If you have a client who is considering a short sale, there are a number compelling reasons to make the move now.
1) Tax advantages for doing a short sale are set to expire.
When a lender forgives a homeowner’s debt, the tax laws had previously considered the forgiven debt as taxable income. This law applies equally to short sales and foreclosures.
The Mortgage Forgiveness Debt Relief Act enacted in 2007 allows debt forgiveness of up to $2 million to NOT be considered taxable income if:
- The house has been used as the principal place of residence for at least two of the previous five years.
- The debt has been used to buy, build, or make substantial improvements to the home.
That law is set to expire at the end of 2012.
While Congress has begun discussions on extending the act, the outcome is uncertain. If a seller wants to make sure their deficiency is not counted as taxable income, their short sale must close by December 31, 2012. That means they need to get their house on the market now.
2) Lenders are offering significant incentives for sellers to do a short sale instead of foreclosure.
Banks have recognized how expensive the foreclosure process is for them. They also do not want to add to their already bulging inventory of bank-owned homes, which are expensive to insure and maintain. As a result Chase and Bank of America are paying significant cash incentives to encourage sellers to do a short sale and avoid foreclosure.
Recent examples include a client who sold a $200,000 home and received a cash incentive of $20,000 at closing, and the owner of a $350,000 home who received $30,000. If you have a client who is – or should be – considering a short sale, this may be the incentive they need to move forward.
3) It’s a seller’s market.
Inventory levels in the Puget Sound area are the lowest they have been since 2006. Low interest rates and affordable home prices have drawn additional buyers into the market. As a result, more buyers are competing for a shrinking pool of properties. That growing competition for homes has resulted in multiple offers and escalation clauses on many of our short sale listings. It’s an ideal time to sell a home.
If you are working with a buyer or seller on a short sale and have any additional questions, I’d be happy to provide you with advice free of charge. My name is Richard Eastern, and I’m a Windermere real estate broker and a partner in Washington Property Solutions, a short sale solution provider. Our goal is to help brokers like you provide the best possible service to their clients in the short sale process. We pay a 30% referral fee. If I can be of any help, please give me a call at (206) 612-5541.