Housing Recovery at Risk

For Immediate Release
Contact: Eric McCormick (559) 304-4637;
eric@mccormickmobilemedia.com
C/O London Properties 6442 N. Maroa Ave. Fresno, Ca. 93704

Prior to 2007 and The Great Recession, many people had no idea what a “short sale” meant. Today, short sale is a term as familiar to most Americans as apple pie. It has become a common financial tool that allows homeowners to sell their home, maintain neighborhood property values and even recoup a little cash. All of that could change if the Federal Mortgage Debt Relief Act of 2007 is not extended. A short sale is a process that allows a homeowner to sell their home for less than what is owed to the lender. To secure the lenders agreement to accept such a loss, the home owner must usually show and inability to continue making payments due to a hardship such as loss of job, change in income, divorce or disability. If the home owner qualifies and the home is sold, the difference between the selling price and the amount owed on the loan is “the short” which is paid by the lender. Prior to the Mortgage Debt Relief Act of 2007, the short amount was considered taxable income for the seller. It was called “Relief of Indebtedness Income”. For example, if a homeowner short sells their home for $100,000 less than what is owed, the $100,000 was like a gift and was therefore considered income and would result in a tax bill. Home owners in a 30% tax bracket would, at the end of the year, receive a $30,000 tax bill from the IRS. Those bills generally arrived at a time where the home owner, having just lost their home, could least afford it. The Mortgage Debt Relief Act of 2007 spared homeowners this hefty federal tax bill if they received a principle modification or short sale of their home. On January 1, 2013 this Mortgage Debt Relief Act is set to expire, meaning the Indebtedness Relief and the accompanying tax bills will return. Home owners who closed the sale of their home after December 2012 would once again incur huge tax liabilities. These bills will certainly damper the home owner’s enthusiasm to sell and would cripple our modest housing recovery. Currently, one in every three homes in the Central Valley is a short sale. By not extending this law in the short term we could see a rush of short sales in the 4th quarter that would increase inventory and lower home prices. In the long term however, we would also expect to see a spike in foreclosures, which can lead to abandoned properties, crime and blight. Another surprise to the home owner may be the fact that not completing a short sale may not protect them from receiving the same tax bill. As an alternate to a short sale, many home owners simply elect to let their home fall into foreclosure. The problem is that a completed foreclosure brings the same extinguishment of debt and may be considered by the IRS as having received the same “gift” amount, thus adding insult to injury by creating the same $30,000 tax bill arriving after having lost the home. Most of the short sales we see at London Properties are families who bought at the peak of the housing market and have had a change of employment or loss of income because of the recession. They simply can no longer afford the payment. A short sale is a responsible decision by a homeowner that can help relieve them of debt and maybe even put a few dollars in their pocket. But time is quickly running out. In the Central Valley where many of our communities are in the Top 10 in the country for foreclosures, underwater home values, short sales and unemployment now is the time to act quickly to capture that “tax free” relief of debt. After heavy lobbying from The National Association of Realtors a Senate committee was able to pass an extension on August 2012, which will now move to the full Senate next month, however there is no assurance this bill will pass. We encourage you to contact your representatives in the Senate and House of Representatives and tell them to extend this law prior the election and not risk a 12th hour lame duck vote in the fall. If you have any questions as to your ability to qualify for short sale assistance, including tax relief provisions, you can contact the Short Sale Hotline at (559) 436-4070. Meanwhile, there’s still time to secure for free short sale loan relief. According to company President, Patrick Conner, London Properties has processed more successful short sales than any real estate firm in Central California.

Additional information is also available at www.londonproperties.com.