Docstoc

SHORT SALES

Document Sample
SHORT SALES Powered By Docstoc
					                           NuCompass News Alert



                                                                            FOR IMMEDIATE RELEASE
                                                                                                June 2009
                                                                            For more information, contact
                                                                   Roy Sooman, Director, Policy Consulting
                                                                                roy.sooman@hewitt.com
                                                                                            623.362.9722


NuCompass Mobility Position Paper Regarding Short Sales
A short sale is a transaction where the price for which the transferee is able to sell their home is
insufficient to cover the outstanding mortgage debt. The transferee secures an agreement with their
lender whereby the lender forgives a portion of the mortgage balance. Generally, the amount forgiven is
equal to the difference between the outstanding mortgage balance and the selling price of the home.

There are several characteristics of the short sale process that render this type of transaction unsuitable
for completing through a client’s relocation home sale program.

Transactional Risk
A successful short sale can take several weeks or months to close.
• The approval from the lender to accept the buyer’s offer as full payment of the existing loan can
    involve several internal departments as well as the investor(s) to whom the transferee’s loan was
    sold. In addition, substantially far more paperwork must be processed compared to a non-short sale
    transaction.
• Potential buyers become frustrated with the delays associated with the short sale process and
    rescind their offer.
• The lender may decline to accept the short sale price if they are aware the transferee has a loss on
    sale benefit through their employer.
• The lender may impose “claw back” language in the transaction that allows them to rescind their
    approval to accept the short sale payoff for up to 30 days after the closing of the sale to a buyer or the
    acquisition by NuCompass Mobility.


Home Sale Program Tax Status Risk
Steps taken to minimize the short sale transactional risks to the client may conflict with IRS revenue
rulings.
• If the transferee is held liable for any lender claw back action after the property has been acquired by
     NuCompass Mobility, that action ties the transferee to the ultimate outcome of the disposition of the
     home.
• If acquisition of the property by NuCompass Mobility is delayed until the short sale lender has
     approved the transaction, the subsequent interval between acquisition by NuCompass to closing with
     the buyer of the property may be reduced such that the client’s risk of ownership is too brief to meet
     the intent of Rev. Rul. 2005-74


1
NuCompass Mobility Position
The gap between an acceptable level of legal and financial risk for clients and tax-favorable compliance
with IRS home sale program revenue rulings for short sale transactions is untenable. As a result, we
recommend clients require transferees with a short sale situation to complete the transaction as a self
sale with direct reimbursement of customary seller closing costs. The client can make a determination on
whether or not to gross up the direct reimbursement payment.


Frequently Asked Questions (FAQ)
    1. How does a Buyer Value Option transaction involving a transferee’s short sale situation
       pose a risk to the client with respect to IRS Revenue Ruling 2005-74?

           Revenue Ruling 2005-74 requires an employer to assume a demonstrable risk of ownership
           of the transferee’s home between the time the employer acquires the home (through
           NuCompass) from the transferee and the sale to the BVO buyer is closed. Approval by the
           transferee’s lender to accept the BVO sale price for the short sale may take up to four to eight
           weeks. During the wait for the short sale approval the BVO buyer is able to complete their
           own loan approval process. Thus, when the short sale approval is received, the closing with
           the BVO buyer is immediate which removes any measurable risk of ownership of the home
           by the employer as outlined in Revenue Ruling 2005-74.

    2. What are the risks to the client if it instructs NuCompass Mobility to acquire the home
       from the transferee in a BVO sale transaction where the buyer’s offer is for full list price?

           A BVO offer even at full list price may not be acceptable to the investor to whom the
           transferee’s loan was sold. Each investor determines their own criteria for net proceeds they
           will accept from a short sale. The investor may require the net sales proceeds (sales price
           less real estate commission and other closing costs and any seller concessions) to be higher
           than the BVO buyer’s offer even though the offer matched the transferee’s full listing price.

    3. What are other reasons why the transferee’s lender may not accept a BVO buyer’s offer for
       a short sale?

           In addition to the lender needing approval for the short sale from the investor to whom the
           loan was sold, approval for the short sale must also be obtained from the private mortgage
           insurance (PMI) company if the transferee’s original loan to value ratio required PMI.
           Approval must also be secured from the holders of any junior indebtedness, such as second
           mortgages. Each of these organizations has their own requirements regarding acceptable
           short sales. Further, the lender will require a hardship statement and financial statement and
           records from the transferee and may decide that the transferee must financially contribute to
           the net proceeds to be paid to the investor over and above the proceeds from the BVO sale
           price.

    4. Can a transferee’s short sale situation involve an appraised value guaranteed buyout offer
       (GBO) available to the transferee under a client’s home sale program?

           The lender may choose not to accept the GBO if the lender’s own property valuation is
           higher. A GBO acquisition of a transferee’s home by NuCompass in a short sale situation
           means the transferee is in a negative equity situation. Thus, if the lender imposes a claw
           back provision in the short sale terms and conditions, the client is at a financial risk if



2
           NuCompass acquires the home and the lender later requires additional funds to reduce the
           investor’s loss.

    5. What is a “claw back” provision and what risk to the client does it pose?

           A claw back clause allows the lender to rescind their approval to accept the short sale payoff
           for up to 30 days after the closing of the sale to a buyer or the acquisition of the property by
           NuCompass Mobility. This means the client is at risk for any additional funds over and above
           the original payoff required by the lender to satisfy the investor’s debt repayment
           requirements.

    6. Can NuCompass assist the transferee in short sale negotiations with their lender?

           The transferee's most effective opportunity for acceptance of a short sale is to work directly
           with their lender. NuCompass’ interceding may hinder or disrupt communication between the
           lender and the transferee, particularly with respect to sensitive financial information the
           transferee is required to provide in a hardship statement and financial statement. In addition,
           NuCompass’ presence may prompt the lender to inquire as to what financial assistance is
           available to the transferee through the client’s relocation program.

    7. What home sale assistance can NuCompass Mobility provide a transferee who faces a
       short sale situation?

           NuCompass provides marketing assistance to the transferee up to the point of the transferee
           obtaining and successfully negotiating an outside buyer’s offer. From that point, NuCompass
           provides the transferee with counseling for their self-sale closing and submitting for
           reimbursement of customary seller closing costs.




3

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:90
posted:3/31/2010
language:English
pages:3