The last time Orange County CA. experienced the current level of Short Sale properties for sale was in the mid 1990's. Back then, Short Sale and Foreclosure activity was due primarily to massive job losses and a glut of new and existing homes for sale. Today, the main culprit is a correction in local home prices coupled with many highly leveraged, adjustable rate mortgage loans that were made in the past 4 years.
Using a Short Sale to sell you Orange County home is a difficult transaction, but is a much better alternative then out-right Foreclosure or Bankruptcy. A Short Sale occurs when a homes sales value is less then the outstanding mortgage debt plus sales costs (sometimes called an "upside down Mortgage"), and the mortgage bank(s) has agreed to write off a portion of the outstanding loan debt in order to consummate the sale. For example, if a home sells for $600,000 with $20,000 in total sales costs, and the total outstanding loan balance is currently $620,000, then the lender(s) would have to agree to reduce the mortgage loan debt by $40,000 in order to close the deal. Lenders often entertain such an option for in the long run, they will usually receive a higher percentage of their principal back as compared to forcing the property into Foreclosure and run the risk of property neglect or damage, and additional delays and costs, and the possibility of property owner bankruptcy.
Today, the "upside down Mortgages" in Orange County are due mostly to the risky, highly leveraged loans in which the home buyer purchased the home with little or nothing down, with an interest-only or worse yet, negative amortization loan in which the loan balance gets higher every month. Combined with the softening of Orange County home prices that have now decreased by as much as 12% in some areas.
These factors are causing many home owners to consider a Short Sale to solve their financial crisis, but this is a difficult real estate transactions that requires additional paperwork and intricate negotiations between the real estate agent and the mortgage banker(s). Basically, the real estate professional must prove to the mortgage bank(s) that the homeowner has a financial hardship. In other words the home owner is unable to keep up with the current mortgage payments, and has minimal bank account savings, or other investments. This financial duress can be due to job layoffs, illnesses, divorce, or even the unexpected large increase in mortgage payments due to interest rate resets.
Many lenders today in Orange County, won't commit to a Short Sale until their is a valid and firm purchase offer in hand from a qualified new buyer, and a knowledgeable broker/agent who can negotiate the deal. It's imperative to work with an experienced real estate agent for they will need to prepare a professional and complete Short Sale package. This package includes the purchase offer contract, buyers detailed loan qualifications, a realistic and detailed analysis of the fair market value of the home, current local real estate market conditions, and financial information and hardship letter from the homeowner.
In addition, there may be income Tax consequences if the home was refinanced. Technically, the difference between your home's value and the balance on the mortgage is considered a forgiveness of debt and this amount may be considered taxable income if the loan(s) were not purchase money, but were refinanced. If one can prove financial insolvency, then this tax consequence may be forgiven. It is imperative that one consult with a Tax accountant regarding these matters. This potential Tax issue is the same regardless of whether the property was sold via a Short Sale or taken back in Foreclosure, so a Short Sale is still a much better choice then Foreclosure. As a side note, Congress recently passed a bill (Mortgage Cancellation Relief Act of 2007 ) that essentially eliminates this tax issue for purchase money mortgages, and is awaiting Senate approval..
If you are a home owner that is falling behind in your payments, or potentially facing foreclosure, or a prospective home buyer who is entertaining the purchase of a home that is in Foreclosure or a Short Sale, please feel free to contact us with any questions or concerns that you may have at: 949-388-3396 or email us at: Info@SearchOCHomes.com , or visit our website at: www.OCShortSaleTeam.com
