Understanding Murrieta Ca Short Sales
Temecula Valley short sales are most often mistaken as foreclosures or reside in that unknown area between knowing and understanding for quite a few agents, homebuyers, and homeowners. To begin this post I am going to provide a definition of what a short sale is:
Definition – A short sale is when the total loan or debt burdens on a real estate property are greater than the overall total value of the home as measured by the direct market comparables.
A lot of people think foreclosures and short sales as the same thing but they are actually very different. Foreclosures are when loan payments are not being made and consequently the bank sends out a Notice of Default. The notice is the first step of the financial institute’s foundation for a foreclosure process. Foreclosures usually take between 4-6 months with the owner of the home losing possession and taking a tough credit hit.
However, this circumstance can often be worked out in that 4-6 month time period. This is often why there has been confusion separating the two since they are frequently intertwined. Once a financial institution has started a foreclosure process, the current homeowner has a limited time to either bring the payments current or leave the property.
The other way to go is a short sale if the banks agree and thereby mortgage forgiveness. When taking this route, the seller lists the Temecula or Murrieta house, makes an deal with the bank or banks and sells the encumbered property before the complete foreclosure process. The financial agreement the homeowner makes with the banks is for the financial lien holder to take a smaller amount than is owed on the property but grant full debt forgiveness for the owner.
Now, why would a bank take less money that is owed? Because, that is all they are going to if they foreclose. The banks often receive more money via a short sale since the homeowner is maintaining the Murrieta or Temecula property and it sells for a higher price. The financial institute also sidesteps the expensive foreclosure process while worrying about one less property in its portfolio. Financial institutions have a tough challenge monitoring all their properties. And, homes that have been foreclosed on often get abused and vandalized losing the lending company even more money.
So in quite a few cases the short sale a solution that works out for the current owner of the home who gets debt forgiveness versus a foreclosure and the financial institute who usually takes less of a loss financially. It also often works for the new home buyer as well because they get a home that is in nice shape many times at or below foreclosure pricing.
It isn’t always a walk in the park though and there are two issues to short sales. The first hurdle is time. Financial institutes often take a long time to the file in order and submit it to a closer and unfortunately a lot of buyers will not wait. As an buyer’s advocate, it is much easier for me to sell a banked owned home or a traditional seller owned home over a short sale.
The second worry is possible tax liability. In the event a bank grant debt forgiveness it is obligatged to report that financial forgiveness as income via a 1099 IRS form. What most of sellers won’t check into is the real situation of their taxes.
Many homesellers are thought of as financially destitute and are thereby relieved of these tax burdens. Sellers in this circumstance need to have a CPA calculate their net worth utilizing the proper IRS form and very well could be pleasantly relieved.
Wrapping up, there is some good news on the horizon. The House of Representatives just overwhelmingly passed a recent bill to reduce the tax negatives on bank forgiven debt. This action further augments the benefits of a short sale over a foreclosure and really reducing the long term financial shock for someone caught in what has become a very normal situation.
{ 11 comments… read them below or add one }
Stop paying the second???? No remedy really???
I own a home in San Diego. We purchased the home with 100% financing. The first loan is 444 and the second (with Citibank) is 113. My husband moved out and I am stuck here and would like to keep the house but cannot afford the entire mortgage payments. I am thinking of defaulting on the second, but paying the first. The property values have declined so much that it may be difficult to even sell the property for 450k. Therefore, what would the second do? If they foreclose, then they have to pay the first back, which might be hard to do??? My credit is going to take a hit with a short sale or a foreclosure anyhow. So why not try to force the second lien holder to write it off??? Am I wrong?
Can I afford to buy a foreclosed or short sale home in the San Diego area?
I currently live in the Midwest, and my family is planning to relocate to the San Diego area within the next 2 years. Coming from the Midwest, where things are a lot less expensive, it is difficult for me to get used to the idea of paying California prices for a home! My husband and I both work in health care; he’s an x-ray tech, and I’m a nurse, so we are employable and not too broke, but not wealthy, either.
Anyway, my question is, if we have only about $200,000 to spend on a home, and we don’t need a lot (other than a reasonably safe neighborhood), would we be able to buy a foreclosure or short sale home? How would we locate these types of properties for sale?
Before anyone suggests living in an apartment, I need to point out that we have dogs and cats, so we need a yard we can fence. Also, we have 2 kids, so a family area would be nice.
Thanks!
My condo is underwater , thinking about walking away ?
Hello everyone,
I currently own a condo in suburban San Diego that is severely ‘underwater’. The delta b/w the current balance on my loans and the current value of the condo (estimated by what neighboring condos have recently sold for) is = -$150K.
I’m a very good borrower, my 2 mortgages are current, have never missed a payment, have even made extra principal payments throughout the last 3 years. My financial situation is very good, I have a credit rating of ~800, and (as judged by my income) I can definitely afford to keep my condo.
But, I’m about to lose my job, layoffs are coming (I can’t go into it, I’m just fairly certain it’s going to happen in my company, enough said) . . . On top of that, per some family reasons, I’m moving back to the east coast.
I can’t refinance my condo b/c it’s so severely underwater (nor do I really want to, I’m fine w/ the terms of my loan).
I can’t conduct a short sale or turn in the keys (or any other such bank-sponsored program), b/c I cannot demonstrate a financial hardship (at least not yet). My situation is quite the opposite at the moment, I’m enjoying much financial security!
I could rent my condo out, but given current market rates, I’d still be eating about $1K a month (factoring in property taxes, community fees, maintenance). That considered, I really don’t want to keep this condo.
And so, I’m considering ‘walking away’ from my condo (i.e. purposely not paying the mortgages, going into default and allowing the bank to foreclose).
Now, I know this’ll dramatically reduce my credit score. I know this’ll brandish my credit w/ a foreclosure, that’ll preclude me from buying anything in the next 7 years.
But I think I’m ok with this. I don’t intend to buy anything for another 7 years, and I think I can rebuild my credit.
Not only that, but I think I would have to hang on to my condo and rent it out for a good 7-10 years, hoping it would go back in the black, for me to sell it and make a decent profit (or just break even!).
So whether I ‘walk away’ from it or keep/rent it out, I’ll be in the same place in 7 years (assuming I work on repairing my credit, in the walk-away scenario). Heck if anything, if the economy continues to decline along with the RE market in SOCAL, walking-away may be the clear better option.
What do you think?
Thank you for any input.
Peter, you raised some good points. But suppose further that I have no aspirations of making any huge purchases (cars, student loans). I know that’s hard to believe, but I think I can manage that.
Also, can anyone comment on how bad a foreclosure would affect my credit score. Knock it down from a 800 to a ????
—-
In regards to smrtBlondie’s post below: Can some expand on this? I suppose the bank could litigate against you, but jail time? I don’t think so, it’s not a criminal offense to have your property foreclosed on.
–
lanthom: your points are well-taken. I understand your frustration. I remind you though that I haven’t done anything yet, I’m just considering it. If I really didn’t care about the ethical ramifications of what I’m proposing, I would’ve ‘walked away’ a year ago. I’m only considering it now b/c I’m getting laid off (I got official word today!) and I have a special family situation that’ll require me to move. Believe me, if I knew these circumstances were coming, I would’ve never purchased this condo 3 years ago. Thank you for your input.
What’s the best way to go about obtaining a foreclosure report on a property before bidding at a trustee sale?
I want to bid on properties at trustee sales in Orange and San Diego County, California, but before I do I need to check the properties ahead of times to make sure there are no outstanding liens and also that I am bidding on the senior lien and not some other junior lien. I have been told to check online with each counties recorders office, but have had no luck doing so. Have also been told to start at the county courthouse doing the research manually, but also have hadn’t any luck figuring out how to go about that. I have the money to invest in a few foreclosures, but I want to do it via trustee sale, as opposed to short sale or REO, and I am just trying to cover all my bases as I know trustee sales can be very risky. Anyone who has experience with trustee sales in either Orange County or San Dieg county, any advice would be greatly appreciated. Thanks.
There is no way the second mortgage holder is going to let you keep the house while they write off the loan. You can not afford the house, so get it on the market and get it sold. This situation is going to just continue to drag you down financially into the future. The second lender will come after you personally for the balance long into the future if you don’t settle this up as a short sale, and do it with the ex in the picture legally.
What are the tax/insurance/process considerations when buying property from New Zealand in San Diego?
Looking to buy a house in San Diego but keen to understand :
* tax issues, both in NZ and the US (I am a Kiwi but my Wife/Kids are US citizens)
* all the insurance considerations, property tax, house insurance, renters insurance, earthquake insurance, etc
* best way to get through the foreclosure, short sale process.
* any issues with unpermitted rooms/additions – is this really a big deal ?
Thanks for any help you can offer or point me towards a financial/tax institution that could assist.
First of all, it doesn’t matter if you are ‘underwater’ unless you need to sell.
People are ‘upside-down’ all the time on car loans and it doesn’t freak them out.
The bank never agreed to be your financial partner and assume risk with you. The bank agreed to lend you money and you agreed that you would repay it. If you are able to do so, you should. If the property was worth 125% of what you paid for it (i.e. a 25% profit) would you be looking to share that with the bank? Why do you think they should take YOUR loss?
You can’t walk away with no penalty. That’s because you borrowed the money and YOU agreed to pay it back. When you don’t pay it back, it shows you are irresponsible with money and not a good credit risk.
There are four levels of things you can do if you have to sell. The further down the list you get, the more damage it does to your credit.
#1 – come up with the difference out of pocket at closing. Not terribly attractive, but does no damage to your credit.
#2 – get the bank to agree to a ‘short sale’. From a bank’s point of view a short sale is a loss mitigation technique – meaning they think they’ll lose more if they don’t do this. This is why they have means testing for a short sale and why you already have to be delinquent in payments.
#3 – deed-in-lieu of foreclosure. A ‘voluntary’ foreclosure. Saves the bank attorney fees and a court date. Trashes your credit.
#4 – full foreclosure. The bank hires and attorney and goes to court to gain ownership.
In cases 2, 3 and 4 there is a deficiency. They can come after you for the balance. In some states it is difficult for them to do so and they may choose to forgive the balance. If they do, they will almost certainly send you a 1099 next tax season where the amount forgiven counts as income to you (and now you have a real tax problem).
There is no ‘walking away’
So your job situation and your moving really does throw a wrench into the whole situation. If you choose to become delinquent and allow the condo to be foreclosed on, your credit score will probably drop to below 500. Credit scores affect even more than your ability to access credit (which will be no credit for a few years). Insurance companies use credit scores to determine rates (lower credit scores = higher claims and more cost for the insurance co., and they know it). Potential employers can check credit and deny you a job because you are a poor credit risk. This is especially true of management type jobs where you have access and opportunity to steal from them. Employers consider people under financial duress to be bad employee risks.
This situation is exactly why financial pundits all agree that you should have ~6 months of expenses saved in a savings account. If you had this, you could land another well paying job in that amount of time (probably anyway).
All of your hard work in doing the right thing financially will go right out the door if you are foreclosed on.
good luck!
Between all your questions, it’s several hours worth of discussion. No way to even scratch the surface in a short online answer. Sorry, mate.
But it seems to me that you’re overlooking an issue bigger than anything you mentioned. Unless you have a trusted local representative, you will regret your idea to invest in US. And by trusted representative I do NOT mean someone you found from a slick online advertisement. Trusted would be your family or time-tested friend.
What can go wrong? Everything. The property real value will turn out to be lower than you were told. The cost of repairs will be three times higher than your “firm” estimate. The contractor will disappear never finishing construction. The replacement contractor will demolish the work of the first one but will not even start his own part. The property manager will not be able to find a tenant, and the one tenant he finally finds will not be paying. In the process, all of them will be happily taking your money, leaving you wondering if US population consists entirely of crooks. No, not entirely, but those who are – they will find you an irresistibly attractive victim, powerless to go after them from across the ocean.
How do I know? See my source.
Michael Plaks, EA, Houston TX
Real estate specialist
http://www.MichaelPlaks.com
To be perfectly honest with you…I would not buy a home there until I lived there at least a year. How do you know you’re going to actually like it? Hate to tell ya…but I was SOOO excited to move to Colorado. But after 6 months, I hated it. Can I tell you how happy I was I didn’t buy a house like I originally planned?
What seems like a great deal up front…could be a nightmare in the long run if you want to get out. LOTS of vacant houses right now for rent in San Diego. Just look it up on the internet.
I am an educated real estate investor who became a licensed real estate broker. I know the foreclosure process inside and out and practice in Orange, San Diego and Riverside County.
First off, to answer your question, you need access to a title company to get the lien information to see if the credit bid at the trustee’s sale is for the first, second or third position. Even websites like http://www.realtytrac.com can’t tell you the position of the foreclosing lien holder.
Now to address your question. Very rarely do you get a good deal at a trustee’s sale. That’s because very rarely does a property with equity go into a trustee’s sale and if it does, very rarely does no one show up to bid on it.
Also, the answer which told you that trustee’s sales are not risky was incorrect. Trustee’s sales are risky not because you don’t know who is foreclosing (or existing liens, such as Tax liens, which will stay with the property), but because you generally do not know the condition of the property. It could have foundation or structural issues. It might have mold or plumbing issues. It could be so messed up that a conventional lender will not lend money on the home, thus affecting your holding cost and/or exit strategy.
It is of my opinion that the best place to pick up a home is in pre-foreclosure by doing a short sale. Some REOs are good, but they are usually 10% below market value or at market value. The only way to pick up REOs at a good rate is to buy them in bulk, but then you run into the risk of not knowing about the individual properties.
Feel free to contact me if you have any further questions. Depending on your exit strategy and what you are trying to accomplish, I might even be able to help you out with the information you need.
Regards…
Thanks a bunch for sharing this with all people you really know what you are speaking about! Bookmarked. Please additionally seek advice from my web site =). We could have a link trade arrangement between us