Today we’re pleased to announce we’ve successfully negotiated just over $100 million so far in total mortgage debt forgiveness for our short sale clients since we started doing short sales in 2006.
Our short sale division, along with Dorner Law and Title Services, works with banks to get the remaining balance forgiven for our clients, which is stated in the short sale approvals.
The amount of forgiven debt is the difference between the amount a homeowner owes on his or her mortgage and the amount the mortgage company receives after closing.
Here’s an example of how debt is forgiven in a short sale:
Let’s say a homeowner does a short sale and sells his or her home for $300,000 when the amount owed on the mortgage is $400,000. The total amount of forgiven debt in this example would be $141,000.
Here is how the total amount forgiven on the sale would be calculated:
|Outstanding balance on mortgage||$400,000|
|6 months late payments ($2500×6)||$15,000|
|Estimated late fees||$3,000|
|Total amount owed to bank:||$418,000|
|Homeowner short sells home for||$300,000|
|Minus sales commission (6% of sales price)||($18,000)|
|Minus closing costs||($5,000)|
|Total amount bank receives after closing:||$277,000|
|Total amount owed to bank||$418,000|
|Minus total amount bank receives||($277,000)|
|Remaining balance to be forgiven:||$141,000|
We’ve successfully completed over 1000 short sales since late 2006. On average, our short sale clients get $107,065 forgiven.
We did our first short sale back in late 2006 and then a few more in 2007. When the housing crisis hit in 2008, there was a jump in the number of homeowners who owed more than what their homes were worth, so the need for homeowners to do short sales increased. As we began to do more short sales, we perfected the short sale process and established contacts with banks to get more approvals. We have conducted multiple short sales with every major bank and servicer there is, including Bank of America, Chase, Citi, Sovereign, Wachovia, Green Tree and many more.
For homeowners who can no longer afford their homes, there are many advantages to doing a short sale rather than allowing the home to fall into foreclosure. The homeowner who does a short sale can repair his or her credit sooner as well as purchase a home again sooner than with a foreclosure. A homeowner avoids getting evicted from the home, and in many cases a short sale allows a homeowner to get relocation assistance. After foreclosure, banks will often pursue the homeowners for the remaining debt. For our short sale clients we negotiate with banks to get the remaining mortgage debt forgiven, which is another advantage of doing a short sale rather than foreclosure.
In 2012 over 31% of our short sale clients also received cash incentives to do short sales. All major servicers are now offering cash to homeowners to do a short sale through the HAFA (Home Affordable Foreclosure Alternative) program rather than allow their homes to go into foreclosure. The HAFA short sale program under HAMP (Home Affordable Modification Program) offers $3,000 in relocation assistance. Some major banks such as Bank of America, Chase, and Citi are paying their own incentives on their loans. Last year Chase began offering the largest short sale incentives, which can be as much as $45,000. Banks offer cash incentives because with a short sale banks can avoid the legal costs of foreclosure. Short sale homes are in better condition than foreclosed homes and banks can sell them for a higher price, at least 25% higher than foreclosed homes.
Getting debt forgiven for doing a short sale allows distressed homeowners to start over. However, the Mortgage Forgiveness Debt Relief Act, which relieves these homeowners from having to pay taxes on the amount of debt that was forgiven, is set to expire December 31, 2013.Do You Qualify?