The Arizona housing market is finally making a recovery, with house prices increasing month after month, but it still may not be enough for some homeowners facing financial hardship or who are too far upside down on their mortgage.
One of the hardest hit areas was the fine home/custom home market. House prices plummeted up to 50 percent or more, leaving these homeowners hundreds of thousands of dollars upside down. While some believe, because of the high mortgage and the large deficiency that would be left, the bank would not allow them to do a short sale; this is far from the truth. In fact, short sales of fine homes are often a lot easier for many reasons, no matter how far upside down the borrowers are.
Arizona is an anti-deficiency state, which means the bank cannot pursue the homeowner for any deficiency on purchase money, and we ensure we get this is in writing on the approval letter before accepting the short sale. The forgiven debt will not be taxable due to the Mortgage Debt Relief Act, which was extended one more year (some restrictions apply).You can view the complete Mortgage Debt Relief Act on my Web site.
If there is a second mortgage that is not purchase money, a short sale allows it to be negotiated, so this debt also is forgiven. In a foreclosure, there is no negotiating, and the bank will pursue the borrower for the full amount.
Why Would a Bank Do A Short Sale?
I just closed on a short sale where the homeowner owed $950,000, and the house sold for $475,000. Not only did the bank accept the short sale and release the homeowner from any deficiency, they even paid the homeowner $1,500 in relocation assistance. The bank doesn’t care how upside down you are. What they care about is that the house is sold for close to the current market value.
Short sales sell for a higher price than foreclosures, and, with the added legal expenses and time involved to process a foreclosure, plus the fact the bank will then own the property and have to pay HOA fees and maintenance, the last thing they want to do is foreclose.
Option Arms, Interest Only and Balloon Payment Loans
Some homeowners did option arms, interest only or pick-a-payment type loans with the intention of selling or refinancing before the loan payment is recast, or to change from an interest-only to a fixed-rate mortgage. Unfortunately, the housing crisis hit before that could be done, and these homeowners now find themselves upside down and unable to refinance or sell their homes.
Although the borrower may not have a hardship at the moment, he cannot keep making the payments at the new higher rate or pay the balloon payment when it is due. The banks look at this as an imminent hardship for a short sale. Some lenders also are under investigation to see whether these loans were processed correctly, and if borrowers were given the correct information at the time the loan was taken out. This makes the lenders very eager to get these types of loans off their books and accept a short sale.
Staying Current on Your Mortgage Payment While Doing a Short Sale
I am also finding that more homeowners can keep current on their mortgage while negotiating a short sale if they are able to do so. This allows their credit to remain intact until the short sale closes, and there is just one small ding to their credit. It also means they may qualify for a new mortgage the day after the short sale closes, and they can purchase a new home right away.
Each short sale is completely different, each homeowner’s situation is unique, and what may apply to one homeowner may not apply to another. Contact me today to find out more about the short sale and if it is the right option for you. You can call my cell at (602) 571-6799, or send an e-mail to Lorraine@ArizonaShortSaleToday.com. Visit my Web site
at www.ArizonaShortSaleToday.com.