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Rising home prices have been in the news. The upside: It’s a solid sign of a recovering economy. The downside: It is creating unrealistic optimism among underwater homeowners, causing many of them to think, “I’ll just hold off on a short sale and see what happens.” That decision could be a very costly mistake for homeowners. Here’s why.
1) While home prices are rising in some areas, they’re not rising fast enough.
Projections for home prices in many areas of the country for 2013 indicate an increase. But it’s a moderate increase. And there are just as many areas that are expected to see flat or decreased values through 2013. The result? Underwater homes will remain underwater for years.
2) Banks are moving more quickly on foreclosure.
In the past, homeowners often had the luxury of time. Lenders caught unprepared for the onslaught of distressed properties often took nine months or more to begin foreclosure proceedings. That is no longer the case. With systems and resources now in place, the foreclosure process now is moving quickly. And as soon as a homeowner receives a Notice of Default from the lender, their options are limited. While a short sale may still be an option, it’s a race against the clock. If the homeowner can’t execute a short sale in time, they face foreclosure. When they go to buy a home again in a few years, homeowners will have fewer options after a foreclosure vs a short sale.
3) Waiting too long may cost homeowners thousands of dollars in taxes.
As part of the fiscal cliff resolution, Congress extended the Mortgage Forgiveness Debt Relief Act …but only through December 31, 2013.
The extension prevents many homeowners who go through a short sale from being taxed on the amount of their mortgage debt that has been forgiven. Normally, debt that has been forgiven by a lender counts as taxable income.
If a homeowner wants to make sure their debt forgiveness is not counted as taxable income, their short sale must close by December 31, 2013. That means they need to get their house on the market now.
Richard Eastern is a Windermere broker in Bellevue, WA and co-founder of Washington Property Solutions, a short sales negotiating company. Since 2003 he has helped more than 900 homeowners sell their homes. A Bellevue native and a University of Washington grad, Richard is an avid sports fan and a devoted Little League and basketball coach. You can learn more about Richard here or at www.washortsales.com.
