There are several articles out today commenting on the decline on foreclosure activity.
The ivory-tower types are quick to give credit to the CA Homeowners Bill of Rights, or to short sales being the preferred method of liquidation, instead of foreclosure.
Here are excerpts from this latimes.com article entitled, “California’s Housing Recovery May Gain Momentum, experts say”:
While dramatic, the drop is part of a general decline in foreclosure actions over the last year as banks look toward short sales and loan modifications as alternatives to seizing homes.
“You will see a continued decline in defaults from regulator activity, new laws and from the economy,” said Dustin Hobbs, a spokesman for the California Mortgage Bankers Assn. “As long as the economy, and especially the housing market, continues to slowly heal itself, you will see fewer and fewer defaults.”
Madeline Schnapp, director of economic research for ForeclosureRadar, believes the low levels of foreclosures will continue.
“The plethora of anti-foreclosure laws have been very effective in reducing foreclosure activity to what you are seeing today,” she said.
We are being led to believe that people have stopped defaulting, and anyone in trouble is taking the friendlier short-sale exit.
But short-sales and REO sales have both dropped off substantially:
NSDCC Detached-Home Closed Sales Jan 1 – Feb 7th
Year
Short-Sales
REO Sales
Non SS/REO
2011
29
18
133
2012
42
20
130
2013
23
4
180
Looking at this chart, it looks like the banks ramped up cancellations in September or everyone just started making their payments:
How can any of the “experts”, or the media look at the data and not wonder if lenders have deliberately stopped foreclosing? The banks have us right where they want us – feeling good about buying homes again, and the media is blindly pushing the new drug.
For this being the last scheduled year for the debt-tax exemption, the distressed listings are sure dripping out slowly around here.
Here are the number of January short-sale and REO listings in NSDCC:
Year
Short-sales
REOs
Percent of all new listings
2010
49
17
16%
2011
44
10
10%
2012
38
14
13%
2013
14
9
4%
The 4% mark should be the point where we can say that this is a retail, non-distressed environment – what we used to call a seller’s market.
It means that sellers can probably expect 1% to 5% more than the last nearby comparable sale, and maybe more if everything goes right (better location, upgraded look, lack of other choices, and experienced listing agent).
There are all kinds of incentives available to short sale sellers throughout the United States. Those incentives range from a few thousand dollars all the way up to $35,000 (enough to pay for some of your kid’s college education).
Here’s a summary of the most common incentives available:
Bank of America Cooperative Program: In this program, qualified households that participate in this short sale program will receive $2500 at closing. Some folks may even get up to $30,000!
HAFA: In this program, qualified households who participate in this program (which has both short sale and deed-in-lieu of foreclosure options) receive $3000 at closing. (Fannie Mae and Freddie Mac also participate in HAFA.)
TAP: In this program, qualified California households that participate in a short sale or deed-in-lieu of foreclosure will receive up to $5000 at closing.
Wachovia: Wachovia Bank frequently sends borrowers letters asking them to participate in a short sale and offering an incentive in the letter. Sellers should read their mail and save the letter so that they can redeem the incentive at closing (usually between three and five thousand dollars).
Litton: Litton Loan Servicing frequently sends borrowers letters asking them to participate in a short sale and offering an incentive in the letter. Sellers should read their mail and save the letter so that they can redeem the incentive at closing (usually between three and five thousand dollars).
Citi and Chase Bank: Both of these mortgage lenders are now sending certain borrowers letters offering them the option of participating in a short sale for a significant incentive (often between 20,000 and 35,000 dollars). Read the fine print on the offer and follow all of the rules in order to receive this incentive at closing.
Now that the incentives are so big, short sale sellers who are getting these big checks are both excited and curious. Not only does the headache of the short sale go away when the deal finally closes, but the pleasure of the big check is exciting. Nevertheless, many short sale sellers are wondering whether the incentive is taxable. That is, does the short sale seller have to pay taxes on the amount of the incentive check just as if this check were income? Probably – check with an accountant!
Hat tip to Mr. T for sending this along from sddt.com:
Underwater borrowers have one more year to swim to the surface and short sell their homes before facing income taxes on the forgiven debt.
The Mortgage Forgiveness Debt Relief Act (MFDRA), set to expire on Dec. 31, 2012, was extended to the end of 2013 as part of the “fiscal cliff” resolution.
“It is the only thing that I really cared about when it came to the ‘fiscal cliff’ because there was no sense in letting it expire,” said Shanna Welsh, attorney and real estate broker at Southern California Realty Law.
When someone short sells a home, the forgiven debt is considered income to the homeowner. With the MFDRA in place, that taxable income is forgiven.
“Say, for instance, the loan was $400,000 and the home resells for $300,000. The $100,000 bank loss would be taxed as ordinary income,” said Alan Nevin, principal at The London Group. “Worse, the loss would most probably push the homeowner into a higher tax bracket, thereby doubling the pain. For most homeowners that would result in the necessity to file a Chapter 7 since there is no way they would pay the taxes. Basically, their lives would be ruined.”
Welsh said she had several short sales in which the homeowners were desperate to close before the act’s expiration at the end of 2012, and none of those homeowners would have been able to close their short sales in time.
The extension was made on a federal level, Nevin said, and the state has yet to act on its extension. Senate Bill 30 (Calderon, D-Montebello) will extend the act in California for another year if it is passed, according to a release from the California Association of Realtors (CAR). The measure will be effective retroactive to Jan. 1, 2013 if passed.
“The MFDRA extension is of major importance, but it is only for one year. I strongly suspect that millions will take advantage of that ‘breather’ and place their homes on the market in 2013, not wanting to take a chance that the act will not be extended again,” Nevin said.
Nevin said he expects sales to increase as a result of more people able to take advantage of the declining prices resulting from the MFDRA.
“I believe this is necessary for the homeowners that are still in distress but want to avoid foreclosure, and a critical part of our housing recovery,” said Donna Sanfilippo, president of the San Diego Association of Realtors. “We are already seeing previous homeowners that experienced having a short sale two to five years ago reentering the housing market. Yes, I do believe it was a necessary component to our continued housing recovery in San Diego.”
Attorney ‘Kingside’ concurred with sdbuyer that the California debt-tax exemption mirrors the federal-law deadline, and will expire tomorrow unless something changes:
The California act (SB 401) was designed to conform with existing federal law and both are scheduled to expire at the end of the year. sdbuyer’s link to the FTB site is accurate as far as I know.
I heard that the California legislature was willing to extend if the Feds were going to extend. With a democratic supermajority sounds like it would happen. But who knows with the Fed extension up in the air at this point.
Its the kind of thing that could still happen after the fact, January or February or even later.
Has there been a big rush of short-sales being completed leading up to tomorrow’s deadline? Furthermore, was 2012 the Year of the Short Sale, as predicted?
Here are the quarterly stats for detached-homes sales from Carlsbad to La Jolla (NSDCC):
Quarter
#Shortsales
Avg. $/sf
#Non-Shortsales
Avg. $/sf
SS% of Total
1Q11
70
$308/sf
483
$381/sf
13%
2Q11
52
$283/sf
676
$383/sf
8%
3Q11
82
$291/sf
617
$396/sf
12%
4Q11
74
$283/sf
508
$379/sf
13%
1Q12
78
$291/sf
499
$373/sf
14%
2Q12
89
$268/sf
810
$382/sf
10%
3Q12
99
$302/sf
744
$383/sf
12%
4Q12
80
$273/sf
687
$412/sf
10%
There wasn’t a big rush around here as the deadline approached, and the pricing trend is disturbing. The banks have stopped the foreclosure machine – there were 21 REO listings closed in 4Q12, at an average of $345/sf. But banks should wonder if short-selling is the answer, when you compare the pricing.
With potential short-sellers faced with losing out on possible future appreciation, and having to pay high rents if they sell, it seems unlikely there will be much change in the SS count next year.
If the debt-tax exemption doesn’t get extended, then potential short-sellers will have another good reason to not sell. With the California Homeowner’s Bill of Rights taking effect on Jan. 1st, it would be a great time for them to just not pay, and wait.
California state law already provides debt-tax relief, so owner-occupants here are covered.
Homeowners and banks are accelerating sales of properties for less than the amount owed as a U.S. law that gives them a tax break expires at the end of the year.
The transactions, known as short sales, increased by 35 percent in the third quarter from a year earlier, while sales of bank-owned homes dropped 20 percent, according to a report today by mortgage data seller Renwood RealtyTrac LLC. Together, they accounted for 41.5 percent of home purchases in the quarter.
Short sales have accounted for as many as 1.1 million transactions since 2009, helping to reduce the inventory of homes owned by banks that can blight neighborhoods and flood the market. Barring a last-minute extension of the 2007 Mortgage Forgiveness Debt Relief Act, homeowners will be taxed on the forgiven principal. With Congress focused on the so-called fiscal cliff, federal spending cuts and tax-rate hikes set to kick in on Jan. 1, the law may not be extended, leading to a drop in short sales and a rise in foreclosures.
“If you’re struggling to pay your mortgage, it’s not likely you can afford an extra $25,000 or $35,000 tax bill to avoid foreclosure,” said Edward Mills, a financial policy analyst at FBR Capital Markets in Arlington, Virginia. “Mortgage forgiveness has become part of fiscal cliff politics.”
Realtors fawning all over themselves – from the dt:
Short sales remain the better choice over foreclosures for both banks and homeowners, and local real estate experts believe the number will continue to increase, unless the Mortgage Forgiveness Debt Relief Act is not extended.
“I think the government truly understands that there’s a need to have people in short sales rather than foreclose,” said Sean Mayer, principal at Legacy Real Estate Ventures. “The impending onslaught of properties coming onto the market — I don’t think that’s going to happen. They’ve just worked much, much, much too hard to stabilize housing prices to flood it once again. That’s why I think short sales are really going to be a huge proponent for the future.”
The Federal Housing Finance Agency released new guidelines that help to streamline the short-sale process and allow homeowners with a mortgage through Fannie Mae or Freddie Mac to sell their homes through a short sale even if they are current on their mortgage, according to FHFA guidelines, which went into effect on Nov. 1.
Those paying attention are seeing realtors continuing to commit short-sale fraud, and about the only hope for it to end is for short sales themselves to run out of steam. If the debt-tax relief doesn’t get extended (unlikely but possible) and those underwater sense an appreciating-market, we could see short sales go away.
This was one failed attempt – the realtor initially priced this short-sale listing at $475,000, only to raise it to $627,000 once his phone lit up like a Christmas tree.
The mortgage industry has been slow to react, but this article (free w/registration) mentions one paragraph of hope too:
Another developing practice is to look for pricing patterns with realtors. One red flag is when certain Realtors are consistently involved in transactions for properties that sell well below market value. This can indicate that the realtor is providing below-market-value BPOs to influence the asking price.
Could we be done with short sales in the next year or so?
While dramatic, the drop is part of a general decline in foreclosure actions over the last year as banks look toward short sales and loan modifications as alternatives to seizing homes.
