Stop Adding Tax Penalty to Mortgage Foreclosure

If there's one thing government does well, it is tax its residents. No stone is left unturned and no situation is off limits, even when it comes to the loss of a home.
Going through foreclosure is stressful enough on its own. But the federal government has figured out a way to make it worse. How so? If your home is sold or refinanced by the bank or mortgage company for less than the amount a homeowner owed at the time of foreclosure, the difference is considered income and subject to taxation.
It's a little-known component of the Internal Revenue Service tax code that's become a serious issue because of the rash of mortgage foreclosures.

State Foreclosures for August up 126%

The number of Michigan homes taken by foreclosure was up 126.86 percent in August over the same month last year.
In total, 15,565 foreclosure filings were made in the state last month. The state's foreclosure rate of one for every 288 households ranks sixth in the nation, according to data being released today by RealtyTrac, an Irvine, Calif., firm that tracks such transactions across the country.
Michigan placed behind Nevada, California, Florida, Georgia and Ohio. The bulk of the state's filings were in Metro Detroit counties.

House Prices Tumble 18%

A glut of homes on the market combined with a sharp rise in foreclosure sales have driven Metro Detroit home prices down 17.7 percent since their peak three years ago, according to new data.
The region's median home price -- half the homes sold for less, and half sold for more -- fell from $188,275 in August 2004 to $154,919 in August 2007, according to data from Realcomp Inc., Metro Detroit's largest multiple listing service.
In Wayne County, the drop has been a staggering 35.6 percent. Experts say that until the supply of homes for sale is significantly reduced, prices will continue to drop.

Michigan Homes Priced Low

Michigan, with its economy battered by the downturn in the auto industry, has led the way in the decline of home prices. The housing slowdown that started here in 2005 hit the rest of the nation this year, and now median prices are falling in markets across the country. The latest Standard & Poor's/Case-Schilling housing price report showed the national median home price in the second quarter of this year was down more than 3 percent from the same period in 2006.
A rash of foreclosure sales in Metro Detroit in the past year has skewed the sales prices downward, explained Francine Green, director of marketing for Realcomp. Foreclosed homes usually sell for much less than their typical market value, she noted.

Prices Will Continue To Drop

Bargains for buyers will be prevalent through at least the end of the year, according to the National Association of Realtors, which estimates that average home prices nationwide will drop another 1.7 percent by January.
Grimes said the Metro Detroit housing market likely will have its low point sometime in the next two or three years. In the meantime, he suggests homeowners put the current situation in perspective.
"We've seen sharper (home price) declines in other parts of the country -- California, Florida, D.C.," he said. "And the fact is that nobody's fallen back to (1990s) levels. That would have really hurt."

Lenders Corner

Contacts:

Eric McLear
http://countrywide.dorado.com/ericmclear

(586) 979-6279 ext. 221

Hank and Janine's Foreclosures of the Month

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A Buyer's Market

While home sellers suffer, times couldn't be better for home buyers, who have their pick of hundreds of houses at bargain prices, in virtually every community in Metro Detroit.
"There are factors coming together that are really good for people looking for an opportunity," Grimes said. "If the house prices come down enough, people who are forced to be renters now can actually afford to buy them. "
Jesse Yates has joined the hunt. The 28-year-old marketing consultant from Rochester Hills is looking for a condominium in Detroit -- one that's closer to his office and nightlife spots. A self-described bargain shopper, Yates said he's looking at used condos rather than new, because he feels he'll have a better chance of negotiating a good deal.
"I'm on the right side of the bargaining table," Yates said. "People are practically begging you to buy their place. I'm feeling pretty good that whatever I end up buying will be a good deal."

Nation's Foreclosure Problem Serious

Just how bad is the foreclosure situation? If you caught summaries of the latest delinquency and foreclosure numbers released by the Mortgage Bankers Association of America, you could only conclude: Yikes, it is getting scary out there:
The rate of American home loans entering the foreclosure process last quarter was the highest it's been in the history of the survey, which dates back to 1953.
In some states, the mortgage crisis is particularly severe. In Ohio, 5.2% of all home loans are now either three months past due or somewhere in the process of foreclosure. Michigan and Indiana are not far behind. In Michigan alone, one of every 100 houses saw foreclosure actions initiated in the 3-month period covered by the survey.
News like that is obviously tragic for the families involved, and demonstrates that the combination of job layoffs and exotic loans extended to financially strapped homebuyers can be highly toxic.
But from a national perspective, how bad is the situation? The answer is: not as bad as it may sound. Drill down into the latest delinquency and foreclosure numbers and you'll find that for the overwhelming majority of homeowners across the country, delinquency and foreclosure are not issues -- at least not yet.

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