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Tampa Short Sales: Market Filled With Opportunity

Recent years have found the news increasingly filled with stories about home owners who have come to the conclusion there is no way they can continue to make the payments on their home for any number of reasons. Every state in the nation has been impacted by a historic decline in the values of housing and among the hardest hit is Florida. For a recent calendar year, though foreclosures had dropped in the state, Florida still ranked second in the nation for the number of foreclosures in just 12 months.

The Tampa Bay Tribune recently reported that the number of foreclosures averaged around one-half million homes in just 12 months. How many of those home owners, especially in the reasonably steady area around Tampa, could have avoided foreclosure by employing a well known tactic called a short sale?

What Exactly Is A Short Sale?

Some readers may not yet be familiar with the term “short sale” and exactly all that it implies. Simply stated, and where it applies to real estate, it is the sale of a property for an amount less than is owed on the existing mortgage(s) or other forms of securitization tied to that property. For example if a home owner has a first mortgage and a second mortgage together totaling $250,000 as a payoff price and the home is worth only $120,000 there is no possibility the home owner can sell or refinance without paying the difference from some other source. In this market this is normally impossible so the home owner demonstrates to the lender their inability to satisfy the debt and presents an offer from a buyer at the lower price. The lender, after due diligence, may accept a well formed offer and “settle short”.

Short sales do not necessarily end at the closing table like a normal transaction. In times past the lender would seek, and generally be granted, a deficiency judgment wherein the court would find the seller who could not completely satisfy the debt still owing the difference to the lender(s). In recent times changes have been made by Congress which affects how this happens. Because of the market and seller friendly legislation the end result of a short sale is that the seller is delivered a 1099 form, an IRS income statement, from the lender in the amount of the deficiency. In our example above the seller would receive a 1099 from the lender in the amount of $130,000.

Because of The Mortgage Forgiveness Debt Relief Act of 2007 the way the IRS may treat this 1099 has been changed. In fact the actual form is a 1099-C. For this Act to offer protection the short sale property, whether in Florida or any other state, must have been the primary residence of the seller. This Act expires in 2012 unless further extended by Congress.

How Does A Short Sale Work?

When a home owner finds his or her self in a situation where they are facing eminent foreclosure and it is impossible because of changes in their financial status since originally qualifying to continue fulfilling their agreement with the lender or sell their home at a price equal to or greater than what they owe there really is no choice, whether in Tampa, Clearwater, Brandon, Wesley Chapel, Zephyrhills, Indian Rocks Beach, Saint Petersburg or any other Florida city, but to offer the bank a lower settlement.

Within the bank, lender or servicer is a “loss mitigation department”. When a foreclosure process is started the mitigator is assigned the file to help protect the investment of the lender and to work with the borrower to try and lose less of the lender’s investors’ or taxpayer’s money as the deal is transacted. When a request to transact a short sale and a valid offer to purchase the property is received the mitigator will work with local professionals like a Tampa real estate professional to help determine the current value and condition of the property. Short sale does not mean “below market value” it means “less than the existing debt”.

The home owner must demonstrate they are currently in a hardship and unable to continue meeting their obligation by providing documentation much like they did when they qualified for the home. In fact the goal here, to achieve a short sale approval, may be termed “un-qualifying”. This process includes demonstrating a comparison of other short sales and generic sales to establish a real, current market value for a like home in similar condition. Only the Tampa area will be considered though there are thousands of short sale homes for sale in Florida.

When the seller is working with a Tampa real estate agent who is familiar with Florida foreclosure laws and how to transact a short sale many of the mistakes normally made when presenting an offer to the lender can be avoided. The professional with Tampa short sale experience can help the home owner present the offer in a matter that requires little effort on the part of the loss mitigator and this makes the transaction much smoother for all parties. Until the lender has approved the lower price the transaction is not yet considered a short sale though an agent may choose to list a property as a “potential short sale”.

How A Short Sale Can Help Home Sales

A short sale help borrowers who are “underwater” by taking advantage of the Act mentioned above and allowing new buyers to purchase a home at the real market value. Even in Tampa values have fallen dramatically since 2006 and buyers today are able to acquire properties at a fraction of the price they may have originally sold or been refinanced for 3 to 8 years ago or more.

While the Act we discussed above which helps distressed sale home owners is in effect the short sale can result in a tremendous relief to the home owner who is forced to short sale their home. On the other side of that transaction for the buyer who may be required to move to Tampa from another state or some other part of Florida it can be a great opportunity to buy at a perfect home at the real, current property value.

Qualifying to purchase a short sale is just like qualifying to buy any other home. A Florida mortgage professional can help in the entire short sale purchasing process by providing the documentation needed to evidence the buyer of the short sale is fully qualified and ready to close on this Tampa short sale transaction.