ARIZONA SHORT SALE FAQ

Arizona Real Estate Short Sale Defined

The term “short sale” is often used in today’s Arizona real estate market but what does the term really mean? This article will define what an Arizona short sale is as well as offer homeowners faced with foreclosure some timely tips to avoid getting ripped off by scams and opportunistic individuals who seek to take advantage of those facing the loss of their Arizona home.

What is an Arizona Short Sale?

While real estate laws from state to state have some similarities, it really is important to know the unique characteristics of what defines an Arizona short sale. Simply stated, an Arizona short sale refers to a lender(s) acceptance of a sales price of a property that is less than what is currently owed on the property plus all related expenses to consummate the Arizona real estate transaction.

An Example of an Arizona Short Sale

In practical terms, the scenario could play out like this; a potential home buyer can make an offer to purchase a home for thousands of dollars less than what is currently owed on the property. Understanding that the last thing a lender wants to deal with is taking the property back from the homeowner via the foreclosure process, they will agree to sell the home for less than what is actually owed.

A Common Practice – Arizona Short Sales!

This is common practice in our Arizona real estate market (and many other real estate markets across the country). It’s especially commonplace in our declining Arizona real estate market. The good news for all parties concerned, the homeowner, and the bank/lender can all win with an Arizona short sale.

When is the Right Time to Consider an Arizona Short Sale?

The most opportune time to consider an Arizona short sale is when the homeowner is faced with owing more money on the home in loan balance(s) than what the property is actually worth. Many times the homeowner will fall behind in their mortgage payments. Typical reasons for failure to repay a mortgage includes:

1. Job loss
2. Medical bills
3. Divorce
4. Death
5. Over extended credit problems
6. Interest rate resets

It is important for Arizona homeowners to communicate with their lender when they begin to miss their monthly mortgage payments. Unfortunately, all too often homeowners take the “ostrich-head-in-the-sand-approach” and avoid calling their lender to work out a repayment plan, which is the worst thing you can do. If a repayment plan is offered and the homeowner fails again to take meet their obligation to repay, the next option for the homeowner could be the Arizona short sale.

Not Every Situation is Right for an Arizona Short Sale!

Historically, lenders allow the Arizona short sale option only if the homeowner is faced with being behind on their mortgage payments and the prospect of foreclosure. If you are currently making your mortgage payments on time the likelihood of using the short sale process to sale your Arizona property is marginal.

Your Consumer Advocate in the Arizona Short Sale!

Assisting homeowners all across the nation is what we do. As Arizona real estate agent professionals, your best interests are what matter to us. Assisting homeowners in Arizona and nationwide, you can count on viable options and superior negotiating skills on your behalf to create a win-win situation for both you the homeowner and your lender. Providing ethical options to you before your Arizona home is foreclosed upon is what we do best! Contact us today to receive your Arizona Short Sale Relief Package and avoid the years of negative impact on your credit from foreclosure!

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This web site is designed for general information only. The comments and the information in any materials or additional third party web site links available at this web site are for informational purpose only and not for the purpose of providing legal or tax advice. You should contact your attorney or CPA to obtain advice with respect to any particular issue or problem.

ARIZONA SHORT SALE FAQ

Q: What is a foreclosure?

A: It is a legal process that a lender initiates to gain title to a home that was used as collateral for the mortgage loan that is now in default. A foreclosure terminates all the homeowner’s rights covered by a mortgage, and makes the lender the absolute owner of the property.

Q: When does the foreclosure process start?

A: The process of foreclosure starts when the homeowner fails to make payments of the money due on the mortgage at the specified time.

Q: What is a NOD / LIS?

A: A notice of deliquency, which is a notice to a borrower with property as security under a mortgage or deed of trust that he/she is delinquent in payments. If the money that is owed and late, plus legal fees for preparing papers for the default, is not paid within a certain time, foreclosure proceedings may begin.

Q: What is a NTS / NFS?

A: This is the last phase of the foreclosure process, or the Auction phase. The foreclosing trustee prepares and records the notice. The notice details the legal description of the property being foreclosed upon and gives the date, time and place of the pending trustee sale.

Q: What can I do to protect myself?

A: Contact your lender as soon as possible to try to come up with another solution. A lender doesn’t necessarily want to foreclose on a home because they stand to lose thousands of dollars. Before you sign or agree to anything, contact your lender. If you are working with a third party, get everything in writing. Unless you will formally be released from any obligation to repay your loan, do not get into any contract of sale or agree to let someone take over your loan. Always consult a lawyer, real estate professional, such as Oggie Penev and Realty Partners, or the mortgage company before entering into any deal. They can help you research the potential borrower to make sure that there aren't any complaints against him/her, by contacting the state's Attorney General, the State Real Estate Commission, or the local District Attorney's Consumer Fraud Unit.

Q: What are the most important things for me to remember?

A: First, do not ignore any correspondence from lenders because they are usually willing to work with you for an alternate solution. Your credit can be damaged greatly and will take years to repair, if you lose your home. Second, do not abandon your home because there may always be a chance for you to save it. Third, take advantage of any assistance your lender is willing to give. Last, if you are using a third party in the process and you feel like you're being scammed contact your lender, a counseling agency, or real estate professionals, such as Oggie Penev and Realty Partners for assistance. Never sign anything you don’t understand.

DO YOU KNOW THE REQUIRED ITEMS FOR AN ARIZONA SHORT SALE PACKET?

When it comes to an Arizona short sale, the only reason your lender permits a short sale is to avoid the high cost of taking over your property in the foreclosure process. Conducted properly, an Arizona short sale creates a win-win scenario for the seller and the lender.

Required Items to Document Short Sale Proof of Hardship

In order to prove to your lender (or lenders if you have a second mortgage) you qualify for an Arizona short sale, you must provide complete documentation and verification of your situation. Commonly called a Short Sale Packet, below is a comprehensive list of items and documents required to prove a hardship exists in order to complete your Arizona short sale:

• First and foremost, you will need a well-crafted hardship letter. As your Arizona short sale listing agent, we will help you write your letter explaining your situation and explain why you are requesting a short sale. Written properly, the hardship letter will serve as your plea with your lender why a short sale is your last resort to possible foreclosure of your Arizona home.

• Any supporting documentation that supports your application for the hardship. In addition to your short sale hardship letter and supporting documentation, you will need to provide the following documentation:

• A Letter of Authorization (LOA). By completing a LOA, you are granting our team the authority to talk with your lender(s) on your behalf to coordinate your Arizona short sale.

• 2 years tax returns and W-2’s

• 2 of your most recent bank and retirement account statements

• 2 of your most recent paycheck stubs

• A current financial statement

• Provide a recent comparable market analysis (CMA). As your Arizona short sale listing agent, we will provide this CMA for you.

• Include a HUD-1 Statement or Estimated Net Sheet. As your Arizona short sale agent, we will provide this documentation

• A copy of the executed Arizona Association of Realtors (AAR) Purchase Contract with buyer’s proof of funds (POF) Or Loan Status Report (LSR).

CAN THE BANK SUE ME?

Arizona’s mortgage deficiency statutes located at A.R.S. §33-729, §33-814 and §12-1566 and the case law interpreting them are complex. This memorandum includes a checklist of items to be considered to determine whether, or not, a mortgage lender has the right to obtain a mortgage deficiency judgment against a borrower, or guarantor, of a loan subsequent to a real property foreclosure in Arizona. The content of this memorandum is not intended to address every possible scenario and it should not be used as a substitute for conducting current legal research concerning Arizona’s mortgage deficiency laws.

1. STEP ONE: DETERMINE WHETHER THE MORTGAGE LOAN IS “PURCHASE MONEY” VS. “NON-PURCHASE MONEY”

• A loan is purchase money even if less than 100% of the loan proceeds are used to purchase the real property which secures the loan.
• A mortgage loan secured by a borrower’s residence is not a purchase money loan if the proceeds of the loan are used to purchase a different residence such as a vacation home.
• Home equity loans that are not 80/20 loans typically are non-purchase money loans.

2. STEP TWO: DETERMINE WHETHER THE REAL PROPERTY WHICH SECURES THE LOAN FITS WITHIN THE STATUTORY DEFINITION OF A “QUALIFIED PROPERTY” PROTECTED BY THE ARIZONA “ANTI-DEFICIENCY” STATUTES

• Evaluate the physical characteristics of the real property to be foreclosed upon.
• A “Qualified Property” protected by Arizona’s “anti-deficiency” statutes means real property of “2.5 acres, or less,” and that is limited to and utilized as a “single-one-family or single-two-family dwelling”.
• Four single-family condo units are not a Qualified Property.
• A single-family residence under construction by a residential developer, but not yet sold or occupied is not a Qualified Property.

3. STEP THREE: DETERMINE WHICH OF THE FOUR GENERAL RULES LISTED BELOW APPLY TO THE MORTGAGE LOAN TO BE SUED UPON BY THE MORTGAGE LENDER

4. STEP FOUR: CONSIDER THE “FAIR MARKET VALUE” LIMITATION OF ANY DEFICIENCY JUDGMENT OBTAINED BY THE MORTGAGE LENDER

• Any deficiency following a Trustee’s Sale or a Judicial Foreclosure permitted against either a borrower, or a guarantor, is subject to a “fair market value” limitation. In particular, the deficiency amount is calculated as, and limited to, the difference between the loan balance due on the date of the foreclosure sale less the greater of the foreclosure sale price or the “fair market value” of the property on the date of the sale. The vast majority of residential foreclosures currently pending in Arizona concern Trustee’s Sales related to loans secured by deeds of trust upon single-family residences located on 2.5 acres or less. In such cases, if the mortgage lender completes the Trustee’s Sale, it may not obtain a deficiency judgment against the borrower.
An additional common example of foreclosures currently pending in Arizona are Trustee’s Sales related to loans secured by deeds of trust upon vacant land. In such cases, if the mortgage lender completes the Trustee’s Sale, it may sue the borrower for a deficiency judgment against the borrower as long as the deficiency lawsuit is filed within 90 days after the date of the foreclosure sale.
The 2 foregoing examples probably represent 90% or more of the scenarios facing mortgage lenders in Arizona. The other scenarios will be controlled by Rules #1-4 discussed above.

An excellent analysis of the Arizona mortgage deficiency statutes is included in an article published in the Arizona Attorney titled Arizona’s Deficiency Laws: When Is A Deficiency Judgment Available And How Is One Obtained?,
28-APR
Ariz. Att’y 23
(April 1992)
ARIZONA STATE BAR
CONVENTION
2008
CONSUMER BANKRUPTCY PROGRAM
____________________________________
ARIZONA MORTGAGE DEFICIENCY LAWSUITS
____________________________________
PRESENTED BY
LARRY FOLKS, ESQ.
1850 NORTH CENTRAL AVENUE, SUITE 1140
PHOENIX, AZ 85004
(602) 256-5906
FOLKS@FOLKSOCONNOR.COM

This is advertising material.This web site is designed for general information only. The comments and the information in any materials or additional third party web site links available at this web site are for informational purpose only and not for the purpose of providing legal or tax advice. You should contact your attorney or CPA to obtain advice with respect to any particular issue or problem.

TAX

Tax Consequences After a Short Sale

A short sale is what occurs when the proceeds from the sale of a house are less than what the owner still owes on the mortgage. The lender has agreed to reduce some of the outstanding debt and it leads to “cancellation of debt” income. The income is treated as “ordinary income” instead of “capital gains income” and is taxed at a higher rate. In the instance of a short sale, the agreement between the owner and lender is voluntary and is treated as a cancellation of debt, and the seller will receive a 1099 tax form in the amount of the debt cancellation.

What the Law States

The Mortgage Forgiveness Debt Relief Act of 2007 states that a taxpayer will not be taxed on cancellation of debt income if the following conditions are met:

• The short sale property is the taxpayer’s principal residence.
• The cancellation of debt is Qualified Principal Residence Indebtedness (a loan to construct, acquire or considerably improve the residence, which is capped at one million for a married person filing a separate return or two million for all others)
• The indebtedness is discharged after January 1,2007 and before January 1, 2013

Additional Instances for Taxation Relief

There are four additional instances when the taxpayer can receive taxation relief on their cancellation of debt income.

• The taxpayer is broke (debts exceed assets, but cancellation of debt is excused only to the extent of the liquidation).
• The debt is released as part of the bankruptcy process
• The released debt is qualified farm indebtedness
• The released debt is qualified business indebtedness However, if the taxpayers have refinanced to take out some of the home’s equity, they may be liable for capital gains taxation when selling the property. For example, if they refinance to make a purchase such as, a car, an investment property, consolidate other credit issues, pay off credit card debt or take a vacation, then they will owe capital gains taxes.

What Can I Do?

It is best in a short sale situation to speak with a lending professional or short sale/foreclosure expert to determine what steps you need to take. They are able to guide you through the process, conclude what is the best course of action and explain the taxation rules for the state you reside in. The best thing to do is contact a knowledgeable professional, like Oggie Penev and the experts at Realty Partners to discuss all your options. Please contact them today to start deciding what your choices are before it’s too late.
This is advertising material.This web site is designed for general information only. The comments and the information in any materials or additional third party web site links available at this web site are for informational purpose only and not for the purpose of providing legal or tax advice. You should contact your attorney or CPA to obtain advice with respect to any particular issue or problem.

CREDIT

Credit Consequences After a Short Sale or Foreclosure

No homeowner wants to think about losing their home to foreclosure or undergoing a short sale, but in reality, it does happen. Some lenders would rather accept a short sale, in order to avoid the foreclosure process. A homeowner may rather short sale their home as well, in order to pay off the loan for less than what is owed. There may be times though that either the lender or homeowner would prefer a foreclosure. A homeowner may not want to keep the home anyway, so a foreclosure is okay with them. A lender may prefer a foreclosure in order to get more of what is owed on the home back. In either instance there are repercussions on the homeowners credit.

How Short Sales Affect Your Credit

First of all, a short sale occurs when the proceeds from the sale of a house are less than what the owner still owes on the mortgage. When sellers have a home go through short sale, they typically lose 80-100 points on their credit rating. The sellers may wonder about their future home buying power after a short sale as well. Even after losing some of their credit rating, the sellers can typically buy another home in about 18 months at a good interest rate. However, be aware that in a short sale some states allow the lender to take action against the sellers to recover the difference in what the home sold for and what was owed.

How Foreclosure Affects Your Credit

In a foreclosure situation, the homeowners lose much more of their credit score than they would in a short sale. The sellers credit score after foreclosure will usually fall between 200-300 points. It will also affect the length of time before a buyer can get a good interest rate when buying another home. After foreclosure it typically takes up to three years for a borrower to get a good interest rate.

What Can I Do?

If you have gotten into a situation where a short sale or foreclosure is the only option, you need to speak with a lending professional or short sale/foreclosure expert to determine what steps you need to take. They are able to guide you through the process and conclude what is the best course of action. The best thing to do is contact a knowledgeable professional, like Oggie Penev and the experts at Realty Partners to discuss all your options. Please contact them today to start deciding what your choices are before it’s too late.
This is advertising material.This web site is designed for general information only. The comments and the information in any materials or additional third party web site links available at this web site are for informational purpose only and not for the purpose of providing legal or tax advice. You should contact your attorney or CPA to obtain advice with respect to any particular issue or problem.