How does a short sale affect my taxes? The two answers to your question

Posted by Owen McGab Enaohwo on Aug 10, 2010 | View Comments

This is a question that I am frequently asked when discussing a possible short sale with a homeowner and I have decided to use this blog post as a means to share my answer with everyone. Please note that I’m not a CPA and for more clarification on this subject, I urge you to consult with a tax professional. Now that I am done with my disclaimer, let’s dive in!

The IRS’s perspective

When you are absolved of your responsibility to an unpaid debt, according to the IRS, this is income. For instance, let’s say that you still owe $100,000 on the home. The lender agrees to a $50,000 payoff as the terms of a short sale. This means that the lender is cancelling $50,000 of the debt. According to the IRS, this $50,000 is extra money in your pocket, and is therefore income.

Here is the Ironic true story of how the Mortgage Bankers Association did a Short Sale! A typical “Do As We Say and Not As We Do” type thingy!

Posted by Owen McGab Enaohwo on Jul 30, 2010 | View Comments

Irony of irony: Though I am a little late blogging on this story because this event actually took place February of this year, I think the moral of the story is still valid so let’s begin the tale! Once upon a time, one of the major organizations that complained about homeowners who opted for a short sale sold its D.C. headquarters as a short sale for $41 million dollars. That’s just about half of what they paid for their building about three years earlier.

The beginning of the tale: As the story goes, the organization called the Mortgage Bankers Association (AKA MBA); the trade group which represents more than 2,000 real estate finance companies bought the building in 2007 for just over $70 million. At the time, MBA said it would partly finance the property by leasing part of the space to other companies. It is said that they actually called the purchase one of the smartest moves they’d ever made.

Strategic Default Vs. Strategic Short Sale; which one do you think is the best choice? – Part 2

Posted by Owen McGab Enaohwo on Jul 21, 2010 | View Comments

In my Part 1 of this blog post, I pointed out a new study by Experian that showed an alarming number of homeowners who were electing to intentionally have their homes foreclosed upon by refusing to make their mortgage payments even though they can afford it. This trend which is now called a “Strategic Default” was accelerated greatly with the housing collapse of 2008, when homeowners suddenly found themselves in possession of homes that are now worth as little as half of what they paid for it, their home values have been reduced to the point that they feel like they are swimming in negative equity. Also the mortgage payment for many of these people have become more expensive than what they can pay as rent for a similar house—hence, they have made the financial decision to strategically default, to essentially walk away. Is this the right choice?

Strategic Default Vs. Strategic Short Sale; which one do you think is the best choice? – Part 1

Posted by Owen McGab Enaohwo on Jul 15, 2010 | View Comments

There was an article on the Los Angeles Times website a few months ago that discussed the increasing problem of Strategic Defaults in the United States. I want to tell you why the study cited in the article is right and why this is a growing problem that is gradually reaching crisis proportions in America. Then on my next blog post (Part 2 of this series), I will show you why Strategic Short Sale is the solution.

This LA Times article cited a study conducted by Experian, one of the three national credit bureaus.  They studied the credit files of 24 million Americans and discovered that “homeowners who have high credit scores when applying for a home loan are about 50 percent more likely than low-scoring borrowers to go into strategic default.”

How to write a Hardship Letter for a Short Sale – A sample you can use!

Posted by Owen McGab Enaohwo on Jul 9, 2010 | View Comments

In a previous blog post, I mentioned that one of the documents required by lenders in order to begin the short sale process is a hardship letter. I will now take some time to explain what it is, why you need it and how to write one. I will even include an example that you can remodel to suit your own true situation.

In my opinion, the hardship letter is one of the important documents you’ll be expected to submit to your mortgage lender because it gives them a snapshot of the financial distress that you are experiencing. It is basically is a signed and dated one page letter (handwritten or typed) through which you explain the reasons why you are having a difficult time making payments. You can also include information on what you have done so far to resolve the situation and why you need the lender to approve the short sale in order for you to avoid foreclosure. Of all the other required documents, the hardship letter leaves the most room for creativity, and therefore the most potential to confuse people as to what it should contain.