Short Sale Pitfalls When Dealing With Rental Properties
September 3, 2010 by Jeff Kaller
Filed under Business
As an investor, you will often deal with landlords who might be facing foreclosure on rental properties. These short sale deals can be very attractive to short sale negotiators who may have been “locked out” of many deals because of homeowner participation in federal short sale programs. However, there are some complications that can occur with rental properties that may not be an issue with first or even second homes that are owned and inhabited by the property owner.
One of the biggest issues for landlord-sellers negotiating short sales is that even in states that do not assess an income tax on conventional short sales in which a homeowner transacts a short sale on the home that he or she lives in, the short sale of a rental property often will result in the issuance of a 10-99 that will be viewed by the state as income. There are ways to deal with this and to appeal it, but when dealing with landlords you must remember that these individuals are subject to a different set of tax laws if they are short selling rental properties.
Also, landlords may find themselves in a distressed situation thanks to insurance issues. Particularly if they have made a claim recently, the insurance company may have hiked their rates or even canceled their policies. Due to plummeting equity in many properties and a number of natural disasters in recent months, finding new insurance for rental properties has been for the most part difficult.
While this may not impact your end buyer, it can effect you or another investor who is purchasing the property to hold or season. Make sure that the property is insured and insurable by you even if you do not plan to hold onto it.
As the rules and regulations on short sales change nearly day-to-day, investors much keep abreast of the changes. Only in this manner can you truly help distressed property owners who need a short sale in order to salvage their investments and exit a property.
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