Short Selling My House

So our move to the Bay Area is back on due to the hubby’s new job. Since we owe more than the home is worth, we will attempt a short sale. Leslie Henderson, short sale expert, is our listing agent and has advised us that given our personal circumstances, a short sale is indeed possible (and no, I won’t be going into the gory details). Recently reduced to $525,000, the house should sell this time around. If you’re interested in buying it, please call either Guy at 775-722-4011 or JoAnn at 775-850-5938. We received one offer this morning and are preparing a response.

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57 Responses to Short Selling My House

  1. Avatar derrick says:

    RIP DAVE kellermann

    Dave was a part of my family? (my sisters husbands brother)

    wish i could have gotten to know you more dave you will be missed

    derrick

  2. Avatar g-dub says:

    Good luck Diane! I hope this goes relatively smoothly for you.

  3. Avatar Martin says:

    Good luck with the short sale. I hope it goes well. What’s with the $20 mechanics lien? Why would anybody file a lien for $20?

  4. Avatar derrick says:

    Best of luck with your house diane

    my wife and I gave up on our search for a new home?after dealing with too many delusional sellers

  5. Avatar Move to Reno says:

    Good luck with the short sale, Diane. Probably be 5 to 6 months for the bank to decide.

  6. Avatar SmartMoney says:

    Based on the price you paid in 2005, in current market condtions this house should sell for somewhere south of $450K.

  7. Avatar smarten says:

    First of all Diane, I’m sorry to hear of your short sale position and wish you and your husband the best of luck [is it really, really worth relocating to the Bay Area?].

    Second, I feel for you insofar as sharing your dirty laundry in public. I can’t conceive that you ever imagined your personal real estate life would ever become the subject of this blog. Again, I’m sorry.

    But I have a question.

    You state “we received one offer this morning and are preparing a response.” I don’t want to put words in your mouth but does “response” mean counter offer? If so and it involves price, I don’t understand.

    If you’ve advertised a short sale, then by definition you and your husband will not realize anything out of the sales proceeds. So why do you care what price a prospective buyer offers? Whatever it is, shouldn’t it be your lender[s] who are the ones making the decision whether/not to release their security in consideration of the prospective buyer’s offer?

    If your answer is “no” and indeed your “response” was a counter-offer on price, can you please explain why? Thanks in advance.

  8. Avatar DonC says:

    Sorry for such an unfortunate situation. The entire situation can’t be much fun. Best of luck with the sale.

  9. Avatar KingBud says:

    Smarten, Diane still wants to get as good a selling price as possible for her home, even though it’s a short sale, for 2 main reasons.

    First, if she tries to sell the home for too low of a price, the bank will reject the prospective buyer’s offer and the transaction won’t close.

    Second, the larger the difference between the sales price and the outstanding mortgage balance, the larger the amount of “debt cancellation”. In the eyes of the IRS, debt cancellation is tantamount to income, and is taxed the same as other personal income. Sounds crazy, but yes, a person who sells a home short pays additional income tax based on the debt cancellation.

  10. Avatar marcus says:

    yet another reason why people shouldn’t buy homes they cannot afford.

  11. Avatar DownButNot Out says:

    Marcus – people shouldn’t buy a house they can’t afford -your right. But this isn’t the case as I see it. If Diane needs to relocate due to job changes, and the house is worth less than she owes, a short sale is a viable way to take care of this. It doesn’t mean she can’t afford to pay off the house over the life of the loan.
    Good luck Diane and I hope the bank is reasonable so it works for you.

  12. Avatar daily says:

    Think about it. The big picture, as uncomfortable as it may be.

    Upside down. Writing out the checks/electronic banking (however you do it) has become painful. Homes once selling in the high 700K-800K are now in the 400k-500k. What part of this isn’t anyone getting, especially over in Somersett?

    If you play “jerk around” with some good buyers, they will move on to something else. Cut your losses and move on with your life.

  13. Avatar GratefulD_420 says:

    KingBud had some very good answers to Smarten’s question, “why do you care what price a prospective buyer offers?”

    I also wanted to add that this accepting offer is absolutely critical, because once accepted by the Owner (Diane) then it is sent to the bank. The listing then goes into “pending” and no other offers can be entertained. Since the banks are taking so long…maybe 2 weeks maybe 2 months… this can be devastating having off the market for so long, especially if the offer was too low and rejected. How many buyers did they miss when the bank was taking 8 weeks evaluating the low ball offer? Of course the tough decision for the short-seller is how many offers in the $400’s to $500’s will they receive in this market for Sommerset? Do they need to stick it out for the $525 offer?

    Now if banks & realtors really want to help the market this is an area desperately needed for improvement. Short-Sellers (Diane) need to know what the bank will accept up front and how fast they can make a decision. Unfortunately that puts the bank in a very bad position, giving the Short-Seller the keys to their money with only a % difference (tax) obligation.

    I would imagine that most short sells happen under one of two scenarios.
    1.) Short-Sell price is listed well below current value of house. Listing agents take verbal offers for two weeks making it clear the offers abover the listed “short” value are coming. Then take the highest legitimite offer (current loan pre-qaul, 20%, etc) after two weeks and submit. This is slighlty like a blind auction and will be the market price.

    2.) Low offer went to bank, the bank takes too long and the buyers walk. Then the listing agent can post the new listing price as knowingly accepted by the bank. Now the sellers & buyers know the banks position and now know if they are willing to meet the price.

    Maybe one of these tactics will work in your situation. Best of luck Diane.

  14. Avatar billddrummer says:

    Best of luck to you on your short sale experience. I value your insight tremendously, and hope we can all learn from your position ‘in the trenches.’

  15. Avatar CommercialLender says:

    Diane,
    I echo the others: very sorry to hear this has happened to you and I wish you and your family the absolute best possible outcome. Remember, cream rises to the top.

    DonC or others,
    Can you recap what other ramifications happen in this situation. Generally, the IRS wants their piece, of course, but what would this typically do to one’s credit? Can they obtain decent mortgage financing in the near term for a new home? On Reno property, must the owner use all their personal net worth up to satisfy the bank’s lien first, before the short sale is agreed upon? Might it be easier to beg forebearance or a note modification from the bank, keep the house (live in or rent it), then try to wait out the market albeit 5-7 years? Are banks generally entertaining this last argument?

  16. Avatar 3 Wombats says:

    Diane, I have hesitated to post this because this must be so hard anyway.

    We looked at your house last year with our realtor when it was on the market. We had asked to see several other houses and she added yours to our list. We loved it! We didn’t make an offer at that time for several reasons. . .

    1. The same house just down the street had sold in December 2007 for $692,500.
    2. Your house was listed for more, even though the market had continued to decline.
    3. There was an HOA assessment of $7,000 +, that would have become our debt and our realtor told us that it was not negotiable.
    4. We had a dollar figure that we were willing to pay, but were told that it would not even be considered. (Much more than the current price)
    5. There were too many other houses on the market and we thought the market would continue to decline, so we would watch and wait it out.

    Best of Luck and thanks for a great blog with open honest information.

  17. Avatar Diane Cohn says:

    Everyone, thanks for your interest and support. There is of course more to the story, but at this time I must remain silent out of respect for all parties involved. When all is said and done, I will share what I have learned.

  18. Avatar marcus says:

    actually downbutnotout it DOES mean she/they aren’t able to pay off the life of the loan..

    the fact of the matter is: I’m certain Diane isn’t making even close to what she was making only 2 years ago! and FAR less than 4 years ago.

    While it’s clear her husband has a chance to make more money in the bay area than here in RENO. so how exactly do you know it’s NOT because they aren’t able to continue to pay this monsterous mortgage off? sorry I beg to differ.

  19. Avatar billddrummer says:

    I for one believe it’s immature (and premature) to speculate on how Diane and her family reached this point.

    As she posted earlier, when the time is proper, she will provide the information she can.

    Until then, it’s merely idle speculation, best explored elsewhere (I’m thinking Twitter).

  20. Avatar Sean says:

    hey billddrummer, I had a couple of questions for you. please email me at jetsnow600@yahoo.com or leave your contact, i didnt see any other way to get ahold of you.

  21. Avatar stjoe56 says:

    Second, the larger the difference between the sales price and the outstanding mortgage balance, the larger the amount of “debt cancellation”. In the eyes of the IRS, debt cancellation is tantamount to income, and is taxed the same as other personal income. Sounds crazy, but yes, a person who sells a home short pays additional income tax based on the debt cancellation.

    =============
    As long as it is a primary home and has been occupied for more than 2 years, the debt cancellation is not taxable income. This exemption only applies to the primary home and not other types of debt cancellation. Diane and her husband would get a 1099-C.

    SJ

  22. Avatar Phil says:

    Just started the process of refinancing my loan. Here is hoping the appraisal turns out a good number. I am also changing it to a 30 year loan (in case I lose my job).

  23. Avatar BanteringBear says:

    billddrummer et al: It’s completely obvious that marcus = diablo = apple = derrick. Don’t feed the pathological troll.

    Good luck, Diane. I hope it works out for you and your family.

  24. Avatar marcus says:

    BB I suggest you get a quote from a dentist for dentures. because you deserve every tooth in you mouth knocked out.

  25. Avatar smarten says:

    Thanks KingBud, but I disagree w/your analysis.

    First, the bank has already told Diane that they’re NOT going to give her a price [at least not ahead of time] at which they’ll agree to release their mortgage so her jockying for a potentially higher price on the bank’s behalf, results in no benefit to her.

    Further it’s my understanding that once most banks receive short sale offer requests, they undertake their own independent analysis as to what price, if any, they’ll agree. So it really doesn’t matter what Diane’s prospective buyer has offered – in response, I expect the bank would do its own analysis and respond w/either consent or a counter-offer at a higher price.

    If the bank counter-offered at a higher price and Diane’s prospective buyer decided to not accept the bank’s counter-offer, at least she’d then know what the bank would accept which is better than what she doesn’t know now!

    Second, it’s my understanding Diane no longer has to concern herself w/phantom cancellation of indebtedness income insofar as the IRS is concerned because Congress has now eliminated this once consequence of short selling one’s primary residence. So if the difference between the short sale price and what Diane and her husband owe on their mortgage ends up totaling $100K, $250K or whatever, insofar as the IRS is concerned, there’s no potential tax consequence to Diane and her husband.

    Insofar as GratefulD_420 observations that:

    1. A bird in the hand is worth two in the bush, I agree. If Diane scares off this prospective buyer, he’ll/she’ll simply move on to the next short selling seller since there are so many of them.

    2. Accepting any offer will deprive Diane of the opportunity to secure a higher offer, I disagree. I don’t know the exact terminology but acceptance of a short sale offer will be noted on the MLS as subject to contingencies – in this case the bank’s approval. Assuming Diane includes a 72 hour kick out clause in her contract should a higher offer surface in the future, she’s not prejudiced.

    Finally it’s my understanding [and correct me if I’m wrong Diane/Guy] that when many banks come back with acceptance of a short sale offer, they often reserve the right to unilaterally accept someone else’s higher short sale offer anytime up until the close of escrow. So if you’re a competing purchaser, you lose nothing by sitting in the wings; letting the first prospective buyer make his/her offer and seeing how the bank responds; and if you want to offer more for the property, you [and in this case Diane] would not be prejudiced.

  26. Avatar billddrummer says:

    To smarten,

    I believe you’re correct about the tax consequences of a short sale of your primary residence. I think it was in the Homeowners Help Act of 2007 (you know, the one that was going to save us).

    Another way to spin it is to look at the loss as a moving expense, which would be deductible as a reduction of AGI during the year of the move. (Need a good tax attorney to respond to that scenario.) That way, even if there is an income event, the moving expense fully offsets it.

    Don’t know, but seems reasonable to me. Of course, we’re talking the tax code, which is totally unreasonable (unless you make no money–then it’s a gravy train).

  27. Avatar Lurch says:

    Listing is showing “Active / Pending – Short Sale”.

    My guess? $521,250 ($417,000 conforming maximum w/ 20% down), 3% credit for non-recurring closing costs. I bet the bank bites.

  28. Avatar Reno Ignoramus says:

    $521K would be about 30% off of the original bubble pricing in 5/05. A lot of these Somersett places are going/have gone for more than 30% off now. For example, the short sale on Russell Pointe in Somersett will likely end up being closer to 40% off when all is said and done.
    I hope Diane gets a deal at only 30% off; that would be better than most in Sommersett these days.

  29. Avatar MikeZ says:

    Second, the larger the difference between the sales price and the outstanding mortgage balance, the larger the amount of “debt cancellation”. In the eyes of the IRS, debt cancellation is tantamount to income, and is taxed the same as other personal income. Sounds crazy, but yes, a person who sells a home short pays additional income tax based on the debt cancellation.

    Not since 2007.

    See the The Mortgage Debt Relief Act of 2007.

  30. Avatar MikeZ says:

    Diane, I wish you all the best, wind always at your back, etc. Thank you so much for this terrific blog.

  31. Avatar DownButNotOut says:

    Isn’t there something disingenuous here? Although I’m not a charter member, BB past posted Diane is who he’d use for RE, RI posted people here are the most informed RE people in Reno, skrapguy says just look at past postings to see where everyone is putting there money where their mouth is (smarten excepted who did pony up). Now Diane is underwater and gets this godlike respect no other poster could even imagine getting.

    Please don’t get me wrong about not understanding Diane’s situation, as I do. My point is the regulars sure seem to give this a pass. What happened to the posters that would say ‘you get what you deserve for drinking the Kool-Aid, now sit back and watch the carnage? Or is that only for others?

  32. Avatar Raymond says:

    I agree that Diane will be lucky to get $521K, which is 99.2% of her asking price. Who offers 99.2% of an asking price?? Unless this is such a roaring deal that offers will come in at or over the asking price, and I don’t think that’s the case.
    Diane pretty much nailed the top of the bubble in 5/05, and the median is down about 45% since then. Houses in Somersett have regularly been selling for about 35%-40% off of bubble highs.
    I too wish Diane the best and thanks for this blog. I really hope she gets $521K because the more she can get the more likely the bank goes for it. I guess we’ll see.

  33. Avatar Reno Ignoramus says:

    Down, I think there is indeed a sense of respect here for Diane. Because you see, if it wasn’t for Diane, this blog would never have come into existence, and would not continue to exist. Diane is not just another poster here. Diane could take this blog down tonight if she wanted to. Diane has taken her shots from many of the regulars here, and she does not need me to defend her. But I suppose that if you are a guest in one’s house, common courtesy suggests that you show a modicum of respect if your host is in some difficult situation.

  34. Avatar SkrapGuy says:

    Hey Down,

    About two years ago, I posted here on the blog that, IMHO, Diane had paid an absurd price for her house, and that I hoped she didn’t have to sell it in the next 15 years if she wanted to get out of it alive. Her response back to me was something like “haa haa skrapguy, I guess we’ll just have to see who turns out to be right”.

    There is no other realtor sponsored blog like this one that I have ever found, and out of respect to Diane, I don’t choose to say anymore now. If you want to call that giving Diane a pass, fair enough.

  35. Avatar DownButNotOut says:

    RI- makes sense to me and I agree – my point was to just have us think for a minute if this was another poster relaying this info how differently this might be treated.

    No offense meant to you Diane. Hopefully my comment falls more under critical thinking than being critical of your situation. But Diane,I would be interested in your thoughts on this.

  36. Avatar smarten says:

    SkrapGuy observes “there is no other realtor sponsored blog like this one that I have ever found.” I agree and for that Diane and Guy deserve a bit more respect from us.

    There’s a one-way agent sponsored real estate blog in Incline Village [insideincline.com] some of us have followed for a while. That agent refuses to allow his readership to comment upon any of his observations. Makes one really, really appreciate what Diane and Guy have started here. So YES DBNO, they both deserve many passes from us.

  37. Avatar KingBud says:

    “As long as it is a primary home and has been occupied for more than 2 years, the debt cancellation is not taxable income. This exemption only applies to the primary home and not other types of debt cancellation. Diane and her husband would get a 1099-C.”.

    SJ, thanks for the clarification.

    I’m not sure if Diane’s debt cancellation is going to be exempt. I looked on the IRS web site, and the relevant rules are listed under question #2 here:

    http://www.irs.gov/newsroom/article/0,,id=174034,00.html

    From what the IRS says, even if the home is a primary address, the debt cancellation exemption requires either discharge of debt under personal bankruptcy, insolvency, certain farm debts, or if the loan is non-recourse. Otherwise it’s probably not exempt.

    A tax attorney would be able to provide proper guidance on this matter. Any tax attorneys out there ????

  38. Avatar Tom says:

    KingBud, there are alternative ways to fall within this exemption, assuming first you meet the statutory requirements, i.e., primary residence, etc. One of these ways is the “insolvency” test, which is a common law type of insolvency under state law, and it does not require a formal bankruptcy discharge; rather it requires that a “before and after” type of showing be made to the Service, that the taxpayer was and remains insolvent, thus the taxpayer was not enriched due to the forgiveness. That could come up as part of an audit review process, but usually it happens at an appellate level conference, after a deficiency caused by the imputed income had been assessed. Taxpayer would need to have CPA and tax counsel assistance at that conference and a protest and appeal would have to be written. A snapshot depiction of net worth before and after must be proven. It is a matter of showing the Conferees that despite the forgiveness, the taxpayer remains insolvent, therefore no imputed income results, since the taxpayer was insolvent in a common law sense both before and after the forgiveness.

  39. Avatar BanteringBear says:

    DownButNotOut said,
    in April 23rd, 2009 at 8:00 pm

    “Isn’t there something disingenuous here?…Now Diane is underwater and gets this godlike respect no other poster could even imagine getting.”

    There’s absolutely nothing insincere going on here, Downer. Had you been reading since the blogs inception, you would understand that. Diane has earned our respect through her actions, from the creation of this blog to her willingness to seek out and speak the truth, separating herself from the sleaze of the industry. When you go to a party, do you typically insult the host? Unreal…

  40. Avatar KingBud says:

    Tom, thanks for the great explanation.

    I’ve been following the blog for at least a couple of years, and want to echo BB’s sentiment regarding Diane.

    We all make mistakes, plenty of people bought homes in 2005 and are upside down now. And very few economists in 2005 (Peter Schiff come to mind, though) were out there predicting the huge housing downturning we’re now experiencing. So I empathize with anyone going through a hard time right now in their home.

    It takes a very honest person working for a living in real estate to talk about personal matters like a short sale. It’s a tribute to the quality of this blog and Diane to be willing to even discuss her own personal real estate investing on this blog.

    It seems like most realtors/salespeople in real estate try to talk up the markets during downturns, so its refreshing to have a blog like this where real estate professionals are willing to tell it like it really is.

  41. Avatar daily says:

    All of the comments are true, including the negatives and positives. Who wants to volunteer a public airing of our personal business? Ya’ got some balls, Diane.

    Playing the Devil’s Advocate: I remember spotting the house in question for sale some time ago in the 725K-750K range? Do you THINK there would have been some active buyers at the time if the price had been say, around 635K, or even 655K?? Now we’re talking 525K, and maybe less if the current buyers fail to hang on? This could have been a fading memory instead of riding it right… down… into…. the ground.

  42. Avatar CHRIS says:

    It was because of this blog that a novice like me finally was able to get an affordable home and I appreciate all the advice I got, it helped me so much. I did not back down and feel comfortable and blessed with my new home. I do wish Diane all the best.

  43. Avatar Reno Ignoramus says:

    Tom,

    Do I understand your comment to mean that if a short seller does NOT meet the requirements for insolvency, then the debt forgiveness that arises out of a short sale will be considered as imputed income to the seller?

    I believe there is some interpretation of the Debt Mortgage Relief Act by some on the blog that all short sellers, whether or not they meet the criteria for insolvency, will not have the debt forgivness imputed as income. Are you saying that even under the Act, a “solvent” short seller WILL have the debt forgiveness imputed as income?

    Your knowledge and understanding of this rather esoteric area of the law is greatly appreciated. As is your willingness to share with us.

    Thanks.

  44. Avatar Sully says:

    Chris, I was wondering what happened to you! Good luck with new house.

  45. Avatar marcus says:

    diane was drinking the kool aid like every other person out there back in 2005. pure and simple..

    only invest what your willing to lose 😉

  46. Avatar Horacio says:

    Everybody might have been drinking the kool-aide, but I’d like to see those that spiked it get their capital punishment. Diane was/is not one of those IMHO. I for one will be sad to see Diane leaving and wish her all the best.

  47. Avatar DownButNotOut says:

    Diane – I certainly wasn’t advocated you should be called on the carpet on this. Hopefully anyone that bothers to review what I wrote above would realize that. I was pointing out that a few of the regulars that like to jump on this type of information that you were strong enough to share with us wouldn’t have hesitated to break out the ‘drinking the koolaid/ sit back and watch the carnage’ BS that is prevalent when you don’t personally know your target.

    Maybe, just maybe there are a lot of people out there like a Diane that also shouldn’t be criticized, that should get a pass, that are our friends and neighbors that also deserve our respect, even in these trying times, and even if you don’t know them.

    Great blog and I hope you can keep it going. I have read about a lot of people that have gained so much out of what has been written here, you should be proud of yourself.

  48. Avatar Tom says:

    R.I.,
    I was intending to refer to the general insolvency test as a means of exempting out of the forgiveness rules, which create imputed income, which would apply if someone did not meet the holding period or primary residency requirements under the Act. If the property which is the subject of the discharge of indebtedness is the taxpayer’s primary residence and has been so for the statutory holding period, then recent IRS Publ. # 4681 clarifies the fact that the Act will excuse the imputed income normally incurred in a discharge of indebtedness. But iff the taxpayer does not meet the holding period or primary residence criteria, then he would have to prove up the insolvency exemption, or some other exemption.
    I hope this helps clarify what has always been troublesome in audits. Discharge of indebtedness imputed income has always been a difficult, because the Service likes to take the position that the taxpayer’s financial statement has been improved by the transaction, and the taxpayer has to convince them to the contrary.

  49. Avatar Horacio says:

    Another angle on Diane’s predicament… on housing prices and immobility.

    http://michaelperelman.wordpress.com/2009/04/26/a-different-housing-crisis/

  50. Avatar GratefulD_420 says:

    As I am certain there are many differences between 8430 & 8440 (sq ft being the 1’st !!), however this newest listing, next door, cannot be helpful.

    MLS# 90006192
    8440 Castlehawk Court
    Reno, NV 89523
    —————————-

    Smarten – I am also very interested in your technical response to my previous post. I think your points may be valid, however it has not been my experience. Maybe I have been on the short end of the stick. I think it is important for everyone in this forum to understand these details, because it could make the difference in making a deal happen or not. I inevitably think this is why we are all here.

    “72 hour kick out clause” –
    Once an offer is accepted by the Short-Seller (SS) it is then submitted to the bank. The bank will not respond within 72 hours. I have personally tried to make offers in Short sells during this time period of “accepted offer”, I have been told there is an “Accepted Offer” that has been submitted to the bank and therefore no more can be taken. Wsa the agent incorrect in the procedure?

    “they often reserve the right to unilaterally accept someone else’s higher short sale offer anytime up until the close of escrow.”
    Are you serious? If this is the case, then what the hell am I doing? I should watch Argon’s site and track everyday that the foreclosure list turns from active to active/pending… then call the REA, ask the current offer price… and if it’s a great deal offer 5% more?

    -BR
    GD420

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