Short Sales, HOAs And Liens

Short sales are heating up thanks in large part to major lenders getting their systems up to snuff and a looming Mortgage Forgiveness Debt Relief Act deadline (Dec. 31, 2012) , which cancels/erases taxable debt on the difference owed on the mortgage.

For example, if a homeowner owes $300,000 on his or her mortgage, but the property is only worth $225,000, a $75,000 difference exists for which he or she is financially responsible. Rather than selling the home for a loss and cutting a $75,000 check to the bank, the homeowner, lender and buyer can negotiate a “short sale” that ensures the seller can avoid foreclosure, as well as a huge $75,000 tax liability (for now), while the seller gets a sweet deal on a new home.

The lender, meanwhile, actually saves money by not having to foreclose on the house and then attempt to preserve, market and re-sell it to a new buyer months — possibly even a year or more — down the road.

But, short sales are typically anything but “short.” The process has been streamlined and improvements have been made; however, there are several roadblocks that can and often do gum up the process.

Homeowners Associations (HOAs) are among the many culprits that can kill deals.

Most short sales are “distressed” situations. In other words, short sellers either can’t afford — or simply refuse — to pay their mortgages.

Therefore, once that decision is made it’s reasonable to assume that most of them also stop paying dues to their neighborhood associations. HOAs typically exist in planned and/or gated communities, managing and maintaining the common areas (pools, fitness centers, playgrounds, etc.) and ensuring that all its residents follow the HOA bylaws.

Missed HOA payments add up over time. And when it reaches a tipping point (all HOAs have different thresholds), it will typically file a lien (or liens) for the amount owed against the property. So when a potential buyer comes along, the lien will appear on the title and will need to be paid off prior to closing.

That could be a major sticking point, especially (in the above example) if a buyer is plunking down a quarter-million dollars for a new home. Factor in closing and moving costs, as well as all the other inevitable “move-in” expenses, and ponying up another $5,000 to clear the HOA debt he or she didn’t incur, is a significant setback.

Sure, the seller could offer to pay off the amount owed, but chances are he or she doesn’t have that kind of cash just laying around if he or she can’t afford to even pay the mortgage. And unless the lender is super motivated, it also will most likely not be too thrilled to pay it off, considering it has already agreed to accept a $75,000 loss on the mortgage.

Indeed, HOA liens are tricky.

Settlements can often be reached to ensure clear title, but once again it becomes an issue of who is going to pay. In most situations in today’s “buyers market,” potential buyers simply move on to the next property that doesn’t have so many headaches and require them to spend more money than they have to.

Who can blame them?

Unless, of course, the short seller manages to cobble together the cash to ensure he or she doesn’t get slapped, potentially, with a tax bill at the end of the year. And with an extension or amnesty possibly in the cards in the near future based on the historic nature of the real estate market collapse, those folks are likely few and far between.

Warren Buffett advice on investing: ‘Load up’ on single-family homes at distressed prices (Video)

“Single-family homes are cheap right now. If I had a way of buying a couple 100,000 single-family homes, and had a way of managing them — the management is an enormous problem because they are one-by-one, not apartment houses — I would load up on them. I would take mortgages out at very low rates — if anyone was thinking of buying homes five years ago, they couldn’t do it fast enough because they thought the [prices] were going to go up. Now they don’t buy them because they think they are going to go down and interest rates are going to go far lower. It’s a way, in effect, to short the dollar because you can take a 30-year mortgage — and if it turns out your interest rate is too high next week — you can refinance lower. And if it turns out it’s too low, the other guy is stuck with if for 30 years. So it’s a very attractive asset class now…. It’s a terrific deal. If I was an investor who was the handy type, which I am not, I would be a couple of them at distressed prices and find renters. It’s a leveraged way of owning a very cheap asset now. I think it’s about as an attractive asset as you can make.”

Warren Buffett, perhaps the shrewdest — and likely the most successful — investor in modern history is telling folks to go big on real estate. Not stocks, bonds, metals or mutual funds. On the contrary, good old fashioned real estate.  Well, real estate that is significantly discounted or in a state of distress, which would include Real Estate-Owned (REO) homes, foreclosures, short sales and other property types that have built-in equity and/or can generate a monthly revenue stream until the market completely corrects. Buy, hold and sell — it’s a classic investment strategy that can pay tremendous dividends down the road as home prices begin to climb after their historically-low dip. Don’t know how to get started? We’ve got a pretty good idea about where you can dip your toes into the water determine whether or not you are willing to follow the advice of the third richest man in the WORLD. Buffett kind of knows what he’s talking about when it comes to investments. See what single-family homes at distressed prices are available in your neck of the woods right now at Foreclosure.com. Maybe now you’ll believe what we’ve been saying this whole time thanks to a little independent third-party coaxing.

Foreclosed homes account for 39 percent of Feb. 2011 real estate sales

“… buyers – largely investors – are snapping up homes at bargain prices.”

– Lawrence Yun, Chief Economist, National Association of Realtors®

Cash-laden investors are cherry-picking discounted foreclosure, short sale and other distressed real estate deals at an increasing rate, according to the latest report from the National Association of Realtors® (NAR).

In fact, distressed properties accounted for 39 percent of homes sold nationwide in Feb. 2011, which is up two percent from last month and is five percent more than last year at this same time.

Investors accounted for 19 percent of all sales activity during this time and all cash sales reached a record 33 percent in Feb. 2011, too.

What’s it all mean?

It’s pretty simple: If you’re in the market for a home, you need to act fast because the best deals will be gone before you know it.

Cash is king … especially in a housing market like the one. And investors will continue to reign supreme for as long as the competition (that’s you) sits on the sidelines and watches opportunity pass by.

There are programs like Fannie Mae’s “First Look” that offer first-time homebuyers and local communities with opportunities to buy before properties go to market. It’s a clever safety net, but it doesn’t stop all the great deals from landing in the hands of investors.

Not even close.

A fantastic way to stay on top of the latest distressed real estate deals entering the market is to take advatage of our free foreclosure email alerts. When a new foreclosed home for sale in your area becomes available we notify you with an email that same day.

It’s an awesome resource.

Or, you can do what most investors and bargain hunters do and search our database each day for great discounts on real estate. It’s free for seven days! Click here.

Rihanna’s house in LA hits the short sale market for $4.5 million

The $7 million home of super successful singer/songwriter, Rihanna, in Beverly Hills, Calif., is the subject of a real estate short sale, according to several published reports.

The Barbadian beauty closed on the newly-built, eight-room expanse back in 2009; however, it’s apparently been nothing but a money pit ever since she assumed ownership.

In fact, the “Umbrella” pop sensation, 23, recently filed a lawsuit against the homebuilder, alleging that poor construction has led to major flooding problems that have caused significant damage. As a result, she has listed the mansion on the market for $4.5 million and will “consider all offers,” meaning that she is willing to accept less than what is owed on the mortgage to expedite her exit.

Typically, the lender that holds the note is tasked with making those types of shortfall decisions; however, it’s unclear if the lawsuit, which names essentially every party involved in the transaction, including the selling agent, will have an impact on the eventual outcome.

Ironically, her decision to get out of dodge appears to coincide with her abusive ex-boyfriend, Chris Brown, recently purchasing a $1.6 million home nearby. Brown, of course, was sentenced to five years probation and more than 1,400 hours in “labor-oriented service” for assaulting Rihanna back in 2009.

Sometimes things really do seem to happen for a reason.

Check out complete details of Rihanna’s water-logged short sale house after the jump (via RealEstalker):

“Listing information from that time Miss Riri purchased the property shows the gated contemporary crib sits heavily on .86 hill top acres at the tail end of a short cul-de-sac and measures more than 10,000 square feet over three floors with 8 bedrooms and 10 bathrooms. The heart of the hulking house is a dramatic airplane hangar-sized living/dining area with milk-chocolaty hardwood floors, fireplace, towering walls of glass with city to ocean views, and glass-railed bridge that connects two second floor wings of the modern mansion. Other interior spaces include a den/family room with fireplace, eat-in kitchen with not just one but two gigantic center islands, office, staff quarters, art studio, fitness room, media/music room, wine cellar and home theater with wide screen and state-of-the-art projection equipment. The gated grounds encompass a tight motor court with two-car attached garage, flat lawn the narrows to a small sun deck with city and ocean views, and a small swimming pool and spa surrounded by an entertainment terrace and deck cantilevered over the canyon.”

For more celebrity-related distressed real estate situations be sure to check out our complete archive on the topic right here.

Terrell Owens unloads Dallas condo in short sale to avoid foreclosure

“Like I always said, if I’m one of the top players in the game, pay me like I’m one of the top players in the game.”

– Terrell Owens

Former National Football League (NFL) wide receiver, Terrell Owens — who banked somewhere in the neighborhood of $100 million in salary, excluding sponsorship/endorsement deals, throughout his colorful 14-year career on the gridiron — recently rid himself of a $2 million condominium located in Dallas, Texas.

However, Owens — who played for the Dallas Cowboys from 2006 to 2008 — had to negotiate a short sale, accepting $1.6 million (about a $400,000 shortfall) rather than losing the property to foreclosure. FOXSports.com reports that this isn’t the first time that the outspoken and controversial wideout has made a short sale play, selling off another property at a $56,000 loss not too long ago.

The six-time Pro Bowl selection, who cracked into the league back in 1996 with the San Francisco 49ers where he played eight seasons, has experienced major financial problems since his involuntary exit from the sport last year because of a knee injury. In fact, he barely avoided jail time a few months for failing to pay child support for his young daughter in Atlanta, Georgia.

Owens, 38, who trails only NFL Hall of Famer Jerry Rice in all-time career touchdowns and receiving yards, recently held a highly-publicized workout for NFL teams in an attempt to keep his career alive. Not a single team attended and Owens remains a free agent.

Short sales, mortgage debt relief act deadline and scary tax bills in 2013

The Mortgage Debt Relief Act of 2007 is set to expire at the end of 2012.

What’s that mean?

It means that if you are considering a short sale and/or foreclosure the time to act is yesterday. That’s because the amount a lender forgives on a primary residence will be taxable on federal income taxes the second the clock strikes midnight on Jan. 1, 2013.

Indeed, banks must sign off on a deal, as well as agree to release the distressed homeowner from the debt/shortfall before Dec. 31, 2011.

Currently, under the five-year plan, the Internal Revenue Service (IRS) “allows taxpayers to exclude income from the discharge of debt on their principal residence…. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.”

In 2013?

Sun-Sentinel breaks it down:

” … if a house sold $50,000 short of what is owed on the mortgage, then the selling homeowners will owe federal income taxes on that $50,000. Homeowners would owe $12,500 in they’re in the 25 percent bracket; $7,500 if in the 15 percent tax section. Homeowners would be on the hook even if the house sold but the bank had not formally forgiven the loan in a letter.”

Yuck.

With short sales taking perhaps several months to complete, if not longer, underwater homeowners — or those on the fence — should make their decisions sooner rather than later to avoid Uncle Sam hitting them hard on their taxes.

There’s no word at this time if the debt relief act will be extended again or modified to include “pending” short sales as the deadline approaches.

Stay tuned.