200,000 could lose out on homebuyer tax credit

Many homebuyers, as many as 200,000 buyers according to CNN Money.com, could lose out on the $8,000 homebuyer tax credit. This is because many people are trying to purchase short sales, buying homes from sellers who owe more on their mortgage than the home is worth. Despite the name “short sale,” these deals often take a long time for the lender to approve. It could be anywhere from two to six months. This lag time could mean that buyers will lose out on the tax credit because their pending deals won’t be finalized by the June 30th deadline. Taking even more time are the home inspections. The average foreclosed home comes with many problems to repair, and fixing the issues takes time, slowing the process even further.

Richard Smith, CEO of Realogy, the parent company of several franchise real estate brokers started warning buyers back in January that short sales may not close in time to take the credit.

Read the full article here.

No More Taxes on Short Sales, Foreclosures

According to SF Gate.com, Arnold Schwarzenegger has finally decided to provide relief to California homeowners. Currently, there is a law that requires Californians to pay income taxes on canceled or forgiven debt resulting from a short sale or foreclosure.

The state law runs counter to a federal law that exempts many homeowners from federal taxes on canceled mortgage debt. It's unfair and given the bleak housing market, it's also unseemly. It needs to be changed.

In 2009, the Legislature passed a bill that would have aligned the state with the federal tax exemption. It would have also aligned the state with a few other federal tax provisions. Schwarzenegger supported the mortgage tax realignment but not the other provisions. So he vetoed it.

Last month, he vetoed SBX832, another bill that contained the mortgage tax exemption. This bill contained two other sensible tax provisions - a state tax exemption on government stimulus grants for energy companies pursuing renewable sources of power, and a 20 percent penalty for Californians who are caught cheating on their taxes. Business groups opposed the penalty for tax cheats, and the bill barely squeaked through the Senate. The governor decided to veto that one, too.

The third time has been the charm - and right before Tax Day. Last week, legislators passed SB401, which simply brings the state into line with the federal government on this mortgage tax exemption. The governor is going to sign it and the state is going to allow taxpayers to use the provision in their taxes for this year.

Short Sales: How Everybody Loses From Banks' Opposition

HuffingtonPost.com contributor Arthur Delaney recently wrote an interesting piece on how all Americans are suffering because of how hesitant banks are to approve short sales. You can read a snippet the piece below, or check out full post here.

An empty house near Art David's home is stinking up the neighborhood.

The Naples, Fla. house has sat on the market since August 2007, and it's in lousy shape. The water and electricity have been cut off, leading to dead shrubs and thriving mold, and the pool, as David puts it, would be a worthy set-piece for the remake of "The Creature From The Black Lagoon."

"It smells like a rotting pond in the summer time," said David, a real estate agent, in an interview with the Huffington Post.

The home is one of thousands that are languishing on the market and heading toward foreclosure. In many cases, the properties remain unsold because the homeowners were prevented by the banks from completing a short sale -- where the homeowner sells the property for less than the value of its mortgage. Unable to find a buyer to pay the full price, the homes remain vacant until the bank forecloses on the property.

It isn't just the homeowner who gets hurt when a house sits vacant, but rather, the entire surrounding neighborhood is impacted. In fact, a damaged bank-owned property brings down the value of its next-door neighbors by 21 percent, on average, according to a survey of real estate agents by Campbell Communications.

The effects of property damage would be mitigated if banks were more accommodating to short sales, housing experts say.

"One of the best ways to reduce the number of damaged foreclosed properties is for these properties to be sold earlier as short sales," said the survey's author, Tom Popik, in an interview with the Huffington Post. "In many cases that's less of a loss for the mortgage investor and a better situation for the homeowner."

A majority of short sales -- 77 percent -- fail, mostly due to sluggishness on the part of lenders, the survey found. This is despite the fact that losses resulting from short sales average just 19 percent, compared with average losses of 40 percent in foreclosures, according to one study.

Popik's survey respondents reported average wait times of eight weeks before mortgage servicers provided "yes" or "no" answers on short sale offers. Agents said 37 percent of sales failed because the would-be buyer walked away rather than wait around -- a higher percentage than for any other reason. By contrast, asset managers waited on average just 11 days to respond to offers on foreclosed properties, according to the survey.

The Mortgage Bankers Association told the Huffington Post that mortgage servicers just aren't set up to handle the current volume of short sales. The National Association of Realtors said Tuesday that nearly half of all home sales in the first quarter were short sales or foreclosures. Popik found in his November 2008 survey that such sales accounted for 41 percent, with short sales clocking in at 12 percent of all sales.

"Short sales are one of the loss mitigation options banks use to help borrowers avoid foreclosure. Given the state of the housing market, we are seeing more now than at any time in recent memory," said MBA spokesman John Mechem in a statement. "This obviously taxes servicers who are set up to receive and process mortgage payments, not process, manage and approve home sales. When presented with a short sale offer, the servicer has to do its due diligence, both for its own purposes and on behalf of the investor or the entity that actually holds the note or owns the mortgage on the property. Many short sale offers are absurdly low, as potential buyers think they see an opportunity to get a home far below fair market value. Yet each offer must be evaluated, which clogs the pipeline and slows down the process for everyone."