Hello and Welcome to the Top Orlando Realtors show where we answer questions from consumers about buying and selling residential real estate in Orlando, FL. If you’re a first-timer, welcome… and if you’ve been here before, great to have you back. OK, this question comes from Allison in the Celebration area. Allison asks….”How will a short sale affect my credit score?” This is a very popular question when someone wants to do a short sale. Having good credit is a big deal for people so it only makes sense that you’d want to protect it. For listeners that don’t know what a short sale is…. a Short sale is when your lender agrees to accept less than the amount owed against the home because there is not enough equity in it to pay all costs of the sale., which means the bank takes a loss. Here are some topics covered in this episode.
How an Orlando Short Sale Can Affect Your Credit
Usually, a homeowner must be in default in order to get approved for a short sale.
It’s much better to have a short sale on your credit than a foreclosure.
Foreclosure can stay o your credit for up to ten years or more.
Having a short sale on your record can usually be removed within two years.
When you first purchased your home you probably never thought that you would one day need to come out of pocket or short sale your Orlando home to get it sold.
No homeowner ever buys a home thinking that one day their home will have no equity or worse yet, it will be worth less than the unpaid mortgage amount. The truth is most homeowners buy believing that their home will increase in value. Most of us were brought up being told that buying Orlando real estate is a foolproof investment and you’re guaranteed to make money when you sell your house.
There are never any guarantees that you will be provided a return on your Orlando real estate investment. Although some homeowners are in the position to sell their homes at a nice profit, many will either break even or won’t have the option of selling unless they come out of pocket to cover the difference.
Real estate in Orlando like other commodities, is mostly subject to supply and demand. If the employment rate is up in a community and the local economy is strong, then there will be more demand for homeownership. On the other hand, if the community is experiencing a higher than the normal unemployment rate, then this will create less demand for homes.
Historically most of the time what happens is that although home values may go down, they eventually go on to stabilize or even go higher than before. The only exception to this is when a community is mostly employed by a single employer which goes ends up going out of business or an industry that’s experiencing a sharp downturn like what happened in the city of Detroit and the American car industry.
Do You Really Have To Sell?
You only take a loss if you sell. Unfortunately, my wife and I bought our home in Hunters Creek at the height of the Orlando real estate boom in 2005. Then just two years later, just like that, our home’s value was cut in half. But we still owed the full amount of the loan. Fortunately for us, this was our dream home. Hunters Creek is where we planned to raise our children and live our lives for at least the next ten years.
Since then, property values have gone back up but my point is that the home values didn’t affect us because we weren’t planning on moving anyway.
Try An Orlando Short Sale
Luckily real estate investing in Orlando is not as volatile as other investments can be. If you’re familiar with investing in stocks then you know that stocks can lose or gain 100% of its value within a few days. Homes, however, can go up or down in value also but it takes months and even years sometimes.
If homeowners with negative equity can’t afford to bring money to the table in order to sell, they’re left with only a few options. They can either keep the house, continue to make payments and hope that one day the home’s value goes back up or they can do a short sale on the home in order to get it sold.
A short sale is when the lender accepts a discount on the payoff so that the home can be sold at fair market value. In most cases the homeowner will have to prove financial hardship and be in default on the mortgage at least 30 days.
If negotiated correctly by your short sale realtor, the transaction will be recorded as a full payoff and the bank promises never to come after you for the balance of the loan. There are also “cash for keys” programs available to homeowners in which the short sale lender gives thousands of dollars back to the homeowners for relocation assistance. We’ve gotten our Orlando short sale clients anywhere from $3,000 to $30,000 back at the closing.
Today we are joined once again by Jenny Zamora, Orlando Listing specialist, and short sale expert. She is talking about the Mortgage Forgiveness Debt Relief Act and what it means to homeowners needing to short sell their homes.
For listeners that aren’t exactly sure what a short sale is, a short sale is when you make an agreement with your mortgage company to sell your house for less than what you owe them. So Jen can you tell us what the basic criteria are for a typical short sale? Jen: “Sure I’d be happy to. 1- The home’s market value must be less than what’s owed on the mortgage, if not then you could just sell it as a traditional listing right? 2- The homeowner must be behind on their mortgage payments. 3- The homeowner must also be going through some kind of hardship that is preventing them from getting current on their payments. like losing their job, health issues, job transfer, etc. Now, there are a number of other situations in which a lender may or may not approve a short sale, but those are the basics. “ Let’s say that you get the short sale approved on someone’s house and let’s say that the homeowner owes $300,000 and you were able to get it down to $200,000. Now there would a difference of $100,000… What happens now? There are a few things that can happen next. * For an amount that large, the lender will try to get the homeowner to sign a deficiency judgment or bring money to the closing.
Throughout the negotiating process, we let the bank know that our seller will not agree to sign a promissory note or accept a deficiency judgment for the balance….period. As a matter of fact, we try to get money back to the seller for relocation costs, and most of the time we’re successful. We’ve gotten our clients from 3 to thirty thousand back at the closing. Tat’s a lot of money! It is, but it also costs a lot of money to relocate to a new home and at the end of the day it’s my job to fight for my clients when no one else will. So you’re able to wipe the slate clean with the lender and even get cashback to the seller. Now let’s talk about everyone’s favorite government agency… The IRS. How do they look at that 100 thousand dollar balance? Normally they would look at it as income for the seller…. and if it’s income in their eyes, they’ll be charged income tax.
People that need to short sell a house are typically going through a financial hardship so there’s no way they can afford to pay that additional money to the IRS, they would just be getting deeper into debt and no one wants to owe the IRS that’s for sure. An IRS lien follows you and continually increases because they charge you interest. and eventually, you will pay… there’s no escaping them. Not a good position to be in…So tell us about the Mortgage Forgiveness Debt Relief Act. When the real estate market collapsed 8 years ago, Congress implemented the Mortgage Forgiveness Act of 2007 and it guaranteed people that they could short sell their homes without having to worry about paying income tax on the difference between the full payoff and the short payoff. Ok so that was back in 2007, is it still in effect now in 2015? Initially, it was supposed to end in 2010 and they’ve been extending it every year since. So that means that homeowners can short sell their homes and not worry about the tax implications? That’s correct, so homeowners that need a short sale on their home now in 2015 can do so without worrying about the tax implications. Good stuff, and I’d like to thank our short sale expert… Jenny Zamora for joining us and anyone that needs some more information about short sales or if you want to know if you qualify, Jenny can be reached at 407-902-7750 or visit: www.OrlandoRealtyConsultants.com
That’s our show for today… we’ll see you next time.
Inspiration can be found anywhere and it’s all up to the individual and what he or she is inspired by. It can be found on a slow walk on the beach or even traveling 90 miles per hour on a speed boat.
Something that’s always inspired me has been helping people. Maybe it’s the mother in me, but whether it’s helping my sons put on their soccer cleats or helping someone to short sale their home and avoid foreclosure, the biggest reward for me is seeing that look on someone’s face when they’ve accomplished something that they thought to be impossible.
Sometimes it’s easy to get derailed from what’s really important in life. One minute you can be in a great mood just driving down the road then an impatient driver cuts you off or you get a flat tire. Then, all of a sudden your in a bad mood and frustrated and you allow it to ruin part or even the rest of your day.
When you look at the big picture, instances like these are just little obstacles that are part of everyday life and making them out to be anything more is just a waste of your time and energy. So don’t sweat the small stuff!
Working as a short sale realtor in Orlando, I’ve had clients get discourage and frustrated about how long it’s taking their lender to process their short sale, or if it will even get approved! They have to live with a sense of uncertainty about what the outcome will be which can be mentally draining. Although their frustration is warranted, it’s a complete waste of time and energy to worry about what’s out of your control.
Having completed thousands of short sales over the years, I’ve become a counselor for distressed homeowners in helping them to deal with the emotional side of the process. Potentially losing your home can be stressful and even mentally crippling, especially when you have a family that’s depending on you to keep a roof over their head.
A real estate agent’s role in completing a short sale is basically a middle person between the seller and the short sale lender. If a seller takes their own sweet time in sending me documents that the bank is requesting yesterday, then they’re only hurting themselves. In this case procrastination is the homeowner’s worst enemy.
I try to get my clients to maintain a positive outlook on the situation and focus on the desired results, which is to complete the short sale on their house and avoid having a foreclosure on their record and even get them a few thousand bucks back from the bank at the closing. Keeping a positive attitude throughout the process will only make things easier and help to reach their goal.
Although short sales are never guaranteed, if you have the right team fighting for you, then at least you’re giving it your best shot. If you or someone you know need help with an Orlando short sale, give me a call 407-902-7750 or visit https://orlandorealtyconsultants.com/short-sale-experts/
