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  • Q: What is a short sale? (Click here to see the video response)

    What is a short sale? Financial and real estate experts answer the question and explain how to short sale, why short sale, and the ins and outs of selling short for homeowners with an underwater mortgage. In this case, what you don't know can hurt you. For example, did you know that short sales are a contract law issue and that anti-deficiency laws don't apply? Did you know that you could be trapped still owing the bank without the right letter of debt release? Learn short sale how to in this short video by Homeowner 101.

  • Q: Whatâ��s the difference between a credit profile and a credit score and why does it matter? (Click here to read the answer)

    The difference between the two is that a score is made up of things that are on your profile. But if you have a short sale versus a foreclosure and you miss six payments doing either then you�re really going to have about the same hit to your credit score either way. However, your credit profile is going to be more affected by the foreclosure because that shows up as the judgment on your profile, rather than with a short sale which shows as �Settled for less than owed.� And that is a little easier to recover from than a foreclosure judgment.

  • Q: If I do a short sale, will I owe taxes on the difference between what the house sells for and what I owe? (Click here to see the video response)

  • Q: Which is worse for my credit: a short sale or a foreclosure? (Click here to read the answer)

    People have to keep in mind that in a short sale process we generally get through it a lot faster than a foreclosure. Generally a foreclosure can take longer before the banks are finally taking the home and ending the report to the credit. So that�s kind of key into how much it will affect your credit score � for how long is the bank reporting delinquent payments.

    Which is important because your credit repair � in other words-fixing your credit score, getting it back up to what it might have been prior to an event like a short sale or foreclosure � that repair work is going to begin at the end of the closure of the transaction. So if you had a foreclosure, let�s say or you had a resolved loan modification or you had a foreclosure. The date of the closure of that, that�s the day you begin getting that credit score back up.

    And it is important that if you do go through with a short sale it could take a lot less time with a short sale then it does to allow the bank to complete the foreclosure process and have everything sold and have you back in a place where then the clock is ticking for you to have a chance to purchase a home. And that�s really the main thing that your credit profile is going to affect in the future and something like a judgment of the foreclosure versus the settle for less notation on the short sale are going to impact is the time frame under which you can go out and purchase a new home.

  • Q: Do homeowners have a moral obligation to pay their mortgage? (Click here to see the video response)

  • Q: If I do a short sale or the bank forecloses, when can I buy a home again?(Click here to read the answer)

    Just to keep it simple�Three years on a short sale. With a foreclosure it is going to take longer. It could take five years, or it could take seven under certain lending circumstances to get back in a place where you can get a certain type of loan to buy a property after a foreclosure. Which makes the short sale an interesting option for a lot of folks who are interested in getting back in the home market sooner than later.

  • Q: Does it matter if all of my accounts are with the same bank or credit institution?(Click here to read the answer)

    If you have all of your accounts � credit cards, mortgage, car loans � with one lending institution, you�re probably going to want to consider opening accounts with other institutions before you stop making mortgage payments. That way we can maximize your credit profile to be able to rebuild your credit score as fast as possible on the back end. Check out Credit Score Resources (tab above) for specialists who can help you navigate all this.

  • Q: Can my credit score affect my security clearance? (Click here to read the answer)

    Yes it can. In fact, your credit score can affect security clearances, certifications, even employment in general. So the government won�t take away your security clearance because you did a short sale per se, but they could take it away because your credit score dropped. They could take it away because of a foreclosure � because a foreclosure shows on your credit report as a judgment whereas a short sale shows as settled for less than owed. So if you have a security clearance, you need to take that into account as you make your decision.

    Even if you�re going to change jobs � whatever job you have � a lot of employers pull prospective employees� credit. These are the kinds of things that underwater or otherwise distressed homeowners really need to think about.

    So you might want to time your short sale (or whatever action you take). Generally if you have a security clearance once a year, so start the process right after they�ve pulled your credit, so you can get through the short sale as quickly as possible then go to work right away with a credit repair specialist to get your credit back up as high as you can before the employer pulls your credit again. Otherwise you could be in the worst potential place with your credit right when your employer is pulling your credit.

    For financial services professionals with securities licenses, the broker dealer will also pull the person�s credit once a year. It also matters if the short sale, for example, is the only thing on your credit, then the employer might look at it differently than if the employee defaulted on everything (which some people do since they�re dinging their credit anyway � in some cases that can make sense, but probably not when your credit score really matters for your job).

  • Q: I did a short sale; will I owe tax on the difference between the sales price and what I owed? or The bank foreclosed; will I owe tax on the difference between fair market value and what I owed? (Click here to read the answer)

    Both a short sale and a foreclosure result in what�s called a cancellation of debt. Normally, the IRS looks at cancelled debt as taxable income. So if you owe $75,000 more than your house is worth and do a short sale or the bank forecloses, you have $75,000 in cancelled debt. Normally, the IRS will consider that taxable income. For the average Phoenix-area homeowner, that would result in a tax bill of almost $20,000!

    But in 2007, Congress passed a bill called the Debt Relief Act that said, in many cases, homeowners who have a cancellation of debt from a short sale or foreclosure do not owe taxes on that cancelled debt. The Debt Relief Act will end at the end of 2012.

    So whether a short sale or foreclosure is a taxable event for you or not depends on your circumstances, including whether it�s all original purchase debt and whether you lived in the property right up until the time the short sale or foreclosure went through.

  • Q: Whatâ��s a 1099 c? (Click here to read the answer)

    If the bank takes less for the property than you owe it will send you a 1099 c, which is a cancelation of debt. That form also goes to the IRS.

  • Q: So Iâ��m protected from a tax liability by the Debt Relief Act? (Click here to read the answer)

    Well, maybe. Again, it really depends on your unique circumstances (and you can only know for certain after you�ve gone through the Underwater Homeowners Assessment and Action Plan with a professional advisor).

    But also remember that the Debt Relief Act is set to expire at the end of 2012. That doesn�t mean you can start the process in November. You have to close escrow or have the foreclosure finalized by December 31, 2012 � and these processes often take many months. In both cases, you have very little control over how fast the process moves. So if you think that a short sale or a foreclosure is the right action for you, now is the time to act (start with the Assessment and Action Plan ).

  • Q: Do you still have to report the cancellation of debt if you donâ��t get the 1099-C? (Click here to read the answer)

    Yes. You�re responsible for correctly filing your taxes whether anyone else files the informational returns that they�re supposed to or not. Plus the fact that if you have a sale the IRS will also get a 1099s which shows the sale proceeds � that will trigger the flag that something happened with an asset. So they don�t just get the 1099-C, so the IRS will know one way or the other.

  • Q: What if I already moved out? Will that affect whether I owe tax? (Click here to read the answer)

    Yes, it very well could. If you�re not living in the home currently as your primary residence you might not fall under the Debt Relief Act. The Act doesn�t say primary residence, it says main home � which is the home that you�re living in at the time of the event (short sale or trustee sale, e.g.). So what sometimes happens is that homeowners get fed up with debt collectors banging on the door or leaving notes and calling, so they move, because they don�t want to deal with it. But then it doesn�t fall under Debt Relief Act and they�ll likely have a tax consequence. So what to do if you�ve already moved out? Move back in.

  • Q: If I choose to do a short sale do I need to worry about a deficiency judgment? (Click here to read the answer)

    The answer to that question really has two parts. First, you need to know that once you stop making your mortgage payment, even if you are going to attempt to do a short sale, you are on the path to trustee sale (foreclosure). Once you make the decision, there�s no going back. One of the two things is going to happen: you�re going to be able to do the short sale or the bank is going to foreclose. Now, the short sale has some better aspects to it, so if you decide, �I�m giving up this house one way or the other,� understand you�re on that path to trustee sale, and we�re going to make every effort to do the short sale while we�re on that path, but things happen � you could lose a buyer right at the end, the bank could not extend the foreclosure date, etc.

    From that aspect you need to understand anti-deficiency in case you end up in foreclosure for whatever reason. The Homeowner 101 Assessment and Action Plan providers even draw out the timeline of how things generally happen en route to foreclosure: you�ll get your acceleration notice about this timeframe, you�ll get your notice of trustee sale date about this timeframe, then you�ll have 90 days from then until they actually do a trustee sale. Now that�s the worst case scenario � the minimum amount of time you�ll have. We draw that out so we can say; it is within this timeframe that you need to get the short sale done if that�s your decision.

  • Q: What is anti-deficiency? (Click here to read the answer)

    Arizona (and some other states) has an anti-deficiency law that says that if you have a loan that was used to purchase your home and if your home was sold at a Trustee Sale (foreclosed on by the lender), then your lender cannot pursue you for the different between the amount you owed and the amount the bank received at auction. Note that the anti-deficiency statute only protects you if your house is sold at auction; it does not apply to a deed-in-lieu, a short sale, or any other type of title transfer.*

    *Anti-deficiency laws vary by state. The information provided here is geared toward homeowners in Arizona. It is for informational purposes only and should not be construed as legal advice. For legal advice, please consult with a licensed legal professional.

  • Q: If anti-deficiency doesnâ��t apply to a short sale, what does? (Click here to read the answer)

    To get a release from liability if you do a deed-in-lieu or a short sale you will have to get a letter from the lender agreeing to release your liability. This is a contract law issue, and the only way to ensure that the bank cannot pursue you for the difference between what you owed and what the house sold for (in a short sale, for example), is to get that letter from the bank.*

    *Anti-deficiency laws vary by state. The information provided here is geared toward homeowners in Arizona. It is for informational purposes only and should not be construed as legal advice. For legal advice, please consult with a licensed legal professional.

  • Q: Iâ��m confused about anti-deficiency versus debt relief. Whatâ��s what? (Click here to read the answer)

    There is often confusion about anti-deficiency statutes � again, a state law that protects homeowners from a deficiency judgment � and cancellation of debt, which is a federal tax issue. Currently, the Debt Relief Act protects many homeowners from tax liability associated with any forgiveness of debt (which will happen in foreclosure, deed-in-lieu, or a short sale).*

    *Anti-deficiency laws vary by state. The information provided here is geared toward homeowners in Arizona. It is for informational purposes only and should not be construed as legal advice. For legal advice, please consult with a licensed legal professional.

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