In your quest to find your dream home in Silicon Valley, you inevitably heard Bay Area Realtors talk about Short Sales, Foreclosures and Real Estate Owned (aka REO or bank-owned) properties.
If you are asking yourself the question - What is a Foreclosure? - or if you are interested to invest in a short sale, a foreclosed home in Silicon Valley or in the San Jose metro area, here are a few helpful tips from a short sales and foreclosure specialist before you jump.
1. Beware The Asking Price
You have probably read about well below market value prices of foreclosures, REO homes and short sales. You should be aware that, based on the condition of the home, most distressed properties properties will sell at a price only slightly under and in many instances at current market value.
In many instances, the asking price for a short sale home is often the minimum price that will be accepted for the sellers.
You should also know that given the fact that Silicon Valley is a seller's market, home bidders will submit multiple offers that will push the price well above the asking price to secure the deal (read below).
Finally, do not forget that foreclosures, short sales and REO homes, even in Silicon Valley, are almost always in need of repairs as former owners, faced with financial issues, were not in a position to maintain the property as well as they should have.
2. The Foreclosure Process Explained
The terms short sale, pre-foreclosures, foreclosures and REO homes (Real Estate Owned homes) are actually used to qualify the same property at different stages of the foreclosure process.
The pre-foreclosure process starts when a lender files a notice of default of payment (aka NOD) against the owner(s) of a property. By doing so, the lender exercises the right to be reimbursed for the amount owed or to become the owner of the property.
At this stage, homeowners still have 85 days to pay off the money they owe to their lender(s). However, if home owners already know that they will not be able to reinstate their mortgage payments, they will usually attempt to "short sell" their property.
With the help of a short sales specialist, a negotiation is initiated between the home owners and their lender(s). The role of the Realtor is crucial as he/she is the one who will negotiate with all lender(s) to make them approve the sale of the property for less than what was initially borrowed.
This negotiation process will hopefully culminate in the short sale of the home, named as such because homeowners are “short” to repay their lender(s). If the property in short sale does not sell, the actual foreclosure process will begin.
During the next stage of the foreclosure process, the lender will attempt to sell the property to the highest bidder in a public auction. If the home does not sell during the auction, the lender will repossess the property, which marks the third stage of the foreclosure process.
At the beginning of the third (and last) stage of foreclosure, the lender is now the sole owner of the distressed property. The home is then referred to as a Real Estate Owned (aka REO) property. Lenders will then engage with Realtors to sell the property, most often "as is".
3. Can Your Lenders Still Come After You?
Since January 1, 2011 unless otherwise exempt, no deficiency judgment shall be rendered by the first trust deed lender of one-to-four residential units if the borrower sells for less than the amount owed (short sale) with the lender’s written consent.
A first trust deed lender’s written consent shall obligate the lender to accept the sale proceeds as full payment and to fully discharge the remaining debt on the first trust deed.
Since July 12, 2011, the same rule now applies to secondary lien holders. For more information on this particular matter, please read my blog about Deficiency Relief for Short Sales Sellers in California.
Since January 1, 2013, under certain conditions, homeowners
who default on their refinance loans are protected against personal liability
for any deficiency following foreclosure. This new law only applies to
refinance operations executed on or after January 1, 2013.
You should also know that, until December 31, 2013, the Mortgage Forgiveness Debt Relief Act will exempt the
taxation of mortgage debt that is forgiven when homeowners and their mortgage
lenders agreed on a short sale or a loan modification.
Effective January 1, 2014, the Senate Bill SB 426 will
prohibit lenders from claiming that a deficiency is owed or collecting
on a deficiency against the owners of a foreclosed home. The new law
applies to loans foreclosed upon by a trustee’s sale, as well as loans
secured by purchase-money, owner-occupied, one-to-four residential unit
properties (including refinances with no cash out).
a reminder, in 2011 the Senate Bill SB 458 stated that any lender that
agrees to a short sale must accept the agreed upon short sale payment as
full payment of the outstanding balance of its loans and cannot require the short seller to provide funds in addition to the sale proceeds.
Once the lender has approved the short sale and the sale is concluded, the lender may no longer pursue the debtor
or the debt. Until now, some debt collectors were still
attempting to collect deficiencies. With the enforcement of Senate Bill 426, they will not be able to do so.
Nevertheless, keep in mind that a
lender can pursue a deficiency against a guarantor or other surety
(such as a mortgage insurer), or pursue other security for a cross-collateralized loan.
4.Can The IRS Still Come After You?
The IRS has acknowledged in the past that the debt
written off in a short sale does not constitute a recourse debt under
This clarification from the IRS should protect sellers who
are short selling their home from any personal liability upon
expiration of the Federal Mortgage Forgiveness Debt Relief Act of 2007
on Dec. 31, 2013 which used to protect homeowners who were short selling
their principal residence against federal debt relief income tax.
For the record, The Consolidated Appropriations Act (CAA) extends the exclusion of cancelled qualified mortgage debt from income for tax years 2021 through 2025. However, the maximum amount of excluded forgiven debt is limited to $750,000
Lenders or creditors are required to issue Form 1099-C, Cancellation of Debt, if they cancel a debt owed to them of $600 or more. Generally, an individual taxpayer must include all canceled amounts (even if less than $600) on the "Other Income" line of Form 1040.
However, under certain circumstances, a taxpayer may not have to include canceled debt in income.
Always bear in mind that the tax consequences of a short sale are
complex. Therefore, I encourage sellers who are considering short
selling their home to seek the advice of a CPA.
5. Foreclosures, Short Sales, REO listings in Silicon Valley
New REO and short sales listings are made available every month on the San Jose Real Estate Market and across all neighborhoods of Silicon Valley.
Feel free to contact me to get the list of the latest short sales and REO listings available for sale in any area you might be interested in, such as but not limited to: San Jose, Campbell, Milpitas, Gilroy, Morgan Hill, San Martin, Santa Clara, Cupertino, Sunnyvale, Saratoga, Palo Alto, Mountain View, Los Altos, Los Gatos etc.
If you are looking for assistance with your short sale or if you are interested to know more about how to invest in a foreclosure, a short sale or a bank-owned (REO) property in San Jose area of in Silicon Valley, please fill in the form below to receive free information and helpful tips from a certified local San Jose Foreclosure Expert and Short Sales Specialist.
6. Helpful Links For Foreclosure Help
You will find below contact details and helpful links to federal, state and non-profit agencies that can help you deal and avoid if possible the foreclosure of your home.
FORECLOSURE HELP OF SANTA CLARA COUNTY
If you are a home owner at risk of losing your home in Silicon Valley, your first step would be to contact the Foreclosure Help Services of Santa Clara County by mail (email@example.com) or by phone (408-293-6000) for foreclosure assistance at no cost.
The Federal Trade Commission provides expert advice on foreclosure. You can:
This is the official federal government website for loan modifications and foreclosure alternatives.
Here are some helpful pages on foreclosure and short sales:
You will find a lof of information and resources on how to avoid foreclosure in your State on this government-sponsored website. Check the page about Avoiding Foreclosure
Understand your credit score.
Helpful pages of this website include:
A non-profit organization that works to stop predatory lending practices, which is recognized as one of the key reasons behind the foreclosure wave that engulfed millions of homeowners in the US.
NATIONAL COMMUNITY REINVESTMENT COALITION (NCRC)
A national coalition of more than 800 non-profit organizations that seek to increase the flow of private capital into under-served communities. NCRC’s Consumer Rescue Fund works with victims of predatory lending to provide mediation, refinancing and renegotiation of the mortgages. Refinancing services are currently available in California.
NATIONAL ASSOCIATION OF CONSUMER ADVOCATES
The National Association of Consumer Advocates (NACA) is a nationwide organization of more than 1,000 attorneys who represent and have represented hundreds of thousands of home owners victimized by abusive predatory business practices. Legal representation is provided by lawyers and private practice attorneys either free or charge or at low-cost.
BAY AREA LEGAL AID
Bay Area Legal Aid provides free legal help for low income people in various counties of the Bay Area. For Santa Clara County, call 408-850-7066.
HOUSING AND ECONOMIC RIGHTS ADVOCATES (HERA)
HERA is a California statewide, not-for-profit legal service and advocacy organization. HERA's mission is to ensure that all people are protected from discrimination and economic abuses, especially in the area of predatory and unfair mortgage practices.
If you are interested in the latest active foreclosures and short sales homes for sale in your neighborhood in Silicon Valley, you might be interested in this widget below from one of the top foreclosure sites.
Just select California (State), Santa Clara (County) and San Jose (City) to view the latest short sales and foreclosures listings in San Jose, CA.