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Q – What is Negative Equity?
A- Also known as being “upside down” Negative Equity” is the difference between the value of an asset and the outstanding portion of the loan taken out to pay for the asset, when the latter exceed the former. For example, If your car is worth $10,000 and you owe $18000 on it, you would have a negative equity of $8000. Negative equity can result from a decline in the value of an asset after it’s purchased.
Some areas decline in value. In other areas, prices may remain flat so that the properties in the area do not appreciate. If a seller wants to sell within 2-3 years of purchasing their property, they could potentially face a
situation where they have negative equity. |
Q – How will the Short Sale affect my credit?
A – Banks have the option of submitting the short sale to The Credit bureau as “Paid in Full” or “Settled for less than The Full balance”. As far as your credit score is concerned, there is no evidence to support that a short sale will lower your credit score. Some have the idea that this is like a bankruptcy
or a foreclosure. That is not true! In a short sale, the lender is simply allowing you to pay less than you owe!
If you are currently behind on your mortgage or facing foreclosure, the short sale will actually help your credit! Because once you are approved for the short sale, all collection activity will STOP and you will avoid foreclosure. |
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Q – Who benefits from the Short Sale?
A – Short sales are a win – win situation. Lenders, Mortgagees and Realtors all benefit from the successful short sale. The Lender gets the majority of it’s money back, Mortgagees get the relief they need and are able to sell their property and avoid foreclosure, and the Realtors can facilitate the transaction and receive compensation (commission) from the sale of the property. |
Q – Why would banks forgive the difference?
A – To mitigate their losses, bank often accept a settlement of less than what Is owed on the property. When faced with the option of getting the property “back” through foreclosure, a short sale is often much wiser business decision for the bank. |
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Q – Why does my property have negative equity?
A – Here are a few common reasons:
· You bought at the height of the market and the market has not declined or you paid more than the property was worth.
· The area has become less desirable for any number of reasons, so property values have declined.
· You Purchased the home with little or no money down and want to sell within a few years of purchase…. and the property value has not increased during that time.
· You refinanced the home (with a high appraisal value) and now you have little or no equity.
· You bought in a brand new subdivision or recently developed area that has not been fully developed or has no appreciated (or has depreciated) in value
· The market is soft because there are too many existing home on the market (buyers market) |
Q – What if I owe what my home is worth?
A – Even if you owe exactly what your home is worth, you may still need to do a short sale in order to pay for the costs of the sale. (Realtors fees, Title Policy and other seller closing costs)
Q – Why not just let the lender foreclose?
A – Even if the lender sells the property through foreclosure this may NOT remove your obligation to repay the remaining balance. The financial obligation may not be wiped away!
Q – How long does a short sale take?
A – Short sale approval can take 30-45 days.
Q – What if my home is already in foreclosure?
A – Your foreclosure sale will usually be suspended during the short sale process.
Q – Are there any tax consequences to a short sale?
A – Updated-
Mortgage Forgiveness Act Signed into Law |
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 Yesterday, President Bush signed H.R. 3648, The Mortgage Forgiveness Act of 2007, into law, sparing homeowners the tax burden associated with canceled mortgage debt.
Prior to this action, forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure, was considered taxable income. The new law, however, temporarily waives these taxes for debts forgiven (as high as 35%) from the beginning of 2007 to the end of 2009. The bill also extends the tax deduction for mortgage insurance premiums through 2014.
"This is going to make a happy holiday for many homeowners," President Bush said yesterday before signing the bill in to law. During the press conference he added the following:
"When you're worried about making your payments, higher taxes are the last thing you need to worry about. So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. And it's a really good piece of legislation. The provision will increase the incentive for borrowers and lenders to work together to refinance loans – and it will allow American families to secure lower mortgage payments without facing higher taxes."
"There's more work to be done," Bush added, saying that Congress needs to pass legislation to strengthen Freddie Mac and Fannie Mae, to modernize FHA, and to allow the government to issue tax-exempt bonds for refinancing existing home loans.
H.R. 3648 Summary | |
