REO or Short Sale what will dominate?
Opinions abound about the direction of real estate recovery and/or second round of collapse. The fact is that they are opinions. The media likes to fuel one opinion or another from day to day and sometimes within the same day; you will see or hear the media advocating both contradicting directions and they don't lack the material to support either direction. The media roll is to add confusion and instability to a very confused consumer and to a very unstable economy. The media brings to the mind the lyrics of the song “Hot N Cold”:
You're hot then you're cold
You're yes then you're no
You're in and you're out
You're up and you're down
The fact is that the dynamics of the economy in general and the real estate in particular is very complex. We still remember the analysis from the experts and world renowned economists stating in 2006 and 2007 that this down turn of the real estate market is temporarily and it will not last more than six month and the outset there were forecasting a full recovery and stabilization in 2008. Yes , many economists and even average consumers in 2005 saw the down market is coming, but no one did and no one still know how long it will last. The consumers are wounded, the investors are wounded, the banks are wounded, the government and the national budget are wounded. Sometimes you need a miraculous medicine to mend these wounds. Worst yet, you have to mend the wounds of all parties at once to call a recovery is insight; otherwise, the economy will keep limping and we can fall again. So, is 2012 a year of recovery or catastrophe? it is a matter of opinion and your chances of being correct is the same as your misfortune of being wrong. All that being said, we can play an intelligent "what if?" game where the current conditions might lead to an educated guess of a logical outcome.
The major condition in the "what if" game is the expiration of "The Mortgage Forgiveness Debt Relief Act and Debt Cancellation" in December 2012. This act was and is a major catalyst (in my opinion) for short sale activities and the major factor in avoiding a very serious collapse in the economy and society. I believe that the congress in 2007 acted in a very wise manner when they voted on this Act. Yes, we dodge the bullet of depression, because of this Act. Yes, we have a big mess now, but think about it, what kind of mess we will have without this Act.
Facts:
- The Mortgage Debt Relief Act of 2007 expires in December 2012.
- Executing a short sale, the Banks make on average about 25% more than from foreclosure.
- It takes the average consumer 2 to 3 years to recover from short sale and become a viable participant in the market.
- For money to grow and taxes to be paid, the Money Must Move, and lenders have to lend, circulation is the name of the game.
- If the consumer will be liable for tens or hundreds of thousands of dollars in taxes after the execution of short sale or foreclosure, then all bets are off.
- Banks and Investors should process and approve short sale with a lightning speed.
- Consumers should be made aware of the consequences of their procrastination from immediate participating in the process.
- Congress should not extend "The Mortgage Debt Relief Act of 2007" for ratified contracts after December 2012.
FYI:
"The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief." For more information on the Act visit
http://www.irs.gov/individuals/article/0,,id=179414,00.html
