Royal Lepage

Lakes of Muskoka Brokerage, Independently Owned & Operated

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Sit back and relax, we have you covered!

A Stupendous Article and Several Things to Consider

This post addresses questions on short sales and sifting through the confusing offers from those who want to help distressed homeowners.

Q: My home is on the market but is unlikely to sell for what I owe on it. Should I consider a short sale? My Realtor says she can help with that, which sounds cheaper than hiring an attorney.

Most people don't understand the shortcomings of short sales:

Because a short sale is one obvious symptom of financial problems, it is very rare that the mortgage(s) are the borrowers' only financial concern.

People feel guilty that they can't repay the debt, and want to help the bank; but the foreclosure process is actually usually shorter, simpler and cheaper to the bank than a short sale. People also want to do everything possible to avoid a bankruptcy, hoping that a short sale will solve their problems or buy them time, but many people in our offices completed a short sale and then file bankruptcy to deal with the credit card debt, car loans, etc. that still remain. People also think that a short sale is less damaging to their credit report than a bankruptcy, which is true, but again bankruptcy is often unavoidable even if a short sale is completed.

Realtors are holding themselves out as foreclosure and short sale specialists, hoping they will get future business and a commission from the bank. Some Realtor firms are using language like "we can help you stop the foreclosure process" and this simply is not true.

Realtors are suffering for lack of commissions and this seems to be a way to replace (or supplement) commission income with fee income. They can call your mortgage company and save you the agony of directly speaking to your creditor, if you want to spend your money that way, but if you're in financial distress this seems to be an unnecessary expense for no more than it offers you.

Let me go off on a tangent for just a moment. Have any of you got any exposure to showers and more? I've heard some good things about them and I'm trying to determine if I will go with them or not. They're a sharp shower hardware supplier in Ontario. Anyway, let me know in the comments. Time for the article!

Q: Is it true that I might incur taxable income if I enter a short sale with my mortgage company? You must be kidding!

Yes. This is an extremely complex area and Rick and I always tell our clients to consult their accountants regarding the tax implications of a short sale. I reviewed a Bank of America short sale agreement this month, which specifically warns that the borrower may receive a 1099 for debt forgiveness income arising from a short sale. That means that if the bank writes off any deficiency remaining after a short sale, it will send you a 1099 showing that you received "phantom income" equal to that amount and should pay taxes on it. Those taxes are not immediately dischargeable in a bankruptcy (again, very complex issue here).

I used to occasionally represent a mortgage insurance company that, per an insurance policy governing a foreclosed property, paid the bank the deficiency and then sued the borrower under an assignment of rights from the bank. Talk about insult to injury! The borrower didn't get a 1099 but got sued for the deficiency after the foreclosure.

A qualified attorney understands densely-worded contracts and are knowledgeable about options that lenders do not have incentive to disclose.

Q: Are mortgage companies telling untruths to get me to agree to a short sale?

Our Chapter 13 trustee has warned the Western District NC bar that he is seeing short sale agreements that specifically include provisions wherein the bank reserves the right to sue the borrower for the deficiency. I have seen them recently myself; Bank of America's short sale agreements include it. If your short sale agreement isn't properly structured you could end up being in no better shape with a short sale than with a foreclosure or in bankruptcy protection.

Q: I have an under-water mortgage (the mortgage balance exceeds the market value) and got a decent offer on the house, all things considered. Can I do a short sale and wash my hands of the excess owed?

As mentioned in an earlier question, the tax treatment of short sales is extremely complex.

Believe it or not, some wealthy people call us complaining that they own two properties and wish to get rid of one with no financial consequences. The US Secretary of Health and Human Services (and former Kansas Governor), took some heat for this earlier during her confirmation proceedings.

Hello, it doesn't work that way. If you have non-exempt assets, those can be used to satisfy a deficiency and there's nothing you can do about it, bankruptcy or no.

This post just scratches the surface of considerations for distressed homeowners. There are no one-size-fits-all solutions to this real estate meltdown and there are a frenzy of unscrupulous operators out there hyping so-called solutions that benefit only them.

Keep watching our blog for further information on the ever-shifting mortgage landscape.

Since we're finished, I want to direct you to http://titantransline.com. This is the website of titan transline, a wonderful trucking company in Ontario. I've been working with them lately and have only great things to say. Try them out or call them if you're in the market for this type of service. They're great. Alright, time for bed.

Sources

http://bounceevents.ca - Thanks Jayleen! I am aware you are extremely busy. Thank you for making the time!
http://www.dentistryonbrant.com - Thank you for the late-night work Westin :)
http://www.redneckrubber.com/ - Glad I stumbled upon these guys.

Posted in Real Estate Post Date 09/27/2015


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Appraisal Overview

There are three approaches to value that we can consider – Income, Cost and Direct Sales Comparison. Depending on your property, we will gladly explain which approaches apply and can aid us in determining the market value, if that is the value that is sought after. There are many kinds of value that can be required, but, by far, market value is the most commonly required. This requires an in depth and firsthand knowledge of the local market place.

Common Myths

MYTH: An appraisal is the same as a Realtors Opinion of Value.

FALSE. An appraisal is an in depth view of the property with features and factors being compared to other properties with similar features and factors. The sales considered have to meet the definition of market value as laid out in CUSPAP. Appraisals signed by designated members have usefulness for financing and estate planning and settlement, whereas opinions of value typically do not.

Frequently Asked Questions

What is the cost of an appraisal?

That will depend on the purpose of the appraisal and the location of the property. How long will it take to complete the appraisal once an inspection takes place. Again, depending on the purpose of the appraisal, a typical re-financing assignment will be completed for the lender within 3 days. Referrals – our Clients have included Financial Institutions, Law Offices, The Federal Government, Private Lenders, Personal Property Owners, to mention a few.

 

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