Archive for December, 2009
The Greatest Secret Of Foreclosure Is Overage
Possibly one of the best kept secrets in the foreclosure industry is “overage”. Overage is the amount of money left over after a foreclosure auction when the buyer has paid more than the lender”s final judgment. This money can be as little as a few dollars or as much as millions of dollars.
Depending on which state the homeowner lives in his foreclosure sale will be conducted by a sheriff a trustee or a county clerk of the court. As prescribed by law the person in charge of the auction will sell the property to the public with “open outcry bidding” until the property is sold or redeemed by the lender. The location is usually on the courthouse steps or similar convenient place that is readily accessible to the public.
Normally the first bid on a property is by the primary lender who bids his final judgment amount as awarded by the county court plus 100. The next bid will come from an interested party to the property such as a junior lien holder or an investor who believes there is equity in the property. These bids will continue until the last bid which wins the property.
Let’s assume the final judgment on a property is 100000 and the bank bids 100100 and some bystanders start bidding until the final bid is 120000. The lender submits his final judgment documents to the county clerk and the winning bidder must bring in cash anywhere from the same day to 30 days later depending on state and county laws. Once the funds are in the courthouse and any redemption period has passed the lender gets his 100000 and the buyer gets a deed to his property. A redemption period is a specific period of time from 1 day to 454 days where the foreclosed homeowner can return with money to get his property back if he pays the buyer his costs plus fees and expenses. In some states there is no redemption period.
The clerk of the court has taken in 120000 plus some transfer fees and paid out 100000 and has a 20000 credit in his bank account. The homeowner is entitled to this “overage” money. The homeowner has to make a claim to the county clerk and the court usually reviews these claims and awards the homeowner his money. This is an ideal world scenario but in the real world the homeowner may not know he has money coming to him and these funds eventually become the county’s money.
Here is what has happened a homeowner is approached by a person one or two days before the foreclosure sale and is offered 100 for a deed to his home. If the homeowner knows he can’t stop his foreclosure sale and redemption is not possible he views the 100 as free money. The buyer pays 100 and proceeds to go to the auction and perhaps even puts in a bid or two to get the price higher. If he won by accident he can renege on the bid and it reverts to the last bidder. Let’s look at the above example where the overage was 20000 which is a very common amount. The “new” homeowner makes claim to the court and his 100 investment becomes 20000.
This practice was and is very common in good real estate markets and where the state hasn’t passed legislation to stop this practice. It is not illegal in many states and even in the ones where it is illegal the states allow some form of “commission” or fee to be paid to a person who brings in the seller to reclaim his overage. At one courthouse I frequent for auctions there is a group of 4 6 individuals gathering the data from the clerk’s sales to use for later sending out letters to sellers to claim their overage. The usual fee is 10 of the total amount and can be very lucrative because the average overage is about 21800.
What does this mean to a homeowner in foreclosure? It means that despite what you may think your home is worth it could be sold at auction for more than is owed to his former lender and he is entitled to whatever money is remaining the overage. So don’t sell what you think is a worthless deed because on average it could be worth over 20000.
Occasionally the lender will get a final judgment against a homeowner by appraisal and not by sale because this is allowed in some states. The homeowner should always challenge this appraisal and have the judgment reduced if the property sells for more than the final judgment amount later. The moral to this story is that even in the worst of foreclosure situations the loss of your home the homeowner still has a chance to make money.
About the writer:nbsp;nbsp;Dave Dinkel is the author of the best selling “32 Ways to Quickly Stop Foreclosure” and has helped thousands of foreclosure victims for nearly 33 years If you are facing foreclosure visitclick here for guaranteedsolutions.
The Fertility Of Real Estate
If there are links between higher fertility and the consumption of high fat dairy foods like ice cream then it should really come as no surprise the natural link between fertility and real estate. The ice cream stat says that women who eat more than one serving daily of a high fat dairy product are less likely to suffer ovulation problems and in effect increase their potential fertility. Who knew ice cream could actually be having a positive effect on America?
But less alarming is the fact that just prior to the subprime mortgage crisis when homes were being purchased at break neck speed the nation’s total fertility rate reached a high point higher than it had been since 1961! Is available housing key to the “baby boom”? And is a healthy real estate economy necessary for the future health of a growing nation?
In 2008 the fertility rate had reached an average of 2.1 the hypothetical level needed to maintain the country’s population. Unlike Europe China Japan and much of the Middle East America’s population was boasting a boom that would help her avoid a future of shrinking work forces a gloomy prospect that naturally leads to low average birth rates and a viscous cycle of low socioeconomic morale.
There has been a long history of social scientist’s observations of the existing links between housing and fertility. In the depression of the 1930′s when homes were scarce and beyond the means of most young couples the result was delayed marriage and fewer children. But most recently with the surplus of wideopen mortgages and so many “creative” loan products families were buying into real estate and many of them buying into bigger houses. Does this explain the surge of babies in these recent years? No one knows for sure but it seems like a viable connection to make.
Many of the recently constructed ARMfinanced Mc Mansions were built out in no man’s land where land was cheap like borscht. These large homes became the standard for “affordable” suburban living. But given the amount of time it takes to get anywhere to work the cost for women to go out into the work force rose dramatically and subsequently more women have remained home to fill those big houses with bigger families. Again this is all speculation in attempt to decipher the sudden rise in fertility rates.
Of course other factors beyond housing availability play into fertility rates and these include race religion and economic status among others. But it seems evident that all signs point towards a strong connection between a booming real estate economy and a booming population.
Foreclosures however are not encouraging people to have children and given today’s economic climate it seems likely that the general population will reduce their needs for everything that costs including children. Hopefully America can quickly rise up out its current real estate downturn and get back toward a boom that’ll boost its future success as a nation.
About the writer: Search for La Veta real estate in Southern Colorado at LaVetaForSale.com. If you’ve ever dreamed of owning commercial property in Southern Colorado this is the place to start looking.
Tax Liabilities On A Foreclosure Short Sale
When homeowners attempt to sell their house for less than the total amount they owe on it certain tax liabilities may be triggered. This is one of the reasons that every foreclosure victim should carefully consider whether selling their house short is the right decision for them and what other options may be available. The danger of getting an income statement on an IRS 1099 form at the end of the year for thousands of dollars may result in a higher tax liability than the homeowners originally anticipated.
Essentially being 1099′d means that the homeowners after the short sale has been used successfully to stop foreclosure will be responsible for paying the taxes on the amount of debt that the bank forgives in order for them to proceed at all with the sale. Taxes would only have to be paid on the amount forgiven not on the contract price final payoff amount or foreclosure judgment.
For example if the foreclosure victims owe 150000 on the mortgage but the bank accepts 100000 as their final payoff in order to facilitate the short sale the difference of 50000 is the amount that is counted as “forgiven debt.” The IRS considers this 50000 as if the bank gave the homeowners a gift for that amount which was immediately used by the owners to pay down their mortgage. Therefore taxes would be due on the amount given by the bank.
The homeowners would be responsible for paying taxes on the 50k at whatever their marginal tax bracket will be that year. There are ways to get around this though such as if the homeowners are insolvent at the time of the sale. This means that when the short sale went through they owed more on the mortgage than the home was worth. To better understand the issues that may affect the tax liability on a short sale it might be worth visiting the IRS website or consulting with a CPA to find out more before closing on the deal.
But the bottom line is that the homeowners facing foreclosure will only get a 1099 if the bank forgives any of the debt owed to them and allows the short sale. It will not be an issue if the house is otherwise disposed of even if it is sold at a county sheriff sale for less than the total amount of the foreclosure judgment.
When the house is auctioned off at the sheriff sale the bank does not forgive any of the debt. They are just using the legal mechanism of foreclosure to force the sale of the house and get back as much as they can. All that the bank has in this case is a loss so there will be no income to the homeowners that can be considered as forgiven debt. The bank would not be able to show that the foreclosure victims received income in this form when the owners did not voluntarily sell the property and the mortgage company did not voluntarily forgive any of the debt. No voluntary agreement to take a lower payoff equals no forgiven debt equals no extra income tax liability.
Since the whole foreclosure process is coercion by the state to sell a property to enforce a contract a sheriff sale would not be an event that triggers extra income to the homeowners. A short sale though can be an extremely effective resolution to stop foreclosure especially in the type of real estate market as exists right now. Many homeowners are underwater with the equity in their homes and they are much more likely now to fall under the insolvency exclusion than they were even a few years ago during the real estate boom.
About the writer: Nick writes for the ForeclosureFish.com website which provides homeowners with information they can use to stop foreclosure on their homes before they run out of time. Visit the site to learn more methods that can be used to save a house from foreclosure including legal information loss mitigation foreclosure loans deed in lieu and more: http://www.foreclosurefish.com/
