Baseball season may have come to end, but not so with the Real Estate Market.  The bases are loaded; it is the bottom of the third, and the seller is taking a swing at a sacrifice short sale.  Desperate times, calling for desperate measures. In Osceola County currently  over 2200 properties are in some form of foreclosure and others vacant and languishing on the market relocated sellers are looking at the short sale process.  While much has been written the other teams (IRS) turn at bat  comes in April.       

DEBT FORGIVENESS

Under certain circumstances, the bank may take less than a person owes to the lender,  this process is commonly referred to as a Short Sale.  The lender must agree to take less than the mortgage amount on the property. This is done on an individual basis.  Health crisis, loss of job, or ability to repay the loan are considered and a decision by the lenders loss mitigation department is made.

If a lender determines that the ability to make the current payments exists, for example you have relocated and are making the same money, it is less likely a short sale will be agreed upon when compared to someone who has suffered a catastrophic illness. 

Decisions can be a lengthly process.  It can take weeks or even months to get an answer.

If the property is sold, that is not the end of the story.  While the homeowner may feel a sigh of relief, better be prepared to gasp at tax time.  The difference in the loan amount and price it sold for can be considered ordinary income and is taxable under current IRS guidelines. 

If a seller receives $50,000 in debt relief from the bank, they will need to file a separate attachment on their tax returns.  The difference from the mortgage balance (Say $280,000) and the short sale price of say $230.000 will produce a $50,000 tax liability for the seller at tax time. Most sellers re unaware of the tax consequences when considering a short sale on their home.

NO MAGIC BULLET

At present there is no magic bullet for the Real Estate Market Mess, however, there is a light at the end of the tunnel.  Even in 1929 during the Great Depression, Housing Values did appreciate ever so slowly. The current hot market is in homes under 250,000.   The push for affordable housing in Osceola County, St. Cloud Florida has seen a resurgence of modest priced, freshly restored investment properties hitting the market.  Prices have actually digressed to pre-boom market prices and first time home buyers are testing the market.  Seasonal residents who have held long term investments will achieve reasonable appreciation in this market even with the umbrella of bad news the media has reported.  Property purchased over five years ago will net a gain.

Left Without a Lifeboat are the buyers who purchased high, with adjustable rate loans and little to no recourse. To reduce their personal tax liability, many have turned to bankruptcy protection. A large scale case in point is Levitt & Sons developers of Turtle Creek in St, Cloud.  Unable to meet the 3 Million Interest Payment to Wachovia and several other lenders, Levitt & Sons sought protection by filing Chapter 11 in November. The glut of new homes in the Market have produced lackluster sales and slow performance. Few builders exercised options on land acquisitions. The failure of developments to launch in St. Cloud, Harmony, Kissimmee and other areas and recoup capital outlay expenses strangled cash flow for some to a suffocating point.

THE LIGHT AT THE END OF THE TUNNEL

It is not all doom and gloom.  The market turn around will not happen in the snap of a finger. Several indicators however suggest that the slow turn around will begin next year. The Fed is considering a  rate reduction, this will trickle down to the mortgage market.  There is wide speculation of a bail out for lenders who made Billions of dollars in bad loans and are unable recover substantial record setting losses.  While these foreclosed homes are currently appearing as "assets" based on their Market Value on many balance sheets, the soaring default rate will eventually result in sacrifice sales, which will in turn produce "losses" to the dismay of the stockholders. The benefit to those with good credit is that excellent prices will make a come back.

WHAT IS OLD IS NEW

There has not been a time in recent history, which compares to the epic lethargy the Real Estate Market is experiencing.  Perhaps the shot in the arm will come when VA Loans are made  for returning Veterans many of whom are starting families between tours of duty and will need larger homes when they are released from service.  Much like we saw in WWII. They may not only preserving our freedom, they may be the key to turning around our economy as well.

Sixty years ago returning Veterans used their VA loans to finance housing in St. Cloud Florida and elsewhere in the country. While we may have put the cart before the horse by overbuilding St. Cloud, Florida this time, the drop in prices may open doors for families when the war eventually ends.  In the meantime, the return to prices that are affordable, will help many newcomers to the Real Estate Market get into their first home. The thing to keep in mind is housing should not be disposable. Holding long term is the key to realizing gains.