Florida Short Sale Incentive ProgramJohn Carnegie
November 9, 2011 — 1,211 views
Bank of America recently announced that it may pay up to $20,000 to encourage short sales by Florida homeowners. This Florida short sale incentive program is directed at Florida homeowners who are upside in their mortgages and wish to avoid the embarrassment and credit-rating damage that commonly accompanies a foreclosure. It remains to be seen whether this announcement is designed primarily to bring favorable publicity to the troubled bank, or to actually encourage more short sales. Smaller payouts appear far more likely for most-perhaps closer to the $3000 authorized by HAFA as money for relocation assistance.
Big banks say they are hurting from the depressed housing market. You'll recall that they have received more than 87 Billion dollars in bail-out money from our government. Now, several report that they are not pleased with their earnings.
Government programs such as HARP (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program) have been very disappointing. The paperwork and red tape required to qualify for either program resulted in millions of disappointed homeowners simply giving up and walking away with no relief.
Some of the requirements were unrealistic. With HARP, an applicant may not have been delinquent on any mortgage payment during the entire year preceding the application. An applicant also cannot be delinquent on any mortgage payment by more than 30 days.
With HAMP, the second lien holder was required to take a subordinate position to the modified loan. This puts the decision completely out of a homeowner's control. Stringent debt-to-income-ratio requirements were also difficult for many to meet.
Beginning in April, 2010, the Home Affordable Foreclosure Alternative (HAFA) came into play. This program supposedly provided incentives for the borrower and lender when a short sale or deed-in-lieu of foreclosure was performed on a HAMP-eligible loan. Once again, the requirements were stringent, confusing, and the program results disappointing.
The latest Florida short sale incentive program from a few big banks is that cash may be paid to a borrower who does the following:
1) Maintains the subject property in pristine condition while searching for a buyer, and then
2) Delivers a buyer for the home at a price the lender finds acceptable.
Needless to say, many fine-print conditions will have to be met before any cash promised by the banks will actually change hands. One condition already announced is that since this is a trial program, homes already under contract are not eligible. Other conditions will undoubtedly be imposed along the way.
This new offer could save money for banks on attorneys' fees, court costs, and prevent their having to pay property taxes on their inventory of unsold properties. It's difficult to imagine how this program will generate additional buyers for these properties.
Any cash received by a homeowner is likely to be treated as ordinary income for tax purposes. The incentive should fall in a different category from forgiveness of debt on a primary residence. You should always consult your personal tax advisor for guidance on the subject of taxation.
Will a Florida short sale under this program differ from any other Fl short sales? I believe it will. A homeowner or Realtor who begins negotiations inquiring about a cash settlement is operating from a position of weakness. They appear to be saying, "If we do this, and meet all of your requirements, and then produce a qualified buyer who will pay what you insist upon, etc, etc can we please get the $20,000 that you're dangling in front of us like a carrot on a stick?? Such a scenario feels as though you're asking for a handout, and also hoping to get the big prize of $20,000. This approach is very limiting from the outset.
By contrast, a savvy and professional Florida short sale negotiator deals from a position of strength. During the initial contact with your lender, doesn't it seem wiser to open with a firm offer from a qualified buyer? This is what some Florida short sale specialists do.
I try to keep in mind the Lenders' Golden Rule. It says: In every financial negotiation, the one who holds the gold sets the rules.
A successful Florida short sale often depends upon being represented by an experienced and tough Florida short sale expert--an individual or team familiar with the Florida short sale process. This person should have the experience and know-how to take command of the situation. It can be very comforting to find a professional short sale negotiator who will protect your interests above all else.
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