Real Estate Related Questions & Answers

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Short Sale Defined:

When the existing lender agrees to accept a lesser amount due on their secured lien in order to release the collateral from the note.

A short sale occurs when the proceeds of a real estate sale fall short of the balance owed on the property. In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank's loss mitigation department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale. Most Short Sales leave a deficiency balance for which the Mortgagor / Borrower is still liable. In 99% of all cases it is not a settlement-in-full. A deficiency balance will remain while the mortgage broker, real estate agent / broker, loan officers, title and closing agents still remain getting their profit. And no regulatory agency governs this hybrid transaction.

Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower's financial situation.

A short sale typically is executed to prevent a home forclosure. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owner, the advantages include avoidance of having a foreclosure on their credit history and the partial control of the monetary deficiency. Additionally, a short sale is typically faster and less expensive than a foreclosure. In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

Short sales are common in standard business transactions in recognition that creditors are not doing debtors a favor but, rather, engaging in a business transaction when extending credit. When it makes no business sense or is economically not feasible to retain an asset businesses default on their loans (called bonds). It is not uncommon for business bonds to trade on the after-market for a small fraction of their face value in realization of the likelihood of these future defaults.

Lenders have a department (typically called "loss mitigation") that processes potential short sale transactions. Typically, lenders do not accept short sale offers or requests for short sales until a Notice of Default has been issued or recorded with the locality where the property is located.

Lenders have a varying tolerance for short sales and mitigated losses. The majority of lenders have a pre-determined criteria for such transactions. Other distressed lenders may allow any reasonable offer subject to a loss mitigator's approval. Multiple levels of approvals and conditions are very common with short sales. Junior liens - such as second mortgages,HELOC lenders, and HOA (special assessment liens) - may need to approve the short sale. Frequent objectors to short sales include tax lien holders (income, estate or corporate franchise tax - as opposed to real property taxes, which have priority even when unrecorded) and mechanic's lien holders. It is possible for junior lien holders to prevent the short sale. If the lender required mortgage insurance on the loan, the insurer will likely also be party to negotiations as they may be asked to pay out a claim to offset the lender's loss in the short sale.

A short sale does adversely affect a person's credit report, though the negative impact is typically less than a foreclosure. Short sales are a type of settlement. Like all entries except for bankruptcy, short sales remain on a credit report for seven years. Depending upon other credit information it is typically possible to obtain another mortgage 1-3 years after a short sale.

While it is frequent if not common for a lender to forgive the balance of the loan in question, it is unlikely that a lien holder that is not a mortgagee will forgive any of their balance. Further, it is common for a lender to omit updating mortgage balances to reflect a zero balance after a short sale. However, willfully misrepresenting information on a credit report can constitute libel in some jurisdictions, and lenders may be sued in civil court for engaging in this behavior.

The 1031 Exchange Opportunity:

It's a basic fact that the large tax burden which often accompanies the sale of an investment property can be a troubling issue for many property owners. Thankfully, this burden can be removed through an exchange of real estate, effectively trading one investment property for another. The 1031 Tax Deferred Exchange offers a great solution for those needing to defer the capital gains tax that arises with the sale of investment real estate.

1031 (Tenant in Common) Exchange Counsulting:

Tenant-in-Common Ownership, also known as TIC ownership, is rapidly becoming the most popular choice among real estate exchangers seeking ideal replacement properties. While it is often difficult to locate a property that has the right purchase price, debt ratio and closing schedule within the 45-day time limit, TIC properties are flexible enough to meet almost any 1031 exchanger's needs. With the strength and returns to the investor commonly found with a TIC property, you don't have to be in a 1031 exchange to invest in a TIC, you can buy them outright if the investment is in accordance with their overall investment objectives, or part of their overall investment portfolio

TIC is an alternative to sole ownership of real estate. It is an investment in a single large commercial property by multiple owners, not as limited partners or as an entity, but as individual owners. Each owner receives an individual deed at closing for his or her undivided percentage interest in the entire property. A TIC Replacement Property enables the average investor to participate in an echelon of real estate previously reserved for large institutional investors.

TIC Replacement Properties are chosen because they provide credit-worthy tenants, secure monthly income, stability and growth potential. Investing in a TIC Replacement Property provides passive long-term income, eliminates active property management and alleviates the burden of being a landlord.

We believe we are the best in the business. Our strategic partners vast expertise comprises both real estate and financial analysis. We do far more then just present to you current TIC (tenant in common properties) 1031 exchange properties. Our strategic partners due an extensive due diligence on each property and analyzes each property in direct correlation to your whole investment portfolio taking into account your other real estate holdings.

A TIC investment can provide stable positive cash flow, defer capital gains, and play a key role in your financial future. We help you look at the big picture considering short and long term financial needs and goals (perhaps you are considering selling another property in two months or two years for example) would that reduce or increase income? allow for additional risk or capital gains? affect taxes? offset other needs? how will it change your financial situation? Decisions you make now are better made with longer term planning and critical thinking.

We will earn your business through our expertise in TIC and 1031 exchange strategy, and in our personal commitment to helping you make the most competent and informed decisions possible.

Real Estate Professional on your side? Contact Jon!