To be eligible for a short sale you first have to qualify!

To qualify for a short sale:

• Your house must be worth less than you owe on it.
• You must be able to prove that you are the victim of a true financial hardship, such as a decrease in wages, job loss, or medical condition that has altered your ability to make the same income as when the loan was originated. Divorce, estate situations, etc… also qualify.

Now that you have a basic understanding of what a short sale is, there are some huge misconceptions when it comes to a short sale vs. a foreclosure. We take the most common myths surrounding both short sales and foreclosures and give a brief explanation. LET’S BUST SOME MYTHS!!

1.) If you let your home go to foreclosure you are done with the situation and you can walk away with a clean slate.  The reality is that this couldn’t be any farther from the truth in most situations. You could end up with an IRS tax liability and still owing the bank money. Let me explain. Please keep in mind that if your property does go into foreclosure you may be liable for the difference of what is owed on the property versus what is sells for at auction, in the form of a deficiency balance! Please note this is state specific and in most states you will be liable for the shortfall, but in some states the bank may not always be able to pursue the debt. Check your state law as it varies widely from state to state.

Here is an example of how a deficiency balance works

If you owe $200,000 on the property and it sells at auction for $150,000, you could be liable for the $50,000 difference if your state law allows it.

Not only could you be liable for the difference to the bank, but in some situations you could also be liable to the IRS! Although there are exemptions (mostly for principle residences) under the Mortgage Debt Forgiveness Act, there are times when you could be taxed on both a short sale and a foreclosure, even in a principle residence situation. Since the tax code on this is a little complicated and I am not a CPA, I advise always talking to a CPA when in this situation as you are weighing your options. Hard to believe?  Well, believe it or not, the IRS counts the difference between the sale and the charged off debt as a “gain” on your taxes. That’s right-you lost money and it’s counted as a gain! (I didn’t make that rule, that’s a wonderful brainchild of the IRS). Banks and the IRS can go as far as attaching your wages. Not to mention if you let your home go to foreclosure you will have that on your credit, as well.

Guess What?  A short sale can alleviate your liability to the bank, in most situations. There are also exceptions to this, but in most cases banks are releasing homeowners from the deficiency balance on a short sale.

2.) There are no options to avoid foreclosure. Now more than ever, there are options to avoid foreclosure. Besides a short sale, loan modifications along with deed in lieu are also examples of the many options. In most cases (but not all) a short sale is the best option. Either way, there are more options today than there have ever been to avoid foreclosure.

3.) Banks do not want to participate in a short sale, or, it is too hard to qualify for a short sale. Banks would rather perform a short sale than a foreclosure any day. A foreclosure takes a long time and creates a huge expense for the banks; a short sale saves both time and money. Banks have more foreclosure inventory than ever before, and certainly do not want any more. Banks more than ever welcome short sales. Qualifying for a short sale is easier than you think, you need to have a true financial hardship, or a change in your finances and your house has to be worth less than what you owe on it. Not only do consumers, but banks also now have government incentive to participate in short sales.

4.) Short sales are not that common. At this present time, short sales range from 10-50 % of sales in various markets and it is predicted that in 2012 we will have more short sales than any other year, to date. Due to economic changes in the last few years, this is something that is affecting millions of Americans. Short sales are in every market, and are not just limited to any particular income class. This has affected everyone from all facets of life. A short sale should be looked at as a helpful tool, not a negative stigma. That is why the government is offering programs that actually pay consumers to participate in short sales. It is not just affecting one community; it is affecting communities and consumers across the nation.

5.) The short sale process is too difficult and they often get denied. Though the short sale process is time consuming; it is not as difficult as the media would have you believe. The problem is that most short sales are denied because of a misunderstanding of the process.  It is true that if the short sale process is not followed correctly there is a good chance of getting denied. An experienced agent knows how to avoid this. Short sales require a lot of experience, and a special skill set. If you are looking to go the option of a short sale make sure your agent is skilled and experienced in this area.

6.) Short sales will cost me money out of pocket. A short sale should not cost you any out of pocket money. In fact, you could get between $3000-up to $30,000 to participate in a short sale. In many ways, a short sale may put you in a better financial position than prior to the short sale. Almost every short sale program now has some type of financial incentive for the home owner, as long as it is a principle residence, and we are even seeing relocation money being paid on some investment/second homes. As a seller of a property you should never have to pay for any short sale cost upfront to any professional service. Realtors charge a commission that is paid for by the bank. In most communities there are also non-profits and HUD counselors who can help you with foreclosure prevention options for free. The only potential cost you could incur is if the bank would not release you from a deficiency balance in the short sale, which is happening less and less now.

7.) If I am behind on my payments, I can perform a short sale any time. The farther you get behind on your payments, the harder it is to get a short sale approved. The closer a property gets to a foreclosure the harder it is to convince the bank to perform a short sale. As they get closer to a foreclosure sale more money is spent, thus deterring them from doing a short sale. If you think you need to perform a short sale, time is of the essence; the sooner you start the process, the better. Waiting too long can trigger the ramifications of a foreclosure, losing the ability to do a short sale as a viable option.

8.) I have already been sent a foreclosure notice so I can’t perform a short sale. For the most part just because you received a foreclosure notice or notice of default it does not mean that you do not have time to perform a short sale. The timeline and specifics do vary from state to state, but having done short sales all over the country, I have seen banks postpone a foreclosure to work a short sale option as close as 30 days prior to the scheduled foreclosure auction, but the longer you wait the less chance you have. If you have received a legal foreclosure notice, please reach out to a professional right away. The longer you wait, and the closer you get to foreclosure, the fewer options you have. If you have received a notice to foreclose this means the bank is filing paperwork and starting the process to take legal action to repossess the house. You still have time at this point to prevent foreclosure, but do not hesitate! The closer you get to the foreclosure date the harder it becomes to negotiate with the bank for whichever option you choose.

9.) I was denied for a loan modification, so I know I will get denied for a short sale. Short sales and loan modifications are handled by two separate departments at the bank. These processes are totally different in approval and denial. If you got denied for a modification you can still apply for a short sale; in some cases you can get a short sale approved faster than a loan modification, as some loan modifications are denied because they cannot reduce the loan low enough based on the  consumers income.

10.) If I go through a short sale I cannot buy another house for a long time. The time to buy another house depends on your entire credit picture and can vary from 12-24 months. There are even a few FHA programs that allow for a purchase sooner than that. I have worked with clients who went through a short sale and bought another house in less than 12 months.

These are just a few of the common myths surrounding short sales and foreclosure. With the options available today, no homeowner should ever have to go through foreclosure, and hopefully this information can help a few more homeowners think twice before walking away from their home not realizing the possible long term ramifications a foreclosure can have.

“Baird & Warner has often been called “fiercely independent,” and I have always been proud of this title; it’s what has allowed us to be such an innovative and cutting edge force in the industry,” said Steve Baird. “It’s important to me that we stay one the Chicago’s largest privately held companies, continuing to invest in our business and people.”

This exclusive list includes such details as 2011 revenue, local and worldwide employee count and information on top executives. This year, 329 companies made the list, and Baird & Warner was number 271.

 

Unfortunately, some clients aren’t comfortable with revealing their entire financial history, and can often try to hide certain aspects. This lack of cooperation can really hinder the process and even negatively affect the loan.

“The best piece of advice I give to any of our clients is to remain completely transparent,” said Steve DiMarco, president of Key Mortgage. “Your loan officer is on your side, and it’s important to have proper documentation for everything. We don’t want any surprises along the way.”

While these higher standards may seem excessive at times, they are in fact reducing loan defaults which translates into fewer foreclosures in the future.

The monthly national consumer attitudinal survey is designed to convey how consumers feel about real estate and how this may affect the market. In addition to revealing an increased sense of urgency to buy a home, the survey showed that many consumers expect mortgage rates and home prices to increase over the next 12 months.

“We’ve already seen a change in the market since January, and as more and more information becomes available it’s clear that this is a permanent change,” said Steve Baird, president and chief executive officers of Baird & Warner. “I believe our sales associates are in the greatest possible position to take advantage of the changing market. Not only do we have the best talent, but we also offer the newest and most innovative technology to help sales associates obtain more listings and increase sales.”

The survey also revealed that:

- Nearly half of consumers expect higher rental prices, the highest number recorded since monthly tracking began in June 2010.

- 33 percent of consumers expect home prices to increase.

- 39 percent expect mortgage rates to rise in the next year, up five percentage points from the previous month.

- 44 percent believe their personal finances will get better over the next year.

“I’ve always been confident in our place among the best of the best in the real estate industry, but a third party validation from RISMedia is significant,” said Steve Baird, president and chief executive officer of Baird & Warner. “While 2011 was another tough year for the housing market, we performed admirably and all signs are pointing up. We’re very optimistic about 2012.”

Last year saw more declining home values, but many power brokers predict that it was the final chapter in the six-year struggle. In the 2012 Power Broker Survey issue, the magazine gauges agent sentiment with regard to the future of the housing market.

While many are cautiously optimistic, there are several factors that have brokers betting on a better year: rising rents combined with low home prices have now made owning a home more affordable than renting one; the overall employment picture is improving; and investors will begin decreasing excess inventory which could provide an unanticipated boost to home values.

In an important commentary on the state of the real estate market, CNN Money released a story based on the Winter 2012 Rents Vs. Buy Index stating that in 98 of the top 100 housing markets it is more affordable to buy a home than rent. However, many potential buyers still aren’t looking at the big picture: today’s current interest rates and the vast improvement to total net worth.

“It’s not difficult to get a home loan. If you have the income and you can prove that you will pay back your debts, all you need is 3.5 percent down,” said Steve DiMarco, president of Key Mortgage. “However, interest rates on home loans are going up. It’s time to get over your fears because even if home prices don’t rise – and they will – your cost to borrow money is increasing.”

Many experts agree that buyers should examine the cost of purchasing a home more than the price of the home. The mortgage rate to finance a purchase can have a dramatic impact on the overall cost, and recently more people are talking about the possibility that mortgage rates could begin to increase.

The table below shows that even if the price of a home softens, the cost of a home could increase:

According to Dean Rouso, Baird & Warner’s director of sales development, potential buyers should look at their payment or monthly cost of occupancy.

“The advantages to owning a home have jumped dramatically, and now is the time to act,” said Rouso. “Not only is the price right, but now clients can start thinking about how property ownership can vastly increase your net worth.”

In the past 12 years, the net worth of the typical homeowner has ranged between 31 and 46 times that of the net worth of the typical renter. According to the National Association of REALTORS®, despite declines in equity and housing markets, homeowners have a net worth greater than renters.

“After 157 years in the game, we’re not losing any steam,” said Steve Baird, president and chief executive officer of Baird & Warner. “I’m constantly amazed by our hardworking team and the continuous flood of new and groundbreaking ideas we put into place every day.”

While there were literally dozens of new advances in our business, here are a few of the highlights from the past year:

2012 Brand Leadership Campaign
Unveiled earlier this month, the 2012 Brand Leadership Campaign is a refreshingly unconventional effort that addresses a challenging residential sales market head-on, and encourages consumers to open up their imaginations and see the possibilities of how homeownership can be the catalyst to a more fulfilling life. To maximize the impact of the new campaign in time for the all-important spring market, we utilized both traditional and nontraditional media throughout northeastern Illinois.

Growing the Team
This past year has seen two important and extremely beneficial acquisitions that have furthered our presence in the western suburbs. In 2011, F.C. Pilgrim & Co. sold its family-owned, Oak Park-based practice to Baird & Warner, and in 2012 we acquired Prime Property Partners in La Grange. Both companies are highly reputable and bring a wealth of talent and knowledge to our company.

Gathering the best talent in Chicagoland has always been a company priority, and our reputation, innovative tools and continued success has attracted many new team members. We’ve had many fantastic additions across our footprint, including a group of 19 former Re/Max associates who went to our Orland Park office. So far this year, more than 70 sales associates have chosen to join our company.

B&W Texting Solution
Since rolling out our Texting Solution at the beginning of 2011, sales associates have received over 30,000 property inquiries. Sales associates are working with hundreds of clients obtained via this program, and many have reported that the B&W Texting Solution was a key factor named by their clients as to why they listed their home with B&W.

Internet Activity Snapshot
This beneficial time saver compiles consumer Internet activity for active listings that appear on our website as well as other top real estate sites, and presents it in an easy-to-read, one-page seller document.

BairdWarner.com 7.0
What began with a complete redesign now includes robust sales associate websites, individual property websites and comprehensive tools that enable the most advanced property and lifestyle searches available. In addition to the positive feedback from our sales associates and clients, BairdWarner.com has received the Leading Real Estate Companies of the World’s Website Quality Certification (WQC) for the third year in a row.

New and Renovated Offices
Our own real estate has changed this year as three of our existing offices have moved spaces – City North, Winnetka and Oak Park. We have also expanded to LaGrange with the former Prime Property Partners office and opened a Far Northwest Suburban satellite office in Carpentersville. In addition, we continue to make upgrades across the board. Highland Park, Schaumburg and Orland Park have been renovated, and the Gold Coast office is next on the list.

We also continue to further develop our mobile solutions and business tools, and the B&W Studios team, our in-house video center, has just scratched the surface of their creativity. There are many more innovative projects underway that will elevate both the sales associate and client experience, making Baird & Warner the clear choice in real estate.

So, here’s to another 157 years.