Will a Short Sale Affect Your Credit?

What is a Short Sale?

A Short Sale occurs when a Lender agrees to accept less than the amount owed to the Bank by the home owner because there is not enough equity to sell the home at the amount owed to the Bank and cover all the costs of sale.

Not all Lenders will allow a home owner to sell their home as a Short Sale just because a home owner wants to sell and finds their home value less than what homes are currently selling for in their neighborhood however, and it used to be that Lenders wouldn't even consider a Short Sale if your payments are current.  In some instances this has changed, but Lenders are still more agreeable to negotiation and the sale of the home at less than what you currently owe,  if your payments are in arrears. Also, if you have cash assets, the Lender might be less than agreeable to the Short Sale process, asking for payment from the cash assets that you have.

Fair Isaac, which developed FICO scores, released a report that says credit scores are affected about the same, whether a seller does a Short Sale or Foreclosure. Fair Issac says the average points lost on a FICO score are as follows:

• 30 days late: 40 to 110 points
• 90 days late: 70 to 135 points
• Foreclosure, short sale or deed-in-lieu: 85 to 160
• Bankruptcy: 130 to 240 

(Fair Isaac article found HERE)

The same article goes on to state:

Absorbing a big credit-score hit can make many transactions more costly. It's not just paying more for credit card debt and auto loans, insurance can cost more as well.

The average savings for someone with a good versus mediocre credit score is about $115 a year for auto insurance and $60 for home, according to Loretta Sorters, of the Insurance Information Institute.

A low credit score can even make it harder to rent a home because landlords often use credit scores to weed out prospective renters.

Mortgage brokers are also quoted as stating that the effect on a consumers credit report is quite similar, with no credit score advantage for the delinquent borrower doing a Short Sale versus a Foreclosure.

Therefore, if you are considering the possibility of selling your house as a Short Sale, thinking that you will be saving your credit score, it is my advice that you contact a lawyer, a tax accountant and/or a mortgage broker for more advice.  The above information is provided as a courtesy, with the advice that such professionals be consulted before the process of a Short Sale is started.

If you need further assistance to get your home sold via Short Sale, if you need questions answered regarding a regular sale of your current home, or if you are looking to purchase a home in the Santa Clarita Valley, please feel free to call me direct at:

LeeAnn Bell, 661-309-2364

Or email me at:  

LeeAnnRealtor@yahoo.com

It is my goal to make the process of selling or purchasing real estate as easy and as understandable as possible for you!

LeeAnn Bell, REALTOR(R)
DRE License #01260650

Here is what a recent home buyer had to say about working with me: 

"you are easy going, yet knowledgeable and honest to the point of offering careful and helpful advice"    

- A.L.,  Sand Canyon

Some Pitfalls of a SHORT SALE

On Thursday, March 10, C.A.R. (the California Association of REALTORS(R)  is running an open letter in several newspapers statewide, addressing the numerous challenges associated with short sales.

The open letter addresses the following topics: The benefits of doing a short sale rather than a foreclosure; the inconsistencies with short sale processes at banks; the challenges of working with multiple lien holders; and the slow and/or nonexistent communication by banks and servicers to REALTORS®, homeowners, and buyers.

The letter closes by calling on regulators, elected officials, nonprofits, business organizations, companies, and individuals with a stake in California’s economic future to resolve the short sale issue and other issues that get in the way of an economic and housing recovery.

The letter will be published in the Bakersfield Californian, Fresno Bee, Los Angeles Times, Mercury News, Sacramento Bee, San Diego Union-Tribune, and San Francisco Chronicle.

Below is an excerpt from the letter which is to appear in the papers mentioned above:

Unfortunately, many homeowners are unable to successfully negotiate a short sale.  According to a recent survey of 2,150 California REALTORS® who have assisted clients with a short sale, only three out of five transactions closed – even when there was an interested and qualified buyer.  

What’s the problem?  For one, no two mortgage agreements are the same, so it can be difficult to standardize short sale processes and procedures.  Many homeowners have second mortgages, which further complicate matters.  Then there’s the challenge of convincing multiple parties to take a financial loss or, in the case of loan servicers, to forego fees they otherwise might earn during the course of the foreclosure process.  Poor and slow service by many banks and servicers has only exacerbated the problem.  Horror stories abound from potential homebuyers and REALTORS® forced to wait 90 or more days for a response to a purchase offer or being required to fax short sale applications or other paperwork as many as 50 times.   These delays discourage potential homebuyers from considering a short sale purchase and undermine the process for those who short sales are intended to benefit – the hundreds of thousands of families facing foreclosure. 

The entire letter from the President of the California Association of REALTORS(R) can be read on March 10th in the Newspapers mentioned.

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If you are interested in purchasing or selling real estate in the Santa Clarita Valley, feel free to contact me for an interview:

LeeAnn Bell, 661-309-2364

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LeeAnn Bell, REALTOR(R)
DRE License # 01260650

How long should you keep your tax files for the IRS?

I received a question from a client asking how long he should keep his file after the sale of his property, for IRS purposes.  Below is my response:

Hi Gary:

In response to your question regarding how long you should keep your tax records for the sale of the Eagle Rock home, I'm posting below some information from the IRS website (found HERE).

How Long To Keep Records

You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support items shown on your return until the period of limitations for that return runs out.

The period of limitations is the period of time in which you can amend your return to claim a credit or refund or the IRS can assess additional tax. Table 3 contains the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period beginning after the return was filed. Returns filed before the due date are treated as being filed on the due date.

Table 3. Period of Limitations

	IF you...	THEN the period is...
1	Owe additional tax and (2), (3), and (4) do not apply to you	3 years
2	Do not report income that you should and it is more than 25% of the gross income shown on your return	6 years
3	File a fraudulent return	No limit
4	Do not file a return	No limit
5	File a claim for credit or refund after you filed your return	The later of 3 years or 2 years after tax was paid.
6	File a claim for a loss from worthless securities	7 years

Property. Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. You must keep these records to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up. You must keep the records on the old property, as well as the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition.

Keeping records for nontax purposes. When your records are no longer needed for tax purposes, do not discard them until you check to see if they should be kept longer for other purposes. Your insurance company or creditors may require you to keep certain records longer than the IRS does.

How To Get Tax Help

You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help.

Contacting your Taxpayer Advocate. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Here are seven things every taxpayer should know about TAS:

• TAS is your voice at the IRS.
• Our service is free, confidential, and tailored to meet your needs.
• You may be eligible for TAS help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should.
• TAS helps taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. This includes businesses as well as individuals.
• TAS employees know the IRS and how to navigate it. We will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved.
• TAS has at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. You can call your local advocate, whose number is in your phone book, in Pub. 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www.irs.gov/advocate. You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059.

You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www.taxtoolkit.irs.gov.

I would think you are safe in letting your records go now, considering the length of time that has past since that home sold, however to be confident I would suggest asking your Tax Account.

Good to hear from you,
LeeAnn

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If you have any Real Estate questions, please feel free to email or phone me for a answer.  If I can't answer your question myself, I will put you in contact with the appropriate professional who can.

And for all of your Real Estate needs in the city of Santa Clarita feel free to contact me:
LeeAnn Bell,  REALTOR(R) ... 
661-309-2364 or LeeAnnRealtor@yahoo.com
DRE License# 01260650

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