A short sale occurs when a homeowner sells his or her property for less money than the remaining balance owed on their mortgage. As home values continue to decrease nationwide, a short sale is now a popular “out” for a homeowner who cannot make his or her mortgage payment and currently owes more on the home than it’s worth.
Preventing foreclosure will benefit both debtor and creditor. Major cities that are facing foreclosure situations will use a short sale to avoid the legal proceedings, which was the case of Los Angeles foreclosure situations. The buyer is able to purchase the short sale home at a discounted price, while the seller is able to sell their “underwater” home (a home that has a higher outstanding loan balance than the actual market value of the property) and avoid foreclosure.
There are some standard procedures in carrying out a short sale in Los Angeles. Like other contracts, it has a contingency where the bank must approve the sale. If the bank convinces the seller to refinance the house, the bank doesn’t approve the short sale and the buyer gets their deposit back. In this situation the bank has tied up several months of the buyer’s time who must now start the buying process over again.
People are taking advantage of the weak real estate market by buying short sale properties in Los Angeles. Historically, California has had one of the most active housing markets, and when housing is good in California, it is really, really good. When it’s bad, it’s pretty dreadful, as the conditions are right now.
The recent national housing crisis hit the city of Los Angeles hard. Los Angeles foreclosure rates jumped up in neighborhoods across the city, which lowered other property values in the area. Many Los Angeles homeowners fell behind on their mortgage payments or have an underwater home. With the average number of short sales growing nationwide, more and more Los Angeles homeowners are considering a short sale of their property.
Even though the bank dismisses the debt and calls it even, before 2007, borrowers had to pay government income taxes on the debt they owed. This changed, however, when the government passed the Mortgage Debt Relief Act of 2007. An example for a short sale in Los Angeles starts with a borrower owing more to the bank than what they can sell the home for. The borrower works out a deal with the bank to sell the property for less than what they owe.
Under this program, borrowers do not have to pay taxes on short sales that occur from January 1, 2007 to December 31, 2009. In 2010, however, it is speculated that borrowers will have to pay taxes on the debt. Shorts sales on vacation or investment homes may also receive tax breaks.
Foreclosures affect a person’s credit report but a short sale is said to be less negative. Because short sales are a type of settlement, like all entries except for bankruptcy, short sales remain on a credit report for seven years. Depending upon other credit information it is typically possible to obtain another mortgage a few years after a short sale.
It’s beyond belief Los Angeles foreclosures are up for sale now. All you need to do is drive a while to see all the Los Angeles short sales that witness to the housing downturn.
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