TUPPER'S TEAM, EVERGREEN AND CONIFER COLORADO REAL ESTATE SPECIALISTS!

Did you know that if your property is foreclosed on or sold for less than the amount of your loan (called a ’short sale’), you may be taxed by the IRS for any shortage on an incomplete loan payoff?   Unfortunately, many people who got 100% mortgages or people who live in areas where the value of their properties has fallen may find themselves in the situation where they can’t sell for enough to pay their loan off in full.  If they go through either a short sale (where their lender agrees to accept less than the full amount owed) or foreclosure (where their lender suffers a loss if the property is eventually sold for less than the amount of the loan), the difference between the loan balance and what the lender receives is considered taxable income to the owner.

 Now, the IRS may be changing course.  Under the US Taxpayer Relief Act of 1997, some or all of the ‘gain’ from the foreclosure sale of a personal residence qualifies for exclusion from income.   Debt discharged through bankruptcy are not taxable, and many homeowners facing a short sale are considering bankruptcy to avoid being taxed on the cancelled debt. 

It behooves anyone facing these complex issues to seek professional tax help to determine how these or new tax rules may apply.

Identity theft occurs when someone uses your personal information without your permission to commit fraud or other crimes.   While it’s not 100% preventable, there are things you can do to keep the odds in your favor.

Recognizing ID theft.
1. Bills arrive for a credit card that you never opened.
2. Your credit card bills include charges you didn’t make.
3. Your bank statement contains unfamiliar transfers or withdrawals.
4. You ordered new checks, but they haven’t arrived in the mail.
5. Lenders deny your requests for credit despite your good credit standing.

How you can avoid ID theft.
1. Closely review your credit card and bank statements each month for any unauthorized activities.
2. Call your bank or credit card company if a statement is late.
3. Never give out personal information over email, the internet or the telephone unless you initiate the contact.  Never respond to emails or telephone calls where your personal information is requested. 
4. Use intricate passwords for your email and internet accounts.  Avoid obvious passwords like your name spelled backwards or your birthday.  Use lower and upper case letters mixed with numbers and allowed symbols.
5. Shred documents that show your personal information.
6. Don’t leave outgoing mail in your own mailbox; instead, deposit mail directly at the post office.
7. Don’t carry your social security card in your wallet; store it in a safe place.
8. Only give out your social security number when it’s absolutely necessary.  Ask if you can use a different form of indentification instead.

Contacting consumer credit reporting companies.
The three nationwide consumer credit reporting companies are listed below.  Contact them in addition to your bank or credit card company if you’ve been the victim of fraud.
Equifax            1-800-525-6285         www.equifax.com
Experian         1-888-397-3742          www.experian.com
TransUnion    1-800-680-7289         www.transunion.com
 

It’s not the end of the world, but it’s worrisome.  The implosion of the mortgage market will be the way we in the real estate industry remember 2007.    The state of affairs is the product of many hands and the cause is age-old: greed.  In the great housing boom of the early 2000’s, no one wanted to be left out and everyone wanted to make as much money as they could.

 The mortgage industry invented instruments that allowed the purchase of more house than would otherwise be possible; interest-only mortgages, payment-option ARMs and other exotic instruments became commonplace.

 Buyers themselves were often complicit when they overstated income to qualify for ever larger loans.

 And Realtors bear responsibility because they sought out loans with the cheapest monthly payments and accepted whatever the buyers wished to represent as their financial condition.

We now have about $1 trillion worth of loans that will ‘reprice’ this year–the interest rates and therefore the monthly payments will rise.   While the overwhelming majority of homeowners have sufficient credit and equity in their homes to withstand the change, others will be unable to adjust and will be forced into foreclosure. 

For the real estate market, there will be two major consequences.  First will be the glare of adverse publicity.  The absolute numbers of foreclosures will be small–the foreclosure rate should increase from about 1.25% to 2.5%–but the headlines will read “Foreclosure rates double!!”  Second, regulators will come down hard on the lending industry, sharply increasing qualifying standards and eliminating exotic mortgages.  This will make it harder for buyers to qualify for financing.

The economy as a whole will feel the impact because even homeowners who can afford the mortgage rate adjustments will need to reduce comsumption of other goods–fewer dinners out, the car will have to last another year, more DVD rentals and fewer visits to the theater.  Since consumer spending is 2/3 of Gross Domestic Product, this translates to a lower growth rate in an economy that is already underperforming. 

Economists like to say there is no free lunch.  We thought we had it a few years ago: ever-appreciating houses paid for by mortgages that demanded low payments.  We feasted then and we’re paying now.  Hope it’s not at an exorbitant price.

This posting has been paraphrased from an article by John Tuccillo, former chief economist for the National Association of Realtors,  and one of Tupper’s heros.