REET & Short Sales. WHAT!?!

REET & Short Sales.  WHAT!?!  by Jen Hudson, GRI

There’s a major news alert that could drastically affect short sales and your ability to get your home sold prior to foreclosure.  This is an important piece of information and you’ll probably never hear it in the media.

First, let’s clarify that a short sale happens when a lender (bank with the loan) agrees to accept less than is owed for the property.  We are actually dealing with quite a few of these right now in the housing industry and they can produce some super deals if you’re on the buying side of it.  If you’re selling, it also allows you to get out of the debt and move-on with your life.

Second, Real Estate Excise Tax (REET) is typically paid by a seller and it’s based on the total sales price of the home, no matter what the loans are on the property.  Think of it like sales tax on your house, only it’s called a different thing as far as the government is concerned.

Recently, there been some changes that took place behind the scenes that may affect an agent’s (or seller facing foreclosure) ability to get the house sold.

Here’s what happened.

The Department of Revenue (DOR) has recently sent a letter to the Escrow Association explaining that they believe that in a short sale the REET should apply not only to the selling price of a home, but also to any debt that may be forgiven in a short sale.  What does this really mean? 

Let’s say a seller owes $350,000 on its mortgage and they sell the property for $300,000.  The lender agrees to forgive the remaining $50,000 in debt and the seller should not be held liable for the difference.  There could be tax implications for the seller related to the $50,000.  With the new rules, the seller (or bank) now has to pay additional taxes on the money they never received!

Or, you can put it into really simple everyday terms to get the same idea.  Say a sandwich normally costs $5.00 but it’s on sale for $3.00 because you have a coupon.  What the DOR is saying is that you should pay tax on the full $5.00 and not what the $3.00 that you actually paid.  Does that make sense?  Not really!  (Of course, in real estate, it’s the seller who gets to pay this tax, not the buyer).

Washington REALTORS® believes DOR’s position is incorrect. Immediately after we learned of the DOR’s letter we contacted DOR, the Governor’s office, and other stakeholders to resolve this matter as quickly as possible.

DOR’s position is extremely problematic as it conflicts with how REET has been applied to short sales, and jeopardizes short sales that often are necessary to prevent foreclosures. Upon Washington REALTORS® review of state law and regulations, we have revealed a number of reasons why DOR should reconsider the position stated in its letter.  The DOR has agreed to gather input from REALTORS® and other stakeholders.

Per RCW 18.86, I strong advise anyone to seek expert advice on matters relating to any short sale transaction, as there are unique legal and tax issues that exist.  So, PLEASE seek an expert on accounting advice so they can review your personal situation.

Our association is presently working to resolve the issue as quickly as possible.

 

If you’re thinking about selling your home… or NEED to sell it, make sure you’re working with a professional who knows what they’re doing.

 

Jen Hudson, GRI

cell: (206) 293-1005

direct: (360) 652-1200

jen@jenhudsonhomes.com

www.jenhudsonhomes.com