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We Aren't Out of the Woods Yet

By J. Philip Faranda

Managing Real Estate Broker with Howard Hanna Rand Realty License # 49FA1074963

May 05, 2009 01:02 AM

As more inventory enters the spring market, over half of my new listings are upside down. I list and sell many short sales in Westchester County and beyond, so they tend to find me, but that still speaks to the fact that there are still billions in toxic assets & lots of people underwater out there.

In some cases, the properties are tenant occupied. They unwittingly participate in the problem, for which they have my sympathy. However, sometimes they are also like the UAW in the respect that they negotiated the landlord out of business. For instance, in one single family home, the tenants renegotiated their lease to

lower the rent 25%
have the landlord pay for heat/electricity

Can you imagine renting a single family home and getting free heat and electricity? Naturally, the bills are higher the incentive to conserve is lower, and, faced with an $800 per month shortfall, the landlord had to choose between the mortgage and keeping the lights on. Now, unless they can buy the house as a short sale, these tenants will have to move for the 2nd time in less than a year. I don't blame the tenants, and the landlord is also a neophyte. But real estate mistakes are very, very expensive.

Another challenge is that the 2007 Mortgage Debt Relief Act (HR 3648), which exempts sellers from being taxed on forgiven debt in short sales, does not apply to non-owner occupied houses. Is a large tax bill preferable to a foreclosure deficiency judgment? Of course it is. But it doesn't make the process easier, and the possibility of having an obligation post closing, whether to the IRS or the lender, looms larger in these cases.

In all cases, the people have either had their job situation adjust or their mortgage rate adjust. The ripple effect of the financial crisis is still with us, and it will be years before we can safely say that the worst is behind us. The downward trend may be slowing, but rising values are still years away in my view.

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J. Philip Faranda is New York's Premier Short Sale REALTOR. Read Phil's short sale blog here at http://NYShortSaleBlog.net.	J. Philip Serves Briarcliff Manor, Ossining, the River towns , Westchester County & the bedroom counties of New York City.

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Mark Watterson

Salt Lake City, UT

Utah Real Estate

I agree... we are not out of the woods, yet. The healing process will be long with more pain to come. The root cause is still going unrecognized and I don't see any real solutions are not on the radar.

May 05, 2009 01:09 AM

Karen Fiddler, Broker/Owner

Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA

Orange County & Lake Arrowhead, CA (949)510-2395

I think this is going to sort out in waves. Right now buyers are worried they may have waited too long....so it's a frantic offer-writing going on...but I thing that's going to slow down as some burn out and then we might hit another stop and start...some cycles of activity and then slow down.

May 05, 2009 01:48 AM

Mark MacKenzie

Phoenix, AZ

I could not have said it better myself, "The ripple effect of the financial crisis is still with us, and it will be years before we can safely say that the worst is behind us. The downward trend may be slowing, but rising values are still years away in my view."

The face of the real estate market is going to look a lot different for the next several years.

May 05, 2009 10:18 AM

We Aren't Out of the Woods Yet

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