Sell My Short Sales

Four years after the collapse of the U.S. housing bubble, flipping homes is back in fashion.

Jeff Coga, a Los Angeles, California real-estate investor, learned late in the morning of Oct. 28 that a never-occupied custom house on the northern fringes of Los Angeles County a beautiful property was going up for auction around noon the same day. The six-bedroom home, built on a 15,000 square foot lot. The kitchen with two dishwashers, four ovens, “antibacterial” copper sinks, and a master “spa” bathroom with space for a flat-screen TV visible from the tub. Jeff, knew the area and knew the exact house that was being auctioned off that day.
Jeff, decided to go to that particular L.A. County auction to see if we might be able to purchase this luxury home.

The minimum bid, as set by a unit of Citigroup Inc., which had a $1.7 million mortgage on the home, was $389,900. After several minutes of bidding among investors and their representatives, some wearing shorts and flip-flops, Mr. Coga won the home for $549,900. A week later, he agreed to sell it for $698,000 to a woman who moved in this month.

During the housing boom, millions of Americans tried to make money by buying and then quickly reselling new houses and condominiums. That kind of flipping stopped several years ago as home sales stalled amid a surge in foreclosures and curtailed lending.

Now, a different breed of flipper is proliferating: one who seeks bargains at foreclosure auctions. Unlike the boom-time flippers, the latest generation needs cold cash, lots of local-market knowledge and strong nerves.

Investors compete mostly with other full-time professionals who monitor foreclosure auctions at county courthouses across the country. The bidders often haven’t had a chance to inspect the property or determine whether it’s occupied by tenants, who may be hard to evict.

Sometimes ‘you have half an hour to make a half-million-dollar decision,” says Jesus Yinh, another real estate investor at “That’s something most people can’t or aren’t willing to do.”

In the states where home prices have fallen the most, many local real-estate markets are dominated by foreclosed property, dragging down the value of neighboring homes. Barclays Capital estimates that banks and mortgage investors have 639,000 foreclosed homes for sale across the U.S., largely concentrated in Florida, California, Arizona and Nevada. That’s equivalent to more than 10% of expected U.S. home sales this year.

“Flippers swoop in at public auctions of foreclosed homes, known as trustee (California) or sheriff sales. In many states, the lender sets the minimum bid, and takes possession of the property only if no one bids more. In the past, the minimum generally was about equal to the mortgage balance due”. Susan Park, real estate investor in Southern California said” in today’s market, in which many home values have dropped far below the loan balance, lenders wouldn’t attract investors if they set the minimum at that level.

So lenders, or the loan-servicing firms that represent banks and investors, are increasingly likely to set the minimum much lower. Their goal is to tempt others to buy the house and spare banks the headaches and costs that come with taking possession”.

November about 21% of homes sold in trustee sales in California went to investors rather than to a foreclosing lender, up from 6% a year earlier. The trend is similar in some other areas with high foreclosure rates, including Phoenix and Miami.

The real advantage of such an outcome for the bank is that it gets money for the property right immediately, even if it isn’t enough to cover the loan balance due. The bank doesn’t need to make repairs to the home, cover the taxes and insurance, or pay real-estate-agent commissions. Is this a smart business decision for the banks?

The risk for banks is that if they set the minimum bid too low, the home might end up selling for much less than they could reap if they took ownership of it and sold it themselves; however with some 7.5 million U.S. households behind on their mortgage payments or in foreclosure, many lenders are overwhelmed, and over worked. They’re negotiating with distressed borrowers and figuring out how to sell the growing supply of foreclosed homes, and don’t see an end to this challenge for many years to come.

To help them set the minimum bid, banks often consult with local real-estate agents and use software that estimates housing values. American Home Mortgage Servicing Inc., which collects payments and handles foreclosures on behalf of banks and loan investors, uses a formula designed to “achieve a fair value for the property and induce third-party bidders,” says Christine Sullivan, a spokeswoman for the Coppell, Texas-based firm.

American Home starts with a broker’s estimate and subtracts the expected costs of taking ownership of the house and selling it. The minimum bid is above the net proceeds American Homes believes it could get by acquiring and selling the property itself, she says.

Outside the Los Angeles County court building in Norwalk, California trustees, companies that are hired to handle foreclosure auctions, offer as many as 800 – 1000 houses every weekday. A typical auction lasts only a few minutes. On a recent afternoon, a few dozen bidders and onlookers were clustered around a trustee employee seated on a lawn chair conducting auctions. He kept track of the bids on a laptop computer perched on one knee.

Many of the bidders are regulars at the sale, bidding for themselves or on behalf of investor clients. “We’re all kind of like a little dysfunctional family,” said Jeff.

Buying at these auctions is perilous. There are no public viewings, so bidders often can’t know how much damage may have been done inside a house by occupants facing foreclosure. We’ve seen people pour concrete down the toilets. Unless they’ve done their homework, bidders also don’t always know whether they’re buying a home subject to a lien from another lender, which can happen in cases where the borrower took out more than one home loan.

If you have the time, and our dilligent, you can really pick up some amazing deals at the court house steps, and turn around and sell those for some great profits.
We help struggling investors find their niche in today’s market place. Please feel free to email us at info@getsswb.com or call us directly at 310-776-5032.

Written By:
Bernie Germani

Popularity: 100% [?]

An unfortunate event in this economic crisis is the increase in short sales and foreclosures of homes, and now The all American Dream may need life support.

In most cases, a short sale is a sale by an owner in which the amount owed on the property is greater than the amount the seller will receive from the sale. We Recommend to our clients that they must obtain an agreement from the lender that the proceeds from the sale will satisfy the debt in full in order to convey clear title to the property to the  new buyer. Lenders are sneaky they will try and have you sign a promissory note for the remainder of the balance, but we always tell our clients to say “No” to this.

A foreclosure or a deed in lieu of foreclosure results in the repossession of a property by the lender due to default on the loan on the part of the borrower. We have heard the Government is offering cash for keys, but we have yet to find 1 homeowner who have recieved that alleged cash.

Each of these events can carry significant tax consequences unless the borrower meets specific exclusions.

With either a short sale or a foreclosure, two distinct, potentially taxable events may occur.
These include: (1) income resulting from the forgiveness of the debt is realized by the homeowner.
(2) gain or loss resulting from the sale of the residence to a third party or deemed sale of the residence to the lender in satisfaction of the debt must also be considered.

The Mortgage Debt Foregiveness Act of 2007 and the Emergency Economic Stabilization Act of 2009 provide tax relief for debt forgiven through a short sale, foreclosure or deed in lieu of foreclosure on a principal residence.

In most cases, in order to qualify as a taxpayer’s principal residence, the taxpayer must own and use the property as their primary residence for periods totaling two out of five years before the sale.  Under Internal Revenue Code Section 108, the discharge of qualified debt incurred to buy, construct or substantially improve a principal residence can be excluded from income if the discharge occurs in calendar years 2007 through 2012. The residence must secure the debt. Up to $2 million of forgiven debt is eligible for this exclusion for married couples filing joint tax returns.

If the taxpayer does not meet the Principal Residence Debt Exclusion under the Mortgage Debt Forgiveness Act of 2007 or the Emergency Economic Stabilization Act of 2009 discussed above, they must look to other provisions for possible tax relief.

Recourse versus non-recourse

The first step is to determine if the debt is “recourse” or “non-recourse.” If the debt is recourse, the borrower is personally liable for the debt and the lender is able to pursue the borrower’s other assets in satisfaction of the debt.

If the debt is non-recourse, the lender’s remedy is limited to the property and the borrower is not personally liable for any deficiency. In California, most loans incurred to purchase a home are non-recourse. Mortgages from refinancing a previous mortgage or home equity line of credit are typically recourse.

Cancellation of indebtedness

The second step is to determine if a taxpayer has cancellation of indebtedness (COI) income. When a property subject to non-recourse debt is foreclosed on or is sold subject to a short sale, the property is treated as being sold for the balance of the mortgage. Therefore, there is no COI income.

For property subject to a recourse loan, COI income is the difference between the principal balance of the debt and the fair market value of the property securing the debt.

There are specific exceptions to this, including the Principal Residence Debt Exclusion, which blurs the distinction between recourse and non-recourse debt in determining the type and amount of discharged debt eligible for favorable tax treatment.

Gain or loss on sale

The third step is to determine the gain or loss on the sale of the property.

Short sales, foreclosures and deeds in lieu of foreclosure are treated as sales or deemed sales for tax purposes.

The gain or loss is determined by subtracting the net sales price of the property from the owner’s adjusted basis in the property.

The adjusted basis of the property is generally equal to the purchase price plus costs to acquire the property and improvement costs less any depreciation taken.

The selling price is equal to the outstanding principal balance of the loan in the case of non-recourse debt and the price that a third party would pay for the property if the loan is recourse, less any transaction expenses related to the sale.

This article focuses on the income tax aspects of foreclosures and short sales involving principal residences and other personal property.

The above information relates only to federal income taxes under the Internal Revenue Code. SB 1055 in California was intended to make California laws more closely conform to federal legislation and was only effective for 2007 and 2008. This legislation has expired. Conformity legislation has been introduced that would adopt the same rules as provided under federal law through 2010.

But with the current budget situation in California, its enactment may be in jeopardy.

Our local economy has been heavily impacted by the tightening mortgage market and the liberal loan policies of the early to mid 2000s.

If you are involved in any form of debt restructuring or a forced sale of property, you should consult with your tax adviser to gain an understanding of how these settlements will affect your federal and California income tax returns.

It is our expectation that The Mortgage Debt Relief Act of 2007 and the Emergency Economic Stabilization Act of 2008 will provide some tax relief to those individuals having to face these difficult decisions.

We are not tax experts, we are just an Exit Real Estate Group/ short sale investorsin Southern California. Please consult your own CPA or attorney for more clarification that would pertain to your situation.

Popularity: 43% [?]

To All California Realtors/ Investors/ Wholesalers/ whomever:
California Revitalization Group is in need of your short sale listings:

My name is Bernie Germani, I work with a group of CASH BUYERS and were interested in working with you and your team, we would like to purchase at least 5-10 Short Sales each and every month, we can have a CASH offer within 24-48hrs on all properties that fit within our buying criteria.

Have you been trying to do Short Sales, but can’t get them completed?

Do they take too much time?

It’s time you discovered:
California Revitalization Group, Exit Real Estate Group, and Short Sale Wealth Builders!

No fees or costs of any kind to you the Realtor, or your seller in default
Get your FULL listing commission of 5-6% on average
Let us negotiate the short sale discount, saving you many hours of time and increasing your success rate
You, as the Realtor, will retain the listing AND your client
No more long phone calls and frustrations dealing with loss mitigation
Access the progress of your short sales online, 24/7!

In other words….

YOU list and sell the property
YOU make your commission
WE do the short sale negotiations

It’s THAT SIMPLE!

That leaves you time to do what YOU do best:

• Finding Sellers
• Finding Buyers
• Marketing and Listing Properties
• Cash Big Fat Commission Checks!

Popularity: 36% [?]

Do you remember when the mortgage meltdown crisis started and all we could hear was how the mortgage companies allowed this by giving mortgages to those who could not afford one in the first place?

Do you remember how we were told that it was the “stated incomes” that anyone could just claim an amount they earned that would qualify them for a mortgage.  Then as the bubble was deflating in the real estate market we were seeing foreclosures on the rise, and continuing to this day.

Well today there is a new story that is unfolding to the old foreclosure story.  We are now seeing people with good credit who did not use stated incomes in order to get their mortgage, now going in default.  We are seeing fixed rate home loans that were made to good credit applicants now in foreclosure, a big difference from a year ago.  It was the sub-prime and adjustable rate mortgages that was driving the housing crisis then, and that is not the case today.

A report from the Mortgage Bankers Association found that an alarming large percentage of mortgages were either in foreclosure or behind, 14 percent as of the end of September.  This was a record high for the ninth quarter in a row, which is a very scary situation, because this could mean we have not seen the bottom of the real estate market despite what other reports on TV, and the news are telling you.  This report went on to say that it was unemployment that was the main cause of foreclosures.  We have seen prices fall on real estate and that gave us a little “bump” in the market during the summer.  There is a new wave of foreclosures that will hit the market within the next year and that will drive the price of real estate down further.

We here in California along with Nevada, Florida and Arizona make up 47 percent of all new foreclosures. 

How much lower can we expect real estate prices to fall?  A chief economist at Moody’s Economy. com, Mark Sandi is predicting that on a national basis, home prices will fall another 10 percent between now and next fall.  Will this be the bottom?  Susan Park, an Exit Real Estate Group Realtor said “In her opinion it is all going to depend upon the private sector and jobs.  If unemployment continues to rise then we will see more and more foreclosures and the price of real estate falling further than 10%. In my market I’m now seeing more high end homes going into foreclosure.”

Today we are seeing fixed rate, prime loans to borrowers who had good credit accounting for almost 33 percent of new foreclosures and that number is up over twelve percent from a year ago. These figures are based on the last quarter.  FHA loans are beginning to see problems in their loans; over 18 percent are either behind or in foreclosure as of last quarter.

The current real estate situation is like a cancer that is quickly spreading across all sectors of the financial landscape and is affecting all sectors of employment.  As we continue to see layoffs, downsizing and underemployment, we will continue to see more and more foreclosures and consequently the value of real estate falling more and more.  The job market will drive the number of foreclosures not Wall Street.  Until we get a handle on just how and where we, as a nation, are going to increase jobs, we will continue to see this spiral go deeper and get tighter and tighter.

Jeff Coga, a short sale real estate investor in California said “that he hears so many sad stories as he is in the trenches every day helping people from fore closure that he wishes he could help more people, but many times the banks are not interested in peoples situation and foreclose anyways.

Bernie Germani, another short sale investor said “People are in such need of hope, and there is a lot of desperation in California, and he has noticed many homeowners just giving up hope, because their loan mod failed,  that was their last shot at staying in the home, and now they just thrash the house before giving the house back to the bank.”

Popularity: 28% [?]

According to data released by ForeclosureRadar.com, foreclosures in California increased 22.24% from September to October.  Last month’s foreclosures increased 20.95% from October 2008, which were 42.56% below California’s peak month of July 2008.  But since then, the inventory of real estate owned (REO) properties has grown 131.36% in California.  “While we continue to see a steady stream of properties entering foreclosure, relatively few are completing the process and being sold at auction despite the increase this month,” said Foreclosureradar.com CEO Sean O’Toole.  “The bigger picture is that more and more homeowners are finding themselves upside down in foreclosure limbo,” O’Toole added, “some hoping for a loan modification or short sale, while others are just waiting for a knock on the door.”  The number of foreclosures initiated in October remained level with September levels but this is due in large part to recent legislation enacted in California that will temporarily slow the foreclosure process. The majority of properties foreclosed on in October were originally purchased with mortgages originated between January 2005 and December 2007.

Jeff Coga, a short sale investor in So. Cal. said ” he has seen a trend in the number of trust deed sales in Norwalk, California being reduced, but an increase in the number of short sales on the market.”

Bernie Germani, another short sale investor in So. Cal. said he is seeing in his market place that banks are postponing the trust deed sales sometimes 3-5 times, and homeowners are staying in their homes longer without making mortgage payments.”

Jesus Yinh, and Susan Park, Realtors with Exit Real Estate Group, said “that their inventory of REO listings they currently have multiple offers on, and are moving quickly, but the servicers they work for which include many large banks, are scrambling for inventory to allow us to keep unloading their assets to the Los Angeles County market place at a discount.” Exit Real Estate Group is one of the largest REO asset managing companies in the mid Wilshire area of Los Angeles.

Popularity: 54% [?]

It looks as though the goverment is trying to add more incentives for lenders to start pursuing short sales more aggressively. Taking the new foreclosing numbers into consideration the banks should take this incentive and run with it.

According to the Treasury Department, $10 Billion Dollars of government money will be directly available to lenders to aid in loan modifications, costs associated with doing short sales, and to catch up with all the delinquent payments. The funds will only be distributed to those lenders who agree to get rid of the bad assets from their books through short sales over any other method.

Although the details of the aid haven’t been finalized the 3 most important incentives for lenders are:

1. Extra $1,000 to lenders who agree to a short sale

2. Buyers will receive $1,500 towards closing costs and fees

3. 2nd lien holders will receive $1,000

There’s no doubt that the $10 Billion Dollar aid will entice the lenders to cooperate with short sale filings but the change also needs to come from within the Loss Mitigation Departments to expedite the processing of these deals. I think this is a great first step towards trying to untangle the massive web of foreclosures but will it be enough to prevent another real estate crash from happening?

There were 937,840 new foreclosure filings this quarter, a 5% increase from last quarter and a 23% increase from the third quarter of 2008. This doesn’t even account for the 7 million foreclosure homes that haven’t hit the market yet and the foreclosures that are about to happen from the new unemployment.

It’ll be interesting to see how this will all unfold.

Popularity: 8% [?]