San Diego Real Estate: Deed in Lieu, Short Sale or Foreclosure

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deed in lieuSan Diego’s mortgage meltdown has left many stressed and relocating homeowners wondering what to do. Should they just let their home go to foreclosure? Should they see if their lender will accept a deed in lieu of foreclosure?

Or should they go through the uncertainties of a short sale on their San Diego home?

Fannie Mae’s recent announcement seems to provide some real clarity for owners of San Diego homes in default.

In a nutshell, avoid foreclosures, bankruptcy and deed in lieu of foreclosure if at all possible. It is far, far better to have a short sale–or a pre-foreclosure sale–as a resolution.

Why?

Under the Fannie Mae Announcement 08-16 (released 06/26/2008), short sales or those engaging in pre-foreclosure sales will be cleared to borrow on another home via Fannie Mae in two years from completion date of the short sale. This may be painful, but two years is far preferable to the alternative….

of 5 to 7 years if the home goes to foreclosure and 4 to 7 years if one opts for deed in lieu of foreclosure.

I am horrified that there are real estate agents advising people that there is no difference between a short sale and foreclosure–or that a deed in lieu of foreclosure may be preferable to either.

If homeowners were to follow this fallacious advice, our country’s real estate market would remain in the tank for at least another five years–and by that time we might have gone through an economic depression of epic proportions.

If your San Diego home is in default, please contact a qualified short sale specialist as soon as possible to help avoid the long-lasting consequences of foreclosure. The best buyer for your home is a cash buyer who is in a position to perform on short notice–at no cost to you.

We work with such a buyer–and are willing to forfeit any real estate commission on the sale to this investor group, because they will eventually turn around and list with us.

For additional information, call Mike or Roberta Murphy at 760-402-9101/9102.

8 responses to “San Diego Real Estate: Deed in Lieu, Short Sale or Foreclosure”

  2. Susan: It is true that some are advising clients that short sales and foreclosures bear the same consequences.

    NOT SO!

    It is a critical information campaign all real estate professionals should embrace.

  3. Toberta, You are way off on this one. There are very legitimate reasons why a deed in lieu or foreclosure is preferable to a short sale, particularly with you advocating that your clients accept less than market for their properties from your investor.

    Your advice is lawsuit bait.

  4. Bob: How is a 4 to 7 year Fannnie Mae penalty for a Deed in Lieu of Foreclosure better than a 2-year ding for a short sale?

    The only issue to be negotiated, as I see it, is any deficiency judgment–or a 1099 if not owner-occupied.

    I would fear a lawsuit if I advised clients that a deed in lieu of foreclosure would be less damaging than a short sale.

    Perhaps there is there something I am missing with this recent Fannie Mae announcement?

  5. it isn’t about Fannie or Freddie.

    First off, reporting of a 1099 C (cancellation of debt) is a statutory requirement – Sec. 6050P, regardless if it’s owner occupied or not. California’ FTB is inline with the Feds – reporting cancellation of debt in excess of $600 is the law. You can’t negotiate statutory issues by definition, but if somehow you manage to convince a lender to break the law, the borrower is still bound to report it.

    Where the short sale comes up short is with state taxes. There is no mortgage debt forgiveness in California, so every dollar a seller doesn’t get may be subject to state income tax. In order for your investor to make a profit, he has to get it for as little as possible so he can turn it at a higher price. If you can sell it for the investor at the higher price, then why not for the distressed seller? The difference has a taxable value to the seller.

    Verify this with a tax attorney, but I think you will find that a purchase money loan that is foreclosed upon in California is not subject to state income tax, but the debt forgiven as a result of a short sale is subject to state income tax. A short fall of $100k or more, taxed as ordinary income, can be quite expensive. In that case it may come down to literally putting a price on one’s credit more than how soon one can re-enter the housing market.

    Telling people that the short sale is across the board the better option is incorrect.

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  7. I own a brokerage in Los Angeles, but I am in need of your assistance for a client of mine who would like to do to do a short sale on his property in Chula Vista. Does your office a referral fee for such a transaction?

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