In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the borrower. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. Neither side is “doing the other a favor;” a short sale is simply the most economical solution to a problem. Banks will incur a smaller financial loss than would result from foreclosure or continued non-payment. Borrowers are able to mitigate damage to their credit history, and partially control the debt. A short sale is typically faster and less expensive than a foreclosure. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

Lenders often have loss mitigation departments that evaluate potential short sale transactions. The majority have pre-determined criteria for such transactions, but they may be open to offers, and their willingness varies. A bank will typically determine the amount of equity (or lack thereof), by determining the probable selling price from an appraisal, Broker Price Opinion (abbreviated BPO), or Broker Opinion of Value (abbreviated BOV).

Lenders may accept short sale offers or requests for short sales even if a Notice of Default has not been issued or recorded with the locality where the property is located. Given the unprecedented and overwhelming number of losses that mortgage lenders have suffered from mortgage failures that in part triggered the Financial crisis of 2007–2010, they are now more willing to accept short sales than ever before. For “under-water” borrowers who owe more on their mortgage than their property is worth and are having trouble selling, this presents an opportunity for them to avoid foreclosure as a result.

Multiple levels of approvals and conditions are very common with short sales. Junior lien-holders – such as second mortgages, HELOC lenders, and HOA (special assessment liens) – may need to approve the short sale. Frequent objectors to short sales include tax lien holders (income, estate or corporate franchise tax – as opposed to real property taxes, which have priority even when unrecorded) and mechanic’s lien holders. It is possible for junior lien holders to prevent the short sale. If the lender required mortgage insurance on the loan, the insurer will likely also be party to negotiations as they may be asked to pay out a claim to offset the lender’s loss in the short sale. The wide array of parties, parameters and processes involved in a short sale makes it a relatively complex and highly specialized type of real estate transaction. Not surprisingly, short sale deals have a high failure rate and often do not close in time to prevent foreclosure when they are not handled by a knowledgeable and experienced professional. Short sale negotiators, Realtors who are short sale certified (a National Association of Realtors designation), loss mitigation specialists, and real estate lawyers who specialize in short sales are often brought in to handle these deals. Quite often, the average consumer is not aware that the lien holder pays the Realtor commissions, often exacerbating the difficulties.

Short sales are different from foreclosures in that a foreclosure is forced by a lender, whereas both lender and borrower consent to a short sale. However, this consent may change at any time, and negotiations may be ongoing between the lender and borrower even while the short sale is on the market. The borrower may decide to remain and refinance their house, or become obstinate and force foreclosure. The bank may renege as well if they decide to stick with the current borrower, or if they disapprove of the sale price. Any short sale contract includes a contingency where the bank must approve the sale.

In the state of California, short sales can be tricky in that it is important for the party handling the deal to advise the seller to seek the advice of an attorney and a CPA. There could be tax consequences if the loan(s) on the property are not purchase money (all the funds needed to purchase the property). On the other hand, if the loan(s) on the property are purchase money, then the loans are considered “non-recourse” and the debt is generally forgiven and satisfied at the end of the short sale.

Changing consent can present a perilous situation for potential buyers. It can waste considerable time and money for a prospective buyer who anticipated a sale. Typically, deposits with the bank will be refunded but money for paid inspections or other services cannot be.

There are several defenses against this. If the seller has moved out of a property, that is a clue that they have no intention of staying or negotiating further with the bank. “Bank Approved Short Sales” are advertised by real estate advertisements, indicating that a real estate broker has verified the selling bank’s position. This still does not guarantee acceptance, and it often does not take junior lien holders into account, but it is better than situations where the bank holding the mortgage has only been lightly involved in the borrower’s decision.

This information is excerpted from Wikipedia.

Although Canadian snowbirds share much in common with their American counterparts, there is one distinct difference. Canadian snowbird are subject to a U.S. Tax if they stay longer than the allotted 182 days annually. To exceed this limit would trigger a tax that would have to be paid in both countries.  This double taxation is an expense which most snowbirds simply cannot afford.

Canadians who stay in the U.S. for less than 30 days in a calendar year are considered “visitors” and need not worry this additional tax rule.  However, if a Canadian chooses to stay in the U.S. for greater than 182 days in a calendar year, he or she would be considered a “resident alien” for tax purposes and therefore required to file a U.S. tax return. For those Canadians whose visits fall between 30 and 183 days in a single calendar year, there may still be concern for a tax obligation as this may still be considered a “substantial presence” in the U.S.

However, a “substantial presence” may not necessitate Canadian snowbirds having to pay U.S. taxes. In such cases, Canadian snowbirds will at the very least, need to file a Form 8840, Closer Connection Exception Statement for Aliens, with the U.S. Internal Revenue Service. Failure to do so may result in significant penalties, even if taxes were not owed.

To assess whether or not a Canadian visitor meets the criteria for a “substantial presence”, you may use the following formula:

Add the total number of days spent in the U.S. during the current calendar year, plus 1/3 of the days visited in the preceding year, and then 1/6 of the days visited in the year prior to that preceding year.

In any case, for more specific information about the tax laws, speak with an accountant, tax lawyer or the U.S. Internal Revenue Service.

Credit Score or FICO (Fair Isaac Corporation) score, is a numerical expression based on an analysis of a person’s credit history, which theoretically represents the creditworthiness of that person. The numercial range for credit scoring is 300 to 850, where a higher number is considered better. Credit scores are often used to predict the likelihood of future debt repayment, and therefore can be used to “screen out” applicants with an unfavorable level of credit risk. You can read more about the Five Components of Credit Scoring here.

Even if you don’t have concerns about your credit, it’s recommended that you speak with Senior Mortgage Loan Officer, Luisa Han at 480-363-9488, for a complimentary prequalification. It’s a convenient and easy way to give you peace of mind when shopping for your dream home.

Down payment assistance can be as much a $20,000 or up to 5% of the sales price based on certain eligibility requirements. Find out if you are eligible for down payment assistance within the state of Arizona. Keep in mind that down payment assistance programs can be different across the various counties of Arizona in which a home is being purchased. Depending upon the program, there may be restrictions on household income, maximum purchase price and other factors.

Luisa Han is an experienced mortgage loan officer who can assist Arizona home buyers in obtaining the mortgage best suited for their needs.

Even if you don’t have concerns about your credit, it’s recommended that you speak with Senior Mortgage Loan Officer, Luisa Han at 480-363-9488, for a complimentary prequalification. It’s a convenient and easy way to give you peace of mind when shopping for your dream home.