After "Short Sale" Tax
September 6, 2007
In my post of September 2005, I suggested that a change in the tax code regarding the "short sale" tax might benefit the economy. This benefit is pure speculation on my part as I am not an economist. I am just a real estate broker who is experiencing her fourth radically changing marketplace.
"Short sales" really came into play during the real estate downturn of the 1990s. It took lenders some time before they would agree to a "short sale". However, once they examined the concept and once they became significant holders of foreclosed property, they seemed to recognize that agreeing to discount a mortgage to enable a sale and not have to take a property back into their own inventory as a non-producing asset account was a beneficial strategy.
Consider. A property has greater debt against it than the current market value. The home owner, for whatever reasons, ceases to make the mortgage payments.
The lender has the trustee file a Notice of Default. After approximately 121 days, if no one bids on the property at the foreclosure sale, the bank gets the property. In all probability, there are no bidders for the very reason the owner could not sell the property. It is no longer worth the amount owed. For the lender to now sell the property, the lender will have to find a market value that will reflect the current state of value not the value at the time the mortgage was obtained. Hence a probable loss on top of significant carrying costs until a buyer is found.
A "short sale" can eliminate a lender's carrying costs. It allows the property to transfer ownership in less time than the standard 121 days of a foreclosure sale.
It relieves the lender of a non-paying asset which is a benefit to the lender's balance sheet. I believe that the use of "short sales" can aid the financial institutions that are faced with a plethora of foreclosures.
"Short sales" carry a ticking bomb for the homeowner in the form of the tax liability. Eliminating this liability, in my opinion would increase the number of homeowners willing to participate in a "short sale" and could aid in decreasing the number of actual foreclosures. The real estate market has changed and the change may be with us for some time.
In my post of September 2005, I suggested that a change in the tax code regarding the "short sale" tax might benefit the economy. This benefit is pure speculation on my part as I am not an economist. I am just a real estate broker who is experiencing her fourth radically changing marketplace.
"Short sales" really came into play during the real estate downturn of the 1990s. It took lenders some time before they would agree to a "short sale". However, once they examined the concept and once they became significant holders of foreclosed property, they seemed to recognize that agreeing to discount a mortgage to enable a sale and not have to take a property back into their own inventory as a non-producing asset account was a beneficial strategy.
Consider. A property has greater debt against it than the current market value. The home owner, for whatever reasons, ceases to make the mortgage payments.
The lender has the trustee file a Notice of Default. After approximately 121 days, if no one bids on the property at the foreclosure sale, the bank gets the property. In all probability, there are no bidders for the very reason the owner could not sell the property. It is no longer worth the amount owed. For the lender to now sell the property, the lender will have to find a market value that will reflect the current state of value not the value at the time the mortgage was obtained. Hence a probable loss on top of significant carrying costs until a buyer is found.
A "short sale" can eliminate a lender's carrying costs. It allows the property to transfer ownership in less time than the standard 121 days of a foreclosure sale.
It relieves the lender of a non-paying asset which is a benefit to the lender's balance sheet. I believe that the use of "short sales" can aid the financial institutions that are faced with a plethora of foreclosures.
"Short sales" carry a ticking bomb for the homeowner in the form of the tax liability. Eliminating this liability, in my opinion would increase the number of homeowners willing to participate in a "short sale" and could aid in decreasing the number of actual foreclosures. The real estate market has changed and the change may be with us for some time.
posted by shirley harry at 8:03 AM
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