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2013 In Review

Back at the end of 2012, we were wondering if the market was going to be able to sustain the recent gains, or was it a “head-fake”? Many people were predicting that the “shadow inventory” was finally going to burst through in 2013 as banks finally released all the homes they were supposedly hanging onto. There were also predictions of a rise in short sales as people finally gave up hope that their bank would ever approve a “good” loan modification. We started the year with only 42 homes on the market in Brentwood. The surrounding towns also had very low numbers of homes for sale.
Inventory did rise in 2013, peaking at just over 140 homes in Brentwood in the first part of October, but then began to steadily fall again. We ended 2013 at less than 100 homes on the market. So the flood of bank-owned homes never materialized. In fact, bank-owned homes and short sales almost disappeared in 2013. This happened quite rapidly and we got back to regular sellers who had (some) equity. I attribute this shift from distressed sales to regular sales to two main factors. First, I heard of many people finally getting good loan modifications, even after multiple failed attempts, and some even with principal reductions. So they were able to stay in their home with an affordable payment.
The second reason is the rise in prices, which probably had more to do with this shift than anything. 2013 was one of, if not the BIGGEST gain in equity over any 12-month period. Prices went up anywhere from 20-30% depending on the area and how you figure it. This took a LOT of homeowners out of being upside-down and into having some equity.
So 2013 was great if you already owned a home, but distressing if you were looking to buy a home. So where will we go in 2014? And are we entering another bubble? You’ll have to wait for my next article for those answers.
If you have questions on this review or any other real estate topic, call me at (925) 240-MOVE (6683). #1 in Brentwood listings sold since 2000. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

Do I Still Have My Contingencies?

Nearly every real estate contract with have contingencies either baked into the fine print, or added by hand by one of the parties to the contract. The normal contingencies would be inspection of the property, review of the seller’s disclosures, ability of buyer to get financing, appraisal at the purchase price, etc. Each contingency will have it’s own deadline. The latest version of our standard contract defaults to 17 days for most of these contingencies. Our contract also defaults to the “active” method of contingency removal, which means that until the party with the contingency removes it in writing, they keep that contingency, even if the deadline for removal has passed. The other option would be “passive” removal of contingencies, whereby when the deadline comes and goes, the part with the contingency has effectively removed that contingency if they didn’t cancel the contract before that date.
In addition, upon close of escrow, ALL contingencies are removed, whether done in writing on the correct form or not. What’s funny is that I run across some agents from time to time that don’t seem to understand this last part. So let’s say we are a week out from closing escrow, and I’m riding the other agent to get their client to remove all their contingencies. But there is something new that they want the seller to do that wasn’t negotiated prior, like having the house professionally cleaned, or a new repair item that popped up at the last second. I’ve had agents tell me they just aren’t going to have their client remove the contingencies until the seller complies with this request, and that they’ll hold their contingencies even AFTER close of escrow! As if this is some wonderful “GOTCHA!” where they would have the power the week after close of escrow to rescind the whole transaction because they held their contingencies. That’s actually not the case. Once the escrow closes, the buyer has effectively removed their contingencies. This does NOT mean that the buyer has no recourse if the seller misrepresented a material fact, but I don’t think the buyer removing or not removing their contingencies prior to closing would have any impact.
I AM NOT AN ATTORNEY. SEEK LEGAL COUNSEL. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). #1 in Brentwood listings sold since 2000. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

Huge News About Forgiven Debt Tax!

For the past few years, one of the more complicated and distressing questions my clients had to deal with was whether or not they’d have to pay tax on the forgiven debt in a short sale. Congress passed a law to try to deal with this, which the California legislature tried to mirror. Then the laws expired, but only the federal law was extended, but the state law wasn’t, etc. and it was just a big mess. Some legal and tax experts have told me over the past few year that they thought that after California passed another law saying that in most cases a lender couldn’t pursue the borrower after a short sale, that made the tax issue moot, since there is no forgiven debt tax due on non-recourse loans. Well, see below to read a news release that seems to clear all this up! Keep in mind that this is specific to short sales, so you may still owe the forgiven debt tax on loan mods with principal reduction and/or a foreclosure, so a short sale may be preferred in those cases.
“The CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.) announced today it received a letter from the California Franchise Tax Board (FTB), obtained by Board of Equalization (BOE) member George Runner, clarifying that California families who have lost their home in a short sale are not subject to state income tax liability on debt forgiveness “phantom income” they never received in a short sale.
Last month, in a letter to California Sen. Barbara Boxer, the Internal Revenue Service (IRS) recognized that the debt written off in a short sale does not constitute recourse debt under California law, and thus does not create so-called “cancellation of debt” income to the underwater home seller for federal income tax purposes. Following the IRS’s clarification, C.A.R. sought a similar ruling by the California FTB. Now with the FTB’s clarification, underwater home sellers also are assured that they are not subject to state income tax liability, rescuing tens of thousands of distressed home sellers from California tax liability for debt written off by lenders in short sales.”
I AM NOT A TAX EXPERT. PLEASE CONSULT ONE IN REGARDS TO YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). #1 in Brentwood listings sold since 2000. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

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