Selling or Buying a Home With a Loan Under Water
Don’t wait until a foreclosure is imminent to consider a short sale. Many studies show a large number of consumers don’t talk to their lenders because they are embarrassed and worried they might start to foreclose. ”People need to make an objective decision before they run out of time,” says Rob Jenson with RE/MAX Central in Las Vegas.
“It used to take a year to get approval on a short sale,” said Leslie Carver, a real- estate agent in Las Vegas. “Now these deals are getting the green light from banks in a month and approval rates are way up.”
The Greater Las Vegas Association of Realtors announced that in January 21.1% of all home sales were Short Sales. This is a 2% increase over December. Rick Shelton, GLVAR president, called the Short Sale trend “promising” because it accompanied a similar decline in the sale of foreclosed homes.
Increasingly, financially strapped homeowners who owe more than their homes are worth are trying a so-called ”short sale” as an alternative to foreclosure. In a short sale the lender agrees to accept less than the homeowner owes on a mortgage states another article in the New York Times here.
Before 1990, short sales were rare. Last year, the National Association of Realtors estimates there were 500,000 short sales, about 10 percent of all sales. Still, there is a great deal of confusion and misinformation surrounding short sales, particularly regarding credit scores.
A short sale can hurt a borrower’s credit score as badly as a foreclosure, but won’t last as long. The blemish from a short sale depends, in part, on how the lender reports the sale to the credit rating agencies, Experian, Equifax and TransUnion. Occasionally, a lender will agree to report the loan as ”paid,” which according to Experian would not negatively impact credit scores. However, the agency also notes, that doesn’t happen often.
”Short sales are reported as either a charge off or a settlement. Either way they can have a catastrophic effect on credit,” says John Ulzheimer, president of consumer credit counseling at Credit.com.
An individual’s credit score is one factor that determines whether or not they qualify for a loan or a mortgage. Credit scores (often referred to as FICO scores) also determine the interest rate a borrower pays on credit cards as well as any type of a loan.
The good news is that after a short sale, a borrower’s credit score starts to improve within the first 24 months. One benefit of a short sale is that consumers usually can buy another home in two to three years, rather than five to seven as is the case with a foreclosure, states the article in the New York Times.
Normally, borrowers would have to pay a tax on amount the lender forgives since the IRS views this as income. If they meet of IRS description of insolvency at the time the debt is forgiven they are not liable for taxes. Until 2012, the Mortgage Forgiveness Debt Relief Act sellers will not owe taxes on the amount of debt forgiven for their primary residence. Second homes and investment properties do not qualify.
One thought on “Las Vegas Short Sales Are On Fire”
Good writeup. One of the most retarded things I’m seeing, correct my if I’m wrong, is that banks still have up to 6 years to come after you for a deficiency on a short sale vs. 6 months for a foreclosure!? Fortunately the banks are quite regularly releasing borrowers in their approval letters, but this seems to be a benefit for a foreclosure. It should be the other way around.