Home Foreclosure News: Why 2012 Is a Critical Year on a Few Levels If You’re Facing Foreclosure
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Homeowners have some rough decisions to make this year if they’re facing foreclosure, for two reasons.
2 Reasons Homeowners Facing Foreclosure Need to Make Some Tough Decisions This Year
(I) Principal Reductions Likely to Become a Reality for Up to 1 Million Homeowners: The President touched on it in his State of the Union Address the other night. On this blog, we’ve been writing about why principal reductions need to be given by lenders for going on two years now, and – yet again — we wrote about it here recently.
Now that this looks like it’s finally going to become a reality, homeowners are going to have to decide a few things, ie:
Post Continued Below . . .
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(a) Is it enough? Many homeowners are much more underwater than the relief that may be forthcoming in this foreclosure settlement. The proposed package works out to about a $20,000 principal reduction per homeowners. According to the stats we posted in Monday’s post here, this won’t alleviate a lot of the pain homeowners are feeling, ie:
Foreclosure Statistics: How Underwater are U.S. Homeowners?
According to The New York Times article, Political Push Moves a Deal on Mortgages Inches Closer:
About 11 million more own homes that are “underwater,” meaning the amount of money owed now exceeds the value of the home. They owe, on average, $45,000 to $50,000 more than their home is worth, according to Mark Zandi of Moodys Analytics. The deal may help about one million homeowners with an average debt reduction of $20,000.
(b) What to do if their home values continue to decline: While property values are creeping up and/or holding steady in some areas around the country, they continue to decline for a lot of others. Many housing experts are saying that we haven’t hit bottom yet. Proof? According to the USNews.com article, Severe Home Value Declines In Battleground States”
. . . a recent report by the Progressive Policy Institute [cited that] 15 of the 16 [political] battleground states saw an average home value drop of more than 16 percent since October 2008. Three of those states—Florida, Nevada, Arizona—saw drops of more than 30 percent in median home prices.
So, if this proposed foreclosure deal goes through, what happens if property values continue to plunge? Will homeowners regret staying (if they decide to accept the deal)?
(c) Factor in how shadow inventory will affect any decisions they make now: This remains a real threat to not only the housing market recover, but to property values. How? As we wrote in the linked-to article on shadow inventory in a previous post, “This is a simple case of supply and demand. If there is a glut of homes on the market for potential buyers to choose from, it depresses prices overall.”
II. Tax Implications: While a $20,000 principal home loan reduction carat dangled in front of your face may be enough to make you consider staying, if you’re leaning towards walking away from your home – either by doing a deed-in-lieu or a short sale – then you may owe taxes if you don’t do it before the end of the year.
As The New York Times article, Thoughts on Walking Away From Your Home Loan, details:
Often, forgiven debts are taxable as income. Recent legislative changes, however, eliminate the federal tax burden through 2012 on most primary residence debt that a lender has reduced through loan restructuring or forgiven during foreclosure.
We touch on this in the post, Short Sale vs. Foreclosure: What’s the Difference between Them and Which One Hurts My Credit (FICO) Score More?, explaining:
Tax Implications of a Short Sale: You Could Wind Up Owing a Lot of Money in Taxes If You Short Sale Your Home after December 2012
Most times, you as the owner would be responsible for the “short” fall – as in, the government looks at it as “income” and you have to pay taxes on that. Yep, that’s right, you could wind up owing taxes when you do a short sale.
But, current legislation in place protects you from this penalty – if you act by a certain date.
Click thru to learn more.
As you can see, homeowners facing foreclosure have a lot to think about – and many of these decisions are ones that are going to have to be made in the next few months. While stagnation has been the name of the game until now, finally, homeowners trying to prevent foreclosure are being presented with some options. How many of them they decide to act will have far-reaching implications for the housing market overall for years to come.
Related Posts
The Short Sale Process: How to Find a Short Sale Buyer for Your “About to Be Foreclosed On” Home
What Is the Bank Short Sale Process for Sellers?
Short Sale: Definition, Credit Implications, Tax Implications & More
Home Foreclosure News: 9 Million Homeowners Could Go Into Foreclosure Between 2009 & 2012
Stop Foreclosure: How to Ready Your Home for a Fast (Short) Sale
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Copyright © 2012 Yuwanda Black for Foreclosure Business News. Article may not be reprinted or reproduced in any manner without the express, written consent of the author.