Short Sales May Lose Favor in California

As reported in the Daily Real Estate News | Friday, September 06, 2013 Home owners in California may be less likely to consider a short sale now that the state failed to take action on legislation that would have given a tax break on short sales. The Assembly Appropriations Committee in the California legislature did not move Senate Bill 30 out of the committee. The California Association of REALTORS® warns that inaction on the bill means that home owners who sold their homes in a short sale will have to pay state income tax on money they didn’t even receive. The bill sought to conform California law to federal tax law. Federal tax law states that sellers cannot be taxed on forgiven debt. However, California’s current laws state that sellers must pay state income tax on the mortgage debt that lenders forgive in a short sale. An exemption in the state did exist to this rule, but the exemption lapsed at the end of 2012 and has yet to be renewed. CAR supported the bill and CAR officials say they were disappointed at the legislature’s lack of response on the matter. "These are real families in real financial need who may well be forced into bankruptcy by an unresponsive legislature," says CAR President Don Faught. "We hope that that the legislature will rectify this in the closing days of the session." Source: “Short sales could lose their appeal in California,” HousingWire (Sept. 5, 2013)

Financial news data

May 15, 2013 Last Week in Review Last week brought some positive economic news. Americans filing weekly Initial Jobless Claims fell to 323,000. This was below expectations and the lowest level since January 2008. In addition, the four week moving average (which evens out any seasonal abnormalities) fell to 336,000, the lowest since November 2007. In housing news, research firm CoreLogic reported that home prices rose 10.5 percent in March 2013 from March 2012. This was the biggest annual increase since March 2006 and the 13th consecutive increase in home prices. There was also a 1.9 percent gain from February to March and prices increased in all states except four. However, home prices remain 25 percent lower than the peak of April 2006. What does this mean for home loan rates? Because good economic news often causes money to flow out of safer investments like bonds and into stocks, it can negatively impact home loan rates, as they are tied to mortgage bonds. However, although home loan rates may have slightly risen, they continue to remain near historic lows. Forecast for the week The economic calendar is filled with several key reports this week. We’ll get a read on inflation this week with the Producer Price Index on Wednesday and the Consumer Price Index on Thursday. There’s a double dose of manufacturing news with Wednesday’s Empire State Index and Thursday’sPhiladelphia Fed Index. Thursday also brings news on the housing sector with Housing Starts and Building Permits for April. Weekly Initial Jobless Claims will also be reported as usual on Thursday. Ending the week on Friday, the Consumer Sentiment Index for May will be released. According to the CoreLogic National Foreclosure Report, 55,000 foreclosures were completed in March 2013. This represents a 15.8 percent year-over-year decline from March 2012. Compared to the 2010 foreclosure peak, it is a decline of 52 percent. On a month-over-month comparison, completed foreclosures were up 6.2 percent from February 2013. Completed foreclosures are an indication of the total number of homes actually lost to foreclosure. (May 13 - 17, 2013)

Relief in the New Year

The fiscal cliff package recently approved includes a provision that will help maintain a viable Short Sale market in the year 2013. The Mortgage Forgiveness Debt Relief Act was set to expire on December 31, 2012. This act provided an exemption to the normal rule that forgiven debt is taxable income. The act allowed many homeowners to avoid income tax liability on the mortgage debt forgiven in a short sale. Last week, Congress passed the "American Taxpayer Relief Act of 2012," which extends the income tax exemption on forgiven mortgage debt for one year. This means that qualified homeowners who short-sell their principal residence and are forgiven the obligation to repay some or all of the unpaid balance may exclude the qualified cancelled debt from their taxable income. This should serve to promote short sales in the coming year, as it will enable qualified homeowners to continue seeking forgiveness of mortgage debt in a short sale without being taxed for it. The exemption also applies to any qualified debt forgiveness in a loan modification, refinance, or foreclosure. However, not all mortgage debt qualifies for the exemption. Homeowners should be advised to seek advice from tax and legal professionals to ascertain whether their mortgage debt qualifies for the exemption. As always, Keep the faith!

Relief from Short Sale/Foreclosure and other woes ...

Having a hard time making ends meet? Well, there's a new avenue for you to explore. If you are a California homeowner and personally occupy your property, have financing that does not exceed $729,750 and that loan was in place before January 1, 2010... Help may be just a few clicks away ... http://keepyourhomecalifornia.org/ ... They offer programs for Principal Reduction, Mortage Reinstatement, Unemployment Assistance, Transition Assistance and more. If I can assist you in any way, please contact me. You've had the setback and I am all about the comeback ... I strive to make a positive impact on someone's life every day. Best of Luck to you and as always - Keep the Faith!!! Short Sale Sully 760-610-3245

Tax relief on forgiven debt set to expire Dec. 31, 2012

I've been talking about this and if you need to Sell Short - Get a move on ... Just in case. There are no guarantees that there will be an extension from either the Fed or State, if there is - I promise to report it right away ... Read on for the latest ... Unless Congress and the California State legislature take action, a break for mortgage principal forgiven in loan modifications or short sales will expire at year’s end. The mortgage debt forgiveness issue is only one of approximately 60 expiring tax provisions that Congress appears unable to extend prior to its recess for the November elections. Congress is pushing the extension of any expiring tax provision to the lame duck session, along with any increase in the debt ceiling, and any serious attempts to prevent the mandatory budget cuts agreed to during last year’s debt ceiling deal. California's tax treatment of mortgage debt relief income generally aligns with federal law, and both the California and federal laws are set to expire at the end of 2012. For debt forgiven on a loan secured by a "qualified principal residence," borrowers are exempt from both federal and state income tax consequences, but only until Dec. 31, 2012. The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000. "Qualified principal residence" indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence. It includes both first and second trust deeds. It also includes a refinance loan to the extent the funds were used to pay off a previous loan that would have qualified. However, these tax breaks apply only to debts discharged from 2009 through 2012. It may be that Congress will take action to extend the federal exemption before year-end, but we will have to wait and see. If the federal law is extended, it is likely that California would follow in due course, as in the past, but it is not guaranteed. The last time the federal tax exemption was extended, California did not conform its tax law until well into the next year. Sellers who have transactions closing after Dec. 31, 2012, need to speak to their own legal counsel or tax advisors about the impact of the expiration of these laws and their potential tax liabilities, including the applicability of other exemptions from debt relief income tax. Keep the faith!!!

Why Short Sales, Foreclosures Damage Credit Similarly

Here is an interesting story which relates the reasoning and includes Blog postings from the FICO Web site about why these events hit the credit scoring so hard and there being no real difference between Short Sale, Deeds-in-Lieu and Foreclosures. In my opinion, the fact of the matter is that when you experience financial difficulties to get into a situation to be considered for these alternatives or a Modification, as well, you have usually missed from one to many mortgage payments. This is where the real damage is done in your credit scoring, especially if it takes quite a while to close whichever alternative you end up with. Your late charges go from 30 days to 60 days to 90 days to 90+ then 180 then 180+ and on and on. This is happpening while your credit scoring is spinning downward monthly. The label the final action is given at the end is really immaterial and while there is a difference (certainly future lenders look at the difference in reviewing any application for future credit from 1-7 years down the line, depending on the Agency and loan program) the damage has already been done and nobody told you about that. Read on for the story ... Daily Real Estate News | Friday, September 07, 2012 With short sales, home owners work with a bank on a solution to get out of a house they may no longer be able to afford or have to sell urgently for some reason. That’s why some argue short sales shouldn’t damage a person’s credit score in the same way as foreclosures, which can be much more costly for banks. So should the penalty for a foreclosure more severely damage a borrower’s credit score than a short sale? No, maintains a new FICO study. FICO conducted a study to determine the credit risk associated with “mortgage stress events,” such as foreclosures and short sales, by analyzing data from October 2009 to October 2011. “While it is true that short sales represent slightly better risk than foreclosures, they do not perform well enough to merit a more positive treatment in the FICO Score,” according to a recent blog post on the FICO Web site. The blog post goes on to explain that one out of every two borrowers who undergo a short sale go on to default on another account within two years. Also, according to researchers, an overwhelming majority of borrowers who went through a short sale also had some other mortgage delinquency in their credit history. “From a weighting perspective, all these mortgage events – short sale, foreclosure, deed in lieu – fall into the same heavyweight class, because they correlate with exceptional riskiness,” the FICO blog post notes. “They aren’t alone in that class either. Based on the data, consumers with short sales perform no better than consumers who have a severe delinquency (90-plus days past due), a collection, or a derogatory public record (e.g., bankruptcy, tax lien, etc.) on file.” Keep the faith ...

Modification processs reportedly improving

Mortgage settlement with banks starts to ease foreclosure crisis Nearly 140,000 homeowners have received a total of $10.6 billion in mortgage debt relief from March through June, a federal report on the banks' progress says. Overall, 137,846 struggling homeowners nationwide received some type of monetary relief from the banks during the four-month period starting in March for an average of about $76,615 each. Above, a foreclosed home is on the market last year in Miami. (Joe Raedle, Getty Images / August 30, 2012) August 30, 2012 WASHINGTON — The nation's five largest banks are off to a good start on their promise to help ease the foreclosure crisis, providing nearly 140,000 struggling homeowners with a total of $10.6 billion in mortgage debt relief, according to a government report. But the banks have much more work to do to fulfill their requirements under a $25-billion agreement reached in February to settle federal and state foreclosure abuse investigations, key officials said. And to keep the pressure on, the government released the preliminary report Wednesday — the first look at how Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. were carrying out their commitments. "We will continue holding the banks' feet to the fire in the months ahead, and we will be watching like hawks to make sure they live up to the requirements under this settlement," Housing and Urban Development Secretary Shaun Donovan said. The report from the Office of Mortgage Settlement Oversight showed that Bank of America had faltered in one key area. It did not complete a single modification of a first mortgage from the settlement's start date of March 1 through June 30. The other four banks had completed a total of 7,093 modifications of first mortgages worth $749 million during that same period. JPMorgan Chase completed the most, 2,920, with the highest value, $367 million. Bank of America quickly responded to the report with updated numbers, saying that from July 1 to Aug. 21 it had completed 3,823 first-mortgage modifications, worth $596 million. Bank spokesman Dan Frahm said the modifications were difficult to complete by June 30 because each homeowner must first go through a three-month trial period. Overall, 137,846 borrowers nationwide received some type of monetary relief from the banks during the four-month period for an average of about $76,615 each. Californians received about $4.6 billion in relief, by far the most of any state. "We are happy with California's share of the pie, but the pie needs to get bigger," said Shum Preston, spokesman for California Atty. Gen. Kamala D. Harris, who was a key player in the settlement. "There's a lot of hurt out there." The banks voluntarily provided the preliminary data before the first required report, due in November, and the data were not audited, said Joseph A. Smith Jr., the government-appointed monitor of the settlement. He released the information so the public could track the progress of the banks and the oversight of his office. "Now that the information is out, it is going to facilitate a conversation, so to say, about how they're doing that will have an impact on the banks' motivation," Smith said. "I'm encouraged by where we are. But we're not going to declare victory." The five largest mortgage servicers agreed to provide the relief to struggling homeowners as part of a settlement with federal officials and 49 states to end lengthy investigations into alleged "robo-signing" and other foreclosure abuses. The banks have set aside about $20 billion to lower loan rates and principals and provide other relief directly to consumers, and $5 billion to the states, primarily for foreclosure relief and prevention programs. The banks get credits for various types of homeowner relief. Each dollar forgiven in a short sale, for example, results in a credit of 45 cents if the bank owns the loan and 20 cents if it is held by investors. The report did not say how much the $10.6 billion provided as of June 30 would reduce the $20-billion obligation. The largest amount of relief came in debt forgiveness as part of short sales, in which the bank allows a homeowner to sell a home for less than what is owed on the mortgage. The banks forgave about $8.7 billion in first- or second-mortgage debt as part of short sales. In addition to the $749 million in principal reductions on first mortgages, the banks provided $231 million in principal reductions or outright forgiveness for second mortgages. The banks also are adopting 304 servicing standards required by the settlement, with four of the banks saying that they implemented more than half the standard as of July 5. The report did not identify those banks. Overall, Bank of America had provided the most relief to homeowners for the report period — $4.9 billion, nearly all in the form of short sales. Kevin Stein, associate director of the California Reinvestment Coalition, a housing advocacy group, said he was concerned that most of the relief from the banks was in the form of short sales instead of principal reductions, which allows people to keep their homes. "It's still early, and we want to be hopeful that will turn itself around," Stein said. Donovan said short sales were easier to complete in the first few months of the settlement than principal reductions. But he said short sales are capped and are not as attractive to banks because they result in less credit toward fulfilling the settlement terms. Katie Porter, a UC Irvine law professor who is monitoring the settlement compliance for the state attorney general, said the report showed that the banks had moved quickly to start providing relief, though their performance was uneven. "We need to see more, but the trend is in the right direction," she said.