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What Is An Arizona Short Sale?   An Arizona Short Sale refers to a lender(s) accepting a sales price that is less than what is currently owed plus all related sales expenses. So basically, a potential buyer can make an offer on the home for thousands less than what is currently owed, and get it accepted by the bank! This is common in a declining housing market and can be a win-win for both the bank and the homeowner. Home sellers should consider an Arizona Short Sale when the value of their home is LESS than the amount of their outstanding loans. For example, if your home is worth $225,000 but you have a loan of $250,000 then a short sale is a consideration. Normally a bank will begin to look at the Arizona Short Sale option only if the homeowner is behind on payments and begins to face foreclosure, but not always. In rare instances, the bank will still accept an Arizona Short Sale if the mortgage payments are current. The process to end up at the Arizona Short Sale option typically works like this: The homeowner(s) begin to miss payments The lender(s) try to arrange a repayment plan The repayment plan fails or is never attempted and the bank mentions a short sale

Now, if you do not have to sell your Arizona home, you could wait out the market and hope for a turnaround in real estate values. However, if you do have to sell your Arizona home you basically have three options. First, you can bring cash to the table. In today’s declining real estate market and using the example above, you would sell your home for $225,000 and pay another $25,000 to the lender out of your pocket to pay off the loan on your property. This does not include other selling costs such as closing costs, real estate commissions, taxes etc. Second, you could let the home go into foreclosure. The lender will go through the Arizona Foreclosure Process, force you out of your home and then auction it off to the highest bidder at a foreclosure or Trustee’s auction. The third and best option is to pursue a Arizona Short Sale.

Why Would A Lender Accept A Short Sale?

The lender has to incur expenses to complete an Arizona Foreclosure and take the property back. These expenses include attorney fees, court fees, and the lack of income from your monthly payments. Lenders also face unforeseen losses from damage to the property, vandalism if the property is vacant and then the additional costs of selling the property. Along with the expenses comes the risk of the property depreciating further, and having to hold the property on the books for an undetermined amount of time. Having a non-performing asset on their books prevents them from lending out more money that will produce a return. Plus, banks are not in the business to own real estate. They have to take back, inventory, and then hire a REO Realtor to list the property for retail on the open market. We all know how horrible the real estate market is right now and therefore they end up holding the property for many months, and then fire selling it for a loss anyways! Plus, if the homeowner leaves the property and it is left vacant, many times the property is vandalized and becomes more costly and harder to sell! Lastly, statistics show that in almost 50% of homes that go to foreclosure, just before the foreclosure sale, the old homeowners gut the house and sell all the items as a way to “get back” at the lender(s). This is illegal but nonetheless happens on occasion. Many lenders are tired of taking back trashed homes and choose to short sale instead. So basically, in most instances, a short sale is less expensive than the Arizona Foreclosure Process so lenders choose to cut their losses early. This is why an Arizona Short Sale is accepted by a bank!

What Are The Steps In A Short Sale?

When starting there are a few basic items you must get in order to make sure you qualify for a Short Sale. Now we want to warn you of something first! In theory, an Arizona Short Sale is not necessarily complicated. Putting together the necessary paperwork and sending it off to the bank is easy. It gets extremely complicated once the negotiations begin. To start, you need a purchase offer to get the process started. In most instances you will not have a buyer ready to put in an offer. Plus, banks DO NOT allow homeowners to negotiate their own Short Sale! A Arizona Short Sale Realtor, or an Arizona Real Estate Investor / Negotiation Company must do it for you. The reason is it must be an arm’s length transaction meaning that you cannot discount your own mortgage and sell it to your parents who will end up letting you stay in the home. Also why we are on the subject, you cannot discount your mortgage and then buy the same house back at the discounted price! This is considered mortgage fraud and the lenders tend to frown on that. With these disclosures out of the way, let’s look at the Steps In A Typical Short Sale:

First, you must be able to prove a financial hardship. Banks are going to request this proof in the form of paycheck stubs, tax returns, a financial statement, and a hardship letter. Without a good reason why you cannot afford the home any longer, the lender(s) will not likely allow you to Short Sale the home.

Second, you need to figure out the value of your property. Many times a Realtor or an Investment Company like ForeclosureCounseling.com can provide you with a “market analysis” to give you an idea what your home is worth. We are trying to calculate your equity (or lack thereof) to figure out if you owe as much or more than what your homes current value is. If it is worth less than what you owe, we can continue with a Short Sale.

Third, you must decide if you want to use a Arizona Short Sale Realtor or an Investment Company such as ForeclosureCounseling.com to run your Short Sale? The reason you must choose at this point is that we need a purchase contract (buyer) to sell your property to. Obviously we want you to choose us and here is why. When you hire just a Realtor, you are hiring just one person. For most Realtors, Short Sales are a new phenomenon and they have little experience negotiating with lender(s). When you hire the Arizona Short Sale Experts at www.ForeclosureCounseling.com, you are hiring a team of specialists that all play a key role in the Short Sale Process. Plus, we have years of negotiating experience, and have many contacts with most major lenders! Lastly, we are a member of the BBB with many referrals to validate our experience and expertise!

What Is In A Typical Short Sale Package?

Remember the reason a lender will approve an Arizona Short Sale is because it will benefit them, not you! The lenders need to know that if they don't approve the short sale, they will have to foreclose on the property and that the short sale is more cost effective than foreclosing.

Every Real Estate Short Sale begins the same way with the building of a Short Sale Packet. The lender(s) need certain documentation and a proof of hardship in order to complete a short sale request. Below is a list of items commonly found in a Short Sale Package:

• Hardship Letter. A handwritten letter explaining the borrower’s situation and requesting a short sale. It should describe why the borrower cannot make their mortgage payments and their fear of possible foreclosure. It should be a plea for the lender to consider a short sale!

• Two Years Tax Returns And W-2’s.
• Letter Of Authorization (LOA). This gives your Realtor or chosen Investment Company (ForeclosureCounseling.com) authority to talk with your lender(s) on your behalf.
• Two Most Recent Bank And Retirement Account Statements.
• Two Most Recent Pay Check Stubs.
• Current Financial Statement.
• Any Documents Supporting The Hardship.
• Current Market Analysis (CMA). Typically from a Realtor or appraiser.
• Estimated Net Sheet Or HUD-1 (Your Realtor or investment company will provide this document.
• A Copy Of The Executed Sales Contract With Buyers Proof Of Funds Or LSR.
• FHA And VA Might Have Their Own Forms

Once we get these items together, we package them up with an offer, and send the Short Sale Packet off to your lender(s). Expect at least 1-2 weeks before it gets into the lender(s) system and assigned a Loss Mitigation Specialist. Once in the system, the lender(s) typically order a Brokers Price Opinion (BPO) to establish value.

Brokers Price Opinion – The Key To A Successful Short Sale!

The first thing your lender(s) need to do in the short sale process is establish the current market value of your home. They do this in the form of a Brokers Price Opinion (BPO). A BPO is typically conducted by a real estate agent or a licensed appraiser (normally a real estate agent) that is hired by your lender(s). The BPO will contain comparable sales of similar houses in the neighborhood, with adjustments made for condition and attributes, to determine what the market value of the subject property is. Expect the Brokers Price Opinion process to take 1-2 weeks from the time the BPO is ordered to the time it is completed and inputted back into the lender(s) systems. Also, expect each lien holder to complete their own BPO…for example if you have a first and second mortgage, each lender will order their own Brokers Price Opinion. A good Realtor or Arizona Investment Company such as ForeclosureCounseling.com will meet these BPO agents out at the house and influence the value of the BPO down. We want to lower the value of your home in order to get our low offers accepted! At ForeclosureCounseling.com, our expert negotiators and Realtors are highly trained at influencing the Brokers Price Opinion and have had much success in influencing these opinions of value. This step is crucial in order to successfully complete a real estate short sale!

Short Sale Hardship Letter.

You lose your job, get sick, or are in the middle of a nasty divorce! There are many reasons why a homeowner would fall behind on their mortgage payments and in order for your lender(s) to begin looking at the short sale option, you need to prove a financial hardship. Obviously every homeowner has a unique explanation of “why” they are in there current situation. Some of the most common financial hardships include:

Included in a Typical Short Sale Packet is a hardship letter. Basically you want to explain the “hardship” that caused your delinquency. Remember, anything you say in the short sale hardship letter about what caused you delinquency needs to be verified! Get any and all documents together to do so and attach them with your letter.

Here are some basic tips to remember when writing your short sale hardship letter:

• Start off with all the names on the loan(s) and the loan numbers
• Explain your financial situation as well as your hardship
• Explain what expenses you have decreased in order to try and make your mortgage payments. Ex. Cut back on cable TV and eating out.
• Have a “call to action” of what exactly do you want the lender to do. For example, please work with Sell Quick For Cash, LLC. in purchasing my home.
• Explain to them that you understand that will not be receiving any proceeds from the sale of the home.
• Handwritten is probably better (as long as it is legible).

It is our suggestion that you type out your short sale hardship up first until it sounds the way you want it to, then hand write it out. This is an important part of the short sale package that must “tug” on the heart strings of your assigned Loss Mitigation Specialists.

Credit Consequences Of A Short Sale.

The Credit Consequences Of A Short Sale and the credit consequences of a foreclosure vary slightly. The general consensus is that an Arizona Short Sale will show up on your credit report as a “settlement”, “settlement for less than owed” or a "pre-foreclosure in redemption". Also, since most lenders will not consider allowing an Arizona Short Sale until a few payments have actually been missed you may also have a few “lates” on your credit report. Neither of these marks is a good thing to have but it’s possible to get them off of your credit report within a few years or less. Now we have asked many credit experts and in general, an Arizona Short Sale can drop your credit score by 100-200 points. Most experts vary on the amount it will affect your credit, but it really does not matter. Expect that your credit will be severely affected during this process and immediately after the short sale is accepted; enroll yourself into a good credit repair program! We recommend http://www.genesiscreditgroup.com/ when dealing with any credit concerns, and advise you to begin credit repair immediately after the Arizona Short Sale is completed! There is also the possibility that through negotiation with the lender you can avoid having the short sale reported to a credit agency.

A foreclosure on your credit report can take 7-10 years to remove and can cost your credit rating (FICO) up to 200-280 points which is a very big hit. So, if you have no better alternatives pursue a short sale aggressively and avoid foreclosure.

Tax Consequences Of A Short Sale.

Many homeowners are unaware that when completing an Arizona Short Sale, possible short sale tax issues can arise. As such, an owner considering an Arizona Short Sale should absolutely discuss these possible issues with an attorney, accountant, or other appropriate professional. From our understanding, the debt forgiven by a lender is generally taxable to the borrower as "debt discharge income." When a taxpayer receives proceeds from a new loan, those proceeds are not taxable income because there is an offsetting obligation to repay. However, if the debt is cancelled, there may be debt discharge income. This basically means that if you owe $200,000 and short sale the home for $150,000, on your next tax return it could look like you have $50,000 worth of earned income from the sale of your residence and would be treated as taxable income. If your lender chooses to, they could send you an IRS Form 1099-C: Cancellation of Debt at the end of the year. What are the odds that you have extra tax money lying around after you just went through an Arizona short sale on your home?

BREAKING NEWS! H.R. 1876: The Mortgage Forgiveness Debt Relief Act of 2007 would eliminate the tax owed on any forgiven mortgage debt. This bill has been passed and signed into law by the president! The bill permanently eliminates tax on up to $2 million of debt for a principal residence. This bill protects primary residence homeowners only (not investors), and the best part about this bill is that it is retroactive to January 1st, 2007. This means that any Arizona short sale conducted after that date automatically is protected from any tax implications! It is set to end December 31, 2009. For more info, please visit http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html

IRS FORM 982

If you are not protected under the new Mortgage Forgiveness Debt Relief Act of 2007, you still have a way around the tax consequences of an Arizona Short Sale. If you receive a 1099-C from a creditor, you must report the amount of the canceled debt as income to the IRS even though you did not actually receive any money (phantom income). (The amount shown in Box 2 of the 1099-C form is the amount that must be reported!) However, the IRS recognizes “Insolvency” as a situation where cancelled debt might not have to be reported as income. Insolvency is basically your total debts exceed your total assets at the time your debt was settled or deemed non-collectable.

If you are “insolvent”, you need to explain this to the IRS in one of two ways. 1) By filling out IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness (http://www.irs.gov/pub/irs-pdf/f982.pdf) or 2) Attaching a detailed letter to your tax return explaining the calculation of your total debts and assets.

You accountant can help qualify your insolvency and help you fill out any IRS Forms! Here are some helpful questions that you will need to ask you tax professional:

• Can I avoid paying taxes on the forgiven debt if I was insolvent at the time of the short sale?
• Do I have to file bankruptcy to be considered insolvent?
• If you already went through a short sale and paid taxes can you file an amended return and get a refund?
• Does a IRS Form 982 have to be filed in order to be eligible for tax relief?
• Am I protected under the Mortgage Forgiveness Debt Relief Act Of 2007?

Let’s Recap:

The bank accepts an Arizona Short Sale, your foreclosure is canceled, and you sell your home for less than what you originally owed. The new House Bill H.R. 1876 should protect you from federal taxes, but if you do not qualify, and you receive a 1099-C: Cancellation of Debt at the end of the year, you still have options!  Ask your accountant about the IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness (http://www.irs.gov/pub/irs-pdf/f982.pdf). If you can prove your insolvency (your expenses outweigh your income) then you should qualify for an exemption and not be taxed on the deficiency.

Why Use ForeclosureCounseling.com To Negotiate Your Short Sale?

The Arizona Short Sale Experts at ForeclosureCounseling.com understand the financial headache you are going through right now.  That is why when you decide to do an Arizona Short Sale with us, we pair you with a whole team of experts that all work together to complete your Arizona Short Sale.  We pair you with a Realtor that understands strategic pricing and aggressive marketing in today's competitive buyers market.  We pair you with an Arizona Short Sale Negotiator that negotiates with loss mitigation on your behalf.  We pair you with an Arizona Short Sale Project Manager that makes sure you are kept up to date with the details of your Arizona Short Sale as well as manages the entire Arizona Short Sales Team.  Lastly, we have our Accountant on retainer to answer any Arizona Short Sale or Arizona Foreclosure Tax questions you may have.  Our belief is that by surrounding your Arizona Short Sale with the right team of experts, you will have the best chances for a successful Arizona Short Sale!

So what are you waiting for....fill out our quick property submission form and one of our short sale experts will contact you immediately.  Feel like talking to a live person...give us a call or click on the "live operator" button above the property submission form on your right!  We look forward to helping you and your family avoid Arizona Foreclosure and Short Sale your home today.

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