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A foreclosure prevention agency found that the pending expiration of the Mortgage Debt Relief Act of 2007 is prompting struggling homeowners to strategically default on their loan.

YouWalkAway.com conducted a national survey and found 34 percent of respondents indicated that the act, which is set to expire December 31, 2012, contributed to their decision to walk away sooner rather than later from their property. Those surveyed were YouWalkAway.com clients who were actively considering or navigating through the foreclosure process.

The Mortgage Debt Relief Act releases homeowners from the obligation of paying taxes on mortgage debt forgiven from a short sale, foreclosure, or modification. Taxpayers are eligible if the property is the primary residence.

“The survey results are not surprising; YouWalkAway.com saw a number of homeowners reach out to us in early and mid-2011 due to the impending 2012 deadline,” said Jon Maddux, CEO of YouWalkAway.com, in a release. “Many were prompted to begin the foreclosure process in 2011 in order to ensure their foreclosure is complete by the end of 2012.”

While the expiring act motivates homeowners to seek completion of the foreclosure process before the expiration date, for those who won’t qualify in time, Maddux said not extending the act will then cause short sales to stop immediately due to the fear of getting hit with a huge tax bill.

In addition, 78 percent of respondents from the YouWalkAway.com survey expressed intentions of walking away from their home. Of those, at least 74 percent would qualify for relief under the act.

“Potentially millions of people will find themselves stuck with a huge tax bill after foreclosure if the government doesn’t renew the Debt Relief Act at the end of 2012 or if they don’t finalize their foreclosure by that date. The bill may just expire, like when Congress chose not to renew the home buyer’s tax credit,” said Maddux.

Cheryl Gerhardt, a CPA who has worked with YouWalkAway.com clients, said about 80 percent of the people who approach her about foreclosure tax consequences qualify for the relief under the act.

“These are usually people who purchased during the height of the market from 2005 to 2007 and never had the opportunity to take out a second, whereas a few years ago clients who were getting foreclosed upon had made purchases in the early 2000’s, took out a home equity line of credit and could not qualify,” said Gerhardt.

In March, House Bill H.R. 4290, or Homeowner Tax Fairness Act, was introduced to extend the act to 2015. The bill is sponsored by Rep. James McDermott.

The Mortgage Relief Act was actually extended in October 2009, three months before the act’s expiration date.

YouWalkAway.com works with borrowers facing foreclosure as well as those opting to strategically default on their underwater homes. The survey the agency conducted reached out to 2108 borrowers and received responses from over 25 percent of those contacted.

 

Pending Home Sales Index Slips Badly in April

by Mark Lieberman, Five Star Institute Economist

The Pending Home Sales Index (PHSI) gave back its entire March increase in April, falling to 95.5 from 101.1 one month earlier, the National Association of Realtorsreported Wednesday. The March index was revised downward from the originally reported 101.4, adding to the gloomy report.

Economist had expected the index to increase 0.5 percent from March.

Even with the decline though, the index is up 14.4 percent since April 2011, but is now at its lowest level since December, dampening expectations at the onset of the home-buying season.

Pending home sales are counted when sales contracts are signed and are viewed as a leading indicator of existing home sales; recent reports suggest that home re-sales should be a bit stronger over the next couple of months but at a level that is still fairly subdued. April pending sales would be included in the home sales report for June.

The PHSI in February – which translated into reported sales (closings) in April – had been 97.4, up 0.4 percent from 97.0 in January. April existing home sales, as reported, were up 3.4 percent from March.

In percentage terms, the month-month 5.5 percent decline in the index was the steepest since April 2011 when the index dropped 7.7 percent month-month.

The decline was the first in four months and was widespread. The index fell in three of the four census regions, improving only in the Northeast, and there by a modest 0.9 percent. The index plunged 12.0 percent in the West to 94.9, its lowest level since March 2011.

The PHSI has been drifting upward, albeit modestly for most of the past two years. The April drop coming at the beginning of the traditional home buying season is a disappointing signal tempered further by the reality that a substantial number of sales contracts are failing to meet underwriting tests and/or other loan standards.

Lawrence Yun, NAR chief economist offered a positive spin on the disappointing report saying a one-month setback in light of many months of gains does not change the fundamentally improving housing market conditions.

“Home contract activity has been above year-ago levels now for 12 consecutive months. The housing recovery momentum continues,” he said.

The index is based on a large national sample, representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.

 

 

For pre-foreclosure homes, which are residential properties in default or scheduled for auction, sales were at their highest quarterly level since the first quarter of 2009, according to RealtyTrac’s foreclosure sales report.

Pre-foreclosure sales, which are typically sold through the short sale process, accounted for 12 percent of all sales during the first quarter, an increase from 10 percent in the previous quarter and 9 percent a year ago.

Also, third party purchases for pre-foreclosures increased to 109,521, a 16 percent rise from the previous quarter and a 25 percent jump from a year ago.

On the other hand, third parties purchased less bank-owned homes compared to a year ago. With the number at 123,778 for REO homes purchased in the first quarter, the total is a 2 percent quarterly increase but a 15 percent decrease from a year ago.

REO sales accounted for 14 percent of all sales in the first quarter.

Pre-foreclosure homes sold for an average price of $175,461 in the first quarter, a 10 percent decrease from a year ago. The average pre-foreclosure sales price was the lowest in the history of RealtyTrac’s foreclosure sales report, which began in the first quarter of 2005.

REOs sold for an average price of $147,995 in the first quarter, down by only 2 percent from a year ago.

Pre-foreclosures sold at an average discount of 21 percent compared to non-foreclosures while REOs were discounted at about 33 percent.

Pre-foreclosure homes in the first quarter took about 306 days to sell after starting the foreclosure process, up from an average of 256 days a year ago. REOs that sold in the first quarter took about 178 days to sell after completing the foreclosure process.

In 27 states, pre-foreclosure sales increased including Wisconsin (94 percent), Michigan (81 percent), Georgia (80 percent), Texas (46 percent), and Illinois (46 percent).

For REO sales, 21 states saw quarterly increases including Oregon (41 percent), North Carolina (23 percent), Ohio (21 percent), Florida (13 percent) and Wisconsin (13 percent).

The states that had the highest share of foreclosure sales out of all residential sales were Nevada (56 percent), California (47 percent) and Arizona (40 percent).

Among the 20 largest metro areas, the biggest annual increases in pre-foreclosure sales were in Atlanta (78 percent), Detroit (75 percent), San Antonio (74 percent), Sacramento (70 percent), and Dallas (69 percent).

Metro areas that experienced the largest gains annually inREO sales were Minneapolis (33 percent), Boston (30 percent), Philadelphia (22 percent), Atlanta (15 percent), and Chicago (13 percent).

States with the Highest Ave. Foreclosure Discount

1. Massachusetts (45 percent)
2. Kentucky (41 percent)
3. Pennsylvania (40 percent)
4. Connecticut (39 percent)
5. Rhode Island (38 percent)

States with the Highest Ave. REO Discount

1. Massachusetts (51 percent)
2. Connecticut (50 percent)
3. New York (47 percent)
4. Kentucky (47 percent)
5. Pennsylvania (45 percent)

States with the Highest Ave. Pre-Foreclosure Discount

1. Massachusetts (38 percent)
2. Nebraska (37 percent)
3. Rhode Island (33 percent)
4. California (31 percent)
5. Louisiana (31 percent)

 

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