Short Selling Your Arizona Property

Those investors. A few years ago they came into our communities like locusts and ran up home values. We liked them for a while. Arizona was the darling among places to invest. But then November of 08 happened and the house of cards came tumbling down.

However, today a lot of those investors look like you and me. The mom and pop who invested in real estate instead of the stock market. We liked the idea of real homes, with real land. Something tangible and for a while there was a good return. Then, like the stock market, the bottom fell out. Investors who held on, hoping that the market would turn are now faced with what to do with the home they bought in 05 and 06.

With the glut of homes for rent on the market, the investor can’t find renters for their investment property and no doubt they have an adjustable mortgage that will soon be recasting.

Certainly there is plenty of blame to go around for the mess we’re in, but I’m not here to single out any player. Right now, as a Scottsdale real estate broker, I am here to help both Arizona home owners and  investors find an alternative to foreclosure in Arizona, and that alternative is a short sale. A short sale is much better for all -- the buyer, the seller, the community and the bank.

While buyers can find some good deals on foreclosed properties, buyers typically are faced with homes with many expensive repair issues. These buyers would have been better off buying short sale properties which are usually nice homes in good condition that have been cared for by the sellers.

Short sales are better for the seller as foreclosure hurts the seller’s credit scores more than a short sale. Short sales are also better for the surrounding community, as foreclosures bringing the values down more precipitously and hurt more and more homeowners and investors.
And short sales are better for the bank because a portion of their loan gets repaid and they don’t have the expense of managing the resale of the home.

Many investors who don’t want to lose their initial investment believe that a loan modification is the answer; but choose an Arizona reputable loan modifier .  You can also enlist the help of an Arizona attorney specializing in loan modifications. (Beware if you choose to hire a loan modifier. A lot of snakes have come out to prey on desperate home owners and investors. They charge big fees upfront and then do nothing. ) And for some, a loan modification might be the answer. But when faced with the fact that it will take 10 years plus (depending on the area in our valley) to regain their loss, many investors (and home owners) believe that a short sale is the answer. It’s like ripping the band aid off and facing the fact that your credit will impacted for a couple of years. (For the sake of disclosure, I am not an attorney and if you as an investor are considering a short sale, please make it your priority to have aa Arizona qualified CPA on your team.)

So here is what I’ve learned in the mine fields. You do not have to miss a payment to qualify for a short sale (especially if you have a tenant in place that is making your mortgage payment).You must, however, show a hardship. A short sale will hurt your credit (it’s considered a charge off-meaning the bank takes this as a loss) however; missed mortgage payments can add insult to injury. If you cannot afford to make your mortgage, above all do not miss paying your HOA dues. An HOA can foreclose on you faster than your bank can!

What if you have a second mortgage on your investment home? First of all, understand that if the investment home goes into foreclosure, the second lien holder gets nothing. However that doesn’t mean they won’t try getting their money back from you through what is called a deficiency judgment. (This means that the lender can sue the ex-home owner for the balance of the monies due on the second.)

The bank may or may not go after you, and it depends on many variables. But notably if your second is held with a larger institution, (WAMU, Chase, Bank of America etc.) the better position you’ll be in. If your second is held with a smaller lending institution like M& I Bank or a credit union, these institutions typically don’t have the exposure and loss like the big banks have. They have insurance and actually benefit if the home goes to foreclosure.

You can’t run from Uncle Sam. You will be responsible for the “phantom tax” treated as taxable income on the difference of what you owe and what you sold your home for. So depending on your tax bracket, be prepared. The tax forgiveness act is for owner occupied homes only. See your CPA.

I don’t differentiate between helping an investor or a home owner. Most everyone is in some sort of survival mode these days. If I can help you navigate through the short sale process, eventually saving you thousands of dollars and sleepless nights, then I’ve done my job. For more information on short sale process visit our extensive website which explains the short sale process in Arizona.

~Echo Farrell, Broker, Owner and Certified Distressed Property Expert