Will I ever be able to buy another home?

You will be able to buy another home if you have a good short sale negotiator. There are some important aspects that go into the details of a short sale negotiation. As of November 2008, you need to have a closed short sale with no deficiency and 24 months of good credit after the short sale. If you walk away (Deed In Lieu or foreclosure), you are looking at a minimum of 60 months (5 years), and sometimes 7 years of good credit before you are eligible for a new home loan.

When Should I Consider A Short Sale?

When should I consider a short sale as a Lee County homeowner?

You should consider a short sale as soon as you feel the pinch. If things are tight and you don't see the light at the end of the tunnel, you need to look at your options. If you purchased your property within the last five years and are upside down (i.e., the amount you owe is more than the value of your home), then you need to give a short sale serious consideration.

A short sale of Lee County real estate refers to a sale made by a borrower on a property that was built or bought using a mortgage loan (and the mortgage loan is still not fully repaid), and where the going market value of the property in question happens to be lower than the outstanding mortgage loan amount on it. This is currently the norm for most new homeowners in Southwest Florida. With the number of foreclosures rising property values continue to go down and homes bought in the past five years are often worth far less than what their owners owe on them.

What possible tax issues might I have with a short sale?

What possible tax issues might I have with a Southwest Florida short sale?

The issue resolves around forgiven debt in the short sale situation. Whenever a debt is forgiven, the creditor will generate a 1099 for the debtor. This is true whether short sale or foreclosure or deed in lieu.
As we disclaim in our Southwest Florida short sale questions and the Southwest Florida short sale blog, every borrower should seek specific tax advice from someone experienced in the very questions that apply to that borrower.

Southwest Florida short sale on your primary residence under IRC Section 121:

The Southwest Florida short sale homeowner can find some basic information on the Mortgage Debt Relief act of 2007 at this IRS link. Generally, the Act allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
If the loans at issue are purchase money loans in Florida, the seller is not likely to see any 1099 issue at all. Purchase money loans are non-recourse. A 1099 would issue only when the lender has a right to collect in amounts beyond the collateral value.
If the loans at issue represent equity take out loan, the homeowner may avoid a 1099 on the purchase money portion and get a 1099 on the equity portion.

Short sale on Southwest Florida rental property

IRS Form 982 is used to reduce the liability of a tax attributed to the sale of a property that results in a loss. See Section 108 of the IRC. The seller of a rental property needs to be prepared to use this option to avoid tax liability, if any. Section 108 specifically qualifies real estate for business purposes and paves the way for the tax payer to avoid liability for phantom income associated with rental property.

The second home short sale dilemma

The second home presents a true issue with regard to short sale and tax planning. The borrower that needs to go into a short sale on a second home could be well advised to seek tax counsel and explore whether the property might be converted into rental property and qualify under the example above for rental properties under Section 108.

The IRS and cancelled debt

For more information on the IRS and cancelled debt, refer to IRS Publication 4681: Canceled Debts, Foreclosures, Repossessions, and Abandonments - specifically the sections on Qualified Real Property Business Indebtedness and Qualified Principal Residence Indebtedness.

What possible credit issues might I have with a Southwest Florida short sale?

There is no clear way to assess what impact a short sale will have on your credit. If anyone tells you otherwise, they are wrong.
Credit reporting cannot be generalized. FICO scores are a mathematical assessment of your credit performance over time as well as a snapshot of your credit use on that date. No one person would have the same snapshot, so each element of a short sale will have a different impact. The mathematical applications used by Fair Isaac to create the FICO score are not published material. Each late payment would have a negative impact. Each short sale would have a negative impact.
Not every lender reports every negative. We work with credit specialists who assist our clients in clearing up credit issues after the fact.
But with more than 25 years experience in working with and observing credit scoring, it looks clear that a short sale and a foreclosure do not compare to each other. A Deed in Lieu or a Foreclosure will, in most cases, always end up with a very harsh result.
The seller in default is more likely to have a lower credit rating than the seller who succeeds without missing any payments. However, the seller who is not missing payments might not be able to argue that there is any hardship.
A recent Southwest Florida Homeowner pointed out that one of the great bonuses to using our team for Southwest Florida short sales is that have use the services of one of the nation's premier credit repair firms. We assist in credit repair for Southwest Florida Short sales at no cost to the seller.
Each Southwest Florida Homeowner has as different a credit picture as a home to sell. There is nothing that any real estate agent can promise you about how a short sale might affect your credit. The same is true for lawyers and accountants. FICO scores and their calculation are protected proprietary information.
One of the largest single mistakes is using up personal credit cards and unsecured debt to keep the house. We recently had a Lehigh Acres resident call us to explore loan modification. He had been trying on his own for over one year to finally get a rejection from ASC. In the meantime, he used up three credit cards. When it is all over, he will do a short sale to zero out any liability from the house debt BUT will still have those 3 credit cards.
If you think you are headed into housing trouble, act early. Save your resources.
FNMA Guidelines
Guidelines require 24 months post-short sale good credit before qualifying for a new home mortgage. 48 months is required for a Deed in Lieu.

What is loan modification?

A Loan Modification is when you ask the bank to modify or change the terms of your loan. The most common practice is to apply to the banks for a reduction in the interest rate on a temporary basis for 2-5 years.
As a result of massive internet advertising and a variety of confusing news stories, many borrowers have a mistaken belief that a loan modification also is likely to include a big reduction in the amount you owe. This does happen in isolated cases. It is not common practice.
Generally, we expect loan mods to become more commonplace. Maybe there will be some reduction in total debt owed. Definitely there are options in reducing the interest rates. The rate reductions are temporary. And, the principal reductions require that you pay the lender back should you sell the home.

Loan Modification for Southwest Florida Homeowners in Distress

A lot of buyers, sellers, real estate agents and even seasoned loan officers - in Southwest Florida and across the country - are flying in the dark when it comes to the $700 Billion bailout and what it means for short sales and foreclosures -- and how this affects the homeowners in trouble.
The bailout will make the banks more likely to beef up short sale and workout departments and streamline the process of recovering their investments.
But at the end of the day it is not really likely to impact the day-to-day short sale business, other than stimulating the recognition that banks need to look more closely than ever at requests for short sales and loan modifications. There is a new breath of fresh air as far as loan modifications are concerned.The big hitch in loan modification, however, is that you have to prove up front that you have the income to cover the debt.
With that in mind, let's look at the DIY Loan Modification.
*** NOTE: If you are facing imminent foreclosure, you might need professional assistance to stop the clock in time. **
If at some point you had a foreclosure date, you might need to make sure that the left hand tells the right hand to cancel it while the loan modification is in review.
THE FIRST STEP: Call me ask for the Loan Modification package

Keep your requests simple and kill them with kindness.
THE SECOND STEP: Once you've received the Loan Modification package, READ and RE-READ it. Never assume that what you get in the mail is what you were promised.
THE THIRD STEP: Complete the package thoroughly.

Focus on this issue: WHAT CAN YOU AFFORD? The bank will judge what they think. If you cannot afford their basic bottom line, then you are wasting their time and yours. The bank looks at debt to income (DTI) ratio -- 80% of your net income (after taxes) divided by gross expenses, including monthly housing payment. That is THE trick: you must be able to afford what the modification might be OR you could burn a bridge. Will any loan modification also include reducing the principal balance? A quick email from a senior vice president at Washington Mutual (WaMu) tells me that she is not aware of any real balance write-downs. A similar comment came to me from an associate at Countrywide's Office of the President. If you still choose to follow the route of a DIY Loan Modification, keep in mind that you will basically be paying on one loan while the other balance sits frozen until you sell the property. If you eventually decide to sell, you still have to pay the lender back. Let's say that you sell your home two years from now. If the value of your property has not gone up, you are back to square one looking at a short sale. And, two years from now, the climate for short sale approvals and the IRS policy on forgiven mortgage debt may not be so friendly.

THE FOURTH STEP: Before you submit the package, make a copy for yourself and make sure that the pages are in order.
THE FIFTH STEP: Cookie-cutter guidelines are issued that allow low-level employees to approve certain packages. However, you need to take action and follow up on your case throughout the process. If you are asked to submit anything else in writing, do so within 48 hours to keep the file moving. Follow up with your point of contact every 10 business days. If you have not received a final decision after 30 days, escalate your case to the next level.
THE FINAL STEP: Once you've received an approval for your loan modification, you should receive initial paperwork. All should be well within 90 days. If not, something is wrong. Call the bank.
You can check online to see if you may be eligible for mortgage relief under the new Making Home Affordable (MHA) program. Fill out the form on Mortgage Relief Online and submit your request for a review of your mortgage.

What is forebearance?

Forebearance is the term used when the bank agrees to let the borrower stop paying for a set period of time. Those missed payments are added to the overall balance.

What is an upside down mortgage?

An upside down mortgage is when the total amount you owe is larger than the amount you could bring in at a sale.