No More Phantom Income from Real Estate Short Sales

Thursday may mark a dramatic increase in real estate short sales due to H.R. 3848 being signed as law by President Bush.

For the next three years mortgage debt forgiven by lenders when troubled borrowers negotiate real estate short sales or mortgage workouts on their primary residence that involve forgiveness of part of their debt will no longer be counted as phantom income by the IRS.

This will must likely lead to a tremendous growth in real estate short sales but what will it do to prices?

Already in certain parts of the country even with the phantom income, some agents are reporting that real estate short sales account for as much as 30% of all current activity in parts of California.

With this new law, there is no down-side to doing a short sale so many more owners will seek this as an option.

Maybe now, mortgage lenders will be more prone to accepting real estate short sales as it helps keep foreclosures off the books which keeps wall street happy.

Question is, will this help stabalize the free falling market or simply speed up competition of "must sale" homes and push prices down faster?

4 Months and a 598% Increase in Real Estate Short Sale Listings

Hello Everyone,

It's been very busy to say the least. Here is an update regarding real estate short sale activity in the local mls which serves most of San Bernardino, Riverside and all of the SG Valley.

Current active short sales: 1167

Wow.

On Feb. 14 of this year, there was 195 total active short-sale real listings. Just 4 120 days / 4 months later we have 598% increase in active short sale listings.

Additionally, yesterday Realtytrac and Inman reported that Riverside-San Bernardino was number 3 on the list of total foreclosure filings nationally. So we have more inventory coming.

20% of Existing Homes for Sale in Sacramento are Short Sales

USA Today has an interesting article about the Sacramento real estate market. According to the report....

• 1 in 5 homes listed for sale is a short-sale that translates to 20% of all listing in the area.

If you remember in 2005 Sacramento was one of the fastest appreciating areas in all of California... quite different now, according to the NAR the median price home fell 4.3% from last December.

These number of short sales make competition for the buyers even more difficult as home sellers are now competing with these "must sell" listings.

There is current a 4.3 month inventory of listings which does not include the 3.5 months of new construction. Additionally, there is a big pipeline of homes in the foreclosure process which will hit the market within the next 3-6 months further depressing values.

As I have mentioned in the past, real estate short sale will continue to represent a significant part of the market.

View USA Today Article

Real Estate Short Sale Updates...

Real estate short sale watch.

- Active: 195
- Pending: 29

Here is an update of the activity. Small down turn in the number of of active listings but still significantly higher than 6 months ago.

Real Estate Short Sales in the News

According to this article in San Luis Obispo Tribune they are reporting that short sales are also on the rise there.

There was an error in the article that states...

"With a short sale, however, sellers cannot get any money from the sale once
the debt is forgiven. The seller also still has to pay federal income tax on
that money."

This is actually incorrect. There is a tax law that states if you are insolvent you maybe able to get "ghost income" forgiving as long as the amount does not exceed $50,000.

If you are facing this situation it's important to see your tax accountant to truly understand your situation.

Real Estate Short Sale Stats

Here is a little new year update. The upward trend of real estate short sales continues...

- Active: 268
- Pending: 26

We have been recieving more inquiries regarding short sale services for homeowners.

This is for Southern California from Pasadena to Rancho Cucamonga, North of 60 freeway.

Real Estate Short Sale becoming a Flippers New Term

For anyone that has been around real estate for the last 18 years, you are familiar with the term "short sale" but for probably 1,000,000 REALTORS they have never heard of the term. Much like many "real estate investors" never thought prices went down?

As evidenced by recent articles, "short sales" will again be in our vocabulary. Here is an article about a real estate investor who thought was going to make a quick buck, buying a home for 1.32 million, trying to flip it at 1.6 million. Now 8 months later in foreclosure, it's listed as a short sale for 1 million.

Read the entire story here.

I can tell you that this will become more and more common in the very near future.

An Infamous Real Estate Short Sale

As the real estate market continues to slow, you will continue to hear about real estate short sales. The most infamous real estate short sale is now 523 Covena Ave in Modesto. The Peterson home. Here is a highlight of the article.

Roberts paid $390,000 for the home in July 2005 and listed it a year later for $479,000. As real estate sales took a dive, he lowered the price and tried hawking the home on eBay, saying he had little interest in a buyer's motive.

Foreclosure documents show Roberts' first mortgage is $312,000 and he took a second at $78,000 for a total of $390,000, the price he has sought since his lender put the home into foreclosure.

The current real estate agent indicated that the lender is open to a real estate short sale and has listed the home for $350,000.

Real Estate Short Sale Watch

Here are the current stats for real estate short sales:

Active: 215
Pending: 20

Again a small increase in active real estate short sale listings but almost a 100% increase in active listings in less than 2 months.

Real Estate Short Sales in the News...

This week real estate short sales appeared in the news a few times. Here are just a few article from the recent week discussing short sales.

This one is from the Columbus Dispatch where are consumer wrote in their question:

Q: We need to get out from under a lot of debt, including our home mortgage and homeequity line of credit. What happens if we sell but can’t pay off both mortgages?

A: If you want to sell your property, you’ll have to come to the closing table with enough cash to pay all the debt, plus closing costs and fees. The closing costs might include a broker’s commission, transfer taxes and title charges, among others. Closing costs, including a broker’s commission, can run from 8 percent to 10 percent of the price.

If you have little cash and owe more than the property is worth, you can ask the lender to do a short sale on the property, which means the lender will accept whatever cash you get from the sale in full payment of the loan.

That might sound good, but there are a couple of issues: First, if you do a short sale, the Internal Revenue Service will consider the amount the lender forgives you as income. You could face a tax bill for the amount you didn’t repay.

For example, if you sell your home for $50,000 less than the mortgaged amount, the IRS would consider the $50,000 not repaid as income to you. When you’re calculating next year’s tax bill, you’ll have to inflate your income by about $50,000. Depending on your income, that phantom $50,000 could push you into a much higher tax bracket.

Second, the lender might not accept a short sale. In that case, you would still owe whatever part of the debt wasn’t paid off by the sale.

Then there is this interesting article from the St. Paul Pioneer Press that point to scary statistic.

50% of home owners who lose their homes never have contact with their mortgage loan company once they fall behind.

The article goes on to describe what lenders are doing about this problem and discuss short sales in this brief statement:

or a short sale, in which they find a buyer for the house and then work out the difference between the sale price and the amount the homeowner owes with the servicer.

What we can see is that most people are afraid or in denial of their situation when they get behind on mortgage payments and are possibly utheir on thier home. This is where we at short-sale.com will provide assistance in a simple, private manner.

Jump in Southern California Real Estate Short Sales

Here is an update for this week. Again, another jump in real estate short sale listings.

Current active real estate short sales: 204
Pending short sales: 22

It seems like more and more people are starting to be affected by the current real estate market.

Real Estate Short Sale Watch

Here is this weeks report of real estate short sales in the imrmls system. As you can see a continued upward trend at this point.

Active real estate short sales: 179
Pending short sales: 21

Real Estate Short Sale Watch

Here is an update for today

Active real estate short sales: 154
Pending short sales: 18

Now we are starting to have enough data to start doing some charting so keep you eye out next week.

Southern California Real Estate Short Sale Watch

Here is the updated information for today:

Active Real Estate Short Sale Listings: 147
Pending Real Estate Short Sale Listings: 16

Southern California Real Estate Short Sale Count

We have just started tracking the number of real estate short sales in the imrmls multiple listing system. This covers most the the San Gabriel Valley and part of the Inland Empire.

Real Estate Short Sale Listings

9/25/06 - 118 active listings / 13 pending
10/2/06 - 138 active listings / 16 pending

This is about a 17% increase in the amount of real estate short sales in just 1 week.

If you are an agent who would like to help us track the number of real estate short sales in your area, please comment below or send us an email at jessie (at) short-sale.com

Changes in Mortgage Underwriting May Increase Real Estate Short Sales

New mortgage underwriting guidelines for banks and credit unions may cause a sharp rise in real estate short sales. The exotic mortgages just got a lot harder to qualify for,so those that are currently in these types of mortgages who have not refinance may be face a dire situation in the future. Can't sell, can't refinance?

Here is the new mortgage underwriting guidelines released that will force banks and credit unions to now qualify people for mortgages at the fully indexed rate vs. the low start rate. This has significant impact as to the maximum mortgage amount they qualify for as noted in this mortgage info blog post.

Real Estate Short Sales Curbed

Here is an recently article on Curbed regarding real estate short sales. A highlight of the article is that most agents who have been in business for less than 10 years don't even know the term means but many will soon and we will help customers avoid these agents.

Real Estate Short Sales in the News

Here is an article that recently appeared discussing the "short sale" process as an additional process to avoid foreclosure.

Real Estate Median Price Drops 1.7%... First Time in 10 Years

According to multiple reports quoting the NAR existing home sales figures, the median sales price for a home drop 1.7% from the same month last year. This is the first drop in 10 years and the largest since 1993.

This will probably lead to significant increases in real estate short sales where people sell their homes for less than is currently owed on it.

What do you think? Is this just the beginning of a serious down turn or just a temporary blip on the radar?

What is Short-Sale.com?

What is Short-Sale.com? Information about short selling stocks? Not us. We are a real estate short sale solution provider.

What is a short sale? Simply, it is the process of selling a home for less than is owed on the existing mortgages in order to provide financial relief to homeowners who may otherwise face foreclosure or bankruptcy.

About 7 years ago we purchased short-sale.com with an idea that the late 1980's and early 1990's weak housing market would come back and that the short sale process could be improved upon dramatically. In 1991 about 50% of all homes sold in Orange County, California were real estate short sales.

In that time, the real estate market obviously exploded with average real estate values having doubled over the last 5 years. This was due to demographics, historically low mortgage rates, loose mortgage lending guidelines, creative interest-only mortgages and the change in general publics attitude of real estate primarily a "home" to that of real estate as an "investment".

Now, coming off the highs of August 2005, it appears that the real estate markets maybe correcting and the short sale market we imagined may come around. The difference this time is that we feel it will not be a local condition like Orange County in the 1990's but a national occurrence.

6 months ago, there was no "short sale" real estate listings in the San Gabriel Valley / San Bernardino area. Currently there is about 160. In the Sacramento area it went from 60 or so listings to 284. Across San Diego, the median price has actually already dropped about 6.7% according to the board of REALTORS.

As 9 trillion dollars of adjustable rate mortgages come up for adjustment over the next two years and mortgage lending guidelines tighten, we believe that will be dramatic demand for short sale services.

Many home buyers and real estate investors will no longer be able to afford their properties and they will be required to sell quickly or face foreclosure. As more and more foreclosures come onto the market, property prices may continue downward due to the pricing pressure of these foreclosures on the normal real estate listings.

All of the previous talk of a housing bubble seems to be confirmed by some of the recent data that is out.

We suspect that the NAR will release it's existing home sales data for August and when they do, it will be the first time in the history of the United States that home values will have decreased. The media will jump on this and current home buyers may sit on the sidelines for a while.

So sit back and watch the ride as we will try to cover all of the important data, trends and news as it pertains to a slowing real estate economy and how our service will fit into the equation.