News of this activity seemed to cast doubt on a housing recovery, and gives hope to buyers  who have been watching the market for great deals that have seemed to evaporate in the last 12 months. One article even said it was the 2012 tidal wave of foreclosures.  The trap that many fall into is not understanding the underlying cause as why this is happening in these specific states.   Some states have been impacted harder than others; Florida, California, Arizona, Georgia, and Nevada, to name a few.  However, the increase in foreclosure activity in this case can be better traced to the foreclosure process employed by a state.  The above graph shows the pending foreclosures for Maricopa county.  No tsunami or tidal wave on the horizon for Arizona.  Read on to find out why.

Judicial or Non-Judicial Foreclosure- What is Arizona?

26 states employ a judicial foreclosure which is processed through the courts where the lender files a complaint and records a notice of Lis Pendens.  This is more prevalent in the east and mid-west in states such as Florida, Illinois, Wisconsin, Delaware, and Pennsylvania. The homeowner may appear before the judge and dispute any material facts.

The remaining states use a non-judicial foreclosure process.   Arizona is such a state.  This gives the lenders the ability to sell the property without court involvement.  The process is much simpler and quicker.   After missed payments the lender will issue a Notice of Trustee Sale, typically 90 days after the first missed payment.  The Notice of Trustee Sale will set a sale date usually 90 days from the notice date.

What was really said about the “tidal wave of foreclosures”?

Brandon Moore of Realty Trac also said, “The foreclosure and mortgage settlement filed in court earlier this week will help pave the way to a properly functioning foreclosure process by providing a clear roadmap for necessary foreclosures,” Moore continued. “That should result in more states posting annual increases in the coming months. Not surprisingly, many of the biggest annual increases in February were in states with the more bureaucratic judicial
foreclosure process, which resulted in a larger backlog of foreclosures built up over the last 18 months in those states.”

Activity in the 26 states with a judicial foreclosure process rose 24% in February, compared with February 2011, while activity in 24 states with a non-judicial process decreased 23%.  Bottom line: The non-judicial states are processing the foreclosures quicker compared to their judicial counterparts.  As the housing market bottoms out in many states, the blanket one size fits all comments about real estate can be very misleading.  Just ask any buyer trying to purchase a house in the east valley who has submitted an offer only to find out that it went for above list price and there were 5 competing buyers.

Lender-owned foreclosures in Gilbert and Chandler

The graph to the left shows the active listings for Chandler foreclosures.  It is clearly evident that the number of foreclosures is in significant decline as fewer homeowners are receiving a notice of trustee sale.  Even if it levels out, I don’t see evidence of a tidal wave of foreclosures.

If you are interested in receiving lender-owned foreclosures in any Phoenix area city,   click on receive up to date foreclosure properties.

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Where’s the real estate market going in 2012?

Short Sale posts

Who really loses on a foreclosure?

Bank-owned Waterfront Foreclosures

For 6 years the Phoenix market has been a declining market with some property values declining by more than 50 – 60% from their peak.  At last, many of the fundamentals strongly indicate that home prices bottomed out in 2011, and 2012 will reward homeowners with long awaited appreciation, a word that hasn’t been spoken since 2005. The graph to the right shows sales price/square foot for homes sold in Gilbert.  Instead of the typical year end slump, 2011 finished with a positive upward trend that has continued in 2012.  In fact, the average price per square foot for Gilbert homes for 2012 is higher than in 2011.  The following fundamentals show that 2012 will be a transition year with significant changes compared to previous years.

What’s changed?  Answer: Available Properties for Sale

Its surprising that it took this long in light of the fact the available properties for sale have been reduced by more than half in the last year. While the graph to the left is for Gilbert, this same trend exists for most all of the Phoenix area cities.  Total available properties for sale in Gilbert went from 2,200 to 800 in a 12 month span.  A reduction of almost 64%!  Foreclosures represented by the red area were reduced by over 75%. The blue shaded area represents short sales while the greener bottom area are traditional sales.  Chandler foreclosures have reduced by 76%, Scottsdale -65%, Mesa - 78%, and Goodyear foreclosure have seen a  80% reduction in a year’s time.

What happened to all the foreclosures?

The source of lender-owned foreclosures is the trustee auction where a portion of the properties revert bank to the lender.  Prior to the trustee auction properties receive a notice of trustee sale typically 90 days before the sale.  Within the 90 day period the properties are sold as short sales, receive a loan modification, the owners become current on the delinquency, are sold to third parties, or they go back to the lender.  The number of pending foreclosures that have received a notice of trustee sale is a good indicator of the level of distressed properties.  We can see from the graph for Maricopa county to the right that the number of distressed properties indicated by a pending foreclosure notice has decreased significantly.  They will soon be at the lowest point in the last 4 years.  Simply put, fewer distressed properties lead to fewer short sales and foreclosures.

Balancing Supply and Demand

The true pictures becomes apparent by comparing supply and demand.  The graph to the left shows the months supply for Chandler which behaves very similar to Gilbert and the trend shown here is very typical of nearly all valley cities.  Demand is currently out of balance compared to the existing supply of inventory.   With prices at levels almost a decade ago coupled with low interest rates and reduced inventory, the low months supply is a natural result further demonstrating that the long awaited term “appreciation” will become more frequent in real estate discussions. Currently, the months supply for Phoenix area real estate is the lowest in 6 years!

One thing is certain.  2012 will be a year unlike prior years, and be the transition from a period of declining values to the beginning of appreciating home prices.

Related Posts:

Phoenix Shadow Inventory Levels

 In search of happily ever after with a Phoenix short sale

Congratulations Miami, the 2011 NBA champions! – NOT.  Here it is in print from a Florida newspaper.  I guess they never got the memo or checked the score board.  Just because it gets printed or makes its way onto the internet, does that make it true?  That’s the same way I feel about Phoenix area shadow inventory.  Some of the confusion lies in the definition of shadow inventory.  Obviously,  shadow inventory includes properties that have gone back to the lender but are not on the market.  Some also consider homes that have received a Notice of Trustee Sale with a scheduled auction date.  Some add to those numbers loans that are seriously delinquent which is 90+ days behind.  As you can see, the definition will affect the level of shadow inventory cited by the various experts. There’s also the issue that real estate is local and national commentaries cannot be relevant to individual markets?  Many have stated that shadow inventory is out of control and will contribute to a foreclosure Tsunami.  Now let’s get the facts for the Phoenix area.

Fuel for the foreclosure fire – pending foreclosures and Phoenix shadow inventory levels

Understanding shadow inventory levels is important because it is a leading indicator of the number of homes that will eventually become foreclosure or lender owned properties which sell at discounts and keep home values from rising.   When a  lender deems that a home owner falls sufficiently delinquent, a notice of trustee sale is issued advising the homeowner that the property will be sold at a trustee sale auction in 90 days.  The graph to the right shows the number of outstanding notice of trustee sale notices with a future auction date for Maricopa county since 2007.  A lower number is indicates that fewer properties will go to auction and become lender owned foreclosures.   A historical perspective helps identify trends and understand the future supply of lender owned foreclosures.   The 2011 trend line is represented by the pink line and shows a favorable trend downwards.

Components of Phoenix Shadow Inventory

The definition of shadow inventory is will vary and depends on which components are included.   I like the definition used by The Cromford Report shown by the graph to the left.  The bottom red portion are active foreclosure or REO listings being marketed in the MLS.  At the beginning of November 2010, the active lender owned foreclosures were in excess of 6,000.   Nine months later at the beginning of August 2011, the number has been cut by more than half, to approx. 2,800 properties.    The next component, the Unlisted REO’s, (in blue) are those that have reverted to the bank at auction and are in the process of being prepared to go on the market.  Interestingly, this component remains fairly constant between 7,000 – 8,000 properties.  The fact that Arizona is a non-judicial foreclosure state helps keep this level lowered than if Arizona was judicial foreclosure state.   The purple portion represents pending foreclosure or properties with a notice of trustee sale.  This component has decreased from 35,000 to 21,000, or 40%.   These properties may be sold as short sales, achieve a loan modification,  purchased at auction or eventually revert back to the beneficiary or lender.   A diminishing level of pending foreclosures will result in fewer foreclosured /lender-owned/REO  properties later on.  The Pending Foreclosures graph above shows a very positive trend for this category since its peak at the end of 2009.

The other component that would be interesting is the number of homes that have stopped paying their mortgage but have not received a notice of trustee sale.

Now you have it, the break down of shadow inventory, what it is and the current trends.  If you are waiting for the next wave of foreclosures, it may be a very long time unless there are some fundamental changes.  And remember just because you see it something in print doesn’t mean it is necessarily so.  Get the real data and understand the trends.

If you would like more information on any homes for sale feel free to call or e-mail or  receive updated listings for your favorite community.

Waterfront Bank -Owned Homes

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Who really loses on a foreclosure?

Keys to a successful Gilbert or Chandler short sale listing

If you are experiencing a financial hardship, click to receive short sale information.

Short sales continue to be a significant portion of real estate sales in the Phoenix Az valley.  And they affect each city to varying degrees.  For example, short sales in Sun Lakes were  12% of the total sales in June 2011, while in El Mirage they accounted for 41% of the sales.  Other cities were somewhere  in the middle; Gilbert – 35%, Chandler – 35%, and Scottsdale – 23%.  During the month of June 2011, there were 91 waterfront properties that were sold as a short sale transaction.  Short sales provide a method for homeowners experiencing a financial  hardship to sell their home. And lenders see short sales as a way to prevent costly foreclosures. Freddie Mac CEO, Ed Haladman, summed it best when he said, “Freddie Mac is doing everything it can to prevent more foreclosures, and short sales are becoming an ever-popular tool in situations where foreclosure is imminent and modifications have failed.”   Properly  negotiated short sales also offer homeowners a way to sell their homes without a deficiency judgement and in many cases the opportunity to purchase a home within 2 – 3 years. The above chart provided by The Cromford Report shows the percentage of 2011 June sales with the blue bars.

Important Steps to a successful Arizona short sale

To be successful in completing a short sale, homeowners must be aware of the following:

1.) Investigate the available options. Just ask around and you’ll receive countless suggestions, recommendations and opinions.  Is a modification a good place to start?  That’s been a hot topic lately.  Just walk away?  A lot of questions to have answered.  A good place to start is the Arizona Foreclosure Information Workbook.  It is critical that a homeowner know the options so that when they decide to move forward with a short sale they’re committed to the process.

2.)  Understand the underlying loans on the home. A critical factor in the ability of a lender to pursue a deficiency judgement will depend on the type of loan.
Purchase money loans are those used exclusively for the purchase of the home.  HELOC loans are not.   In a foreclosure, no deficiency judgment can be allowed against the borrower with a purchase money loan on a qualified property.  Lenders understand this and are more willing to offer favorable terms for a short sale when the property is secured by a purchase money loan.  Consulting a competent real estate attorney that has experience with short sales can be beneficial.

3.) Are there tax consequences to a short sale? Most of the discussion regarding tax consequences of an Arizona short sale and the accompanying tax consequence involves The Mortgage Forgiveness Debt Relief Act of 2007.  This provision applies to debt forgiven during the calendar years of 2007 through 2012.  Some restrictions apply such as the property must be the principal residence.  Consult a qualified tax advisor.

4.) Understand the short sale process.  First of all don’t wait until a trustee sale auction date has been set.  Once that happens you are less than 90 days before foreclosure.  And while you may quickly find a buyer, it is not uncommon to lose a buyer during the negotiation processs.  The last thing you want is to lose a buyer 2 weeks before the foreclosure date.  It may be the 2nd or 3rd contract that finally goes through.  Don’t bet everything on a single buyer.

One of the most overlooked aspects is the marketing.  Short sales must be marketed and presented better than a traditional sale because they are a higher risk transaction. Therefore, buyers must see something that makes them willing to wait.   Owners must make the house pristine for the listing pictures.  This is the new “first impression”.  Few and poorly  taken pictures result in fewer showings! Visual tours, panoramic pictures and extensive internet marketing is critical.  When prospective buyers visit the home, its “showtime”.  The house must show as well as any home on the market.

5.) Be prepared for an offer.  Once an offer is received and mutually agreed upon, the short sale package must be delivered to the servicer and lienholders.  This will include a hardship letter,  tax returns, bank statements,  pay stubs and other forms.   Don’t wait for a completed offer before beginning to organize this information.  And make sure you consult your Realtor regarding programs including HAFA which offer relocation incentives, up to $3,000 depending on the lienholder.

6.) Be Patient.   Because the lienholder(s) must approve the sale, the approval process will take longer than a traditional or lender owned sale.  While it seems that lenders are making improvements in the process, everyone involved must be patient.  As mentioned previously, it may take numerous showings and 2 – 3 contracts before the sale  is completed.

For more detailed information regarding the short sale process, feel free to call me at 480-326-8571.  Or fill out the attached form to receive a complimentary short sale advisory and other information.  I will also be glad to share my marketing plan to provide high quality exposure to all potential buyers.

Contract acceptance is the honeymoon… everyone anticipates a happy ending, then real life sets in. As in real life not all marriages survive, neither do all accepted short sale offers!   Its like dating a beauty queen or the all-star quarterback. It’s love at first sight and WOW that list price is amazing.  It may be the nicest Scottsdale, Chandler or Gilbert waterfront property you’ve seen.  But with time you find out that this short sale process uncovers some severe flaws that were unforeseen.  Here’s real life situations where “flaws” have surfaced and that promising short sale deal falls apart before happily ever after comes!

Short Sale Personality Flaws in Phoenix Real Estate

• HOA dues have not been paid and the association is not budging.  One of the first questions I ask of a homeowner considering a short sale is how far behind are they on their association dues. HOA’s know they can make or break the deal. At worst case, it may have been years since HOA dues have been paid and a judgement has been filed.
• There is more than one loan and worse yet,  the second is not purchase money. One loan with a single lender improves the odds of success versus two loans with two lenders.  It is extremely important to understand the types of loans associated with the property.  Are they purchase money loans or is one a home equity loan.
• You believed the list price.  It looked too good to be true, but you thought that the lender would accept the price since it is in fact the list price, right there in black and white.  And now the buyer’s type-A personality requires that the offer is 20% below the list price because there are some cosmetic issues with the home.  Buyers must understand that the short sale process will involve a BPO or appraisal to accesss the fair market value and compare it to the offer price.  Buyers and their Realtor should review comparable sales to understand the fair market and formulate the offer based on that information.  Don’t take the list price as what the lender will accept, unless it says it is pre-approved at that price. Buyers can offer whatever they want, but understand the process whereby the lender will evaluate any offer.
• That older home that has a lot of  personality, charm and character also has a lot of issues. With older homes you need to see evidence of on-going upkeep.  The issue is that if the sellers have been battling a financial hardship, the maintenance of the house probably suffered.  Evidence of these problems will come up during the inspection, after the approval has been received for which you waited 3 months! The picture to the right is a can in the attic that is strategically located below the leak in the roof to catch the water during the rain storm.   Since short sales are sold in “as-is” condition, the buyer(s) have just seen the cost of the house increase if they choose to move forward.
• The seller decides to “let the house go”.  The seller feels relieved that the house is now under contract and the approval should come shortly, so why keep the utilities on?  Or keep the pool maintained? Surely, the buyer will understand that’s hardship.   This may seem short sighted, but when the owners have relocated and the house is out of sight and out of mind, those utility bills become a nusance.   Lines  166 – 171 state that the seller warrants and shall maintain the premises so that they will be in substantially the same condition as on the date of Contract acceptance.  For an escrow process that extends month upon month, this can be a challenge.
• The servicer,  investor, or mortgage insurance company requires a seller contribution from the seller that they cannot or are unwilling to pay.  This is extremely frustrating since you’re almost at the finish line and you’ve waited months to find out they’re asking the seller to contribute and the seller may throw in the towel.   The buyer may even be asked to contribute to make up some of the difference.  Arizona revised statutes protect a homeowner against deficiency judgements in the event of foreclosure, so why should the seller pay the lender, servicer or mortgage insurance company when it is more cost effective to walk away?   The painful part is that this drama will unfold at the end of the negotiation process with the lienholders.
• The seller does not disclose that there may be additional liens or judgements on the property.  Make sure the title commitment report is reviewed as soon as possible.  The listing agent should have the escrow/title company produce this shortly after the listing is taken and not wait for an offer, or worse yet the short sale approval.

Does all of this mean that you should never look at or consider a short sale?  No, but make sure you understand possible problems and are prepared for these “flaws” in the process.  There are actions that can be taken to reduce the risk in a short sale transaction, but some will be outside both the buyer’s and seller’s control. 

All of these issues must be addressed and thought through by a seller as they consider a short sale.  If you are considering a short sale and would like more information, schedule a free consultation or call me directly.

It is very common to associate a foreclosure with a bank, and this idea is reinforced when we see advertisements for “bank owned” properties.  Mistakenly, we also believe banks are taking the biggest financial hit when a house is sold as a foreclosure.  However, the fact is that in many cases a foreclosure is not owned by a bank.  If not the bank, then who owns these distressed properties and takes the financial  loss?

Understanding Fannie Mae and Freddie Mac

Fannie Mae (Federal National Mortgage Association) was created in 1938 during the Great Depression by Franklin D. Roosevelt, set up as a government-sponsored enterprise(GSE), and later converted into a publicly traded company in 1968.  Freddie Mac (Federal Home Loan Mortgage Corp.)  was founded in 1970 so Fannie Mae wouldn’t have a monopoly on government-backed mortgages. Their collective purpose is to buy mortgages from savings and loans, banks and lenders to provide cash for more mortgages.  The mortgages purchased by Fannie Mae and Freddie Mac are packaged into mortgage back securities(MBS) through a process called securitization. This process transforms realtively illiquid loans into highly liquid securities.  Therefore, the bank or lender who originates your loan or that services the loan by collecting monthly payment is probably not the entity that owns the note.

While relatively unknown to the general public, the significance of Fannie Mae and Freddie Mac to the mortgage market cannot be underestimated.  Combined they hold approximately $5 trillion of  mortgages, about half of the nation’s home loans. Losses to Fannie Mae and Freddie Mac are expected to approach $400 billion before the foreclosure crisis ends.  The graph to the right from The Cromford Report shows the percentage of distressed sales by city, many of which were owned by Fannie Mae and Freddie Mac.

Who really pays for foreclosures?

On September 7, 2008,  Fannie Mae and Freddie Mac were placed into conservatorship.  The federal government now explicitly guarantees debt issued by Fannie Mae and Freddie Mac.

In a Jan. 2011 article from the Arizona Republic, Anthony Sanders, a former professor of real estate and finance at ASU stated, “Fannie and Freddie losses are passed onto the taxpayers.”

If you want to know if your loan is owned by Fannie Mae or Freddie Mac, click here.  I found out that my loan is owned by Freddie Mac, not the company I mail a check to every month.

The next time you are driving around and see a  HomePath or HomeSteps foreclosure rider on a Phoenix real estate sign, you can be assured that it is a Fannie Mae or Freddie Mac foreclosure, not a bank owned property. Additionally, it is not any bank that is taking the loss but the US government,  and ultimately you and I.

Related Posts:

2012 Real Estate Market Trend

Distressed Property Posts

In search of happily ever after with a Phoenix short sale offer

 Phoenix Waterfront Foreclosures for Sale in Gilbert and Chandler

Additional information about short sales and bank owned property can be found at Phoenix Waterfront Distressed Property

In any given month, distressed sales (foreclosures,short sales, or trustee sales) account for over 50%  of the total sales in most all of the Phoenix valley cities.   Ski lake properties have been somewhat insulated from this type of transaction,  but during 2010 distressed sales have increased in these unique waterfront communities.  Three of the Phoenix ski communities had no recorded sales of any kind in 2010.  All sales during the year ocurred in Gilbert ski lake communities; Crystal Point, Santan Lakeside and Playa del Rey Estates.  33% of those were distressed sales.

 Gilbert Waterski communities and 2010 sales

Crystal Point had three sales; one of which was a distressed sale.   A 18,000 sq.ft. waterfront lot sold at mid-year sold for $400,000.   A traditional equity sale of a 4,400 sq.ft. home ocurred in October 2010 for $1,050,000.   In the 4th Qtr., a 3,950 sq.ft. home was purchased at the trustee sale for $752,000.   There are currently two short sales and one traditional property for sale in Crystal Point.

Crystal Point Estates Homes for Sale

Just around the corner from Crystal Point is Playa del Rey Estates.  The main ski lake saw two sales during 2010.  One was a traditional equity sale of a 2,800 sq.ft. waterfront home for $418,000, while the other sale was a bank-owned foreclosure for $582,000 of a 4,500 sq.ft. waterfront home on the main lake.

Playa del Rey Waterfront Homes for sale

Santan Lakeside Estates located in south Gilbert registered 4 property transfers in 2010. The sales prices were $312,500, $277,500, $287,000, and $230,000, one of which was a bank owned lot.   The bank-owned lot sale closed escrow at the beginning of the year for $312,500.  The subsequent sales were traditional sales with the last one for 2010 in October for $230,000.

Santan Lakeside Estates waterfront lots for sale

For addtional information on available properties , click on receive water ski available properties, or e-mail/call me directly.

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Water Ski Lake Water Quality Levels

Phoenix area water ski community overview

In search of happily ever after with a short sale

Waterfront information can be found at Gilbert Water Ski Property.

Short sales, once almost unknown, have become a significant part of the real estate jargon in Phoenix Az.  Short sales remain one of the most misunderstood real estate transactions inspite of their increasing numbers.  There are many aspects and implications a seller must understand reinforcing the need to seek competent legal and tax advice.  First of all, let’s define an Arizona short sale.  A short sale is when the lender/investor is willing to authorize the sale when the proceeds do not cover the outstanding loan amount. What are the issues to be considered by Phoenix valley homeowners regarding a short sale?

Why would a bank favor an Arizona  short sale vs. a foreclosure?

Would you believe it comes down to money? What a surprise! Short sales are optimally designed for homeowners who can no longer afford their payment and foreclosure is imminent. If the home goes into foreclosure, the lender is responsible for maintenance of the property, HOA dues, taxes, and property damage when the owner left. This is on top of the other administrative fees. Ed Haldeman, CEO of Freddie Mac, cited studies that  banks lose more than $50,000 per foreclosed home or as much as 30-to-60% of the outstanding mortgage.  A Phoenix Short Sale provides the opportunitiy to minimize the loss on a home that is on its way to foreclosure.

What are the legal issues associated with a short sale?

As soon as  you begin to research short sales in Arizona, you’ll very quickly stumble upon subjects such as Arizona anti-deficiency statutes and purchase money, both of which are critically important.  This is one area where it is highly recommended that a homeowner consult a real estate attorney. Before we can tackle anti-deficiency, we have to understand purchase money.  A purchase money mortgage would be a loan used exclusively to purchase the property.  A home equity line of credit or loan is NOT considered to be purchase money.  And there could be gray areas when it comes to refinancing of the original purchase money loan.

When a homeowner pursues a short sale with loans that are exclusively purchase money , the negotiation is easier and banks are more agreeable to the short sale. Why? Because they know that the owner is legally protected from recourse if it goes to foreclosure assuming it is a “qualified property” under anti-deficiency statutes.  When the loan is not purchase money, for example with a HELOC (Home Equity Line of Credit),  it is common for the lender to require a settlement prior to releasing the lien on the property.  Non-purchase money lien holders can and will continue to pursue the homeowner AFTER a foreclosure.

Now the fun stuff that you’ll see talked about in every Arizona short sale discussion, anti-deficiency statutes. A.R.S. §33-729(A) and A.R.S. §33-814(G) to be exact.  These statutes prohibit lenders from attempting to collect deficiency judgements from the homeowner on certain residential loans in the case of a foreclosure.  A qualifying property is two and a half acres or less, and being  utilized as a single one-family or single two-family dwelling.  Properties that do not fit these criteria; for example, raw land, commercial property, and residential property with more than 2 units are not protected.   Suprising to some, homes purchased as rentals are covered by Arizona anti-deficiency statutes.

Therefore, the legal exposure of a property requires consideration of the type of loan; purchase money vs. non-purchase money, and meeting the Arizona anti-deficiency statutory definition of a “qualified property”.  As mentioned previously, seeking legal advice from a real estate attorney is recommended. This is the reason it is hard to listen to the 6 o’clock news and understand the complexities of an Arizona short sale.

Are there tax consequences to an Arizona Short Sale?

The discussion regarding tax consequences of an Arizona short sale involves The Mortgage Forgiveness Debt Relief Act of 2007. This provision applies to debt forgiven during the calendar years of 2007 through 2012.   The most common circumstances where forgiven debt is not taxable involve:

• Debt forgiven involving a principal residence.
• Non-recourse loan: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.
• If you are insolvent when your debt is cancelled.

Forgiven debt through either a short sale or foreclosure on a principal residence can be excluded if the balance of the loan was $2 million or less.  Tax consequences of any Arizona short sale must be verified with an experienced tax advisor.  The tax consequences of a property that is not a principal residence such as a rental become more problematic.

” and no deficiency judgement will be instituted.”

After weeks if not months of waiting, the long anticipated short sale approval letter will arrive. The bank approval letter will explain the terms of the short sale in the approval letter.   The desired outcome is that the letter contains verbage releasing the homeowner from any future liability be included in the approval letter such as “no deficiency judgement will be instituted”.   Some attorneys will debate whether this is implied or not according to Arizona law for qualified purchase money short sales, so the safest approach is to ensure the release of liability is stated in the approval letter.

Benefits of an Arizona short sale

Do short sales have any benefits?   Yes.

• Under Fannie Mae guidelines a borrower can be eligible to purchase another home in two years instead of 5 – 7 years with a foreclosure.
• Prevents blight in the neighborhood because the owners walked away, leaving the house vacant for up to 6 months without any attention or maintenance.
• Minimizes the damage to the seller’s credit due to the manner it is reported to the credit bureaus versus a foreclosure.  Much of the damage comes from the missed payments prior to the  short sale or foreclosure.   A short sale may be reported “Settled in full for amount less than owed”, “Paid as negotiated”, or something similar versus a foreclosure which will remain on a credit report for 10 years.
• Provides a way for those with a financial hardship to exit with dignity when a loan modification  will only keep them in a  home with a over-priced loan when compared to the current market value.
• A foreclosure may be viewed as a serious issue for current and future employers.

A short sale is one of the options for struggling homeowners in the Phoenix area including Gilbert, Chandler, Mesa, Tempe, Scottsdale, and Queen Creek.  A good resource to consider is a workbook published by the Arizona Foreclosure Prevention Task Force at www.azforeclosureprevention.org.   To find out if a short sale would be a beneficial option, click on free short sale consultation, Or call me directly at 480-326-8571.

Phoenix area cities have different recovery patterns

The graph to the left shows the the monthly price per square foot of sales for the last 10 years for Gilbert and Chandler.  A good opportunity to see where we are compared to pre-bubble sales activity.   The twin cities of Gibert and Chandler have similar trends for the last 10 years.   Current price per square foot is similar to 1993 levels.  Do other Phoenix area cities have similar patterns?

Comparing Gilbert and Chandler to some west valley cities

Two other west valley cities; Avondale and Goodyear are still at $/sq.ft levels below 2000 levels.  Goodyear showed price appreciation levels similar to Gilbert before the bubble; however, after the peak Goodyear’s prices fell further and have stabilized at a lower level.  Does this mean there is more upside for those cities or is this an indication of the strength or intrinsic value of real estate of each city or town?  Another variable cannot be overlooked is the impact of bank owned and short sales. Especially the newer cities that experienced tremendous growth during the 2003 – 2007 have been more exposed to distressed sales which has caused greater downward pressurre on prices after the peak.  The chart to the left shows percentage of distressed sales; bank owned and short sales, for the month on January 2010.  Active adult / retirement communities such as Sun Lakes, Sun City West and Sun City have experienced fewer distressed sales and at the same time have faired better in the price recovery after the peak.  Of the four cities we compared at the beginning of this post, both Gilbert and Chandler do have lower distressed sales percentages than Avondale and Goodyear, at least for January 2010.

For more information regarding price trends of Phoenix area cities, please e-mail for additional information. For homeowners experiencing hardship  that need information regarding foreclosure options and short sale information, visit Phoenix short sale information.  To receive new and updated  listings of any city in the Phoenix area automatically, click on receive updated listings.

Phoenix Arizona Short Sales and “upside down” homes.

Short sales in Phoenix, Gilbert, Chandler,Queen Creek,  Scottsdale and all across the valley are taking center stage as they have become the topic of any Az real estate discussion. Many a buyer or seller that has been through a short sale transaction will undoubtedly compare it to high drama movie because of the highs and lows, a soap opera because it never ends  or a nightmare due to  all of the above.  These discussions will continue with home prices at current levels.  According to an article in the Phoenix Business Journal, First American CoreLogic Inc., estimates that 51% of the mortgaged properties in Arizona are “upside down”, also described as having negative equity, because the balance on the mortgage is more than the market value of the home.  This is confirmed by the fact that in most Phoenix area towns and communities, distressed sales account for 50 – 75% of the monthly home sales.  Therefore, many homeowners will need to become well informed of the various aspects of a short sale  when a situation arises and they need to sell.  The following are important points  that must be considered:

 Beware of  mortgage modification and prevention scams

 * Beware of anyone that guarantees a mortgage modification, especially if they request money upfront. Mortgage fraud cases are up over 400 percent in the last five years.

* Fraud schemes where the person represents themselves as a government representative or claims to be affiliated with or endorsed by a government agency.  They might use terminology such as “government approved” or refer to programs such as TARP.

* Never be pressured into signing any documents without consulting with an attorney.  Unscrupulous companies will try and convince you that it will save your home.

For additional information regarding avoiding foreclosure rescue scams, visit the Beware of Scam page of the Making Home Affodable goverment website.

Always consult an attorney and CPA regarding legal and tax consequences

In order to become aware of possible deficiency exposure and tax implications, always consult an attorney and CPA.   While there are federal government provisions that cover mortgage debt forgiveness at a national level, each state has different statutes for deficiency forgiveness or the lack thereof.

Briefly, Arizona has anti-deficiency laws that may protect homeowners in a distressed sale such a short sale.  A homeowner’s exposure will also depend on the use of the money that was borrowed.  The anti-deficiency protection applies to loans that are considered “purchase money”.  Home equity lines of credit that were used for other investments or to buy a boat or car are not considered purchase money.

Tax consequences result from the fact that when the money was received by the borrower, it was not taxable because there was an obligation to repay the loan. When the debt associated with this money is forgiven, this could be a taxable event. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.  The good news is found in the Mortgage Forgiveness Debt Relief Act of 2007  that may allow tax payers to exclude forgiven debt as income.  There are qualifications that must be met.  The property must be a principle residence.  If a person is insolvent when the debt is cancelled, the income is not taxable.  For more detailed information, visit the mortgage forgiveness debt relief act and debt cancellation page of IRS.gov.

The Arizona Association or Realtors and the Department of Real Estate recently released the  Short Sale Seller Advisory which is a tool used to educate sellers about the differenct facets of a short sale.  For additional information and a free consultation  on Gilbert, Chandler, Queen Creek, Scottsdale, and Mesa short sales, contact Gordon Baker directly at 480-326-8571, and feel free to visit PhoenixShortSaleInfo.com for free reports regarding short sales.

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