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• When the borrower receives a bankruptcy discharge and the deficiency was included in the bankruptcy
• When the borrower is insolvent at the time of the cancellation of the debt. Insolvency would occur when a borrower’s liabilities exceed assets. Note that seller would have to prove this insolvency to the IRS when filing a tax return.
• When the debt was secured by a nonrecourse loan. Under a nonrecourse loan, the lender does not have the legal right to collect a deficiency judgment from any assets of the debtor not pledged to secure the loan. While most home mortgages are do not fall into this category, purchase money loans on a person’s residence are nonrecourse in some states.
• When the tax liability from the cancellation of debt on an investment property can be offset against other business liabilities and expenses. This exception does not apply to properties occupied as a residence by the mortgagor.

Sellers beware of real estate sales people that over value your property and discount their commissions in an attempt to acquire your listing!!! Let's go back to the old adages, "If it seems to good to be true, then it probably is!" and "you get what you pay for". Let me explain: As everyone knows we are in a buyers market and sellers must be highly competitive to accomplish their goal. This certainly is not the market to test the waters nor is it the market for the "We don't have to sell, We just want to sell" Sellers. With listings in Palm Beach County at an all time high of over 15,000 to include many bank owned foreclosures, preforeclosures, and short sales (see what is a short sale blog), prices are being driven downward each and every month. Unfortunately, this is affecting everyone in every price range. This is the simple law of economics, Supply and Demand. Simply put, the number of properties far exceeds the number of buyers. So if you are a serious seller and must sell your property you must compete for the buyer.

A property owner hires a real estate professional to give guidance, to consult, and ultimately perform their skill successfully. However, there is good and bad of everything. Some salespeople will tell a seller whatever they want to hear to acquire their listing instead of being honest and informing the seller of the truth in fear of not getting the listing. Dishonesty will only cause harm in the end. To the saleperson and to the seller.

Real estate commissions: Traditionally half of the total commissions paid to the broker are to compensate the Realtor that brings the buyer. (Can't discount there, with most listings offering 3-3.5%, why would an agent show a property that is offering 2-2.5% when don't have to? Why would they? If they know that they are going to do the same amount of work and they would be compensated less! Apply that concept to your own job. If one day the boss said we are going to pay you less this week to do the same amount of work as you did last week. You may just start looking for a new job) The other half is paid to the listing broker and is divided as follows; marketing costs (definitely can't discount there. Who would see your property if it is not visible to the public? What if there was a 5 bedroom, 3 bath house, on a lake, with all the upgrades one desires priced at $100,000, but no one knew about it?), brokerage fee (can't discount there. A highly recognized national brokerage with national relocation network and knowledgeable, well educated staff is crucial), Real estate agent's profit (no one will will work for free. Would you want a discount surgeon? No, you want a skilled professional that has an excellent track record and settles for nothing less than exemplary service!)

First and foremost, your property must be properly marketed by a competent Realtor/Broker. (see 10 questions to ask on our homepage) This will include professional quality photos, an abundance of internet exposure~as over 75% of buyers begin their search on the internet~, and a network of past clients and business affiliates that your professional has on their team.

Next, the issue of over pricing a property. Pure and simple, if the property is overpriced less buyers will view it. Which in turn decreases your chances of the "perfect" buyer walking through the door. If the property is drastically overpriced, do not expect too much to happen. You will be very lucky to get anyone to view your property. On the bright side for motivated sellers, all those unrealistic prices are helping to move their properties that are priced properly and competitively.

The bottom line is if you are a seller and you are not competitive, your property does not stand above and shine in the sea of properties for sale in Palm Beach County, then you might just accept the fact you are going to stay. If you do need to sell, it is in your best interest to do so now rather than later to capture the maximum net proceeds. There is currently about a five year inventory that is growing each and every day. More houses, more competition and lower prices. Massive amounts of inventory must be absorbed before prices will increase. It is going to be awhile until the next sellers market.

Kristen Kearney

Thursday, October 11, 2007 -

WASHINGTON, D.C.- Conditions in the mortgage market are improving for consumers, which should help to release some pent-up demand in early 2008, according to the latest forecast by the National Association of Realtors^®.

Lawrence Yun, NAR senior economist, notes that widening credit availability will help turn around home sales. “Conforming loans are abundantly available at historically favorable mortgage rates. Pricing has steadily improved on jumbo mortgages since the August credit crunch, and FHA loans are replacing subprime mortgages,” he said.

Yun said it’s important to place the current housing market in perspective, and that 2007 will be the fifth highest year on record for existing-home sales. “Although sales are off from an unsustainable peak in 2005, there is a historically high level of home sales taking place this year – a lot of people are, in fact, buying homes,” he said. “One out of 16 American households is buying a home this year. The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains.”

He emphasized all real estate is local with naturally large variations within a given area. “Markets like Austin, Salt Lake City and Raleigh have been outperforming recently and will continue to do well next year,” Yun said. “Other areas like Denver and Wichita will likely move up in the price growth rankings due to very positive local economic developments.”

Existing-home sales are expected to total 5.78 million in 2007 and then rise to 6.12 million next year, in contrast with 6.48 million in 2006. New-home sales are forecast at 804,000 this year and 752,000 in 2008, down from 1.05 million in 2006; a recovery for new homes will be delayed until next spring.

“A cutback in housing construction is a positive sign for the market because it will help lower inventory and firm up home prices,” Yun said. Housing starts, including multifamily units, are likely to total 1.37 million in 2007 and 1.24 million next year, down from 1.80 million in 2006.

NAR President Pat V. Combs, from Grand Rapids, Mich., and vice president of Coldwell Banker-AJS-Schmidt, said, “Housing is still a good long-term investment, and we’ll be seeing a broad, modest improvement in home prices in 2008. With widely varying conditions, the best advice for consumers is to consult a Realtor in their area to learn about local market conditions because supply and demand can change from one neighborhood to the next.”

Existing-home prices will probably slip 1.3 percent to a median of $219,000 in 2007 before rising 1.3 percent next year to $221,800. The median new-home price should drop 2.1 percent to $241,400 this year, and then increase 1.0 percent in 2008 to $243,900.

The 30-year fixed-rate mortgage is expected to average 6.4 percent for the next two quarters and then edge up to the 6.6 percent range in the second half 2008. Additional cuts expected in the Fed funds rate will help to keep mortgage interest rates historically favorable.

Growth in the U.S. gross domestic product (GDP) is estimated at 2.0 percent this year, below the 2.9 percent growth rate in 2006; GDP is likely to grow 2.7 percent next year.

The unemployment rate is forecast to average 4.6 percent this year, unchanged from 2006. Inflation, as measured by the Consumer Price Index, is expected to be 2.8 percent in 2007, compared with 3.2 percent last year. Inflation-adjusted disposable personal income will probably increase 3.6 percent in 2007, up from 3.1 percent last year.

If you can no longer make your mortgage payments and your home is now worth less than you owe on it, foreclosure may not be your only option.

While there are some significant negative consequences to a short sale, an ever-increasing number of properties are being advertised with that label, says Natalie Lohrenz, director of counseling for Consumer Credit Counseling Service of Orange County in Santa Ana, Calif.

"A lot of people in the last couple of years have just stretched themselves to the limit and you have people with mortgage payments where even when they got the mortgage, the payment was half their income or more," says Lohrenz. "Now that rates are adjusting, it's two-thirds or three-quarters of their income and it's just not possible."

While it may seem surprising that lenders would agree to accept less than what they are owed, they benefit from the process, as well.

"The lender benefits by not having to go through the protracted process of foreclosing on the borrower and then having to put the property on the market and go through the whole marketing process," says Stuart Wilson, a real estate agent with Paragon Real Estate Group in San Francisco.

A market saturated with foreclosures can cost lenders billions -- as much as $50,000 per foreclosure -- according to a study released earlier this year by the Joint Economic Committee.

A buyer's dream
For a buyer, a short sale is a boon since he or she is getting a property at a reduced price. However, the process of waiting for a lender to decide whether to agree to a short sale could make a lengthy home buying process even longer and more arduous.

Wilson, who has represented both buyers and sellers in short-sale deals, advises working with an agent who's familiar with short sales. He also suggests that buyers looking to negotiate a short-sale deal come armed with enough documentation to convince the lender that settling for the lower price is their best option.

"You'd better be armed with recent comparables that show unequivocally that the lender's price is out of line," says Wilson. "You can't do this with a cover letter or a conversation. It will need to be done with the kind of documentation that an appraiser would come up with.

"When you go into a short sale, you have an institutional lender and it is an anonymous entity," Wilson continues. "You don't get a chance to talk to these people, you don't know what their guidelines are, you don't know what their time frames are and you don't know if your contract will be approved in six weeks or six months. It's a real crapshoot."

Lenders are most concerned with the financial situations of the seller when they ultimately make their decisions. If a seller can handle the mortgage payment, there's no motivation for the lender to let the seller out of the mortgage at a lower price.

"A lot of lenders aren't even going to consider a short sale unless it seems like (the homeowner) is in financial distress," says Lohrenz.

Also, if the home has a second mortgage with another institution, a short sale is less likely to be approved since that second institution would have to agree to forfeit all or part of the money it's owed.

Last gasp only
While getting a lender to agree to a short sale may seem like an answer to the prayers of homeowners who want to unload a house, it's not a good move if you're merely looking to find a new place. It's generally a last-ditch effort when the only other option is foreclosure.

Should you go for a short sale? It depends on how deep a financial hole you're in and how likely it is you'll be able to overcome those financial difficulties.

"If they're just having a short-term problem -- short-term disability or maternity leave or layoffs, but they have good prospects to find something soon and they can weather the storm and hold onto the profit through that -- obviously they wouldn't want to think about a short sale," says Lohrenz.

"But if the choice is foreclosure or short sale, generally a short sale is going to be a better idea."

Before you think about asking your lender to consider a short sale, it would be a good idea to get your paperwork lined up.

Be ready to document your need and to show the lender you are serious about your situation, including a hardship letter (an honest explanation of your financial situation and how it occurred), pay stubs, bank statements, tax returns, an appraisal and documentation of your debts.

3 critical safeguards
If you're considering a short sale, experts advise you to take the following steps to meet potential negative consequences head-on.

"If they owe $300,000 on the house and the short sale is for $280,000, is there any possible way that the lender's going to come after them for the $20,000?" Lohrenz says. "Most lenders will put that in the agreement that they're not going to come after the deficiency."

Protect your credit rating. Ask the lender how it will report the short sale on your credit report.

"Most of the time, a short sale shows simply that a debt is satisfied," says Lohrenz. "But theoretically, a short sale could reflect on the credit report as 'settled for less than the full balance.'" Such a designation is a negative mark on your credit report, though it wouldn't hurt your credit as much as a foreclosure would.

Get professional tax advice. Short sales often have tax repercussions since lenders can claim the forgiven debt as income that they provided you.

That means if you agreed to a short sale for $50,000 less than what you owed the lender, the lender could issue you a 1099 for $50,000, which you would have to pay taxes on.

But there are two "outs," says Lohrenz. "If you meet the IRS's definition of insolvency at the time the debt was forgiven, then you generally don't have to pay taxes on it."

Or, if your home loan is a non-recourse loan, you're also likely to escape this tax. With a recourse loan, whoever signed the note is personally liable for the debt, and in a short sale, the debtor would have to pay tax on the difference. A nonrecourse debt is one secured by the loan collateral -- such as the house itself -- and the debtor would not have to pay tax on the sale shortfall.

The most common case is that mortgages secured by the property -- especially for buyers who made a 20 percent or more down payment -- is a nonrecourse loan. But it is absolutely critical you consult a tax attorney before you make such a move to ensure that you don't dig a deeper financial hole as a result of the tax situation.

By Tamara E. Holmes • Bankrate.com