August 1, 2012

It's August 1st...Have you started your short sale yet? Time in 2012 is running out...

No, I am not referring to the 146 shopping days left until Christmas. I am referring to the time left (152 days) in 2012 that short sale sellers can still take advantage of some of the state and federal debt forgiveness tax laws. Many short sale sellers who occupy their home as a primary residence and meet other criteria will have little or no tax consequence from completing a short sale in 2012. Many short sale sellers have benefited from legislation in place protecting them that will expire December 31, 2012. The difference in closing a short sale in December 2012 and January 2013 could cost a distressed homeowner several thousand dollars in taxes. I am not a CPA and refer my clients to tax professionals to seek advice in this regard to make sure these laws apply to their situation.

In a nutshell (and completely over-simplified), if a homeowner does a short sale and owes $300,000, and the NET proceeds from the sale that a bank will accept in a short sale equal $200,000, the seller of the property receives a 1099 from the bank for $100,000 (the amount of the "forgiven" debt). You will get this 1099 regardless of when you close your short sale, BUT for short sales closed in 2012, many sellers will not have to pay income tax on this "forgiven debt." If you close in 2013, if the current legislation in place remains un-extended to a later expiration date, you could have a very large tax bill to pay when you file your taxes the following year. Again, speak to a CPA regarding how this affects your situation. If you need a referral to one, contact me and I am happy to give you one.

Given the length of time that short sales take, if you want to complete a short sale in 2012 you need to start the process NOW.  Think I'm exaggerating? Assuming a seller doesn't have some odd circumstances, the lifespan of a typical Sacramento short sale looks something like this:

-Listing the property, preparing for showings, gathering financial and hardship info to submit to short sale lender: 7-14 days. My vast short sale experience tells me that most folks can't (or won't want to) list the house tomorrow and start showing it by this weekend. If your average seller called an agent today, met with that agent tomorrow, then spent time gathering their financial info and making the house presentable making arrangements for pets, extra house keys, etc., the house would realistically hit the market within 2 weeks.

-First on market day, showings, and seller accepted offer to submit to lender: 7-10 days. Let's face it, if a property is priced correctly and the seller is flexible with access to the house for showings, given the current lack of homes on the market, this process should be relatively quick.

-Lender receives all financial and hardship information from the seller, purchase contract and supporting documentation, assigns a negotiator and orders BPO valuation of the property: 7 - 14 days. Some short sale lenders are faster than others. Most of the larger banks (Chase, Wells Fargo, BofA, GMAC, CitiMortgage, HSBC, etc) have pretty streamlined processes for getting the files assigned to folks and the initial BPO values established.

-BPO agent/appraiser visits property and returns value analysis report to short sale lender: 7-14 days. For the sake of defining it, a BPO essentially an appraisal ordered by the short sale lender. This is their method to best validate the buyer's offer received and determine the fair market value of a property. The folks who do these BPO's are unaffiliated 3rd parties who might have 20 other BPO's to do at the same time. Once the assignment is received, it might take them a few days to fit visiting the property into their schedule (longer if the house is occupied and they must coordinate access to the house with someone else), then visit the property, then complete the report and submit back to the short sale lender that ordered the BPO.

-BPO received by negotiator, analysis of file: 7 - 45 days. Yikes. This can take a long time...the file could be re-assigned to a new negotiator and it could go to the bottom of that person's stack.

-Submitted to investor or management for final approval: 3 - 30 days. Again yikes. Depending on who actually controls the decision-making process of the loan, this could be super fast, or painfully slow. Best case scenario is that the loan is owned by the short sale lender itself and it's just making a management decision if the short sale fits within its internal guidelines, OR, perhaps Fannie Mae or Freddie Mac must approve the short sale. Or perhaps the loan is owned by a Hedge Fund, or a Retirement Fund. If it turns out that the Missouri State Teacher's Retirement Fund owns the loan for example (not to pick on them, if they even exist LOL), and Margie in Accounting is the ultimate decision-maker, you might be in for a longer wait.

So then approval issued! Yay! Now what...well depending on the offer you received from your buyer, you will be looking at 21-45 days to close your escrow, barring no additional surprises with the buyer's loan or inspections, of course.

So on the fast end of the normal timeline spectrum from the day the house hits the market to the day the short sale is approved -- you are looking at about a month if all the stars align, plus the time it takes for the buyer to close escrow. If you are this fortunate and have a very straight-forward short sale and no surprises, congratulations you still have plenty of time to complete your short sale before the end of 2012.

On the longer side of the normal timeline spectrum from the day the house hits the market to the day the short sale is approved -- you are looking at 3-4 months, plus the time it takes for the buyer to close escrow. This timeline is more realistic for most short sales, AND it will push you to the very end of 2012. It'll be stressful, but you have time to get your short sale closed.

So...if you need to do a short sale and can benefit from the tax laws that will expire at the end of 2012 - what are you waiting for? I welcome your call if you have questions I can answer or to see if we are a fit to work together.

No comments: