TUCSON FORECLOSURES AND SHORT SALES
Tucson, Arizona
Due to increasing monthly payments, declining real estate values and other reasons, many Arizona homeowners face the prospects of letting their homes go by foreclosure. This page was designed to assist both buyers and sellers with both the foreclosure and short sale process. Let's begin by giving simple definition to these terms and further describe the processes. As a real estate expert with experience in assisting both buyer and sellers in this process, I want to offer my assistance and advice. Whether you need to sell your own home as a short-sale, are behind on your payments and don't know what to do, OR you are a buyer wanting to purchase a short-sale or foreclosure home in Tucson, please contact me for expert advice first. If you've taken out a large mortgage, and/or perhaps refinanced to cover remodeling or other expenses, you may find yourself unable to keep up with your mortgage payment after a layoff, pay-cuts, divorce or illness.
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What is a short sale and should I sell or buy a home that is a "short sale"?
Foreclosure: When a property owner has stopped making the payments on the mortgage (is considered in default), the lender has the right to take back the property and sell it to the highest bidder in a trustee's sale. There are 3 phases to the foreclosure process, but essentially a property has been foreclosed when this has taken place. The banks do not want to have to take the home (Foreclosure). Some of the reasons are, banks are not in business to be home owners and the average cost to the bank for a foreclosure is $60,000 according to some experts. Foreclosures generally stay on ones credit report between 7-10 years.
Tax Issues: The good news for most borrowers is that Arizona has anti-deficiency laws – specifically, A.R.S. §§ 33-729(A) and 33-814(G) – that prohibit purchase-money lenders (explained below) from collecting on a deficiency. However, the bad news is that the anti-deficiency protection often does not apply to second mortgages, equity lines of credit, some refinanced loans, etc. In those exceptions, generally the only relief is achieved through bankruptcy.
To qualify for anti-deficiency protection, the residence involved need not be the homeowner’s residence. It need only be, per the statute, a “parcel of real property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling.”
If a lender cancels a debt, the lender is obligated to send to the borrower and the IRS a “Form 1099-C: Cancellation of Debt” for the year in which the debt is cancelled. The resulting cancellation of debt may be taxable as ordinary income to the taxpayer.
Fortunately, Arizona’s anti-deficiency statutes, the Internal Revenue Code and the Mortgage Forgiveness Debt Relief of Act of 2007 offer various exceptions for taxpayers who have received a 1099-C.
One exception pertains to “non-recourse” debt, in which the loan documents specifically state that, in the event of a deficiency, the lender would have no recourse against the borrower. In Arizona, many residential loan documents have recourse provisions (i.e., they theoretically preserve the lender’s right to pursue the borrower for a deficiency). However, the state’s anti-deficiency statutes render those recourse provisions ineffective. Whether the statutes render as “non-recourse” a loan agreement that contains recourse language is another unresolved issue, and the borrower’s tax liability may depend on the IRS’s interpretation.
The Mortgage Forgiveness Debt Relief Act of 2007 remedies some of these issues. The Act applies to transactions after January 1, 2007, and before 2012 and permanently excludes debt forgiveness from income if (a) the real property was the principal residence of the taxpayer; (b) the debt was for the purchase, construction or substantial improvement of the foreclosed property; and (c) the foreclosed property was the taxpayer’s primary residence for two of the past five years
The following link goes into more detail on the Mortgage Forgiveness Debt Relief Act of 2007 visit the following website:
If you find selling you house for less than you owe on the mortgage is an option short of foreclosure or bankruptcy, you'll want to find a real estate agent who understands your situation. Agents typically take a much lower commission on short sales (paid for from the proceeds of the sale, not directly out of your pocket), and it often takes much longer to actually close the sale once the seller accepts an offer. An agent should sympathize with your financial problems brought on by unexpected circumstances and want to help.
Now that you know a bit more about the Short Sale and Foreclosure process in Arizona, I always recommend to clients to try to work things out with their lender before going through the process of selling your home on a short sale. In many cases banks will be more open to renegotiating terms of a loan (forbearance, principal reduction, loan modification) instead of accepting a short sale.
A homeowner in distress should always call the lender first if you are having trouble making payments, or foresee trouble making payments in the future. National foreclosure statistics indicate too many homeowners are not calling their lenders for assistance and are instead falling into foreclosure.
Convincing Your Mortgage Lender:
A buyer will need a local real estate agent's help in negotiating a short sale approval with their mortgage lender.
Your bank will have to be convinced that you deserve to be approved for a short sale. You'll need to tell your mortgage lender about your financial hardships, including layoffs, divorce or medical issues.
While this may seem obvious, now is not the time to rack up the purchase of luxury items, like fancy cars or jewelry. Your lender will see these debts on your credit report and become convinced you're a loose spender who doesn't deserve a break.
It may also be necessary to provide the lender, either directly or through the buyer or buyer's agent, documentation of your financial hardship, such as paystubs, bank statements and so forth. While this may seem like an invasion of your privacy, try to think of it as the fastest way out of an otherwise overwhelming debt.
Short sales take much longer to close than more conventional sales, so plan accordingly. If it works, you've avoided bankruptcy and an ugly mark on your credit report. If it doesn't work, you'll know that you've done everything you could to avoid foreclosure and/or bankruptcy.
