The Debt Relief Act with Short Sale and Foreclosures

We will likely see an onslaught of short sales within the next six months due to the tax break expiring soon. The Act that first showed in 2007 may disappear by the end of this year. This will cause a rush on selling homes through short sale to avoid possible foreclosures. A short sale is a sale where the price received is a lot less, by as much as 50% of the amount owed to the mortgage company. Many find they are in trouble with their mortgage payments when their cash flow slows down or they lose part of all of their income.

People choose the short sale if the bank agrees to get out from under the hefty mortgage payments they can no longer make. Short sales save homeowners from foreclosures, which are hard on all parties involved. Right now, the 2007 Mortgage Forgiveness Debt Relief Act allows short sales to occur without the burden of paying taxes on the amount they were “forgiven.” Once the Act is gone, sellers will owe taxes on the difference treating it as a gift in which they had to pay taxes. The Act might extend for another year or two.

Short sales are a good way to get a home for less. RealtyStore.com is one of the best resources online for finding such deals.

Single-Family New Home Sales Up by 7.6 Percent

Those hoping to take advantage of the extremely low interest rates of the last few years will be heartened to know that single-family new home sales increased in May by 7.6 percent. According to the Department of Housing and Urban Development (HUD), these sales are 19.8 percent higher than those same statistics from May of 2011. This increase shows that banks are feeling more secure in lending money to homebuyers. The increase in new home sales should bolster the construction industry and benefit the economy in general.

If banks feel on more sure financial footing it stands to reason that not only will they be inclined to loan money for new home purchases but for foreclosed homes, HUD homes, and short sales as well. Additionally, for those banks that have been dragging their feet, foreclosures may begin moving more rapidly. The results will be more foreclosed properties for sale.

For this reason, the near future may be the best time to make that new home purchase and join the ranks of those who can say, “I own it, this house is mine.” Short sales could soon decrease and these low interest rates cannot last forever. The time to buy is now while the supply and interest rates are at optimum levels for potential buyers.

Short Sale and Foreclosure Listings

Due to the increase in short sales in the US, many were able to purchase property at below market value. This occurred because of a 25 percent increase in pre-foreclosure sales, the highest it has been since early 2009. The banks taking on the possibility of more foreclosed properties allowed transactions where the sale price was lower than the mortgage balance. It was good news to property buyers, but bad for banks. Now the trend of selling pre-foreclosed properties is on the rise; rather than waiting for the bank to buy the property back and as a way of easing through the troubled loans.

Short sales help to slow the mortgage losses and help both the mortgage holders and the homeowners from the rigors of the legality of full foreclosures. Mortgage companies now accept lower priced short sales, which keeps the property out of foreclosure processes. The number of repossessed homes is dropping due to hefty settlement fees induced on the five largest US mortgage companies over having wrongfully repossessed homes. There will be fewer properties in the foreclosure listings due to this.

The trend of selling off pre-foreclosed homes is highest in California, followed by Florida, Arizona, Georgia, and Nevada, proving the short sale is the wave of the near future for home sellers and buyers.

Will Foreclosures or Short Sales Drive the Market in 2012?

Bank foreclosures are not a pretty thing to say the least, definitely not from the viewpoint of someone who has taken out a home loan. In essence, they occur when a person who has taken out a home loan fails to be able to keep up with the repayments of his or her mortgage obligations. In bank foreclosures, it is the bank that has taken out a security interest in the person’s home. Therefore, if said person fails to be able to pay back his or her mortgage obligations, the lender (the bank) has the right, thanks to the security interest, to go ahead with a foreclosure on the property. A foreclosure is particularly painful because it will harshly retard the ability of an individual to purchase any form of real estate in the future.

On the other hand, short sale homes options are an alternative to bank foreclosures, yet they are not as widely understood as the foreclosures. A short sale on a home is basically a compromise of sorts between the lender, the person who has taken out the loan and the seller of the property. A short sale is defined as the time when a lender assents to accept a mortgage payoff quantity that is less than what’s owed. This is done for the strategic purpose of making sure that a sale of a property by a financially compromised owner becomes a reality. In essence, what the lender (the bank) does in a short sale is basically forgive the remaining balance of a loan.

With regard to how the rest of 2012 will shape up concerning bank foreclosures or short sales, it seems that short sales will be dominant. Sure, some sources that deal in the financial world have implied that it will be bank foreclosures of cheap homes that will continue to dominate in the 2nd half of 2012. According to CNBC, under President Obama, from December 2011 to January 2012, bank foreclosures skyrocketed by an alarming 28 percent in just one month! That is based on information from Lender Processing Services. Greater than 230,000 bank foreclosures of cheap homes started in January alone!

However, the Calculated Risk Blog implies the opposite, citing that short sales have gone up in lots of places across the U.S., which stands in contrast to foreclosures, which have eased up. Furthermore, according to a March 2012 article in the Chicago Tribune, more and more big banks are utilizing cash incentives to tempt people to pursue short sales instead of foreclosures. This seems to suggest that short sales will be the dominant route in the remaining part of 2012. A March piece in the Examiner.com predicts that short sales will increase in 2012 due to the so-called “robo-signing” settlement reached with the federal government.

All in all, it appears that there are more sources that are pointing to the dominance of the short sale in real estate for the 2nd half of 2012. Hence, it is a good bet to predict that short sales will edge out foreclosures in the 2nd half of 2012.