Can I Short Sale An Investment Property?


Some people erroneously believe that short sales are only an option for personal primary residences. This is not the case.

You can still do a short sale for investment properties as long as the house is worth less than you owe + closing costs and you have a documented hardship. Hardship for an investment property could be any situation affecting your finances and/or the profitability of your investment property. This could include a significant damage or unexpected expense for the property (such as HVAC, structural, or other replacement necessary), an extended unplanned vacancy, decrease in rents, etc, to the point that you can no longer afford mortgage payments.

Your credit will still be negatively affected, but short sales are an alternative to foreclosure or an opportunity to get out from under a struggling investment property.

To learn more about whether a short sale is right for you, call Rob’s team today at 703-212-3344.

What Does a Short Sale Cost Me?

For homeowners who can no longer keep up with their mortgages, worrying about fees and expenses to do a short sale is the last thing they need. Fortunately, using a short sale expert to help your sale doesn’t have to cost you an arm and a leg.

When you use our team of experienced short sale agents:

You will not have to pay commission on the sale.

You will not have to pay any out of pocket fees.

You will be cleared of deficiency debt.

This is not necessarily the case (especially the deficiency debt erasure) with all short sale real estate agents, so make sure you ask!

There may be some costs along the way that will make the process smoother if you can at all afford to pay them. These include any unpaid Real Estate Taxes, Tax Liens, HOA fees, Condo fees, and any other liens on the property. At the very least, you need to let your negotiators know about any and all of these unpaid costs as soon as possible to coordinate your strategy for negotiation with the bank. Finding out about an HOA lien on the property at the last second can derail an otherwise progressing short sale!

If you think a short sale might be the right option for you, you can give us a call to find out more about how our team can help you get your underwater property sold at 703-212-3344 today.


Insolvency Clause Tax-Saving Alternative to Mortgage Forgiveness Debt Relief Act in 2015

On December 16, 2014, President Obama signed a bill that extended the Mortgage Forgiveness Debt Relief Act retroactively to cover mortgage debt cancelled in 2014. The Mortgage Forgiveness Debt Relief Act (MFDRA) prevented homeowners who went through a short sale from being taxed on the amount of their home mortgage debt that had been forgiven. For homeowners to qualify for a tax break in 2014, their short sale must have closed by December 31, 2014.

The Act was only extended through 2014. Congress is expected to debate further extension of the Act as part of a larger tax package in 2015. In the meantime, mortgage debt forgiven by a lender in 2015 might count as taxable income.

According to a brief from the National Association of Realtors (NAR), about 5.3 million homes are still under water. In addition, there are still more than 1 million homes in the process of foreclosure. If the Mortgage Forgiveness Debt Relief Act is not extended further, hundreds of thousands of American families who did the right thing by short-selling their home will have to pay income tax on income they never received.

IRS “Insolvency Clause” Offers Tax-Saving Alternative

Short sale sellers can still be exempt from tax liability under the “insolvency clause” of the Internal Revenue Code. The clause states that a seller is exempt from paying tax on any forgiven debt to the extent that they are insolvent. In other words, if the seller’s debts and liabilities exceed their assets by more than the amount tax breaksof debt forgiven, they do not have to pay taxes on the forgiven debt.

Here’s an example of how the Insolvency Clause works:

A seller has a home valued at $300,000, but the mortgage debt is $400,000. We short sell the property for $300K and the bank elects to forgive the debt on the $100,000 shortfall amount. Since debt that has been forgiven counts as taxable income, the IRS would treat the $100,000 of forgiven debt as income.

SALE PRICE -$300,000
(Taxable income)

This is where the insolvency clause formula comes in. Begin by adding up all of your debts/liabilities in one column and all of your assets in another. For this formula, the IRS wants you to include the mortgage debt as a liability, and the fair market value of your house as an asset. Let’s say you have $600,000 in assets and $700,000 in debts/liabilities. You are insolvent by $100,000.

ASSETS $600,000
INSOLVENCY [$100,000]

Since your insolvency amount of $100,000 equals the forgiven debt amount of $100,000, it’s a wash and you will not have to pay taxes on that forgiven debt. You are shielded dollar-for-dollar on the amount of forgiven debt up to your insolvency number. Let’s say you were only insolvent by $80,000. In that case, you would still have to pay income tax on the remaining $20,000 of forgiven debt.

INSOLVENCY [$100,000]

If you are underwater on your home mortgage and need to sell your house, what do you do now? Call Robert Chevez’s Short Sale Team at 703-212-3344 today!


Doing A Short Sale While In Loan Modification

As a homeowner looking in to short selling your home, chances are you have explored several different options for your situation. Many people explore loan modification as an alternative to short sales. The main difference between the two is outlined below:

Short Sale involves SELLING your home. You list it for sale with a Certified Home Rescue Expert© realtor and find a buyer. Then your realtor, with the help of a professional team of attorneys, negotiates with your lender to accept the preferably market value offer and let you walk away owing nothing. It sounds too god to be true, but it works – just ask about my 99% success rate.

Loan Modification involves the homeowner working with their lender to change the terms of their mortgage loan to make it more affordable. Past due amounts and/or the difference in the new lower monthly payments are typically rolled into the loan.

There is a problem, however, if you initiate a loan modification and then decide to do a short sale instead. Many times, the loans get “stuck” in modification, and if the property owners do not disclose to their real estate agents that they have tried to do loan modification, it can tie up the process of doing a short sale, making the process even longer and more complicated.

The best thing to do if you decide to do a short sale after trying to get a loan modification is to follow up by calling your lender, writing a statement declining modification, and getting confirmation that they will end the loan modification.

If you are interested in doing a short sale on your property instead of a loan modification, give Rob and his team of short sale experts a call at 703-212-3344 today!