Foreclosures and short sales
- Shortfall to the lender is the gain to the owner
- Getting refinanced, or getting mortgage forgiveness
- Almost 5 million properties are delinquent…
- People will sit on the sidelines for a long time
What will people do now regarding foreclosures and short sales since the difference in a property’s value can now be charged to the individual as income generated? The laws exempting people from the tax liability of this as earned income expired at the end of last year. It’s been weeks and nothing has happened.
This means that people who closed their short sale after January 1st of 2014 now owe taxes on earned income based on the difference between the property’s value and what it sold for, the shortfall to the lender is the gain to the owner. Perhaps this is even why short sales were dragging their feet to close around the end of last year.
Getting refinanced, or getting mortgage forgiveness is going to be hard to get unless the rules and laws are extended, probably for years to come. There’s no way people will be able to afford to pay taxes on the short falls they will encounter. Additionally, investors who were propping up the market are only going to buy so many properties. Their purchases are already starting to slow down. What if they decide to dump the properties they own all at once, or within a short period of time? That will crush property prices and cause more people to go into delinquency or foreclosures.
Right now there’s almost 5 million properties that are delinquent, or are in foreclosure – that’s a lot. We see the boost in prices that’s been happening in certain markets to be reversing as more people stop choosing to buy distressed properties, or even a new home.
People will sit on the sidelines for a long time waiting to see what happens to the laws regarding foreclosure shortfalls. This will not be good for the sellers, or buyers, or investors. It will be good, however for landlords.
QUESTION: What should readers take away from this message today?
ANSWER: That as a buyer, if you are worried about property prices falling even more now that investors have slowed down their buying and more people are going into bankruptcy and delinquency, then you should sit tight at least for the next two tears and not buy real estate.
QUESTION: Why is this information timely?
ANSWER: This information is timely because people’s ability to buy real estate is tied to employment. We do not see a bright picture for employment in the U.S. .
QUESTION: How can readers best apply this information to their lives right now?
ANSWER: Live frugally and maintain a minimalist lifestyle. It’s your constant desire to consume more and more in order to get better and better things that is a mental illness and will sink you financially.
COMMENTARY: 2014 tax laws cause gridlock in real estate. It’s going to be interesting to see how this plays out. No seller in their right minds would participate in a short sale with these tax consequences. If they have to sell and can’t they will just go into delinquency. This will cause a tsunami of delinquencies and foreclosures. So, get ready for another correction in real estate prices. The dilemma is – who will be buying this time when the investors are competing with the banks as both dump real estate?