Short Sale Vs. Deeds in Lieu

There are options out there for many that are facing foreclosure on their homes. Two of them are very similar and often get confused but they are both helpful methods that can help prevent you from going into foreclosure. Those two options are short sales and deeds in lieu.

Short Sale

A short sale is when the homeowner sells their home to a third party for less than the money owed on the mortgage. The lender agrees to accept the proceeds made in the sale, in exchange for releasing the lien on the property.

Short Sale Process

The lender’s loss mitigation department must approve of the short sale before a transaction can occur. The seller must submit a loss mitigation application to be approved for a short sale and this includes:

A financial statement, in the form of a questionnaire, that provides details regarding monthly expenses and income
Proof of income (if applicable)
Most recent tax returns
Bank statements (two recent statements for all accounts)
A hardship letter

More than likely you will need to provide that there is an offer from a potential purchaser as well on the application. Lender’s usually want there to be an offer before they consider a short sale. An exception to this is with the government’s Home Affordable Foreclosure Alternatives Program (HAFA). This aids the lender in approving of the short sale terms before the home is listed and the lender accepts the short payoff in full satisfaction of the mortgage. HAFA also prevents the lender from coming after the seller with a deficiency judgement.

Deficiency Judgements

The deficiency is the difference between the amount received in the short sale and what is actually owed on the mortgage. Many states prohibit deficiency judgments after foreclosures, but not many do for short sales. Deficiency judgments by state. To avoid a deficiency judgment, the short sale agreement must expressly state that the transaction is in full satisfaction of the debt and that the lender waives its right to the deficiency.

Deeds in Lieu

Deed in lieu is another option to help you avoid foreclosure if you can’t sell your home through a short sale. A deed in lieu of foreclosure is a transaction where the homeowner voluntarily transfers the title to the property lender in exchange for release of mortgage obligation.

Deed in Lieu of Foreclosure Process

Like a short sale, the borrower must request a loss mitigation package from the lender. What you will need to provide the lender with:

A financial statement that provides detailed information about your monthly income and expenses
Proof of Income (if applicable)
Most recent tax returns
Bank statements (two recent for all accounts)
A hardship letter

If you are approved, you will receive two documents from the lender, one is a deed that transfers ownership of the property to the lender and an estoppel affidavit. The estoppels affidavit sets the terms of the agreement. It will include a provision that you are acting freely and voluntarily. It may include provisions about the transaction and if it’s in full satisfaction or if the lender has the right to a deficiency judgement.

Deficiency Judgments

In the case of a deed in lieu of foreclosure, the deficiency is the difference between the fair market value of the property and the total debt. In most cases, a deed in lieu of foreclosure will release borrowers of all liability and obligations under the mortgage, but not always. Most states do not have a law prohibiting a lender from seeking a deficiency judgment. HAFA deeds in lieu are considered full satisfaction of the debt owed. To avoid a deficiency judgment, the agreement must state that the transaction is in full satisfaction of the debt.

Establishing Conformity In MLS

Changes taking place January 1st, 2016 to the RESO Data Dictionary will drastically help change standards in place for MLSs. What the changes will help to accomplish is to go from having over 850 MLSs to one common language to help establish consistency, efficiency, and a uniform language for all of these MLSs. This transition will be immense and will allow for one common way to communicate with any MLS. This will do wonders for any real estate brokerage firm that has to connect to more than one MLS. The RESO Data Dictionary is considered the “Rosetta Stone” of the real estate industry. The WAV Group estimates that there are as many as 2,500 software applications that connect real estate brokers and agents to one or more MSL firms that will need to update to take full advantage of these new benefits. Executive Director of RESO Jeremy Crawford said “all MLSs will speak the same language”. According to Crawford implementation of RESO Data Dictionary will provide brokers and agents improved MLS data access, including more efficient updates and results, increased consistency, and ease of use in consuming and displaying property information.

A Crucial Endorsement

RESO really gained momentum as the non-for-profit organization gained Leading Real Estate Companies of the World®, the largest network of over 500 premier locally-branded firms responsible for more home sales than any other real estate network, to its membership. LeadingRE President/CEO Pam O’Connor believes RESO provides great value to the brokerage community, including the industry’s first adoption of its Data Dictionary. She believes it will fuel new innovation, create significant efficiencies that will reduce costs and allow brokerage firms to expand into new markets.
The long term goal of this process is to achieve National data standards and industry collaboration in all aspects of real estate data and this is definitely a big step in that direction.

2016 Tax Changes to Impact Smaller “Large” Employers

Starting in 2016 a mandate takes effect that requires employers with 50-99 employees to start offering health coverage or they will have to pay a tax penalty. The mandate applies to employers with full time employees and full-time equivalent (FTE) employees totaling at least 50. This cannot be avoided by dividing business activities into different companies either. Companies with the same owner or that are related in general are treated as a single employer. Even if coverage is provided by the employer, the employer can still be penalized if the coverage is considered unaffordable. If the employee has to pay more than 9.66% of W-2 wages, it’s unaffordable.

Health Savings Accounts

Employers can provide health care coverage at a reduced rate if they use a Health Savings Account (HAS). This combines a high-deductible health plan (HDHP) with a savings account similar to an IRA. The IRS updates the definition of an HDHP annually so be sure to always check for new requirements.

Small Employer Health Insurance Credit

Small employers are given incentives to provide health care and a small employer is defined as having less than 25 full time employees. Small employers can reduce their tax bill dollar for dollar by half of the premiums they pay if they can meet certain requirements. The average annual wages of the employees cannot exceed $25,000 for full credit. The payroll limit is adjusted annually for inflation. You purchase coverage from a government exchange for small employers called SHOPs. You have not already claimed the credit for two consecutive years.

Reporting Requirements

Whether or not the new mandate affects the employer, if they provide health coverage to employees in 2015, the employer has new requirements to adhere to. The employer has to give their employees Form 1095-B, Health Coverage, by January 31st, 2016. The employer also has to send copies to the IRS by February 29th, 2016 or March 31st, 2016 if they’re transmitted electronically to detail the 2015 coverage. Here is a link to the IRS website detailing this form. http://www.irs.gov/pub/irs-pdf/i109495b.pdf

Tax Advisor

See your tax advisor to make sure you get everything correct, especially since the tax rules are complex and continually growing.

Warning! E-Mail Wire Fraud Scams – Please Help Protect our Mutual Clients

Recently instances of customers being deceived into misdirecting their funds to a hacker’s account have occurred after the hacker intercepted emails between the purchaser or borrower, and the title company or the attorney concerning an upcoming transaction. The customers received emails (allegedly) from a title agency providing wire information that had been altered, so the customer unknowingly transferred their funds for the transaction directly into the hacker’s own account. This scam with an altered email could conceivably be used to cause misdirection of funds by any party in the transaction, including the title agents. Since these e-mails appear to be genuine containing the title agency’s email information and logos or branding, the importance of using encrypted email, when it is available, to send private information especially with account numbers needs to be emphasized.

In order to safeguard against this type of scam, make sure to secure computer systems and email accounts, and always confirm wiring instructions between appropriate parties and title companies. It is recommended to avoid the use of subject lines that include the words “wire instructions”, “account number” or “ ABA” because it is likely emails are being scanned for certain character strings. Email addresses have been revised by changing certain letters, such as the letter “O” to the number “0.” These clever, unscrupulous hackers have even gone so far as to send fake emails canceling the actual closing to delay detection of their scam. Best practice is to confirm directly with the title company all wire transaction information.

An Important Change in Closing Table Procedures

The Illinois Department of Revenue (IDOR) is providing a new application, called MyDec, to electronically file real property transfer tax declarations and to print revenue stamps at our website at tax.illinois.gov. MyDec will replace the EZ Dec application currently used in Cook County and the city of Chicago by individuals, law firms and settlement agencies. Cook County and the city of Chicago will be the pilot users, but soon, the MyDec application will be available to every county in Illinois.

On the afternoon of June 12, 2014, EZ Dec will no longer be available. It is being replaced by MyDec at tax.illinois.gov. MyDec will become available on Monday, June 16, 2014.

Declarations that were fully submitted for closing prior to that time will be converted into MyDec. Any declarations not submitted (“open” or “inactive” status in EZ Dec) before 2 p.m. on Thursday, June, 12, 2014, will not be converted and will not be retrievable in the new system. Review your accounts ahead of the scheduled transition date and time to verify that your declarations are either in “Submit for Closing” or “Accepted” status if you want to retain access to them. Declarations left in an “Open” or “Inactive” status will have to be recreated in MyDec after conversion.

Click here for important information about how to prepare for the transition from EZ Dec to MyDec, including Informational Bulletin FY2014-15.

Note: Prior to the implementation of MyDec, the Illinois Department of Revenue will contact current EZ Dec Account Administrators via email with additional information necessary to associate new MyDec accounts with those previously managed through EZ Dec.

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